BACHELOR IN

ECONOMICS AND BUSINESS

FARM MANAGEMENT AND RURAL

DEVELOPMENT (A.Y. 2024-2025)
Marcello De Rosa
University of Cassino and Southern Lazio
Department of Economics and Law
[email protected]

Google classroom code: 3poorpw

Lessons:
Monday 9-11 am (room 1.09)
Tuesday 8-10 am (room 1.09)

Office hours
Tuesday 10-12
PROGRAMME
I PART - FARM MANAGEMENT WITHIN A GLOBALIZED MODE OF FOOD PROVISIONING
1.1 - The agrifood system and farm management
 Supply chain management
 Economics for agribusiness
 International agribusiness
◦ Data analysis through competitiveness indicators: the normalized balance and the revealed comparative advantage
1.2 - Marketing agrifood products
 Strategic marketing
 Operational marketing
1.3 – Governance of the agribusiness
 Transaction costs economics
 Transaction costs and the agrifood governance

II PART - FARM MANAGEMENT WITHIN A LOCALIZED MODE OF FOOD PROVISIONING

2.1 - Multifunctional agriculture in rural contexts
 Multifunctional farming: definition
 Multifunctional farming as a strategy: the boundary shift
◦ Data analysis of transition processes towards multifunctionality

III PART – ANALYZING FARM’S STRATEGIES

3.1 – Farm’s strategies: the conditions-strategies-performance paradigm
3.2 - Small farms and innovation
3.3 – Policies to boost farm’s competitiveness
 Reading list
 PART I
◦ Barnard F.L., Akridge J.T., Dooley F.J., Foltz J.C., Yeager E.A. (2016); Agribusiness Management, New York,
Rouletdge, 6th edition - Part 1, Part 2, Part 3, Part 5 (chapter 15)
 PART II
◦ Belletti G., Marescotti A., Brunori G. (2002) Individual and collective levels in multifunctional agriculture,
Colloque Syal, Montpellier
◦ Raynaud E., Sauvee L., Valceschini E. (2002) ; Governance of the Agri-food Chains as a Vector of
Credibility for Quality Signalization in Europe, 10th EAAE Congress, "Exploring diversity in the European
Agri-food System", August 28-31, Zaragoza, Spain
◦ OECD (2007); Creation and capture of value in sectors of the Agrifood industry: strategies and
governance, Paris.
PART III
◦ Brunori G., Grando S. (2020); Innovation for sustainability, Emerald Publishing, UK, Part I, Part II (pp.125-
192)

Slides of the lectures are available (but you need to take notes!)
How to pass the exam…

1. By studying….
2. At the end of the course (end of November), you can take a
written test. If you pass the test, at the official call, you only have
to register.
3. Not mandatory : but strongly encouraged (+2 points in the
final evaluation): an oral presentation (groups of maximum of 4
students) on business model in the agrifood sector (before the
end of November). Possibility to participate in the Pitch Day
UNICAS
Basic rules
I PART

FARM MANAGEMENT WITHIN A

GLOBALIZED MODE OF FOOD
PROVISIONING
Agrifood system

 The agrifood system gathers all the elements (environment, people, inputs,
processes, infrastructures, institutions, etc.) and activities that relate to the
production, processing, distribution, preparation and consumption of food,
and the outputs of these activities including socioeconomic and
environmental outcomes

 Specificity of agrifood marketing is drawn on following aspects:

◦ All people require a continuous supply of food
◦ Most food products and commodities are perishable
◦ Improperly handled, food can cause human disease
◦ The food sector has specialized and big business distributor are gaining
importance
Defining agribusiness – from farm to fork : a value-
creation process
The food chain usually starts Most food is processed or
within the agricultural sector, on transformed within the
a farm. manufacturing sector.

Consumers purchase food

and drink in retail and food It is then distributed through
service outlets. wholesale and transport
systems.
A complete definition of Food System
 “ (...) all the elements (environment, people, inputs, processes, infrastructures,
institutions, etc.) and activities that relate to the production, processing, distribution,
preparation and consumption of food, and the outputs of these activities, including
socio-economic and environmental outcomes” (HLPE, 2014).
 This definition highlights the need to move beyond the mere focus on the
production side.
Food system conceptualization
OUTCOME: the food security concept
 Food availability – The availability of sufficient quantities of food of appropriate quality, supplied through
domestic production or imports (including food aid). This dimension addresses the “supply side” of FNS
(food and nutrition security), and is determined by the level of food production, stock levels and net trade
that make food physically present, and potentially accessible, in a certain territory. It is measured at regional,
national, global level.
 Food accessibility – the problem of food security does not result from inadequate food supplies, as is
widely believed, but from a lack of purchasing power on the part of nations and of households. This shifts the
focus from the system to people, and looks for the conditions that a given contest offers to people to get
access to food.
 Food utilization – Utilization of food through adequate diet, clean water, sanitation and health care to
reach a state of nutritional well-being where all physiological needs are met. This brings out the importance
of non-food inputs in food security. Once food is available and accessible, its preparation, its use in the
context of different diets and habits, its acceptation in the specific socio-cultural context and the intra-
household distribution are key factors influencing the capability of food to provide energy and nutrient intake
and to be healthy absorbed by the human body. Food utilisation also accounts for the biological processes
related to food absorption and to the general physical conditions of the eater, which determine the
nutritional status of individuals. Malnutrition (e.g. insufficient intake of energy and protein, micronutrient
deficiencies and overweight and obesity) can be linked to under-consumption and overconsumption, to
unbalanced diets or to low food quality.
 Stability – stability of availability refers to levels of production and prices. Food insecurity may occur when
stocks are low or when international prices are high in comparison with purchasing power of families. To be
food secure, a population, household or individual must have access to adequate food at all times. They
should not risk losing access to food as a consequence of sudden shocks (e.g. an economic or climatic crisis)
or cyclical events (e.g. seasonal food insecurity). The concept of stability can therefore refer to both the
availability and access dimensions of food security.
RECENT TRENDS IN AGRIBUSINESS
Consumer trends: the importance of understanding
demand in agribusiness economics and management

 About 30 years ago, Kinsey and Senauer documented key consumer

trends and the dramatic changes in the food retailing landscape and
argued that:

 “The food system has shifted 180 degrees from being producer driven to being consumer driven.
The power in the system is at the retail end because retailers receive the information about consumers’
preferences first. This information gives them the power to compete with other retailers, to negotiate with
vendors and to respond to consumers”. (p. 1190)
New trends in the food system
 Globalised modes of food provisioning
 Growing attention to «quality»
 Growing demand for convenience food
 Consumer behaviour and purchasing behaviour dynamics
 At home and away from home consumption (see next slide)
New trend in food consumption
The agrifood system

Conflict or cooperation?
Concentration in the retail sector

 The grocery retailing industry first witnessed the replacement of small

grocery stores by larger grocery chains, which was referred as the
“supermarket revolution,” and then, starting from 1970s, the industry
witnessed a proliferation of food retailer outlets with emerging
supercenters, warehouse clubs, and mass merchandizers
 Kinsey (2001): “At each juncture, retail products and selling formats that better
served consumers’ needs and save them time came to dominate the landscape.”

 New empirical industrial organization models – NEIO (focus on

market power)
The agrofood hourglass

Farming (almost) Perfect competition

Processing
aggregate
Distribution
Imperfect competition
aggregate

Consumers Perfect competition

20
20
Market structure characteristics
So what? The marketing bill for consumer food
expenditures
Margin=M=Pc-Pf
Price at farm level= Pf
Price at consumer level= Pc
Supply chain management
 A critical aspect in running the agribusiness is managing the flow of materials,
products, and information into and out of the firm — or supply chain
management .
 Supply chain management considers the range of activities related to how
inputs for the agribusiness are scheduled and procured, as well as how
finished products are stored and distributed to customers. More specifically,
supply chain management is defined by the Council of Supply Chain
Management Professionals as “the planning and management of all activities
involved in sourcing and procurement, conversion, and all logistics management
activities”
 It involves both informational and physical functions
 SCM process
Forecasting
demand
Customer Aggregate production
planning

- Logistic platforms Provides weekly

(producers’ organization, Physical product requirements
transporters, distribution Master production
distribution for a 6-12 months
centers scheduling time horizon
- Distribution channels (long,
short, cooperatives,..)
Receive a purchase requisition
Select a qualified supplier
Inventory Purchasing Place the order (ordering procedure)
Track the order
Receive the order and approve
payment

Production
control Suppliers
Informational functions:
ECR (efficient consumer response)
 Objectives  Strategies
 Improved information technology  Replenishment of product as they are
 Better customer services used
 Reduction of risk  Providing the right assortment of
 Globalization of operations products
 Introducing new products
 Developing effective promotional
strategies

Electronic data interchange (EDI)

+
Electronic point of sales (EPOS)
The weakest phase of the agrifood chain: agriculture
 Agricultural Production is a High Risk Business and it’s Getting Riskier.

1. Nature (time, weather, disease, pests, etc.)

2. Smallholders farming
3. More volatile weather patterns
4. Highly competitive (price takers, not price setters)
5. Globalization of markets
6. Climate change (!)
 Agricultural production
The main products in the EU food chain are split between crop
products (e.g. cereals and vegetables), animals (e.g. cattle, sheep, pigs)
and animal products (e.g. milk).

The production of agricultural and food products depends on:

• climate and geological conditions;
• the availability of land and water resources;
• the level of imports.
FARM AND AGRIBUSINESS MANAGEMENT

We define management as the art and science of successfully

pursuing desired results with the resources available to the
organization.
Several key words in this definition identify the
elements of successful management
✓ Art and science are the first two key words, and as mentioned above, management is both
an art and a science. Because management deals largely with people, management principles
must be viewed as imperfect, at best.
✓ The third key word is successful . Whatever else good management is, it must be successful
in meeting desired and predetermined goals or results. Managers must know where they are
headed in order to achieve such success.
 Finally, consider the resources available . Each organization possesses or has at its
command a variety of resources — financial, human, facilities, equipment, patents, and so on.
 Successful managers coax the highest potential returns from the resources available. They
recognize the difference between what should be and what is. At the same time, they know
how to expand the firm’s resource base when resource constraints hamper potential.
 A manager can be defined as that person who provides the organization with leadership and
who acts as a catalyst for change. He or she is responsible for the management of the
organization.
Do not forget that agrifood system is different…
1. Food as a product
2. Biological nature of production agriculture
3. Seasonal nature of business
4. Uncertainty of the weather
5. Types of firms
6.Variety of market conditions
7. Rural ties
8. Government involvement
Thus, agribusiness is unique, and requires that the agribusiness manager use the
principles of management in a distinct way.
Definition (Duffy, Funk, 2018)
 Farm management has a number of different meanings, depending on the
context. At a basic and practical level, farm management refers to the act of
running or managing a farm, which involves making long-term strategic
decisions and implementing those decisions via short-run tactics.
 Farm management also refers to a field in agricultural economics primarily
concerned with the analysis of the profits and profitability of the farm
firm. As with its practical counterpart, the academic field of farm
management emphasizes decision making at the level of the individual farm.
Broadly, these decisions involve the acquisition and use of limited resources
for achieving the firm’s goals.
 1. Strategic decisions (involve investments and have long-lasting effects)
Production and Size of the farm
Machinery and livestock programs
organization problems Construction of building
Irrigation and conservation programs
2. Operational decisions (more frequent and involve low investments)
What to produce?
How much to produce?
How to produce?
When to produce?

