CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
Republic of the Philippines
PALAWAN STATE UNIVERSITY
Balabac Campus
Poblacion 6, Balabac, Palawan
LEARNING MODULE 3
Chapter 2: AGRIBUSINESS SYSTEM CONCEPT
Course Code: CC22-AEM2
Course Title: Introduction to Agricultural Commodity and Enterprise Development
Semester/SY: 2ndSemester 2021-2022
EDDA CHRYSELLE I. AMI
Subject Instructor
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
OVERVIEW
This module focuses on the foundation/operation and use of agricultural commodity
markets, how commodities are traded from producers to final consumers and the
analysis of agribusiness systems (supply chain analysis).
LEARNING OUTCOMES
After studying this lesson, you should be able to:
Illustrate and analyze Agribusiness System(supply chain).
Identify and discuss the role of the each sub - system of Agribusiness commodity system.
Analyze the difference between supply chain and value chain
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
CHAPTER III
THE AGRIBUSINESS SYSTEMS CONCEPTS
Agribusiness: The Concept
In essence, agribusiness consists of all industries surrounding food production, ultimate
end – user is the consumer, with marketing as the driving force behind all profitable
activities. With this in mind, there are basically 3 sectors that comprise agribusiness, as
expressed in the following diagram:
Agricultural Input Sector
CONSUMERS
Food Production Sector Manufacturing and
Processing Sector
MARKETING
Agribusiness System: A System of System
Agribusiness is a system of a system of interrelated and closely knit stages in the life cycle of
an agricultural consumer product. Agribusiness encompasses all operations involved in the
production of farm inputs, the use of these farm inputs in the cultivation of crops or raising of
livestock, the various handling and processing of agricultural commodities, and the transfer of
these commodities to the end – users. Interpersed among these operations are the various
support services that provide “logistics, coordinbation, financing, manpower, technology,
information, policies and propgrams, incentives and other services” that lead to the
achievement of successful agricultural business enterprise.
SUPPLY CHAIN – an entire system of prducing and delivering a productor service from the
very beginning stage of sourcing the raw materials to the final delivery of the product to th
end- users. The supply chain lays out all aspects of the production process, including the
activities involed at each stage, information that is being communicated, natural resources
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
that are transfromed into useful materials, human resources and other components that go
into the finished product.
VALUE CHAIN – normally refers to the whole range of goods and services necessary for an
agricultural product to move from farm to its final customer. The World Bank’s definition of the
term “value chain” describes the full range of value adding activities required to bring a
product or service through the different phases of production, including procurement of raw
materials and other inputs.
The Five Major areas that are also sub - systems making up the whole agribusiness system:
A. Input Sub-system – seed, fertilizer, pesticide, machinery and equipment, water, power,
feeds(for poultry or livestock) are manufactured, imported or distributed.
B. Production Sub-system – inputs are directly used for the production of an agricultural
commodity as end-product in itself or as a raw material for the production of other
products.
C. Processing Sub-system – the commodities from the production subsytem 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.
D. Marketing Sub-system – 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. The marketing subsytem may take the
following routes:
1. Transfer of agricultural inputs from manufacturers to farm input users.
2. Transfer of commodities from production site to processing site.
3. Transfer of commodities from processing site to end-consumer.
Functions of marketing :
A. EXCHANGE FUNCTIONS
1. Buying - The marketing concept holds that the needs of the customer are of paramount
importance. A producer can be said to have adopted a market orientation when production is
purposely planned to meet specific demands or market opportunities
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
2. Selling - Of the nine functions listed, this is probably the one which people find least difficulty
in associating with marketing. Indeed to many the terms marketing and selling are synonymous.
Kotler7 suggests that:
“Most firms practice the selling concept when they have over capacity. Their immediate aim is to
sell what they can make rather than to make what they can sell.”
There is no denying that ‘high pressure selling’ is practiced, where the interests of the consumer
are far from foremost in the mind of the seller. This is not marketing. Enterprises adopt the
marketing philosophy as a result of becoming aware that their own long term objectives can only
be realised by consistently providing customer satisfaction. Whereas selling might create a
consumer, marketing is about creating a customer. The difference is that marketing is about
establishing and maintaining long term relationships with customers.
Selling is part of marketing in the same way that promotion, advertising and merchandising are
components, or sub-components of the marketing mix. These all directed towards persuasion
and are collectively known as marketing communications; one of the four elements of the
marketing mix.
B. PHYSICAL FUNCTIONS
3. Storage - An inherent characteristic of agricultural production is that it is seasonal whilst
demand is generally continous throughout the year. Hence the need for storage to allow a
smooth, and as far as possible, uninterrupted flow of product into the market. Because he is
dealing with a biological product the grower does not enjoy the same flexibility as his
manufacturing counterpart in being able to adjust the timing of supply to match demand. It
would be an exaggeration to suggest that a manufacturer can turn production on and off to meet
demand - they too have their constraints- but they have more alternatives than does the
agricultural producer. A manufacturer can, for example, work overtime, sub-contract work, and
over a longer time horizon, the manufacturer can increase or decrease productive capacity to
match the strength of demand.
4. Transportation - The transport function is chiefly one of making the product available where it
is needed, without adding unreasonably to the overall cost of the produce. Adequate
performance of this function requires consideration of alternative routes and types of
transportation, with a view to achieving timeliness, maintaining produce quality and minimising
shipping costs.
