Agribusiness is engaging in farming with the sole purpose of earning good returns. This is to say that Agriculture is practiced from a practical perspective with a clear end goal. Agribusiness is a thriving venture whose benefits stand out.
As long as one is ready to roll up their sleeves, work hard, be street-smart, and very patient; the rewards from Agribusiness are real. One needs to be good at planning, organizing and record keeping.
For a viable Agribusiness venture, ensure you
- know your target market
- strategize well in advance
- have good land management practices
- are persistent and focused
- organize good cash flow
- understand your minimum production level
Agribusiness system is a system consisting of several subsystems, among them: Upstream subsystem, cultivation subsystem, processing subsystem, marketing subsystem and supporting subsystem.
Upstream subsystem is the agribusiness subsystem that conducts economic activities in producing and providing decent facilities of agriculture production in order to produce quality agriculture products.
Upstream refers to points in production that originate early on in the processes. Also called exploration and production (E&P), upstream is farthest from the end-user consumer in the oil & gas supply chain. Upstream activities include exploration, drilling, and extraction.
Cultivation is carried out to improve soil physical conditions, to allow improved root growth and therefore tree anchorage, to improve root access to soil nutrients and moisture, and to improve the quality of planting. Also, cultivation removes competing weeds, thereby improving moisture and nutrient availability to planted seedlings; and it provides a surface to which herbicides can be effectively applied.
As a subsystem of a crop-production system, tillage is employed to facilitate crop establishment, modify soil structure, incorporate fertilizer and soil amendments (e.g., lime and manure), control plant residue and weeds, and alleviate both climatic and soil constraints.
The commodities from the production subsystem are transformed into various products. The levels of transformation depend upon the level of processing which can be as simple as washing and grading to as complex as chemical alteration.
Processing makes food more edible, palatable and safe, and preserves it so it can be eaten beyond the harvest season. Food processing is also a tool that offers greater variety in foods and therefore increases the consumer’s choice.
This subsystem is concerned with the transfer of goods from source to end-user. It includes all handling procedures and infrastructures that move the commodities from one point to another.
Marketing helps producers to decide what products to produce and when to produce them. Marketing also helps consumers by letting them know what products are available at what price. When done well, it leads to greater satisfaction for consumers and higher profits for producers.
The Support Subsystem consists of all the key players that provide services, however, optional, but crucial to the success of an agribusiness venture. These services are provided by institutions such as government agencies, commercial associations, credit and financing, research organizations and cooperatives.
Benefits of agribusiness
1. It is an alternative asset class.
Agribusiness provides income, plain and simple. It also provides a solid income source for individuals who work within the industry. There is a low correlation to assets that are in the mainstream, such as equities, fixed income, and property, so what you see is typically what you get.
2. It provides something that people always need.
Challenging seasons may make for the best investment opportunities because there is one rule all humans follow: we need food to eat. Whether it comes from livestock, grains, or vegetables, changing weather conditions or even dietary fads can make this industry look attractive.
3. There can be certain tax benefits.
Some income from agribusiness may have certain tax benefits for workers and investors. Of course getting involved in this industry shouldn’t be for tax purposes alone, but there is the potential to make more wealth per capita in this industry than in others.
4. It allows for diversification.
The best kind of portfolio has income sources from multiple sectors. Workers who are able to perform in multiple sectors have the best chance for employment. Agribusiness allows for both.
5. A hard day of work creates a tangible result.
It can be difficult to feel like something has been accomplished with certain jobs today. In agribusiness, you work with your hands out in the fields, pastures, and facilities and know that you’ve made a positive impact after a hard day of work.
Challenges of agribusiness
1. How the individual business is structured can directly affect results.
Agribusiness requires performance. If a business isn’t structured to provide that performance in any way, then losses can be obtained even when the foundation for profits has been laid. Good assets in this industry can only be realized when there is a good structure in place to support them.
2. There are more risks.
Agribusiness faces numerous risks over every growing season. From the weather to insect infestations to unexpected livestock death from disease, there are numerous influences that can shape profits. Even simple climate changes, like having a little too much rain, can create risk. A natural disaster could potentially wipe out an entire investment or employment opportunity for good.
3. Assets are not generally liquid.
This industry is based on assets that essentially have zero liquidity. Imagine having a tree farm that you’re going to turn into lumber one day. Until those trees mature, there are no profits coming in whatsoever unless supplemental agricultural products are developed. This makes it difficult for investors to obtain a quick exit and employees to find consistent work.
4. It typically requires a high level of borrowing before any profits can be achieved.
For agribusiness to begin, the structure of the business must first be developed. This means obtaining land, structures, and growing products that can be consumed later on. Once the business can create annual seasons, it can turn profits and be highly lucrative. Until that happens, debt must be taken on in some form or equity sold in future profits so the business can continue to exist.
Why venture in agribusiness
Agribusiness holds the key to meeting urban consumers’ demand for food, particularly processed food. Emerging countries will also increase demand for Africa’s farm commodities.
Financing agribusiness can increase the added value of raw materials, strengthen local rural economies, food security and nutrition, and improve the quality of life in many homes at risk of exclusion and vulnerability.