Introduction to Agricultural Commodity and

Enterprise Development
A Learning Resource Pack for Flexible Learning

GESABEL E. IMPABIDO
Instructor
LEARNING RESOURCE PACK APPROVAL SHEET

Title of LRP: Agricultural Commodity and Enterprise Development

Prepared by: Gesabel E. Impabido

Class: BSA 3A, BSA 3B, BSA 3C, BSA 3D, BSA 3E

Period of Utilization: 1st semester, SY 2020-2021

Reviewed by:

SONNY A. SANTOS MARIBEL C. RAMALES, MBA

Chair, Curriculum Committee Chair, IM Committee

JEROME D. SORIANO, DBA

Program Chair

Recommending Approval:
SILVERIO RAMON DC. SALUNSON, DBA

College Dean

CLAIRE ANNE A. OLIVARES, Ph.D.

Director, Curriculum and Instruction

Approved for Utilization:

ERNESTO A. VIRAY, JR.

Vice President for Academic Affairs

Micro-syllabus in Organization and Management

Course description Vision

TAU as one of the

top 500 universities
This course focuses on the foundation/operation and use of agricultural commodity
in Asia
markets, how markets were created, how commodities are traded from producers
to final consumers, the role of transportation and storage. Also deals with the
growth and development of agribusiness in the Philippines, expound the roles of
agribusiness sector to economic development and supply chain analysis of selected
high-value crops.
 Topics covered in this course include: Introduction to Agricultural
Commodity, Forms of Business Organizations, Business Opportunity
Identification, Agribusiness Management, Agricultural Marketing , and Financial.

Credit: 3-0-3 Breakthrough

Target Outcomes Goals

At the end of the course, the students should be able to: Anchored on the
challenges of the
a. familiarize with the basic concepts, principles, and processes related to Sustainable
agricultural commodity and enterprise development ; Development Goals

b. learn and appreciate the important role of farm and non-farm sectors in for inclusive

the growing agricultural sectors; growth, TAU will:

c. enumerate and discuss the different management functions; 1. take lead in

innovative teaching
d. determine the important management activities or concerns under each methodologies and
function; and appropriate
technologies to
e. be able to come up with a management strategy according to what a
create an ideal
certain business situation needs
environment to
Course Content
optimize learning;
Chapter 1: Introduction to Agricultural Commodity
2. advance
Chapter 2: A First Look at Enterprise sustainable
agricultural
Chapter 3: Business Opportunity Identification
productivity and
Chapter 4: Agribusiness Management improve income
through innovation,
Chapter 5: Agricultural Marketing
technology

Chapter 6: Financial generation, transfer

and training; and

3. use Science,
Technology and
 Engineering (STE)
effectively for
climate change
resiliency, adaption
and agricultural
productivity.

Teaching and Learning Activities Instructor’s/

Professor’s
Lecture/Discussion, Short Quiz, Unit Test, Exercises
Note/Message
Assessment Strategies
1. Reading the links
Quiz and other materials
will give you better
Recitation
appreciation as
Case Study Agriculture
students.

2. Read all
suggested links to
enhance your
learning experience.
Bask and soak
reading, while
relating to
experiences, and
previous lessons in
other management
courses taken.

3. Share learnings,
not answers. Share
other learning
resources that you
think might be
helpful.
Suggested Reading

Cliff Ricketts & Kristina Ricketts (2009). Agribusiness Fundamentals &

Applications

Copyright (2014) by 3G Elearning FZ LLC. Agribusiness Management

Hamilton W., Donald C., Doster H. (2017). Agribusiness an Entrepreneurial

Approach

Grading System

Attendance 5%

Midterm Exam 25%

Final Exam 25%

Short Quiz and other Activities - 45%

Total 100%

Final Grade= (Midterm grade + Final term grade)/2

Class Policies

1. Read Google Classroom for Students or watch Google Classroom

Tutorial to familiarize you with the learning system to be utilized for this
course.

2. You are held responsible for all assignments and requirements for the
entire content on the course. You are expected to read the materials
provided through the links in all the lessons before the scheduled meeting
on Google Meet.

3. Read the links provided in each chapter. The resources will help you to
deeply understand each lesson.

4. Utilization of Learning is available in Google Classroom for convenient

submission of requirements. Be aware of schedules, import Google
 Calendar online or marked dates in your traditional, hardcopy calendars so
you couldn’t miss important dates.

5. Cheating in all forms is prohibited. Copying the assignment of your

classmates is not encouraged.

6. Regarding consultation, students may get in touch with their teachers

using the following email address:

g.impabido@tau.edu.ph
 Chapter 1: Introduction to Agricultural Commodity

Target Outcomes

At the end of the lesson, you are expected to:

1. Discuss the concept and characteristics of agricultural commodity; and

2. Explain the commodity market and basis grade

Abstraction

A. Agricultural Commodities and Its Examples

A.1 What are the Agricultural Commodities?

Agricultural commodities are staple crops and animals produced or raised on farms or
plantations. Most agricultural commodities such as grains, livestock and dairy provide a source of food
for people and animals across the globe. However, some agricultural commodities have purely industrial
applications. The building and furniture industries use lumber from trees, while manufacturers in several
sectors use latex from the rubber tree. Wool from sheep provides fabric for the clothing industry and
lanolin for skin- and hair-care products. Some agricultural commodities serve as both a source of food
and an industrial ingredient. Both humans and animals consume corn, but the commodity is also an
important ingredient in fuel production. Similarly, humans eat the beef of cows, while a variety of
industries use beef hide, fats and bones to create products. Virtually every living being on the planet
depends on the agricultural industry in one way or another. We eat the grains, fruits, vegetables and
livestock that farmers produce; build the frames of our houses from lumber; make clothes from cotton and
wool; and ride in cars with tires made from rubber.

A.2 Characteristics of Commodities

The main characteristic of commodities is that they are interchangeable with other goods from
the same group. In addition to that, commodities are uniform in their quality. In practice, this means
that commodities which are in the same group and quality grade are very similar and it’s hard to find a
difference between their producers. For instance, it’s hard to spot the difference between wheat from
one producer and wheat from another producer
 Characteristics of agricultural product:

1. A raw material: The agricultural products are considered as a raw material. Because it is used for
further processing. After reproducing this, agricultural products turn into a food product. Our farmers
are sold only farm product like wheat, potato, chicken etc. The food marketing firms collect this from
the farmer. They reproduce this like – wheat turns into bread, biscuits, cake; potato turns into chips;
chicken turns into a fried chicken, chilly chicken, and grilled chicken.

2. Bulky and perishable goods: The agricultural products are much more perishable than any other
goods. These products also produce in bulkier. Because single product can’t possible to produce. Bulky
production reduces the cost of producing these goods. But it affects the physical handling of
agricultural goods.
The perishability also affects the marketing farm and food products. These products need immediate
consumption otherwise they lose their value.  Bulkiness and perishability effect on the market farm
products. Besides, bulkiness requires large storage capacities and perishable goods need immediate
consumption. Special refrigerators can help me with these perishable goods. Even, maintaining the
quality of these goods is a costly problem.

3. Quality variation: The quality of agricultural goods varies from year to year as well as season to
season. As previously noted that our agriculture production depends on the motherland and nature.
During the first year, you can get a better quality of crops. But in the second year, you may face lower
quality. Besides, there exist some natural calamities like – flood, drought, excessive rain etc. can affect
the farm production. Based on the quality, farmers set different prices for their product.

4. Identical product: The farmers all over the country aren’t connected to each other. That’s why all
farmers produce the identical products. Sometimes, we face surplus and shortage of agricultural goods.
This happens because of the identical product produced by all farmers.

B. Commodity Exchange

Commodity market works just like any other market; it can be a physical or virtual place where
commodity trading occurs. However, the commodity market is characterized by its strong regulations and
rules. The trading and exchange of commodities work through legal entities, known as commodity
exchanges.

Commodity exchange is an association, company, or any legal corporate body which provides
an organized marketplace for trading in commodities. Worldwide there are many commodity exchanges
specialized in operating with certain commodities.

“Commodity exchange is a legal entity which provides an organized marketplace for trading in
commodities”

There are two ways how commodities can be traded:

1. Trading in the spot market; which means that the commodities are exchanged immediately when
setting a deal, either for cash or other goods? The price is set according to the current market prices and
delivery occurs immediately or a few days later.
2. Trading in the form of futures contract; which means that the buyer and seller instead of
goods, exchange the contract which obligates them to buy or sell the commodity on a specific date in
the future and at a particular price.
Basis Grade

The basis grade is the minimum accepted standard that a deliverable commodity must meet for
use as the actual asset of a futures contract. This grading is also known as par grade or contract grade.
As the name implies, the basis grade establishes a baseline from which other variations of the same
product or material compare. Products failing to meet this established basis grade are unacceptable and
have the risk of rejection. Since basis grade is the minimum tolerable accepted standard, ideally the
exchanged commodity would exceed the criteria. Products of a higher quality which exceed the basis
grade command a higher value and justify better exchange terms.

Utilization of Learning

1. What is Agricultural Commodity? Explain its importance?

2. Discuss the role of the commodity market and basis grade in agribusiness

Supplementary Materials

https://blog.agrivi.com/post/everything-a-farmer-should-know-about-commodity-trading-february2018

https://www.google.com/search?q=%E2%80%A2+2010-2020Commodity.com-

https://businessdiary.com.ph/13978/top-100-most-profitable-agribusiness-ideas/
Chapter 2: A First Look at Enterprise

Target Outcomes

At the end of the lesson, you are expected to:

1. enumerate and discuss the different types of business organization

2. enumerate and discuss the different types of business activities

3. Discuss and explain the advantages and disadvantages of starting a business and as an employee

Abstraction

A. Types of Business Organization

One of the first decisions that you’ll have to make as business owners is how your business should be
structured. You need to know the advantages and disadvantages of each of the different forms of business
organization to make sure you’re making the right decision for your new business because this is a big
decision that has long-term implications.

Each type of business organization is different and impacts a number of business elements including
taxes, paperwork, how you can raise working capital and investment, as well as the amount of personal
liability you could be subject to.

1. Sole Proprietorship

A sole proprietorship is a business owned by one person.

It is the simplest form of business organization. It’s a business that has no separate existence from the
owner, as all income and losses are taxed against their personal income tax return.

Compared to the other business organization methods, this option requires the fewest amounts of
documents to complete and file. Since everything funnels back to the owner, there is no profit-sharing to
sort through, making the whole process very simple.
Sole proprietorship is a business owned and run by someone for their own benefits, usually, the individual
who has day-to-day responsibility for running the business.

Advantages

1. Receives all firms profit

2. Full control and Independent Decision Making
3. Very few requirements for starting—often only a business license
4. Easier Tax Set up

Disadvantages

1. Owner assumes all risks

2. Is limited to the proprietor’s personal capital
3. Has unlimited personal liability for business
4. Death Incapacity of owner terminates business

2. Partnership

A business owned by two or more people, who agree to share in its profits, is considered a
partnership. Partnership has a separate juridical personality between each partner. This means that the
personal property of partner A will not become a property of partner B. The Partners should have a legal
agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved,
how future partners will be admitted to the partnership, how partners can be bought out, or what steps will
be taken to dissolve the partnership when needed. It’s difficult to think about a "break-up" when the
business is just getting started, but many partnerships split up at crisis times and unless there is a defined
process, there will be problems. They also must decide up front how much time and capital each will
contribute. It is not easy to start like sole proprietorship but it is not hard as compare to corporation.

However, for your own protection, it is advisable to have a written partnership agreement that will
spell out the specifics of the agreement. This should state (1) each partner's rights and responsibilities, (2)
the amount of capital each partner is investing in the business, (3) the distribution of profits, (4) what
happens if a partner joins or leaves the business, and (5) how the assets are to be divided if the business is
discontinued. Things have a way of changing and people forgetting over time, so it is essential that there
be a signed document that all abide by.

Partnerships also have their share of disadvantages. The unlimited liability that applies to sole
proprietorships is even worse for partnerships. As a partner, you are responsible not only for your own
business debts, but for those of your partners as well. Should they incur debts or legal judgments against
the business, you could be held legally responsible for them. Disputes among partners can be a problem,
too. Unless you and your partners see eye to eye on how the business should be run and what it should
accomplish, you are in for trouble. However, a partnership is generally the least advisable way to go. It
requires filing a separate partnership tax return, does not carry liability protection for general partners,
and can lead into legal and personal disputes. A corporate form of ownership is generally recognized as
preferable over partnership, because it can serve the same purpose while offering a cleaner and better
protected structure for the owners.

Advantages

1. Two heads are better than one & sharing emotional burden.
2. It's easy to get started.
3. More investment capital is available.
4. Partners pay only personal income tax.

Disadvantages

1. Partners have unlimited liability (except for limited liability partnership).

2. Partners must share all profits.
3. The partners may disagree.
4. The life of the business is limited.

You can create a partnership based on an oral agreement, but it's much smarter to put it in
writing. In limited partnerships and limited liability partnerships, a partnership can even offer a degree of
liability protection. Partnerships can be formed with a handshake – and often they are. In fact,
partnerships are the only business entities that can be formed by oral agreement. Of course, as with any
important legal relationship, oral agreements often lead to misunderstandings, which often lead to
disputes. Thus, you should only form a partnership that is memorialized with a written partnership
agreement. Preferably, you should prepare this document with the assistance of an attorney.

2.1 How Partnerships Are Managed

Partnerships have very simple management structures. In the case of general partnerships,
partnerships are managed by the partners themselves, with decisions ultimately resting with a majority of
the percentage owners of the partnership. Partnership-style management is often called owner
management. Corporations, on the other hand, are typically managed by appointed or elected officers,
which are called representative management. Keep in mind that a majority of the percentage interest in a
partnership can be very different from a majority of the partners. This is because one partner may own
60% of a partnership, with four other partners owning only 10% each. Partnerships (and corporations)
universally vest ultimate voting power with a majority of the percentage ownership interest.