1. Financing the farm business

Farm problems Administrative 2. Supervision of work
requiring problems 3. Accounting and book keeping
decision of the 4. Adjustment to government programs and policies
farmer
1. Buying
What to buy?
When to buy?
From whom to buy?
How to buy?
How much to buy?
2. Selling
Marketing What to sell
problems When to sell
To whom to sell?
How to sell?
How much to sell?
 Factors of production
 The main ones are:
 Natural resources
 Natural resources are what can be called “gifts of nature”. They include land, water, soil and rainfall. These are
resources that are not the result of what is called “human effort”.
 Land. A typical farm family may own or rent some land for cultivation. The farmer’s homestead may also have
land around it that could be used for growing food, fruit or forage crops. Many farmers have the right to use
what is called “communal land”. This is usually land used as a forest or for cattle grazing.
 Water. Farmers have access to water directly from rainfall and from springs, dams, wells and rivers or from
water collected from rainfall. This water may be on the land used by the farmer or it may be from a communal
source.
 Labour
 Labour is the work of farmers, their families and hired labourers. This is human effort and it is needed on all
farms. Farmers may have three different sources of labour: the farm family (family labour), hired labour and
labour provided through cooperation between members of the community. A farmer may use any or all
sources of labour on the farm, depending on the situation. The total effort from labour is made up of people,
skill and time available.
 Capital
 Capital is simply a resource that is produced as a result of human effort. Capital includes buildings, dams, roads
and machinery as well as inputs and materials. It can be divided into two types: durable and working capital.
Variable costs Fixed costs
o ploughing and tillage, o purchase and rental of land,
o seeds and transplants,
o fertilizers, manure,
o land charges and administrative costs,
o pesticides, herbicides, o interest on farm-related loans, and
o energy, fuel, o replacement values of machines including
o labour (operator labour, regular and seasonal depreciation, interest and insurance
hired labour),
o machine repair and maintenance,
o renting equipment,
o cold storage,
o transport,
o variable irrigation expenses,
o other materials (e.g. packing containers for
fruits),
o record keeping and,
o certification costs.
Aim and scope Decision making

 Profit
maximization? Not  Decisions require making choices
between alternatives.
sure…
 Farm planning is thinking ahead about
◦ Family tradition farm activities and making decisions
◦ Local tradition some time before they will be carried
◦ Personal preferences out.
 As a farmer becomes more market-
◦ Idealistic motivations (lifestyle
orientated, the farmer will need to
entrepreneurship / social improve planning and decision-making
entrepreneurship) skills.
◦ …..  Flour tasks are needed:
◦ Planning
◦ Organizing
◦ Directing
◦ Controlling

36
The wheel of management (goals-objectives-result)

controlling planning

communication

organizing directing
Types of planning - 1
 Strategic planning is focused on developing courses of action for the
longer term. Long term may be two or three years for a very small
agribusiness, while a major corporate organization may be looking at a 20-
year (or longer) time horizon. Strategic plans tackle the broadest elements of
an agribusiness firm’s strategy: what countries will we operate in; what
businesses will we be in; what plants will we build, what technologies will be
developed?
 A mission statement:
◦ Key markets (who we serve)
◦ Contribution (what we do)
◦ Distinction (how we do it differently
Types of planning - 2
 Tactical planning involves short-term plans consistent with the strategic
plan. As such, tactical plans are a crucial part of implementing the agribusiness
firm’s strategic plan. While strategic planning is focused on what we do in
three years (or five years, or 20 years), tactical planning is focused on what
we do tomorrow (or next month, or next year).
 Contingency planning is the development of alternative plans for various
possible business conditions. It is part of the strategic and tactical planning
process for a firm. A contingency plan provides guidance when something
unexpected happens.
Organizing - 1
 Organizing represents the systematic classification and grouping of human
and other resources in a manner consistent with the firm’s goals. The
organizing process is important at each level of a company or firm. And, it is
the manager’s challenge to design an organizational structure that allow
employees both to accomplish their own work, while simultaneously
reaching the goals and objectives of the organization.
 Organizing involves:
◦ Setting up the organizational structure
◦ Determining the jobs to be done
◦ Defining lines of authority and responsibility
◦ Establishing relationships within the organization
Organizing - 2
 The division of labor is the manner in which jobs are broken into components and then are assigned
to members or groups. The objective is to accomplish more by delegating specific tasks to groups or
individual who use specialized equipment and training, as well as a learning curve effect to successfully
and efficiently accomplish more than can be done by one alone.
 Chain of command is illustrated in organizational structure by the authority – responsibility
relationships or links between managers and those they supervise. This continuum exists throughout
the company. The chain of command should be clear so employees know to whom they report and are
accountable.
 Bureaucracy is a word with many negative connotations in today’s vernacular. However, bureaucracy
was developed as a highly specialized organization structure in which work is divided into specific
categories and carried out by special departments. A strict set of guidelines determines the course of
activities to ensure predictability and reduce risk. A bureaucracy is a tightly run, unyielding
organizational structure. This organizational structure does work well for some types of businesses.
However, given the variability and unpredictability of the weather and other uncontrollable
circumstances, many food and agribusinesses do not operate under this form of organizational
structure, and go to lengths to take bureaucracy out of their internal processes.
Directing
 Directing is guiding the efforts of others toward achieving a common goal. It is
accomplished by:
◦ Selecting, allocating, and training personnel
◦ Staffing positions
◦ Assigning duties and responsibilities
◦ Establishing the results to be achieved
◦ Creating the desire for success
◦ Seeing that the job is done and done properly

 Shaping the work climate:

1. Set a good example.
2. Conscientiously seek participation.
3. Be goals- and results-centered.
4. Give credit and blame as needed: credit in public, blame in private.
5. Be fair, consistent, and honest.
6. Inspire confidence and lend encouragement.
Controlling
 The controlling task represents the monitoring and evaluation of activities.
To evaluate activities, managers should measure performance and compare it
against the standards and expectations they set. In essence, the controlling
task assesses whether the goals and performance objectives developed
within the planning task are achieved
Economics for agribusiness
What is the market

 Hypothesis
◦ Rational and maximizing individuals
◦ Consumers, provided the prices and the income, try to maximize their
utility functions
◦ Enterprises, provided available technology and prices, try to maximize
profits
◦ Market is where demand and supply interact
demand supply

 D1=f(p1, …., pn, R, P)  S1=f(p1, CT)

 where  Relation between price and quantity

 p1, …., pn actual prices is direct

 CT= total cost of production
 R e P income and consumers’
preferences determined by available technology,
prices and input supply
 Relation between demand and price is
inverse
 P = αD - βDQD  P = αs + βsQs

 α and β are parameters that indicate the
 α and β are parameters that indicate the
relationships between the variables P and Q
relationships between the variables P and Q

Demand and supply functions

 Price-quantity relation

Price (€) Demand D1= 8 - p1

8 0
6 2
4 4 p1

2 6 8
0 8
6 D1

4
Giffen good are an
exception! 2

0 q1
2 4 6 8
 Relation between price and quantity

price (€) supply S1= -40 + 20p1

6 80
4 40
3 20 p1

0 0
S1
6
5
4
3

0 q1
20 30 40 50 60 70 80
demand supply
 Substitutes and complementary  Technology
products  Input prices
 Consumers’ income  Public intervention (CAP)
 Consumers’ preferences

Variables affecting demand and supply

Market demand
 Is the sum of individual demands
 qi = di(p), i=1, …, n
𝑛 𝑛
 Qm = σ𝑖=1 𝑞𝑖 = σ𝑖=1 𝑑𝑖 𝑝 = 𝐷(𝑝)

+ = D
d1 d2

With high market prices, only consumer 1 will demand the good; if the prices decreases
the consumer 2 also will buy the same product
Demand shift
 5 factors may determine a demand shift:
◦ Income
◦ Tastes and preferences
◦ Expectations (if consumers expect a fall of prices, they may postpone purchases, then
causing a shift to the left in demand curve)
◦ Number of buyers (increase of population, new consumers in new markets for the
same product, etc.)
◦ Price of substitutes and complements
 Shift in demand curves

Demand decrease

Demand increase

0 10 20 30
Market supply
 Is the sum of individual supplies

+ = S
s1 s2

With low prices only producer 1 will provide the good, if the price increase also
producer 2 will produce the same product
Supply shift
6 factors may determine a shift of the supply
◦ Change in technology
◦ Change in the price of inputs
◦ Weather
◦ Change in the price of other products that can be produced
◦ Subsidies or taxes
◦ Number of suppliers
 Shift in supply curves

supply decrease supply increase

0 10 20 30
Market equilibrium

S
D=D(p)
S=S(p)
D(p)=S(p)
p*

q*
 Market equilibrium

surplus A
P Qd Qs Push on price 5
A 5 9 18 Reduction
B
B 4 10 16 Reduction 4

C 3 12 12 No
3
D 2 15 7 Increase C
E 1 20 0 Increase 2 D
E
1 Shortage

0
5 10 12 15 20
 Characteristics of farming sector
 Certain characteristics of agriculture distinguish farm sector from remainder of economy:

◼ Inelastic demand for farm products in short run

◼ Extensive technological change in past half century

◼ Immobile resources

 When we say product has inelastic demand, we mean that its buyers are relatively unresponsive
to changes in price

 Buyers show little variation in quantity they buy when price changes
 Calculating elasticities of demand
p

150

110

100 200 q
 Price elasticity of demand
 Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
 If
◦ Q1=100; Q2= 200
◦ P1= 150; P2= 110
 The formula for computing elasticity of demand is:
 (Q2 – Q1) / (Q2 + Q1) = (Q2 – Q1) x (P2 + P1) = (200-100) x (110+150) = -2.17
(P2 – P1) / (P2 + P1) (Q2 + Q1) (P2 – P1) (200+100) (110-150)

 When the price drops by 1%, demanded quantity increases by 2.17%

 If the formula creates a number greater than 1, the demand is elastic (quantity changes
faster than price); the above example fall this case
 less than 1, demand is inelastic (quantity changes slower than price);
 equal to 1, unitary (quantity and price change at the same rate).
Interpretation of price elasticity of demand
Absolute value of Demand is Effects on total Effect on total
price elasticity revenues of price revenue of a price
increase decrease
Greater than 1.0 Elastic Total revenues decrease Total revenue increases
Equal to 1.0 Unit elastic Total revenue is Total revenue is
unchanged unchanged
Less than 1.0 Inelastic Total revenue increase Total revenue decrease
Cross elasticity
 Analysis of variation in demanded quantity of B goods when the price of A
good changes. Possible cases:

