One of the impacts of the global pandemic has been to focus attention on how our food gets from wherever it is produced to wherever it is consumed. Another has been the focus on remote learning, particularly in countries where the schools were closed. So, it was by coincidence that at the beginning of the pandemic in March, I was embarking on a return to learning by taking the 20-week IFF Postgraduate Certificate in Agribusiness, a remote learning course.
Being run by IFF – an Informa business specializing in financial training – unsurprisingly the syllabus leans towards the financial side rather than the agronomic. From my experience, it was all the better for it because essentially agribusiness is a melting pot of many different disciplines – such as economics, policy, science, marketing, logistics – pulled together by a common thread, namely finance.
Firstly, the format. All the course materials are delivered online, which helped during the pandemic. But it would have been useful anyway. There is a personalized dashboard that shows you what modules you have completed and is where you do your end-of-module quizzes, which are really helpful to keep you on top of the syllabus. You can also join the course chat-group through the dashboard, or contact the course tutor, Dr. Julian Roche.
There are 10 modules, released every two weeks. There is an online multiple-choice test at the end of eight modules, one written exercise and one Excel exercise in preparation for the assignment.
The course materials are downloaded in PDF form and Excel files. There is an additional folder of extra reading, which adds a lot of depth to the material. As an analyst, I always find it useful to have sample Excel files embedded with formulae – for example, when doing a discounted cash flow or loan repayment.
As you progress through the modules, you are gradually introduced to more financial terms, all leading towards the assignment (more of that in a moment).
Tour through the modules
The first module sets the scene and introduces the working definitions of ‘agribusiness’, and discusses the interdependence of various sectors within the production chain. The distinction is made between primary production – such as agriculture, livestock, and forestry – and the manufacturing sector, which reflects traded products – canned foods, cereals, leather, meat, oils and paper for example.
Globally 30% of all workers are employed in primary production. One key metric is the average farm size. You’ll see that this has increased in the USA and parts of Western Europe. This module also touched on the changes in global dietary patterns. The opening module also introduces some well-known economic theory, such as Engel’s Law, which can be summarised that as a person’s income increases the proportion spent on food declines. There is also an overview of the world’s key crops, production volumes and varieties.
The second module, Agricultural Science, looks at the sector’s struggle against plant disease. It touches on patents and some of the commercial aspects of technology. There are also analyses of relevant issues involving the environment, water scarcity, IPM (Integrated pest management), improved irrigation techniques. As you might be expect, some of this module is devoted to GM crops.
The third module was Farm Management. This is where the course got into the financial side of things, looking at variable and fixed costs, farm accounting and some key ratios.
The fourth module is entitled ‘Agricultural marketing and risk management’. This introduces the idea that agribusinesses have relationships with many stakeholders. Maybe not more than other industries, but agribusinesses have various stakeholders from environment and public health agencies, input manufacturers (which includes energy for fertilizer production), governments and finally consumers.
There is a section on pricing strategies, which discusses the sensitivity regarding how profits are announced, particularly if the product has a political dimension. Factors influencing international commodity markets are also reviewed. Economic concepts such as cross price elasticity come into play here. Futures contracts are discussed – one key take-away here is that futures best apply to products that can be standardised.
Agricultural lending is the fifth module. This is where we start moving deeper into the financing side. When it comes to corporate finance, there is a hierarchy of options for financing a project – internal (meaning through a company’s retained profits), by taking on debt, or releasing equity. Taking on board equity is the most expensive form of capital.
It is worth quoting one reference at this point:
This really does reinforce the importance of finance within agribusiness, and it is as true now as when it was written. Obviously, that means different things in a global context. To that end, there is a discussion on innovative funding options around the world, which presents some creative ways that farmers can obtain credit in developing countries.
The Agribusiness value chain is the sixth module. This looks at the role of cooperatives and intermediaries with case studies provided.
The seventh module is titled the International Agribusiness Markets. For someone like myself who has done price discovery and trade S&D balances this chapter made me feel at home. The module looks at tariffs, documents in shipping – such as Bill of Lading – and Incoterms.
In the eighth module, ‘Policy, Agencies, Regulation and the Future of Agriculture’ the role of government and other agencies is explored. Who should provide infrastructure? Are subsidies a good idea? This chapter moves from the financial side to policy in practice.
Investment in Agriculture is the ninth module which is where business valuation techniques are presented – notably how to use a discount cash flow model. At the end of the module there is a discussion on the importance of land prices.
The final module brings it all together through building an agribusiness investment model (an AIM). This provides practical instructions on how to construct the Excel files for the assignment, so everything from input price forecast to the income statement, balance sheet, cash flow and valuation. It also gives tips on how to handle capital expenditure and depreciation.
The final assignment One of the purposes of the course is to give you the practical skills to begin assessing the investment merits of an agribusiness project. Ultimately, the question to answer is, should you invest in this project? And this is the value of the end-of-course assignment.
The theoretical case study in this case was a grape orchard in India. It was based on a real-life proposal. I was even able to lay my hands on an academic paper assessing the economics of grape cultivation in India.
The relevant assumptions regarding capital expenditure and projected revenues for the first few years were given. There were two parts to the task – assessing the information provided, and then suggesting how it could be best presented to an investment bank.
An agribusiness investment model (AIM) was generated in Excel for the second task, and for the purpose of presenting to a bank, the forecast period was extended to 15 years. Part of the task was to assess the assumptions – were they realistic? If anyone has done production cost estimates, they will know that you have to do your own research – by phone calls, emails, web, journals – but even then you might still need to put your own assumptions into the Excel cell and justify them. Each project will be different, and so ultimately you need to develop a sense of the numbers – does that number feel right? Only by building the AIM can you see the sensitivity in your sales forecasts and projected selling prices, and what it could mean for revenue generation and profit.
Final exercise The final exercise – and an invaluable one – was writing this article. To review the course after some weeks, to revisit some of the sections, and to be reminded of what a fascinating subject this is – as if I needed to be reminded – has sealed it as a great learning experience and one that I will take with me on my career.
I contacted the course tutor Dr Julian Roche to ask for his view on the course: “I'm delighted at the success of the PgCert in Agribusiness. Being able to make a contribution in this vital area is both rewarding and exciting. I've been involved in helping agribusinesses for thirty years, and this course is the culmination of all my efforts and experience. I'm always at the disposal of delegates to assist them in their own particular issues and problems.”
And finally... Did you know?
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