AGRIBUSINESS: DISCIPLINES AND DIMENSIONS

Assoc. Prof. Bill Malcolm - Dr. Brian Davidson

Department of Food Science and Agribusiness
University of Melbourne
Parkville, Vic 3053

What Is the Agribusiness Sector?

Conclusion

Figure 1 Agribusiness Sector in the Economy

Figure 2 Agribusiness Continuum
Figure 3 Agribusiness Continuum with Markets
Figure 4 Agribusiness Sphere
Figure 5 Agribusiness Disciplines and Dimensions

What Is the Agribusiness Sector?

The outstanding characteristic of the most successful managers of businesses is their
mastery of information; thus the educational requirements of people working in the
agribusiness sector of the economy can be considered usefully in the broad framework of
helping to equip these people to 'master information'. More specifically, the main
requirement of contemporary agribusiness education is for students and practitioners to
learn to bringing rigorous ways of processing information from a range of disciplines to
bear in solving business problems of a multi-disciplinary and multi-dimensional nature,
in managing businesses in a risky environment where much is unknown and much is
unknowable. In this paper, agribusiness activity, and the scope of agribusiness study, is
defined in terms of the disciplines and dimensions involved, and implications for
agribusiness education are canvassed.
Changes in the business environments in which Australian agribusiness have to operate,
particularly deregulation of commodity and capital markets, has meant that generally
such businesses are exposed to more competition and to the vagaries of markets in inputs
and outputs than has been the case. Even though the move towards free trade and greater
competition will continue to be slow, with a good deal of backsliding as well, more than
ever the race will go to the 'fittest' businesses. Australian agribusinesses will need to be
fit. Arguably, much of Australian agribusiness has always been fit because one way or
another they managed right from the start to export most of the agricultural products
Australian farmers and processors produced.

Several major themes underlie any discussion about the future educational requirements
of agribusiness practitioners. These themes go beyond the obvious effects of competition
on those who experience it. One theme is the critical role of information in successful
business management and marketing in a dynamic world. Another theme concerns the
nature of agriculture in Australia, and the particular usefulness of understanding
technical, economic and human aspects of the operations of businesses related to
agriculture in order to manage them successfully.
An initial question is 'What is the agribusiness sector in the sector?' The agribusiness
sector can be visualized as a vertical 'slice' of an economy comprising many parts. The
agribusiness 'slice' is where consumers and producers of goods and services related to
agriculture operate (Figure 1).
Next, 'What is agribusiness activity?' Conventionally agribusiness activity is represented
in a two dimensional manner, as a continuum from producer to consumer (Figure 2). This
approach, in the economist Paul Samuelson's phrase, is not even wrong - it is boring,
irrelevant, uninformative, misleading. A more useful approach is to suggest areas of
economic activity and markets (Figure 3). More useful still is to represent agribusiness as
a three dimensional sphere of business activity in which firms interact with each other in
markets, not in some continuum from 'paddock to plate', but more like a moveable feast,
with inputs flowing into production at various levels of the marketing chain from
throughout the economy and intermediate and final outputs flowing out of various levels
of marketing chains (Figure 4).
This approach makes clear the vast array of sources of inputs involved in agribusiness
activity, and provides a feel for the dimensions, or scope, of the term agribusiness. It also
shows how ill-informed was the debate of the 1980s about whether agribusiness started
before or after the farm gate! That question arose directly from the two dimensional
continuum view of the world, which implied that somehow farmers produce things
without any help from the rest of the economy.
The proximity and strength of agricultural connections to business activities distinguishes
'agribusiness' activity from 'business' activity in general. The closer and stronger the ties
an activity has with the 'agricultural action' the more confidently the activity is able to be
described as being involved in agribusiness, and the further from the 'agricultural action'
the more confidently the activity can be termed simply 'business'. More specifically,
agribusiness management and marketing activities can be seen as being of a different
nature to business management and marketing in general, because of the nature of
agriculture. The nature of agriculture - the biology, the seasonality, the nature of the
products, the nature of the markets, and particularly the risks involved- characterizes and
distinguishes agribusiness activity and means that people in agribusiness have some
distinct and distinguishable needs for knowledge and skills. Thus some of the information
that people working in the agribusiness sector have to master is information related to the
human technical, economic, financial, institutional and risk aspects of agricultural
business activities.

