Chapter 1The Global

Agri-Food System

U.S. AgribusinessLeading the World

• Largest Agribusiness Sector in the World• Largest Part of U.S. Economy• One of the Best Integrators of Technology• Biggest User of Biotechnology• Safest Food• Lowest Cost Food• Largest Assortment of Food• 11,000+ New Food Products per Year

Input Suppliers

Farms and Ranches

CommodityProcessors

FoodManufacturers

Food Retailers

FoodConsumers

Food D

istrib

utors

Wha

t Con

sumers

Wan

t

Food Products

Ag Commodities

Product Flowin the Global

Agri-Food System

The Business of Food

• We consume 350 million tons of food each year – about 6 pounds per person per day

• Farmers get 20 cents of each food dollar• Consumers spend 10.4% disposable income on food

~ 6.2% for food at home

~ 4.2% for food away from home• Each farm worker produces enough food for 103

people – 75 in U.S. and 28 abroad• Number of farm workers is greater than the

combined total of workers in the auto, steel, and transportation industries

Dollar Value of Agri-Food Output by Industry

Farming13%

Alcoholic Beverages

11%

Food at Home45%

Food Away from Home

31%

U.S. Agri-Food Employment

Restaurants47%

Food Processing

10%

Food Stores21%

Food Wholesaling

6%

Farming16%

U.S. Agribusiness

• 47% of the world’s soybeans• 42% of the world’s corn• 28% of the world’s cheese• 19% of the world’s milk• 16% of the world’s cotton• 12% of the world’s wheat

With less than 7% of the world’s land and 5% of the world’s population

We Produce 12% of World Agricultural Output

We Export 27% of U.S. Production

Farm Productivity and People Fed/Farm Worker

15.3

25.6

45.3

61.6

86.4

103

4152

5868

93

109

0

20

40

60

80

100

120

1950 1960 1970 1980 1990 1998People Fed/Farm WorkerProductivity of Farming Index 1992 = 100

Percent of Disposable IncomeSpent on Food over Time

26.2 25.122.5

20.2 19.5 18.917.6

15.1 14.8 13.9

10.5 10.4

0

5

10

15

20

25

30

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998 1999

Percent of Income Spent on Foodby Country

10 11 1217 17

26

39 40

52

0

10

20

30

40

50

60

U.S.

Canad

a

United K

ingd

om

France

Japan

Hunga

ry

Ken

ya

Ivor

y Coa

st

India

Per

cen

t of

In

com

e

People Buy Food fora Hierarchy of Reasons

Status and Causes

Living Well

Promoting Health

Convenience

Tastes Good and Variety

Nutritious, Safe, and Affordable

Agribusiness Management:The Integrator of the Disciplines

• “Science remains in the laboratory unless there is incentive to adopt the knowledge. This is the difference between science and technology. {Agribusiness Management} is the integrator.”

– Source: The Agricultural Revolution of the 20th Century, Paarlberg and Paarlberg, p. 59.

The Agricultural Revolution of the Twentieth Century – I

• “If a farmer from Old Testament times could have visited an American farm in year 1900, he would have recognized—and had the skill to use—most of the tools he saw: the hoe, the plow, the harrow the rake. If he were to visit an American farm today, he might think he was on a different planet.”

• Source: Paarlberg and Paarlberg, p. xiii.

The Agricultural Revolutionof the Twentieth Century – II

• “The changes that occurred in American agriculture during the 20th century exceed in magnitude all the changes that occurred during the 10,000 years since human beings first converted themselves from hunters and gatherers to herdsmen and cultivators.”

• Source: Paarlberg and Paarlberg, p. xiii.