 Cross prices elasticity of demand < 0.0 complementary goods

 Cross prices elasticity of demand = 0.0 = independent goods

 Cross prices elasticity of demand > 0.0 = substitute goods

 anelastic

elastic
 Inelastic demand
◼ Price stability
■ If demand is inelastic, small fluctuations in supply that
might result from either exceptionally good or bad
weather will have resounding effect on prices that
farmers receive for products
◼ Farm income
■ If good weather causes increase in supply, which
causes price to decrease, then overall farm income will
also fall
CAN FARMERS SET THE PRICES FOR THEIR
PRODUCTS?
 In most cases, farmers do not set their own prices, they must accept the
going price. They are called “price-takers”. Farmers generally grow
products that are very similar to those that other farmers grow. If a farmer
were to charge too high a price traders and consumers would refuse to buy
the product. By lowering the price, the farmer adjusts it to the market
conditions.
 However, there are some situations where farmers may be able to influence
the market price. In such situations they are called “price-makers”. This
sometimes occurs when there are only a few farmers producing for a “niche
market”. A niche market is a highly specialized market or when produce is
produced at a specific time of the year when premium prices can be
obtained. Being price-makers gives farmers a great advantage when it comes
to negotiating with traders responsible for distributing their produce.
Cases of market «imperfection»

 Productdifferentiation and from services incorporated in the

products, bringing about (limited) entry barriers
◦ Examples of these «imperfect» markets is monopolistic competition

 Specific
regulation hampering the entry of a share of
enterprises (e.g. geographical indications)
Commodities and specialities
Characteristics Specialties Commodities
Product can be differentiated little differentiation
Substitutes Few Many
Demand development High Low
rate

User services Many Few

Market size Relatively small Large
Barriers
- To entry Relatively high Low
- To exit Can exist Few or none

Price competition Low High

Gross crop margins High Low
INTERNATIONAL AGRIBUSINESS
Push factors towards internationalization
 Population growth
 Growth of welfare (Variation of pc income in China 2010/2018:
+115%)
 «Westernization» of food diets
Benefits from doing business internationally
From a managerial standpoint, international markets hold appeal for a number
of reasons:
 Exports and sales
 Take advantage of scale economies
 Capture benefits of a global brand
 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
 … not only for multinational companies

 Small agribusinesses have found niches in serving needs around the world. Their active pursuit
of placing and developing products for international markets has in many cases met with great
success. While large companies reap the benefits of deep pockets — economies of scale and greater
returns on their investment in research and development — smaller agribusiness fi rms are often
more flexible, allowing them to adapt to the changing structure and demands of the international
food industry.
 Although countless factors influence the global marketplace during any business day, a few key factors
have helped increase the number of opportunities for small agribusiness fi rms in the international
arena. First, emerging markets have entered into the world trade picture at a rate unequaled since
post-World War II. Those markets are opening up to conduct business with international suppliers,
partners, etc. These nations include those in Eastern Europe, other countries of the former USSR,
India, Latin America, China, and other Asian countries. Many African countries are moving continually
closer to allowing or welcoming business from outside their borders.
 The second key factor opening doors of world markets for smaller businesses is technology. Simply
put, today’s small food and agribusinesses are often “well wired” — connected via the internet by
computer, modem, email, telephone, cell phone, and fax — making them very competitive with much
larger fi rms for emerging-market growth potential. Essentially, the world is truly available to creative,
innovative businesses. However, unlike the world market of post-World War II when the
multinational companies controlled these markets, markets today are often open to the best
competitors. Companies that succeed will be flexible enough to adapt to constant change and adjust
to an array of challenges. Those companies are often the small, agile companies.
 Characteristics of developed and developing
markets for food

Developed countries Developing countries

Saturation Increasing demand
Food safety Food security
Buyer’s market concentration Seller’s market fragmentation
Global vs international marketing
 Global agribusiness management is guided by concepts that view the world
as one market. Global marketing is based on identifying and targeting
cross-cultural similarities.
 International marketing management is based on the premise of cross-
cultural differences and is guided by the belief that each foreign market
requires its own culturally adapted marketing strategy.
How is it possible to develop a global marketing strategy
for some products?
 Information technology and access to information, goods and services not
only in this country, but also across the globe, has changed our world.
 Truly the business culture of today is more global than at any time in the past.
In many ways, our familiarity with the tastes, preferences, attitudes, and
cultures of other countries has exploded in the past decade or two.
 Travel is another factor that has led to the globalization of today’s
marketplace. By exposing a greater number of people from various cultures
to one another and to other places, an underlying melding of cultures, or at
the very least, the understanding of them occurs.
 A more mobile society has changed the landscape of our marketplace at
home as well as abroad. Demographics from the state of California offer an
example. California, the most populous state in the nation, is also the clear
leader in ethnic “mixing” in North America.
 U.S. exports of bulk and high-value commodities,1994–2022 U.S. imports of bulk and high-value commodities, 1994–2022
120
120 200 193
112 Bulk products
Bulk products
High-value products 103 High-value products
100 99 99
100 96
167
98
87 95 150
93 92
134
143
80 138
117 126
67
113
73 119
104
Dollars Dollars 99
(billions) 60 (billions) 100 106
62
56 81
83
40 48
37 38 39 39 74 73
40 43 76 56 68
38 38 36 37 39 62
34 64 50
56 53 40 49
36
50 49 52 51
46 43 47 47 45 42 41 44
20 37 38 37 38
32
25 28 23 25 22 26 27 29
18 19 17 18 18 19 23
3 4 3 3 3 4 5 5 4 4 4 4 3 3 3 5
0 2 1 2 2 2 2 2 2 2 2 2 2 2
0

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
A competitiveness
Bulk: Grain, oilseeds, cotton, and tobacco. indicator: The
High-value products (HVP) are divided into three groups: Raw, semi-processed, and processed. HVP raw: Live animals, fresh fruits and
vegetables, nuts, and nursery products. Normalized balance:
HVP semi-processed: Fats, hides, feeds, fibers, flour, meals, oils, and sugar. (E-I) / (E+I) * 100
HVP processed: Meat, milk, grain products, processed fruits and vegetables, beverages, essential oils, and products of tropical commodities.
Source: USDA, Economic Research Service using data from the U.S. Department of Commerce, U.S. Census Bureau.
A competitiveness indicators

 NORMALIZED BALANCE (NB)  REVEALED COMPARATIVE

 NB = (E-I) / (E+I) * 100 ADVANTAGE (RCA)
 -100 < NB < 100
𝑋𝑖,𝑗
 Where:
𝑋𝑗
 E = exports  RCA = 𝑋𝑖,𝑤
σ𝑗
 I = Imports 𝑋𝑤

 When:
 NB = -100, it means no exports where Xi,j is the exports of the item i of the
country j;
 NB = +100, it means no imports
Xj is the total agri-food exports of the country j;
Xi,w is the world exports of the good i and e Xw is
the world agri-food exports.
The RCA is also referred to as an export
specialization index
Institutions governing international trade: World
Trade Organization
 153 members
 WTO’s rules apply to over 97% of international trade
 Tariff and non tariff barriers to commerce
 Challenges in international markets
 Cultural differences
 Exchange rate fluctuations
 Accounting system differences
 Uncertainty of the political and economic climate
 International law (e.g. regional trade agreements – NAFTA, MERCOSUR – or
intellectual property rights – patent, trademarks, fight against counterfeiting)
 Sanitary and phytosanitary standards (SPS)
 Management in an international environment
The evolutionary approach to international markets

1. Incidental marketing (export is the results of an incidental process, e.g.

interaction with an international buyer or an export company) =
international market treated as domestic market
2. Export-marketing phase, where specific resources are assigned to the
international effort, international business is a unique business, even though
it remains a sideline with respect to the domestic market
3. Global international perspective, where decision-making is developed
at global level only. Production and raw materials sourcing are optimized
around the world
 Modes of entry international markets
 Exporting
◦ Indirect exporting: uses a trading company or an export management company to handle the
logistics of exporting (advantages: knowledge of export procedures, stable relationships with local
distributors, etc.). It is a low-risk strategy (with lower gains, of course).
◦ Direct exporting: the agribusiness itself handles the details of exporting its products (potentials for
gains are much higher) direct exporting involves higher barriers to entry (regulations, inspections,
long distribution channels, quality compliance)
 Licensing:
◦ contracting with a firm (licensee in the target market to produce and distribute the firm’s – licensor
- product). The licensor receive a fee or royalty. Good solution for agricultural perishable and bulky
products. Disadvantages are related to the risks of competition when sales take off and the licensee
may decide to exploit this opportunity.
 Direct investments
◦ Greenfield investments, direct investments by a firm into a particular country ( a new plant built by
a multinational corporation, e.g. Barilla in New York. Requisite: to know well the local regulations)
◦ Joint venture, a form of strategic alliance involving 2 or more firms that share resources in research,
production, marketing, or financing.
◦ Acquisition, that is purchasing a firm at a reasonable price. Compared with greenfield investment,
acquisitions implies lower investments
Comparing exporting and investing in international
markets
Choose exporting when … Choose investment when …
Financial resources are small Financial resources are large
Little experience in the new market Experienced in the new market
Barriers of trade for product do not exist High barriers to trade exist
Target market is small Target market is large
Growth potential is limited Growth potential is high
Barriers to investment and ownership exist Barriers to investment and ownership do not exist
Control of market is unimportant High desire for market control
Globalization is not a high business priority Firm’s goals include an international presence
Foreign market is unstable Stable political and economic climate
Foreign market is culturally “distant” Market is culturally “similar”
II part
Marketing agrifood products
The marketing concept

Marketing can be defined as the process of anticipating the needs

of targeted consumers and finding ways to meet those needs
profitably
Keywords:
• To anticipate (consumers’ needs)
• Target market (one-size-fits all is wrong)
• Profitability (Agribusiness marketers must provide customers with a set of
products and services at prices that generate an acceptable rate of return for their
firm).

