Strategic Management of Agribusiness Literature Review
Agribusiness is a profitable source of income of the agricultural sector. It normally tends to be an extensive business operation, to which may dabble in different agribusiness process. The success of agribusiness lies in effective strategies being employed as well as the application of efficient management approach. This paper aims to review various articles pertaining to the role of strategic management when it comes to operating an agribusiness. Additionally, this paper will review the various actions that must be employed when it comes to sustaining the profitability of agribusiness despite the changes in the external environment, such as government regulations, industry standards and other factors that might affect the agribusiness operations. We argue that proper decision making proper application of strategies and the readiness of the agribusiness operation will be its key to successful and profitable outcomes.
In order to understand the further discussion of the topic, it is essential to understand what strategic management is. This term is an approach, to which managing an organization is done through recognizing the complexity of the environment, where the business is operating. Hall and Litzenberg (2000) said that strategic management is an approach that identifies the complex and challenges in the environment while looking for the right action in establishing the business’ sustainable competitive advantage. Relatively, the authors stated that it is essential that environmental factors and challenges must be converted into good decisions towards creation of effective strategies (Hall & Litzenberg, 2000). In agribusiness, it is also important that proper decision making is applied in order to ensure that the outcomes are in line with the business’ goals. Thus, various principles of strategic management can also be applied in order to establish a good foundation for the business itself.
Strategic management in agribusiness could be ineffective if its lacks some aspects, such as the strategic thinking. The strategic thinking approach is linked to successful decision making process when it comes to managing an agribusiness. Many agribusiness companies apply the strategic approach in order to make better decisions in addressing different complexities of the environment. On the other hand, one of the substantial difficulties of agribusiness strategic management is the understanding of principles of strategic thinking, along with its established purpose towards creation of strategies (Stusek & Ulrych, 2008). Even though much attention has been given to the development of strategic thinking in agribusiness, there are still issues that remain unanswered.
Conversely, it was stated by the authors that strategic thinking is a process that leads to the creation of a successful strategy, which will enable the agribusiness to reach their competitive advantage (Stusek & Ulrych, 2008). This article is a good insight of the strategic approaches that will help in understanding the correct application of good decisions when it comes to handling and sustaining an agribusiness operation. Based on the results of their study, the manager and owners of agriculture companies have been applying the strategic thinking approach on the business operation. However, it is often that these individuals are not aware that they are already applying such technique.
Going back to the principles of strategic management in agriculture business, Brester and Penn (1999) stated that the agriculture business operators and producers are normally encouraged to develop their strategies in order to address the changing environment, such as the political and market environments. That is because; it was predicted that the agriculture industry will likely to experience fundamental changes every two decades. With this event, the agricultural production structure may also change as well as the scope and role of agribusiness. Therefore, the industry players should be able to manage such changes in order to survive. Additionally, as part of the potential change in the production structure, agribusiness must also change its goals, purpose, and mission. The authors emphasized the importance of flexibility in the business strategies of agricultural producers, as it will increase its importance in the coming years.
Sustaining the competitive advantage of the agribusiness against its competitors can be executed through the application and further development of some of the identified principles in agribusiness strategic management. These principles will lead the business towards long-terms and above-average returns for the business itself. Firstly, a low-cost strategy must be applied in the agribusiness to ensure that the applied techniques are not just effective (Brester & Penn, 1999); hence, it must also be cost-efficient to avoid negative financial effects to the business. Secondly, there must be a differentiation strategy that will highlight the business distinct characteristics against its competitors. Lastly, the focus strategy should always be included in the overall strategic management approach.
The changes in the agribusiness industry may not just be a matter of national concern especially for large companies that operate agricultural products for food consumption. The strategies being applied may be different in other countries. These strategies include grades and standards (G&S) that also have constant change especially in the developing countries. In addition, the consumers of agricultural products are now aware about the importance of product quality and safety (Reardon, 2001). Therefore, the agribusiness must be open for a broader approach such as globalization in order to sustain the business on a larger-scale basis. In doing this, the agribusiness must have the readiness to develop various agricultural products that can be traded among different distributors. This type of management strategy means that the operator has the capacity to respond to different opportunities and potential industry standard changes (Reardon, 2001). The relativity of the recommended strategies provided by the authors highlighted the importance of being flexible in applying strategies along with the decision-making process of the agribusiness based upon the emerging demands due to various changes in the market and environment.
Boehlje, Kane, and Broring (2011) stated that the challenges and changes in agribusiness may have been increasing. Therefore, the future holds various critical issues for this industry. These include the needs for decisions that are environmentally risky and uncertain, technological adaptation and development needs for long-term financial security, and the agribusiness’ ability to respond to industry change, such as the industry boundaries and competitor landscape (Boehlje, Kane, & Broring, 2011). That is why; based on the identified challenges and strategies, the agribusiness can be as sustainable through proper application of principle-driven techniques towards developing good decision-making processes.
Boehlje, M., Kane, M. R., & Broring, S. (2011). Future Agribusiness Challenges: Strategic Uncertainty ,Innovation and Structural Change. international Food and Agribusiness Management Review, 14(5), 53-82.
Brester, G. W., & Penn, J. B. (1999). Strategic business management principles for the agricultural production sector in a changing global food system. Retrieved from Montana State University, Trade Research Center website: http://ageconsearch.umn.edu/handle/29161
Hall, C., & Litzenberg, K. (2000). The Role of Strategic Management in Achieving Agribusiness Capstone Course Objectives. Retrieved from Texas A&M University website: http://ageconsearch.umn.edu/bitstream/36436/1/sp00ha01.pdf
Reardon, T. (2001). Global change in agrifood grades and standards: agribusiness strategic responses in developing countries. The International Food and Agribusiness Management Review, 2(3-4), 421-435.
Stusek, J., & Ulrych, L. (2008). Strategic thinking in the management of agribusiness companies. Agriculture Economy, 3, 117-124.