The

Production

Sector

The

Input

Sector

The

Processing-

Manufacturing

Sector

Farm Productivity

0

20

40

60

80

100

120

140

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

1998

Inde

x 19

92 =

100

InputOutputProductivity

Farm Inputs

0

50

100

150

200

250

300

350

400

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998

Inde

x 19

92 =

100

Labor Mechanical Taxes/Interest Chemicals

Hours of Farm WorkPer Acre Planted

55

4539

34

2722

19 17 17 18 17

0

10

20

30

40

50

60

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998

Hours/Acre

Crop and Animal Yields

020406080

100120140160180

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998

Bush

els/A

cre;

Milk

CW

T/co

w

Milk Corn Soybeans Wheat

The Production Sector

Net Farm Income

58.8 66.2 70.9 72.3 75.6 74.689.2 81.3 77.3 82.3 81.1

41.2 33.8 29.1 27.7 24.4 25.410.8 17.7 22.6 17.7 18.9

0%10%20%30%40%50%60%70%80%90%

100%

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998

Total Production Expenses Net Farm Income

Number of Farms and Dollar Salesby Annual Sales

74.4

9.1 10.1

4 2.6

11 9.1

19.1

44.9

15.9

0

10

20

30

40

50

60

70

80

<$50,000 $50,000-99,999 $100-249,999 $250-499,999 $500,000 andover

Annual Sales

Per

cen

t

Percent of Farms Percent of $ Sales

Changes in U.S. Land Use, 1945 vs. 1997

660 578

602553

451455

14385

15 64

0200400600800

100012001400160018002000

1945 1997

Mil

lion

Acr

es

Pasture and Range Forest Cropland Other Special Urban

U.S. Agriculture in World Trade

43.7

20.3

40.0

27.627.4

70.5

56.6

18.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Wheat Corn Soybeans Cotton

% Exported % World Trade

Impact of Agricultural Exports

0

5

10

15

20

25

30

35

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

1998

Per

cen

t

Percent of Farm Receipts Percent of U.S. Exports

Agricultural Exports in 1975

Wheat25%

Feed Grains24%Oil Seeds

20%

Soybeans13%

Fruits and Vegetables

4%

Other14%

Agricultural Exports in 1998

Wheat7%

Feed Grains10%

Oil Seeds20%

Soybeans11%

Fruits and Vegetables

15%

Other37%

Trading Partners – 1975

Canada6%

Mexico4%

Asia22%

Rest of Latin America

7%

All Others26%

Europe35%

Trading Partners – 1998

Mexico11%

Rest of Latin America

10%Europe

17%

Asia18%

All Others31%

Canada13%

The Commodity Processing-Food Manufacturing Sector

Transforming Commoditiesto Food Products

What a Dollar of Food Pays For

Other4%

Labor49%

Transportation5%

Energy4%

Packaging11%

Profits5%

Farmers' Share22%

Agribusiness is BIG Business112 Agribusiness Firms in the Fortune 500

19 Food Consumer Products Companies—H J Heinz, Hershey

12 Food Production Companies—Tyson Foods, Gold Kist

9 Beverage Companies—Coca-Cola, Pepsico

11 Food Service Companies—McDonalds, Starbucks

19 Food and Drug Stores—Kroger, Safeway

19 Forest and Paper Products—Weyerhaeuser, Mead

7 Textile Companies—Westpoint Stevens

5 Tobacco Companies—Philip Morris

11 Food and Grocery Wholesalers—Supervalu,Sysco

The TrendsFarming to Food Factories

• Fewer but larger facilities

• Fewer but better educated employees

• A high tech business

Discussion Questions1. List and briefly describe the six parts of the global

agri-food system.2. Define and describe each word in the term agri-food

system.3. Why was agriculture a prime market for the adoption

of production-enhancing and labor-saving devices during the industrial revolution?

4. How have Americans’ perceptions of food changed in recent years? What does this mean for firms in the agri-food system?

5. What is the difference between science and technology?

6. What is the role of business management in the success of the agri-food system?

Discussion Questions7. Identify the three major sectors of the agri-food

system. Describe the evolution of agriculture into the agri-food system.

8. Describe the role of export markets and how they have changed in the past 25 years.

9. Describe the production sector’s environmental record.

10. Describe what you see as the future of the agri-food system in meeting the food needs of the world’s population and as a place to work.

11. Explain why you are optimistic or pessimistic about the agri-food system’s ability to produce enough food to feed a hungry world. What are the biggest challenges it will face in achieving this crucial goal?