AGB 101 – Final Review

California is the number 1 agricultural state in the U.S.
Agriculture is California’s most important industry by percent GDP
The U.S. spends a lower percentage of household income on food than any other country in the world
California farms produce more grain and other low value commodities than other states
California farms and ranches are smaller in acreage but larger in value than US farms and ranches
In 2013, California produced a record of 46.4 million dollars worth of agricultural products
U.S. agricultural income is expected to decline to its lowest level in 9 years, due to low grain, dairy and hog prices
Farmers who hold senior water rights have been spared from water cutbacks during the drought
The US Census of Agriculture defines a farm as an entity with more than $1,000 in agricultural profits
Milk and cream is the number one commodity in California, according the California Department of Food and Agriculture
Farmers get a price break on water from the Central Valley Project if their farms are under the current acreage limitation
Surface water is the most abundant source of fresh water in California in a normal year
Agriculture is unique because of seasonality and reliance on weather, among other factors
Farm owners are increasing wages and offering housing, benefits and education to maintain farm worker loyalty
Tulare was California’s most productive agricultural county in 2013
Agriculture uses about 43% of the total water available in California
If you want to find an article for your research paper, you should search a database through the Kennedy library
Cal Poly subscribes to many databases with full-text, articles, so you should never have to pay for an article to support your research efforts
Most California farms are in the category of more than $500,000 in sales
Many technologies to save water are expensive, and have not been adopted until current drought made them economically feasible for farmers.
The Salinas Valley and Sonoma County both pump groundwater and both have issues with declining salmon populations as the primary environmental issue from overpumping water.
What are the types of technologies that are helping make farms more productive?
You find a source for your rutbaga research paper for ABG 101, a commerical website with the name “Rutabagas Rock” and the information seems geared toward elementary students, but it was dated 2015. What part(s) of the CRAAP test might be problematic for this source?
Which of the following are happening with respect to groundwater?
The following issue(s) contribute to the labor issues in agriculture?
Turned the Imperial Valley, a desert, into a valuable winter agricultural production area
Is the main source of water for growers on the Central Coast
Was the second huge water project built to bring water from the Sierras to southern California
Provides water to California, Nevada, Utah, Arizona, New Mexico and Colorado
Can become either Saline through Saltwater intrustion or salt percolation out of the root zone
Was intended to provide small farms in California with water subsidized by the federal government
Which of the following are grocery stores and restaurants doing to attract millennials?
The largest portion of the value added to the food marketing bill is:
Which is an example of vertical integration?
Shippers are pursuing alternatives to West Coast ports because of:
You need to ship five pallets of fresh raspberries to Japan that have a 5-day shelf life. What mode of transportation are you most likely to use?
What are cereal makers in the U.S. doing to offset declining U.S. sales?
Which companies are actively trying to market to millennnials?
Which of the following is a trend in international agribusiness?
U.S. agricultural imports are expected to:
The highest proportion of the revenue in food service sales comes from:
The Trans-Pacific Partnership is:
A salesperson works for Dole to sell fresh, bagged salads to customers such as Costco and Safeway. The salesperson would be classified as a(n):
What factors are driving the demand for U.S. sorghum?
Which of the businesses below are competing directly with McDonald’s, causing it to lose sales?
The company Dan Sutton works for, POVE, is a cooperative owned by five farming families
Hayler Loehr works for Wells Fargo and does both agricultural and residential lending
Agriculture is the only U.S. industry to have a trade surplus
Prices of agricultural commodities have risen much more slowly than the price of agricultural inputs over the last 50 years
A strong U.S. dollar makes U.S. products cheaper overseas, helping to to increase exports
Almonds are the highest ranking California agricultural export
China is California’s biggest export customer
Barges are the cheapest and most common form of transportation in the agricultural marketing channel
U.S. farmers receive less than 10 cents of the value of every dollar spent on food.
Haggens’ rapid expansion by buying up 164 Albertson’s stores has been an excellent strategy for growth for the company
The food sector, the production agriculture sector and the input sector make up the three segments of the food production and marketing system
Whole Foods is hiring more people in order to stay more competitive
Trucking is in lower demand now that the economy is recovering and a surplus of drivers is predicted for the future
Companies like Nestle are trying to increase frozen food sales by creating new products and capitalizing on new food trends like gluten free, low sodium and less additives.
Meat processing adds the most value in the food processing sector
Costco is the nation’s largest retailer and grocery store chain.
Taste preferences, income, and the number of buyers are factors that contribute to changes in quantity demanded.
The Law of Demand says that price and quantity demanded are inversely related.
Cal Maine and other large egg producers conspired to inflate egg prices, which is more easily done in an oligopoly market structure
Growing organic dairy cattle and making artisan cheese from their milk allows a producer to operate in a monopolistic competition market structure
A shift in demand is caused by either a price or quantity change
Weather, number of sellers, and changes in the cost of inputs are factors that can change the supply
Coke and Pepsi are selling smaller cans of soda of higher prices, something they can do because they’re in an oligopoly market structure.
In perfect competition, businesses have a lot of influence on the price they receive for their products
