Frequently Asked Questions - Agribusiness

1.What are Agribusinesses ?

ASF defines Agribusinesses as “all enterprises that assemble, process and transform raw agricultural commodities into final products for distribution to local and international consumers”

ASF works in the following Agribusiness Sub-Sectors

2.What role has agribusiness played in international trade?

Agribusiness is a generic term that refers to the various businesses involved in food production, including farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing and retail sales. It encompasses broad marketing techniques wherein international comparative advantage is harnessed to the best potential by globally sourcing commodities.

These activities are carried out by select firms/corporations that are in business because of their strong capital base and transnational presence. Global corporations now control about one-third of the world's productive assets and three-quarters of world trade. Their control has been facilitated by the process of globalisation, which entails the free flow of goods, services, capital and knowledge among nations. The spread of global trade, deregulation of capital markets, and technology that facilitates global communication and transportation all have driven changes in global trade and investment rules. These changes have, in turn, supported the expansion of new global commodity chains and the growth of agribusiness.

Agribusiness activities have introduced new managerial techniques and facilitated the integration of domestic markets with international markets, thereby providing abundant opportunities to farmers and trading partner countries to supplement shortages in food and other agricultural commodities.

There are reports of malpractice by agribusiness firms trying to manipulate the demand-supply situation to their benefit. Some agribusiness firms, on account of their capital position and influence, have been instrumental in the formulation of trade rules and procedures at various multilateral forums. Food and agricultural products have a very short shelf-life, making their processing, post-harvest treatment and assured market options a necessity. Through their scale of operations, agribusiness firms possess the capacity to turn the weaknesses and strengths in trade agreements and flows to their benefit.

3. What are the distortionary influences of transnational and multinational agribusiness firms in international corporations, in agriculture?

Trade liberalisation and global inter-connectedness pose new opportunities as well as challenges for countries. With more than 900 million people on earth still experiencing starvation, it is obvious that our current global food and agriculture system is lacking somewhere. The root of the problem is that large and influential corporate houses, whose main motive is generating profits and not feeding people, run the current agriculture system.

Over the past decades, fewer and fewer firms have been controlling more and more of the global food market. Three or four firms control most of the international trade of each product, both on the export and import sides.

The agriculture market today is characterised by both horizontal as well as vertical concentrations. Both concentrations give these firms a lot of power to influence prices -- both paid to producers as well as charged from consumers. Vertical integration helps firms control not just one aspect of food production but the entire process. This entails not just selling seeds, fertiliser and pesticides but also the purchase of crops from producers, their processing, and onward sale to retailers.
Other problems with consolidation in the agribusiness industry include:

4.What is market concentration, and how does it affect trade and economy?

Market concentration is related to the concept of industrial concentration, which concerns the distribution of production within an industry by a few select companies. Market concentration also indicates lack of competition, wherein a few firms set the price and many firms are not in a position to enter or operate in a fair manner. In economics, the concentration ratio (CR) can be estimated as the market share of the four largest firms in the industry. A CR 4 of 40% or less is generally considered to be a competitive market. In 2005, CR 3 for Australian supermarkets was 89%; the CR 3 for soy oil refining in Brazil was 86%, and CR 4 for most agricultural commodity processing in the US ranges between 50% and 83% (Heffernan W, Hendrickson M, and Gronski R, 2002).

Market power gives agribusiness firms power to affect prices and reduce competition that is essential for a sector of economic activity to determine and lay down standards. Firms wielding immense market power squeeze farmers from both sides. The market power of retailers, processors, railways, and grain companies that dominate the downstream side of the agri-food chain allow them to take large and increasing portions of the consumer's grocery store, and hence profits. These firms reach the food system revenue stream and extract very high returns. As their power increases, less money makes it back to the farm level.

Market concentration also affects consumers in a number of ways, mostly by dictating government regulatory policy, flouting pesticide residue norms in soft drinks and food items, and driving out the supply of important commodities from different regions. The firms encourage farmers to over-produce, resulting in low prices, often below the cost of production. This causes a price squeeze which means that the input cost for farmers rises but the output price falls. In developed countries like the US , the net farm income of farmers has fallen substantially since 1996, despite a near tripling in government subsidies. Therefore, market power increases the processor's profits by widening the margin between the farm and wholesale or retail price level.

5. What has been the role of agribusiness in developing countries, and how do they fit in their agricultural production processes and development?

Developing countries have been witnessing changes in lifestyle and spending. With increased urbanisation there is increased dependence of food retailers and manufacturers on specialised procurement channels and dedicated wholesalers have set new standards for food quality and safety.

Food is now directly sold to formal sector retail outlets such as supermarkets, rather than grown for sale at local markets. Private sector participation in developing countries is being intensively promoted to allow accelerated technology transfer, capital inflow and an assured market for crop production.

Changes in agri-food systems have significant implications for growth, poverty and food security. On the positive side, agribusiness is responding to strong consumer demand for high-value commodities, processed products and pre-prepared foods. At the same time, expanding markets offer farmers opportunities for new value-addition, compared with primary production, while exporters and agro-processing enterprises furnish crucial inputs and services to the farm sector.

However, on the negative side, rapid development could displace small farmers, processors, stores and traders who depend on traditional marketing and distribution channels at a pace that does not allow them enough time to create alternative opportunities. Small-scale farmers, who are faced with increasingly strict agro-industry standards, face all the risks. So also small-scale traders, processors, wholesale markets and retailers who are forced to compete with large goods suppliers and manufacturers. Less intervention by the State and increased concentration of corporate entities diminishes competition and the fair market framework for trade in agriculture.