Two phases: strategic marketing + operational marketing

A marketing strategy involves providing confident
answers to the following questions

 Markets: Who are our target customers and what do they value?
 Product: What product will we offer and how is it unique?
 Competition: Who are our competitors and how will we position
ourselves?
 Distribution and packaging: How and when will we move our
product to the market?
 Prices: How will we price our product?
 Promotion: How and what will we communicate with buyers or
customers?
Evolution of marketing
 Product oriented (the only thing to do is to produce a good product)
 Sales driven (focused on searching new consumers or intensifying sales with
existing ones)
 Market-driven (firms looking to establish a deep and lasting relationship with
their customers: the customer is a king)
Product driven Sales driven Market driven
Focus on product Focus on making the sales Focus on customer needs,
customer satisfaction,
relationships, profits
My product is great, you should Communicates the benefits of Solve a problem
want it products/services
Reach the people and they I think I have something that can
will buy really help you
Have and do what you can sell
Components of a strategic marketing plan

1 Conduct a SWOT analysis

 2 Choose a target market
 3 Choose a position
 4 Develop the appropriate marketing mix
 5 Evaluate and refine the marketing plan
The marketing planning
process
THE BACKBONE OF STRATEGIC
MARKETING: A SOLID
CONSUMER’S ANALYSIS
 Basic forces of consumer behaviour
 Emotion. Internal tension, which may be felt as pleasant or unpleasant, and may be
more or less conscious to the consumer. Examples of verbal expression of an
emotion are: «I am concerned about my health», and «I am not feeling very well»
 Motive. Internal tensions combined with a certain activity as objective (activity
oriented). An example is: «I want to take care of my health»
 Attitude. Willingness or predisposition of the consumer to react positively or
negatively to a stimulus pattern of a product offer: the consumer’s evaluation or
image of a product (object oriented). An example is: «Fruits are good for my health»

Without emotional basis there is no motive. Without motivation there is no attitude

towards a product. The stronger the emotion the stronger the motive, the more
positive (negative) is the attitude towards the product and the higher (lower) is the
probability to purchase:

Emotion Motive Attitude Behaviour (Purchase)

 Some variables affecting food demand
Consumer-related variables Income

Motives of food demand

- Nutritional
a) Cultural norms and values - Health
• in the society - Enjoyment (taste,
diversity, social
• In the family/reference
events)
group
- Convenience
- Safety/transparency
Demand
b) Socio-economic situation - Compliance with the
Consumer
• Stage in the life cycle, age norms of a reference
group behaviour
• Education/profession
• Employment/leisure time - Prestige
• Household size - Environmental/politi
• Urban/rural household cal motives
• Income

Product-related variables
• Price
• Quality
• Package Perception
• Service Attitudes
(mostly biased)
• availability
Consumer decisions -1

 Stages of the process

1. Problem recognition. What happens to initiate the process?
2. Search. What sources of information are used and what is the relative
influence of each?
3. Alternative evaluation. What criteria are used by consumers to assess
alternatives? What is the status of purchase intention?
4. Choice. What selection is made from among the available alternatives
5. Outcome. Is the choice followed by satisfaction or by doubt that a
correct decision was made?
 Tool for analyzing customer needs
 Customer surveys
◦ Personal interviews
◦ Telephone interviews
◦ Written surveys (through questionnaires)
◦ Pretesting is fundamental to evaluate if questions are clear to the respondents
 Focus group techniques
 Internal data analysis
◦ Transaction data (e.g. sorting customer by their sales volumes, looking at sales across
product lines)
◦ Market mapping (market penetration per geographical area)
Component of a strategic marketing plan
 Conduct a SWOT analysis
◦ Strength
◦ Weaknesses
◦ Opportunities
◦ Threats
 Choose a target market
 Define a position
 Develop an appropriate marketing mix
 Evaluate and refine the marketing mix
Assessing environment

Assessing the competitive environment requires careful

study of:
(1) general trends in the market,
(2) strengths and weaknesses of key competitors,
(3) current and anticipated customer needs, and
(4) the firm’s strengths and weaknesses.

The results of such study are summarized

as a SWOT analysis.
Strengths and weaknesses represent a look at what is
going on inside the firm
Opportunities and threats capture what is happening
outside the firm in the market
This analysis phase of the market planning process is done
with a single purpose in mind - to identify the business
opportunities the competitive environment
presents.
 Assessing internal strength and weaknesses
 Marketing
◦ How effective are your product development activities?
◦ How do our price compare with the competition?
◦ How much do we spend in advertising compared with competition?
◦ How satisfied are our customers
◦ Our sales compared with the industry
 Finance
◦ How profitable is our organization?
◦ What is our debt position?
◦ Do we use our investment in current assets such as accounts receivables effectively?
◦ How well we manage cash flows during seasonal swings of our business?
◦ Do we do an effective job in investing in new technology
 Operation/logistics
◦ Do we deliver our customer accurately and on time?
◦ How well we manage quality during the production process?
◦ How well we manage risks along the supply chain?
 Human resources
◦ How well we manage training programs?
◦ Do we provide advancement opportunities for employees?
◦ Do we have an effective work environment?
 Market segmentation strategy and positioning
Market segmentation groups customers into segment or categories according to some set of
characteristics.
Well-defined market segments will pass the following test:
Measurable – can the market segment be identified and evaluated?
Substantive – is the market segment large enough to serve?
Actionable – can the firm effectively serve the segment?

Positioning
The process of creating the desired image in
customer’s mind
The focus is not on the product itself, but on the
consumer’s perception of the product
To better understand the idea of positioning it is important
to understand the idea of competitive advantage
 An agribusiness firm’s competitive advantage is the set of competencies in
which the firm has a clear and distinct advantage over the competition
 Michael Porter evidences two ways of competitive advantage:
 Differential advantage: providing customer with a unique products other
firms cannot provide
 Cost leadership, offering a product of comparable quality but beating the
market on price
 Focus strategy is a combination of previous two
 The marketing mix
The marketing mix consists of establishing the means to achieve the operational objectives in
each market selected by the firm, by combining four operating factors: Product, Price, Place, and
Promotion. Successful marketing require the correct marketing mix

Customer-competition

Target
market /
position

Market conditions
Product
 What set of product, services and information can the firm deliver to meet the
needs of the target market?
 A key concept: the value bundle, the set of tangible and intangible benefits
customers receive from the products and services an agribusines provides.
 The perceived value is defined by the ratio of perceived benefits and perceived
costs
 TOTAL PRODUCT CONCEPT (to break down the bundle value)
◦ Generic product (no special services attached)
◦ Expected product (minimum of credits)
◦ Value-added product (through provision of both tangible and intangible services. For example a
retail crop input firm: the provision of weekly information about seeding, etc.)
◦ Potential product (an integrated package of services, for example a global positioning system –
gps – which will allow the firm to apply precise level of fertilizer)
Product
New products / technologies are diffused according
the following steps

1. Awareness : at this stage, people have heard about the product but lack
sufficient information to make a purchasing decision
2. Interest : a potential customer becomes interested enough to learn
more about the product
3. Evaluation : the customer decides whether or not to try the product
4. Trial : the customer samples the product
5. Adoption : the customer integrates the product into a regular-use
pattern
The product life cycle
 Price decisions
 Price is a fundamental component of the revenue equation (revenue = p x q)
 Demand elasticity is a relevant element to be taken into account
 Type of product, customer demand, competitive environment, product life cycle
stage and product mix are key variable for price setting

Pricing
Perceived value

range

Firm Upper and lower limits on

cost pricing decisions
Price strategies - 1
 Cost pricing or cost-plus pricing = adding a constant margin to the basic cost of the individual
product or service. The margin covers overhead and handling costs and lets a profit, by ignoring
market conditions
◦ Cost (1€) x 30% mark-up = 1.30 € (selling price)
 Competitive pricing takes into account market conditions and competitors’ pricing
 CTO pricing (Contribution to overhead pricing), also called marginal cost pricing is a method
of encouraging extra sales by selling additional product, above and beyond some base sales
projection, at a price slightly greater than the additional out-of-pocket costs of handling the
product. This strategy assumes that overhead will be covered by normal sales as projected. The
logic is to realize extra sales (marginal) opportunities
 Value-based pricing, is a strategy that prices at a level at or slightly below the estimated
perceived value od the product bundle. The challenge is determining just what the perceived
value of the bundle is to the customer. Economic value analysis assumes that price to be
charged s determined by dividing the product’s economic value into 2 parts: reference value and
differentiation value. Reference value is the price of a competing product or the closest
substitute. Differentiation value is the perceived value of the new product’s unique attributes. To
determine the price, positive perceived values of attributes are added to the price of the closest
substitute (the reference value). Any negative perceived value of attributes are then subtracted
from the reference value to find the total economic value of the product.
Price strategies - 2
 Penetration pricing, where product is offered at a low price to gain broad
market acceptance quickly (e.g. new product)
 Skimming the market, which is the opposite of a penetration pricing
 Discount pricing offers the customer a reduction from a published or list
price for some specified reason. Volume discounts are common in agribusinesses,
so encouraging larger purchases, which reduce per-unit costs and promote more
sales. Another example is the early order discount.
 Loss-leader pricing, involves offering one or more products in a product mix
at a specially reduced price for a limited time.
 Psychological pricing set price that are emotionally satisfying because they sound
lower than some virtually equivalent price (e.g. odd prices: 99cents with respect
to 1€)
 Prestige pricing, according to the principle “you get what you pay for” (elite
image)
 Promotion

Identify target Determine Design the Select Manage

audience communication message communication implementation
objective channnel

Key communication channels

 Advertising
 Sales promotion («buy one, get one free”, accumulating “purchase points”)
 Public relations - is the process of maintaining a favorable image and building beneficial relationships
between an organization and the public communities, groups, and people it serves. Public relations
activities can range from very direct — food company expenditures on nutritional education
programs for school children — to very indirect — a favorable news story that shows how a local
agribusiness helped coordinate the fundraising effort for an injured farmer.
 Personal selling - Promoting a product through personal selling provides the most flexible and highest
impact possible, since the salesperson can tailor the communication to meet the individual needs of
the customer.
 Place
 Major agribusiness distribution channels

manufacturer manufacturer manufacturer

Distributor

Merchant Agent

Dealer/retailer Dealer/retailer

Farmer/consumer Farmer/consumer Farmer/consumer

Direct channel Dealer channel Distributor channel

 Marketing audit process

Analyze Review Identify Evaluate Assess

Market success Market Distinctive Marketing plan Human resources
of each product conditions competencies and goals and organization

Carefully
Review general Identifying area Review of the Verify of
analyze how
market and of distinctive general goals of salespeople are
the business
competitive competencies the marketing adequately trained,
is doing with
conditions. (human, strategy, through verify if
each product
Marketing financial, etc.) a gap analysis organizational
or service
factor external where the firm (desired structure promote
to the firm are is particularly performance – adequate cross-
evaluated strong with current trend= communication
respect to performance between
competition gap) salespeople,
marketing staff,
etc.)
Gap analysis
 Sales forecasting
 Predicting sales in dollars (or in €) and physical units, possibly for each
specific product

Specific product forecast

General economic a) Projecting sales based on past trends
Total market forecast and adjusting projections to take
forecast Demand analysis into account the expected economic,
(about general economy through econometric market and competitive pressures.
at national and models b) build-up forecast, developed by
international level) salespeople for each of their major
accounts
c) Delphi approach, with panel of
experts
d) Test market
Competitor analysis
 Understanding competition is fundamental
 Porter’s diamond

Weaknesses
Strength
UNDERSTANDING FINANCIAL
STATEMENTS
Farm’s financial statements (according to the
International accounting standard - IAS)
 The aim of Financial Statements is to provide stakeholders with
information concerning financial position, economic performance
and the changes in financial position of the farm or group of farms,
to the stakeholder.
 Financial statements is composed by:
◦ Balance Sheet or Statement of Financial Position (assets and
liabilities)
◦ Income Statement or Statement of the Comprehensive Income,
or Profit and Loss Account

116
Financial statements

 Balancesheet (including assets and liabilities)

+
 Income statements (including costs and revenues)
BALANCE SHEET

The balance sheet is a summary of the financial position of the

business at a specific date. It shows the balance between assets,
liabilities and ownership equity
It represents:
- a financial summary of what the business owns and owes and of
the investments that the owners have made in the business
- a systematic organization of everything “owned” and “owed” by a
business or individual at a given point in time

Features:
Provides a SNAPSHOT of the business
Fundamental to sound management decision making
Measurement of financial success
Communicates financial position to creditors
Balance Sheet Key Measures
 Total Assets:
◦ The value of all financial and capital resources owned by the business
 Total Liabilities:
◦ The value of total debt obligations
 Owner’s Equity or Net Worth:
◦ The value of the owner’s investment as determined by subtracting total liabilities from
total assets
Assets − Liabilities = Net Worth (Owner’s Equity)
Assets = liabilities + owners’ equity

 The difference between assets and liabilities is net worth or net

assets or, simply, equity. That is “the book must balance”.
 Net Worth Statement
(Balance Sheet)

Assets Liabilities
◦ Current ◦ Current
◦ Long-term (fixed) ◦ Long-term (fixed)

Total Assets - Total Liabilities = Net Worth

Net worth provides bankers and investors with an indicator to help determine how much it would be prudent to invest
or lend to a company
The overall balance sheet statements is correct when: total assets = total liabilities + net worth (owner’s equity)
 The time reference

A 12 months period is indicate to test farm’s results.

