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Agriculture

We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of agriculture related businesses. We have valued row crop businesses, timber concerns, vineyards, wineries, packing house operations, and many other areas of this industry. Below is a brief synopsis of the industry.

 

Description of Business

Companies and organizations that produce, grow, raise, harvest, process, store, market, and/or sell food and other crops and livestock.

General Industry Information

This industry is so large that the following overview barely scratches the surface of this industry.

The agriculture industry’s broad scope includes everyone from farmers and ranchers to scientists who devise new and better foods and the businesspeople who keep it all running. The various disciplines within the industry seek ways to more efficiently feed Earth’s ever-growing population while improving profit margins for food-related businesses. Allied industries provide the infrastructure that makes this possible, including rail and road transportation, pesticides and fertilizers, and processors that transform raw products into comestibles.

The United States is the worlds largest producer of food and agricultural products, and US agriprocessors export their products around the globe. Total domestic farm sector receipts from the sale of agricultural commodities were projected to total $242.7 billion in 2006, according to the US Department of Agriculture (USDA). This sum, up from $238.9 billion in 2005, consisted of $121.2 billion in livestock receipts and $121.6 billion for crops. The agency forecasts cash receipts of $258.7 billion for 2007, based on projected sales of $125.2 billion in livestock and $133.5 billion in crops.

The leading commodities, based on cash receipts, were poultry, cattle, dairy products, and corn. Net farm income in 2007 was estimated at $66.6 billion, up from $60.6 billion in 2006 but below the $72.6 billion farmers earned in 2005. Nonetheless, it is $9 billion (16.2%) above the sector’s 10-year average of $57.4 billion. The USDA predicted government payments to farmers dropping dramatically in 2007, to $12.4 billion for the year, down from $16.3 billion in 2006 and from the record $24.3 billion received in 2005. The 10-year historical average (1996-2005) is $16.1 billion.

Farmers’ cooperatives took root in the early part of the 19th century and remain significant in the industry. Cooperatives such as CHS(grain) and Sunkist Growers(fruit) often formed so members could capitalize on their strength in numbers in order to buy supplies at lower cost, build facilities, and negotiate better prices for their crops. Many co-ops have merged or formed joint ventures to further increase their buying power or product offerings. Dairy Farmers of America and New Zealand’s Fonterra are two prime examples.

A number of food cooperatives have been expanding their capabilities, often becoming a part of the processing stage of food production. Ocean Spray Cranberries has a processing unit that was formed by the co-op to turn its raw ingredients into consumer-ready foods. Conversely, grain cooperatives have stuck to their traditional storage and marketing services. Many live in the shadows of the larger companies that offer similar services, such as Archer Daniels Midland and Bunge Limited.

At the root of all growth in the agriculture industry is an increasing world population. Agri-biotech companies are looking for ways to help feed the growing number of global inhabitants through genetic modification (GM). GM aims to create sturdier plants and animals, disease resistance, and higher crop yields. Consolidation, vertical integration, and genetic modification are all part of the agricultural industry’s push to produce more food, cheaply, while making steady profits. As opportunities arise in emerging markets around the globe, many agribusinesses will utilize these options to stake their claim.

Red Flags and Risks

Rising costs of high quality labor is probably the largest risk factor for these businesses. Turnover can be a problem, and retaining good long-term workers can be costly, especially in areas facing increasing wages. The industry is also subject to external risk. Examples of External risks are Exchange Rates, Interest Rates, Commodity Prices and Government Regulations, and most importantly, weather and other ergonomic conditions. Water is always a huge risk and the wells or water sources need to be assessed. More recently, agriculture land has increased in value over and above the economic value of land of between $1,000-4,000/acre.

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