Amer. J. Agr. Econ. 92(2) 554-570 2010

AGRIBUSINESS ECONOMICS AND MANAGEMENT

ROBERT P. KING, MICHAEL BOEHLJE, MICHAEL L. COOK, AND STEVEN T. SONKA

Agribusiness scholarship emphasizes an integrated view of the food system that extends from researchand input supply through production, processing, and distribution to retail outlets and the consumer.This article traces development of agribusiness scholarship over the past century by describing ninesignificant areas of contribution by our profession:(1) economics of cooperative marketing and manage-ment, (2) design and development of credit market institutions, (3) organizational design, (4) marketstructure and performance analysis, (5) supply chain management and design, (6) optimization ofoperational efficiency, (7) development of data and analysis for financial management, (8) strategicmanagement, and (9) agribusiness education.

Key words: agribusiness, cooperative, credit market, business organization, market structure, supplychain, operations, strategy, education.

JEL codes: L10, M10, M20, Q13, Q14.

In January 1956 John H. Davis, directorof the program in agriculture and businessat the Harvard Business School, published“From Agriculture to Agribusiness” in theHarvard Business Review (Davis 1956). Thefollowing year Davis and Ray A. Goldbergpublished A Concept of Agribusiness. Thesetwo publications introduced and defined theterm “agribusiness” as

the sum total of all operationsinvolved in the manufacture and dis-tribution of farm supplies; produc-tion operations on the farm; andthe storage, processing, and distribu-tion of farm commodities and itemsmade from them. Thus, agribusinessessentially encompasses today thefunctions which the term agriculturedenoted 150 years ago.

(Davis and Goldberg 1957, p. 2)

By the end of 1959, the term had appearedin at least forty published articles and book

Robert King is a professor of Applied Economics, University ofMinnesota;Michael Boehlje is the Distinguished Professor ofAgri-cultural Economics, Purdue University; Michael L. Cook is theRobert D. Partridge Chair in Agricultural Economics, Univer-sity of Missouri; and Steven T. Sonka is a professor in Agricul-tural and Consumer Economics and Interim Vice Chancellor ofPublic Engagement, University of Illinois. Authorship is equallyshared.Preparation of this manuscript was coordinated by RobertKing.

reviews in ten journals, ranging from the Jour-nal of Farm Economics and the American Eco-nomic Review to Agricultural History and theJournal of Marketing.

The key insight articulated by Davis andGoldberg was that the food system needsto be viewed as an integrated system. Man-agement strategies and public policy initia-tives designed to address problems in thefood system would be doomed to failure ifthey focused on only one portion or segmentof that integrated system. Their work stim-ulated new interest in the linkages betweensegments of the food system, in coordinationacross segments, in systemwide performance,and in strategy formulation in a context ofinterdependence.As Cook and Chaddad (2000,pp. 209–210) note:

[A]gribusiness research evolvedalong two parallel levels of anal-ysis: the study of coordinationbetween vertical and horizontalparticipants within the food chain,known as agribusiness economics,and the study of decision-makingwithin the alternative food chaingovernance structures, known asagribusiness management.

In 1956 our association was approach-ing its fiftieth anniversary. Though the term“agribusiness” had not been used prior to that

Amer. J. Agr. Econ. 92(2): 554–570; doi: 10.1093/ajae/aaq009Received December 2009; accepted January 2010

© The Author (2010). Published by Oxford University Press on behalf of the Agricultural and Applied EconomicsAssociation. All rights reserved. For permissions, please e-mail: [email protected]

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King et al. Agribusiness Economics and Management 555

time, agricultural economists had been makingsignificant contributions on issues related toagribusiness for many years. As early as 1913,Charles J. Brand (1913, pp. 85–86) noted thatthe farmer needed “suitable and convenientarrangements for securing credit” and “assis-tance in the establishment of a marketing sys-tem which will return him the true value ofthe particular qualities of the various cropsthat he produces, minus reasonable chargesfor handling, transportation and the legiti-mate profits of middlemen.” These concernsled to significant work on farm credit andcooperative marketing in the 1920s, as wellas articles on vertical integration, the organi-zation and operation of marketing firms, andthe role of business economics in our teach-ing programs. New concerns emerged dur-ing the 1930s, including the structure of thefood distribution system and marketing mar-gins. Other new issues related to agribusinessemerged during the 1940s and early 1950s.These included the rapid growth and concen-tration of food processing and retailing busi-nesses, analysis of costs and efficiency in foodprocessing plants, and the dynamics of foodretailing.

Building on this previous work and stimu-lated by changing economic circumstances andimportant new conceptual and methodologicaldevelopments in economics, the publicationsby Davis and Goldberg helped initiate a rapidexpansion and redirection of agribusinessscholarship during the association’s second halfcentury. In the late 1950s and early 1960s,annual meetings included sessions on cooper-atives, farm supply markets, industrial organi-zation, vertical integration, market power offood processing and farm supply firms,antitrustdecisions, and bargaining. In the mid-1960sthe National Commission on Food Market-ing was established “to study and appraisethe changes taking place in the ‘marketingstructure’ of the food industry and wherethey might lead; efficiency; services to con-sumers; market power; regulatory activities;services such as market news; and the effects ofimports” (Brandow 1966, p. 1319). Key paperson cooperative theory and agricultural financealso appeared during the 1960s. Research onthe evolving sector structure continued in the1970s along with discussions about how wellteaching programs were serving the needs ofthe rapidly growing nonfarm segments of thefood system. Work on food system structureand performance continued into the 1980s,leading to landmark publications by members

of the North Central Regional Project 117(NC-117), “Organization and Control ofthe U.S. Food Production and DistributionSystem.”

The 1980s also was a time for questioningthe place of agribusiness scholarship withinthe agricultural economics profession. Thefirst issue of a new journal, Agribusiness,appeared in 1985. Sonka and Hudson (1989)subsequently provided a conceptual assess-ment of the need for agribusiness scholarshipfrom both academic and industry perspectives.The interplay emanating from the cultural,biological, and political aspects of food and thediffering competitive market structures alongthe agricultural supply chain were noted asparticularly distinctive features of the sector.This article articulated the need for use of abroader range of behavioral sciences withinagribusiness scholarship, while recognizingthe continued value of economic analysis.In 1990 the International Agribusiness Man-agement Association (IAMA) was formedunder the leadership of Ray Goldberg withthe objective of extending the range of disci-plines contributing to agribusiness researchand to foster more interaction betweenthe academic and industry practitionercommunities.