 However, unlikely it will correspond to the calendar year, due to
the differences in the harvesting periods.
 Therefore, calendar year may vary region by region, on the basis of
the prevailing crops.

121
 Assets
The value of the company’s worth can be expressed in financial terms – the amount it owns
or is owed.
Total assets is the current assets + long-term assets

➢ Total current assets is the sum of cash, ➢ Fixed assets (Long-term assets) are
debtors and stock (cash/checking or assets listed subsequently and include plant (ex.
easily to convert to cash in one year): barn) and machinery (less depreciation
◦ Cash or ‘cash in hands’ (petty cash, current bank since the previous year end), land (which is
balance, savings account balance, and any short- not subject to depreciation and is edited),
term investments) property, investments, which cannot be
◦ Accounts receivable (or Debtors, that is accounts realized in less than one year.
receivable from credit or trade customers)
➢ The sum of these is the total long-term
◦ Inventory (those items that are held for sale in
the ordinary course of business or that are to be assets.
consumed in the process of producing goods and
services to be sold.)
The most redeemable assets (the most liquid)
are listed first.
Liabilities
This is the amount a company owes to other entities and includes:
Long-term liabilities or Non-current
➢ Current liabilities, due within one
liabilities – These are loans that are
normal operating cycle (one year) expected to be paid back over a period of
◦ Creditors (account payable to suppliers) years (mortgage, long-term debts).
◦ Accrued expenses (expenses incurred The total liabilities is the total current
but not paid for – including products,
liabilities + the long-term liabilities
services and wages)
◦ Tax owed (still due – including company
tax and employment-related taxes)
◦ Notes payable (short-term loans or
liabilities, expected to be paid back within
12 months)
Balance Sheets: Assets
Assets: What the Business is worth- An Arable Farm Example
1) Fixed Assets 2) Current Assets
Type of Fixed Value (€ per Current Asset Value (€ per
Asset farm) farm)
Land and Buildings 2,459,818 Crops and trading 88,122
Breeding Livestock 7,103 livestock
Machinery 214,134 Stores 57,065
Permanent Crops 2,358 Liquid Assets 135,186
Subsidy Entitlements 61,224 Total Current
Miscellaneous Assets 889 Assets 280,373

Total Fixed Assets 2,745,525 Liquid assets

include cash at
bank & debtors

Calculate your own balance sheet at: www.farmbusinesssurvey.co.uk/benchmarking

Balance Sheets: Liabilities
Liabilities: What a business owes- An Arable Farm Example

Short and Longer Term Liabilities Non-Bank Loans

(longer term): Any loans to
commercial organisation
Liability Value (€ per farm) exceeding 12 months in
duration
Bank Loans 67,978

Non-Bank Loans 77,406

Bank Overdraft 39,033

Non-Bank Short Term Loans 103,295

Total Liabilities 287,712

Non-Bank Short Term

Loans: Any loans (usually less
than 12 months) to a
commercial organisation,
including hire purchase, leasing
and creditors
Balance Sheets: Calculating Net Worth

Net Worth (Net Capital): The equity, or owner’s share of a

business. The Arable farm example:
Total Assets £3,025,898 A Financial
Stability calculation,
the net worth as a %
MINUS MINUS of total assets:

2,738,186
X 100
Total £287,712 3,037,597
Liabilities = 90.5%

= = A figure close to 100%

shows high financial
Net Worth £2,738,186 stability to market and
asset changes
INCOME STATEMENTS
Summarizes revenue and expenses during a specific period of time and
demonstrates the profit or loss that results from the deduction of
expenses from revenue
 Income statement
A farm income statement (sometimes called a profit and loss
statement) is a summary of income and expenses that occurred
during a specified accounting period, usually the calendar year
for farmers.
 It is a measure of input and output either in € or dollar values.
It offers a capsule view of the value of what your farm
produced for the time period covered and what it costs to
produce it.
 The income statement is divided into two parts: income and
expenses. Each of these is further divided into a section for
cash entries and a section for noncash (accrual) adjustments
Basic profit formula

Net sales
- Cost of goods sold
= Gross margin (or gross profit)
- Operating expenses
= net operating income
+ other revenue
- Interest expense
*earnings before income and taxes
= net income before taxes (EBIT*)
- Taxes
= Net income after taxes
Income statements
€
SALES 13,410,000
Cost of goods sold 11,725,000
GROSS PROFIT (GROSS MARGIN) 1,685,000
Operating expenses 1,215,810
NET OPERATING INCOME 469,190
Other revenue 18,200
Interest expense 230,840
NET INCOME BEFORE TAXES 256,550
Taxes 59,900
NET INCOME AFTER TAXES 196,650
Operating expenses
 Costs associated with the specific sales transacted during the time period
designated on the income statement. Three categories:
1. Marketing expenses
◦ Sales, wages, salaries and commissions
◦ Transportation
◦ Advertising and promotion
2. Administrative expenses
 Auditing fees
 Directors’ fees
 Management salary
 Office expenses
 Travel expenses
3. General expenses (overhead)
 Depreciation
 Insurance
 Taxes (property taxes)
 Rent
 Repairs
 Utilities
ANALYZING FINANCIAL
STATEMENTS

Assist in financial planning and risk-management

decisions including: profitability, liquidity, solvency
Analysing financial statements
 Agribusiness manager can use ratio to help monitor financial position and performance. Four areas
are normally explored when financial ratios are used to analyze a firm:
1. Profitability
◦ Measures the ability of the producer/the business (activity) to generate a profit
◦ Measures the firm’s use of resources to generate a return on equity sufficient to satisfy current
and future investors
◦ Measures the firm’s ability to repay long-term debts
2. Liquidity
◦ The firm’s cash position: indicate the ability of a producer or a business (activity) to cover their
short-term debts with their short-term assets (the money available in the short term).
3. Solvency
◦ Indicates the ability to cover debts with its own capital in case of liquidation
◦ Indicates the ability to support firm’s project of growth with its own capital
 Ratio analysis
a powerful tool for relative comparison of important
financial data

 Advantages of ratios: Types of ratios

• Easy to calculate • Profitability ratios

• Easy to make comparison • Liquidity ratios

• Easily understood • Solvency ratios

• Able to communicate a firm’s • Operating or efficiency ratios

financial position and performance
to outside interested parties
Finding differences…
Farm A Farm B
Current assets 200,000 € 1,000,000 €
Current liabilities 100,000 € 900,000 €
Net Working capital 100,000 € 100,000 €

Same net working capital, different financial position: farm A shows a better financial position:

Current ratio = current assets / current liabilities = 2 for farm A, 1.1 for farm B
1. Profitability ratios:

 Return on investments (ROI)

 Return on sales (ROS)
 Return on equity (ROE)
 Return on assets (ROA)
 Return on investments (ROI)
 ROI = net operating income after taxes / total assets * 100
 Example:
 net operating income: 3,500€
 Total assets: 10,000€
 ROI = 3,500/10,000 * 100 = 35%

 Good value? Look at trends and compare to other farm and non‐farm
investments

ROI allows to evaluate the farm’s capability of generating oeprating income adequate to the employed
financial resources
Return on equity (ROE) %
ROE = (Net income after taxes / owner’s equity)

This is the most widely used profitability ratio and takes investor’s point of view of the firm. The ROE ratio,
which determines the return on investor ownership, is used when comparing investment opportunities.

Example:
196,650 € / 3,665,000 € = 0.0537 = 5.4 %

 Good value? Look at trends and compare to other farm and non‐farm
investments
 The difference with the ROI is that ROE considers only the owner’s equity
2. LIQUIDITY RATIOS
(having cash when needed)
Refers to the ability of the farm to meet financial obligations as those
obligations come due. Hence, the focus of liquidity ratios is on assets
that can be easily converted to cash.
Indicate the ability of a producer or a business (activity) to cover their
short-term debts with their short-term assets (the money available in
the short term). It is essential that the projects not encounter a liquidity
problem in order to meet their obligations

Net working capital

Current ratio
Quick ratio
Net working capital (NWC)

 Net working capital = (current assets - current liabilities)

 Example

 NWC = 4,287,000 € - 1,862,000 € = 2,425,000 €

 This is a dollar figure and a ratio of two numbers may provide a better measure of
liquidity
Current Ratio (CR)
 Current ratio = current assets
current liabilities

 Example

 CR = 4,287,000 € / 1,862,000 € = 2.3

 The farm is able to meet its obligations. There is 2.30€ of current assets for
every 1€ of current debt. In most cases, a current ratio somewhere around
2.0 signifies ample liquidity for the firm.
3. SOLVENCY RATIOS
 Solvency is related to a farm’s ability to meet all of its claims over long run or
total liabilities
 Solvency ratios pinpoint the portion of a business capital requirements that
are being furnished by owners and by lenders. Evaluation of solvency ratios
gives an indication of the likelihoods that lenders will incur problems of
recovering their money.