Of course, partners and shareholders don't call votes every time they need to make some small
business decision such as signing a contract or ordering office supplies. Small tasks are managed
informally, as they should be. Voting becomes important, however, when a dispute arises among the
partners. If the dispute cannot be resolved informally, the partners call a meeting and take a vote on the
matter. Those partners representing the minority in such a vote must go along with the decision of the
partners representing the majority. Partnerships do not require formal meetings like corporations do. Of
course, some partnerships elect to have periodic meetings anyway. Overall, the management and
administrative operation of a partnership is relatively simple, and this can be an important advantage.
Like sole proprietorships, partnerships often grow into a corporation.
2.2 Varieties of Partnerships

There are several varieties of partnerships. They range from the simple general partnership to the limited
liability partnership.

The general partnership, by default, a standard partnership is referred to as a general partnership.

General partnerships are the simplest of all partnerships. An oral partnership will almost always be a
general partnership. In a general partnership, all partners share in the management of the entity and share
in the entity's profits. Matters relating to the ordinary business operations of the partnership are decided
by a majority of the partners. Of course, some partners can own a greater share of the entity than other
partners, in which case their vote counts according to their percentage ownership--much like voting of
shares in a corporation. All partners are responsible for the liabilities of a general partnership.

The limited partnership is more complex than the general partnership. It is a partnership owned
by two classes of partners: general partners manage the enterprise and are personally liable for its debts;
limited partners contribute capital and share in the profits but normally do not participate in the
management of the enterprise. Another notable distinction between the two classes of partners is that
limited partners incur no liability for partnership debts beyond their capital contributions. Limited
partners enjoy liability protection much like the shareholders of a corporation. The limited partnership is
commonly used in the restaurant business, with the founders serving as general partners and the investors
as limited partners.

2.3 Partnership Agreements

Your partnership agreement should detail how business decisions are made, how disputes are
resolved, and how to handle a buyout. You'll be glad you have this agreement if for some reason you run
into difficulties with one of the partners or if someone wants out of the arrangement.

The agreement should address the purpose of the business and the authority and responsibility of
each partner. It's a good idea to consult an attorney experienced with small businesses for help in drafting
the agreement. Here are some other issues you'll want the agreement to address:

1. How will the ownership interest be shared? It's not necessary, for example, for two owners to equally
share ownership and authority. However you decide to do it, make sure the proportion is stated clearly in
the agreement.

2. How will decisions be made? It's a good idea to establish voting rights in case a major disagreement
arises. When just two partners own the business 50-50, there's the possibility of a deadlock. To avoid a
deadlock, some businesses provide in advance for a third partner, a trusted associate who may own only 1
percent of the business but whose vote can break a tie.

3. When one partner withdraws, how will the purchase price be determined? One possibility is to agree on
a neutral third party, such as your banker or accountant, to find an appraiser to determine the price of the
partnership interest.
4. If a partner withdraws from the partnership, when will money be paid? Depending on the partnership
agreement, you can agree that the money be paid over three, five or ten years, with interest. You don't
want to be hit with a cash flow crisis if the entire price has to be paid on the spot in one lump sum.

2.4 How Partnerships Are Governed

Partnerships are governed by the law of the state in which they are organized and by the rules set
out by the partners themselves. Typically, partners set forth the governing rules in a partnership
agreement.

Often the governance rules determined by the partners differ from the governance rules set by
state law. In most cases, the rules of the partners override state law. For example, state law typically
dictates that a partnership's profits are to be divided among partners in proportion to their ownership
interests. However, the partners are free to divide profits by a formula separate from their ownership
interests, and the decision of the partners will override state law. Thus, the governance rules in state law
are default provisions that apply in the absence of any rules set by the partners in a partnership agreement.

This fact underscores the need for a partnership agreement. Otherwise, the partnership will by default
be governed by state law. The laws set forth by state law may not be appropriate for every partnership.
For the most part, however, the default state rules are fair and well-balanced.

3. Corporation

A corporation differs from the other legal forms of business in that the law regards it as an
artificial that possess the same rights and responsibilities as a person. This means that, unlike sole
proprietorships, it has an existence separate from its owners. It has all the legal rights of an individual in
regards to conducting commercial activity -- it can sue, be sued, own property, sell property, and sell the
rights of ownership in the form of exchanging stock for money. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The
shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a
life of its own and does not dissolve when ownership changes.

The liability of the shareholders of a corporation is limited to the amount of their capital
contribution. In other words, personal assets of stockholders cannot generally be attached to satisfy the
corporation’s liabilities, although the responsible members may be held personally liable in certain cases.

As a result, the corporation offers some unique advantages. These include (1) limited liability:
owners are not personally responsible for the debts of the business, (2) the ability to raise capital by
selling shares of stock, and (3) easy transfer of ownership from one individual to another. Plus, unlike the
sole proprietorship and partnership, the corporation has "unlimited life" and thus the potential to outlive
its original owners.
Advantages

1. Stockholders have limited liability.

2. Corporations can raise the most investment capital.
3. Corporations have unlimited life.
4. Ownership is easily transferable.
5. Corporations utilize specialists.

Disadvantages

1. Corporations are taxed twice.

2. Corporations must pay capital stock tax.
3. Starting a corporation is expensive.
4. Corporations are closely regulated by government agencies.

The main disadvantage of the corporate form can be summed up in two words: taxation and
complexity. In what amounts to double taxation, you must pay taxes on both the income the corporation
earns and the income you earn as an individual. Along with this, corporations are required to pay an
annual tax on all outstanding shares of stock. Given its complexity, a corporation is both more difficult
and more expensive to start than are the sole proprietorship and the partnership. And, since corporations
are subject to closer regulation by the government, the owners must bear the on-going cost of preparing
and filing state and federal reports.

Bottom Line

The Bottom line is you need to consider some factors of comparison between the sole
proprietorship, partnership and corporation for you to decide and evaluate what type of legal structure is
appropriate for your business to take. The following factors are legal structure, ownership, assets,
liability, income, taxes, continuity, setting up a business entity, reports and selling.

Factors Forms of Business Organization

Sole Proprietorship Partnership Corporation

1. Legal Structure To start a business in - It is necessary and You have to incorporate

your own name as a sole preferable to also by registering the
proprietor, you only business name, the
have to start operating sign a partnership names of directors and
as a business. In some agreement specifying your by laws, and you
jurisdictions, you may each partner's have to file annual
need a business permit.  contributions and reports.
benefits.

2. Ownership Sole proprietor (owner) Partners (owners) and Corporations are legal
and the business are the the business are the entities that are separate
same legal entity.  same legal entity. from the owner. The

3. Assets -Sole Proprietors own -Partners own the assets
the assets of the of the business
business
4. Liability Sole proprietors in a
business have unlimited
liability for all debts and
liabilities that occur
while operating the
business. This means
sole proprietors may
lose their homes, cars
and other personal
assets, if the company's
assets are insufficient to
cover the company's
debts
6. Income The income from sole
proprietorships is the
personal income of the
owners.
7. Taxes Since the income from
sole proprietorships is
personal income, the
owners pay taxes at the
personal income tax rate
on the business revenue
minus business
corporation operates the
business and belongs to
the owner.
Corporations own the
assets of their
businesses, so the owner
of the corporation owns
the assets indirectly. 
Partners in a business Corporations provide
have unlimited liabilityowners of the company
for all debts and with limited liability
liabilities that occur protection against
while operating the business losses and
business. This means obligations. This means
partners may lose their owners of a corporation
homes, cars and other will not lose their home,
personal assets, if the if the company goes
company's assets are bankrupt. Owners of a
insufficient to cover the
corporation are liable
company's debts. for company debts and
obligations up to the
Except in the case of extent of their
limited liability investment in the
partnership. company.
The income partnership The income of
is the personal income corporations is separate.
of the owners. Partners Business income
share the combined belongs to the
income according to corporation, which can
their partnership pay dividends to the
agreement. owner.
Since the income from Corporations pay
partnership is personal income tax on their own
income, the owners pay profits at the corporate
taxes at the personal income tax rate. Owners
income tax rate on the of corporations only pay
business revenue minus tax on business income
business expenses. if the corporation pays
 expenses. dividends.

-Corporations are
subject to double
taxation. This occurs
when the corporation
pays taxes on the
company's profits at the
business level, and
shareholders pay taxes
on income received
from the corporation on
their personal tax return.

8. Continuity Sole proprietorships Partnerships continue Corporations survive the

continue operations as operations as long as the
long as the owners owners operate the
operate the business. business. There are no
There are no provisions provisions for
for continuing continuing operations
operations when the when the owners die or
owners die or retire. retire. Even if heirs or
Even if heirs or purchasers take over,
purchasers take over, they will be operating a
they will be operating a different business with a
different business with a new partner.
new proprietor.
death or retirement of
their owners since they
are separate legal
entities. Heirs or buyers
can continue as owners
of the same business
with the same assets and
operations.

9. Setting up a Business Sole proprietorships Partnerships have a Corporations have a

entity have a more informal more informal structure
structure consisting of
structure that does not that does not require the
shareholders, directors,
require the selection of selection of officers and
officers and employees.
officers and directors. directors. Every corporation must
select at least one
-Sole proprietors have -Partnerships have to person to serve on its
full control over every vote on important board of directors. The
aspect of their business. company issues. board of directors is
responsible for
allocating the
company's resources
and increasing the
shareholders' profits.
 Officers are required to
manage the day-to-day
activities of the
company and implement
the decisions made by
the company's
shareholders and
directors.

-Corporations have to
vote on important
company issues.

10. Reports Sole proprietorships are Partnerships are not A corporation must
not required to file required to file annual keep strict financial
. annual reports with the reports with the state or records and keep a
state or create financial create financial ledger detailing how the
statements. statements. company reached
certain decisions. As
corporation required to
file annual reports with
the state or create
financial statements.

11. Selling Owner has to sell the A general partnership Owners can freely buy
entire business to must dissolve and form and sell their portions of
another owner if he a new partnership if a corporation. To get
wants out. anyone wants to transfer money out of a
ownership. On the other corporation, business
hand, limited partners owners must pay
can sell their portions themselves salaries or
without dissolving the ownership dividends.
partnership.

B. Types of Business Activities

1. Production and Marketing

1. Production & Manufacturing

Primary Industry
Secondary Industry
 Production and manufacturing businesses are related to production & processing as well as
activities related to rearing & reproduction of animals or other living species is all included in the
industry. The purpose of industry is to create and form utility by converting raw materials into useful
forms of finished products.

Two Types of Industry

1. Primary Industry

Primary industries are involved in the production or extraction of raw materials or commodities.

The main primary industries are farming, fishing, forestry, and mining and quarrying. All these industries
turn natural resources into basic goods, or primary products.

2. Secondary Industry

They use primary products or manufactured components to produce finished goods.

This industry is concerned with converting raw material into finishing product. The materials which have
already been extracted at the primary stage are the concern of the secondary industry. Such materials are
processed to produce goods for final consumption or for further processing by other industrial units in
these industries.

Principal Types of Processors

 1. Livestock processing

▪ Is the manner in which animals are slaughtered and prepared in various ways for sale

▪ Hamburger, steak, hotdogs, chops, and ribs are examples of the different forms that processed
meat may take

▪ Additional frozen and canned goods items may be produced from some or all parts of the animal
carcasses

2. Potato and Sweet Potato Processing

▪ Potato and cassava chips, and instant mashed potatoes are potato items that require significant
processing

3. Cotton Processing

▪ Starts with separating seed from lint or fiber. Once separated, the fiber is woven into cloth. The
cloth is made into clothing and other products

4. Wheat Processing

▪ Involves milling grain into flour and baking a flour product. Processing high quality, healthful
wheat products involves a multitude of detailed steps

5. Milk

▪ Milk is Pasteurized (heated to a specified temperature to kill bacteria) and homogenized (treated
to dispersed fat particles throughout the milk to keep the cream from rising to the top)

6. Poultry Processing

▪ Involves the slaughtering the animal removing the feathers and internal organs, preparing the
desired cuts, and packaging the final product for sale

7. Canning and freezing fruits and vegetables

▪ Involves cleaning, peeling, cutting, shelling, breaking (beans), blanching, cooking, canning,
freezing and other processing depending on the commodity

8. Paper Processing

▪ Takes raw wood and makes it into a variety of products

2. Merchandising

Merchandising

Wholesaling Retailing
Purchase goods that are ready for sale and then sell them to customers. There will be no use of producing
goods unless & until these goods reach the ultimate consumer. A merchandising business sells a product
without changing its form.

Two Types of Merchandising

1. Wholesaling

▪ Wholesalers are operators of agribusiness that connects manufacturers/processors and small

independent retailers

▪ Wholesaling is the activity of purchase, assembly, transportation, storage, and distribution of

groceries and food products for sale to retailers

▪ Food wholesalers purchase large quantities of food products. They transport the product (or have
it delivered) to their warehouses, where it is separated into cases or pallets that can be sold to
individual retailers in the food industry
Reasons Why Wholesaler Exist

1. Credit- wholesalers make a wide assortment of products available to retailers, and in some cases
provide short-term credit.

2. Savings- by purchasing large quantities of single products, wholesalers obtain price savings in the form
of volume discounts that retailers would be unable to obtain for themselves.

3. Variety- wholesalers maintain a variety of products and inventory levels that retailers could not sustain.

2. Retailer

▪ Agribusiness retailers include businesses selling groceries, prepared foods, soft drinks, floral
products, clothing, shoes, furniture, home furnishings (made from agriculturally derived
products), and other products.

▪ Agribusiness retailers include the supermarkets, superstores, convenience stores, superettes, and
specialized food stores etc.

