Agribusiness is a unique culture in the world today. It is like taking the small family farm and exploding the scale of work that gets done so a wide variety of agricultural products can be provided. It has unique challenges that must be faced, but the rewards are clear. When agribusiness has a good season, then people have enough food to eat. When it isn’t a good season, the economics are still generally positive thanks to available subsidies.
Before considering an investment or getting personally involved in this industry, it is important to look at the key pros and cons of agribusiness so an empowered decision can be made.
What Are the Pros of Agribusiness?
1. It is an alternative asset class.
Agribusiness provides income, plain and simple. It also provides a solid income source for individuals who work within the industry. There is a low correlation to assets that are in the mainstream, such as equities, fixed income, and property, so what you see is typically what you get.
2. It provides something that people always need.
Challenging seasons may make for the best investment opportunities because there is one rule all humans follow: we need food to eat. Whether it comes from livestock, grains, or vegetables, changing weather conditions or even dietary fads can make this industry look attractive.
3. There can be certain tax benefits.
Some income from agribusiness may have certain tax benefits for workers and investors. Of course getting involved in this industry shouldn’t be for tax purposes alone, but there is the potential to make more wealth per capita in this industry than in others.
4. It allows for diversification.
The best kind of portfolio has income sources from multiple sectors. Workers who are able to perform in multiple sectors have the best chance for employment. Agribusiness allows for both.
5. A hard day of work creates a tangible result.
It can be difficult to feel like something has been accomplished with certain jobs today. In agribusiness, you work with your hands out in the fields, pastures, and facilities and know that you’ve made a positive impact after a hard day of work.
What Are the Cons of Agribusiness?
1. How the individual business is structured can directly affect results.
Agribusiness requires performance. If a business isn’t structure to provide that performance in any way, then losses can be obtained even when the foundation for profits has been laid. Good assets in this industry can only be realized when there is a good structure in place to support them.
2. There are more risks.
Agribusiness faces numerous risks over every growing season. From the weather to insect infestations to unexpected livestock death from disease, there are numerous influences that can shape profits. Even simple climate changes, like having a little too much rain, can create risk. A natural disaster could potentially wipe out an entire investment or employment opportunity for good.
3. Assets are not generally liquid.
This industry is based on assets that essentially have zero liquidity. Imagine having a tree farm that you’re going to turn into lumber one day. Until those trees mature, there are no profits coming in whatsoever unless supplemental agricultural products are developed. This makes it difficult for investors to obtain a quick exit and employees to find consistent work.
4. It typically requires a high level of borrowing before any profits can be achieved.
For agribusiness to begin, the structure of the business must first be developed. This means obtaining land, structures, and growing products that can be consumed later on. Once the business can create annual seasons, it can turn profits and be highly lucrative. Until that happens, debt must be taken on in some form or equity sold in future profits so the business can continue to exist.
5. There are high levels of personal risk involved.
If you are milking a cow, there’s a chance you might get kicked. A tractor might flip over. Animals may carry diseases that can be transferred to workers. Agribusiness will always contain a high level of personal risk for those who are directly responsible for the care and maintenance of the individual enterprises.
The pros and cons of agribusiness show an industry that has risk, but will also always have potential. People need to eat, which means the agribusiness sector will always exist in some form. That’s the best kind of job and investment security that can be had today.
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