This article traces the development ofagribusiness scholarship over the past 100 yearsby describing nine significant areas of contribu-tion by members of our profession—five asso-ciated with agribusiness economics and fourlinked to agribusiness management.Work in allnine of these areas began before the publica-tions by Davis and Goldberg and has continuedin subsequent years. Our review of key con-tributions cannot possibly be comprehensive,but we believe it does characterize the evolu-tion of work in this important area. In doingso, it also establishes a platform for lookingahead to future challenges and opportunitiesin agribusiness.

Agribusiness Economics

Agribusiness economics is concerned withunderstanding how institutions, organizations,and markets affect vertical and horizontal coor-dination within the food system. This sectiondescribes five significant contributions thatmembers of our profession have made to thedesign and analysis of institutions, organiza-tions, and markets.



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Contribution #1: Agricultural economists haveplayed important roles in introducingeconomic reasoning and pioneering theoreticaladvances in the study of agriculturalcooperative marketing and management

In the first major paper on cooperatives in thenewly published Journal of Farm Economics,Asher Hobson (1921) struck a theme that agri-cultural economists would continually restatefor the next 50 years—the importance of under-standing basic economic principles in farmerdecision making when initiating joint verti-cal integration. Emphasizing scale economies,asymmetric information,and other market fail-ure elements as rational economic reasons forforming cooperatives, agricultural economistsoften confronted the advocacy frenzy of politi-cians and farm leaders rushing to organizeproducers into agricultural cooperatives in thepost–World War I depression (Nourse 1922;Erdman 1924). They also published warningsof the dangers of moving too quickly withoutunderstanding market structure forces or thedebilitating implications of inadequate capitaland human resources.

During these early years, agriculturaleconomists advanced understanding of mar-ket coordination through detailed descriptionsof market functions and the costs of partic-ipating privately or collectively in specificsupply chains. Their emphasis on analyzingthe performance and welfare role of mar-keting cooperatives relative to multipurposecooperatives continues today.

In addition to the competitive yardstickfunction and coordination role, agriculturalmarketing economists concentrated primarilyon (a) the role of cooperatives in control-ling agricultural supply (Erdman 1927), (b)the importance of cooperatives in establishingquality standards (Nourse 1922),and (c) micro-analysis of organizational design (Jesness1925).Three insightful diagnostic annual meet-ing proceedings articles by Erdman (1950),Knapp (1950), and Koller (1950) indicate amajor turning point in the form of contribu-tion made by agricultural economists regardingthe study of this complex governance struc-ture. These articles would be the last of thedescriptive stage of cooperative analysis. Forthe next twenty years, agricultural economistsintroduced a stream of more rigorous neoclas-sical frameworks to inform the understand-ing of the agricultural cooperative. Bodies oftheoretical work evolved around two struc-tural design camps. First, the Robotka/Phillips

school defined a cooperative as a collectionof profit-maximizing economic enterprisesengaged in economic activity involving the useof a common set of productive assets and inter-acting in Cournot-like fashion in response toindividual sets of marginal cost and benefitrelationships—in other words, a cooperative isan extension of the farm. The second schoolwas initiated by the models of Helmbergerand Hoos (1962). Their work identified theagricultural cooperative as an economic enter-prise consisting of a production function, anefficiency-maximizing criterion, and a rule thatdistributes the economic surplus to the suppli-ers of one of the input resources. In their modelthe cooperative is a firm.

In his summary of the seminal studyCooperative Theory: New Approaches (Royer1987), Staatz (1989) credits Emelianoff (1942),Robotka (1947), and Phillips (1953) as theoriginal formal modelers viewing cooperativesas a form of vertical integration. They arguethat the principle of “service at cost” impliedthat only cooperative members incurred profitsor losses. Consequently each member deter-mined her optimal level of output by equatingthe sum of the marginal costs in all plants(farm and cooperative) with the marginal rev-enue in the plant from which the product wasmarketed. The heroic Cournot–Nash assump-tion implied in the model, applied only tomarketing cooperatives, is the major criticismof this “multi-plant firm modeling” approach.The cooperative-as-a-firm approach draws onEnke’s (1945) work on consumer cooperatives.Enke’s theory posits simply that the welfare ofcooperative members and society is optimizedif a cooperative maximizes the sum of thecooperative’s producer surplus and the mem-bers’ consumer surplus. This approach needs ahierarchical decision maker or coordinator—similar to the role assumed by the CEO orgeneral manager of an investor-owned firm.The major criticism of this approach is thatit does not lead to a stable equilibrium. Inadvancing this work, Helmberger and Hoos(1962) convert Enke’s logic to explain mar-keting cooperatives’ decision making. Basedon the assumptions of a known net revenuefunction, price taking, and zero surplus objec-tive function,the Helmberger–Hoos marketingconcept of the cooperative as a firm suffersfrom the same equilibrium shortcomings as theRobotka/Phillips approach.

By the 1980s, economic theories and deci-sion models designed to address more complexintra-firm relationships began to emerge. New



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approaches such as agency theory, behavioraltheories of the firm, incomplete contract the-ory, transaction cost economics, and propertyrights approaches allowed for more detailedinvestigation between inter- and intra-firmcoordination decision making.

The following twenty years saw advances uti-lizing new institutional economic approachesby Fulton (2001), Cook (1995), Hendrikse andVeerman (2001), and Hendrikse and Bijman(2002), among others. Additionally, advancesin neoclassical frameworks increased under-standing of the role of cooperatives not onlyin remaining as a competitive yardstick butalso in laying the groundwork for advances inthe cooperative organizational design. Sexton(1990),building on the Helmberger–Hoos find-ings, used neoclassical theory to model spatialcompetition in agricultural marketing indus-tries.The model derives price-output equilibriafor investor-oriented firms and cooperativeprocessors in oligopsonistic spatial marketsfocusing on the pro-competitive effects ofcooperatives by formally establishing the con-ditions and magnitude of the cooperative yard-stick effect in oligopsonistic markets.This workhas interesting and controversial public pol-icy implications. Its findings support favorablepublic policy toward open-membership coop-eratives, but similar pro-competitive effectscannot be claimed for restricted membershipcooperatives.