3. Service

▪ Service companies perform services for a fee

▪ A service type of business provides intangible products (products with no physical form)

▪ Examples of Agribusiness service are repair shop of farm equipment, farm equipment rental,
veterinary services etc.
C. Why Business Fails?

“People do not plan to fail, they only fail to plan.

If the business does not work “on paper”, it will not work in the real world; Even if the business works on
paper, there is still no guarantee that it will succeed. Agribusiness failures usually display one, several, or
many of the following characteristics within the categories of management, labor, or financial resources

1. Management

Avoid the following pitfalls as you plan and manage your business:

1. Jumping in without first testing the waters on a small scale

2. Buying too much on credit

3. Attempting to do too much business with too little capital

4. Not allowing for setbacks and unexpected expenses

5. Failing to develop an effective marketing program

6. Spending too much time and/or money on nonproductive and nonprofitable activities

7. Under-pricing or overpricing goods and services

2. Labor

The strength of a business is in its people. Hiring undependable and unqualified employees can quickly
destroy your business.

3. Financial Resources

1. Starting with too much capital and being careless about how it is used

2. Borrowing money without planning how and when to pay it back

3. Failing to keep complete, accurate records, so that you drift into trouble without realizing it

4. Extending habits of personal extravagance into the business

5. Forgetting about taxes and other costs of doing business

6. Improperly matching loan repayment period with loan repayment ability

7. Failing to control living expenses and withdrawing more from the business actually earns

D. Advantages of starting a business

1. Social Approval

2. Profit

3. Better work life balance

4. Serving to community and to employees

5. Power

6. Affiliation to several associations which are appropriate to the business

E. Advantages of becoming an employee

1. Having a set wage and working hours

2. Job may not have such variety

3. In a large business, there will be a union to protect the rights of the union

Utilization of Learning

A. Answer briefly the following questions.

1. How types of business organization affect the business?
2. Provide examples of agribusiness that belong to each type of activities (manufacturing,
merchandising and service). For each example, provide a brief company background on how
this agribusiness’ products or services reach the end consumers?
3. Why are service industries and secondary industries (a type of manufacturing industry) more
common in richer countries than in poorer ones?
4. What would you advise to a younger person on what type of business activities he or she
would take today in the Philippines?

B. Comprehend and answer on what is ask on each case study.

1. Let’s say Sally Smith starts operating Sun Valley Farmers Market and chooses to structure the
business as a sole proprietorship. Sally signs a lease with a local mall to host the farmers market
in the parking lot. Sally is responsible for fulfilling the lease’s obligations, such as making rent
payments. If her business is unable to meet those obligations, what could happen to sally? What
will be the action of mall to make Sun Valley Farmers Market pay its debts?
2. Perturbed Partners: Lawrence and Tyrell are partners in a small retail business. They sell hats
and T-shirts from a kiosk in a shopping mall. Recently they have been thinking about selling
other items as well, but they cannot agree on what items to add to their product line. Their
disagreements have caused the business to suffer financially. What advice would you offer
Lawrence and Tyrell to help them work out their differences? What solutions would you
suggest? 

3. Limited Liability? Beverly is the sole proprietor of “Aqua Place”, a raft rental company that
operates on the Davao River. She saved P35, 000 to establish the business. However, competition
from other companies with better equipment has caused losses for Aqua Place. Beverly also owns
P33, 000.00 worth of stock in a corporation that is being managed poorly. She fears that the
corporation will go out of business. Which investment poses a greater financial risk? Why?

Supplementary Materials

https://yourbusiness.azcentral.com/pros-cons-sole-proprietorship-corporation-1245.html

Chapter 3
Business Opportunity Identification

Target Outcomes

At the end of the lesson, you are expected to:

1. Discuss the tree steps of idea generation; and

2. Discuss the process of market research and its importance

3. List and enumerate the top agribusiness ideas

Abstraction
 A. Seeking Opportunity: Idea Generation

3. What is the
1. What is the 2. Is the Problem
BEST solution?
Problem? Worth Solving?

Identify the problem Know the worth of a Provide solutions based

on the lifestyle, Taste and
( spot the problem ( How many
Preference of the market
Unhappiness of people problem this?)
to satisfy consumer/
consumers, customer needs and
customers) wants.

1. What is the Problem?

● Spot the “Unhappiness”

● Listen to your Market
What are people saying they don’t like?
What people say they wish existed?
What are people saying frustrates them?
What do people think is incredibly inconvenient?
● Problem in the Market- Average People will complain but an entrepreneur and businessman
will see an opportunity.

2. Is the Problem Worth Solving?

● How many people problem this? How many times people problem this?

“If the problem is a “If the problem is a “If the problem is a

problem of thousands of problem of million people problem of billion people
people then the solution then the solution could then the solution could
could give you more give you more million give you more billion
thousands pesos pesos pesos

3. What is the best solution?

 ● Providing products and services to meet consumer needs and wants does not always take a
straight path, use that to fall forward not to fall back.

B. How to Start an Agribusiness?

Have you ever considered selling fresh fruits, vegetables, or even livestock in the future? Or does
growing a farm for a business suit your interest?

Agriculture is a vital field that involves dealing with livestock and plant life in order to provide
for people. It also includes being able to maintain and cultivate lands for better produce.

The field has plenty of interesting career options for everyone. Not only does agriculture play an
important role in the Philippine economy, but it also serves as a great source of profit for entrepreneurs.
Transacting with farmers and handling a farm spells business, and making a profit out of fresh produce is
possible after all.

These businesses are called agribusinesses, where entrepreneurs purchase, negotiate and sell farm
products with farmers for more profit. From rice fields to fish ponds, the sources of products that you can
sell are endless, since this involves distributing food for masses. These include rice, poultry, plants,
livestock, fruits, vegetables, fishes, and anything grown by nature.

How does one create an agribusiness? The road to starting any business is never an easy one. But
if you’re set on starting a business in agriculture, here are some tips for you to get started:

1. Figure out your services and products.

Are you thinking of selling coconuts? Or would you rather sell meat such as pigs or chicken? You
will first have to determine what products you’re willing to sell, and what services you will render with
your agribusiness. This is where you can create your own business plan and determine the projected
amount of profit you want to make over time. Include the permits you’ll need to legitimize your
agribusiness, along with the right insurance to ensure its safety in light of possible emergencies or
accidents.

2. Start financing

Find the right way to finance your agribusiness. It might take a bit harder for new businesses to
procure loans from the bank, but there are plenty of alternative finance options that can help you get a
headstart on your business.

3. Procure the right license

Like all businesses, you need to secure a permit before you can start a farm or export products.
You will need this so you can legally hire farmers, let alone buy and sell products from your agribusiness.

For starters, you’ll have to apply for a permit at the Department of Trade and Industry (DTI) so
you can have your business registered. Unless you’ll be starting your agribusiness with a business partner,
you’ll be required to register your business. Either way, having your agribusiness legitimized by DTI or
by SEC grants you exclusive rights to use your business.

The Department of Agriculture (DA) is the government authority that spearheads agricultural
productivity, so you’ll have to ensure the necessary permits from them if you want to sell, import, export,
or transfer of some of the agricultural products and commodities.

4. Find some land to set up your business

Once you’ve successfully secured the right permits and you’re legally allowed to run a business,
you can finally add some life to the land you bought or rented. Depending on what you intend to do in
your agribusiness, invest in the construction of a physical building that can also keep the tools,
machinery, and other materials that you’ll need for operations.

5. Formulate your marketing plan

After constructing your business, your agribusiness is now ready to operate! All you need is a
marketing plan that farmers, suppliers, and other clients can use to know more about your business. Make
sure that your marketing plan is stable and well-planned out, otherwise, your agribusiness might not last
long.

6. Get your employees

Lastly, the biggest challenge is running and maintaining your agribusiness, which you don’t have
to do alone. Tap the right people for your business. Hire your team.

Once you’ve set up your marketing plan and gathered your clients, start hiring employees. After all, you
can’t complete orders for your agribusiness by yourself. Who knows? It can even give a great first
impression to new clients if they see you getting the help you need.

Although you’re starting everything from the ground up, there’s still no shame in getting help.
Don’t be scared. Starting an agribusiness is tough at first but you’ll never know how far you can go with
it unless you try.

C. Agriculture Business Ideas

3.1 Small Agricultural Business Ideas with Low Investment

Agriculture is one of the evergreen sectors that would continue in the normal way even when
there is a global recession. There are hundreds of agriculture related business ideas that are emerging
now. While some agriculture business needs low investment, some require medium to large investment.
Agriculture business means producing and marketing agriculture commodities such as livestock and
crops. It is the fastest growing evergreen field. The business of agriculture can be started with low
investment. It has a bright future.

3.2 What are Agricultural and Related Business Ideas?

 Agricultural business means growing and rearing of crops and livestock, their production, and
marketing. For the people of rural and sub-rural areas of the country, agriculture is one of the major
sources of livelihood. This sector used to depend much on the climate for its flourishment but with the
introduction of technology and science, this field too has witnessed huge development. Agriculture is a
vast field that encompasses forestry, animal husbandry, and fishery too. The businesses related to
agriculture are quite profitable if run with passion and dedication.
Before you think about how to start agriculture business, you should first short list the business
idea which you are willing to start.
Here are the lists of more than 40 business ideas related to agriculture. Like I always indicate, one
should select a business idea based on their interest/passion and how much they are willing to invest in
such business. You should create an agricultural business plan only after the selection of the business
idea.
1) Agriculture farm
If you have an empty land suitable for farming, you can start with an agricultural farm. Items that are
demanded locally can be produced on it. Maintaining good quality can fetch you high profits. Agriculture
farm is a place where farming and cultivation take place. You will require appropriate agriculture land for
starting this business. You can produce rice, wheat, sugar cane, vegetable or any other food product on
the farm. You require knowledge of seeds, farming, fertilizer and agri equipment to start this business. It
is one of the best evergreen businesses.

2) Tree farm
A tree farm grows trees and earns money by selling them. The waiting period of earning money in this
business is quite high as the growing of trees requires considerable time. This is one of the best small
farm business ideas to start. This might need some maintenance cost.

3) Organic fertilizer production

Vermicompost or organic fertilizer production has become a household business. It does not require much
investment and very easy to initiate with a little know-how of the production process. Organic Fertilizer
producing is next in the list of agriculture business ideas. Organic fertilizer is made by decomposing
vegetable, earthworms, and waste processing. The process of producing fertilizer is known as
vermicompost. This type of fertilizer is very good for farming. The business of organic fertilizer can be
started with low investment.

4) Business of fertilizer distribution

This business is suitable for people who live in small towns or rural areas. In this business, you are
required to buy fertilizers from big cities and make them available in rural areas.  This could be one of the
best small agricultural business ideas to start in small towns.

5) Dry flower business

The business of dry flowers has flourished over the last 10 years. If you have vacant land, you can grow
flowers, make them dry and sell to craft stores or hobbyists.

6) Mushroom farming
The business of growing mushrooms can fetch you big profits in a short period of time. It can be started
with low investment and it requires less space also. Mushrooms are in great demand at hotels, restaurants,
and households.

7) Poultry farming
The business of poultry farming has transformed into a techno-commercial industry. In the last few
decades, it is one of the fastest-growing industries.  If you are looking for small farm income ideas, this
could be best fit for you. Poultry farming means the process of producing and raising birds such as
chicken, duck, goose. The purpose of farming is meat production or egg. It is a capital intensive and
profitable business option. You require a suitable place with proper confinement for the growth of
poultry. You also need to maintain temperature and ambiance for the proper growth of poultry.

8) Hydroponic retail store

Hydroponics is a new plantation technology that does not use soil for growing plants.  A hydroponic retail
store deals in hydroponic equipment and also develops plants to be sold for both commercial and home
use.

9) Organic greenhouse
An organic greenhouse business has good potential to grow because the demand for organically grown
products has been increasing consistently. Beforehand, this business was done on small family-run farms,
but with increasing demand as people are now buying land for making organic greenhouse. Organic
Farming means producing vegetable and foods in an organic manner without fertilizer and pesticides. The
demand for organic products is increasing day by day. Thus, starting organic farming is a very good
business option. You require enough place and knowledge to start organic farming.

10) Beekeeping
With the increasing awareness for health, the demand for honey is growing day by day. This way,
beekeeping has become a great business opportunity. This business demands day-to-day monitoring of
the bees with close supervision.

11) Fish farming 

Commercial fish farming is a very lucrative business that can fetch a huge amount of money. With the
implementation of modern techniques, production and quality can be enhanced to a great deal. This is one
of the most lucrative agricultural business ideas that require moderate to high investment to start. Fish
farming is the next agriculture business idea. In this business, you need to raise fish in tank or enclosure
as a fish pound. You can select the type of fish based on the market condition. You require a good source
of water to start this business. Fish farming is a medium investment highly profitable commercial
business in Philippines.

12) Snail farming

Snail farming is the process of raising land snails for human consumption. Snails contain a high rate of
protein, iron, low fat, and almost all the amino acids needed for the human body.  Keeping their nutrient
value in mind, they are in high demand. This business opportunity demands discipline and specific
knowledge of modern technology.

13) Fruit and Vegetable export 

You can initiate the business of exporting fruit and vegetables in which you have to collect fresh fruits
and vegetables from local farmers and sell them internationally. For this business, you need to know the
import and export policies as well as local markets. This is one of the best agriculture export business
ideas to start. Find out a good distributor and dealer before starting this business.

14) Become a florist 

 Selling flowers are a very profitable retail business. Flower arrangement and bouquets are always in high
demand for gifting, at weddings, etc. With some innovation and creativity. You can do wonders in this
business.