Figure 1: Agribusiness Sector in the Economy

Figure 2: Agribusiness Continuum

Figure 3 Agribusiness Continuum with Markets

Figure 4 Agribusiness Shere

Looking at agribusiness in terms of output, it should be noted that the boundaries of

agribusiness and business in general blur and merge the more the product gets
transformed from raw agricultural material to something else (form utility), and the
boundaries of agribusiness and business become more clearly separable or definable the
closer we move towards the farm and the less the product has been transformed. The
more the product is transformed the more likely it is that activities in these areas are
already covered by the traditional areas of study called broadly economics and business
management and business.
The ways of thinking about agribusiness that have been canvassed so far in this paper are
limited in a pedagogical sense. It is more fruitful pedagogically to think not in terms of

what happens in agribusiness activities, but what content is involved in the processes.
This involves thinking in terms of the knowledge (information) from the various
disciplines that is involved in agribusiness activities and processes, and thus are relevant
to the study of these activities and processes. Agribusiness is an interdisciplinary area of
study. Disciplinary areas can be categorized as being academic disciplines and
professional 'disciplines' (Figure 5). Relevant academic disciplines include such areas as
the agricultural and food science disciplines, economics, and human behavioural
disciplines. Professional 'disciplines' are a broader concept and include areas such as
business management and marketing, public resource management and environmental
management, i.e. interdisciplinary, multi-disciplinary pursuits. The key to analysing the
management of a business, and to problem solving in the real world, is to bring to bear on
the question at hand the appropriate mix, and balance, of disciplinary knowledge - and
the appropriate balance depends on the question being asked.
What is meant by the phrase 'The appropriate balance of disciplinary emphases to solve
the problem at hand'? This phrase means looking at a part of a whole in terms of its role
in the whole to better solve the whole of the problem approximately than part of the
problem extremely well. That is the value of being roughly right rather than precisely
wrong. Such systems approaches can be taken too far in the sense that they become
meaningless. One of the founders of systems approaches to thinking about issues and
problems, Kenneth Boulding said 'All you say about practically everything is virtually
nothing'. Used with care, the interdisciplinary approach, where human, technical,
economic, financial, institutional and risk aspects are all considered in analyses in a
balance appropriate to the problem has proved to be extremely valuable in an applied
research and a practical problem solving sense.
As well as the disciplines involved in agribusiness, information has to be brought to bear
on the relevant dimension to solve problems. By dimensions it is meant 'the angle': the
aspect of the problem on which attention is focussed (see Figure 5). The nature of 'the
angle' determines the appropriate knowledge to use in its solution. The aim is to match
the most useful mix of disciplinary knowledge with the dimension in question. So what
are dimensions of agribusiness. Here are some examples of dimensions:

The parts/angles of business activity- human, technical, economic, financial,

marketing, institutional, risk;
The perspective - Farm firm, non-farm firm, collective firms/industry, public;
The environmental features or context of business activity - dynamics, change,
risk, information lacking, known and knowable, unknown and knowable,
unknowable information.

Figure 5: Agribusiness Disciplines and Dimensions

The notion of dimension is useful analytically as it guides the analyst in the choices about
the mix of disciplinary knowledge on which to draw. It is standard to make the point that
agribusiness is an interdisciplinary activity and agribusiness analyses need a mix of
disciplinary knowledge to solve problems - the basis of the whole-business approach - the

refinement to that line of thinking is to add 'the balance of disciplinary emphases has to
be appropriate to the dimension of agribusiness that is under scrutiny'. This approach
ought to get practitioners away from the problems of wrongful analyses that occur when
the perspective of the individual analyst ends up defining the problem. Learning to
identify, interpret and analyse the problem correctly requires bringing to bear the
appropriate mix of disciplinary knowledge, and doing this requires, first, the possession
of disciplinary and interdisciplinary knowledge and second, practice because ultimately
much comes down to making sound judgements. This discipline-dimension approach is
an attempt to reduce the chance of misdiagnosis of business problems due to mismatches
of disciplinary mix and dimension.
An example of mismatch of disciplines and dimensions is when, say, the question relates
to firms in aggregate and the appropriate disciplinary knowledge is primarily from
agricultural economics, yet the question is tackled inappropriately from the business
management/business marketing perspective of individual firms. Or, another example: a
common mismatch of discipline and dimension occurs where problems of a business
operation along the production and marketing chain are diagnosed as a problem with 'the
market' or with 'marketing', when what is required for sound diagnosis is to bring
knowledge from technical and economic and human disciplines to dimensions of the
operation of the business such as technical aspects of the production system, or the
methods of management of personnel, or the risk involved, or the detail of the marketing
activities.
The major belief underlying the approach of emphasizing disciplines and dimensions in
agribusiness education and agribusiness problem-solving is that by explicitly identifying
the dimension of the agribusiness question at hand it is more likely that we will be able to
bring to bear the appropriate balance of disciplinary knowledge to the question. Also, the
emphasis on bringing the disciplinary balance appropriate to the dimension, in a rigorous
manner, helps highlight strengths and weaknesses of the individual disciplinary models
and the information deriving from them. Indeed, rigour in the application of the
knowledge, and in the processing of information, is the key element in applying a mix of
disciplinary knowledge to problem solving.
Employers commonly put the view to educators that they do not mind much which field a
student has specialized in, as long as they have gone into depth in one area. That is, they
have explored a field to a depth that is only achievable by being able to apply rigorous
ways of thinking. There may be much truth in the old adage of employers 'Give me
someone trained to think and I'll soon teach them what to do'.