Contribution #2: Agricultural economists haveplayed a key role in the development anddesign of institutions that are the foundationfor agricultural credit markets

Surveys and analyses initiated early in thetwentieth century on agricultural credit condi-tions and markets showed that “farmers werenot being adequately supplied with capital forcertain types of farm operations…. [T]he com-mercial banking machinery of the country wasill-adapted to making certain loans for the peri-ods required by the farmer…, and the cost offarm loans was disproportionately high in com-parison with the loans acquired for operatingpurposes in other industries”(Lee 1925,p. 425).

Congressional discussions and debate con-cerning the appropriate response to the prob-lems identified by Lee included formationof cooperative or joint-stock banks, with anexclusive focus on agricultural loans, and theissuance of long-term bonds to finance amor-tized loans for the purchase of farmland andother capital assets. Legislation originating

with the 1916 Federal Farm Loan Act andeventually culminating in the Farm Credit Actof 1933 formed the base for the current FarmCredit System (FCS), which today is a majorsupplier of credit to farmers, farmer coopera-tives, and rural homeowners.

William I. Myers’ role in the development ofthe FCS in its formative years is legendary; heserved as governor of the Farm Credit Admin-istration from 1933 to 1938. At the annualmeetings of the American Farm EconomicAssociation, he emphasized the cooperativenature of the system and that“generally speak-ing the Farm Credit System is not lendinggovernment money…. [I]ts object is to set upmachinery through which farmers may obtainfunds for financing their farm businesses fromthe investment markets at the lowest possiblecost” (Myers 1934, p. 36).

Following the recovery of the agriculturalsector from the Depression, the issue of therole of public credit institutions relative toprivate sector lenders became the focal pointof the debate over the appropriate insti-tutional structure of the agricultural creditmarkets. Benedict (1945) argued that com-mercial banks should be the principal sourceof short-term credit; the FCS lenders shouldbe self-supporting and charge competitivebut not-lower-than-market interest rates, since“[a]rtificially low interest rates on farm mort-gages tend to be translated to high land val-ues without long-term advantage either to thefarmer or the public” (p. 103). Moreover, loansfor emergencies must be evaluated by com-paring the costs with the “social values result-ing from the loans” (ibid). The result of thisdebate was the formation of the Farmers HomeAdministration (FmHA) in 1946 to providesupervised credit to farmers unable to obtaincommercial credit. The farm lending activi-ties of the FmHA expanded modestly duringthe 1950s and 60s (Herr 1969). Authoritieswere added in the 1970s to finance selectedrural infrastructure such as housing, water sup-ply, and waste disposal, as well as rural busi-ness and industrial development (Brake andMelchar 1970,p. 455). More recently these pro-grams have been administered by the FarmServicesAgency (FSA),with increased empha-sis on guaranteed rather than direct loans andloans to beginning and socially disadvantagedfarmers (Ahrendsen et al. 2005).

Farm sector debt increased significantly dur-ing the 1950s, 1960s, and 1970s. Decliningincomes in the early 1980s, combined withthe increased debt load, resulted in significant



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debt service problems by the mid-80s. Jollyet al. (1985, p. 1114) indicated that based ondata from the USDA Farm Costs and ReturnsSurvey, “about 50% of farm operators andassets did not have a positive cash flow andthat 64% of debt was not fully serviced in1984.” Much of the early debate about theappropriate response focused on how lend-ing institutions and their farmer-borrowersmight resolve debt-servicing problems and pre-vent foreclosures or bankruptcy filings. But asevidence began to mount that the problemswere more serious than originally thought, thedebate turned to the appropriate public sec-tor response. Harl (1990) strongly advocateda public sector debt restructuring/principalwrite-down/federal guarantee program (p. 44).Passage of the Agricultural Credit Act of 1987included (a) debt restructuring requirementsfor FCS (as well as FmHA) for debt in default,(b) an insurance program along the lines ofthe Federal Deposit Insurance Corporationand modifications to joint and several liabilityobligations of all FCS banks for system obli-gations, (c) and federal assistance to the FCSin the form of government loans to recapi-talize FCS institutions experiencing financialproblems. The system obtained $1.261 bil-lion of U.S. Treasury guaranteed bond fundssubsequent to this legislation and repaid thefederal government (principal plus) interestin 2005.

Agricultural economists also contributed tothe development of more efficient and effec-tive capital and financial markets and insti-tutions to serve the agricultural sector indeveloping countries. Adams, Graham, andvon Pischke (1984) focused on the develop-ment of viable credit institutions for farmersto obtain financing for fertilizer, seed, andchemical purchases. In essence,their work indi-cated that government/state-owned financialinstitutions frequently encountered long-termviability problems, in large part because ofthe political pressure to forgive loan obliga-tions of borrowers in default. They were alsocritical of the common policy of government-run financial institutions of charging below-market interest rates, argued that informallenders often provided more valuable servicesthan is generally perceived, and suggested thatfinancial institutions in developing countriesshould emphasize mobilization of local savingsas a key source of funds rather than relyingon international funding agencies such as theWorld Bank and the International MonetaryFund.

Contribution #3: Agribusiness scholarsutilizing interdisciplinary approaches and neweconomic frameworks have becomeinstrumental in diagnosing and understandingthe incentives/disincentives embedded inagribusiness organizational architecture andcomplementary networks

A graph of our profession’s interest in orga-nizational design of agribusiness enterprisesmight look like a U-shaped curve. In the earlydays of the profession, agricultural economistsoffered many thoughtful observations aboutthe recommended or optimal form that agri-cultural trade organizations, processing firms,and agricultural cooperatives might take. Theirinsights into aligning residual claim and resid-ual control rights and efficient allocation ofincentive-driven decision authority were uti-lized as benchmarking tools for organizers ofsaid entities (Jesness 1925). But as formal mod-eling advanced utilizing neoclassical economictheories which tentatively treated the firm as a“black box,” additional work on organizationaldesign did not appear until more intra-firmincentive models came into practice beginningin the late 1980s.