15) Broom production 

For centuries, the broom has been used for sweeping up the floor and removing the dirt and dust in and
around workplaces and homes. The process of broom production is quite simple and the project can be
initiated with low capital investment. Maintaining a good quality and competitive prices can give you
good profits in a short span of time.

16) Fruit juice production

The production process of fruit juice is quite simple and can be initiated with low investment. This
business has a huge market opportunity. Hygiene, taste, and quality of fruit have to be kept in mind while
starting this business.
Fruit Juice processing is one of the best agriculture processing business. In this business, you need to
process fruit via machinery to prepare juice. You need to add preservative and prepare suitable packing. It
is a medium investment business and demand skills.

17) Groundnut processing 

If you can procure good quality raw material (groundnuts) for this business, you can initiate it with
moderate capital. Processed groundnuts have very good market potential all over the world.

18) Quail farming 

Quail farming is about raising quails for profitable eggs and meat. At the global levels, quail farming is
gaining importance as it fulfills daily family nutrition demand.

19) Tea plantation 

With the increasing demand for tea leaves, this business has huge potential. Tea plants typically required
acidic soil and heavy rainfall, although they can be grown anywhere from sea level to high altitudes. So,
if your demographic situation is suitable for growing tea, you should go in this business. This is one of the
good agriculture business ideas that require high capital.
Tea and Coffee are widely used all over the world. You can think of starting a business of producing or
selling tea and coffee under a separate brand name. It is a lucrative business.

20) Grocery shopping portal 

With the advent of technology and E-Commerce, people find it very wasteful to spend hours buying day-
to-day groceries. They prefer ordering groceries to be delivered at their doorsteps so one can start with an
E-shopping portal that delivers groceries.

21) Farming of medicinal herbs 

Growing of medicinal herbs at the commercial level is one of the most profitable agriculture business
ideas. If you possess good knowledge about the herbs and have sufficient land, you can initiate the
farming of medicinal herbs.  You may need to take certain licenses from local government in the case of
medicinal herb business.

22) Cactus arrangement

Cactus has been extensively used as a decor item, either indoor or outdoor. Many cactus plants can
coexist happily in the same container. So, with a touch of creativity, you can make beautiful cactus
arrangements. It is a very profitable and self-rewarding business.

23) Jatropha farming  

Jatropha has been used as a raw material for producing biodiesel. It is one of the most trending small
agriculture business ideas now, as very few people know about it. By doing some research and gaining
some knowledge, you can easily start with this business.

24) Corn Farming 

Corn or maize has emerged as one of the most versatile crops that can be grown under varied climatic
conditions.  Maize is known as the Queen of cereals as it has the highest genetic potential amongst the
family. By implementing modern technology and good quality seeds, one can obtain a bumper crop.

25) Potato powder

 Potato powder is extensively used in the snack food industry. It can be used in any recipe where mashed
potatoes are required. It is used as a thickener in ready to eat vegetable gravies and soups.

26) Goat Farming 

Goat is one of the main meat-producing animals used globally. For this reason, goat rearing has been
flourishing as an economic industry with good prospects.

27) Soil Testing 

Soil testing is a technique used for monitoring the nutrients present in the soil is well as for making
precise fertilizer recommendations for different crops. Establishing a soil testing laboratory with
Government certification is one of the best small agricultural business ideas.

28) Agro blogging

If you possess good knowledge about agriculture with a niche in writing, you can always try for agro-
blogging. It contains blogs related to agriculture and farming. With the advent of the internet in rural
areas, farmers have started using technology to improve their farming skills. They need fair advice on
their agricultural problems. This is one of the best agricultural related business ideas to start with zero to
low investment.

29) Fodder farming 

The term fodder is used for the food given to domestic animals for feeding and not the food they graze by
themselves. There are plants grown particularly for this purpose like barley, oats, alfalfa, etc. Fodder is
used to feed animals like cows, goats, pigs, horses, etc. and always in great demand.

30) Rose farming

Rose is a flower with high commercial value.  It is used in flower arrangements and bouquets on a large
scale. If you are interested in gardening, you can turn it into a profitable business. It can be initiated on a
small piece of land.

31) Rabbit farming

Rearing of rabbits has been started on a commercial level. Angora rabbits are mainly raised for their wool
and well known for quality. Rabbits are the best producers of wool on per kg body weight basis.

32) Agriculture consultancy 

If you are an expert in a specific field of farming, you can adopt the business of agriculture consultancy.
This business is flourishing day by day as farmers need expert advice at many stages.

33) Dairy farming 

Demand for milk and milk products can never go down. Commercial dairy farming is one of the most
profitable agriculture-based business ideas. Apart from milk, it produces manure in huge quantities.
Hygiene and quality should be always kept in mind while doing this business.
34) Spice processing 
Organic spices are in high demand locally as well as internationally. The processing and packaging
methods are not very complex and can be initiated with moderate capital.
Spice powder is essential for cooking. Good spice helps to bring good taste in the food. Commonly used
spices are chili powder, cumin, turmeric powder etc. Spice has a very good domestic market. You require
a grinding machine as well as a mixer and packaging machine to start this business. It is a low investment
business with very good market potential.

35) Vegetable farming 

If you have sufficient land and manpower, you can start with vegetable farming. Vegetables produced
with good quality seeds and fertilizers yield good crops and give good returns. If you are thinking about
small farm income ideas, you can shortlist this business idea.

36) Soya beans farming

 Soya bean is required to produce soya milk, soya flour, soya sauce, soya bean oil, etc. If you have small
vacant land, soya bean farming can be initiated to convert it into a profitable business.

37) Landscape expert

Landscape expert is the one who has good knowledge of landscape architecture. It encompasses activities
like site analysis, land planning, planting design, storm water management, and construction
specification. They ensure that the plan meets all the current building codes and all the statutory
compliance.

38) Tilapia farming 

Tilapia is a kind of fish whose demand is escalating steadily. You can start this highly profitable business.

39) Horticulture crop farming 

Horticulturists produce fruits, plants, and vegetables, flowers in greenhouses, and nurseries with highly
specialized knowledge. The selection of the crops and method is very important in this business.

40) Certified seed dealer 

Seed certification is a process of quality check whereby the seeds are inspected and checked with proper
process. In simple words, the system certifies that a box or packet of seed is in accordance with the
requirements of a certification scheme. You can start a business that sells only certified seed. There are a
few formalities to establish this business. You do not need any land for it. It can be initiated by contract
farming.

41) Greenhouse flower export 

Many people establish a greenhouse for producing only export-oriented flowers. It is one of the most
profitable business ideas it requires substantial capital investment and good knowledge about the process.

42) Potato chip production

It is a small-scale industry based on making potato chips and french-fries. The demand for potato chips
and french-fries as an FMCG is increasing steadily in the global market. This is one of the most profitable
small agricultural business ideas to start with low to medium capital.

43) Flower Farming- Flowers are used widely used for decoration and worship. If you have big land you
can think of starting flower farming business. It is a highly lucrative business idea. In this business, you
need to grow various flowers such as rose, sunflower, jasmine, etc. You need to hire manpower for
farming and cropping.

44) Vertical Farming- Vertical Farming means growing vegetation on walls vertically. The concept of
vertical farming is getting popularity in metro cities. In this business, you need to take a service contract
for doing vertical farming. Most of the small and medium organizations opt for this concept. You require
expert manpower to start vertical farming.

45) Farming equipment’s-- Farming equipment selling is next on the list. The equipment related to
farming such as seed drill, cultivator, sprinkler system, sprayer, and tractor usually remains in demand.
You can sell farming equipment in rural places and earn money. Make sure to gather enough knowledge
about farming equipment before starting this business.

46) Pesticide Production-- Pesticide production is another lucrative business option. For any farming
activity, you will need pesticide to protect the crop. Pesticides are made of specialized chemical. You can
also produce pesticide organically. It is known as a biopesticide. It is recommended to go for a special
course study before producing pesticide.

47) Agriculture equipment on rental--- The big equipment used in agriculture such as tractor, harvester,
an excavator can be given on rent for generating income. Many farmers or newcomers in the farming
business opt for agriculture equipment on rent. If you have capital and expertise you can start this
business.

48) Agriculture equipment on rental-- The big equipment used in agriculture such as tractor, harvester,
and an excavator can be given on rent for generating income. Many farmers or newcomers in the farming
business opt for agriculture equipment on rent. If you have capital and expertise you can start this
business.

50) Agriculture Commodity Trading-- Agriculture commodity trading is next in the list. It is a simple
business where you will be acting as a wholesaler. You need to purchase food products, grains from the
farmer and sell it to the grocer at a higher price. Looking at the first instance it seems to be an easy
business. However, it requires a lot of expertise and understanding of the market and products.

51) Grocery trading-- one of the very good business option. In this business you will be acting as retailer
for selling household items such as rice, wheat, sugar, oil etc. This business can be started with low
investment.

52) Rubber and Wool Business-- Rubber and wool are used for making various cloths and related items.
Rubber and wool always remain in demand. You can start a rubber and wool trading business. You need
to tie up with rubber and wool producer for starting this business.

53) Frozen chicken-- Frozen chicken is next in the list of processing agriculture business ideas. In this
business chicken are frozen and sold with suitable packing. Many people prefer frozen chicken when it
comes to eating non-veg. You need to do moderate investment to start a frozen chicken business.

54) Flour Mill --A flour mill means equipment or machinery for grinding grain in to the flour. A flour
mill business can be started at a lower scale at a shop or at a larger scale for specific brand/products. It is
an evergreen business option.
Conclusion: Before initiating any agro-based business, you should conduct proper market research on
the demand of the product, it is technical know-how and its marketing. You should sketch a proper
agricultural business plan before going for it.

D. Agribusiness Opportunities in the Philippines

Luzon is the country’s largest island. It hosts many agribusiness clusters and account for about 55 million
out of 103 million of the Philippine market. Metro Manila, Laguna, Cavite, Rizal and Bulacan
(“Expanded Metro Manila”) have some 24 million consumers.

Central Luzon and Calabarzon supply food to over 12 million Metro Manilans. The regional firms are
mostly domestic market-oriented in contrast to Mindanao’s agribusinesses. Central Luzon accounted for
13.7% of the total national agriculture production in 2013, followed by Socsksargen 9.3%, and
Calabarzon 8.8%. Similar rankings apply for the fisheries subsector. (Note: Data came from the
Philippine Statistical Authority.)

Calabarzon has 40% of the country’s total manufacturing output, Metro Manila 21%, and Central Luzon
13%. No breakdown for food manufacturing, but Calabarzon should be leading other regions like the
Central Visayas and Davao. The four leading agribusiness provinces are Bulacan, Laguna, Batangas and
Pampanga. Outward expansions are in Cavite, Rizal, Tarlac, Pangasinan and Quezon.

The provinces around Metro Manila have benefited from large local markets as well as good logistics.
However, prices for land and labor are rising. The rising cost of property and the encroachment of
subdivisions could mean that owners of hog and poultry farms in Bulacan, Batangas and Laguna will sell
out and look for other locations, or altogether get out of the business. Expansion to other areas faces
bureaucratic red tape from the barangay officials who have the major say in approvals. There are already
cases of fishpond expansion in the South whose permit takes over one year to secure. Local governments
have become stumbling blocks to investments and job creation.

Pampanga
Pampanga has a population of about 2.5 million. Its dominant crop is rice. It is the country’s top producer
of chicken (surprisingly!) with 9% of production, and the third-largest egg producer. The province is the
leader in aquaculture production with 20% of national farm value. It supplies 40% of total tilapia and
8.5% of bangus. The province is known as a meat-processing center. Some 365,000 hogs were
slaughtered there in 2013.

The province is home to leading food firms, such as Pampanga’s Best, Mekeni Food, Roel’s Food,
Mother Earth, Minalin Poultry and Livestock Coop, Sweet Crystal Sugar Mill, Grupo Agro, Coca Cola,
Invictus Food, RBest Food, Premium Food, Sino Food, Tollhouse Service Inc, Metro Shanghai, Samsuan
Delicacies, Aiza’s Sweets, TGA Foods, Nan Foods, Malows Meat Products, and Navarro Food Intl.

Bulacan
Bulacan has a population of about 3.4 million and is one of the most populous provinces in the country. It
is the major rice-processing center. Intercity Industrial Estate in Bocaue has over 100 rice mills. The top
five mills are: TL3MJ, R&E, RKR, JEM, and Car-Jenn.

The palay for milling comes from Ilocos, Cagayan-Isabela and Nueva Ecija. Rice is brought to Metro
Manila to feed its 12.2 million people plus about three million day-time transient population.
Bulacan is the largest producer of hogs. In 2013, it produced almost 12% of national production of two
million tons, live weight. According to an industry player, there are about 25 farms with sow-level of
1,000 or more (about 10,000 pigs in each farm). Robina Farms is among them.

Bulacan is also the second-largest producer of chicken, after Pampanga. Bulacan is the fourth-largest
producer of aquaculture products by value. It is the leading producer of bangus.

In food industries, the province is the largest producer of dressed chicken, 82 million out of 481 million in
2013. It also accounted for 524,000 hogs slaughtered out of the total 10.3 million in 2013, the country’s
third largest after the National Capital Region (NCR) and Rizal.

The province is home to major animal-feed firms like Cargill Feeds, Cheil Jedang (Korea), Feedmix
Specialist, Santeh Feeds, Sunjin Philippines, and Vitarich. It also hosts farm inputs supply companies
such as EastWest Seed, Compania JM, Calata, and Monsanto.

The swine breeders include: Daily Harvest, IMI Farm, Pacific Breeder, and Pig Philippines.

