A business that derives its primary income from an agricultural input or process is called agribusiness. Agribusinesses quite often don’t deal with actual farming but are in the business of producing farm inputs, such as farm machinery and seeds. Agribusinesses also take up marketing of farm products – and these include facilities like warehouses, wholesale, processing and retail, as well as processing of raw material into products such as oils, or production of other processed foods, and their marketing. As such, ‘agribusiness’ refers to a large-scale commercial agricultural enterprise, rather than to small-scale organic farms.
Agribusinesses occupy a special place within the agriculture and allied spectrum. It happens to be the world’s largest industry; and that too at a time when the global demand for food and food prices are at an all-time high. It is also this sector that absorbs graduates with qualification in agriculture- the people who have the potential to find further solutions to agricultural problems. Agribusiness encompasses half the world’s labour force, half the world’s assets, and 40 percent of consumer purchases. Agribusiness represents agriculture and its supporting industry and helps teach our future generation about agriculture and how the world is nourished.
For a planet that will support a population of over 9 billion by 2050, with land and water coming under pressure, agribusiness too will face their share of problems. Even climate change and the incidences of droughts in Africa and Asia, and increasing energy costs will have an impact on the agri-business sector.
Finding solutions to agribusiness problems are so critical because even under these constraining conditions, they have to deliver win-win outcomes in terms of financial returns and sustainable development. This sector needs to follow breakthroughs of technology and ideas not just to maximize productivity, but also to optimize delivery across a far more complex landscape of financial, environmental and social outcomes. The major challenges for agribusinesses lie in the areas of risk management, marketing, product strategy, and customer service. Let’s look at how these issues could be dealt with.
Risk Management: Every job in agribusiness requires taking some form of risk in order to be profitable – that’s just how businesses are. For agribusinesses, risk management amounts to choosing among several alternatives for the least risk on the firm. Risk management decisions require the evaluation of the trade-offs between changes in risk, expected returns, entrepreneurial freedom, and other factors. The appropriate risk management practice would include data-based decisions. Data-based decision-making uses history as a guide to project future events. Yet, the historical part is easy; as the data is available. The challenge lies in creating future projections. The simplest method is to use economic studies and price modeling. But that isn’t enough since models have to be gauged against real-world conditions. One way to manage risk is to test predictive models against real-world conditions.
Climate change solutions: Finding a way around climate change primarily involves agricultural adaptation. Most of the time, climate change adaptation is something that tends to get dealt in isolation rather than in combination with others. However, agribusinesses need to link their existing policies, if any, on climate risks such as those on drought or structural adjustment: how would various aspects, including production and marketing, be affected by climate change? In short, agribusinesses need to keep their policy relevant to climate change.
Adam Smith, in Wealth of Nations, said, “consumption is the sole end purpose of all production: and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer”.
It means that an organization achieves its goals through the provision of customer needs and satisfaction. Marketing should not be considered an activity that receives attention solely at the end of the production phase. Rather, marketing needs to be directing production in accordance with the needs of the marketplace, depending on what the consumer needs. Also, for a marketing solution to be successful, agribusinesses must adopt the marketing strategy throughout the marketing chain. For instance, if a marketing department wants to serve high-quality fruits and vegetables, for which it can obtain premium prices, they have to address everything in the chain, including the quality of transport.
Production strategy: Future outcomes are created through today’s decisions, and the probability of success increases with forwarding planning. Performing a SWOT (Strengths /Weaknesses/ Opportunities/Threats) analysis lays the foundation for such a production strategy. When assessing strengths and weaknesses, the focus should be internal. While assessing opportunities and threats, on the other hand, the focus should reflect external factors. For example, proximity to a major market, such as a large city, may provide an opportunity to market processed dairy products directly to a restaurant. Threats may take the form of new competitors or changes in government policy.
Customer care: Agribusinesses have their share of challenges when it comes to customer value creation, employee turnover and customer loyalty. These factors are interrelated and influence the lifetime profitability of a customer relationship. However, it should be understood that customers fall into different categories, and need to be treated accordingly. Here too, it’s not a one-size-fits-all. There are at least 4 different segments that an agribusiness must consider when it comes to customer care. The first category buys products depending on the pricing. These sales would be profitable, but there’s little long-term value creation with them. The second category, the ‘most valued person’ in the portfolio, provides many opportunities to co-create value; and partnering with them is beneficial in the long run for both parties. Then there are those who need to be retained by using corrective action, and together, many win-win opportunities can be created. And finally, there are others who are no longer benefiting from the transaction and may quickly churn to other retailers. With them, enjoy the customer relationship while it lasts.
Today, at SourceTrace we’re happy to share our moment of pride and fulfillment, having made it as the cover story in the Food and Beverage Tech Review.