Agriculture Reference
In-Depth Information
A good example is provided by the way that grain moves from farm to processor. Grain
typically moves from the farm either to local elevators or to sub-terminal elevators located
near transportation centers. These fi rms make money on grain movement, not on speculating
that the grain they hold will go up in price. Small local grain elevators may sell to a larger
sub-terminal or terminal elevator, or directly to a processor. Terminal elevators assemble
grain from smaller country elevators to amass a quantity of grain that will fi ll unit trains
or barges. Unit trains might move corn to the southeast to feed poultry. Or a group of
barges might be transported down the Mississippi River and the delivered grain shipped to
the international market.
Managing transportation and storage fi rms brings a unique set of challenges. A grain
buyer for a terminal elevator located close to rail lines and a navigable river must be knowl-
edgeable of rail rates, the availability of rail cars, and barge rates. Often these rates can
change signifi cantly overnight. Risk management is paramount, as commodity prices
change quickly. Margins for these fi rms are typically razor thin, hence cost management is a
priority.
Linkages in the food sector
Many of the organizations involved in the food sector have successfully integrated
forward or backward in the food system. Goals for such a strategy include increased
operating effi ciency and reduced market risk. For example, many fi rms are involved in
both processing and marketing activities and have at least partially integrated back to
the production sector by entering partnering or contracting arrangements with
producers. Smithfi eld Foods is a good example of a fi rm with such a position in the market.
The link helps reduce market risk by reducing material quality problems and supply
problems.
This arrangement is common in the poultry, fruit, and vegetable production sectors. In the
Midwest, for example, the Redenbacher Popcorn Company has producer agreements that
guarantee supply before the crop is planted in the spring. Redenbacher contracts with pro-
ducers by guaranteeing a specifi c price for popcorn grown on a specifi c number of acres. The
fi rm provides seed and purchases all popcorn grown on the acreage under contract. Producers
deliver production to a local processing facility.
Kroger, one of the top food retailers, owns 40 food processing plants that are used to
manufacturer store label products, including dairy, snack foods, and bakery items. Anheuser-
Busch owns malting plans and can-manufacturing operations. Firms like ConAgra have a
presence at almost every level of the food system. As mentioned earlier, such linkages are
common and make the lines between industries very blurry, and the resulting fi rms quite
complex.
The production agriculture sector
At the hub of our food production and marketing system is the production agriculture sector.
Production agriculture
includes the farms and ranches that produce the crop and livestock
products that provide inputs to the food and fi ber sector. And, these farms and ranches are
the customers of the fi rms that make up the input supply sector. As mentioned earlier, rela-
tively few individuals are responsible for a staggering quantity of output in the U.S. produc-
tion agriculture sector. Today's U.S. farmer produces enough food and fi ber in a year to feed
