Economic Factors Affecting Agribusiness
Agribusiness is one of the sectors that have been creating a lot of buzz globally. It is a kind of business that relies on agricultural production. It includes breed, agrichemicals, crop production, distribution, processing, marketing and retails selling and much more. The discipline of agribusiness has gone through a lot of transformation since its discovery and it is becoming more market centric. Although, there core economic factors known to affect the agribusiness sector.
Agribusiness has expanded to all agents of food and fiber value sequences and those notable institutions that impact it have also become a part and parcel of its operations. The agribusiness edge has been driven by a variety of transaction costs that have pushed it to revolutionize due increased cost of produces used in creation of other commodities.
Within the ever expanding agriculture sector, agribusiness is just a portmanteau of agriculture and business. There are lot of disciplines and activities that are embraced by modern food production. All in all, the agribusiness industry is facing numerous economic challenges. The economic factors affecting agribusiness are discussed briefly below and they include;
- Rivalry among established agribusiness firms- The level of rivalry in the sector depends on the number of firms, exit barriers and demand conditions. Rivalry in the sector also varies with growing demand from new or existing clients. The large numbers of agricultural firms involved have been descried as perfectly competitive. Government policies and interventions have helped provide different degrees of this seamless competition.
- The bargaining prowess of the suppliers- The advent of technology has reduced the bargaining power of local suppliers, but the mergers of suppliers and link of input have re-energized their confidence especially with farmer-customers and reduced competition in the process. Unluckily, if suppliers are many than their buyers or they do not get high revenues from one industry or have customers with changing expenses.
- The negotiating power of buyers- Fewer buyers in the market mean that they have the power to bargain to satisfaction. Interestingly, if a seller does not have apt price information or cannot transfer their commodities to other markets, the buyer has the power to get what available. If the products available create major part of the buyers expenses then he or she will have to bargain harder. In addition, if the product on sale has little effect on the quality of product or other costs, the buyer will have to bargain harder.
- Technology – Change in technology have great impact on agribusiness. Improvement in technology has influence on production and demand for agribusiness products. Essentially, advances in technology can be unruly. These changes can cause leaps and leave these users derailed as they have to change with new technology every now and then. Technology can also alter efficiency and cost of production.
- Standby goods and services- The substitute products can limit the price that produces seek without need to lose their clientele base to these substitutes. This increases competition in the market.
Other factors affecting agribusiness include change in government policies and regulations, demographic changes, changes in the international trade agreements. The effects of these factors will depend on the scope of change, speed and depth of respond or adapt to these instant changes.
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