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Roger Lamb

Agribusiness Division, Elders Pastoral, Adelaide

Five Key Factors

Five key factors are increasingly changing the nature and structure of agricultural industry now and into the 1990s. The manner in which Agribusiness suppliers adapt to meet these changes will determine their future prosperity.

The first key change relates to fundamental change in the profile of gross farm production between now and the early 2000s. Figure 1 clearly indicates a shift from the 1980s where livestock production dominated farm production to a forecast in the 2000s where crop-related activities (including horticulture) will be the dominant sector of farm production. Horticultural production, for example, is seen to increase from approximately $1.4 billion in the mid 1980s to exceed $5 billion in the early 2000s (approximately the same as gross wool receipts forecast for 198g/90).

Figure 1. The shift in the components of production agriculture 1950-2010

Further studies indicate the range of crops grown is rapidly expanding in its diversity within the crop segment.

Another growth segment between the 1980s and the 2000s is the “services to the agriculture” sector. An opportunity exists for Agribusiness suppliers to play a major role in this segment and is expanded on later in this paper.

The second key change relates to the dramatic concentration of farm ownership which is seen to continue into the 1990s. Figure 2 graphically indicates the reduction in rural establishments with production exceeding $2500 per annum, declining from 200,000 in the 1960s to an estimated 150,000 farms in 1990.

Analysis of the influence medium to large farm establishments have on total rural production indicates that, of the current 160,000 rural establishments, 85,000 medium to large farms produce 65%-70% of total production.

Figure 2. The number of rural establishments with value of output greater than $2500 p.a., 1952-1991.

Increasing Corporate investment in rural holdings is another feature of the changing future of farn ownership.

The third key change impacting on Agribusiness suppliers is the changing “characteristics” of today’s and tomorrow’s farm manager. These include:

• new generation of decision makers

• new range of attitudes, values and perceptions

• better education - travel more

• more specialised - large investments

• expect more from supplier

• use computers to manage and record

• manage bigger operations

• are business managers tough negotiators?

The fourth element of change relates to an increasing farmer and general community awareness and interest in a basket of issues impacting on agricultural production, and include:

• environment

• greenies

• chemical usage

• organic farming

• greenhouse

• animal liberation

• natural resource degradation

• technological development

The fifth element of change impacting on rural industry and its bottom line is a continuing decline in agricultural terms of trade. Figure 3 indicates this disturbing downward trend which dropped a further 4.4% in the year to March 1989 after a relatively static three-year breather.

Figure 3. Real net value of rural production and farmers’ terms of trade, 1950-1991

The main reasons for the 4.4% decline to March 1989 were rising farm costs, higher interest rates and an easing of commodity prices.

The range of “external” factors, outside the control of farm managements, which further exacerbated this declining terms of trade picture include:

• commodity prices

• seasonal conditions

• domestic and world economic trends

• domestic and world political climate

• tariff and trade arrangements

• export “enhancement programmes”

• market deregulation

Agribusiness And The Five Key Factors

Agribusiness suppliers are, in general, struggling to keep pace with the wide-ranging impact these key changes are having on the supply of service to agriculture. The rapidly reducing numbers of farm enterprises is changing the scale, specialisation and “characteristics” of many farm managements.

The emerging “non-traditional” farm management has often developed production, business and management skills at a faster pace than has the capacity of the traditional Agribusiness supplier to service these changing needs.

Of all the key changes facing Agribusiness suppliers, the issue of “how” they become a meaningful player in assisting farm management increase productivity/profits is the factor which will determine long-term prospects. The concept that productivity is merely achieved by producing extra units with a potential downside, being the degradation of basic resources, is no longer tenable.

Agribusiness suppliers must adapt their range of on- and off-farm services to meet the changing needs of the larger/specialist farm managements, particularly in specialist/technical areas to assist farm profits, whilst conserving natural resources.

Specialist on-farm services can include:

• animal breeding/genetics, selection, classing;

• animal health management programmes/animal nutrition programmes;

• agronomic services covering broadacre, specialist, intensive horticulture and pasture crops;

• water handling/management in intensive and broadacre operations;

• rural property services;

• general farm management support;

• financial management support;

• analytical services including soil, water and tissue testing;

• commodity marketing options, selection, development of production and marketing packages;

• market development services;

• information services on future commodity production and marketing trends, current and future.

The need to adapt and develop Agribusiness specialist/technical-based services is, in many cases, breaking new ground.

The positioning of these specialist/technical services to complement current traditional agencies and farm input services is a process of evolution, not revolution.

The longer term positioning of Agribusiness specialist/technical services on a “consultancy” fee-for-service basis, separate from the manner in which traditional agencies and farm input services are offered, is a distinct probability.

Differentiating individual customer needs built around a mix of:

• product

• service

• quality; and

• price, ie. value for money

is forcing Agribusiness suppliers to change their operational focus from a sales driven “what the customer can have” to a market driven “what the customer wants” basis. This emerging “customer focus” is, to a point, where some services will be changed, updated and improved, some new services introduced and some traditional services dropped.

As customer needs change so must Agribusiness services. This continual change process is new and imposing to Agribusiness suppliers. However, the process must be accepted and managed since the only factor likely to alter is the rate of that change. Agribusiness suppliers need to adapt their product knowledge, customer information database and staff skills in order to have a better understanding of “what” and “how” they can join the information extension process.

Recently a number of research findings quantified the losses of farm productivity from particular problems, pests, parasites and diseases. Farm management practices put a further dimension on “how” farm productivity can be enhance, NOT by producing extra units, but by doing what is currently practised in a better way.

Pasture degradation from weed, insect and disease, for example, is estimated to cost Australian farmers a massive $1 billion in lost product - equivalent to 20% of the total wool clip estimate for 1989/90.

Soil degradation from erosion, salination and acidity damage cost $600 million in lost production. Losses from internal and external parasites in sheep are estimated to cost $300 million in lost production. These productivity inhibitors have been around for years, without most Agribusiness suppliers taking a positive position in identifying management options which could assist in reducing the losses.

Agribusiness has to specialise its on-farm services further and take a position of leadership in developing and extending information which assists increased farm profits and conserve natural resources. The potential for Agribusiness and Government extension bodies to cooperate in this process is likely as is the cooperation between Agribusiness and the manufacturers and developers of new innovative products and technologies.

Agribusiness is also being challenged to adapt and develop off-farm services aimed at increasing tarn profit. Off-farm opportunities include:

• commodity marketing methods and options;

• development of downstream processing;

• vertical integration of “farm to consumer” marketing covering the:

• farm producer

• Agribusiness supplier

• processor

• commodity marketer;

• new market development inside and outside Australia;

• export trading;

• commodity trading;

• specialist marketing services;

• electronic information services in commodity production and price trends, product and financial data.

These off-farm services again need positioning as specialist services which can complement the general on-farm service package.

In summary, as the nature and structure of Australian agriculture is dramatically changing, so is the range of challenges for Agribusiness suppliers to position their operational resources for the future. Without substantial changes in the range and type of specialist services offered by Agribusiness suppliers focusing on key on- and off-farm productivity needs to develop long-term production opportunities,in a controlled, responsive and responsible manner, their future prospects will be limited.

Agribusiness must take a leadership position in developing and extending farm management practices which seek to hold a balance between the need for production and the preservation of agriculture’s natural resources.

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