The term “Agribusiness” is the mixture of agriculture and business. In short, Agribusiness is a type of business that involves or depends upon agricultural activities. For example, a farmer handles the agricultural side of things like growing farm animals, crop cultivation, and harvesting. And then comes the business side of things, where the crops or animal products are further processed in processing plants, and then packed and sold in the market or traded with other countries.
Many countries in the world specifically focus on agribusiness because it helps the economy grow. If you are thinking of getting into agribusiness, then you must know the possible advantages as well as disadvantages of this business model. On the surface, agribusiness may seem like a pretty straightforward business model, but in reality, there is a lot to learn. So let’s understand agribusiness by digging a little deeper.
Here are some benefits of Agribusiness:
1. It’s Profitable
Profitability is important while evaluating a business venture, and yeah, agribusinesses are profitable. Not for the business owner, but the people working within a stable agribusiness also have a solid source of income. Once everything is set up, this business is pretty sustainable and generates profits every season. You buy land for the cultivation of crops, which is an investment on its own. And the land works as an asset that can generate profits if you cultivate or grow crops on it, and use the same land for the further processing of crops.
2. Incredible Growth Potential
There will always be high demand for agribusiness end products, that’s because humans need food to survive. And with the growing population of the world, the requirement for food items and crops is higher than ever before. So yeah, if you set up or get into agribusiness, there are higher chances that it would be profitable for you in the long run. Not just that you can scale up an agribusiness based on the requirement of your end product in the market. In our opinion, scalability is another huge plus point here.
3. Portfolio Diversification
You may have heard that in a business, portfolio diversification is alway a good thing. And the same can be applied to agribusiness as well. Well you can just participate in one crop cultivation, or multiple, it totally depends upon you and how much land area you have. In the same way, you can also choose to have farm animals and have proper processing plants in place for the further processing and distribution of harvested products. And it totally depends upon you which type of farm animals you want to keep for livestock breeding.
4. Tax Benefits
When you are actually into agribusiness or agriculture in general, you can take advantage of many tax benefit schemes from the government of your country. If you belong to a country where agriculture is a strong sector, then there would be many government schemes to support agribusinesses. Usually, governments provide tax benefits to agribusiness so that they can grow in the long run without having too many financial difficulties and it is ultimately helpful for the growth of the economy.
Here are some drawbacks of agribusiness:
1. Cash Flow Problem
Maintaining the cash flow is a huge problem for agribusinesses, especially for those who are just starting out. For example, if you were to take part in orange tree cultivation, orange harvesting, and distribution, then it would take the first 10 to 15 months just to grow the trees, and then the trees would start producing the fruits. Until then the land investment, tree cultivation, workers’ labor, and time investment aren’t giving any returns. And if you don’t have cash flow then you won’t be able to sustain this business for long enough. And the same can be applied to livestock breeding or pastoral farming.
2. Risk With The Harvested Products
Whether it is about the harvested crops or livestock products, the risk of end-product spoilage or grain loss is a huge problem for farmers as well as processing plant owners. To prevent that from happening, you can have a controlled in-house environment in place, but that would turn up as an additional expense. But because it is necessary to prevent spoilage, that’s why every agribusiness owner should not hesitate to invest in such things.
3. Greater Initial Investment
Agribusinesses require a greater initial investment and you may not get any returns in the first few months until the crop and livestock harvesting starts. And to just start off, you’d have to invest in the land area, worker labor, machinery, fertilizers, processing plant construction, etc. In short, the greater initial investment is the thing that becomes the roadblock for many people to start an agribusiness. However many countries provide government schemes and loans to support agribusinesses, so you can take advantage of that.
Once everything is set up, agribusiness is a perfect and sustainable business model that can generate constant cash flow or profits. However there are many other disadvantages but in our opinion the advantages of agribusiness are overpowering, and that’s why it is a good business model.