Introduction To Agricultural Commodity Systems PDF

Introduction to Agricultural Commodity Systems (AgEcon 311) Marite C. Gaña, MSc. CHAPTER l. Agribusiness in Retrospect  Topic 1. The Growth and Development of Agribusiness Farming and Agriculture Before Agribusiness  People have searched for ways to fe...

Introduction to Agricultural Commodity Systems (AgEcon 311) Marite C. Gaña, MSc. CHAPTER l. Agribusiness in Retrospect  Topic 1. The Growth and Development of Agribusiness Farming and Agriculture Before Agribusiness  People have searched for ways to feed themselves since prehistoric times. Life before Agriculture  Early humans traveled long distances to gather plants and hunt animals for food thousands of years ago. However, two important developments took place before humans discovered agriculture. People learned to fish, and they learned to use fire for cooking.  Topic 1. The Growth and Development of Agribusiness Early Agricultural Development  Prehistoric humans had a problem with growing food. There was no one around to teach them that seed would grow into plants. Eventually, however, the puzzle to farming was solved and people began to raise crops and domesticated animals. Farming changed the way people lived.  Topic 1. The Growth and Development of Agribusiness The Bronze Age (around 3,000 B.C.)  Wooden implements were made sharper and more durable by using metal. This allowed people to cultivate larger areas of land faster. Some of the developments during the Bronze Age included: 1. Bronze tools and plows made for easier and faster farming 2. The Nile River was used by Egyptians to irrigate crops. 3. The wheel was discovered, making the transport of crops possible. 4. World population rose from 3 million before the invention of agriculture to nearly 100 million.  Topic 1. The Growth and Development of Agribusiness The Iron Age  The year 1000 B.C. was the dawn of the Iron Age. The use of iron gave people the ability to produce even more crops. Other developments of the Iron Age were: 1. Iron hand tools and plows were created, some of which are similar to those used today. 2. Money was developed because of the need to trade excess crops. 3. Leaving land fallow gave the soil a chance to rebuild and store moisture  Topic 1. The Growth and Development of Agribusiness  The Middle Ages (A.D. 400-1500)  The fall of the Roman Empire slowed the growth of agriculture. A few important developments occurred which include crop rotations, a new harness for plowing, and selective breeding of livestock.  Topic 1. The Growth and Development of Agribusiness Therefore, agribusiness before only focused on the production of food where the farmers provided most of the inputs needed using traditional farming, processed their produce to make their own food. They consumed or used everything they produced. What is Agribusiness? What is Agribusiness?  The term "agribusiness" was first coined by John Davis (1957), a professor of agricultural economics at Harvard University.  John Davis and Ray Goldberg defined agribusiness as the sum total of all operations involved in the manufacture and distribution of farm supplies, production operations on the farm, and the storage, processing and distribution of the resulting commodities and items made from them. Agribusiness is also defined as business and management activities performed by firms that provide inputs to the farm sector, produce farm products and/or process, transport, finance, handle/market farm products. Agribusiness as a Field Study Agriculture is the art and science of cultivating the soil, growing crops and raising livestock. Business is an economic activity aims to sell goods and services at prices that will provide an adequate return, commercialization of any enterprises. Management is set of activities (planning, decision making, organizing, directing and controlling) with the aim of achieving goals and objectives of the organization or any firm. Management helps coordinate both the human and material resources towards objective accomplishment through collective effect. Agribusiness as a Field Study Agribusiness is both an art and a science of managing an agricultural business enterprise.  An Art - Agribusiness puts together the various skills of an individual or organization, in running a profitable venture.  A science - Risk-taking is backed up by an objective gathering and analysis of data and information. Importance of Agribusiness 1. Agribusiness covers the supply of agricultural inputs, production and transformation of agricultural product and their distribution to final consumers. 2. Agribusiness is one of the main generators of employment and income worldwide 3. It suggests and directs the government and private sectors for development of sub sector. 4. Agribusiness creates utility of the product. Thus, it adds value and upgrade the product. Importance of Agribusiness  Firm Utility - It is created by processing. Process the product into desired form needed by the consumer.  Place Utility - It is created through transportation. Transporting the product to a location desired by the consumer.  Time Utility - It is created through storage function. Storing the product until the time it is needed by the consumer.  Possession utility - It is created by buying and selling function. Allows consumers to gain ownership the product legally. Factors Contributing to the Growth of Agribusiness Technological Advancements  Mechanization, irrigation, biotechnology, and precision farming.  The role of information technology in supply chain management, marketing, and distribution. Economic Factors  Growth of the global economy, increased demand for food, and rising incomes.  Trade policies, subsidies, and international agreements impacting agribusiness growth. Policy and Regulation  Government policies supporting agricultural research, infrastructure development, and market access.  Regulations concerning food safety, environmental protection, and labor laws. Market Dynamics  Increasing consumer demand for diverse and high-quality food products.  