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AGEC1514 Chapter 1 - JAMIE
Introduction To Agricultural Economics (University of the Free State)
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AGEC1514: Chapter 1
The food industry
page
16-26
LEARNING OUTCOMES
After the completion of this chapter the students will have knowledge of the sectors
the food industry consists of and the importance of these sectors in the food supply
chain. Concepts like farm structure, concentration, globalisation, coordination and
alternative energy sources will be investigated based on the South African food
industry.
Key terms: concentration, globalisation, market power, and vertical integration
competition, monopoly, oligopoly, natural monopoly
THE FOOD INDUSTRY
These include coops such as BKB,
Senwes, OVK, Obaru etc
This level is the farmers or farming
corporations where the production of the
food/fiber is taking place
This level is where the farm produce is
processed into a product. This may
include companies such as Tiger Brands
or Unilever
This is where the products are distributed
to the final consumer. Can be places such
as supermarkets (PnP, Spar etc),
restaurants and so forth.
Food industry is all firms, large and small, engaged in the production,
processing, and/or distribution of food, fiber, and other agricultural
products.
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IMPORTANT DEFINITIONS IN THIS CHAPTER
The food industry- All firms, large and small involved in the production, processing
and distribution of food, fiber and other agricultural products
Farm Service Sector- All firms that produce/distribute goods and services that
farmers buy as a part of their business activity
Producers Sector-All firms engaged in the production of raw food, fiber and other
agricultural products
Processors Sector-Those firms that convert raw agricultural products into food
products that the consumer eventually buys. (Commodities and food product
processors)
Commodities Processors- Buy raw agricultural products that have not been
processed and convert them into food ingredients
Food product processors-Buy food ingredients and process them into their edible
form where they are ready for sale to the consumer.
Food Service Distributors-Firms that distribute food products from food product
processors to away from home dining facilities
Marketers-Set of firms that distribute food products from processors to the final
consumer when and where the consumer wants it.Farm Structure
Concentration-T he dominance of an industry by a few firms. Measured by the % of
total market owned by the largest (x) firms
Market power-The ability of a firm or group of firms to control the price or quantity
traded in the market due to its dominance
Globalization -The expansion of firms across national boundaries
In this chapter it is important that you are able to take a product example and
define the role of each of the roleplayers throughout the industry.
For example, if we take tomato sauce: The seed, fertiliser and machinery will be
acquired from the farm service sector, from a company such as Senwes. The
farmer(the producers sector), at ZZ2 (for example) then plants and harvests the
tomatoes. The tomatoes are sent to the the food processing sector, starting at the
commodities processor where the tomatoes are turned into a puree. From this
point they move to the food product processors (Tiger Brands) where the puree is
combined with vinegar to produce the sauce. It is then bottled and sent to the
distributers (PnP) for sale to the consumer.
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Practice Exercise
Go and do some research about the value-chains and role players in the food industry
for the following products. Note, not all products have both the commodity and food
product processors, but some do.
Follow the diagram on page 1 for each of these products.
Define each sector, and provide a relevant example for each product for each of the
following:
1. Farm service sector
2. Producers sector
3. Processors sector
a. Commodity processor
b. Food product processor
4. Distribution sector
Farm service sector
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