Conclusion
Agriculture makes 'business' into 'agribusiness'. Agricultural knowledge is a mixture of
knowledge from discipline areas such as science, economics and humanities. Decisionmaking and problem-solving in agribusiness requires mastery of information from a
range of disciplines, which is then applied to the appropriate dimension of the problem with rigour. Rigour in thinking comes from studying a part of the world (a discipline) in

depth. A major imperative in modern agribusiness education is learning to be able to

acquire, process and apply mixes of disciplinary information in rigorous ways to the
appropriate agribusiness dimension to help solve problems

Food and Agribusiness Industry

Major Industry Trends
Despite the accelerating industrialization of the globe over the past 100 years, and the rapid growth of
manufacturing industry across the developing world over the past 20 years, around four in 10 of the total global
population remain involved in agriculture, according to the latest statistics from the United Nations Food and
Agriculture Organization (FAO). The FAO says that, in 2004, 2,600 million people (out of a global population of
6,377 million) were engaged in agriculture. Clearly, the proportion of the population that is engaged in agriculture
varies markedly from advanced economies such as the UK (the first country to industrialize), where agriculture
accounts for just 1.7% of the population, to developing countries such as Zambia, where the figure is 66.9%.

Key Trends
Rising (and Falling) Food Prices

The FAO index of nominal food prices doubled between 2002 and 2008 and the FAO said (in its State of
Agriculture 2008 publication) that, in 2008, more than at any time in the past three decades, the worlds attention
is focused this year on food and agriculture, a comment that reflected concern about the impact of rising food
prices around the world, and the potential threat to political and economic stability. For food accounts for up to 60%
of household spending in many developing countries. The report warned: World food and agriculture are facing
critical challenges. Sharply higher food prices sparked riots in many countries in 2008, and have led at least 40
governments to impose emergency measures, such as food price controls or export restrictions. A number of
factors caused food prices to rise sharply in 2008. These included:

A surge in commodity prices, driven by increased energy costs (a key input in food and fertilizer
production), as well as adverse weather conditions in key food-exporting countries, and strong growth in global
demand, driven by robust global economic growth. At the same time, global cereal stocks fell to historically low
levels, according to the FAO, driving market prices even higher. Cereals are not only a key ingredient in food
products such as bread, but are also a key component of animal feed. Thus, higher animal feed prices inevitably
result in higher meat prices.

Government action: according to the FAO, some of the emergency measures adopted by governments to
cap food prices, such as export controls, further destabilized world markets.

The growth of biofuel production: the impact of biofuels on commodity prices is controversial, with the
FAO saying that estimates range from 3% (according to the US Department of Agriculture) to 30% (from the
International Food Policy Research Institute) in 2008.

Environmental pressures: desertification is accelerating in China and sub-Saharan Africa, while

proponents of climate change argue that flooding is increasing, and changing rainfall patterns are having a
significant impact on agricultural production.

Prices for many commodities, including food products, came under pressure in 2008, particularly in the latter part
of the year, as the global financial crisis dramatically slowed global economic growth. Despite the decline in
international prices, domestic food prices remained very high in several developing countries, affecting access to
food among low-income population groups. Furthermore, many of the trends identified by the FAO, as well as the
growth of Western-style diets among the citizens of emerging economies (see below), are likely to re-emerge as
global economic growth recovers. They will thus exert upward pressure on food prices in the long term.

