DEFINITION of 'Agribusiness'

The business sector encompassing farming and farming-related commercial activities. Agribusiness involves all the steps required to send an agricultural good to market: production, processing, and distribution. It is an important component of countries with arable land, since agricultural products can be exported.

BREAKING DOWN 'Agribusiness'

Agribusiness treats the different aspects of raising agricultural products as an integrated system. Farmers raise animals and harvest fruits and vegetables with the help of sophisticated harvesting techniques, including the use of GPS to direct harvesting operations. Manufacturers develop more efficient machines that can drive themselves. Processing plants determine the best way to clean and package livestock for shipping. While each subset of the industry is unlikely to interact directly with the consumer, each is focused on operating efficiently in order to keep prices reasonable.

Market forces have a significant impact on the agribusiness sector. Changes in consumer taste alter what products are grown and raised. For example, a shift in consumer tastes away from red meat may cause demand (and prices) for beef to fall, while increased demand for produce may shift the mix of fruits and vegetables that farmers raise. Businesses unable to rapidly change in accordance to domestic demand may look to export their product abroad, but if that fails they may not be able to stay in business.

Countries with farming industries face consistent pressures from global competition. Products such as wheat, corn, and soybeans tend to be similar in different locations, making them commodities. Remaining competitive requires agribusinesses to operate more efficiently, which can require investments in new technologies, new ways of fertilizing and watering crops, and new ways of connecting to the global market. Global prices of agricultural products may change rapidly, making production planning a complicated activity. Farmers may also face a reduction in usable land as suburban and urban areas move into their areas.