Introduction to Agribusiness

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Introduction to Agribusiness

• Chapter 1

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Agribusiness
Agribusiness - encompasses the activities of
supplying goods and services to growers and
ranchers, as producers providing food and fiber
products, and the marketing of these products to
the end customers.
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Finance
Finance the study of the flow of funds in an
economy or firm.
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Agribusiness Producers

• Lifestyle Farmers
• Subsistence Farmers
• Growing Midsize Farmers
• Scaling Back Midsize Farmers
• Industrial Family Farms
• Mega Farms

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Regulations
What is happening to todays producers in terms
or the regulations being placed on them and why?
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Environment
What is happening in the production environment
as well?
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Flows of Funds in the Economy

• Sources of funds
• Households
• Businesses
• Government Surplus

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Flows of Funds in the Economy

• Users of funds
• Government (when running deficits)
• Businesses
• Households

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Flows of Funds in the Economy

• Financial Markets
• Financial Intermediaries those people or
  businesses who accept savers deposits and invest
  them in loans and other securities, profiting
  from the interest rate differential.
• Middlemen - - those people or businesses who
  derive a commission with each transaction on the
  sale of stock or bonds.

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Financing Agriculture
How do agribusinesses go about getting the funds
they need to operate? Where do the funds come
from?
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Financing Agriculture
Much like the corporate sector Money comes
from Commercial Banks The Farm Credit System
institutions Life Insurance Companies The
agribusiness sector is a relatively minor part
of the macroeconomy with less than 250 billion
in outstanding loans.
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Importance of Finance to Agribusiness

• Statistics for 1997 show that the total value of
  all new loans in the US was 2.9 trillion with
  agribusiness having 43.9 billion
• This small amount doesnt diminish the fact the
  these agribusinesses need financing
• Debt finance is not as important as equity
  capital for the agribusiness, what does this
  mean?
• This points out the conservative nature of
  agribusinesses and ag lenders.
• Agribusinesses hold a larger portion of their
  collateral in longer term assets.

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Trends in Agribusiness Finance

• Agriculture has bounced back from the 80s where
  reduced farm income and farm credit outstanding.
  
• Property consolidation continues
• Farmer owned cooperatives continue to grow
  although this growth is not robust.
• The key market for agribusiness loans has been
  the expansion-minded midsize farmer. However
  that market is shrinking.