5. Processing - Most agricultural produce is not in a form suitable for direct delivery to the
consumer when it is first harvested. Rather it needs to be changed in some way before it can be
used. Kohls and Uhl6 observe that:
“The processing function is sometimes not included in a list of marketing functions because it is
essentially a form changing activity.”
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
However, it is for this very reason that processing ought to be included as a marketing function.
The form changing activity is one of that adds value to the product. Changing green coffee
beans into roasted beans, cassava into gari or livestock feed, full fruit bunches into palm oil or
sugarcane into gur increases the value of the product because the converted product has
greater utility to the buyer. How the form of produce is to be changed and the method to be
used in bringing about such changes are marketing decisions.
C. FACILITATING FUNCTIONS
6. Standardisation(grading and classification) - is concerned with the establishment and
maintenance of uniform measurements of produce quality and/or quantity. This function
simplifies buying and selling as well as reducing marketing costs by enabling buyers to specify
precisely what they want and suppliers to communicate what they are able and willing to supply
with respect to both quantity and quality of product. In the absence of standard weights and
measures trade either becomes more expensive to conduct or impossible altogether.
7. Financing - In almost any production system there are inevitable lags between investing in
the necessary raw materials (e.g. machinery, seeds, fertilizers, packaging, flavourings, stocks
etc.) and receiving the payment for the sale of produce. During these lag periods some
individual or institution must finance the investment. The question of where the funding of the
investment is to come from, at all points between production and consumption, is one that
marketing must address. Consider the problem of a food manufacturer who wishes to launch a
range of chilled products in a developing country where few retail outlets have the necessary
refrigeration equipment. This is a marketing problem. It might be solved by the food
manufacturer buying refrigerators and leading these to retailers (or arriving a hire-purchase
arrangement with retailers).
8. Risk Bearing - : In both the production and marketing of produce the possibility of incurring
losses is always present. Physical risks include the distruction or deterioration of the produce
through fire, excessive heat or cold, pests, floods, earthquakes etc. Market risks are those of
adverse changes in the value of the produce between the processes of production and
consumption. A change in consumer tastes can reduce the attractiveness of the produce and is,
therefore, also a risk. All of these risks are borne by those organisations, companies and
individuals.
9. Market Intelligence - for as is possible marketing decisions should be based on sound
information. The process of collecting, interpreting, and disseminating information relevant to
marketing decisions is known as market intelligence. The role of market intelligence is to reduce
the level of risk in decision making. Through market intelligence the seller finds out what the
customer needs and wants. The alternative is to find out through sales, or the lack of them.
Marketing research helps establish what products are right for the market, which channels of
distribution are most appropriate, how best to promote products and what prices are acceptable
to the market. As with other marketing functions, intelligence gathering can be carried out by the
seller or another party such as a government agency, the ministry of agriculture and food, or
some other specialist organisation. What is important is that it is carried out.
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
Each of these functions add value to the product(VALUE CHAIN) and they require inputs, so
they incur costs. As long as the value added to the product is positive, most firms or
entrepreneurs will find it profitable to compete to supply the service.
Table 1 Stages of Agricultural Marketing
Stage Examples
Commodity buyers specializing in specific agricultural
Stage 1:
products, such commodities as grain, cattle, beef, oil palm,
Assembly
cotton, poultry and eggs, milk
Stage 2: Independent truckers, trucking companies, railroads, airlines
Transportation etc.
Grain elevators, public refrigerated warehouses, controlled-
Stage 3:
atmosphere warehouses, heated warehouses, freezer
Storage
warehouses
Stage 4:
Grading and Commodity merchants or government grading officials
classification
Food and fibre processing plants such as flour mills, oil mills,
Stage 5:
rice mills, cotton mills, wool mills, and fruit and vegetable
Processing
canning or freezing plants
Stage 6: Makers of tin cans, cardboard boxes, film bags, and bottles for
Packaging food packaging or fibre products for
Stage 7: Independent wholesalers marketing products for various
Distribution and processing plants to retailers (chain retail stores sometimes
retailing have their own separate warehouse distribution centres)
E. Support Sub-system –consist 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.
The government plays an important role in providing a policy environmemt that is favorable to
agribusiness enterprises such as policies on prices, imports, exports and general trading.
The Agribusiness commodity System (supply chain, value chain) systems differ
widely according to the commodity, the systems of production, the culture and traditions
of the producers, the location and road access of the farmers/producers to the market
and the level of development of both the particular country and the particular sector
within that country.
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
CC22 – AEM2 Introduction to Agricultural Commodity and Enterprise Development
Prepared by: Edda Chryselle I. Ami
ASSESSMENT/EVALUATION:
FOR YOUR ASSESSMENT I WILL POST IT SEPARATELY IN YOUR GOOGLE CLASSROM.
REFERENCE:
http://www.fao.org/3/w3240e/W3240E06.htm
https://transportgeography.org/contents/chapter7/freight-transportation-value-chains/
commodity-chain-analysis/
https://en.wikipedia.org/wiki/Commodity_chain
Bachelor of Science in Agricukture, PSU South Campuses 2nd Semester SY 2021 -
2022