Bulacan also boasts of many processed-food firms: Agrinurture, AFPC, Agrisolutions Inc., Big E Food,
Bulacan Dairy Coop, Bounty Fresh Food, Centennial Food, Cereal Food, Fisher Farms, Inc., Flavor Food,
Foster Foods, Jockers Food, Ilustrados Premium Cacao, JNRM Int’l, Jasoncu Food, Joyful Heart Food,
JSD Food, Kian Sun Corp, LCD Food, Komeya Food, Multi-rich Food, Pollen Food, Profood, Marby
Food, MJB Food, KSK Food, Markenburg Foods, Royale Cold Storage, R. Lapid, RL Marine, See’s Int’l,
Sevilla Sweets, Sham Na Food, Sucere Food, Vina’s Food, VWA Food, and W.L. Food.

Cavite
Cavite has a population of about 2.3 million. It has the fourth-largest number of slaughtered hogs
(513,000) in 2013, after Metro Manila, Rizal and Bulacan.

The major companies are Liwayway/Oishi, Monterey Farms, Nissin-URC, Magnolia Inc., Philippine
Dairy Products, Phil-Malay, Purefoods-Hormel Co, Sustamina and W Hydrocolloids. The others include
Alfonso Tablea, Annie Candy, Caffmaco Feeds, Candyline Food, Don Roberto’s Winery, Gourmet
Farms, Jacobina Biscuits, KLT Fruits, Newborn Food and Yan Hu Food.

Laguna
Laguna has a population of about 2.6 million. Its main crops are rice and coconut but production is
declining due to rapid urbanization. It ranks among the top 10 hog and chicken producers and among the
top five in tilapia production. Some 409,000 hogs were slaughtered in 2013.

The province hosts the longest list of well-known food processing locators. They include Alaska Milk,
Asia Brewery, Cargill, Coca-Cola Bottlers, Doughnut People Inc, Emperador Distillers, Franklin Baker,
Gardenia Bakeries, General Milling, Ginebra San Miguel, Mix Plant Inc, Monde Nissin, Nestle,
NutriAsia, Pacific Meat, Pepsi-Cola Far East, Philippine Health Food, Ram Food, RC Cola, Rebisco, Ritz
Food, San Pablo Manufacturing, Tanduay Distillers, Universal Robina, Yakult, Zenith Foods (Jollibee
Commissary), and Zesto Corp.

The small and medium firms are Amcor White Cap Asia, Delicious Food, Escaba Food, Erlybelles Food,
First Choice Food, FitgloCorp, F&M Foods, Frescano Food, Fresh-Baked Products, Garanfood, Glomus
Gourmet, LG Foods, Leslie Corp, LIIP Food Processing, Lorenzana Food, Portion Fillers, Philfoods,
Renaissance Foods, Royal Cargo, SL Agritech, Soriano Dairy Farm, Sugoku Foods, Sun Valley Food, 3J
Foods and Tropicana Food.
The swine breeders include: Agoncillo Farm, Creek View Farm, Holiday Hills Farm, Infarmco.

Batangas
Batangas has a population of about 2.6 million. It is the second-largest producer of hogs after Bulacan
(6.5% of national production). It is also the fifth-leading supplier of chicken, and the largest producer of
chicken eggs. It had the third-largest output of dressed chicken, 28 million out of 481 million in 2013. It
also slaughtered some 270,000 hogs during the year.

The province ranks fourth in aquaculture products centered in Taal Lake. It is the second-biggest
producer of tilapia after Pampanga.

Batangas hosts leading firms in food processing such as Asia Bestfood, Balayan Sugar Mill, Bounty Agro
Venture, Central Azucarera Don Pedro, CDO Foodsphere, General Milling, Minola Refining, Nestle (two
plants), San Miguel Mills (flour), and Uni-President Foods.

The swine breeder farms include: Luz Farm, Mikaela Farm and Ramos Farm.

The province is also home to big farms like Family Hog Farms, Robina Farms, Batangas Dairy Coop,
Batangas Egg producer Coop, Soro Soro Ibaba Coop (SIDCI), Pilipinas Kaneko Seeds, Milk Joy Corp,
and Tarnate Dairy. It also has feed companies which include Banner Development, Blue Diamond Feed
Mills, Lincoma Producer Coop, Nutrimeal Agribusiness, Tower Feeds.

Batangas is also the base of logistics provider San Miguel Golden Bay Grain Terminal.

The agriculture sector provides profitable opportunities considering the bountiful natural resources and
vast arable lands in the Philippines. The continuous development of the sector led to the production of
various agricultural commodities. Today, agriculture is not only restricted to conventional food
commodities, but also produces non-food products such as biofuels, pharmaceuticals, and chemicals.
Investors can also choose from a wide range of agricultural activities such as farming, post-harvesting,
food processing or manufacturing, wholesaling, and retailing where they can specialize.
Advantages of having Agribusiness in the Philippines

1. High Demand – most agricultural commodities are basic necessities which offer steady demand and a
large market both local and abroad.

2. Vast Natural Resources- the Philippines is made up of expansive agricultural lands and natural
resources which are necessary inputs.

3. Large Supply of Labor- majority of individuals situated in rural areas are engaged in agricultural
activities.

Disadvantages of having Agribusiness in the Philippines

1. High Production Cost – Despite of the recent developments, the cost of raw materials in producing
agricultural commodities is higher than the cost in neighboring countries.
2. Low Technology—the Philippines remains to be less competitive in agricultural technology relative to
other countries.

E. Market Research

Marketing Research, broadly defined, is the systematic, objective and exhaustive gathering, recording,
analyzing of data relevant to a specific marketing situation or problem in order to facilitate decision-
making.

Market research is the process of determining the viability of a new service or product
through research conducted directly with potential customers. Market research allows a company to
discover the target market and get opinions and other feedback from consumers about their interest in the
product or service

Classification of Market Research

1. Problem Identification Research -research undertaken to help identify problems which are not
necessarily apparent on the surface and yet exist or likely to arise in the future

2. Problem Solving Research -research undertaken to help solve specific marketing problems

Step 1. Identification of the

Problem and Objectives of
the Study

Step 5. Prepare and

Present the final
Step 2. Determine Research Report
Research Design

Step 3. Sampling and Data Step 4. Analyze Data

Collection

1. Identification of the Problem and Objectives of the Study

It involves what information needed. These provide insightful marketing research problem. The research
objective is a statement of what information you want.
2. Determine Research Design
Involves the Decision making on:
2.1 Identify information types and sources
1. Primary Source- Its advantages are Specific (tailored made to a particular situation), and
practical (contract with real situations). Its disadvantages are costly, time consuming, may
duplicate secondary information available.

2. Secondary Source- Its advantages are low cost, easier to obtain, obtained in less time. Its
advantages are outdated, limited applicability (may not fit a firm’s needs), and could be
inaccurate.

2.2 Deciding on Methods of Gathering Data

Primary data
1. Survey- The questionnaire or survey consists of gathering data by interviewing people through:
Personal interviews, mail, and telephone

2. Observation- This can be done through:

(1) Visual means by trained observers

(2) Mechanical or electronic devices (examples; a closed circuit city’s television system, psycho
galvanometer, traffic light system)
3. Experimental Method. This is used to examine the cause and effect.
Secondary data
1. Internal
2. Outside
2.3 Designing Data Collection forms
▪ Questionnaire construction is a part of research design (survey) phase of the research process

Three Types of Questionnaire

1. Structured questionnaire
 2. Semi structured form- For example, the question just mentioned could be presented in a semi
structured form,
Please indicate the single most important factor involved in your choice of the brand of a new
wrist watch.
3. Unstructured Questionnaire- “The interview starts with a statement from the interviewer such as
“Let’s talk about milk,” and proceeds with a discussion of that topic.

3. Sampling Data Collection

This involve sample plan (refers to the process used to select units from the population to be collected)
and sample size (refers to determining how many elements of population to be included in the sample).
4. Analysis and evaluation of Data – It involve data analysis techniques
5. Prepare and Present the final Research Report
Report must have following sections
▫ Executive Summary
▫ Objectives & Methodology
▫ Summary, Conclusion, Recommendation
▫ Sample Characteristics & Basis of selection
▫ Detailed findings
▫ Questionnaires & other supporting documents

Utilization of Learning

A. Answer the following questions.

1. Identify at least one lifestyle, taste and preference of yours you want to be satisfied by means
of having a particular product or service not yet existing in the market. Explain and describe
its uses and features on how it could help consumers and customers.

2. If you were to conduct market research, what do you prefer to use is it primary data or
secondary data? and why?
 Supplementary Materials

https://www.youtube.com/watch?v=b-hDg7699S0

Chapter 4: Agribusiness Management

Target Outcomes

At the end of the lesson, you are expected to:

1. Enumerate and discuss the five major functions of agribusiness management

Abstraction

Agribusiness management refers to the responsibility of a person to make decisions, organize resources to
implement decisions, monitor the implementation of decisions, and evaluate the effects of decisions on
the overall success of the operation. Agribusiness management has five major area of activity, as follows.

A. Management-Nature, Types Tasks and Responsibilities

Traditional concept of management restricted management to getting things done by others.

According to modern view, management covers wide range of business related activities. It is considered
as a process, an activity, a discipline and effort to coordinate control and direct individual and group
effort towards attaining the cherished goal of the business. Management may also play the role as science,
as an art, as a profession and as a social process.

Responsibility and performance are really the key words in defining a manager’s role.
Performance implies action, and action necessitates taking specific steps and doing the following tasks to
produce desired results.

1. Providing purposeful direction to the firm.

2. Managing survival and growth.

3. Maintaining farm’s efficiency.

4. Meeting the challenge of increasing competition.

5. Managing for innovation.

6. Coping with growing technological sophistication.

7. Maintaining relation with various society segments etc.

An agribusiness is a social institution. Its very existence is dependent upon its harmonious
relationship with various segments of the society. This harmonies relationship originates from the farm’s
positive responsiveness to the various segments and is closely associated with the tasks a manager is
expected to perform. The process of evolving this mutual relationship between agribusiness farms and
various interest groups begins by acknowledging the existence of the responsibilities of manager. These
responsibilities are towards consumers, suppliers, distributors, workers, financiers, government and the
society.

B. Elements of Management

Management is based on following elements;

1. Objectives: Objectives are the ends towards which activities are aimed for each overall goal that one
develops, there should be specific, appropriate, and realistic and time bound (SMART) objectives. These
objectives relate to problem statement and desirable anticipated results that represents changes in
knowledge, attitude or behaviour of project staff and beneficiaries. The objectives should be used to
develop evaluation criteria to ensure that evaluations conducted later in the program will measure the
results that projects intend to achieve.

Characteristics or Objectives are as follows;

i. Relevant: When objectives fit into the overall general policy or help to solve the problem.

ii. Feasible: When it is possible to achieve, that is, the resources (land, labor, capital and organization) are
available and constraints can be removed.

iii. Observable: When results can be clearly seen.

iv. Measurable: An objective is measurable when results can be stated in number i.e, Mortality will be
deducted by 30% is measurable.

2. Means: Are the ways/ tools/ instruments to be used for successful implementation, monitoring,
controlling and evaluating planned activities of resources.

3. Resources: Are the inputs (physical, financial or human) used by means for timely and efficient
completion of planned activities of resources.

4. Work Plan: It shows the sequence of activities which lead to achieve the objectives of business
enterprise.

C. Functions of Management

Managerial activities consist of five functions namely planning, organizing, staffing, directing and
controlling as follows;

1. Planning
 Planning is an attempt to prepare for future by assessing existing resources and capabilities and
then determining future line of action with a view to achieve organizational objectives. It means deciding
in advance what is to be done, how and where is to be done, who will do it and how results are to be
evaluated. Planning is the basic function of management. Proper planning is must for any business
activity. The affairs of any organization are likely to be affected without thought out plan. Planning is
necessary to ensure proper utilization of human, financial and physical resources to achieve the objectives
of enterprise,

Planning means determining what is need to done and where, how, and when to do it. Planning is done on
a day-to-day, year-to-year, and long-term basis. Planning involves the following functions:

▪ Determining the present status of the business

▪ Surveying the environment
▪ Setting objectives
▪ Forecasting future situations
▪ Stating necessary actions and resources
▪ Evaluating proposed actions
▪ Revising plans in response to changing conditions
▪ Communicating effectively

Planning offers many advantages to an enterprise as follows:

1. Planning give direction on objectives: Activities of an organization get a definite objective to move
due to planning without planning everything may be haphazard and purposeless.

2. Planning focuses attention on activities: Planning helps to focus attention on objectives. This helps in
their proper pursuit and fulfilment.

3. Planning helps to affect the change and uncertainty: Since planning is done with the object of off-
setting change and uncertainty, it helps to eliminate risk and avoid loss caused by changing factors.

4. Planning facilitate control: Managerial control is facilitated by the planning because the actual
performance can be compared with planned performance.

5. Planning helps in the economical operations: Planning lays down procedures, policies, objectives
and operations. The staffs get a clear cut idea about an operation, targets and goals.

6. Planning accounts for growth: Growth of a firm and expansion of its activities are greatly facilitated.
This is so because firm has a clear-cut idea about its future activities. It may therefore plan to grow. This
means that the time and cost of growth are minimal.

7. Planning helps to avoid bottleneck in production: Since everything is planned significantly (i.e,
timely and appropriate provision of land, labor, capital and organization), bottlenecks are avoided and
production goes on smoothly.
2. Organizing

Organizing is an arrangement and allocation of work, authority and resources in an effective and
efficient way. To organize and agribusiness, is to provide it with everything useful to its functioning-land,
labor, capital and organization and other managerial techniques on farm. Organizing is an important
function of management by management combines the human and material resources. This function must
be performed when an activity involves two or more persons. Organizing involves activities to be done,
grouping the activities, assigning the grouping activities to be individuals and creating a structure of
authority and responsibility among the people to achieve the objectives of the enterprise. Urwich defines
organizing as determining what activities are necessary in arranging them in groups which may be
assigned to individuals. The process of organization involves the determination of authority and
responsibility relationships in the organization.