The corn seed industry operates in an oligopoly market structure, with a few large brand names selling most of the seeds in the U.S.
Monsanto won a Supreme Court decision upholding its patent rights on its seed technology
The “Happy Cows” advertisements are the product of private marketing campaign funded by a small group of California dairy producers
Marketing orders can be amended or terminated once the growers have voted them in, they’re usually voted on every four years or so
Some marketing orders, such as the one for raisins, can limit the supply on the market in an attempt to raise prices
Advertising is the biggest expenditure of marketing orders, in general
Once a marketing order is passed, it is voluntary for growers to participate and pay for it
The consequences of staying out late to celebrate your birthday versus studying for an important agribusiness exam could be referred to as:
opportunity cost
The market structure for corn production in the U.S. is:
Demand for seasonal products like peppermint or pumpkin lattes usually ______ this time of year as companies roll out limited edition flavors for products.
Egg prices have risen because of a _______ due to avian flu and a California law banning cages for egg-laying hens.
The nation’s cattle supply should ________ this year, which will eventually help reduce the price of beef in the supermarket.
Because of _______ from countries that import fruit and vegetables, California farms are not getting higher prices for many of their products despite the drought.
California dairy farmers are experiencing a(n) ________ after dealing with reduced export demand, low milk prices and higher feed costs due to the drought.
Both turkeys and canning pumpkins have had a ______ in supply after boughts of disease and weather-related production disruptions.
A ________ of apples, coupled with a port strike that prevented exports, caused Washington Farmers to dump apples in the field to rot.
Agriculture employs a large number of people
California is the nation’s number one farm state, based on the dollar value of products produced
California farmers and ranchers produce over ______ crop and livestock commodities
California leads the nation in the production of ________ different crop and livestock commodities?
The top three states, listed in order from 1-3 in agricultural production are
_____ County is California’s leading agricultural county, producing over $________ billion in agricultural commodities?
List five of the top ten commodities produced in California
Nursery products
The average size of a California farm is
327 acres
The average size of a US farm is
435 acres
California farms and ranches are predominately family owned and operated, or corporately owned and operated?
There are approx. __________ farms and ranches in California
77, 900
California exports are valued at _________ billion dollars of agricultural production
California produces _________ percent of the milk in the United States?
Natural Sources of Water
Precipitation- rain and snow (200 million acre-feet per year)
Surface Water (71 mil ac/ft. avail. per year)
Ground Water
Central Valley Project
Authorized by Congress in 1937
500 miles of canals and aqueducts
Shasta Lake is major reservoir
Delivers 7 million acre feet annually
Which water project primarily serves Sacramento and San Joaquin Valleys?
Central Valley Project
Ag uses 90% of ______
Central Valley Project water
Federally funded water projects
– Central Valley Project
– All American Canal
– Coachella Canal
State Water Project
approved by CA voters in 1960
600 miles of canals and aqueducts
Oroville is major reservoir
Which water project primarily provides water for urban use, but is also used for ag irrigation?
State water project which provides
4.1 million acre feet; but 2 million are for LA’s Metropolitan Water District
Which water project is funded by the State
State Water Project
When was the Colorado River Aqueduct approved?
When was the All-American Canal approved?
Colorado River Aqueduct
supplies water to Metropolitan Water District of Southern California
All-American Canal
supplies water to Coachella and Imperial Valleys (3.4 million acre feet) mostly ag use
Urban/Industrial Use of Water
If only “developed water” is counted, ag uses approximately
U.S. agriculture
represents 4.8% of U.S. GDP
employees 10,000,000 people
U.S. spends __ of income on food consumed at home, around ___total for all food
Why agribusiness unique?
food is vital to survival
biological, depends on nature
weather uncertainity
many types of businesses
variety of market conditions
rural areas
government involvement
US food expenditure is low
13% of income
Farm Share (goes back to the farmer)
15.5 cents
Marketing share
84.5 cents
Farm and Agribusiness 10.8 cents
10.8 cents
Food processing
22 cents
4 cents
3.5 cents
Retail trade
12.2 cents
32.2 cents
Three primary segments of the food system
food sector
production agriculture sector
input supply sector
Most production comes from a small number of ___ farms
Each farmer feeds ____ people
2.2 Million Farms as of
____million acres in farms in the US
Input sector
Three primary categories of inputs
Input sector
contributed to increase in productivity- but input costs have risen much faster than agricultural prices
Global manufacturing input brands….
John Deere
– Farm debt is nearly $250 billion
– Farm Credit Services is major ag credit provider
Farm management services
Grading and Inspection
ways of getting manufactured inputs to farms/ranches
– cooperatives
– Dealer networks for farm equipment, etc
– Seed and fertilizer representative that visit farms
Lots of logistics/supply chain management involved
Marketing channel
– the path that raw agriculture products take from the farm to the final consumer
What steps does the marketing channel include?
sales at various levels of marketing channel
Food processing
Food Service
Ag is a major user of US transportation system
Measured in ton-miles (weight x number of miles)
Ag commodities used
13% of ton miles in 2007
Processed food to retailers used
8% of total (transportation)
Which type of transportation is the lowest cost?
.72 cents
Most common type of transportation by ton-miles
-first stop after fresh produce is harvested
-sorted, graded
-quality control
Food processing
take raw agricultural products and change their form for a wide variety of uses
typically adds shelf life to the product
25, 616 food processing plants in the US
meat processing adds most value
14% of US manufacturing Employees
food processing
Food retailing
-15,000 items
-10-25,000 square ft

