Ag Business Management Exam 1
Equation for elasticity
% change in quantity / % change in price
Major Areas of Management Responsibilities
- Marketing and selling - Financial management and planning - Production and operations - Personnel or human resources
Disadvantages of Proprietorship
- The owner is personally liable for all debts and liabilities of business -Limited amount of capital funds -No business taxes may be a disadvantage -Not able to share the control may limit employees -Lack of stability
Advantages of Proprietorship
- minimal legal requirements - owner has complete control over the business - all profits, losses, liabilities are vested in the proprietor - costs of organizing and dissolution are low - Gives the individual owner complete control over the business, subject only to government regulations that are applicable to all businesses of that particular type.
Organizational Chart
-Division of Labor -Chain of Command - Bureaucracy
Benefits of Management by Exception
-Easier to ignore areas where performance is on target -See whole situation at a glance -Simple/easy to prepare, easily understood -Clearer interpretation than raw data
Shaping the work climate
-Set a good example -Conscientiously seek participation -Be goals- and results centered -Give credit and blame as needed -Be fair, consistent and honest -Inspire confidence and lend encouragement
Tasks in Organizing
-Set up the organizational structure -Determine the jobs to be done -Define lines of authority/responsibility -Establish relationships within the organization
Directing
-selecting, allocating, and training personnel -assigning duties and responsibilities - establishing results to be achieved - creating desire for success -seeing the job is done and done properly
Managers must be:
-technologically knowledgeable about products and services -effective communicators - able to motivate - proficient in management technical skills such as accounting, finance, and forecasting
Levels of Planning
Level 1: Corporate Strategy Level 2: Line of Business Strategy Level 3: Functional Area Strategy Level 4: Operating Level Strategy
Contingency/Day-to-Day Level of Planning
Line Employees--> Inflexible, immediate, unwritten, simple, very specific
Basic Premise
Managers should concentrate on areas in which things are not progressing as expected. Focus on deviations from forecast.
Tactical Level of Planning
Middle Management--> Somewhat flexible, intermediate-term, written reports, less detail, outlined, general
Controlling
Monitoring and evaluation of activities. Performance is measured and compared with standards set. Includes an information system monitoring plans and processes.
change in supply
Movement of the entire supply curve
How do taxes or subsidies impact the supply curve?
New taxes raise costs and shift the supply curve to the left. Subsidies act to lower costs and shift the supply curve to the right.
Food Retailing (Food Sector)
One of the largest industries in the U.S.
Supply Algebraic Form
P= a + BQs
Demand Algebraic Form
P= a - BQd (all are negative, take the absolute value).
How does the weather impact the supply curve?
Poor weather conditions, decreases yield, which shifts to the left.
The Wheel of Management
The wheel of management describes how the four key task of agribusiness managers: planning, organizing, directing, and controlling, can work together. This can be displayed as a wheel where motivation is the torque/speed, with which tasks are accomplished and communication is the axle on which the entire wheel turns. In the wheel of management, management can be no stronger than the weakest part of the wheel and the situation will determine where a manager puts their energy.
Variety of Market Conditions
The wide range of firm types and the risk characteristics of the food and agribusiness markets have led to an equally wide range of market structures. Competitive markets (cotton farmers, coca-cola vs. Pepsi)
Example of economic profit
Time (how much time do you invest in a project?)
Non-family farms
any farms where the primary operator and his or her relatives do not own a majority of the business.
Partnerships
association of two or more people as owners of a business. Agreements can be written or oral.
derived demand
based on the need for a product that is indirectly related to consumer demand Example: Fertilizer--> corn--> beef
supply curve shifts left
decrease in supply, price increases
The Law of Supply
direct relationship between price and quantity, which means sellers are willing to provide products for sale in the market as prices increase.
demand elasticity
income and cross price elasticity of demand are calculated in a similar manner as for price elasticity of demand. DO NOT TAKE THE ABSOLUTE VALUE
supply curve shifts right
increase in supply, price decrease
Scarce Resources
labor, land, capital, management
Services and Financing
management services, veterinary care, consulting businesses, and farm lending
Management vs. Leadership
management: involves performing management tasks and functions leadership: involves influencing the attitudes and behavior of followers and motivates them to their best work
change in quantity supplied
movement up or down a given supply curve (no shift in curve)
Midsize Family Farms
operators reporting farming as their primary occupation and gross sales between $350,00 and $999,999.