3. Staffing

It involves filling positions in agribusiness. It is done by identifying work place requirements,

locating, recruiting, selecting, placing, appraising, planning the careers of, compensating or training or
otherwise develop both candidates and current job holders to accomplish their task efficiently. After
planning and organizing the total activities to be done, management is in position to know that manpower
requirements of agribusiness enterprise at different levels in the organization structure. After determining
the number and type of personnel to be selected to fill different jobs, management starts with recruiting,
selecting and training the people to fulfil the requirements of agribusiness enterprise depending upon size,
nature and type of enterprise. In short staffing function includes the process by which the right person is
placed in a right organizational position.

Staffing includes all activities involved in the recruitment, selection, training, and retention of
personnel. Hiring staff is the principal job of any leader. You cannot make silk out of a sow’s ear. Hiring
bad staff is analogous to having one rotten tomato spoil the whole barrel. Good staff makes the workflow
through the agribusiness go smoothly.

4. Directing

Managers have stimulated action by giving orders to subordinates and by supervising them as
they go with their work. Directing was identified by Hanery Fayol with Command G.R. Terry identified
directing as moving to action and supplying stimulating power to group of persons. Directing embraces
three important components;

1. Issuing of orders and instructions to the subordinates

2. Guiding and teaching the subordinates the proper method of doing work

3. Supervising the subordinates to ensure that these works conforms to the plans.

Thus directing process involves the following functions;

a. Leadership: Leadership is the process which a manager guides and influences the work of others in
choosing and attaining the specified goals by mediating between the individuals and organization in such
a manner that both will obtain maximum satisfaction.
b. Communication: A manager who is providing leadership to his subordinates has to tell them what they
are required to do, how to do it and when to do it. He has to create an understanding in the minds of
subordinates of the work to be done. This is done by the process of communication. Communication is
the transmission, receipt and understanding of ideas, instructions or information.

c. Motivation: It means inspiring the personnel with zeal to work and cooperate for the accomplishment
of the common objectives. It is function of manager to motivate the people working under him to perform
the work assigned effectively and efficiently.

d. Supervision: It is an essential element in direction process. The manager has to see to it that
subordinates work effectively to accomplish the tasks that he has entrusted them to do. Supervision is the
process by which conformity between planned and actual results is maintained. It is essential to ensure
that subordinates are doing as they are directed.

Concept of Directing: According to Koontz and O’Donnel, directing is a complex function that includes
all those activities which are designed to encourage subordinates to work effectively both in the short and
long run. Directing is regarded as the dynamic function of the management because it infuses life into
plans as well organization. Direction is the inter-personal aspect of managing by which subordinates are
led to understand and contribute effectively and efficiently to attainment of enterprise objectives.
Directing is the heart of management process because it is concerned with initiating action.

Principles of Directing: The executives should try his best to motivate his subordinates by leading them
to attain the enterprise objectives at minimum cost. Otherwise direction would prove ineffective and
futile. Directing function of management can be sound and effective only when it is built on accepted
principles. The basic principles are:

1. Unity of command: The management must ensure that a subordinate receive orders from and be
accountable to only one superior at a time to avoid division of accountability and also conflicting orders.

2. Direct supervision: Executive for an objective method of supervision should have direct contact with
his subordinates in addition to formal contact. Direct supervision is necessary for the following reasons;

a. To infuse the sense of participation

b. To boost employee morale

c. To develop effective feedback of information

3. Direct Techniques: An executive had to depend on appropriate techniques of direction depending

upon the need of the hour and situation.

4. Direct Managerial Communication: Direct flow of information that encourages two way
communications is the most effective means of direction. Effective direction should always give priority
to direct flow of information.

5. Effective Leadership: Effective leadership is the pre-requisite for effective direction. The leader must
persuade and motivate subordinates for achieving maximum performance.
6. Effective Participative Management: Direction can be effective and fruitful only when it is
democratic and participative in nature. Direction can be very effective when there is harmony between the
objectives of the employees and the organization. Direction is always given through a formulize process
of delegation, communication of orders. The order may be written or verbal or general or operational or
definite or procedural.

5. Controlling

It is measuring and correcting of activities of subordinates to ensure that events conform to plans.
It measures performance against goals and plans, shows where negative deviation exist, by putting in
motion actions to correct deviations, help ensure the accomplishment of plans. Plans guide managers in
the use of resources to accomplish specific goals, and then activities are checked to determine whether
they conform to the plans. Controls are indicators of performance and set up to help measure progress
against plan. The supervisor has to operate the controls and he should be able to set up, operate and adjust
the controls according to need. Before setting up or designing controls is to have an assessment of the
overall assignments and determine which activities are more important. The overall areas which are
important and controls have to be set up are manpower, material, quality of work, quantity of work, time,
space and methods. Once the areas of controls have been established the supervisor must find or set up
standard for each activity in the area. Standards are the measuring devices for the activity. A supervisor
wishes to set up standard for production work. First he will like to review the past records and determine
what has been accomplished in the past under conditions similar to present conditions. Supervisors need
certain indicators which tell him how well his team is doing in relation to standards as frequently as
possible. These indications must express a relationship between the standard and performance.

D. Goal Setting

As stated earlier in this chapter, people do not plan to fail- they simply fail to plan. Prior planning
prevents poor performance. Setting goals is a necessity for your agribusiness. You must have a goal,
because it is just as difficult to reach a destination you have not located as it is to come back from a place
to which you have never seen. You must have definite, precisely written, clearly set goals if you are going
to realize the full potential of your agribusiness.

1. Setting Your Agribusiness Goals

There are some general rules that can help you set goals for yourself.

Write Down Your Goals. The best way to start thinking about the goals of your agribusiness is by
writing them down. Initially, you need not worry about order or priority; just get your goals down on
paper.

Organize Your Goals. You will have both specific goals that you want to reach in a few days, weeks, or
months and goals toward which you will work for many years. In between, you will have goals that take a
year or two to achieve. Arrange your goals according to these three groups: immediate, short term, and
long term.
 ▪ Immediate goals are the goals that you would like to accomplish within a day, a week, or a month
or two. As an entrepreneur, these immediate goals will probably include the first steps needed to
get your business started.
▪ Short-term goals include the things you want to accomplish in a year or two. These goals often
include the steps you need to build toward your long-term goals. For an entrepreneur, business
expansion or marketing perfection would fit between immediate and long-term goals.
▪ Long-term goals are the ones toward which you intend to work for many years. They give you an
idea of what you want to do with your business several years from now.

2. Reaching Your Goals

It is futile to set goals if they do not drive your actions. The following steps will help you start working to
reach your goals.

Manage Your Time. Learning time management skills is a first step toward reaching your goals. This
means understanding and maximizing the way you use the time you have. Everyone has the same number
of hours in a day, a week, and a year; however, some people use these hours more wisely and more
effectively than others. How do you spend the 24 hours that you have each day? Here are three techniques
that will help you better use your time:

▪ Avoid Procrastinating. A procrastinator puts off doing anything that can be done later. Good
time managers, however, want to reach their goals quickly and use their available time to that
end.

▪ Judge your time. Different tasks take different amounts of time to complete. Learning how to
judge the time you need to accomplish a given task is a skill that you will develop as you gain
experience.

▪ Schedule your time. Scheduling your time effectively is a matter of balance. On the one hand,
you want to allow enough time to complete a task well; on the other, you do not want to allow so
much time that you finish early and waste time until you next appointment or project. Practice
and experience will help you schedule effectively.

Utilization of Learning

A. Read the statement. Type T if the statement is true and F if the statement is false. If your
answer is false spot the word and/or words that is incorrect and replace that will make the
statement true.
1. Agribusiness Management has five major activities including planning, organizing,
staffing, directing and controlling.
2. Planning is only necessary before starting the business.
3. Objectives set by agribusiness affect the knowledge, behaviour and attitude of its projects
staffs.
4. Objectives must be specific, measurable, appropriate, realistic, and time bound to provide
an evaluation criteria to ensure that agribusiness’ goals and intended results are achieved.
5. Controlling involves the formulation of objectives of an agribusiness.
6. Planning inclusively means on determining what is to be done in a short- term basis.
7. Staffing is necessary to ensure proper utilization of resources
8. Directing involves the activity of hiring employees.
9. Controlling involves the activity of supervising the employees.
10. Directing is necessary because it is the actual application of what has been plan on what
to do, where, how, and when to do it.
11. Planning is the heart of management process because it is concerned with initiating
action.
12. The purpose of directing is to ensure that employees are working efficiently and
effectively.
13. Formal contact with subordinates is solely essential in having efficient and effective
method of supervision.
14. Unity of command emphasizes that employees must have 2 or more superior at a time to
maximize productivity.
15. Effective directing is pre-requisite of effective leadership.
16. In order to have an effective participative management, agribusiness managers must be in
autocratic in nature.
17. Evaluation between the performance and standard is done in the controlling agribusiness
management function.
18. Goals are advisable to classify based on the time frame need to accomplish it.
19. Agribusiness managers consider consumers, suppliers, distributors, workers, financiers,
government and the society to have harmonious relationship with various segments of the
society.
20. Goals and objectives of the agribusiness must be related and coordinated to each other.

Supplementary Materials

https://www.youtube.com/watch?v=aWV8w-coyhM
 Chapter 5: Agricultural Marketing

Target Outcomes

At the end of the lesson, you are expected to:

1. Discuss and explain the scope and importance of agricultural marketing

2. Enumerate and discuss the components of market
3. Enumerate and discuss the classification of market
4. Discuss and explain the marketing mix

Abstraction

A. Definition of Agricultural Marketing

Agricultural marketing encompasses a series of activities involved in moving the goods from the
point of production to the point of consumption. Marketing is the performance of business activities that
directs the flow of goods and services from producers to users (American Marketing Association).

The study of agricultural marketing comprises all the operations, and the agencies conducting
them, involved in the movement of farm produced foods, raw materials and their derivatives, such as
textiles, from the farms to the final consumers, and the effects of such operations on farmers, middlemen
and consumers.

Agricultural Marketing refers to the link between the farm sectors and non-farm sectors between
the farm sectors and non-farm sectors. Farm sector activities include agriculture (crop production),
plantation, animal husbandry (milk, meat, egg, etc.), forestry & logging and fishing. Non-farm sector
includes all other activities like agro-processing industries, wholesale and retail trading, storage and
communication, transport and education, health industries and other service related activities .
 The figure below shows how farm and non-farm sector form a link

Agricultural Marketing system in developing countries can be understood to compose of two

major sub-systems the product (output) marketing and factor (input) marketing. Output marketing is the
marketing of farm output. Input Marketing is the marketing of farm input.

A.1 Importance of Agricultural Marketing

● Optimization of resources and output management

● Increase in farm income
● Widening of Markets
● Growth of Agro-based Industries- Agricultural marketing enables agribusiness to observe “
forward integration strategy” that contributes to the growth of agro-based Industries

● Price Signals
● Adoption and Spread of New Technology
● Employment Creation
● Addition to National Income
● Creation of Utility (Form, Place, Time, Possession--Utility)

B. Components of a Market
1. The existence of a good or commodity for transactions (physical existence is, however, not necessary)

2. The existence of buyers and sellers

3. Price at which the commodity is transacted or exchanged

4. Business relationship between buyers and selllers

5. Demarcation of area such as place, region, country or the whole world

6. Dimensions of a market

B.1 Dimensions of a Market

Location or place of operation Number of Commodities

Area or Coverage (location) Degree of Competition
Time span Nature of commodities
Volume of transactions Stage of marketing
Nature of transactions

C. Classification of Market

1. On the Basis of Area/ Coverage and Location of Operation. On the basis of the area from which
buyers and sellers usually come for transactions, markets may be classified into the following four
classes:

1.1 Local Market

1.1.1 Village Market. A market in which and selling activities are confined among the buyers and
sellers drawn from the same village or nearby villages. The village markets exist mostly for perishable
commodities in small lots, e.g., local milk market or vegetable market.

1.1.2 Primary Market. These markets are located in towns near the centers of production of
agricultural commodities. Transactions in these markets usually take place between the farmers and
primary traders.

1.2 Regional Market. This is when buyers and sellers are concentrated to a certain region/ area. The area
is wider than the local market. Regional market covers a wider area may be provinces belong to the same
region.

1.3 National Market. A market where the buyers and sellers spread at national level. There are more
numbers of middlemen in national market thus there is a high price gap.

1.4 International Market- A market in which buyers and sellers are drawn from more than one country
or the whole world. This is also called as the import and export market.

2. On the basis of time span

2.1 Short Period Market. The markets are held only for a day or few hours are called short period
markets. The products dealt with in these markets are of a highly perishable nature. The prices of markets
of commodities are governed mainly by the extent of demand for, rather than by the supply of, the
commodity.

2.2 Long Period Market. These markets are held for a longer period than the short period markets. The
commodities traded in these markets are less perishable and can be stored for some time. The prices are
governed more by the production cost than demand forces.

2.3 Secular Market. These are markets of a permanent in nature. The commodities traded in these
markets are durable in nature and can be stored in many years. Examples are markets for machinery and
manufactured goods

3. On the Basis of Volumes of Transactions

3.1 Wholesale Market. These markets occupy an extremely important link between the production
system and consumption system. The wholesale markets for farm products can be classified as primary,
secondary and terminal wholesale markets.

3.2 Retail Market. Transactions in these markets take place between retailers and consumers. These
markets are very near to the end consumers.

4. On the Basis of Nature of Transactions

4.1 Spot or Cash Market. A market in which goods are exchanged for money immediately after the sale
is called the spot or cash market.

4.2 Future Market. In this type of market contract is signed for sale of products in future, but no delivery
of product is made. In this market, buyer and seller sign a contract for buying and selling products at
certain rate of price or on condition to determine the price in future.