 Debt to equity ratio

 Solvency ratio
 Debt to asset ratio
Debt to Equity Ratio
 Total liabilities / Owner’s equity

 Example
 DER = 3,012,000 € / 3,665,000 € = 0.82

 Liabilities are equal to 82% of owner equity. In another way, this ratio
suggests that for every 1€ of owner investment in the farm, there is 0.82€ of
outsider investment.
 A ratio higher than 1makes lenders really nervous
Debt to Asset Ratio (DAR)
◦Debt to Asset Ratio = Total Liabilities/Total Assets
 Indicator of ability to take on risk
 Affects capacity to expand

 Example
 DAR = 3,012,000 € / 6,677,000 € = 0.45

 Debt/Asset is most commonly used to express what proportion of

total farm assets are owed to creditors. Overtime, this value can
decrease as debts are paid off.
 A 50% both outsiders and insiders have equal investments in the farm
STRATEGIES FOR THE GOVERNANCE OF
THE AGRIBUSINESS
What is a value chains? (Porter, 1985)
 “Value chain” means….
➢ “the sequence of related business activities (functions) from the
provision of specific inputs for a particular product to primary
production, transformation, marketing and up to final consumption”
➢ “an institutional arrangement linking and coordinating producers,
processors, traders and distributors of a particular product.”
 It is a systemic approach for economic development.
 Different activities, different actors
 All operators add value to raw material.
 All actors share in interest for the end product.
Value vs supply chain
 Value chain
– A value chain is a collection of businesses ranging from primary producers,
processors, distributors and retailers, consumers - Every step from raw
materials to the final end user
– The value is created through interrelated activities which progressively
generate added value through a sequence of stages to achieve a common goal
– The ultimate goal is delivery of maximum value to the end user in a specific
market segment
 Supply chain – Every activity that gets raw materials and subassemblies into
manufacturing operation
 These terms are often used interchangeably
Economic theory on the supply chain (Banterle, 2017)
 Neoclassic theory
 New Institutional Economics, based on bounded rationality, imperfect information
and opportunistic behavior. Different approaches:
◦ Information economics (Akerlof, 1970): the consequences of information asymmetry in
vertical exchanges - adverse selection
◦ Contract theory
 Theory of incomplete contracts (Grossman and Hart, 1986) contracts cannot specify what is to be
done in every possible contingency - bounded rationality
 Principal-agent theory (Jensen and Meckling, 1976; Holmstrom, 1979): agency relationship, in which
one party (the principal) delegates another party (the agent), who performs that work - adverse
selection models and moral hazard models
◦ Property right theory(Coase, 1960; Alchian and Demsetz, 1972) - ‘the rights of individuals to
the use of resources’ (Alchian, 1965) - historical and institutional context that shapes and
changes property rights
◦ Transaction Cost Economics (Williamson 1985, 1996): transaction attributes and costs
influence transaction governance
Relevant transactions across the agrifood system
 transaction between farmers and their input suppliers (T.1),
 transaction between farmers and the first transformation step (T.2),
 transaction between the first and the second transformation steps (T.3),
 transaction between the last transformation step and wholesalers (T.4),
 transaction between wholesalers or the last transformation step and the
retailers (traditional retailers and supermarket/hypermarket chains) (T.5).
Differentiation of quality and creation of value (OECD)

 The opportunities offered to farmers or created by their individual or collective

choices, give rise to a strategic configuration
 In differentiation strategies, quality is a primary decision value for economic
agents
 The purpose of differentiation is to present in the market a supply similar to that
available in a sector, but not easily comparable to that of competitors. In each
case, quality is an essential parameter
Value creation through product qualification: a
transaction costs approach

 Strategic dimensions:
◦ Relevance
 Information must generate values for consumers and, as a consequence, willingness to pay
 Information is spread through quality signaling, which reduces consumer’s transaction costs
 What information should be labelled?

◦ Credibility
 The credibility of a quality signal may be studied by considering that a quality signal is comparable
to a contract between the owner of the signal and the consumer (i.e. a set of promises on the
future quality of goods)
 Credible commitments and intermediate transactions
An analytical framework
Transaction costs economics economics

• Market cases of market failure Transaction costs

• Agents of the supply chain - bounded rationality
- imperfect knowledge
- opportunistic behaviour
• Firm governance structure, institution, organization
 Coase (1937) and the marketing costs bringing about the replacement of the market with the
firm
Transaction Cost Economics
(Williamson, 1985; Menard, 2004)

Aim
To choose the best efficient mode of governance of transactions: transaction costs
minimization
Transaction costs
– Information costs
– Bargaining costs
– Monitoring costs
Attributes of transaction
– Frequency
– Uncertainty
– Asset specificity
Governance of transaction
– Market
– Hybrid forms
– Hierarchy or vertical integration
Transaction costs economics
Reacting to high transaction
costs
- CONTRACT FARMING
- HORIZONTAL/VERTICAL INTEGRATION
Contract farming
Filling the gap between smallholders and the market
Definition

 A contract is basically an agreement that the buyer will purchase the produce
of the farmer. It can specify the price to be paid, the quantity to be delivered,
and the timing of delivery.
 More advanced contracts can also include an obligation for the farmer to
comply with the company’s standards and can stipulate a transfer of
information, farm inputs, or credit to make compliance possible.
 The provided inputs can be rather simple, such as specific seeds, fertilizer, or
animal feed, but contracts can also include the provision of technical and
managerial advice, equipment, quality control, specialized transport and
storage services, and investment loans
Value chain governance
 As standards get more complex or require bigger and longer-term investments,
more comprehensive forms of value chain governance might be necessary (Gereffi,
Humphrey, and Sturgeon 2005; Kuijpers and Swinnen 2016). An example of a more
complex form of value chain governance is multi-agent contracting, involving
financial institutions and technology companies as additional parties in the contract.
 In a so-called triangular structure, for example, the buyer of the farm’s produce can
offer a payment guarantee to a financial institution (or a technology company) if the
financial institution provides the buyer’s suppliers with credit (or, in the case of
technology companies, farm inputs). Bringing additional agents to the table allows
for sharing the cost of setting up the governance system, spreading the risk, and
enhancing the enforcement capacity through lower information asymmetry and
higher reputation costs (Swinnen and Kuijpers 2017).
Advantages of CF
For farmers For agribusiness firms (downward
 Guarantee of a market outlet phases)
 Promotion of increased and more stable  Cost efficiencies in farm product sourcing
incomes  Increased access to land
 Reduced risk of product price volatility  Stability in the supply of agricultural products
 Facilitated access to finance (in-kind or via  Improved raw material quality and safety
bank)  Improved conformity to trade and safety
 Inputs can be provided standards
 Services can be provided (mechanization,
transportation...)
 Technological assistance can be provided
 Improvement in the production and
management skills
 Diversification toward higher value crops
 Potential pitfalls of CF
 Breach of contracts by either partner
 Side-selling by farmers
 Delays in agreed payments to farmers and,
 Unequal power balance between parties
 Recent trends towards CF in both developed and developing
countries
 Spurred by changes in (international) competition, consumer demands, technology, and governmental policies,
agricultural systems are increasingly organized into tightly aligned chains and networks, where the
coordination among production, processing and distribution activities is closely managed
 For developing countries there are a number of developments that may lead to an even more rapid expansion
of CF. One of these developments is the rise of supermarkets in food retailing. Over the last two decades, the
number of supermarkets has grown rapidly in the urban areas of developing countries, particularly in Asia and
Latin America (Reardon and Berdegue, 2002). Supermarkets have procurement practices that favour
centralized purchasing, specialized and dedicated wholesalers, preferred supplier systems, and private quality
standards. These characteristics of the supermarket procurement systems require more vertical coordination
among production, wholesale and retails, thus favouring the introduction of CF.
 Another development relevant for CF in developing countries is the reduction of the role of the state in
agricultural production and marketing. As part of market liberalization policies, governments have often
reduced their budgets for and direct involvement in providing inputs and technical assistance as well as in
marketing farm products. As markets for the private provisions of inputs and services continue to fail, CF
could solve the problems of farmer access to inputs
Functional perspective on CF
 contracts as a coordination device (Coordination is meant to ensure that
products of the right quantity and quality are produced and delivered at the
right time and place).
 contracts are used to provide incentives and establish penalties in order
to motivate performance
 contracts clarify the allocation of risk.
 Types of contracts
 A market-specification (or marketing) contract is a pre-harvest agreement between producers
and contractors on the conditions governing the sale of crops/animals. Besides time and location of
sales, these conditions include the quality of the product, which will affect certain farmers’
production decisions. The contractors reduce producers’ uncertainty of locating a market for their
harvest, but farmers still bear most of the risks of production activities.
 The production-management contract gives contractors more control than the market-
specification contract, since they inspect the production processes and specify input usage.
Producers agree to follow precise production methods and input regimes, which implies that
farmers have delegated a substantial part of their decision rights over cultivation and harvesting
practices to contractors; they are willing to do so because the contractors take on most of the
market risks.
 Under the resource providing contracts, contractors not only provide a market outlet for the
product, but also provide key inputs. Providing inputs is a way of providing credit in kind, the costs
of which are recovered upon product delivery. The extent to which decision rights and risks are
transferred from farmers to contractors depends on the contract itself.
CF as response to high transaction costs
 New institutional economics and the call for CF
 CF bridge the gap between vertical integration and anonymous spot markets
 Contracts are typical hybrid governance structures
◦ Hybrid governance structures are characterized by 3 elements: pooling, competition,
contracting
 Cooperatives become typical hybrid governance structures (Ménard, 2007), combining contracts
between members and the cooperative firm, pooling of resources as members jointly own the
cooperative firm, and competition among members as they individually decide on the quantities to
sell through the cooperative
VERTICAL INTEGRATION
Typologies of integration

C1 C2 C3 C4
B1 B2 B3 B4
A1 A2 A3 A4

Horizontal integration Adelman’s index

Ia = AVa / Ta

Backward vertical integration AV= added value

T= turnover
Forward vertical integration
Advantages and disadvantages of VI
 advantages  disadvantages

 Vertical integration  High costs of the operations

◦ Provisioning  Less flexibility (risks of sunk costs)
◦ Costs advantages linked to the economies of  Higher complexity and high needs
scale of integrated productive stages for managerial skills
◦ Competitive advantages
◦ Organizational surplus
◦ Transaction costs reduction
 Horizontal
◦ Critical mass of production
◦ Contractual power
II PART
FARM MANAGEMENT WITHIN A LOCALIZED
MODE OF FOOD PROVISIONING
Business models transformation (source: Sadovska et al., 2023)
A territorial approach to agrifood system
 Territorialised food systems are food system identified in a specific region as
a set of dynamic interaction between human (households, enterprises,
institutions, etc.), natural (ecological, spatial, bio-physical), and technological
elements which results in a range of activities and outcomes
 A territorial approach allow diversity of different territories to be taken into
account, and leads to a better understanding of differences in development
opportunities that are so often missed with one-dimensional or one-size-fits-
all policies.
 A territorial approach also recognizes and capitalizes on the benefits of
urban-rural linkages, instead of addressing urban and rural areas through
different, often disconnected policies.
A regional food system
How to join a sector (farm management) and a
territory (rural development)