By the mid-1990s numerous conceptualpieces, including those of Moore and Noel(1995), Fulton (1995), Hind (1994), Chaddadand Cook (2004) and Hendrikse and Veerman(2001), began to appear in the AmericanJournal of Agricultural Economics and relatedjournals. Empirical pieces soon followed.For example, Holland and King (2004) andDetre, Wilson, and Gray (2007) exploredwhy producer-owned hybrids which are moreinvestor driven than previous patron-drivenforms of collective action were increasing asan organizational form favored by agriculturalproducers. Examination of the Hendrikseand Bijman (2002) analysis expands on theseconceptual advances as producers addresscomplex governance structure choices. Theirapproach analyzes the impact of ownershipand control structure on investments in amultiple tier net chain utilizing a propertyrights–incomplete contract framework. Theycontinue the quest to determine under whatmarket and incentive structures it is benefi-cial for producers to integrate downstreamthrough their own investment. Employinggame-theoretic models and analyzing scenar-ios with distribution of bargaining power asthe variant, the authors generate first-bestefficient ownership structures given alternateinvestment situations. Using comparative



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statics with the incorporation of residualclaim levels, optimal ownership structures arederived. The contribution of the incompletecontract approach to governance structurechoices is evident. Attempting to advanceunderstanding and utilization of these deduc-tively generated set of hypotheses, Chaddadand Cook (2004) identify a typology of dis-crete organizational models ranging fromtraditional open-membership cooperativesdescribed and analyzed by the first generationof agricultural economists to complex hybridsto investor-owned organizational forms. Theirownership rights typology challenges the nextgeneration of agribusiness scholars studyingthe performance of food and agribusinessnet chains and their participants. Organiza-tional design studies continue to diminish theconcept of the cooperative as a black box.

Contribution #4: Agricultural economists havedocumented, developed, and applied theoriesto explain changes in market structure andperformance in the food system

The structure and performance of the process-ing, distribution, and retailing segments of thefood system have been a focus of inquiry sincethe early days of our association. In a paper pre-sented at the 1922 annual meeting, Price (1923,p. 129) noted that marketing systems could bestudied from the perspective of “inter-unit” or“intra-unit” organization. The former focuseson the number of intermediary firms betweenthe farm and the consumer and the economicrelationships among these firms. The latterfocuses on the internal organization of mar-keting businesses.1 Price focused on intra-unitorganization, presenting operating cost infor-mation for butter plants and grocery stores.There was also much interest in inter-unitorganization. For example, in 1930 an annualmeeting session organized by Miller (1930)examined the evolving structure of the fooddistribution system. Several years later Waugh(1934) published his important paper on “Mar-gins in Marketing,” which presented estimatesof farm–retail price spreads and outlinedkey issues for future research on marketingmargins.

In 1940,A. C. Hoffman (1940) began a paperon the “Changing Structure of AgriculturalMarkets” by noting:

1 This is a distinction not unlike that between agribusiness eco-nomics and agribusiness management made nearly eight decadeslater by Cook and Chaddad (2000).

It is probably correct to say thatthe organization of agricultural mar-kets has changed more in the last25 years than during the precedingcentury…. From a system comprisedalmost wholly of small, functionallyspecialized business enterprises therehas been a transition to verticallyintegrated concerns operating on aregional and even a national basis.(p. 162)

Hoffman described the emergence of massretailing and the then-recent appearance ofthe supermarket. He went on to discuss sizeeconomies, the limits of management con-trol in large organizations, vertical integra-tion, and the problems created by monopolypower in food retailing. He also observedthat forces leading to consolidation and mar-ket power in retailing were also likely tobe seen in food manufacturing. In that sameissue of the Journal, William H. Nicholls(1940) published “Market-Sharing in the Pack-ing Industry,” another foundational paper onindustrial organization of the food system.Nicholls drew on recently developed theo-ries of imperfect competition to explain howobserved patterns in packers’ purchase sharesin terminal markets were consistent with col-lusion that would likely harm farmers andconsumers.

The trends identified by Hoffman (1940)continued over the next several decades,prompting establishment of the National Com-mission on Food Marketing in the 1960s(Brandow 1966), lively debates on the struc-ture of the food system during the 1970s, andthe establishment of NC-117, “Organizationand Control of the U.S. Food Production andDistribution System.”This remarkable projectbrought together a strong team of researcherswho combined insights from emerging theo-ries in the field of industrial organization withcareful observation,data collection,and empir-ical analysis to investigate the structure ofthe food system, the forces driving change inthe structure, the effects of alternative lawsand regulations on that system, and the con-sequences of alternative public policies andprivate actions on its performance. An arti-cle by Shaffer (1980) explores the concep-tual framework for the project’s efforts, andmany key findings of NC-117 are summa-rized in three widely cited books: The FoodManufacturing Industries (Connor et al. 1985),The Organization and Performance of the U.S.



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Food System (Marion and NC-117 Commit-tee 1986), and Food Processing (Connor 1988).This work has been the foundation for morerecent research on antitrust issues (e.g.,Connor2001), pricing policies (e.g., Cotterill, Putsis,and Dhar 2000), and generic advertising (e.g.,Kaiser et al. 2005).

During the latter twenty years of thetwentieth-century globalization, industrializa-tion and consolidations accelerated changesin the horizontal and vertical relationshipsbetween participants of the global foodand fiber system. Many of the organiza-tional and transactional arrangements thatemerged during this period addressed theincreasingly strategic nature of the marketstructure and growing strategic interdepen-dence between chain and network rivals andpartners.Agribusiness economics and manage-ment scholars seeking outlets for new concep-tual frameworks, methodologies, and insights,as well as more interdisciplinary-friendly out-lets,helped establish a plethora of new journals,including Agribusiness; International Food andAgribusiness Management Review; the Journalof Agricultural & Food Industrial Organiza-tion; the Journal of Cooperatives; the Jour-nal of Agribusiness; the Journal of Chain andNetwork Science; and the Journal of SupplyChain Management. Perusal of the special edi-tions of these journals (on topics such aseco-labeling, food retailer strategies, food vs.fuel, the hybridization of cooperative organi-zational forms) demonstrates the complexityand expansion of the original issues identifiedin this subfield of agribusiness economics andmanagement.

