Introduction to Agribusiness Chapter 1
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.
Finance Finance – the study of the flow of funds in an economy or firm.
Agribusiness Producers • Lifestyle Farmers • Subsistence Farmers • Growing Midsize Farmers • Scaling Back Midsize Farmers • Industrial Family Farms • Mega Farms
Regulations What is happening to today’s producers in terms or the regulations being placed on them and why?
Environment What is happening in the production environment as well?
Flows of Funds in the Economy • Sources of funds • Households • Businesses • Government Surplus
Flows of Funds in the Economy • Users of funds • Government (when running deficits) • Businesses • Households
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.
Financing Agriculture How do agribusinesses go about getting the funds they need to operate? Where do the funds come from?
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.
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 doesn’t 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.
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.