Corporate Farming: Investment Opportunities

  • Added:
    Nov 22, 2012
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Agriculture: Driven by technology
About 10,000 years ago, historians say,  man began to  domesticate grain yielding plants and settled down. Thus, agriculture is considered as the oldest of enterprises. It has undergone very many changes particularly in the last 100 years. Over the last century, technology has  played the key role in restructuring agriculture and elevating it to the status of  a modern, corporate  business entity from what it was since the time of the earliest cultivation - the primary industry.  Modern agricultural technology encouraged  the participation of  corporations in agriculture by bringing in investments, scale of economy and efficiency in resource use. Many believe that corporate farming destroys family farms because of the perceived effects on the  rural agrarian economy. On the contrary, the proponents of corporate farming argue that  corporatized agriculture leads to more efficient production and  more social benefits.  The numbers however speak for themselves. Since 1920s the number of farms in the U.S. has steadily dropped from around 6.5 million to 2 million. Similarly the proportion of population that lived on farms came down from 30 per cent to under 2 per cent.

Corporate farming: Towards efficient agricultural production
Historically, agriculture has been a family firm structure. This is due to interdependence of  certain operations of farming with others and their interplay and seasonality. This, to a great extent, limited its ability to specialize and promote efficiency. In the past three decades or so, there is a surge of corporate influence on farming. The family farms mostly carried out their businesses locally- procuring inputs and selling their produce from the local markets. Corporate farms procure their inputs and source their working capital from large suppliers at  huge discounts. Corporate farms can also access most modern technology and vertically integrate the entire process of production, value addition and marketing. When economies move from businesses that are dependent on natural cycles to those that are independent on such cycles, factory-style corporate industry will take hold of most  businesses. Agriculture is not an exception to this. For instance, livestock farmers have been able to earn steady returns as the  production technology improved and drastically  reduced dependence of livestock production  on nature. This makes  livestock farming a perfect investment option for corporations. The ability of corporate sector to extract the benefits of economies of scale by way of minimizing input costs and maximizing output  while leveraging technology to keep the risks under check, makes  corporate farming a good business sense.

Corporate farming: Road ahead
In the globalized economy corporate farming  is better equipped to bring out the farm products at the right time, place, quality and price to meet the consumer demand.  Traditional family farms would certainly have difficulty in responding to the global market. Keeping in view the role of nature in the current state of grain farming technologies, there are still many negative externalities for corporations to enter this sector unlike livestock sector.  Once the technologies enable  corporate farms to ensure gains outweighing externalities, which is  very likely in the near future, corporate farming will offer huge investment opportunities.

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Rick Patel enjoys writing articles for InterestingArticles.com. View the Rick Patel Author Profile


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