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Trends in Agriculture -- Causes and Implications
The discussion has not yet directly answered the question of what is driving or causing these changes in production agriculture and consumers.
Consider again what is causing the trends in the ag industry. The authors of the text drew our attention to the following topics:
- Advancing technology (production, information, transportation)
- Increased reliance on information
- Importance of controlling economic resources
- Understanding how to direct human resources
- Understanding consumer demand
- Recognizing the integration of businesses
- Recognizing the impact of concerns about the environment, food safety, food availability and food cost
- Appreciating the implications of globalization.
Does this list help identify causes of trends in agriculture?
Let's think about them in a little more detail.
- Advancing Technologies -- What impact does technology have on agricultural producers and other agribusinesses? What impact does technology have on consumers?
- When considering these questions, briefly describe the TYPES of technology you are thinking about? HINT -- does it help our thought process to think about technology as production/processing technology, communication/information technology, and transportation/storage technology?
- Economic theory suggests that advances in production technology allow businesses to produce more output from the same quantity of input.
- Is production increasing as technology advances?
- What does additional production mean for consumers?
- What does additional production mean for the businesses that are adopting the technology?
- What does additional production mean for businesses that do not adopt the new production technology?
- What does advancing communication technology mean for producers who use that technology? What does advancing communication technology mean for consumers? What does advancing communication technology mean for businesses that do not use it? Does economic theory help answer these three questions?
- What impact does advances in food processing, storage and transportation technologies have on consumers? What impact does it have an agricultural or food businesses? What impact does it have on businesses that do not adopt the technology?
- Information Age -- what does "the information age" mean? Is information becoming more available?
- How does information impact consumers? How does information impact producers -- both directly and indirectly? What impact does information have on the level of competition?
- What business strategies might producers consider adopting as a result of increased availability of information?
- What are the sources for the information that consumers and producers use?
- Financial Management/Controlling Assets -- why would a manager want to "control" assets? Why do business managers need to manage the business' finances?
- Human Resources -- how can a manager enhance the productivity of the business' workers? Is addressing human resources a more pressing issue today than it may have been in the past? Why?
- Contracting and Vertical Integration -- is this a risk management strategy? What risks? Is this a strategy for managing information? What information?
- Producing to Meet Consumer Demands -- will consumers buy what is available or will consumers buy what they want? Why? How does this impact businesses? What determines what products consumers can access (HINT -- think about the points you considered under the topic of New Technology)?
- Does agriculture involve more than producing food?
- Environmental and Health Concerns -- is there more concern about environment and health today? Why? Do concerns about environment, health and safe food pose a challenge for producers or an opportunity? Why?
- Cost of Food and Fuel -- how might agricultural managers respond to an outcry about rising consumer prices for food and fuel?
- Globalization -- what is causing the global economy and what is the consequence of a global economy? HINT -- review the points considered in the discussion about New Technology; also review the thoughts developed as part of Producing to Meet Consumer Demands.
What do we know about the agriculture industry? Many different types of activities and many different types of businesses. What are some of the characteristics of agriculture/food industry?
- What are some of the characteristics of production agriculture? Biological processes and dependent on weather (production risk?); reliant on land resource; often closely-held businesses; generally facing perfect competition.
- What are the characteristics of other agribusinesses? Do they rely on private or proprietary information and technology? Do they face "less than perfect competition?" Do they face the risk that their differentiated product may not align with consumers' tastes and preferences?
- How do these characteristics of the ag/food industry impact a manager's decision making process?
- Is the food industry becoming a "team" or "system's" approach?
Do we need to also think about rural issues?
- See Enhanced quality of life for rural Americans Economic Research Service USDA (ERS): links to numerous other publications and articles addressing rural America.
- This web site is valuable only if you are willing to read -- take the time to read and think. This self-discipline is a necessity for all professionals in the information age.
Do we need to think about consumers and others?
Agriculture ranges from small firms, to large firms, to huge multi-national businesses. It encompasses government agencies at the local, state and federal level. It includes organizations interested in the well-being of the industry (such as producer groups) to organizations interested in the health and nutrition of people.
As you take this course, you may have some thoughts as to where in the complex industry you will spend all or part of your career; others in the class may not have any idea but are excited about the range of opportunities. Regardless of where your opportunities may lead, you need to understand the challenge of providing food for the world's population today and in the future. Increasingly as individuals, we will not feed ourselves; that is, "I will not raise the food I eat." Instead, all of us will rely on a vast array of interactions and transactions involving numerous entities and vast distances to provide our food. The challenge is how do we make individual, as well as collective decisions to accomplish the common goal of assuring that people are fed.