6. What are the challenges thrown up by the growing influence of these agribusiness firms, and how can their monopoly and unfair practices be regulated?
Global corporations now control one-third of the world's productive assets and three-quarters of all world trade. Agribusiness firms have matured steadily over the last several decades, with the result that small processors and small agricultural producers have become a shrinking part of the landscape. The increased consolidation of agribusiness firms in the food industry has led to a more imperfect market.

Farmers are at a disadvantage because they are numerous, while processors are few. They turn up as price-takers with invariably no bargaining power. Firms wielding immense market power squeeze farmers from both sides. The market power of retailers, processors and grain companies dominates the agri-food chain and takes a larger and increasing portion of the producer's surplus, making windfall gains. They win both ways -- when prices fall as well as when they peak. On the other hand, farmers always bear the brunt, losing out during times of bumper production as well as low yields. The following methods could be used to regulate the unfair practices of agribusiness firms:

7.What is Agribusiness anyway and how can it help students identify their passion in life and turn it into a career?

Agriculture isn’t just straw hats, plows and sows. Everything that is eaten, most of the things that are worn, and many of the medicines that save lives, are products of agriculture. High-tech agriculture, especially the areas of plant and animal biotechnology are developing into very important industries for the United States and the entire world. The strong research component at AAEC helps students to develop strong inquiry skills that lead to self-reflection and knowing who they are and what their passions and interests are in relation to career aspirations. Students who graduate from AAEC are clear about who they are and their best course of study to achieve career goals.

8.What are the risks of investing in agribusiness investments?
The risk/return profile of most well managed agribusiness investments lies somewhere between Australian bonds and listed property trusts. The agribusiness must be sustainable, rather than simply being a convenient way to reduce tax. Some of the factors that can affect the profitability of an agribusiness investment include:

It is how well these risks are managed that could determine the profitability or otherwise of the agribusiness investment.

9.How do I start a Floriculture, Sericulture or Aquaculture business?

Ans. The Ministry of Agriculture (External website that opens in a new window), Government of India, in association with NABARD (External website that opens in a new window) has launched the AgriClinic and AgriBusiness Centre programme to take better farming methods to each and every farmer in India. According to this scheme, agriculture graduates can set up their own AgriClinics or AgriBusiness Centres to offer professional extension services to local farmers. The government also provides business free start up training to graduates in agriculture and allied subjects like horticulture, sericulture, veterinary sciences, forestry, dairy, poultry farming, and fisheries. Those who complete the training can apply for special start-up loans to finance their business.

The main function of these Agribusiness Centres is to advice farmers on crop selection, best farm practices, post-harvest value-added options, key agricultural information, weather forecast, price trends, market news, risk mitigation, crop insurance and farm credit as well as critical sanitary and phytosanitary considerations.

Tips On Starting An Agri Business:

• The first thing about starting an agriculture business is deciding what you want to produce. Remember, the profits you make depend on the market value of the commodity you choose. The climate, soil, irrigation, fodder and other inputs in your area should suit this commodity.

• Next, you will need cash to buy seeds, pesticides, land, fertilizer, machinery and other inputs. The government offers a variety of Kisan Credit Cards and financial schemes to help you out with finance. View list of various agricultural loans offered.

• Hiring farmers and other staff can make the job of farming a lot easier.

• . After, harvesting begins the process of marketing and distribution. Store your produce carefully and deal with marketing cooperatives and other agencies for good remuneration.

• If you need any assistance contact the Agribusiness Centre in your area or call the local Kisan Call Centre. This call centre is accessible on a toll free telephone number - 1551 in 21 different languages.

10. What is the import duty for different agricultural products?

Ans. Wheat grains have an import duty of 100 per cent; rice has a duty of 80 per cent while the rate for maize is 70 per cent. Grains like rye, barley, oats, buckwheat and canary seed may be imported for free. Soybeans, groundnut, linseed, sunflower seeds, cottonseeds, mustard seeds and the like have an import duty of 35 per cent. Coffee and Tea has a standard duty of 100 per cent. Spices like black pepper, cardamom, chilly and cloves have a duty rate of 70 per cent.

All live agricultural animals for breeding purposes like horses, sheep, goats, pigs, poultry, cows and buffalos and their edible parts have a standard customs duty of 30 percent. Fish, molluscs and crustaceans also have a customs duty of 30 percent. The duty applicable on animal products is - milk - 30 percent, butter - 40 percent, cheese - 40 percent and eggs - 30 percent.

Live trees, plants, bulbs, roots, roses, shrubs and bushes have a customs duty of 10 percent. Cut flowers and mosses for ornamental purposes have an import duty of 60 and 30 percent respectively. Most vegetables, fruits and spices have a customs duty of 30 percent.

Export Duty or Cess for other agricultural products are as follows - Coffee - Rs 2200 per quintal, Black pepper - Rs. 5 per kg, skins and leathers - 60 per cent, raw wool - 25 per cent, raw cotton - Rs.2500 per tonne, jute - Rs 150 per tonne, animal feed - Rs. 125 per tonne and tea - Rs. 5 per kg.

Source:

1. http://www.business.gov/industries/agribusiness
2. http://www.asf.org.pk/faqs.php
3. http://india.gov.in/citizen/agriculture/faq