Key Tasks of Agribusiness Managers
planning, organizing, directing, controlling
Small Family Farms
retirement farms, off-farm occupation farms, and farm-occupation farms with both low sales (<$150,000) and moderate sales ($150,000 and $349,000).
Procedures
step-by-step guide to implement a policy
Types of Planning
strategic, tactical, contingency
Accounting Profit
the net income that remains after all actual, measurable costs are subtracted from total revenue. It is used as a performance measure of firm success
Practices
what is actually done in the firm
Food Sector
Food processing, marketing, and distribution (example: Kraft, Hormel, Kroger)
Microeconomics
The application of basic economic principles to decisions within the firm. Managers must figure out the best way to use physical, human, and financial resources in production and marketing of goods and services to meet customers' needs and generate a profit.
Management
The art and science of successfully pursuing desired results with resources available to the organization.
How does a change in technology impact the supply curve?
The development of new machines increases yield --> shifts supply to the right
Supply
The quantities that sellers are willing and able to place on the market at different prices.
Demand
The quantity that consumers are willing and able to buy in the market at various prices
Economics
The study of how scarce resources are combined to satisfy the unlimited wants and best meet consumer needs.
Unique Dimensions of Food and Agribusiness Markets
-Food as a product -Biological nature of production agriculture -Seasonal nature of business -Uncertainty of the weather -Types of firms -Variety of market conditions -Rural ties -Government involvement
Aspects of the Food Sector
-Food retailing - Food Service - Food wholesaling - Food processing and manufacturing -Transportation and storage firms
The Planning Process
-Gather facts and information -Analyze -Forecast -Set performance objectives -Develop alternatives -Develop means of evaluation
The 4 explanations for economic profit in our market economy:
1. Profit is the reward fro taking a risk in a business. The greater the risk involved, the greater the potential profit for successful ventures, if the venture is to attract any investor. 2. Profits result from the control of scarce resources. Most property is owned an controlled by private citizens. If a citizen owns a resource that others want, the others will bid the price up, which generates a profit for its owner. 3. Profits exit because some people have access to information that is not widespread. Resource owners who have special knowledge, such as secret processes or formulas. Can use this information exclusively and can thereby maintain significant advantages over their competition. 4. Prodits exist simply because some businesses are managed more effectively than others. The managers of such businesses are often creative planners and thinkers whose day-to-day organizations are extremely efficient. The reward for doing the job well often results in economic profit.
Why Profits Exist in Our Economy
1. Profits are the reward for taking a risk in business 2. Profits result from the control of scarce resources 3. Profits exist because not all information is widespread 4. Profits occur when a business is managed better than others.
What is the definition of a farm.
According to the USDA: "any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during a given year".
Transportation and Storage Firms
Acquire or assemble commodities form ag. producers , and store/transport these products for food manufacturing and processing firms.
how do surpluses occur?
As a result of charging a price that is too high so inventory starts to accumulate
Biological Nature of Agriculture
Biological nature and livestock (living things) are more susceptible to forces beyond human control.
Farm Food Marketing Bill (2017)
Breaks down the proportions of the consumer's food dollar that go to the farmer for raw products and to the food industry for "marketing" those raw farm products to end consumers. Marketing Share (85.5¢) and Farm Share (14.6¢).
Rural Ties
Businesses in small towns or rural areas are often the backbone of the rural economy .
Net Farm Income
Determined by prices of farm products, production yields, and farm production expenses.
General Partnerships
Each individual partner has equal rights and liabilities unless stated otherwise in the agreement.
Inelastic
Elasticity < 1. Small change in price = smaller change in quantity demanded (necessities).
Elastic
Elasticity > 1. Small change in price = large change in quantity demanded (luxury goods).
Human Resources Management
Encompasses managing two areas: the mechanics of the personnel adminstration and the finer points of motivating people to offer and contribute their maximum potential.
How does the number of suppliers impact supply curve?
Example--> If fewer farms raise hogs, the supply curve will shift to the left. Conversely, if more farms decide to raised hogs, the supply curve will shift to the right.
How does the change in price of other products that can be produced impact the supply curve?
Example--> an increase in the price of corn causes farmers to shift acres to corn (shifts supply curve to the right) and away from other crops such as soybeans, wheat, or cotton (shifts supply curve to the left).