 The starting point: territorialized sustainable

agrifood systems
 Questions: 4 pillars / 4 terms
◦ Territorialized (spatial)
◦ Sustainable (environmental/social/economic)
◦ AgriFood (sectorial)
◦ Systems (interaction)
What is sustainable rural development?
(Source: European Commission)
 Sustainable rural development is generally recognized as the product of
those human activities that use the resources of rural territories to increase
welfare. Development can be considered as sustainable if it meets the needs
of the present generation without compromising the ability of future
generations to meet theirs.
 Rural development is the key tool for encouraging diversification and
innovation in rural areas. It aims to reverse depopulation processes, stimulate
employment and equality of opportunities, respond to growing requests for
better quality, health, safety, personal development and leisure, and finally
improve the quality of life
 the European Agricultural Model
(van der Ploeg, 2010)

 The issue is not the strengthening of competiveness of all types of agriculture. The
question is which types of agriculture support food security, sustainability and
balanced territorial development. More generally: which types of agriculture are in
line with the European Agricultural Model? In short, different types of
agriculture should be selectively supported, and ‘farm viability’ needs to be
enhanced in a well-targeted rather than generic way
 In this respect the European Parliament took a stance (in its resolution of the 8th
of July of 2010) that is far better targeted, in as far as it centred on (1) “high-
added-value farming with high-quality primary and processed
products […], (2) farming open to regional markets and (3) farming
geared to local markets […]” (point 29, see also consideration Q).The
Resolution of the 23rd of June of 2011 is also far more precise (and outspoken)
than the Proposal from the Commission where it defines “agronomically sound
and sustainable agricultural systems as vital to guaranteeing
competitiveness on local, regional and international markets” (point 4).
 Competitiveness does not stand on its own. It crucially depends on other,
increasingly decisive features such as quality, sustainability, animal welfare,
contributions to the quality of life, and trust (i.e. the acceptance on the part
of society at large).
Supply side
First we look at the supply side approach of multifunctionality. The supply
side viewpoint defines multifunctionality mainly in terms of multiple joint
outputs of an activity or of a combination of activities. Romstad et al. (2000)
speak about linked outputs, that can be private or public, main or secondary
and that can be intentionally produced or not (by-product).
 Multifunctionality is thus understood as the production of more than one
output through the use of inputs. These outputs may be complementary (this
means if there is more production of one output, there is also more of the
other), or competing (being substitutes).

Demand vision (normative approach)
 In the supply vision, multifunctionality is merely a characteristic of the
agricultural production process rather than a societal objective. This is
opposite to the second view on multifunctionality which looks at the
demand side with respect to the multiple functions agriculture can provide.
 A synthesis of supply/demand perspectives
 Although the supply and demand side visions on multifunctionality, described in the previous
section, place another emphasis on the concept, it is rather clear that the core elements of
multifunctionality are:
◦ (i) the existence of multiple commodity and non-commodity outputs that are jointly produced by
agriculture; and
◦ (ii) the fact that some of the non-commodity outputs exhibit the characteristics of externalities or
public goods, with the result that markets for these goods do not exist or function poorly.
 In order to connect both approaches two aspects become important:
◦ The coupling between commodity and non-commodity output in agriculture: in general, literature
reveals that jointness between these outputs is weak as long as externalities are positive (and
conversely). This result is supported by an empirical study referring to OECD countries (Abler,
2001).
◦ The spatial scale of non-commodity output production: the question of spatial scale is important
(from farm to landscape level) because diversity in systems (often linked with higher
multifunctionality) can be reached by making individual farm systems more diverse or by connection
at the territorial level of on itself specialised farm systems.
The multiple roles of agriculture

 Economic
◦ Food safety and food security
 Environmental
◦ Externalities of agriculture
 Social
◦ Job-keeping in rural areas
◦ Preservation of local traditions and cultures
Multifunctionality: a fuzzy concept

 Multifunctionality becomes a policy issue when

related to:
◦ i) the existence of multiple commodity and non
commodity outputs that are jointly produced by
agriculture,
◦ ii) (some of the) non-commodity outputs show the
characteristics of positive externalities or public goods
(OECD 2000). “Commodity outputs” (CO) in this view
refer to the satisfaction of material, while “non-
commodity outputs” (NCO) to the satisfaction of other
needs expressed by the society.
Examples of multifunctional outputs:
Commodity outputs Non commodity outputs
 Food and fibre  Food security and safety
 Transformation of products  Rural landscape
 Rural tourism  Rural way of
 Care activities on farms living/traditions
 Other marketable products  Biological diversity
 Soil conservation
 Health and other non
commodity products
(silence)
How to calculate the degree of multifunctionality -1

 In order to assess the degree of multifunctionality we

should use the following formula:

(1) Value of agricultural production = NCO + CO

How to calculate the degree of multifunctionality -2

 When is a process/a farm more multifunctional than another? If we state that:

(2) NCO = α * CO
 where (2) shows a functional relation between production of food and joint goods
responding to social needs, the higher is α the more is the degree of multifunctionality (es.
organic farming)
 Very often joint good shows the characteristic of public good, but local agents (at individual
or collective level, or public institutions) by means of appropriate strategies can transform it
in a private one:

(3) NCO = β * Public goods + (1-β) * Private goods.

The individual level: the multifunctional
farm
The three sides of farming and the farm
portfolio strategy

Rural Agrifood
networks
context
FARMING

Internal
resources
 The shift from a conventional farming
to a multifunctional farming

Agricultural The new rural paradigm and

modernisation farm’s boundary shift

Rural Agrifood Rural Agrifood

networks networks
context context

Size enlargement specialization broadening deepening

Conventional Conventional
agriculture agriculture

Internal externalization Internal regrounding

resources resources
 Sustainable rural development at farm level:
moving to multifunctionality

Broadening: Deepening:
(rural area) (Agro-food supply chain)
• agro-tourism • short supply chains
• landscape management • organic farming
• diversification • high quality production and
•new on-farm activities Farm regional products

Regrounding (Mobilisation of
resources):
• new forms of cost reduction
• off-farm income

Source: van der Ploeg, 2003

The farm portfolio strategy

Taken together, deepening, broadening and re-

grounding reshape the farm into a multifunctional
enterprise delivering a broader range of products
and services/commodity and non-commodity
goods.
Socioeconomic impacts of multifunctional farming
 How to measure the impact of
multifunctional agriculture?

Economic contribution: How Multifunctional Agriculture

influence the farm‘s economic level and rural economic
development (e.g. income, net profit, costs, prices, share of
added value to farmer, nº of goods offered, nº of tourists,
etc.)?

Social contribution: How Multifunctional Agriculture

influence community/rural survival (nº of local groups, rate
of migration, nº of inhabitants, on-farm employment, new
employment opportunities, etc.)?
The collective level: the multifunctional
local system

Very often also the production of joint functions have not an

individual scale but a collective-systemic one; that is single farms
produce NCO outcomes which have a real value only when this
virtuous behaviour is shared in the local area (i.e. landscape
features, lowering of environmental impacts, amenities).
We can identify two different roles which local systems, by means
of collective action, can have in fostering multifunctionality:
- Intensification
- Internalisation
 The two roles of local system - 1

A. Intensification, by raising NCO production, through the

increase of α in the formula NCO= α*CO (then, increase of
multifunctionality of agriculture)
How?:
 To build up a territorial reputation which raise the NCO share
toward external consumers;
 To promote scale economies in the provision of some network
services between local system and markets (touristic services,
marketing, etc.);
 To carry out baskets of territorialised goods and services, aiming
at creating scope economies
The two roles of local system - 2

B. Internalisation, by raising NCO share with private

characteristics, then reducing β in the formula:
(3) NCO= β * public goods +(1- β)* private goods.
This gives answer to the market failure in the remuneration of
NCO
an example is PDO products, as exit of a collective process of
valorisation of local resources
The role of policies

 Publicpolicies can influence processes of valorisation of

agricultural multifunctionality:
◦ At farm level (through stimulating multifunctional agriculture)
◦ At local system level through policies of valorisation of local
resources
◦ The case of rural development policies
 From productivistic paradigm to multifunctional paradigm
- two gates: product and territory
Differentiation, quality, articulated food chains, orientation towards
consumption
Rente de qualité territoriale
(Mollard, Pecqueur, 2007)
« Rente de qualité »

Food chain

« Rente territoriale »
Multifunctional
paradigm

Countryside as Multiple use of

production space Use of the rural space resources (leisure,
food, nature, etc.):
countryside as both
Productivistic production AND
consumption space
paradigm

Production of commodities /
Orientation towards production
 Where to search data? The FADN ( Farm
Accountancy Data Network) (Henke, Salvioni, 2011)
 Micro enterprises: very small farms with less than 15,000€ of gross
tradable production (GTP)
 Conventional farms: more than 15,000€ of (GTP) and little quality
and diversification oriented, and with products of standard quality
 Differentiated farms: more than 30% of the GTP is taken through
Multifunctional farms

deepening activities
 Diversified farms: more than 30% of the GTP is taken through
broadening activities
 Differentiated and diversified farms (deepening and broadening)
Dynamics of multifunctional farms
(% var. 2010-2020)

RDP area
Urban poles
Strategic Rural areas with Intermediate rural Rural areas with
profile specialized and areas comprehensive
intensive agriculture development
problems

Big
conventional
-22.7 -15.1 -4.0 27.0
Small
conventional -21.1 -0.8 2.0 8.9
Differentiated 475.0 1.9 56.5 330.0
Differentiated
and diversified
80.0 -54.8 68.4 0.0
Diversified 4.7 18.7 8.1 16.0
Micro -73.4 -41.0 -35.3 -31.9
Average values of Gross Saleable Product (GSP) from 2010
to 2020 (€).
Year 2010
RDP area Total
Urban poles Rural areas with Intermediate rural areas Rural areas with
Strategic profile specialised and intensive comprehensive
agriculture development problems
GSP GSP GSP GSP GSP

Big conventional 395,831 494,563 350,091 221,351 391,891

Small conventional 48,680 45,648 43,796 44,410 45,015
Differentiated 107,203 77,944 80,025 92,570 82,086
Differentiated and 108,226 404,370 261,946 152,474 261,247
diversified
Diversified 110,088 211,731 137,425 64,018 127,647
Micro 9,404 9,771 9,356 9,809 9,589
Total 157,292 216,108 121,460 71,426 139,087
Year 2020
RDP area Total
Urban poles Rural areas with Intermediate rural areas Rural areas with
specialised and intensive comprehensive
Strategic profile agriculture development problems
GSP GSP GSP GSP GSP

