Agriculture Reference
In-Depth Information
Existing examples of a blended industry
include the horticulture-nursery and the dairy-
milk industries. In the first case, the horticultural
participants are farmers producing plants that
the nursery participants sell through wholesale
and retail outlets. Without the plants, the nurser-
ies have nothing to sell, and without the nurser-
ies, the farmers have no market outlet. Each
group needs the other. In the second case, dairy
farmers produce raw milk that is processed,
packaged and distributed by the second group of
participants. Again, each group needs the other.
As a result, there is much communication and
cooperation between the groups. The first group
seeks to deliver a product that facilitates the input
needs of the second group. That is possible
because the second group carefully communi-
cates its needs to the first group. In essence, the
groups
try
to blend their activities into a seamless
whole that has the best chance of successfully
meeting the demands of consumers.
These two examples of a blended industry
are similar in that the product's form is changed
little in a vertical system that is 'short' from top
to bottom. In this short vertical system, it is rela-
tively easy for participants to both see how the
other group contributes to the whole and to
communicate with each other. However, in the
future, some blended industries must be very
'tall' to serve their product markets, thus mak-
ing it much more difficult for system participants
to recognize and appreciate the contributions of
all other participants. This is the challenge driv-
ing current market evolution.
Structural changes in US agricultural pro-
duction are occurring in response to the
increased globalization of commodity markets.
Boehlje (1999) summarizes the changes by say-
ing 'production is changing from an industry
dominated by family-based, small-scale, rela-
tively independent firms to one of larger firms
that are more tightly aligned across the produc-
tion and distribution value chain'. These
changes are occurring against the wishes of
many producers. As Key (2005) indicates, agri-
cultural producers are very independent people,
thus not eager to give up any control over their
operations, if possible. Yet, that is what is hap-
pening at present. The agribusiness sector is
using its market power to nudge producers into
production and marketing contracts. As a result,
there is lots of conflict in the interactions
between the production and agribusiness sec-
tors. 'Some would argue that the basic nature of
competition has changed in all industries in
recent years, especially in terms of the definition
of a market' (Boehlje, 1999). He adds, 'world-
wide sourcing and selling has changed the geo-
graphic boundaries of markets from regional or
national to global'. In response, 'closer vertical
coordination has occurred as the use of spot
markets has declined, while production and
marketing contracts, franchising, strategic alli-
ances, joint ventures, and full vertical integra-
tion have increased' (Young and Hobbs, 2002).
This evolutionary change in markets for
commodities makes it more difficult for inde-
pendent farmers and ranchers to access buyers
in a traditional negotiation, thus adding to the
pressure on producers to align themselves with
some new vertical coordination structure. Up to
this point in time, most US producers have viewed
these market changes as a threat. That perspec-
tive is understandable given the negative effects
market changes have had thus far on producers'
financial performance. However, that perspective
could be the downfall of US agriculture.
The irony of the current situation is that if
nothing changes current perspectives, the threat
to producers posed by being forced to join a sup-
ply chain may be exceeded only by the threat of
not
being able to join a supply chain. As Young
and Hobbs (2002) conclude:
The Current Situation
What is the current situation in the market evolu-
tionary process shaping US animal agriculture
and agribusiness? In simple terms, America is at a
turning point between two eras in the relationship
between its production agriculture sector and
its agribusiness sector. The first era is not yet over,
but will be soon. What will end the first era, and
what will differentiate the second era from the
first, is a simple change in the perspective of ind-
ustry participants toward members of the other
sector. At present, both groups need the other, but
they are in a 'tug-of-war' when interacting, each
seeking to maximize their own profits. This is a
state of conflict, which is not sustainable.
some producers may have difficulty gaining
entry to tightly coordinated supply chains.
Entry may be difficult due to requirements for