Revisit Kay Chapter 1. Key points from this chapter include
- Production agriculture is influenced by production technology and the owners' goals.
- Production agriculture is evolving to have high volume commodity producers and low volume product producers; is this observation still true today?
- Specialization offers opportunity; but how does this reconcile with the strategy of managing risk by diversifying?
- Managing information within the firm, sharing information with collaborating businesses, analyzing information about global opportunities;
- Working with others; how does this reconcile with the pride of being independent?
- Influence (impact) of consumer demand for food products.
- Society's expectations of business operations -- environmentally sound, safe food, nutritious food, etc.
- Advancing production and information technology.
Consider some key points from Daft about small business management and globalization:
- Entrepreneurship -- initiating the business, organizing the resources, taking the risks.
- Consumers want service; industries, economies, and businesses are becoming global; competition is increasing; technology is advancing.
- Personality traits of small business owners/managers -- internal locus of control, high energy level, need to achieve, self-confidence, awareness of passing time, tolerance for ambiguity.
- What about willingness and ability to assume risk?
- Impact of advances in technology and communication (also transportation).
- No one is isolated.
- Increased complexity and competition.
- What about increased opportunity?
Causes of Trends in Agriculture -- can we finally answer the question?
- Production, communication/information and transportation technologies are changing/advancing.
- Technology (industrial revolution) created non-farm employment which provides income for consumers
- Production technology allows fewer people to produce enough food for farmers and non-farmers.
- Processing, transportation and storage technologies allows food to be moved greater distance thus allowing it to be eaten by urban people, rather than by only rural people who are close to the source of food production.
- Information technology allows producers to learn more about production technology
- Information technology allows consumers and producers to learn more about market opportunities; consumers learn about products available in other locations, and producers learn about consumers in other locations.
- Transportation and storage technology makes its feasible for interested consumers and producers to buy and sell to persons in other locations.
Explanation of implications based on several theoretical concepts -- visit these two pages as "sidelights" and then return to this page to complete the discussion. What impact are these changing technologies having on competition? Why? Can you explain this using terms and concepts you learned in ECON 201 and 202?
Implications of the Trends in Agriculture
First level observations about implications
- Reduced number of farmers and increased farm size
- Increased consumer income; consumers only need so much food; as consumer income increases, they do not buy more food
- Reduced portion of consumer income spent on food -- they become more selective of which food they consume
- Altered consumer preferences due to increased income and reduced cost of food -- away from home, easy to prepare, safe, nutritious(?), minimum adverse environmental impact, etc
- Globalization -- consider impact of trade (see below)
- Impact of Trade
Let's explore the impact of trade by considering a simple situation with two markets that each have producers and consumers. Producers in market A (producers A) supply products for consumers in market A (consumers A), and producers in market B (producers B) supply products for consumers in market B (consumers B). Whether or not the producers are providing the quantity or type of products their consumers want depends in part on what natural resources each market has, what the producers know about using those resources, what the consumers want to consume and what the producers know about the consumers' desires or preferences. But if there are not many alternatives about what products can be produced from the natural resources or the producers are unable or unwilling to produce alternative products, the consumers may be stuck living with what is available.
- As production technology becomes available, each set of producers can produce additional as well as alternative products.
- As communication technology becomes available, producers can learn about the demand by consumers in other markets and consider producing those products.
- As transportation technology becomes available, it becomes realistic for producers to produce alternative products for consumers in other market.
- If producers A decide to do this, consumers B enjoy the added supply and producers A enjoy the added demand.
- However, consumers A are disappointed to see less product available to them because it has been exported to another market and producers B are disappointed to see additional product available to their traditional customers (consumers B).
- Trade is welcomed by two of the four groups and may be opposed by the other two groups. But without technologies, trade would not even be an alternative.
- At a minimum, enhanced communication and transportation technology increases competition. Now consider what has happened to communication and transportation technologies in the past several decades? Is it easy to begin to understand this idea of globalization? Is it easy to understand that advancing technologies is THE MAJOR driving force?
- Restating the impact of technology on trade
- More is being produced (result of production technology?), we (the world?) are aware of this (result of information technology?), and it can be moved to where consumers want to use it (result of transportation technology)?
- Producers feel increased competition due to increased production (production technology) and competing products able to be moved into the producer's market (information and transportation technologies).
- Consumers feel increased competition because other consumers can enter their market (information and transportation technologies) to compete for the products available in the consumers market.
- Accordingly, some producers welcome increased number of consumers because it increases demand for the products they produce.
