13. Agriculture Risks Flashcards
Define: Aggregate Pricing
Individual commodity producer cannot control overall supply
Selling value of product is determined after production cycle already in play
Events unrelated to producer decisions can influence demand (complementarity, substitution, product differentiation)
Compare Commodity Pricing vs Margin Pricing
Commodity produces can’t control price
Other industry segments have more control over selling price (margins) - especially true in the processing and retailing industries where processors can control added value attributes, distinguishing characteristics, marketing, consumer pricing
How do processors/distributors gain market share?
Distinguish products
“Value-added” features
Marketing techniques
Define: Signaling Effect
Occurs when a buyer receives an implicit message from an explicit cue
Misleading claims that exploit a knowledge gap, “fake transparency,” absence labels (“does not contain”)
Where do agricultural risks occur?
At every stage of a production system
Environmental
Financial
Marketing
How so production systems mitigate risk?
Insurance, diversification, contracting, futures
Size and integration
Define: Vertical Integration
Single entity (corporation) owns and manages the entire production chain to retailing
Minimizes risk in supply/demand
Direct communication between consumer desires and production practices
What are alternatives to producer/processor/distributor agricultural business models?
Small scale vertical integration
Individual farm taking product through processing to distribution
Obtains all revenue by one entity
Assumes all the risks in one entity
What are alternatives to agricultural business models without the processing?
Farmer’s market
Community supported agriculture
How do alternative business models increase complexity and needs for management?
Equipment
Labor force
Distribution
Marketing
Financing
Each phase of the supply chain now requires attention
