Overview of U.S. agrifood supply chains ECONOMIC CHARACTERISTICS - PowerPoint PPT Presentation

OBJECTIVE • Overview of U.S. agrifood supply chains ECONOMIC CHARACTERISTICS OF THE AGRIFOOD SUPPLY CHAIN • Describe seven specific Michael Boland, Ph.D. Director of University of Minnesota characteristics that are different from Food Industry Center Koller Endowed Professor in Agribusiness Management and Information industrial manufacturing and service Technology supply chains – Discuss four of these characteristics 24 October 2012 RISK FROM THE BIOLOGICAL NATURE OF SEVEN CHARACTERISTICS AGRIFOOD SUPPLY CHAINS • Risk from the biological nature of agrifood • Risk exists throughout the supply supply chains chain for all parties due to • Role of buffer stocks perishability • Scientific foundation of innovation • Cyberspace and information technology – Unpredictable yield risk influences – Seasonality • Prevalent market structure at farm gate is • Global distribution channels have eliminated oligopsony some of this • Relative market shifts away from food manufacturers downstream to food retailers – Orderly marketing has resulted in USA • Globalization of agriculture and agrifood supply from public policy designed to avid chains dramatic swings in volatility

RISK FROM THE BIOLOGICAL NATURE OF REAL AGRICULTURAL COMMODITY AGRIFOOD SUPPLY CHAINS PRICES ARE FALLING OVER TIME • Quantity risk is short-term shortfall in supply – “We will always plant another crop” – Yield volatility is greatest in maize relative to soybean, wheat, and rice • Price risk occurs from changes in supply and demand – Ways to hedge this in futures markets or fixed price contracts of a short duration with specific delivery and quality attributes http://www.instepp.umn.edu/documents/SP ‐ IP ‐ 09 ‐ 01.pdf CYBERSPACE AND INFORMATION YIELD INCREASES ARE VARIABLE TECHNOLOGY INFLUENCES • Transportation gains and communication technology have reduced real freight costs • Widening of Panama Canal and expansion of US rail system will change US system – Projects in Brazil and southeast Asia (rail, deeper ports, etc.) will further reduce costs. http://www.instepp.umn.edu/documents/SP ‐ IP ‐ 09 ‐ 01.pdf

INFORMATION TECHNOLOGY IMPACTS INFORMATION TECHNOLOGY IMPACTS • Processors can use contracts to obtain • Harmonization of information used in certain plant varieties or animal breed business • Utilize research to change transfat – Trade agreements and similar treaties profile in oilseeds or intramuscular fat have helped standardize how business is done and data reporting in animals • Veterinary and scientific protocols • Whole grains, sodium, and calories are – Exception: GMO tolerance differences still exist becoming critical issues. • International accounting standards • Traceability has become more common • Value and volumes of export and import which requires trust. data SUPERMARKETS AND RESTAURANTS HAVE RELATIVE MARKET SHIFTS AWAY FROM FOOD NOT ENGAGED IN EXTENSIVE VERTICAL MANUFACTURERS DOWNSTREAM TO FOOD RETAILERS INTEGRATION STRATEGIES • Market power exists due to global • Market power is shifting away from market share and number of retail locations food processors to retail • Volume and access to consumer supermarkets and restaurants demands leads to increased leverage – Concept of “Chain Captains” in retail • Development of global brands supermarkets who decide what is • Development of ‘sustainable’ practices needed in supply chain and influence – Size of space for layer chickens participants in the chain – Growth hormones in beef – Proposition 37 in California on food labeling

GLOBAL TOP 100 BRANDS WITH A FOOD GLOBALIZATION OF AGRICULTURE AND FOCUS AGRIFOOD SUPPLY CHAINS • Information technology provides opportunities for globalization which leads to Alcohol – Increases in market size Restaurants – Returns to scale – Competition – Capital flows Beverages – Multilateral trade agreements Consumer Foods GLOBALIZATION OF AGRICULTURE AND MANAGERIAL IMPLICATIONS AGRIFOOD SUPPLY CHAINS • Use of World Trade Organization to • Ability to process and understand settle disputes among countries change – Greater difficulty in raising prices even if • Resource adjustment in agriculture your costs increase us slower than in many other • Number of products offered, industries geographic scope of firms, and – Employment, food security, immigration, source and sustainability of etc. issues competitive advantage are important

MANAGERIAL IMPLICATIONS MANAGERIAL IMPLICATIONS • Role of trade associations in codifying • Foreign Direct Investment is more self-regulation will be more important. rapid when there are opportunities – Food labeling, certification, and similar – Requires assessment of risk and reward issues • Transportation investments are going – Helping define sustainability issues to offer many opportunities but the • Entire supply chains may compete against each other as opposed to timing of these investments is critical individual firms. – Geo-politics may delay some – Much different than what we have seen in investments past FOR MORE INFORMATION • I can be contacted at + 1.612.625.3013 or boland@umn.edu • Full description can be found in a publication by Tom Sporleder (retired) and myself entitled – Exclusivity of Agrifood Supply Chains: Seven Fundamental Economic Characteristics International Food and Agribusiness Management Review Volume 14, Issue 5, 2011. Available online – http: / / ageconsearch.umn.edu/ bitstream/ 11 9969/ 2/ 20110087_Formatted.pdf