Agribusiness

In 1955, a former assistant secretary of agriculture at the USDA may have coined the term “agribusiness” for the first time. He defined the word as “the sum total of all operations involved in the production and distribution of food and fiber.”

There are perhaps millions of companies that either supply farmers with inputs, or that process and distribute the output of farmers. Seed companies, equipment manufacturers and retailers, fertilizer and pesticide companies are examples of input suppliers. Meat packers, sales lots, grain marketers, sugar refiners, cotton gins, fruit and vegetable markets and transportation companies are all examples of output processors. Local farmers’ cooperative associations are often both input suppliers (with fertilizer and gasoline businesses) and output processors (with their grain elevators and marketing operations).

On the output side alone, one study in 1960 put the number of firms processing food at over 400,000. Since that report was done, many of those firms have consolidated or gone out of business. Today, there are approximately 70,000 fewer firms processing food.

The concentration of companies both providing inputs and processing outputs has been a concern for farmers since mechanization of farming began in the 1800s. At various times, individual farmers have felt like tiny Davids doing battle with corporate Goliaths. The companies have been accused of using monopolistic practices to unfairly set prices. Banks, railroads, the “Big Four Meat Packers,” the government and a myriad of other entities have been accused over the years of conspiracy to fix prices at the expense of the family farmers.

In fact, the farmer’s share of the retail prices paid by consumers for their food was never very large and has been shrinking at least since around 1950. The USDA divides the farm value of all goods used for food products by the retail value of those food products to get the farmer’s share. As you can see in the chart, here’s what happened to the farmer’s share in the 20th century –

• Farmer’s share hovered around 40 percent in the 1910s and 20s.
• It dipped during the Depression.
• It increased during World War II when the government raised farm prices and lowered consumer prices for the duration of the war.
• It began a decline in the 50s and leveled off for a time in the 60s.
• It began a steady decline in the 1970s to a low of about 25 percent today.

This reduction of the farmer’s share of the food dollar was caused, in part, by consumers’ demand for convenience foods. Today’s food buyers are willing to spend a little more to buy boneless chicken breasts, for example, rather than a whole chicken as most people did in the 50s. Or, they’ll buy frozen dinners ready to pop in a microwave rather than cooking from scratch.

There have also been prominent moves toward vertical integration in the structure of several food industries.

In “contract farming,” a company – like Campbell’s Soup, Ralston Purina, Sunkist Growers or Perdue Chickens – contracts with a farmer to produce a certain amount of tomatoes, chickens or oranges for a certain price. In the poultry industry, the company even goes so far as to provide the chicks, feed, antibiotics and other supplies and sets the timetable for the production. The company assumes the lion’s share of the risk and makes the essential decisions for the farmer. The farmer gives up some of his or her traditional independence in exchange for a guaranteed income.

But there are also hundreds and thousands of small agribusiness companies who provide hundreds of thousands of products that fill in gaps in the offerings of the big companies.

A good example is York (Nebraska) Agriproducts. The present company began in 1985, but they have roots that go back to the turn of the 20th century when the York Foundry and Engine Works was established. That company worked with cast iron and made corn grinders, grain elevators, gears and even a “horn weight.”

“Those horn weights were used to put on a bull’s horns to turn them down, for safety” says Agriproducts CEO Don Freeman. The weights had an inside cavity shaped like the horn and then a pointed setscrew to attach the weight to the horn. Over time, gravity would bend the horns down as they grew. “We shipped them basically all over the world,” Don says. “Just amazing.”

Don’s dad worked for the Foundry through the Depression and bought it in 1941. Don himself worked there as a kid before going off to the Army. Don came back to the family-run business in 1958. Twenty years later, Don sold the Foundry to a large corporation and continued to work for them selling grain bins, driers and elevators all over the world. Roughly ten years after that, in 1985, the corporation decided to get out of the agriculture business, so Don and a few former employees went into business for themselves.

Through that time, farming changed radically. For instance, commercial corn grinding businesses developed, and so the market for on-farm grinders dried up.

Today, Agriproducts manufactures a range of special products –

• Tank mounts for tractors to handle all the new chemicals that farmers need to apply.
• Specialty tillage equipment that is heavy enough to take advantage of the highest horsepower tractors.
• Grain handling equipment that makes it easier to move and manage grain stored on the farm.
• A whole range of other specialty products.

Much of Agriproduct’s catalog has developed directly from conversations with farmers.

“The main input is from farmers,” says Don Freeman in this video history of the York Foundary and Agriproducts. “They’ll come in and say, ‘You know, I really want to do this.’ Or, ‘I have an idea to be able to modify your equipment or [build] new equipment.’ So, I find that the farmer is the best inventor and innovator because they know what they want.”

Written by Bill Ganzel, the Ganzel Group. First published in 2007. A partial bibliography of sources is here.