The role of branding, marketing, and value addition in agribusiness. Environmental and Sustainability Considerations  The push towards sustainable agriculture and the adoption of environmentally friendly practices.  The impact of climate change on agribusiness and the adaptation strategies being implemented. Scope of Agribusiness  Scope for secondary and tertiary processing of agricultural commodities  Scope for production of marine and inland fish and ornamental fish culture  Scope for production of meat, milk and milk products, poultry products  Organic farming  Opportunities for employment in marketing, credit, insurance, and logistic support service The Philippine Agribusiness System Agribusiness History o What is agriculture to most people? Farming, ranching, fishing?? o This was true until the early 1960s when “agribusiness” evolved into a complex system reaching well beyond the farm o The big picture included all things needed to bring food to the consumer. The agribusiness system includes many facets: o Not only production (e.g., farmers, hatchery managers), also organizations which provide inputs (e.g., fry, chemicals, feed), processors of the output (e.g., processing plants), manufacturers (e.g., shrimp, microwavable products), transporters/sellers/brokers (e.g., retail grocery stores, seafood wholesalers, etc.) The Philippine Agribusiness System o Dates back in the Spanish era late 1800’s: encouraging cash crops for exports to Europe and Latin America under the free-trade agreement between Phil and Spain! o Then wars broke out!! Triggers increased produce & prices, stimulating more production (demand and supply). War was profitable even back then! o Mechanization was developed largely due to labor shortages. o Crop production became a focus of farmers (They started purchasing inputs) o Much of the agribusiness activities was under an “encomienda system”. o As population increased, preservation of raw products was also improved. This made food more convenient to consumers. The Philippine Agribusiness System o The free trade between Phil and Spain was made possible through the Royal Company of the Philippines (RCP) created in 1785 at the initiative of Francisco Cabarrus under the mandate of King Charles III and later abolished in 1834. o In 1835, Manila was declared open to World trade even with the abolition of RCP. That started the influx of other traders to enter into the Philippines. o The principal exports then were abaca, tobacco, copra and sugar. Abaca  In 1825, marks the first recorded export of abaca from Manila. It was in Cebu where manila hemp (Abaca) was already widespread even before Magellan came.  Abaca was virtually a Philippine monopoly in the world market until the 1920, when Ecuador started growing abaca.  Even until now, Philippines controls about 85% of the world market and has the largest Abaca Pulp Processing Plant in the whole world. Tobacco  The industry was established by the Spaniards in 1782 to finance the defense against Muslim warriors in the South.  In 1898, tobacco was the second export earner of the Philippines, next to Abaca.  The major player of this industry is Philip Morris Phil. Manufacturing, Inc (PMPMI), who came to the Philippines in 1955. Eleven years later Lucio Tan put up the Fortune Tobacco Corporation (FTC) which merged with PMPMI in 2010 to become the PMFTC, controlling about 90% of the market Sugar  The industry was actually started by the Ayala’s and Roxas through the establishment of a small distillery in order to give more value-addition to sugarcane.  Sugar was first exported by the Philippines in 1856. The most radical part of development was in 1909 when St. Louis Oriental Factory was set up in Pangasinan as sugar refinery using British tech. Shortly after that, sugar mills were established in the Visayas and some parts in Mindanao.  The industry benefited from the Laurel-Langley agreement, in the 1960’s, were Ph sugar enjoyed a preferential captive market in the US in exchange for the growing American influence in the Philippines. That was the darkest part of the industry for it resulted to the downhill path of the industry. It has not recovered since then.  The bio-fuel industry made a push for the sugar industry in 1987, La Tondeña Distillers Inc. - LTDI merged with San Miguel Corporation - SMC to become Ginebra San Miguel Inc. - GSMI. Coconut  Since its entry in the export market before the 1900’s, it remained as still one of the major exports of the Philippines even until today.  By 1940, it occupied at number 6 in the export share and in 1970 coconut oil became the major export valued at USD96M. In 2010, coconut product export was one of the top 5 exports with a value reaching close to USD1.3B  P&G is still the major player in the coconut oil - CNO buyer in the local market. Other Agribusiness winners  Pineapple  Banana  Flour  Rubber  Oil Palm  Processed Meat  Fishery and aquaculture  Beverages  Others Philippine Agriculture Today  Agriculture posted a 1.2 percent decline in the first quarter of 2020 with crops and fisheries contributing to the contraction for the quarter. However, livestock and poultry both recorded increases in production.  Crop production, which accounted for 54.9 percent of the total agricultural output, decreased by 2.1 percent during the quarter. Palay and corn production went down by 3.6 percent and 3.4 percent, respectively. Philippine Agriculture Today  Livestock inched up by 0.5 percent in output this quarter. It shared 17.9 percent to the total agricultural production. Hog production grew by 0.7 percent.  Production of poultry was 3.9 percent higher in the first three (3) months of 2020. It contributed 14.3 percent to the total agricultural output. All poultry commodities posted production increases during the quarter.  Fisheries, which contributed 12.8 percent to the total agricultural production, dropped by 5.2 percent during the first quarter of 2020. Most of the major species recorded lower production levels.  At current prices, the value of agricultural production amounted to PhP 441.2 billion, up by 3.4 percent from the previous year’s level. Thank you for listening!!