- Bottom line -- these technologies combine to increase production and availability of the products. The general result is an "increase in the standard of living".
- New technology appears to be a cost (research, development, adopt, etc), but the initial cost will hopefully be recovered over years of use. Uncertainty (risk?) is a major consideration in continuing to advance technology. Who takes this risk? Society through government research? Individual "inventors"? Private businesses with capacity (ability) and willingness to assume risk of developing new technology?
- How does the ownership of research results (new ideas) impact a risk-takers willingness to assume the uncertainty associated with trying to create new ideas/technology?
- Biotechnology is not being accepted by some producers and consumers? Why? Again, can you explain this using terms and concepts you learned in ECON 201 and 202?
- See Productivity Growth in U.S. Agriculture. ERS, USDA, September 2007.
- Consumers influence the food industry; USDA describes the agriculture industry as "consumer-driven." What does it mean that the industry is consumer-driven? Why is the industry consumer-driven (think in terms of both the U.S. domestic market and the global market)? What are the implications that the industry is consumer-driven?
- See A Revolution in Food Retailing Underway in the Asia-Pacific Region. Coyle, W. T., USDA ERS June 2006. -- required reading
- Production agriculture relies on natural resources of soil, water and air; production agriculture also impacts these resources. Production agriculture prides itself on being a steward of natural resources; but society also is imposing environmental rules or limits on production agriculture. Can we diagram and explain the impact of an environmental regulation? Consider the economic concepts of marginal cost (MC), marginal revenue (MR), profit maximization, supply, demand, and then a shift in MC, supply, and increased cost to today's consumer. (Review these economic concepts within the context of diminishing marginal productivity.)
- What is the purpose of an environmental regulation and who benefits from such a regulation?
- Impact of an environmental regulation is between today's consumer and tomorrow's consumers but we will subsequently consider why this general statement maybe inaccurate.
Second level observations about implications
- Opportunity for niche markets
- What holds producers back from pursuing niche markets?
- Consider willingness and ability to assume risk
- To assume a risk, an individual needs both a willingness to assume risk and an ability to assume risk.
- Willingness to assume risk is generally an attitude
- Ability to assume risk is often based on economic resources (review what information is available on a balance sheet)
- It is often stated that younger persons are more willing to assume risk, but older people have more ability to assume risk (more equity?).
- As an individual ages (according to this description), their willingness to assume risk declines while their ability to assume risk generally rises.
- To assume a risk, an individual needs both a willingness to assume risk and an ability to assume risk.
- Strategy of vertical integration
- Introduce alternative strategy of supply chain management
Summary of Key Points
This section discussed changes occurring in the agriculture/food industry. The discussion also addressed how advancing technologies in the areas of production, communication and transportation are causing many of these changes. The impact of the industrial revolution and the urbanization of many people around the world also was considered.
- Advancing technologies increase competition by allowing producers to increase output, and allowing suppliers and consumers to identify and interact with a larger number of people and businesses.
- Recall that expanded trade impacts not only the new sellers and new buyers, but also impacts current buyers who now have to compete with new buyers and current sellers who now have to compete with new sellers.
- Who ultimately benefits from advancing technologies?
- Expanded number of non-farm careers has increased the number of consumers who purchase their food and has increased their income.
The discussion reviewed several economic concepts, including determinants of demand, determinants of supply, characteristics of perfect competition, and implications of perfect and imperfect competition. In addition, the discussion addressed the idea or strategy of "intentionally breaking out of perfect competition" and the business practice of supply chain management. Also introduced willingness and ability to assume risk.
- Increased consumer income has expanded and altered the consumers' demand for food.
- Changing consumer demand/expectations is reflected in the market as well as in government regulations.
- For example, an environmental regulation is a decision about consuming today versus consuming in the future, assuming all producers must comply with the same regulation.
- Changing consumer demand/expectations is reflected in the market as well as in government regulations.
- Advancing production technology has expanded global food production; advancing communication and transportation technologies have increased competition for suppliers and consumers of food.
- Firms facing perfect competition have minimal opportunity to earn an economic profit.
- Firms can pursue strategies that reduce competition, these strategies include controlling access to information about production technology and market opportunities.
- Firms can enter into business arrangements that include immediately sharing information to reduce cost, but these arrangements alter the business' risk exposure.
The next section addresses making decisions about production practices.
Last Updated September 5, 2010
Email: David.Saxowsky@ndsu.edu
This material is intended for educational purposes only. It is not a substitute for competent professional advice. Seek appropriate advice for answers to your specific questions.
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