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What Is Agribusiness?
Agribusiness encompasses the economic sectors for farming and farming-related commerce. It involves all the steps for getting agricultural goods to the market, including production, processing, and distribution. The industry is a traditional part of any economy, especially for countries with arable land and excess agricultural products for export.
Key Takeaways
- Agribusiness is a combination of the words “agriculture” and “business,” and it refers to commerce in farming and farming-related activities.
- Agribusiness covers the production, processing, and distribution of farm-based goods.
- Companies in the agribusiness industry comprise all aspects of food production.
- Climate change has amplified the pressure on many agribusinesses to adapt to large-scale shifts in weather patterns.
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Investopedia / Sydney Burns
Understanding Agribusiness
Agribusiness, as a sector, is all the different aspects of raising agricultural products as an integrated system. Trading farm goods is among the oldest human undertakings, but advances in the last century have made it a high-tech industry. Farmers raise animals and harvest fruits and vegetables with the help of sophisticated harvesting techniques, including using GPS to manage their operations. Manufacturers have developed increasingly automated machines that require very little labor. Processing plants are constantly renewing how they clean and package livestock to make production cleaner and more efficient.
While consumers don't see each part of this industry, we rely on the sector's efforts to remain sustainable while aiming for lower food prices.
Agribusiness Market Forces
Market forces, such as changing consumer attitudes, and natural forces, such as changes in the earth's climate, significantly influence agribusiness.
Changes in consumer taste alter what products are grown and raised. For example, shifting away from red meat might cause demand—and therefore prices—for beef to fall, changing how thousands of acres of farmland are used. Increased demand for produce may shift the mix of fruits and vegetables that farmers raise, requiring investments in irrigation systems and other ways of boosting production. Businesses unable to rapidly change with domestic demand often first look to export their products. If there's no market, they may be unable to compete and remain in business without pivoting to other crops.
Climate change has increased the pressure on the need for sustainable practices in the industry, just as it's already adjusting to vast differences in worldwide weather patterns. But even short-term changes in weather patterns can have dramatic effects: an early frost in a citrus-growing region could cause a severe drop in that year's crop while less snowfall in a mountain region could mean a spring drought in surrounding valleys that depend upon the melted water for crop growth.
The regulatory environment also influences the agribusiness industry. Changes in approved chemicals and procedures or other legislation can cause market fluctuations.
Agribusiness Challenges
Countries with a large farming sector face constant pressure from global competition. Products such as wheat, corn, and soybeans are commodities that are similar wherever they are grown, making one area's product easily replaceable by another's if it can get to market at a lower price. There are many other challenges faced by farmers:
- Global agricultural products prices can change rapidly, making crop planning complicated.
- Farmers may also have less arable land to work with as suburban and urban areas expand into the farm regions.
- Remaining competitive requires agribusinesses to operate more efficiently, often involving investments in new technologies, new ways of fertilizing and watering crops, and new ways of bringing goods into the global market.
- Climate change is perhaps the greatest common challenge for agribusinesses worldwide. It is one of the industries most affected by and also involved in propelling climate change.
- Agribusiness worldwide accounts for about 17% of the world's greenhouse gas emissions, helping to drive the rise in global temperatures, creating pressure on the sector to reduce emissions.
- Agribusiness is also heavily impacted by the volatility in average temperatures and rainfall, as well as extreme weather. Heat waves, droughts, extreme storms, and wildfires—all exacerbated by climate change—can cause damage to crops and threaten livestock. Rising temperatures can threaten growing conditions for crops and could limit production in many regions, while the growing global population is increasing the demand for food.
All this represents a major challenge for agribusinesses, which face pressure to adopt more sustainable production methods. Finding ways to reduce emissions and adapt to a changing climate will be key to future success.
Use of New Technology
The use of new technology is vital to remain competitive in the global agribusiness sector. Farmers need to reduce crop costs and increase yield per square acre to stay competitive.
Some farmers have adopted bee vectoring technology. This involves raising bees and using them as a delivery method for biocontrol agents, which can help protect plants from pests, fungi, and diseases.
Bees are key to agriculture, but populations have dropped in recent years. Almost half the honeybee colonies in the United States died between April 2022 and April 2023. This new technology can encourage more beekeeping and promote the growth of more colonies, while improving crop yields and fighting disease.
Electronic drones have also played a greater role in agribusiness in recent years. Farmers have used drones for tasks like scouting for pests and diseases, monitoring water stress, screening plants, locating stray livestock, and gathering data for flood risk modeling.
Robotics, GPS technology, and moisture sensors also help farmers improve worker safety and apply pesticides and fertilizers more easily across closely-targeted areas, and reduce wasted water.
Agribusiness Examples
Agribusiness is a broad industry with a vast range of companies and operations. Agribusinesses include small family farms and multinational conglomerates in food production on a global scale.
Some examples of agribusinesses include farm machine manufacturers, such as Deere & Company (DE); seed and agrochemical manufacturers, such as Bayer; food processing companies, such as Archer-Daniels-Midland Company (ADM); farmer's cooperatives; agritourism companies; and makers of biofuels, animal feeds, and other related products.
What Is an Example of Agribusiness?
Agriculture is the practice of raising crops, livestock, fish, trees, and other living organisms for food or other products. Agriculture has a long history—it is widely believed that humans began practicing agriculture at the end of the last ice age.
What Are the Three Main Categories of Agribusiness?
Agribusiness can be split into three major categories—agriculture, livestock, and forestry.
Agriculture includes activities like planting and harvesting crops. Livestock concerns raising animals for products like milk, eggs, or meat. Forestry involves planting, growing, and harvesting trees for construction, papermaking, and other purposes.
What Is the Most Profitable Agribusiness?
According to the United States Department of Agriculture, the top five products in the U.S. are corn, cattle, soybeans, dairy products, and broilers (chickens raised for food). The most profitable agribusinesses are likely involved in producing, processing, and marketing these products.
What Is the Future of Agribusiness?
Agribusiness will likely evolve because of the effects of climate change. Other changes underway include the rise of genetically modified crops and industry consolidation.
The Bottom Line
Agribusiness is one of the world's oldest industries, with human agriculture beginning millennia ago. It is highly diverse and includes everyone from scientists developing new plants to industrial workers building farm equipment to laborers planting and harvesting food.
Though the industry is facing major changes and challenges, largely because of climate change, it will continue to evolve as people's food needs change.