– 25,000 items
– 40,000 sq. ft

Warehouse club
-membership based
– 6,000- 12,000 products Ex. Costco, Sam’s club

SuperCenter (Walmart, Target)
– 17,000 sq. ft

Top 4 Grocery Retailers
Pulix Supermarkets
Food Service comprises the
largest portion of the food marketing bill
(think dollar bill diagram)
Institutional Food Service
Hotels, universities, airlines, hospitals, etc
– 38,000 firms
– $128 billion
in annual sales
Food Wholesaling categories
Merchant wholesalers
Manufacturer’s sales offices and branches
Wholesale Agent/Broker
Merchant wholesalers
70% of total
Buy groceries from processors/manufacturers, re-selll to retailers or institutions for a profit
Take title to goods (ownership) before re-selling
Manufacturer’s sales offices and branches
Wholesale businesses run by large food manufacturers and processors
Wholesale Agent/Broker
Buy/Sell on commission, do NOT take title to the goods
Linkages in the food sector
vertical integration
-own more than one segment of the food sector
Ex. Dole, Foster Farms, Wineries
Top Export Countries for California Ag Products
1. Canada
2. EU
3. China/Hong Kong
4. Japan
5. Mexico
Benefits of International Trade
increased exports and sales
extend the product life
diversify across markets, reduce risk
global brand recognition
access to lower cost raw materials
Opportunity cost
the lost value of using your resources for the next best alternative: what you give up to do what you’re doing
non-monetary measurement of satisfaction or utility
Marginal utility
the additional satisfaction gained from consuming one additional unit of a product
Total utility
the total level of satisfaction gained from consuming a particular amount of a product
Law of Diminishing Marginal Utility
Marginal utility declines as more of a good or service is consumed during a specified period of time
the amount that consumers are willing and able to buy in the market at various prices
Law of Demand
as price increases, consumers will purchase less of a product: inverse relationship between price and quantity demanded
Change in Quantity Demanded
movement up or down the same demand curve
caused by a change in
1. price
2. supply
Factors Influencing Consumer Demand
1. Income
2. Taste and preferences
3. Expectations of future price changes
4. Number of buyers
5. Price of substitutes or complements
the quantities that producers are willing and able to put on the market at different prices
Direct relationship between price and quantity
Law of Supply
As price increases quantity supplied increases and vice versa
Change in Quantity Supplied
Movement along Supply Curve
– caused by a price change
Factors that Change Supply
Change in technology
Change in the price of inputs
Change in the price of other products that can be produced
Subsidies/Government involvement
Number of Suppliers
Prices increase if
Supply decreases
Demand increases
Prices decrease if
Supply increases
Demand decreases
Demand Price Elasticity
-measures consumer response to price change
-reflects the percentage change in quantity demanded when the price changes by 1%
– Shows how well the Law of Demand works for a particular good
Price Elasticity
Ep= % change in quantity r/% change in price
Products have Elastic Demand if:
There are many substitutes for product
It is a luxury good
A large portion of your budget is spent on it
Products has Inelastic Demand if:
It is a:
– necessity
– accounts for a small part of your budget
– there are no substitutes
– has addictive qualities
Income Elasticity
measures consumer response to a change in disposable income- change in demand for goods with each 1% change in income
Disposable income
the personal income left after paying taxes
Income elasticty
% of sales/ % of income
Engel’s law
When incomes of consumers increase, the proportion of income spent for food decreases, ceteris paribus
Normal Goods
Goods for which consumption rises when income increases, and vice versa up to a point

