Agriculture Industry Challenges

November 7, 2011
Industry Intelligence from First Research, a division of Hoover's (a D&B company)

critical issues

Dependence on Agriculture Industry - By definition, farm support services depend heavily on the success of crop and livestock farms. Rising input and labor costs may actually help some service providers, as it may make sense for a farm to outsource certain labor- or capital-intensive tasks. However, the livelihood of many support services depends heavily on factors beyond the company's control, including grain prices, demand for meat and food crops, trends in imports and exports, fuel costs, and federal farm support programs.

Cash Flow, Employment Highly Seasonal - Many farm services depend on a few critical weeks (planting and postharvest) for the majority of profits. Employment levels can swing considerably depending on food demand, farm worker wages, and growing conditions. Because of the highly seasonal nature and the changes in year-to-year demand, few service providers can count on renewable contracts.

other business challenges

Dependence on Low-Cost Labor - Other than specialty service providers such as animal breeders, agricultural support service wages rarely exceed rates paid to hired farm workers. In general, farmers look at support services as a source of low-cost labor for tasks that the farm might otherwise do itself.

Competition from Value-Added Processors - Some food processors are expanding services to include post-harvest activities like drying, packing, irradiation, ripening, curing, and grading. Depending on the product, farmers may bypass the services of a third party and deal directly with a value-added processor for post-harvest tasks, processing, and warehousing. Some processors now bring refrigerated trucks and post-harvest technologies to the farm to immediately process and ship agricultural products.

Dependence on Technical Expertise - Agricultural and livestock support services often provide their own equipment to service a field or livestock operation. Since around 90 percent of all farm support services employ fewer than 20 people, companies often depend highly on the technical knowledge of a few key employees. Given seasonal demand for services, retaining these key technical experts over multiple years can be difficult.

Disease and Contamination - Companies that manage livestock or provide post-harvest services for agricultural crops must be mindful of sanitation and safe food handling practices. Produce can become contaminated with E.coli or salmonella. Horse trainers, boarding facilities and kennels, farriers, and breeders must all be careful to handle animals properly. Facilities face the risk of death and disease from foot-and-mouth disease, "white line" disease in horses, and canine parvovirus.