Junior and Senior level Ag Bus.
Colorado Agribusiness Curriculum
Section:
Advanced Agribusiness
Unit:
Marketing
Lesson Title:
Vertical and Horizontal Integration
Colorado Ag
Education
Standards and
Competencies
Colorado Model
Content
Standard(s):
AGB11/12.04 - The student will understand the
influences of agricultural economy and its influences
on the overall economy.
English Standard 1: Students read and understand a variety of materials
English Standard 4: Students apply thinking skills to their reading, writing,
speaking, listening, and viewing
Student Learning
Objectives:
English Standard 5: Students read to locate, select, and make use of relevant
information from a variety of media, reference, and technological sources.
The student will be able to :
1. Define horizontal integration.
2. List and explain the advantages and disadvantages of horizontal
integration.
3. Define vertical integration.
4. Explain the three types of vertical integration.
5. List and explain the advantages and disadvantages of Vertical integration.
Time:
50 minute period
Resource(s):
Instructions, Tools,
Equipment, and
Supplies:
Strategies for Great Teaching, by Mark Reardon and Seth Derner, ISBN 1-56976178-7
Farm and Ranch Business Management, by Deere Company, ISBN 0-86691-135-9
http://en.wikipedia.org/wiki/Forward_price
www.quickmba.com/strategy
Lesson Plan
Computer
LCD projector or copies of PowerPoint
Loaf of Bread
Copies of quiz
A copy of the key.
Unit 5, Lesson 4: Vertical & Horizontal Integration 1
Interest Approach:
Objective 1:
Objective 2:
Objective 3:
Slide 1
Slide 2
Have a loaf or slice of bread sitting in front of the class. Ask students how that loaf
or slice got there? Direct them to ideas of that you bought it or made it and that it
can from wheat. Now have students follow a kernel of wheat from the field to their
bread at home. The wheat is grown by the farmer and then harvested and
transported to an elevator where it is sold and transported to a mill where it is made
into flour and then the flour is sold and taken to a bakery where they mix it with
other ingredients to make the bread in front of you. What are some ways that a
farmer could make a better profit from his wheat if he knew all the steps it takes to
get his wheat from the farm to the bread we eat? What could he do with this
information? Today we are going to explore two ways that this wheat farmer could
expand his business and make more money.
Define horizontal integration.
Slide 3
Horizontal integration is the addition of other business activities at the same level of
the value chain
For example:
 The Standard Oil Company buying 40 refineries
 An automobile manufacturer buying a sport utility vehicle manufacturer
 A radio station that also owns a newspaper and magazine
 A angus cow calf producer that buys a corn field
Advantages of Horizontal Integration:
Slide 4
 Economics of scale: Selling more of the same product in different parts of
the world
 Economics of Scope: Sharing resources common to different products.
“Synergies”
 Increased Market Power
 Reduction in cost
Slide 5
Disadvantages:
 Costs
 Increased work load
 Increased Responsibilities
 Anti-trust issues
 Creating a monopoly
Define Vertical Integration.
Slide 6
Vertical integration is the degree to which a firm owns its upstream suppliers and its
downstream buyers.
Example:
Objective 4:
Carnegie Steel Company owned mills where the steel was manufactured, mines
where the iron ore was extracted, coal mines that supplied the coal, ships and
railroads that transported the material, etc.
Three types of Vertical integration
Slide 7
Unit 5, Lesson 4: Vertical & Horizontal Integration 2



Objective 5:
Backward (upstream) vertical integration: this is when a company owns
some of the subsidiaries that produce some of the inputs used in the
production of its products.
o Example: When and automobile company owns a tire company
Forward vertical integration: this is when a company owns the subsidiaries
that market the product.
o Example is an movie studio that also owns a chain of theaters
Balanced Vertical Integration: is a company that sets up subsidiaries that
supply them with inputs as well as market their product.
Advantages of vertical integration:
Slide 8





Reduce transportation cost.
Improve supply chain coordination.
More opportunities to differentiate by means of increased control of inputs.
Capture upstream and downstream profits.
Increase entry barriers to potential competitors.
Slide 9
Disadvantages of Vertical Integration






Capacity balancing: Making sure that inputs will match outputs at all levels.
Potentially higher cost due to the lack of supplier computation.
Decreased Flexibility.
Developing new competencies may compromise existing competencies.
Increase bureaucratic costs.
Monopolization of markets.
Now we are going to do an eye witness moment. In 30 seconds find someone
who’s birthday is the closest to yours and determine who is going to be the reporter
and who is the interviewer. Begin!
Time! In the next 1 minute and a half you need to COMPARE vertical integration
and horizontal integration. Begin!
Review/Summary:
Application-Extended
Classroom Activity:
Application--FFA
Activity:
Time! Now let’s switch reporters and interviewers in your groups. Now you will
have 1 minute and a half to CONTRAST vertical and horizontal integration. Begin!
Use the quiz slides on the power point for the review slide 10
Now remember the loaf or slice of bread that we started with today how could that
wheat farmer horizontally integrate? How could he Vertically integrate? What
might be stopping him or holding him back? You might want to share the bread
with your students at this time.
Have students bring in examples of companies that have or are integrating either
vertically, horizontally, or both.
Ag Business Management
Unit 5, Lesson 4: Vertical & Horizontal Integration 3
Commodity Marketing Challenge
Application--SAE
Activity:
Evaluation:
Evaluation Answer
Key:
Have students think of ways that they could vertically or horizontally integrate their SAE
See attached Quiz
See attached answer sheet.
Unit 5, Lesson 4: Vertical & Horizontal Integration 4
Quiz
Name___________________________________________ Date__________________
Read each of the questions carefully and answer each question with complete sentences. Make sure
that you answer the whole question. You may use a separate piece of paper for the last question on this
quiz. GOOD LUCK!
1. What is horizontal integration?
2. What is vertical integration?
3. What are the three types of vertical integration? Briefly describe each.
4. Compare and contrast vertical and horizontal integration.
Unit 5, Lesson 4: Vertical & Horizontal Integration 5
Quiz
Name__KEY______________________________________ Date__________________
Read each of the questions carefully and answer each question with complete sentences. Make sure
that you answer the whole question. You may use a separate piece of paper for the last question on this
quiz. GOOD LUCK!
5. What is horizontal integration?
Horizontal integration is the addition of other business activities at the same level of the value
chain
6. What is vertical integration?
Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream
buyers
7. What are the three types of vertical integration? Briefly describe each.
a. Backward (upstream) vertical integration: this is when a company owns some of the
subsidiaries that produce some of the inputs used in the production of its products.
i. Eample: When and automobile company owns a tire company
b. Forward vertical integration: this is when a company owns the subsidiaries that
market the product.
i. Example is an movie studio that also owns a chain of theaters
c.
Balanced Vertical Integration: is a company that sets up subsidiaries that supply them
with inputs as well as market their product
8. Compare and contrast vertical and horizontal integration.
Student’s answers will vary
Unit 5, Lesson 4: Vertical & Horizontal Integration 6