Contribution #5: Agricultural and appliedeconomists have focused attention on keyeconomic questions related to supply chainmanagement and design

A supply chain or value chain, as defined byBoehlje (1999, p. 1032), is a set “of value cre-ating activities in the production-distributionprocess and the explicit structure of link-ages among these activities or processes.”The fundamental question in supply chaindesign and management is that of how achain can most effectively deliver quality andvalue to consumers. The focus is on sys-temwide performance with an emphasis oninformation flows and coordination mecha-nisms. The terms “value chain” and “supplychain” first appeared in publications of the

American Agricultural Economics Associa-tion (AAEA) in 1987 and 1995, respectively,but agricultural and applied economists weredoing significant work on the economics ofsupply chains long beforehand by posing ques-tions that have advanced the study of supplychains well beyond the simple description oflinked production–distribution activities andprocesses.

One fundamental concern in supply chainresearch is how flows of product, informa-tion, and financial resources through the chaincan best be governed. Building on transac-tion cost concepts developed by Coase (1937)andWilliamson (1975),Sporleder (1992) exam-ined the determinants of vertical coordinationarrangements, giving particular attention tostrategic alliances. Several years later, Hobbs(1996) presented a more thorough overviewof transaction cost economics and outlinedmethodological approaches for studying verti-cal coordination, including multi-industry eval-uations using secondary data, industry-specificinvestigations of transaction costs using sec-ondary data, and industry-specific investi-gations of transaction costs using primarydata.

Inter-firm incentives are also a key concernin supply chain design. Embodied in formalor informal contracts, these systems help alignincentives and reduce losses induced by infor-mation asymmetries. Contract design becamean important focus for work in the mid-1990s,ata time when first handlers and processors wereexpanding the use of contracts with farm pro-ducers and were experimenting with a varietyof new contract forms. Knoeber andThurman’s(1995) work shed light on the risk-shifting roleof relative performance-based contracts in thebroiler industry and offered important insightson methods for empirical analysis of contractprovisions. Sheldon’s (1996) review paper pro-vided an important overview of contract the-ory and helped set the stage for later worksuch as that by Goodhue (2000) on productioncontracts and by Hueth and Ligon (2001) onrelative performance contracts in the producesector.

The distribution of revenues, costs, and gainsfrom improved system performance amongsupply chain participants is another key issuein supply chain design and management. Mar-keting margins were a subject of concernand debate in the 1930s (Waugh 1934) asthe farm share of consumer food expen-ditures continued to shrink. Work at thattime was largely descriptive, but forty years



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later Gardner (1975) developed a model ofsimultaneous equilibrium in the markets forretail food, farm products, and marketingservices. That model motivated later workon price transmission by Wohlgenant (1989)and others—research that can have impor-tant implications for supply chain design. Morerecently, in a very different analytical frame-work, Hendrikse and Bijman (2002) showedhow the allocation of ownership of essentialassets affects the distribution of returns acrossthe chain and investments that affect overallproductivity.

Finally, members of our profession have alsoasked how public and private sector institu-tional mechanisms—such as product and pro-cess quality standards or regulations—shapesupply chain performance. Caswell, Bredahl,and Hooker’s (1998) paper on qualitativemanagement metasystems laid the founda-tion for work on this question. Food qual-ity metasystems are general strategies, suchas ISO 9000 and “just in time” logistics, thatare broadly applied across supply chains andacross firms within a supply chain. Caswell,Bredahl, and Hooker (1998) note that thedevelopment of quality metasystems, whetherthrough the public or private sector initia-tives, can stimulate structural change and influ-ence competitiveness. Subsequent work—e.g.,by Starbird (2005) on sampling inspection andby Carriquiry and Babcock (2007) on the repu-tational effects of quality assurance systems—has confirmed the importance of qualitymetasystems.

Research on these important economicquestions related to supply chain design andmanagement has been and will continue tobe crucial in developing our ability to meetthe critical need that Boehlje (1999) identi-fies for ex ante rather than ex post analyses ofstructural change in the food system. It con-tributes significantly to our ability to supportboth agribusiness economics and agribusinessmanagement.

Agribusiness Management

Agribusiness management is concerned withdecision making within the organizationsthat comprise the food system. This sectiondescribes four areas in which members ofour profession have contributed significantlyto understanding and supporting operational,financial,and strategic decisions in agribusinessfirms.

Contribution #6: Agricultural economists havecreated robust methods and tools that fostermore efficient operations within theagribusiness sector

Transforming agricultural commodities intofood products typically requires conversion oflarge amounts of lower-value materials intomore valuable products and transport (of agri-cultural inputs and food product outputs) overconsiderable distances. To address this eco-nomic challenge, managers need to be ableto assess both cost of production alternativeswithin a single production facility as well asthe total cost-effectiveness of locating severalfacilities across a region. A similar challengeexists in terms of designing the most effec-tive production and transportation system toprovide inputs to farm production operations.Greater operational efficiency results in higherperformance levels for agribusiness firms andenhances social welfare through lower foodcosts and higher-quality food products.

Over the last 100 years, application ofmicroeconomic principles along with use ofevolving quantitative analytical tools has pro-vided significant opportunity for innovationthroughout the agribusiness sector. Especiallyin the middle decades of the 1900s, agricul-tural economists led both intellectually andin application of these capabilities to enhanceoperational efficiency of supply, processing,and distribution in the sector.

In the 1940s, the economic engineeringapproach to estimation of plant cost rela-tionships began to be employed to addressthe more managerially relevant question ofoptimal plant size for a specific commodityand setting. The work of R. G. Bressler andnumerous colleagues made a particularly pro-found contribution to application of the eco-nomic engineering approach in the food sector.Early work focused on Connecticut and thedairy industry (Bressler 1952), while numerouslater efforts were conducted at the Univer-sity of California. The economic engineeringapproach focused on synthesizing cost func-tions from engineering, biological, and othersources of information, including accountingdata, based upon process level input-outputrelationships.