Big conventional 331,297 459,212 312,541 216,109 344,951

Small conventional 47,743 46,406 45,108 45,953 45,950
Differentiated 87,585 162,843 146,335 107,207 129,919
Differentiated and 330,715 353,600 293,134 117,098 253,460
diversified
Diversified 77,464 153,777 112,037 86,071 110,524
Micro 11,349 10,025 10,144 10,102 10,159
Total 144,806 193,924 116,632 83,318 129,951
Average values of Operating Income (OI) from 2010 to 2020 (€).
Year 2010
RDP area Total
Urban poles Rural areas with Intermediate rural areas Rural areas with
Strategic profile specialised and intensive comprehensive
agriculture development problems
OI OI OI OI OI
Big conventional 163,421 183,660 136,396 98,238 152,439
Small conventional 20,614 16,952 16,631 17,759 17,501
Differentiated 46,263 37,294 36,558 43,268 38,290
Differentiated and 60,278 191,624 116,050 60,642 117,717
diversified
Diversified 69,203 138,973 67,949 37,012 73,041
Micro 3,015 2,424 2,448 2,757 2,591
Total 67,161 86,829 49,555 31,850 57,419
Year 2020
RDP area Total
Urban poles Rural areas with Intermediate rural areas Rural areas with
Strategic profile specialised and intensive comprehensive
agriculture development problems
OI OI OI OI OI
Big conventional 113,284 146,367 102,958 86,105 115,808
Small conventional 14,920 15,053 17,145 17,317 16,464
Differentiated 33,775 54,962 68,078 37,059 50,336
Differentiated and 185,004 232,255 102,135 66,966 113,472
diversified
Diversified 60,842 116,420 56,644 47,052 66,983
Micro 1,038 495 2,243 228 1,132
Total 53,645 71,386 43,510 34,657 49,272
 Smallfarm’s behaviour: the C-S-P (conditions,
strategies, performance) paradigm
Producer’s decision-making process
CONDITIONS
 The influence of internal and external conditions on the
farm’s strategy
Farm Household
✓ Regulatory conditions
✓ Factor (input) conditions
✓ Demand (output) conditions
Internal conditions External conditions ✓ Conditions related to finance and risk management
✓ Socio-demographic
✓ Ecological
producer ✓ Socio-institutional
The family farm
business as unit of
analysis

External conditions and market imperfections

strategies ✓ Information / bounded rationality /
✓ Transaction costs
✓ Adjustment costs
▪ Short term
▪ Long term
performances
External
conditions
Mediation between internal and external conditions

Webs of influencer Individual traits

◦Communities of ◦ Personal characteristics (age,
practices education, etc.)
◦Socio-spatial knowledge ◦ Psychological
◦ Cultural
networks
 AKIS (agricultural knowledge
◦ Social
and innovation system) ◦ Values, beliefs, etc.
Attitudes
 «Readiness to act, or a mindset that is used by an actor to act and
judge in situation of decision-making” (Ahnstrom, 2008). Research filed
that have approached this issue include:
◦ Environmental conservation
◦ Production orientation
◦ Business risk and disease risk management
◦ Contractual arrangements, with trade-off between secured market access and
entrepreneurial freedom
◦ Self-exploitation acceptation ad profit seeking
◦ Climate change adaptation and mitigation
◦ Emphathy towards animal welfare
STRATEGIES
Strategies: decision-making process in the light of
perceived conditions
 Strategies range from being more production oriented to other that involve off-
farms (e.g. part-time farming) or extra-farming (e.g. leasing of buildings) activities
 From another perspective, strategies can be aimed to avoid or limit the effects of
potentially harmful changes but also to proactively respond to present or future
opportunities
 Resistance to change and adaptive renewal are two opposite poles within which
may solutions ar at farmers’ disposal
 Different strategies can be considered as mutually exclusive (e.g. choice between
intensification and low-intensity farming), but in many cases they are not
 Finally, strategies may be not individual, but collective, like in case of geographical
indications, cooperatives, etc.
Indentification of strategy types and clusters

Keywords
◦Adaptation
◦Survival
◦Adjustment
◦Development
◦…….
 AGROINDUSTRIAL COMPETITIVENESS BLURRING FARM BORDERS RURAL DEVELOPMENT
Intensification and upscaling
- Vertical integration Intensification and upscaling
- Externalizaiton of production services - Deepening
- Size increasing and merging
- Supply and sales markets - Externalization of production phases
- Externalization of workforce - Broadening
internationalization
- Externalizationof marketing and export
- Regrounding
Technological innovation
- High tech for management and logistics Partnership
- High tech mechanization - Cooperatives
- Club systems
Market orientation - Business based networking
- Integrated marketing management - Multifamily farming Clusters of farm’s
- Customer care strategies
Agricultural contracting and passive
Financialization diversification
- Stock exchange markets - Contracting for other farmers
- Private equity investments - Contracting for non-farmers
- Banks credit access guaranteed by - Leasing of land and buildings
products
- Private credit access guaranteed by POLITICAL SUPPORT COPING WITH FARM DECLINE
products
Public relations Downsizing/survival
- Advocacy - Self-exploitation
RISK MANAGEMENT - Lobbying - Hobby farming
- Risk-shifting contracts Subsidies seeking - Reduced income acceptation
- CAP income support Abandonment
- Risk-sharing contracts
- CAP measures for rural development - Search for new occupation
- Insurance contracts - Agroenvironmental schemes - Death/retiremenet withour
- Hedging (forward and future - Other public support replacement
contracts)
PERFORMANCES
Conditions, Strategies and Performances
(feedback loops to be considered)

Most business
oriented
performances
(business resilience)

Most household’s
welfare oriented
performances
(Household resilience)

Most outward
oriented
performances (socio-
ecological resilience)
SMALL FARM AND INNOVATION
AGRICULTURAL KNOWLEDGE AND
INNOVATION SYSTEM (AKIS)
The food chain and the AKIS
Innovation systems in agriculture and rural development
 AKIS / RD (agricultural knowledge and innovation systems for rural development)
◦ Research
◦ Extension services
◦ Education and training
◦ Support system (organizations related to credit, input, producers’ associations)

 Implications of different paradigm on AKIS

◦ Not automatically innovations in agriculture have a positive effect on rural areas
◦ There may be a potential conflict of interests between «demand-driven» innovation and public
goals
◦ Pursuing rural development objectives needs broadening the scope and the targets of
intervention, shifting focus from farmers to rural groups (of which farmers are a relevant part),
from sector-based measures to territory-based measures and from private to public goals
Effects on the concept of rural innovation
1. Innovation involves much more than technology (more and more it regards
strategy, marketing, organization, management and design).
✓ Farms outside the industrial paradigm do not necessarily apply new technologies
2. Innovation are not only carried out by firms within the farms, but they may
involve many actors and reconfigure outside relational patterns (for
instance, supermarkets that introduce self-service and self-weighting tools
for fruit and vegetables reconfigure the role between consumers and the
personnel of the supermarket and imply a learning process among actors
involved)
The changing context of innovation

 From productivist to post-productivist paradigm

 The rural development paradigm: new rooms for innovation

 First-order innovation = incremental (within a paradigm

innovation is incremental when it build on achievements already
existing)
 Second-order innovation = radical (adoption of a new paradigm –
for instance, conventional versus alternative paradigm of
agriculture)
Conventional vs alternative paradigms
Conventional paradigms Alternative paradigms
Economies of scale Economies of scope
Specialization Diversification
High response to external inputs Reduction of external inputs
Productivity of labour Added value
Chemical, mechanical and biotech Agro-ecology, communication and
technologies organization technologies
Decreasing employment and exclusion of Empowerment of rural population
non-agricultural rural residents
Second-order innovations
 The linear model of innovation context

…
 And the multilevel perspective

Innovation
novelty as learning evaluation
process

search
Dynamics of second-order innovation

landscape
regimes

niches

Novelties as break
of routines
INNOVATION POLICIES FOR SUSTAINABLE,
RESILIENT, FOOD-SECURE SYSTEMS

 The discussion hinges on three questions, to be answered in the aim to find the
most governance arrangements best suited to promote innovation processes:
1. Who to involve in decision-making?
2. What are the appropriate knowledge infrastructures?
3. How to assess the effectiveness and the efficiency of the public policies and
supports?
Rural innovation policies
 Innovation policies concern production as well as consumption,
transportation, commerce, land use and management, planning and, therefore
should involve a broad range of stakeholders
 Innovation includes both technological and non-technological aspects of
human activities
 Innovation happens in hybrid networks, and its pace and effectiveness depend
on the shape of the networks
 Within networks, paradigmatic conflicts (for instance, between organic and
conventional farming) may occur
 Innovation policies should focus more on second-order innovation rather
than first-order innovation
What for?
 Should innovation policies respond to farmers’ or to societal problems?
 Need to distinguish between private and public interests

public private

Existing paradigm Reduction of negative externalities Growth and productivity

Non-trading distorting support Compliance with public standards

Efficiency and effectiveness of spending Compliance with customers’ requirements

Food hygiene

Alternative paradigms Sustainable use of renewable resources Competitiveness through sustainability

Creation of public goods Looking for new markets

Equity Transition to new technologies and farming

styles
Food quality
Policies for creating public goods and the competitiveness
of farm within alternative paradigms
 Drivers of innovation
◦ External pressures: political and moral pressures (e.g., environmental, food safety,
ethical concerns, etc.), new available knowledge (for instance digital technologies),
changes in the broader scenario (for instance, climate change)
◦ Internal pressures comes from within the sociotechnical networks the farm belongs
to (change in consumer’s demand, competition with other actors, availability of new
endogenous resources, such as human capital, material and immaterial resources, etc.
 Internal and external pressures may have different effects: change may happen
along a given trajectory (integrative pressures) or may engender a change of
the trajectory (critical pressures)
 Smith et al. (2005) classify transition contexts along with two criteria: “degree
of steering” by the State, and “resource locus”.
Innovation policies and innovation paths

Answering the
competitive
internal
pressure of the
IV I agrifood «regime»
Reorientation of Endogenous
trajectories renewal
(farms and local institutions building local (many rural development initatives)
food systems)

low Degree of steering by the State

high
Emergent Purposive
transformation transition Boosting digital
(for instance: market driven digital (mission-oriented innovation) solution through
technologies in large-scale farming) RRI approaches
II
III
external
Resources locus
Classification of the support schemes according to type of
paradigm and type of objectives
Public Private
BOX A (adjusting existing BOX B (State supporting private not
technological trajectories to male conflicting with public interests)
Existing paradigm producers comply with public Voucher systems with high share of private
interests rules) contribution to cost (i.e. advisory services)
Compulsory standards Support to investments in machinery
Voucher systems with high share of public
contribution
Awareness building
Demonstrations

BOX C (motivation and knowledge BOX D (motivation and knowledge

creation are paramount) creation are paramount)
Alternative paradigms Creation of new knowledge Creation of new knowledge
Visions and expectations Awareness building
Social learning Social learning
Discourse creation Discourse creation
Economic incentives Economic incentives
Creation of markets Support to strategic niche management
 Policy issues – How to manage the complexity of farm strategies –
the example of the Common Agricultural Policies of the European
Union.

I pillar: Farm income support II pillar: Rural development policies

Agro- Competitiveness Land and Rural
environmental Economy
Direct payment Management

- Basic income support for

sustainability
Human Physical Other Mountain areas Economic
Capital Capital measures Other LFA Diversification
- Complementary Training Investment Natura 2000 Rural
redistributive support for Agri-Environ. infrastructure
Afforestation Basic services
sustainability

- Support for young farmers

- Eco-schemes

Integration of Economic, Social and Environmental Concerns/Objectives

229