Welcome to ABM/FIM 422DefinitionsDefinitionsChangeSlide 5Slide 6Industrial Revolution?Industrialization in the Agri-Food System: ChangesCommodities vs. Food ProductsSlide 10Slide 11Industrialization in the Agri-Food System: ChangesSpecializationFARMER vs INDUSTRIAL PRODUCERFARMER vs INDUSTRIAL PRODUCERSpecializationIndustrialization in the Agri-Food System: ChangesConcentrationSlide 19Industrialization in the Agri-Food System: ChangesWhy is Industrialization Occurring?Changing Food ConsumersWhy is Industrialization Occurring?Tech and InfoSlide 25Why is Industrialization Occurring?What are the Implications?What are the Implications?What are the Implications?What are the Implications?Questions for next timeWelcome to ABM/FIM 422Coordination in the Agri-Food SystemDr. Robert ShuppSpring 2015Agri-food systemSupply or value chain (six critical dimensions) 1. Set of processes or activities that create the products demanded by the end user Inputs Production Processing Retailing 2. Product flow features – logistics, transport, scheduling, inventory control 3. Financial – financial or cash flow across participants, ETF, sharing of performance info 4. Information – information flow across chain, accuracy, speed and openness 5. Incentives – systems to reward performance and share risk: price premiums, cost- sharing, profit sharing, window contracts etc. 6. Governance/coordination system – open-access markets, contracts, strategic alliances, joint ventures, co-ops, vertical integration: Choice impacts power, control, risks and rewardsDefinitionsDefinitionsCoordinationVerticalHorizontalBiological Manufacturing – characterized by:Industrial production and use of modern business principles/manufacturing approaches: procurement, inventory management, process control technology▪Monitor/measure/manipulate product development throughout chain in real-time▪Eliminates the disconnect between farm-gate and retailChangeIt will never again be the way it was. It will not long be the way it is.Those who will be comfortable with tomorrow’s world, are those who accept and make change a way of life.Change in agri-food system = Industrialization via increased focus on supply/value chains and “biological manufacturing”Not only is change occurring, but change is becoming ever more compressedIndustrialization in the Agri-Food SystemWhy is it occurring?What does it mean?Industrial Revolution?Industrial – of or pertaining to an industry. Industry: firms engaged in a particular kind of commercial enterpriseRevolution – an assuredly momentous change; a sudden overthrow brought about from within a given system (Webster’s) SO, what has changed? How is the AFS different from 30 or so years ago?Industrialization in the Agri-Food System: Changes1. Shift from production of commodities to food productsCommodities vs. Food ProductsCommodity Focus – produce a generic product, try to find a market and let the buyer alter it to suit his or her needsFood Product Focus – products are produced and purchased because they have specific end-use attributesEx: Value-added chicken productsWhat is the “Chicken of Tomorrow”?Ex: Value-added chicken productsIndustrialization in the Agri-Food System: Changes1. Shift from production of commodities to food products2.Shift from production of multiple commodities to production of a more limited number of products (outputs) with specific attributes – i.e., specializationSpecializationProducer level: long-run trend away from smaller generalist farms toward larger specialized farmsFarmer → Industrial ProducerFARMER vs INDUSTRIAL PRODUCERTypical “Farmer” OrganizationIntegrated Ownership and Control of Production Inputs – frequently family owned.“Self-contained” factoryDiversified outputThe Farmer as a craftpersonFARMER vs INDUSTRIAL PRODUCERTypical “Farmer” OrganizationIndustrial Producer OrganizationFrequent separation of the ownership and management of inputsIntense specializationTemporal & geographic diversification“New” management skills requiredSpecializationProducer level: long-run trend away from smaller generalist farms toward larger specialized farmsProcessor: not always true, high overhead costs keep heavy pressure on volume Retail: some movement towards smaller, more targeted, stores although, even Walmart is an example of specializationIndustrialization in the Agri-Food System: Changes1. Shift from production of commodities to food products2. Shift from production of multiple commodities to production of a more limited number products with specific attributes – specialization3. Increased concentration (number of firms, geographic)ConcentrationVolume - Fewer, larger producers/processors /retailersGeographic - Clustering results from production facilities locating in close proximity within a given region (tied to specialization via fewer processors)Industrialization in the Agri-Food System: Changes1. Shift from production of commodities to food products2. Shift from production of multiple commodities to production of a more limited number products with specific attributes3. Increased concentration (number of firms, geographic)4.Tighter coordination within and between each stage in the agri-food system- Increased number of alliances, contracts and mergersWhy is Industrialization Occurring?Changing Food ConsumersChanging Food ConsumersIncreased wealth - decreased percentage of $$ spent on food. Allows for more emphasis on convenience, variety, safety, nutrition, and tasteMore meals eaten away from homeChanging ethnic mixGreater exposure to different products makes consumers more discriminating (globalization)Recent changes in consumers – push away from industrialization?Increased awareness of environment/energy issuesIncreased interest in production practicesWhy is Industrialization Occurring?Changing Food ConsumersChanging Technology/Information FlowsTech and InfoSpecialization, concentration and globalization of the agri-food system made possible through cheap transport (changing?)Logistics Tech means fewer middle-men: producer has a closer link to retailer/end consumerInformation tech decreases decision-making time and increases available information (scanner data) this makes data management/analysis one of the critical competitive factors in agribusiness