Although an individual food manufactur-ing facility might achieve exceptional internalefficiency, the overall economic performanceof that unit can be materially affected bythe costs of obtaining agricultural inputs andof distributing the factory’s output. As food



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manufacturing firms are likely to have severalproduction facilities, the firm’s managers needto be able to optimize a system of facilities.

One of the first rigorous efforts to addressthis challenge was detailed in Stollsteimer’s(1963) article focused on assessing plant num-bers, size, and location for pear produc-tion and processing in California. He devel-oped a modeling specification consistent withthe challenge of minimizing the combinedcost of assembling and processing agricul-tural commodities. Essentially an extensionof the basic linear programming transporta-tion model, Stollsteimer’s work included plantnumbers and locations as internal variablesand allowed for economies of size. Over time,this basic approach was extended to moreaccurately reflect the circumstances of alterna-tive agricultural commodities and the actualdynamics of the marketplace. For example,Polopolus (1965) examined multiple-productplants, and Ladd and Halvorson (1970) devel-oped means to assess the sensitivity of modelresults.

The post–World War II period saw an explo-sion of activity relating to the study of oper-ational efficiency in the agribusiness sector.This marked increase in academic productivitywas the joint result of interacting forces suchas changing societal needs, advances in theoryand computational capabilities, and the infu-sion of federal funding targeted to agriculturalmarketing. French’s (1977) review article inter-preted the vast array of literature produced inthat time period. In addition to comprehen-sively documenting the productivity of priorworks, this effort undertook an extensive andthorough interpretation of the challenges andaccomplishments of the stream of work relat-ing to productive efficiency in agricultural mar-keting. It thus provided the single referencepoint for legions of researchers, instructors,andstudents working in this area.

Agricultural economists have continued toprovide empirical assessments focused onenhancing efficiency within individual process-ing facilities and among systems of facilities.As computational capabilities and modelingmethods have advanced, these innovationshave been incorporated within increasingsophisticated studies to inform decision mak-ers. Akridge’s (1989) analysis of multiple-product fertilizer retailing plants employed afrontier multiproduct cost function to mea-sure productive efficiency. The potential forsignificant reductions in variable costs wasidentified. Starbird’s (1990) assessment of

tomato processing plant efficiency adopteda novel approach to estimation of responsesurface identification. A cost-function meta-model is successfully applied to estimatedfactor-demand equations, resulting in reducedspecification error. A bootstrapping regres-sion approach was employed by Schroeder(1992) to separately identify the extent of scaleand scope economies for a sample of sup-ply and marketing cooperatives. Distinguish-ing between these types of potential economiesprovides relevant decision-making informa-tion for agribusiness managers. These studiesdemonstrate the continuing commitment ofagricultural economists to identify means formeasuring and enhancing productive efficiencyin agribusiness operations.

Contribution #7: Agricultural economists havedeveloped financing instruments andarrangements tailored to the characteristics ofthe farm sector; loan portfolio, credit analysis,and capitalization structures for financialinstitutions serving the sector; and valuablepublic data resources on sector and firmfinancial structure and performance

Early work in agricultural finance focused pri-marily on how effectively lenders were servingtheir farm customers in terms of loan terms,interest rates, and credit standards and in gen-eral adequately fulfilling and responding tofarmers’ credit needs. Black (1930) argued that“information should be uncovered to permithim [the farmer] to learn to use credit intelli-gently, to control credit instead of being con-trolled by it” (p. 249). This focus on credit usedominated not only the research agenda, butalso data collection, outreach activities of theUSDA and Land Grant System, and widelyused textbooks such as Murray’s (1941) earlyeditions of Agricultural Finance. Developmentof amortization concepts, matching repaymentterms to income/earnings capacity and view-ing credit as a resource that could be used(i.e. converted into debt) or held in reserveto manage potential financial stress (Barry andBaker 1971), was the focus through the 1970s.It was not until the work on farm firm growthmodels (Baker 1968; Boehlje and Eisgruber1972) that capital allocation and investmentdecisions were added to the agenda. The focusreturned to appropriate use of credit and moreaccurate measurement and documentation ofthe financial performance of farm firms in the1980s through the work of the Farm FinancialStandards Council (1991).



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During the 1970s the structural changes inthe financial markets and the pressures forconsolidation of the institutions in both thecommercial banking sector and the FCS stim-ulated work on the cost and efficiency ofthe consolidated/restructured financial institu-tions, and the effectiveness and commitmentof these generally larger and less locally con-trolled/owned institutions to serve the farmsector and rural communities. Such workis summarized by Ellinger, Hartarska, andWilson (2005) and Gustafson, Pederson, andGloy (2005). Beginning in the 1990s, atten-tion shifted to issues of capital structure, loanand asset portfolio composition, and credit riskmanagement of the financial institutions serv-ing agriculture. This work was stimulated inpart by the bank and FCS failures of the 1980scombined with the deregulation of the finan-cial markets, which placed more burdens onthe individual institution to manage its finan-cial risk in an increasingly competitive market.Notable work on these issues is summarized byGustafson, Pederson, and Gloy (2005).

Additionally, a mainstay of the agriculturalfinance work since its early years has beenthe collection and analysis of financial data.This work started with the farm records/farmaccounts programs ofWarren and colleagues atCornell that were an integral part of their farmmanagement programs. It continues today inthe form of farm records programs and activ-ities of both the Land Grant System and theprivate sector.

Data in the form of descriptive statistics forboth the farming sector and the financial insti-tutions serving that sector,which were the focalpoint of work by the USDA under the lead-ership of Garlock (1966) and Tostlebe (1957),were used to characterize the changing finan-cial condition of agriculture early in the twenti-eth century. Extension of this work resulted inthe USDA’s first publication of the sectorwideBalance Sheet of Agriculture and Farm IncomeSituation in 1940.These data sets continue to bedeveloped today. The Federal Reserve Systeminitiated surveys of farm lenders and their lend-ing activity late in the 1940s. Melichar (1979)and colleagues issued their first AgriculturalFinance Data book in 1976, which continuestoday to be an extensive and exhaustive dataset summarizing the changing financial char-acteristics of farm borrowers and lenders. TheUSDA implemented an annual Farm Cost andReturns Survey in 1991, which is a forerunnerto the current Agricultural Resource Man-agement Systems (ARMS) data set. In more

recent times, additional data on the financialand resource characteristics of the farm fam-ily, including labor allocation, nonfarm income,and investments and family expenditures, havebeen collected as part of this survey. As withthe earlier survey work of the Federal ReserveBanks, the ARMS data set has been usedextensively by the USDA and Land Grantagricultural economists in their research pro-grams. The extensive financial data collectedand the numerous analyses that these data havesupported document that although the agri-cultural sector and farm businesses were char-acterized by low incomes and weak financialperformance earlier in the twentieth century,in recent times that performance has becomemore competitive with other industries.

