Agriculture Reference
In-Depth Information
Factors affecting location decisions
When food and agribusiness managers choose a site for their facilities, they consider many
factors. Of course, the relative importance of any factor is dependent on the type of product
or service produced, plant size, plant type, environmental restrictions, and geographic loca-
tion. Six of the more important factors in fi rm location include:
1.
Proximity to raw materials and suppliers
2.
Location of markets
3.
Labor climate
4.
Agglomeration
5.
Taxes and incentives
6.
Proximity to other company facilities
Proximity to raw materials and suppliers
Agribusinesses may wish to have
proximity to raw materials and suppliers
— especially if
one major raw material input is needed and that input is costly to ship in its raw state.
Examples of food and agribusinesses very dependent on sources of supplies include canning
industries, corn processors, and meat packers. In the beef meat packing industry for exam-
ple, cattle would be bulky and costly to ship from Nebraska to New York, so they are slaugh-
tered near fi nishing feedlots and shipped long-distance in the more manageable form of
boxed beef. By locating near cattle feedlots and lower-wage markets, meat packers have
seen industry cattle kill-costs cut by 50 percent and plant utilization rates increased to about
90 percent compared to the 60 percent industry average of that time.
Agricultural industries that transport large volumes of material, often perishable, must
also consider locating where bulk transportation resources are available. Most of the large
grain elevators are located on either large water or rail systems. Thus, fi rm location attempts
to minimize both the costs of production and transportation of raw materials and suppliers.
Location of markets
There is an old real estate adage that states the three most important factors in real estate are
location, location, and location.
Location of markets
is especially important to retailers
because customers will often not travel long distances to buy from a retailer. Agricultural
goods that are bulky, perishable, or heavy can receive higher prices if they are located near
markets because of higher quality, better service, and lower transportation costs.
Agribusinesses that produce inputs for other fi rms often locate facilities near these buyers to
minimize distribution costs and to provide better service.
Locating near markets is very important for service fi rms. Equipment manufacturers have
found that aftermarket (replacement) parts sales and service requires relatively close loca-
tions to markets because producers will only drive limited distances for parts and services.
Rather than maintaining full dealerships, manufacturers are locating satellite service facili-
ties near these markets to provide for aftermarket parts, sales, and service.
Labor climate
In a survey and interview of fi rms on factors considered in locating a new manufacturing
plant in the United States, 76 percent of the respondents indicated that a favorable labor