Western Diets (and Health Problems) Sweep the Globe

Rising living standards and changing patterns of food consumption in fast-developing emerging countries are other
key factors driving global demand for food, and putting upward pressure on commodity prices. Consumption of
dairy products in countries such as India and China used to be very low, but is now surging to such an extent that it
is driving up prices for dairy products around the world. Similar trends are occurring in meat, vegetable oils, and
many other areas.

Meanwhile, consumers in emerging markets are adopting Western lifestyles, which tend to be fast-paced,
generating enormous demand for convenience foods, such as ready meals, and canned and packaged produce.
The trend towards convenience-oriented, Western-style lifestyles is exemplified by the growth of fast-food outlets in
emerging markets. In February 2009, McDonalds said that it planned to open a further 500 outlets in China over
the following three years. In 2008, the company opened 146 restaurants in China, one of its fastest-growing
markets, increasing the number of outlets to 2,012 by the end of the year, out of more than 30,000 worldwide.

However, as consumers in developing countries adopt Western-style diets, they also encounter the health
problems that are increasingly prevalent in the West. Scientists and health experts have documented alarming
weight gains in recent years in China, the Middle East, Africa, Europe, and Latin America, especially in children
and women, according to an article published in the Chicago Tribune (October 1, 2007). In the US, the obesity rate
has soared to about 35% for women and 20% for men. The common factors fueling the rise in obesity are: diets
rich in sweeteners and saturated fats; work and leisure activities that involve less exercise; and increasing
consumption of cheap, processed foods. In the UK, the problem has grown to such an extent that fire crews are

called out at least once a day to lift obese people whom staff have found too heavy to move (source: The
Guardian, March 13, 2009). But even desperately poor countries such as Nigeria and Uganda are wrestling with
the dilemma of obesity, according to the Chicago Tribune. The newspaper added that the growth of another
Western phenomenon in emerging economies, the supermarket, was contributing to the rise in obesity. Although
these shops offer better, cleaner food, they also supply more snacks and soft drinks, instead of local fruits and
vegetables.

The Growing Power of Supermarkets and the Impact on Agribusiness

The growing power of supermarkets around the world is also having an enormous impact on agribusiness and the
food chain. The phenomenon has already been well documented in Western countries. Up until the early 1960s,
small, neighborhood grocery shops, independent butchers, and local fruit and vegetable shops dominated food
retailing in many Western countries, such as the UK. Today, supermarkets account for more than 90% of food
sales in the UK. Furthermore, four major chainsTesco, ASDA (part of the US giant, Wal-Mart), Sainsburys, and
Morrisonsaccount for around 75% of sales, with Tesco alone taking more than 3 of every 10 spent on food in
the UK. Similar trends can be seen in other developed countries, and, increasingly, in emerging economies around
the world. Supermarkets entered Latin America in the early 1990s, and South-East Asia in the latter part of the
decade. They are now sweeping across India, China, Eastern Europe, and parts of Africa. In many countries,
supermarkets now account for around 50% of food sales.

While suppliers and wholesalers could once dictate prices, and even tell retailers which products they could sell,
the balance of power has now shifted decisively to the retailers, which are in a position to demand ever-lower
prices and improved terms. The major supermarket chains increasingly source their produce from around the
world, placing further pressure on local suppliers, which either meet the demands of the major chains, or go under.
Inevitably, this trend affects the person at the bottom of the supply chain: the farmer. The supermarkets are also
using the increasing acceptance and popularity of their own brands to exert pressure on suppliers.

Market Analysis
The Size of the Global Food Market
The long-established market-research publisher, Key Note Ltd of London, estimates that the global retail market for
food amounted to 1,182 billion in 2008, and that growth has accelerated over the past five years, reflecting strong
global economic growth (up until the latter part of 2008), and the surge in commodity prices that took place over
the period, as well the growth of the global population and rising living standards, particularly in rapidly developing
economies such as China and India.
Table 1. The global food market by sector at current prices (bn at RSP*), 20042008. (Source:

Note)

Key

2004

2005

2006

2007

2008

Meat and meat products

224

234

247

267

285

Fish and fish products

64

69

75

83

89

Fruit and vegetables

205

211

218

227

236

Dairy products, eggs, oils, and fats

240

252

265

280

294

Bread, cakes, biscuits, and cereals

197

203

212

224

233

Other foods

36

38

40

43

45

Total

996

1,007

1,057

1,124

1,182

% change year-on-year

3.6

4.2

5.0

6.3

5.1

* RSP: retail selling price

Global Trends by Commodity

Cereals
World cereal production reached a record high in 2008, according to the FAO, reflecting clement weather
conditions. But the organization anticipates that output will fall in 2009, as a result of reduced plantings and
adverse weather conditions. In early 2008, wheat prices reached record highs. Extreme weather damaged crops in
2007, and US wheat inventories fell to their lowest level for 60 years in February 2008. By February 2009,
however, wheat prices had fallen by around 60% from the same month in 2008, because of a rebound in world
stocks.