Contribution #8: Agricultural economicsscholarship has informed business strategyformation by monitoring, interpreting, andanticipating the changing businessenvironment of agriculture

Business strategy focuses on optimizing thelinkages between the firm and its surround-ing business environment (Porter 1985). Thismanagerial function inherently incorporates alonger-run perspective, striving to ensure thatthe firm not only is well aligned with currentconditions but also is being positioned to adaptto the dynamic and uncertain business environ-ment of tomorrow. A key element of strategycan be paraphrased as a“how will we compete”question (Aaker 1988). Business managementconcepts such as competitive advantage, dis-tinctive competencies, and the resource-basedview of strategy have been intertwined in thescholarship addressing this question,especiallyduring the last three decades.

Understanding how to compete within thecontext of a dynamic agricultural sector andan evolving global economy is a key challengefor agribusiness decision makers. Throughoutthe last 100 years, the scholarship of agricul-tural economists has contributed to improvingdecision-maker understanding of the businessenvironment of agriculture.

In addition to his seminal work with Davis,Goldberg pioneered in employing the casestudy method within agribusiness. He utilizedthis form of scholarship to uncover relation-ships and to communicate the dynamics ofchange to legions of decision makers.The morethan 300 Harvard Business School case stud-ies he has coauthored address a vast arrayof factors affecting global agriculture. The



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Agribusiness Seminar he has led also hasbeen a powerfully effective means of educatingagribusiness managers.

Key empirical work, especially from the1950s to the 1980s, focused on providing anenhanced, quantitative understanding of theevolving production agriculture sector. Thesedevelopments were critically important asthe size and scope of input supply and commod-ity marketing firms are inherently connected tothe regional nature of agricultural production.As the underlying technologies supporting pro-duction agriculture evolved, the dynamics ofregional production underwent considerablechange.

The development of mathematical program-ming allowed for detailed analysis of inter-regional competition in a “systematic andmanageable way” (Jenson 1977, p. 47). Fromthe 1950s into the 1980s, Heady and oth-ers at Iowa State University developed aseries of increasingly sophisticated mathe-matical models focused on the dynamics ofinterregional competition. A primary build-ing block for those analyses, and for oth-ers conducted throughout the profession, wasdescribed in USDA Technical Bulletin 1241,Regional Adjustments in Grain Production:A Linear Programming Analysis (Egbert andHeady 1963). That work was initiated in 1955,as soon as the 1954 Census of Agriculture wasavailable. Grain production (shifts in location,resource use, and output levels) was the pri-mary focus of this pioneering work. The directoutput was explicit definition of comparativeregional production efficiencies,as well as opti-mal production patterns, associated land rents,and prices for feed grains and wheat. Basedon that pioneer effort, numerous extensionsand advancements were completed over thefollowing decades.

Although technical change has been a con-stant driving force within agriculture, the 1980ssaw an intense interest in the potential forbiotechnology and information technology toprofoundly alter agricultural systems, in con-cert with other structural and financial chal-lenges occurring in the sector. There was anurgent need for comprehensive analyses ofthese interlinkages. One effort which accom-plished that goal was published as Technology,Public Policy, and the Changing Structure ofAmerican Agriculture (US Congress 1986).Employing a mix of published research andqualitative methods, this assessment speci-fied scenarios of change for the agriculturalsector, and it advanced policy prescriptions

focused on the future structure of thesector.

More recently, the methods of agriculturaleconomists have advanced along with the gen-eral management literature and the nature ofchange in the sector. As a result, the scholarlycapabilities of agricultural economists havebeen directly applied to decision-making issueswithin agribusinesses. These efforts have nec-essarily required explicit consideration of themanager as more than only a strictly rational,economic being (Mintzberg 1978).

An article by Fisher, Sonka, and Westgren(2004) sets a standard for work that contributesto professional scholarship while investigat-ing strategically important issues with actualdecision makers. It reports on an interventionwhere sophisticated information technologytools (animated, three-dimensional visualiza-tion techniques driven by estimates from asystem dynamics simulation model) were usedto help managers assess future options andchart strategic directions. Focused on potentialscenarios for global protein needs, the article’smore significant contribution was in empir-ically documenting the effect of the use ofvisualization techniques and economic mod-eling on strategic thinking. In addition to itsresearch impact, this work was used in execu-tive education programs for numerous decisionmakers from throughout the global soybeanindustry.

Contribution #9: Educational programs inagribusiness have developed human capitalthat has contributed significantly toproductivity growth in the food system

Educational programs have been a central con-cern for our profession over the past century.Long before the term “agribusiness” was intro-duced, the key role of business education inour undergraduate and graduate programs wasclearly recognized. For example, in a presenta-tion at the 1926 annual meeting of our associa-tion, Buechel (1927) discussed the importanceof business education and expressed concernsthat business administration programs mightdraw students away from programs offered byagricultural economics departments. Twentyyears later, Wood (1947) reported results ofa survey of potential employers for gradu-ates from Purdue’s agricultural business pro-gram and described a suggested curriculumdesigned to meet the needs identified by poten-tial employers. Several years later, John D.Black, who would soon be joined at Harvard



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by John Davis and Ray Goldberg, reported onfindings from a survey of the profession on therole of economics in undergraduate curricula.Black (1953) concluded that

departments of agricultural eco-nomics in the larger colleges at leastshould consider offering three cur-ricula, one of the general-agriculturetype to serve especially the needs offuture farmers and extension work-ers, one in agricultural business toserve the needs of young men lookingforward to a career in businesses serv-ing farmers, and one to prepare agri-cultural economic specialists. (p. 491)

He went on to note that the agricultural busi-ness curricula would often rely on courseworkin undergraduate business colleges.