Includes vegetables, most meats, many fruits and dairy products

Inferior Goods
Goods for which consumption falls when income increases
Includes beans, flour, rice, top ramen etc.
Luxury Goods
goods for which consumption increases at a higher proportion than income increases

Includes; seafood, eating at restaurants, fruit juices

Supply Elasticity
% change in quantity supplied per 1% change in output price
Supply tends to be inelastic in the short run
(one season)
Supply tends to be elastic in long run (two or more seasons)
Producers cannot immediately change production to respond to price changes
Inelastic demand:
between 0 and 1
(absolute value)
* the closer to zero the more inelastic
Elastic demand:
Income elasticity
Greater than 1
Negative value
positive, but <1
Perfect Competition
Many producers
No barriers to entry
No one producer can affect the market
Price takers- price is dictated by supply and demand in the market

Ex. apples, citrus, beef

Monopolistic Competition
Many producers (but fewer than perfect competition)
Differentiated or brand name product
Few barriers to entry
Some influence on price

Ex. organic products, GMO apples, wine

Few producers
Huge Companies
Advertising is very important
Price fixing is illegal but companies have great influence on their prices

Ex. Pepsi, Coke, Cheetos, Fast Food, Cereal

1 producer
Barriers to entry (gov. or capital)
Heavily regulated
Price makers
Marketing orderss
for all producers in the industry, controls quality and quantity supplied to the market
– self-regulation, passed by growers
Marketing Agreements
Voluntary, producers work together to agree to increase advertising, product quality

Ex. California Leafy Greens

Marketing orders were authorized by
the Agricultural Marketing Act of 1937
Both Federal and State marketing orders/research
and promotion programs
Currently there are ___ active federal marketing orders and ______ California state marketing orders
What a Marketing Order Can Do
Establish grade and size standards
Establish pack and container standards
Enforce standards, hire industry inspection and certification
Fund research, usually through a university
Generic advertising “got milk” “It’s the cheese”
Establish how marketing order is funded- producers per unit sold
Establish how marketing order is funded- producers pay per unit sold
Control quantity sold on the market- both domestic and export markets
Require imported products to adhere to same quality guidelines as domestic products
Research and Promotion
Assess fees on producers to fund marketing research, export promotion and generic adversiting

“Beef, It’s What’s for Dinner” Pork, the Other White Meat”

