Agribusiness involves the production, processing, and distribution of agricultural goods and services, and it includes all related activities (Wesley et al 2007, p.1). Human survival depends on food. This makes agribusiness an important subject in today's world. Agribusiness is the foundation of every nation's economic development. Agribusiness is a broad concept that covers input suppliers,agro-processors, traders, exporters, and retailers. Agribusiness is a complex system reaching beyond the farm and commodities produced. Agribusiness connects farmers to consumers through financing, handling, processing, storage, transportation, marketing, and distribution of agro-industrial products(Kandeh et al 2011, p.28). Today's agribusiness is rapidly changing, highly volatile, international, high technology, and consumer-focused. It involves the use of high technology equipment to increase production to meet the growing demand for food by the rapidly growing world population. Agribusiness firms range from large multinational corporations to emerging food manufacturing and input supply firms (David et al 2014, p.6).
Agribusiness sector and the International Market
As the world is becoming more global, agribusiness is also moving from a domestic to a global perspective. The internationalization of our world, our attitudes, and our abilities to be connected are greatly responsible for the growing trend called globalization. Global agribusiness management is guided by concepts that view the world as one market. The agribusiness sector is more involved in manufacturing and distribution activities than traditional primary production. The agribusiness industry has moved positively towards meeting consumer demands by controlling the production and manufacturing processes. Agribusiness expansion to the international market has its challenges and benefits (Wesley et al 2007, p.1).
Benefits of Agribusiness Industries in the International market
International markets hold appeal for several reasons. Some of these reasons are shown in the list below (Freddie et al 2012, p. 100):
- Increase in revenues
- Gaining competitive advantages
- Scale economies as a result of larger production volumes
- Global brand recognition
- Reduce risk by diversifying across markets
- Lower costs of production
- Access lower-cost raw materials through international sourcing
- Broaden access to credit
- Leverage experiences from operating in international markets into domestic markets
Agribusiness and its challenges in the International market
Every business has its challenges, for agribusiness the most dominant issue faced in the international market are listed and discussed below (Freddie et al 2012, p. 108):
- Cultural differences
- Exchange rate fluctuations
- Accounting system differences
- Sanitary and phytosanitary (SPS) rules
- International laws and trade specifications
Cultural Differences- Cultures is a way of life of a group of people. It is learned and not inherited. Culture varies significantly around the world, and such differences must be understood by agribusiness firms attempting to operate in an international market. The international agribusiness firm must be sensitive to differences in cultures which is seen in their, communication styles, relationships, perceptions, beliefs, practices, and family roles. To succeed in the International market agribusiness firm must make the appropriate adjustments in their business approaches. The experienced agribusiness manager will try to accept the values of the local culture and will seek to work within the accepted behaviors. Adjustments, if necessary, by international agribusiness firms are generally made in product adaption, management style, relationship management, organizational structure and hiring practices.
Accounting system differences- Accounting methods vary in different countries. For example, the financial statement format in the UK is different from the financial statement in the US. Financial terms are also different, “inventory” in the United States is “stocks” in the United Kingdom; “retained earnings” in the United States is “profit and loss reserve” in the United Kingdom. Some financial statements do not even exist in other countries. The “statement of cash flows,” an important accounting statement in the U.S. financial market, does not exist in countries like Germany and Japan.
Exchange Fluctuations- Exchange rates between countries fluctuate because of many different factors. Agricultural trade is very sensitive to changes in the exchange rate relative to some other industries because agricultural goods are more homogeneous. One method that can be adopted to deal with fluctuating exchange rates between two countries is to negotiate payment in another country’s currency that is relatively stable. Another method is to agree to divide the gains and losses in the exchange market or to use the futures markets and manage the risk using currency futures.
Sanitary and phytosanitary regulations- Sanitary and phytosanitary (SPS) regulations (with phytosanitary defined as sanitary with regard to pests and pathogens) are regulations put in place to protect human, animal, and plant life or health. SPS regulations are essential regulations towards food safety. Many countries have instituted these regulations because consumers in developed countries demand higher levels of food safety.
International law and property rights issues- International laws and trade barriers limit agribusiness trade activity in foreign countries. Agribusiness firms must understand the many legal systems of the countries in which it operates. In order to succeed in the international market, agribusiness firms must comply with the stipulated law.
Modes of Entry Into The International Markets
There are three general methods used to enter an international market (Freddie et al 2012, p. 115):
- Foreign production
- David V., Ella V., George S. (2014). Agribusiness: Principles of Management Delmar Cengage Learning.
- Freddie B., Jay A., Frank D., John F. (2012). Agribusiness Management Routledge Taylor.
- Kandeh Y., Patrick K., Torben R., Anthony H.(2011)Agribusiness for Africa's Prosperity Unido.
- Wesley O., Rob G., Graham C.(2007)Financial Management for Agribusiness Landlinks Press.
Author: Linda Akam