There are always five standardised elements in these contracts:

1. The type of commodity (for example wheat, corn, meat…)

2. The quantity of the commodity (the number of bushels of grain, pounds of livestock…)
3. The quality of the commodity (using specific grades)
4. The delivery point (the location at which the product should be delivered)
5. The delivery date (the day at which the product should be delivered; there are typically no more than
four or five delivery dates per year)

5. On the Basis of Number of Commodities in which Transaction Takes Place

5.1 General Market. A market in which all types of commodities, such as food grains, oilseeds, fiber
crops, etc., are bought and sold is known as general market. These markets deal in a large number of
commodities. This is also called as mixed market.

5.2 Specialized Market. A market in which transactions take place only in one or two commodities is
known as a specialized market. For every group of commodities, separate markets exist. The examples
are food grain markets, vegetable markets, wool market and cotton market.

6. On the Basis of Nature of Commodities

6.1 Commodity Market. A market which deals in goods and raw materials, such as rice, cotton,
fertilizer, seed, etc., are termed as commodity markets.

6.2 Capital Market. These markets can be subdivided into ‘money’ market dealing in lending, and
borrowing of money; ‘Securities’ market or ‘stock’ market dealing in buying and selling of shares

7. On the Basis of Nature of Stage of Marketing

7.1 Producing Market. Those markets which mainly assemble the commodity for further distribution to
other markets are termed as producing markets. Such markets are located in producing areas

7.2 Consuming Market. Markets which collect the produce for final disposal to the consuming
population are called consumer markets. Such markets are generally located in areas where production is
inadequate, or thickly populated urban centers

8. On the Basis of Extent of Public Intervention

8.1 Regulated Market. These are those markets in which business is done in accordance with the rules
and regulations framed by the statutory market organization representing different sections involved in
the market. Marketing practices are regulated.

8.2 Unregulated Market. These are the markets in which business is conducted without any set of rules
and regulations. Productions are commonly determined by the supply and demand as oppose to
government. This is also referred as free market.

9. On the Basis of Type of Population Served

9.1 Urban Market. A market which serves mainly the population residing in an urban area is called an
urban market.

9.2 Rural Market. The world rural market usually refers to the demand originating from the rural
population.
10. On the Basis of Type of Market Functionaries and Accrual of Marketing Margins

10.1 Cooperative Market. The marketing margins are either negligible or shared amongst their
members.

10.2. Farmers Market. The marketing margins are solely enjoyed by the farmer

11. On the Basis of Degree of Competition

11.1 Perfect Market

A perfect market is one in which the following conditions hold good:

1. There is a large number of buyers and sellers

2. All the buyers and sellers in the market have perfect knowledge of demand, supply and prices

3. Prices at any one time are uniform over a geographical area, plus or minus the cost of getting
supplies from surplus to deficit areas

4. The prices of different forms of a product are uniform, plus or minus the cost of converting the
product from one form to another

11.2 Imperfect Market

11.2.1 Monopoly

▪ Monopoly is a market situation in which there is only one seller of a commodity

▪ The seller exercises sole control over the quantity or price of the commodity

▪ In this market, the price of a commodity is generally higher than in other markets

▪ When there is only one buyer of a product, the market is termed as a monopsony market

11.2.2 Duopoly Market. A duopoly market is one which has only two sellers of a commodity. They
may mutually agree to charge a common price which is higher than the hypothetical price in a
common market. The market situation in which there are only two buyers of a commodity is known
as duopsony market.

11.3.3 Oligopoly Market. A market in which there are more than two but still a few sellers of a
commodity is termed as an oligopoly market. A market having a few (more than two) buyers is
known as oligopsony market.

11.4.4 Monopolistic Competition. There is a large number of sellers deal in heterogeneous and
differentiated form of a commodity. The difference is made conspicuous by different trade marks on
the product. Different prices prevail for the same basic product. Examples of monopolistic
 competition faced by farmers may be drawn from the input markets. For example, they have to
choose between various markets of insecticides, pump sets, fertilizers and equipment.

D. Marketing Mix- 4P’s of Marketing

Hemisphere-Eastern, once said: “Agribusiness must have the right products that carry the right price
that must be in the right place to be purchased by the members of the target market and to have right
promotion to inform target consumers”

D.1 Product

A product/service is best viewed as the “bundle” of characteristics and benefits that

buyers perceive they will obtain by purchasing it, based on their perceived needs, wants and
expectations. Characteristics include the physical or functional features such as size, color,
design, and ingredients. Benefits (the non-physical/non-functional features) encompass
aspects such as convenience, comfort, and prestige.

A service is the non-physical equivalent of a product. Services are intangible, highly

perishable and normally labor intensive. They are often “customized” and commonly require
a high degree of interaction between the customer and the provider.

Firms are faced with a variety of decisions regarding their products/services starting with
its product/service mix: how many lines to offer (width), how many products to offer in each
line (length) and how many versions of each product to have in each line (depth). A Product
line is a group of closely related product items. A Product mix consists of all the product
lines and items that a particular seller offers for sale.
 In addition, products/services have to be managed through a life cycle; this requires
decisions on whether to develop new products/services, whether to delete, reposition or
otherwise improve existing products/services. For the introduction of new products/services,
firms start by identifying an opportunity and designing and testing the product/service. If test
results are satisfactory, the firm introduces the product /service and manages it along its
lifecycle. New products fall into three main categories: real innovations, adaptive replacements
and me-too imitative products.

Two Broad Classes of Product and Service Classification

▪ Consumer Products- are products and services bought by final consumers for personal
consumption.
▪ Industrial products- are those purchased for further processing or for use in conducting a
business.

Individual Product and Service Decisions

The figure shows the important decisions in the development and marketing of individual
products and services.
1. Product Attributes

▪ Development of a product starts by defining the benefits it will offer to consumers.

▪ We define the product attributes, such as quality, features, style and design.
▪ Product quality can be viewed in two ways: Quality level & Quality Consistency

2. Branding

▪ Branding is one of the most crucial individual product decisions. Today, people do not
buy a product – they buy a brand
▪ A brand is a name, term, sign, symbol, design or a combination of these elements that
identifies the products or services of one seller and differentiates them from those of
competitors. 

3. Packaging

▪ Packaging refers to activities of designing and producing the wrapper or container for a
product
▪ Traditionally, the primary function of a package was to hold and protect the product
▪ Packaging is nowadays an important marketing tool.

4. Labeling

▪ The most straight-forward function is to identify the product or brand

▪ Label can also describe several things about the product: who made it, where and when
was it made, the contents, how it is to be used etc.

5. Product Support Service

 ▪ Individual product decisions also include product support services. Usually, the
company’s offer includes some form of customer service, of product support services.

D.2 Price

Price is the peso amount asked for a sales unit of a firm’s product/service. It is the only
element of the marketing mix that generates revenue and therefore, has a significant impact over
a firm’s profitability. Price affects a firm’s competitive position, its share of market and its
marketing program. Therefore, in deciding about its pricing policy, a firm first needs to decide
where it wants to position its product/service and define its own objectives: is it to cover costs
and make a profit? Is it to undercut the competition? Or is it just to obtain a specific return on
investment?
Furthermore, when making pricing decisions the firm needs to take into account and
analyze the following aspects: the size and characteristics of the demand, the price sensitivity of
the firm’s potential and actual customers (price elasticity of demand), the firm’s costs
(production, distribution and communications), the characteristics of the competition (costs,
prices and offers) and the prices of product/service substitutes, if any. Costs set the lower
boundary on price and market demand sets the upper boundary. Competitors’ prices and the
prices of substitutes serve as guiding points.

Situational Analysis on the Internal and External Factors that affects Pricing decisions
1. Internal Factors
1.1 Marketing Objectives

Example of common company objectives include:

(1) Survival where company offer lowest price for them to survive on their industry

(2) Profit Maximization- where company offer high price to maximize profit, effective only if
the agribusiness able to differentiate its product and service

1.2 Marketing Mix

Price must be coordinated with product design, distribution and promotion because it represents
cost.
Target Costing- pricing that starts with an ideal selling price, and then targets costs that will
ensure that the price is met.

1.3 Cost

1.4 Organizational Consideration

▪ Small companies- prices are often set up by top management.

▪ Large companies- prices are often handled by divisional or product line managers.
▪ Industrial markets- sales people may be allowed to negotiate with customers with certain
price ranges.

2. External Factors

2.1 Nature of Demand and Market

Elastic Demand- a situation in which consumer demand is sensitive to price changes (ex. Luxury
products such as jewelries, car, fashion clothes etc.)

Inelastic Demand – an increase and decrease in price will not significantly affect demand for the
project. (ex. Insulin for diabetes, rice etc.)

Unitary Elasticity- an increase in sales exactly offsets a decrease in prices, so total revenue
remains the same.

2.2 Competitor's costs, prices and offers

The firm needs to benchmark its costs against its competitor’s costs to learn whether it is
operating at cost advantage or disadvantage. It also needs to learn the price and quality of each
competitor’s offer.

3. Other External factors

Economic conditions can have a strong impact on the firm’s pricing strategies

Four Common Pricing strategies

1. General Pricing Approaches

2. New Product Pricing Strategies
3. Product Mix Pricing Strategies
4. Price Adjustment Strategies

1. General Pricing Approaches

1.1 Cost- Based pricing- adding a standard markup to the cost of the product.
 1.2 Breakeven Pricing- setting price that break even on the cost of producing products at a
given volume

1.3 Value-Based Pricing- setting price based on buyer’s perceptions of value rather than
on the seller’s cost.

1.4 Competition-Based Pricing- setting prices based on the prices that competitors charge
for similar products

2. New Product Pricing Strategies

2.1 Market Skimming Pricing- setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the high price; the company
makes fewer but more profitable sales.

2.2 Market-penetration pricing- setting a low price for a new product in order to attract a
large number of buyers and a large market.

3. Product Mix Pricing Strategies

3.1 Product line pricing- setting price steps between product line items.

3.2 Optional-product pricing- pricing optional or accessory products sold with the main
product.

3.3 Captive- product pricing- setting a price for products that must be used along with
the main product

3.4 By- product pricing- setting a price for by-products in order to make the main
product’s price more competitive (E.g Lumber mill sell barks chips and saw dust as other
business use as a decoration)

3.5 Product bundle pricing- pricing bundles of products sold longer.

4. Price Adjustment Strategies

4.1 Discount and allowance pricing- reducing prices to reward customer responses such as
paying early or promoting the product.
⮚ Cash Discount- a price reduction to buyers who pay their bills promptly
⮚ Quantity Discount- a price reduction to buyers who buy large volumes
⮚ Functional Discount- offered by seller to trade-channel members who perform certain
functions such as selling, storing and record keeping
⮚ Seasonal Discount- is a price reduction to buyers who buy merchandise or services out
of season

4.2 Segmented Pricing

▪ Adjusting prices to allow differences in customers, products, or locations

▪ Customer segment pricing- different customers pay different prices for the same products
or services
▪ Location pricing- a company charges different prices for different locations, even though
the cost of offering each location is the same
▪ Time pricing- firms varies its price by the season, the month, the day, and even the hour

4.3 Psychological Pricing- a pricing approach that considers the psychology of prices; the
price say something about the product

4.4 Promotional Pricing- temporarily reducing prices to increase short- run sales

4.5 Geographical Pricing- adjusting prices to account for the geographic location of
customers.

1. FOB- origin pricing

2. Uniform-delivered pricing
3. Basing-point pricing
4. Freight-absorption pricing

4.6 International Pricing-adjusting prices for international markets

 A Road to map to Price Decision

Firms need to be alert to any changes that might affect the price for their product/service in a
particular market. Examples of such changes include, but are not limited to: the costs of supplies
and materials and new technologies that may speed up processes or make them cheaper or more
expensive.

D.3 Place/Channels of Distribution

Hemisphere-Eastern, once said “Identifying the target market and right timing is the key to
have the right place”

Distribution is the process of making a firm’s product/service available for consumption

by the target customer. The way a product is distributed is important because it has an impact on
customer’s perception about the product. The distribution strategies of a firm should match the
characteristics of its product/service, its business plan and the needs of its target market.
 Marketing channel design and marketing channel management constitute the two most
important decisions a firm must make regarding this element of its marketing mix. Channel
design encompasses the issues of “length” and “breadth.” Channel length refers to whether the
distribution will be “direct”, “indirect” or both. In direct distribution there is no independent
party between the firm and its customers. In indirect distribution there is a third party (e.g.
wholesalers and/or retailers). However, as more firms are simultaneously serving different target
markets, each with different distribution requirements, the use of “dual distribution” has
become more widespread as a way to reach each market segment more efficiently and
effectively. Channel breadth refers to how intensely or selectively the firm wants to distribute
its product. Intense distribution is justified when the firm is aiming for maximal customer
convenience (such as a basic product/service). Selective distribution is justified for
products/services for which the customer is willing to travel and search for them, the costs of
stocking the product are high and the degree of market development needed to sell the
product/service is high (e.g., high end cars).
Channel management relates to the policies and procedures that will be adopted in order
for all members involved in the distribution channel to perform the required functions. Because
conflict between members of the distribution channel is common, good communications, trust
and understanding among all members, along with attention to proper design of contracts are the
keys to the effective functioning of the channel.
When deciding about the best distribution system for its product/service, a firm has to take
into account the functions needed for optimal distribution. These are a function of the
product/service, the firm, the price and the customer. The key distribution functions include:
order processing, inventory management, transportation and warehousing. Designing a
distribution system typically involves a trade-off between the desired level of service and the
cost of providing that service. Three crucial aspects firms need to address when deciding about
their distribution system are: which channels and intermediaries will provide the best coverage
for their target market, which channels and intermediaries will best satisfy their customers’
buying requirements, and which channels and intermediaries will be the most profitable.

