MGMT 627 Advanced Agribusiness Management
Examiner
Sandra Martin
Facilitators
Sandra Martin (Forbes 804)
[email protected]
Michael Lyne (Orchard 105)
[email protected]
Associate Professor, Dr, Mike, Sandra
Who are you?
On completion of MGMT 627, students will:
•
Have an understanding of different business structures in agribusiness
•
Be able to critically analyse the performance of an agribusiness supply chain
Mike Lyne
Topic
Week 1
Introduction
Week 2
Economic coordination
Week 3
Marketing cooperatives
Week 4
New Generation and Investor-share cooperatives
Week 5
Hybrid marketing cooperatives in New Zealand
Week 6
Financial structure
Topic
Sandra Martin
Week 7
Management & organisation in agribusiness supply
chains
Week 8
Governance, power and performance of chains
Week 9
Governance, power and performance of chains
Week 10
Innovation in supply chains
Week 11
Quality management
Week 12
Field trip/guest speaker
Assessment: Three assignments, weighted 50, 20 & 30%
respectively. Due dates are scheduled for 8 September, 29
September and 27 October
Text Book: Two volumes of readings titled ‘MGMT 627’.
Volume 1 is available at the bookshop for about $20
Teaching Method: Lecturer and student-led group discussion
of tutorial questions drawn from the weekly readings. Use
PowerPoint and/or the OHP. Student presentations should not
exceed 20 minutes
Moodle: Tutorials and answers will be posted on the MGMT
627 website on the intranet along with assignments and other
information about the course
Timetable: 14:00-17:00 Wednesdays in S3. Any clashes?
Policies: CPPP, Extensions, plagiarism, referencing technique
Student Learning Centre: Help with referencing & writing style
Tea Break: Flexitime, bring tea cup
Open door policy
Class Rep?
Economic Coordination
In a world of perfect information where capital is perfectly fungible, products are
homogeneous and all goods and services are private goods, perfectly competitive
spot markets coordinate quantities demanded and supplied through the price
mechanism
There is no other coordination of market agents in these perfectly competitive spot
markets. The ‘invisible hand of the market’ matches supply with demand as market
agents respond independently to price signals in pure competition with one another
But, in reality, information is not perfect (asymmetric information), capital is not
perfectly fungible (asset specificity), products are not homogeneous (variable
quality and timing), and many services used by producers have the properties of
public goods (e.g. extension services)
As Coase (1937) pointed out in his seminal paper ‘The nature of the firm’, when
the cost of transacting in spot markets is high, coordination of market agents may
be a less costly way of matching supply with demand
We can define coordination as the effort or measures designed to encourage agents
within a market system to achieve a common goal by collaborating with one
another
Such coordination may be undertaken by private agents acting collectively but is
often facilitated, or at least regulated, by the State
‘Vertical coordination’ refers to coordination among agents at different points in a
marketing chain, e.g. a farmer is contracted by a cooperative to deliver a specific
quantity and quality of product at a specific point in time
‘Horizontal coordination’ refers to coordination among agents at a given stage of a
marketing chain, e.g. several farmers pool their produce and sell it collectively
Drivers of vertical coordination
Vertical coordination will be discussed in detail by Dr Martin in the next part of this
course. Our focus will be on horizontal coordination. Nevertheless, we need to
understand what drives vertical coordination
According to the Transaction Cost Economics (TCE) approach, the main driver of
vertical coordination is asset specificity. Assets (both physical and human) become
more specific as their opportunity cost diminishes
For example, if a wholesaler builds a refrigerated storeroom to supply a nearby
supermarket with a perishable product, this storeroom will have little value to the
wholesaler if the supermarket decided not to purchase the product and the only other
buyer was much further away
The owner of a specific asset is therefore vulnerable to a hold-up problem. For
example, the supermarket might behave opportunistically and refuse to buy the
perishable product unless the wholesaler reduces its price
An agent confronted with opportunism and imperfect information will be reluctant to
invest in specific assets, and consumer demands may not be met - unless the agent
can alleviate the hold-up problem by entering into an enforceable contract with the
buyer
Contractual arrangements are one method of achieving coordination between agents
in a supply chain. Contracts establish responsibilities for each party and their rewards
for meeting these obligations. They may be formal (written) agreements or informal
(verbal) agreements
If it is difficult to specify the terms of a contract (owing to complex product quality
or timing requirements), and if there is uncertainty about its enforceability,
coordination may require vertical integration
Vertical integration is an extreme form of vertical coordination where a single firm
(hierarchy) performs several activities in the supply chain. In our example, the
wholesaler may establish its own retail outlet to safeguard a substantial investment in
refrigerated storerooms
Hierarchy
(Vertical integration)
Asset specificity
Uncertainty
Contracting
(Vertical coordination)
Complexity
Spot market
Drivers of horizontal coordination
Individual farmers may find themselves excluded from preferred markets because
the unit costs of transacting vertically are too high when attempting to sell a
relatively small volume of output. In this case, they may have to use markets that
do not value quality or credence attributes (like organic and ethical characteristics)
Alternatively, farmers could sell (purchase) their products (inputs) collectively in
order to reduce the costs of transacting vertically and so gain access to preferred
markets
In other words, farmers can broaden their marketing choices and link vertically
with agents in preferred supply chains by coordinating with other producers, i.e. by
coordinating horizontally
What are the key drivers of horizontal coordination?
 Size economies: farmers can reduce unit processing, marketing and transaction
costs (e.g. compliance and information costs) by pooling their produce
 Finance: farmers can share the costs of lumpy assets required to add value to
their product
 Bargaining power: farmers can negotiate better contractual terms and enforce
them more easily if they pool their produce
 A large enough number of farmers to achieve size economies, raise finance and
wield bargaining power
 A product purchased by affluent consumers, especially those prepared to pay a
premium for credence attributes associated with human ethics and organic
production methods
Forms of horizontal coordination can range from:
- informal agreements between farmers to coordinate purchases and sales;
- to groups constituted to facilitate collective action like farmers’ associations;
- and ultimately to groups in which decision making is centralised like
cooperatives and companies
Cooperatives and companies represent horizontal integration, an extreme form of
horizontal coordination in which farmers exchange their decision-making power for
benefit and voting rights and elect directors who manage (or hire an expert to
manage) their transactions
Hierarchy
(Vertical integration)
Contracting
(Vertical coordination)
Spot
market
Horizontal
coordination
Horizontal
integration
Size economies, lumpy assets, finance, bargaining power
Tasks for next week