Based upon your investigation of the agricultural industry thus far, choose a specific agricultural market and describe the competitive environment at each s

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DOI: 10.32474/CIACR.2018.02.000132

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Abstract

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• Abstract
• Introduction
• The Agricultural Value Chain
• The Bullwhip Effect
• Discussion
• References

Agriculture is the most important industry for humanity. Unfortunately, however, it is also one of the least effectively managed industries. It is true that for the last several decades, there have been enormous scientific advancements that have increased the agricultural productivity. However, the question is whether the world has been able to reap the benefits to the fullest extent of such scientific advancements. The agricultural supply chain is characterized with an extremely long and fragmented system consisting of many gatekeepers throughout the value chain. As a result, it is vulnerable to a serious systemic malfunctioning such as the bullwhip effect. When a supply chain is inflicted by the bullwhip effect, it suffers huge inefficiencies, which include increasing costs, hampering innovation, and weakening problem solving capability. Unless it overcomes such inefficiencies, the industry as a whole will lose its competitiveness and perish eventually. As such, in order for the agricultural industry to sustain and thrive, it is vital to implement supply chain strategy effectively through coordination among the entire participants in the agricultural value chain.

Introduction

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• Abstract
• Introduction
• The Agricultural Value Chain
• The Bullwhip Effect
• Discussion
• References

There is no doubt about that the agricultural industry is the most essential one for humanity [1]. It also employs a great number of people, providing economic means to them. But it is not easy to answer whether the agricultural industry is an effective one. On the quite contrary, the industry is perhaps the least effectively managed one for the last several thousand years. As people in the world are enjoying longevity, the world consumes more and more food. Can the world’s agricultural industry feed all the people on earth? It is a vital question. If the earth capacity is limited and the crops are not produced enough, the only possible solution is to increase the productivity of the agricultural industry. In order to find ways to increase such productivity, we first have to understand why the productivity of the agricultural industry is so low. Then we can suggest how the agricultural industry changes itself to be more productive and effective. In this paper, we endeavor to answer the question from a value chain perspective.

The Agricultural Value Chain

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• Abstract
• Introduction
• The Agricultural Value Chain
• The Bullwhip Effect
• Discussion
• References

The Agricultural Value Chain

Every industry has a value chain. It is usual that the agricultural industry has a long and quite fragmented value chain. For the sake of simplicity, we define the agricultural supply chain as consisting of four primary functions, i.e., suppliers, farms, distributors, and consumers (Figure 1). Each of the supply chain participants is defined as follows [2]:

Figure 1: Agricultural Supply Chain.

a) Suppliers are those companies or individuals, who provide raw materials or necessary supplies to the farms and farmers. These include seeds, fertilizers, pesticides, machinery, equipment, farming tools, and the like.

b) Farms are those companies or individuals, who are actually growing crops like rice, potato, corn, and beans. In order to produce those crops, farms need the farming land, water, and the supplies from the suppliers.

c) Distributors perform two functions, processing and distributing. Once the farms harvest their crops, these crops must be transported to wholesalers, who then sell the crops to retailers. Individual consumers buy their crops from the retail stores. Distributors perform this transportation function. Sometimes certain crops need to be processed, e.g., sliced, refrigerated, or canned, before being transported to wholesalers or retailers. Some of the distributors carry out this processing function.

d) Consumers are those companies or individuals, who use the crops for their businesses or their own use. Companies as consumers include restaurants or food manufacturers, who produce processed foods such as snacks, soft drinks, frozen packaged foods, and so on. Also individuals are important consumers in the agricultural supply chain.

Although the basic structure of the agricultural supply chain is similar with that of other industries, it has unique attributes that are quite unusual from other supply chains’ perspectives.

Some of the conspicuous characteristics are as follows:

a) The distance, physical or even psychological, between suppliers and consumers, i.e., the length of the agricultural supply chain is in general much longer than that of other industries. It might be simply due to geographic conditions, e.g., the rural area, where most farms are located, is usually far away from the urban area, where many consumers reside. Considering social and also cultural differences between rural and urban areas, we put forth the psychological distance is also quite extensive.

b) As a supply chain’s length increases, more intermediaries enter the supply chain. That is, the longer the supply chain, the more the gatekeepers involved in the transactions at various stages throughout the supply chain.

c) As a result, the agricultural industry becomes more and more fragmented, filled with small players that have myopic perspectives to optimize their own interest without considering the supply chain as a whole. But, this is not a criticism. We just want to highlight the current state of the agricultural industry. Although the individuals in the agricultural supply chain behave myopically, i.e., in a suboptimum way from the entire supply chain’s perspective, it is not because these individuals are ill-intentioned, but because there might be a systemic failure in the supply chain itself. In fact, it is the quintessential proposition we have in this paper and in the next sections, we delve into explaining why it might happen.

Figure 2: The Bullwhip Effect in the Agricultural Supply Chain.

The Bullwhip Effect

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• Abstract
• Introduction
• The Agricultural Value Chain
• The Bullwhip Effect
• Discussion
• References

In order to create maximum value in an industry, its supply chain must function effectively. But it is not an easy feat to accomplish. It requires seamless coordination among the participants in the supply chain. As such, we often observe across the board breakdowns of supply chains in many different industries. One of the most conspicuous such breakdowns is the bullwhip effect, which is caused when a long and often complex supply chain makes it difficult for information and communication to flow efficiently through the chain. Let’s first explain what the bullwhip effect is and how it affects th