The increased risk implied by rapid price inflation and supply chain disruption could impact agri-food businesses deeply. Owning assets and conducting activities internally is a natural hedge against these risks.
An Independent Agri-Food Policy Note released today by Agri-Food Economic Systems focuses on the implications of increased systemic risk for agribusiness organization, given the rise of economic and geo-political volatility.
“For the last 25 years or so, an integrated agribusiness has been more valuable broken up than it was maintained as a multi-divisional firm” says Al Mussell, Agri-Food Economic Systems Research Lead and author of the paper. “But that is a function of extensive market integration and a generally low risk environment; we are in a different place today.”
The policy note traces the evolution of economic and business thinking on firm structure. Companies outsource when contracting is relatively easy and inexpensive; companies regularly review, and spurn, unprofitable divisions. Breaking up integrated firms has been seen as unlocking shareholder value. The result has been a decline in the conglomerate agribusiness firm.
“The risk environment that generated our existing approach to firm structure in agribusiness is sharply different from today”, says Mussell. “Owning assets and conducting activities internally is a natural hedge against greater systematic risks. Distributed agri-food supply chains will not come to a screeching halt- but this more volatile operating environment should move us toward more integration of activities within agribusiness firms
Source : Agri Food