Stimulated by growing interest in agribusi-ness within the profession and by growingdemand from rapidly expanding agribusinessfirms, agricultural business programs contin-ued to develop and evolve in the 1960s and1970s. There were tensions as members ofthe profession developed stronger ties withthe broader agribusiness sector. A. C. Hoff-man, vice president of Kraft Foods Company,criticized existing undergraduate programs fortheir emphasis on economics. He stressed that“the agribusiness economist should be trainednot only in economics but also for general busi-ness management” and went on to note thattraditional agricultural economics programswere not “adequate for this purpose” (Hoff-man 1969, p. 449). Discussants responding toHoffman’s paper acknowledged problems butalso emphasized positive accomplishments andchanges under way at many universities.

Part 2 of the November 1973 issue ofthe American Journal of Agricultural Eco-nomics was devoted to papers presented ata workshop on the Improvement of Educa-tion in Agricultural Economics by DefiningGoals, Developing Curricula, and ImprovingInstruction. This issue includes descriptions ofundergraduate curricula at the University ofCalifornia–Davis (Parker 1973), Southern Illi-nois University (Wills 1973), Michigan StateUniversity (Connor 1973), and Texas A&MUniversity (Grady 1973). The curriculum ateach institution except Southern Illinois Uni-versity included some form of agribusinesstrack or concentration,andWills noted that thelack of this option at his university was due to

budget restraints. There was great diversity inthe structure of agribusiness programs at thattime, reflecting historical and contextual differ-ences as well as the recognition that there wasvalue in experimenting with new models.

Graduate and professional programs inagribusiness were somewhat slower to develop.Litzenberg, Gorman, and Schneider (1983)identified four existing professional graduateprograms and two under development. In 1989the National Agribusiness Education Commis-sion was organized “(a) to develop guidelinesfor a masters degree in agribusiness manage-ment, (b) to suggest strategies for continuingeducation and executive development coursesfor employees, and (c) to recommend stepsto cultivate faculty resources in agribusinesseducation” (Woolverton and Downey 1999, p.1050). Woolverton and Downey reported thatrelatively little progress had been made inthe decade following the commission’s report.They went on to note (p. 1055) that the need forwell-trained agribusiness managers might bemet by“continued expansion of undergraduateprograms in agribusiness management coupledwith five to six top-quality agribusiness MBAand continuing education programs.”

In 2002 the USDA provided funding for theNational Food and Agribusiness ManagementEducation Commission to assess the currentstate of agribusiness management educationand develop recommendations for addressingkey issues that face these programs. The com-mission’s 2006 report (Boland and Akridge2006) presents specific recommendations in sixkey areas: (1) curriculum assessment and revi-sion, (2) communication/writing/critical think-ing skills, (3) industry linkages, (4) studentrecruitment for food and agribusiness manage-ment programs, (5) introductory and capstoneundergraduate courses, and (6) graduate pro-grams in food and agribusiness management.These recommendations will be a roadmap forcampus-based agribusiness education as ourprofession enters its second century.

Finally, our educational impact extendsbeyond campus-based programs to includedirect involvement with agribusiness deci-sion makers. The Agribusiness Seminar atthe Harvard Business School has long beenrecognized for its important contributions.Other noteworthy programs include the Cen-ter for Agricultural Business at Purdue Uni-versity, the Executive Development Programof the George Morris Centre in Canada, theExecutive Program for Agricultural Produc-ers at Texas A&M University, the Food and



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Agricultural Policy Research Institute at theUniversity of Missouri–Columbia and at IowaState University, and the Graduate Instituteof Cooperative Leadership at the Universityof Missouri–Columbia. These and other pro-grams have been exemplary in their abilityto integrate research scholarship and outreachto advance strategic decision making in theagribusiness sector.

Opportunities and Challenges for the Future

Our association’s first century was a period ofunprecedented change in food production, dis-tribution, and consumption. The following areforces for future change.

• The agricultural sector is increasingly asource of raw materials for sectors out-side of the traditional food and fibersystem. Agricultural products are beingused to produce biofuels, industrial prod-ucts such as polymers and bio-based syn-thetic chemicals and fibers, and pharma-ceutical/health products such as functionalfoods, growth hormones, and organ trans-plants.This is blurring industry boundariesand creating new strategic and competi-tive challenges for agribusiness firms, andit will have profound implications for thestructure and operations of the supplychains in the industry.

• Agribusiness organizations are becomingmore flexible and complex, more decen-tralized and yet reliant on collective actionand cohesiveness. This poses challengesfor managers designing the incentive sys-tems and internal institutions that are thefoundation for intra-firm structure, strat-egy, and governance. At the same time,technological change and the emergenceof new globalization–localization tensionswill stimulate changes in socioeconomicrelationships, reshape scope and scaleeconomies, increase risks, introduce newand novel interdependencies, give birthto new rivals and potential partners, andmold more hybrid organizational forms.This will complicate inter-firm coordina-tion for agribusiness managers and foodsystem policymakers.

• With the approach of peak world oil pro-duction, the prospect for internationalagreements to reduce greenhouse gasemissions, and the potential for significantgeographic shifts in food production

patterns due to climate change, there arelikely to be large shifts in relative pricesover the next quarter century. This couldtrigger an unpredictable, radical restruc-turing of the food system and criticalstrategic positioning issues for agribusi-ness firms.

Understanding and anticipating the dynam-ics of the global agribusiness environmentwill be increasingly critical. These challenges—along with advances in theoretical frameworks,diagnostic tools, and empirical techniquesfor addressing them—will afford agribusinessscholars an ample supply of issues, approaches,and motives to expand and broaden inquiryinto an ever-increasing complex and impor-tant global food system. They will also offer usnew opportunities to help students, managers,and policymakers through agribusiness teach-ing and outreach programs. While economicswill continue to be the foundation for our work,concepts from other social science disciplinesand sophisticated new computational tools alsowill be necessary.

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Documents

Amer. J. Agr. Econ. 92(2) 554-570 2010