Large-scale family farm
Family farms with gross cash farm income over $1 million
Types of Firms
Farmers,Transportation firms, Brokers, wholesalers, processors, manufacturers. Storage forms, mining firms, financial institutions, retailers, etc.
The Law of Demand
Finds an inverse relationship between price and quantity, or buyers are willing to purchase less as price increases
Macroeconomics
Focuses on the big picture view of our economic system (national income, gross domestic product, inflation, unemployment, and interest rates). Is concerned with how the different elements of the total economy interact.
Supply Chain Managemnt
Focuses on the production speed in order to meet consumer demands and provides the tools managers need to meet operation and logistical challenges.
Primary Sectors of the Food System
Food Sector, Production agriculture sector, and input supply sector
Uncertainty of weather
Food and agribusiness firms must deal with the vagaries of nature- example: drought, flood, insects, disease, etc.
Food as a product
Food is vital to the survival and health of every individual. It is considered a critical component of national security.
How do shortages occur?
From setting a price below equilibrium and demand exceeds supply
Factors Causing Demand Curve to Shift
Income Tastes and Preferences Expectations Population Price of Substitutes or Complements
Limited partnership
Individuals are permitted to contribute ownership capital without incurring the full legal liability of a general partner.
Manufacturing
Input manufacturers are responsible for the research, development, production, and manufacturing that make these products possible. Example: John Deere. Syngenta, Poets, etc.
Marketing Management
Involves understanding customer needs and effective positioning and selling products and services in the marketplace. It is a key function within each sector of agribusiness.
Financial Management
Profit is the main driver for agribusiness. Financial management is involved in generating the data needed to make good decisions, using the tools of finance to make effective decisions, and managing the assets, liabilities, and owner's investment in the firm.
Production Agriculture Sector
Purchased inputs, natural resources, and managerial talent are combined to produce crop and livestock products
Elasticity of Demand
Reflects the percentage change in the quantity demanded when the price changes by 1%.
Distribution
Responsible for getting the products from the manufacturers to the farm, and providing a set of services that ensure productive use of the inputs.
Input Supply Sector
Responsible for providing the thousands of different inputs - both products and services - to production agriculture (DuPont, Syngenta, John Deere, etc.). Comprised of the firms that manufacture and distribute the myriad of inputs used by the production of ag. Sector.
How does the change in price of inputs impact the supply curve?
Rising prices shift the supply curve to the left
Government Involvement
Some programs heavily influence the commodity prices and farm income.
Types of Retail Food Stores
Supermarket, superstore, warehouse store, super warehouse store, combo store (pharmacy/other), and hypermarket
Seasonal Nature of the Business
Supply driven- example: massive amounts of corn and soybeans are harvested in the fall.
According to Dr. Best...
THERE IS NO SUBSTITUTE FOR MT. DEW!!!
Opportunity Cost
The income given up by not choosing the next best alternative for the use of the resources. These are never actually incurred and cannot be measured precisely.
single proprietorship
The oldest and simplest form of business organization. This is an organization owned and controlled by one person or family.
Economic Profit
The opportunity costs of alternative uses for resources within the firm. It provides insights about the long-run potential for an industry. If economic profits are positive, more firms will enter. If economic profits are negative, some firms will choose to exit the market to find more appealing ventures.
Price Discovery
The process of determining the point of market equilibrium (quantity and price) where one price and quantity clear the market at a given point in time.
Strategic level of planning
Top Management--> Very flexible, long term, written analyses, complex, detailed, broad
Food Service
Traditional restaurants, fast food/quick service, and institutional food service. The USDA estimates that 52% of the food dollar will be spent away from home by 2020.
The Cross Price of Elasticity of Demand
Used to classify how demand relates to price changes in other goods.
income elasticity of demand
Will have a positive sign and these products are classified as normal goods (will rise as income increases). For some goods, income elasticity will have a negative sign, which are classified as inferior goods. This means quantity demanded will fall as income rises. Example of inferior goods= recent college grad will not purchase/consume ramen or canned tuna due to an increase in their income.
Managers
______ must efficiently combine human, financial, and physical assets to maximize long run profits by satisfying the firm's customer's demands. This individual provides the organization with leadership and who acts as a catalyst for change.
Policies
general guidelines for decision-making that guide the thinking process, set boundaries