According to Key Note, global sales of bread, cakes, biscuits, and breakfast cereals (all derived from crops such as
wheat, oats, and corn, and many of which are staple foods) totaled 233 billion in 2008. Demand for products such
as breakfast cereals and biscuits, which were once found only in the West, is increasing in emerging economies
such as India and China, and this has helped to drive growth in global consumption over the next five years.

Rice
Rice is the staple food for around 2.5 billion people, or more than one-third of the global population. The global
price of rice has been increasing for much of the current decade. According to the International Rice Research
Institute (IRRI), a non-profit research and education center, this is because the world is consuming more rice than
it is producing, and global stocks are becoming rapidly depleted (current stocks are at their lowest levels since
1988). A number of factors are causing this imbalance between supply and demand. They include:

A slowdown in the growth of rice yield. In South Asia, for example, average yield growth decreased from
2.14% per year between 1970 and 1990 to 1.40% per year between 1990 and 2005, according to IRRI.

In Asia, pressure on land is limiting the scope for increasing the area devoted to the cultivation of rice.

Governments are devoting decreasing resources to agricultural research and development. IRRI says
that declining rice prices in the 1990s led to complacency about the need for R&D among governments.

Rice has become an increasingly popular food in Africa, leading to further pressure on global supplies.

Population growth is outstripping growth in rice production, a problem that is projected to worsen.

Rapid economic growth is increasing the pressure on agricultural land. IRRI says that highly productive
rice land has been lost to housing and industrial development, or to the cultivation of vegetables, and other cash
crops.

Meat and Meat Products

Global demand for meat has risen more than fivefold in the past 50 years, according to the FAO, and it continued
to grow strongly in 2008. The FAO said that, while growth in meat consumption in developed countries is expected
to remain modest in 2008, at less than 1%, stronger economic growth and growing incomes in developing
countries are likely to lead to a 3% increase in global consumption in 2008.

Key Note believes that consumption of meat and meat products will continue to increase strongly. For, as the world
economy grows, so does global meat consumption. The average person in the industrialized world eats more than
176 lb of meat annually, compared with around 66 lb consumed by the average resident of the developing world.
As developing economies become richer, these countries citizens spend more on meat. This is particularly true in
parts of the world where consumption is relatively low, such as China and India, with their vast populations. Pork,
for example, was once a rare luxury in China, but pork imports into China rose by more than 900% during the first
four months of 2008 alone. In 2008, global meat production is expected to top 280 million metric tons and that
figure could nearly double by 2050.

Fish and Fish Products

Fish is the main source of protein for around 1 billion people. Demand for fish is also growing rapidly, due to
population growth and rising incomes. Global per capita consumption of fish has risen from 9 kg in 1961 to an
estimated 17 kg in 2008, according to the FAO. Global supplies of fish in its natural environment are clearly finite
indeed, stocks of certain species are dwindling at an alarming rate. Consequently, fish from farms accounts for an
increasing proportion of global supplies. According to The Economist (March 2, 2009), farming accounted for 6% of
fish available for human consumption in the 1970s. By 2006, the most recent year for which figures are available,
that figure had increased to 47%.

Fruit and Vegetables

Consumption of fruit and vegetables grew at a robust pace between 2003 and 2007, and it is likely to accelerate
further over the next five years, according to Key Note. The company says that consumers in both the developed
world and the developing world are increasingly concerned and knowledgeable about the link between health and
diet, and are responding to widespread publicity about the benefits of eating fruit and vegetables. Key Note adds
that the value of the market is being driven by increased prices as well as rising volume consumption.

Dairy Products, Eggs, Oils, and Fats

Prices in the dairy sector peaked in November 2007, when the FAOs index of dairy product prices (base 1998
2000 = 100) reached an all-time high of 302. In 2008 and 2009, however, dairy prices have been on a declining
trend. Farmers and analysts have cited various factors for the fall in dairy prices, including increased supply, higher
export subsidies by the EU, and price manipulation on global markets. However, in the long term, global dairy
consumption is expected to increase, putting a floor under dairy prices. Chinas milk consumption, for example,
rose by 9.3% in 2007 alone.