Beef and Pork programs were legislated by 1985
farm bill
farm bill allowed any commodity group to request and R&P Program, following a similar process to a marketing order
5 Primary Types of Legal Structure
Sole Proprietorship
For-Profit Business Ownership Structures
Sole Proprietorship
Limited Liability Company
sole proprietorship
an individual who owns, manages, and assumes all the risk and derives all the profits from a business
sole proprietorship advantages
easiest to create/start
oldest most popular business legal structure
all profits and taxes paid
– all decisions and control
– business decisions are private
sole proprietorship disadvantage
owner charged all losses (debts and liability)
personal and business assets available
business ends w/death difficult to pass to heirs
limited captial
depends heavily on one person
– more capital resources
– no business tax, partners pay income tax
– business dealings are private
– unlimited liability for each partner
– lack of continuity and stability
– good legal assistance is necessary
three types of partnerships
registered limited liability
registered limited liability
a legal entity that is separate and distinct from shareholders who own it, from the individuals who manage it, and its employees, that is created by state law and organized to carry on a business for profit or non-profit
corporation types
business- c- corporation
closed- private (or closely held); also called s-corporations
advantages corporate structure
liability limited to firm assets
same individual legal rights
operate perpetuity, easier to change ownership
lower tax rates generally
tax-deductible employee benefits
Easier to raise capital
corporate structure disadvantages
more difficult to create
more difficult to dissolve
more reporting of activities required, lacks secrecy
double taxation: business is taxed and owners pay income tax
higher organizational costs
limited liability company
– separate legal entity
– very flexible
– liability protection
– moderate cost to establish
– easy to transfer ownership
– can choose how to be ____
– newer type of business arrangement
– banks may not be so willing to lend
– more difficult to anticipate problems
a business owned by its users to provide a specific service at cost
owned by its users: Farmers are the owner/users
specific service: co-ops are not one stop shops, many farmers use several co-ops
at cost: co-ops don’t make profits on its members
Have been allowed since 1922 – Capper Volstead Act; exempts agricultural co-ops from anti-trust laws, w/in certain guidelines
How are cooperatives organized
owned and controlled by the people who use their services
voting: each member has at least one vote; some base voting on level of business
members elect a board of directors, all must come from active members
board of directors hires general manager to run daily operations
Benefits of Cooperatives:
Give farmers the chance to vertically integrate: can help control another level of the marketing channel
lower costs of production and marketing
Can help gain higher prices for products
Works with marketing orders to carry out regulations on dairy and certain fruit and vegetable marketing efforts
Types of Cooperatives
Marketing Cooperative
Marketing Cooperative
Provide the following services to farmers:
– Guranatee place to sell their product
-Comand a slightly higher price
– Allows farmers to brand-name their product

Ex. Sunkist, Ocean Spray, Calavo, Blue Diamond

Also help eliminate price risk by Pooling

Importance of Marketing Coops
In the U.S. 25% of all agricultural products are sold through coops.

In California, 40% of all agricultural products are sold through coops

Supply Coops
provide inputs to farmers at lower costs

Most common inputs purchased:

How do Supply Coops make money
Non-members and members both pay retail prices
Members get a refund at the end of the year
Non-members- the Cooperative keeps those profits, and can either reinvest or give the profits back to the members
put all growers with product of a particular grade together, and pay them the average sale price for that period
Bargaining Cooperatives
Negotiate price w/processors- do not market or process the product themselves

Increases the small farmer’s bargaining power

Groups together farmers to gain bargaining power and price premiums for grade quality

low overhead manager, several field staff

Supply Coops aren’t as important in CA
25% inputs in US
5% in CA
Service Coops
offer one very specific service- usually started as a result of rural areas being undeserved

Ex. electricity in Midwest
rural phone service
cotton gins
Farm Credit System

Fixed costs
do not change with production levels, also called overhead costs
variable costs
change with production levels, increase and decrease with output
quasi-fixed costs
fixed at some level, then change with production
Fixed Costs
D- Depreciation
I- Insurance
R- Repairs
T- Taxes
I- Interest
Variable Costs
Raw materials or inputs
Inventory Levels (Cost of Goods Sold)
Labor if it’s hourly
Total costs
Fixed costs+variable costs
Total revenue
quantity sold x price

how to accomplish profits
increase total revenue
decrease total costs

5 c’s of credit
1. Collateral
2. Capital
3. Capactity
4. Character
5. Conditions
Collateral and Capital
Found in a Balance Sheet (a snapshot of who owns what in a business)

Shows Net Worth- things that you own/have

Net Worth
total assets- total liabilities
total assests
all that you own, including bank balances, stocks, etc
total liability
anything a business owes
– both long and short term
net worth
what is yours after debts are accounted for