STRATEGIC BUSINESS MANAGEMENT PRINCIPLES FOR THE AGRICULTURAL PRODUCTION SECTOR IN A CHANGING GLOBAL FOOD SYSTEM

Agricultural industries, producers, and producer organizations are often counseled to develop strategies or strategic alliances to address changing market and political environments. Over the next twenty years, production agriculture will experience fundamental changes, which, because of its rapidity and permanence, could surpass the tremendous changes that have occurred over the past fifty years. As the structure of agricultural production changes, so will the role and scope of agricultural producer organizations. Surviving organizations will be forced to fundamentally restructure their mission, goals, and purpose. Consequently, the application of strategic business management concepts will be increasingly more important for these groups over the next decade than at any previous time. The purpose of strategic business management is to build a strategic (or competitive) advantage over rival firms (or organizations) which can lead to long-term above-average returns for a firm in an industry. In general, successful companies employ one of three strategies: (1) a low-cost strategy, (2) a differentiation strategy, or (3) a focus strategy. Each of these strategies provides direction for firm-level decision-making and implicitly develops entry barriers to protect the developed competitive position. In addition, it is essential for a firm to consider strategies to defend its competitive position, lest it be overtaken by other firms who adopt similar market strategies. The best strategy is ultimately a function of consumer demand and the product/service attributes, core competencies, and managerial skills of each company. However, the worst strategy is being "stuck-in-the-middle," that is, being unable to compete with others on the basis of cost, value, or market specificity. In any case, rivals may undercut prices, maintain market share, or become the supplier of choice whenever change occurs in an industry. In addition, strategies must be refined as market conditions change. Over the next twenty years, farms and ranches will gravitate toward one of two production structures. The first type of production structure will be similar to many current farms and ranches in that undifferentiated commodity products will continue to be produced. Only low-cost producers will survive in this sector. A second category of producer will also evolve. Farms in this category will produce differentiated, identity-preserved products that focus on certain product attributes and consumer demands. Strategic business management abilities will be especially critical for farms that gravitate toward identity-preserved production. Agricultural producer organizations have historically performed the role of providing a unified voice in relation to commodity programs and other agricultural policies and as a conduit for information among producers. Trade liberalization, an increasingly global food system, the decoupling of commodity program benefits from production, and advances in biotechnology and information technology will alter the focus of agricultural producer organizations. Surviving organizations will be those who change their primary objective from lobbying for traditional commodity programs to providing resources and services needed by producers to cope with change and to expand profit opportunities. Such organizations will continue to provide valuable lobbying efforts with respect to a new range of issues, such as intellectual patent rights, trade liberalization negotiations, contract law, and environmental awareness. In addition, new roles for agricultural producer organizations will also develop. These will include performing clearinghouse functions for biotechnology information, facilitating strategic alliances and farmer-owned cooperative ventures, and developing new educational programs designed to improve members' strategic and risk management capabilities with respect to specialty food and fiber production. Some producer organizations may provide risk transfer functions for members, serve as contracting agents to facilitate identity-preservation, and organize production contracts that ensure supply availability of specialty food and fiber products. The combination of agricultural industrialization, trade liberalization, information technology, decoupled farm programs, environmental concerns, and consumer demands for food quality, safety, convenience, and nutrition will lead to unprecedented change in the agricultural production and the food and fiber processing and distribution sectors. Successful farm and ranch managers and commodity organizations are likely to be those who develop strategies which allow them to survive and prosper in this changing environment.


Issue Date:
1999
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/29161
Total Pages:
16
Series Statement:
Policy Issues Paper 11




 Record created 2017-04-01, last modified 2017-04-04

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