D.4 Promotion
 Promotion refers to the mix of promotional elements a firm uses to communicate with its
current or potential customers. The main objectives of the promotional effort are to make
customers aware of the firm’s product/service and its features, to entice them to try it, and to
motivate them to purchase and re-purchase it. A classic model for reaching promotional goals is
called the AIDA concept.

Promotion is fundamental to the success of a firm because, without a promotional effort,

potential customers will not know about the existence and benefits of the firm’s product/service
and, therefore, will not buy it. Not even the best product or service sells without some
promotional effort. To have the “right promotion” you must need first to identify the life cycle of
your product and service.
Promotional efforts can be based on a “push” or a “pull” strategy. With a “push”
strategy a firm promotes the product to wholesalers, the wholesalers promote it to retailers and
retailers promote it to the end consumer. In a “pull” strategy the promotional efforts are directed
to the end consumers in such a way that they will demand the product/service from the
intermediaries (typically retailers) thereby “pulling” the product/service through the distribution
system.
Key aspects a firm must address for the development of a promotional campaign start by
defining who its target audience is, what are the promotion objectives, how much money is
available to execute the campaign, what promotional elements to use, where and when to run the
campaign, and finally, how it will be evaluated.
An effective marketing promotion strategy requires the use of a combination of “non
personal” and “personal” communication elements. The most commonly used “non personal”
elements include advertising, sales promotion and public relations while personal selling and
direct marketing are the most commonly used “personal” elements. These elements serve
different specific purposes but when combined in a promotional mix they produce a synergy that
increases the effectiveness of any of them used individually.
Non Personal Communication
1. Advertising
A major decision for advertisers is the choice of medium- the channel used to convey a message
to a target market. The following are the media types that can be used to convey a message to
target market: newspapers, magazines, radio, television, internet, and outdoor media.

Major Types of Advertising

1. Institutional Advertising- If the goal of the promotion plan is to improve the image of the
company or the industry, institutional advertising may be used.

2. Product Advertising- If the advertiser wants to enhance the sales of a specific good or
service, product advertising is used.

2. Public relations

Public relations is the marketing function that evaluates public attitudes, identifies areas within
the organization the public may be interested in, and executes a program of action to earn public
understanding and acceptance

3. Sales Promotion

Tools for consumer sales promotion could include coupons, rebates, and loyalty marketing
program

Utilization of Learning

A. Read the statement. Type T if the statement is true and F if the statement is false, if your answer is
false spot the word and/or words that is incorrect and replace that will make the statement true.

1. Agricultural marketing solely include the transportation of the commodity or product to ultimate
consumers.
2. Farm produced food both pertain to products and commodities.
3. Producers’ purchase of commercial fertilizers, pesticides, machineries, equipment and other farm input
can build link between non-farm sectors and farm sectors.
4. Expansion of farm output of primary industries can build link between farm sectors and non- farm
sectors.
5. Link between farm sectors and non- farm sectors will not be affected by the increased income of farm
families.
6. Output marketing include the marketing of fertilizers, pesticides, machineries and equipment.
7. Agricultural marketing solely involved the marketing of the agricultural products to the ultimate
consumers.
8. Profit + Expenses= marketable surplus.
9. Food manufacturing industries of jam, jelly, juice, pickles, syrup, and sauce are agro based industries.
10. A farmer who directly sells his crops at a local grocery store rather than to a distribution
center that controls the placement of foodstuffs to various supermarkets shows a forward
integration strategy.
11. Creation of utility means to deliver the product or commodity at the right form, place, time
and quality.
12. Sugar cane is a product and sugar is a commodity.
13. Transaction between farm producer and the ultimate without the involvement of any middlemen is
common to village market in rural areas.

14. Village market solely focuses in rural areas.

15. Regional market has wider area of operation compare to national market.

16. Transaction between regions located at a particular country are referred as a regional market.

17. Agricultural commodities and products that sell internationally are usually in bulk quantities.

18. Highly perishability and long duration of months before harvest are the reasons why prices of
commodities in short term market are governed mainly by the extent of demand rather than by the supply.

19. Canned goods, canned fruit juice, cooking oil and sugar are example of products involve in secular
market.

20. Products in secular market do not consume easily however it only depreciates over a period of time.

21. Wholesale market can involve transactions between wholesalers and ultimate consumers.

22. Ordinary market is also referred as spot or cash market.

23. Farm producers can use the future market as a strategy for having price variations from future
marketing of the commodities on different months prior to its harvesting period.

24. Transactions in the producing market usually start from the farm producers.

25. Product features is a part of product attributes that must be considered in product decisions.

26. Concept development and testing does not involves product sampling (ex. free food tasting) to obtain
target consumers’’ and customers’ reaction prior to the introduction of the product into the market.

27. Survival is an example of marketing objectives that usually set higher prices compare to its
competitors to be able to establish a brand.

28. Agribusiness observe target costing by producing high quality products, set price to cover the cost and
convince customers and consumers that the products is worth paying for.
29. Cost of raw materials is an example of variable cost.

30. Product line include of all the product mix that include all closely related product items.

31. Product mix pricing strategies are used by the companies that offer many categorized products.

32. Imposing taxes is one of the means on how the government affects agribusiness in setting prices of its
products.

Supplementary Materials

https://www.youtube.com/watch?v=d0NMSqeKpVs

Chapter 6
Financial

Target Outcomes

At the end of the lesson, you are expected to:

1. Discuss and explain how to perform proper recording business transactions ;

2. Enumerate and describe different source of documents in recording business transaction;
and
 3. Discuss and explain financial ratio analysis

Abstraction

A. Recording Business Transactions

A business transaction is an activity or event that can be measured in terms of money and
which affects the financial position or operations of the business entity. It is an activity that
affects the assets, liabilities, equity, expenses, and income of business
Assets- are company’s resources. These are things the company owns. It includes physical
and non-physical asset. Liabilities are company's obligations—amounts the company owes.
Examples of liabilities include notes or loans payable, accounts payable, salaries and wages
payable, interest payable, and income taxes payable (if the company is a regular corporation.
Equity is the financial share of owners from the total capital. When you take all of
your assets and subtract all of your liabilities, you get equity.
To qualify as an accountable/ recordable business transaction, the activity or event
must:
1. Be transaction involving the business entity
2. Be a financial character (in a certain amount of money)
3. Having a dual or “two-fold” effect on the accounting elements
4. Be supported by a source of document

There are source of documents that can be used as a reference in recording a business
transactions. The following are some of the common examples:
1. Official receipt issued whenever cash is received.
2. Sales invoice for sales transactions
3. Statement of account commonly issue by the business that has long term relationship with
their customers
4. Promissory Notes

In recording business transactions, journalizing is perform where in there is a two or

more way of transactions that can be debited and credited. Debit- an entry in the left hand
column of an account to record a debt; debits increase asset and expense accounts and decrease
liability, income and equity accounts. Credit- an entry in the right hand column of an account;
credits increase liability, income, and equity accounts and decrease asset and expense accounts.
Normal balance- is the side where the balance of account is normally found.
Below are example of business transactions and the steps on how businesses commonly perform
recording business transactions.

Equal Trial Balance does not always mean that

the transactions being recorded are correct.
There are instances when this happens such as:

1. When a transaction was not recorded or not

posted.
2. When a transaction was recorded or posted
twice.
3. When an account was recorded instead of
another account of the same classification.

B. Financial Ratio Analysis

Financial Ratio Analysis is a financial analysis

comparison in which certain financial statement
item are compared by the other to reveal their logical internal relationships.

Four Common Groups of Ratios:

 1. Liquidity Ratio
2. Asset Management Ratio
3. Profitability Ratio
4. Leverage Ratio

Four Common Groups of Ratio Examples

1. Liquidity

1.1 Current Ratio is simply compare current Example: Current Assets are P200,000 and
assets to current liabilities. Current Liabilities are P80,000. The Current
Ratio is P200,000 / P80,000 or 2.5. We have
Is calculated as follows: Current Asset/ 2.5 times more current assets than current
Current Liabilities liabilities.

1.2 Quick Ratio is the sum of the most liquid EXAMPLE — Cash is P5,000, Marketable
assets compared to our expected daily cash out Securities are P15,000, Accounts Receivable
flows. are P40,000, and Current Liabilities are
P80,000. The Acid Test Ratio is (P5,000 + P
Is calculated as follows: (Cash + 15,000 + P40,000) / P80,000 or .75. We have
Marketable Securities + Receivables) /Current P.75 in liquid assets for each P1.00 in current
liabilities liabilities.

1.3 Defensive Interval- focus on current assets EXAMPLE — Referring back to our last
that are quickly converted into cash will be example, we have total quick assets of P60,000
compared to current liabilities. and we have estimated that our daily operating
cash outflow is P 1,200. This would give us a
Is calculated as follows: (Cash + 50 day defensive interval (P60,000 / P1,200).
Marketable Securities + Receivables) /Daily We have 50 days of liquid assets to cover our
cash outflow cash outflows.

2. Asset Management Ratio- measure the

ability of assets to generate revenues or
earnings.

2.1 Account Receivable Turnover- is the EXAMPLE — Sales are P480,000, the average
number of times per year that a business receivable balance during the year was
collects its average account receivable. P40,000 and we have a P20,000 allowance for
sales returns. Accounts Receivable Turnover is
(P480,000 - P20,000) / P40,000 or 11.5. We

Is calculated as follows: Net Sales / Average
Accounts Receivable
were able to turn our receivables over 11.5
times during the year.
NOTE — We are assuming that all of our sales
are credit sales; i.e. we do not have any
significant cash sales.

2.3 Inventory Turnover- it refers to how many EXAMPLE — Cost of Sales were P192,000
times did we turn our inventory over during the and the average inventory balance during the
year. year was P120,000. The Inventory Turnover
Rate is 1.6 or we were able to turn our
Is calculated as follows: Cost of Sales / inventory over 1.6 times during the year.
Average Inventory

2.4 Days in Inventory- is the average number EXAMPLE — If we refer back to the previous
of days we held our inventory before a sale example and we use the entire calendar year
for measuring inventory, then on average we
Is calculated as follows: 365 or 360 or are holding our inventories 228 days before a
300 / Inventory Turnover sale. 365 / 1.6 = 228 days.

3. Profitability Ratios:- measures the ability

of the business to generate earnings compared
to its expenses and relevant costs incurred
during a specific period of time.

3.1 Profit Margin- measures the percent of EXAMPLE — Net Income for the year was
profits you generate for each peso of sales. P60,000 and Sales were P480,000. Profit
Margin is P60,000 / P480,000 or 12.5%. For
Is calculated as follows: Net Income / Sales each dollar of sales, we generated P.125 of
profits.

3.2 Return on Equity- tells us the percent EXAMPLE — Net Income for the year was
returned for each peso (or other monetary unit) P60,000, total shareholder equity at the
invested by shareholders. beginning of the year was P315,000 and
ending shareholder equity for the year was
Is calculated as follows: Net Income / P285,000. Return on Equity is calculated by
Average Shareholders’ Equity dividing P60,000 by P300,000 (average
shareholders’ equity which is P315,000 +
P285,000 / 2). This gives us a Return on Equity
of 20%. For each dollar invested by
shareholders, 20% was returned in the form of
 earnings.

3.3 Return on Assets- measures the net income EXAMPLE — Net Income is P60,000 and
returned on each peso of assets. average total assets for the year are P500,000.
This gives us a 12% return on assets, P60,000 /
Is calculated as follows: Net Income / P500.000 = 12¢ . The business generates
Average Total Assets income for every peso the company holds.

4. Leverage Ratios:- measure the use of debt

and equity for financing of assets.

4.1Debt Ratio- measures the level of debt in EXAMPLE — Total Liabilities are P75,000
relation to our investment in assets. and Total Assets are P500,000. The Debt Ratio
is 15%, P75,000 / P500,000 = .15.
Is calculated as follows: Total Liabilities /
Total Assets 15% of our funds for assets comes from debt.

Utilization of Learning

A. Write T on the space provided if the statement is TRUE otherwise write F if the statement is
FALSE.

___1. Recording business transactions is necessary for the business owners to be well informed
about the financial position and operation of the business timely and accurately.
___2. Loans are considered liabilities
___3. Asset +Liabilities= Owner’s Equity.
___4. Personal transactions of owners that are irrelevant to the financial position and operation
of the business must not be reflected in the book of accounts.
___5. Sales on the account is not a recordable business transaction.
___6. It is acceptable to only record the debit for every business transaction.
___7. The difference between the debit and credit on each account title is referred to as the
normal balance.
___8. A sales invoice will be issued by the seller once the payment has been paid by the buyer.
___9. Promissory notes are one of the examples of a source of a document that was usually
issued by the seller.
___10. The balance sheet is based on the equation of assets is equal to the sum of liabilities and
owner’s equity.
___11. Total assets and how these assets are financed through liability and owner’s equity are
reflected in the income statement.
___12. For every business transaction, there could be one or more debit and/ or credit.
___13. The same total amount of assets as compared to liabilities and owner’s equity in the
balance sheet, as well as an equal amount of debit and credit in the trial balance, does not always
guarantee that recorded business transactions are accurate.
___14. Financial ratio analysis is used in acquiring data about the financial standing of a business
by means of studying the relationships of financial statement items.
___15. Profit Margin, return on equity, and return on assets are liquidity ratios that measure the
ability of the company to meet its short-term financial obligations.
___16. A high defensive interval means that the business able to support its daily cash outflow in
more days.
___17. A business can generate a .30 profit on each peso of sales, given that the Net Income for
the year was P80,000 and Sales were P500,000.
18. Return on assets measures how much of the assets came from liabilities and equity.

Supplementary Materials

https://www.youtube.com/watch?v=d0NMSqeKpVs

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