Agricultural Economics and Rural Sociology

1. Agricultural Economics and Rural Sociology The Agribusiness Management Simulation John Foltz and Leroy Stodick

2. The Agribusiness ManagementSimulation • Computer simulation of business environment

3. The Agribusiness ManagementSimulation • Computer simulation of business environment • Firms attempt to achieve management goals

4. Partly predictable • Management teams encounter a market:

5. Partly predictable • Management teams encounter a market: • Also marked with uncertainty?

6. Partly predictable • Management teams encounter a market: • Also marked with uncertainty? • Firms compete to purchase raw material A, used in production of finished products B and C

7. Decisions • Each team makes management decisions concerning: • Insurance • Production

8. Decisions • Each team makes management decisions concerning: • Insurance • Workforce • Production • Pricing $

9. For Sale Decisions • Each team makes management decisions concerning: • Insurance • Workforce • Expansion • Production • Pricing • Advertising $

10. P D S Objectives • Develop an understanding of market forces which characterize competitive business environment. Q

11. Sales COGS Expenses Salaries Utilities Net Profit 13,200 1,467 58,969 73,636 Objectives P D S • Develop an understanding of market forces which characterize competitive business environment. Q • Enhance ability of using tools such as: 798,200 523,467 173,636 35,232 65,865 5,350 19,245 24,595 49041 • Balance Sheet • P &L Statement Debts Assets • Financial Ratios

12. Objectives • Hone teambuilding skills.

13. Instructor Variables • 1. Business cycle – will vary through the following range: • Rapid Expansion • Moderate Expansion • Slight Expansion • Neutral • Slight Contraction • Moderate Contraction • Severe Contraction

14. Instructor Variables • 2. Short-term interest rate.

15. Instructor Variables • 2. Short-term interest rate. • 3. Long-term interest rate.

16. Instructor Variables, Cont. • 4. General dividend yield rate. • Firm’s yield rate > General yield rate, then • market value of stock tends to rise, and vice versa.

17. Instructor Variables, Cont. • 4. General dividend yield rate. • Firm’s yield rate > General yield rate, then • market value of stock tends to rise, and vice versa. • 5. Probability of disaster.

18. Firm Variables • 1. Bid price of raw material A: • Firm always gets amount requested up • to firm’s production capacity. • Purchase price depends on competition. • Local market & natl. market. • If firm is forced to buy on the natl. mkt., • Cost of A = natl. price + $15.00 shipping.

19. Firm Variables • 2. Bid price of finished product B: • B is a fairly homogeneous product, • which has relatively elastic demand.

20. Firm Variables, Cont. • 3. Price of finished product C. • C is a differentiated product, which has • relatively inelastic demand.

21. Firm Variables, Cont. • 3. Price of finished product C. • C is a differentiated product, which has • relatively inelastic demand. • 4. Quantity of A to purchase. • Cannot be more than production • capacity (measured in units of A).

22. Firm Variables, Cont. • 5. % of A used in production of B • (and implicitly % of A used in C). • 1 unit of A = .73 units B if only B produced • 1 unit of A = .65 units C if only C produced • Increase efficiency by producing both.

23. Firm Variables, Cont. • 6. Change in unskilled labor -- takes effect • immediately: • 10 initially, $15,000/yr. • If no addtl. skilled workers hired: • each addtl. unskilled hire = • + 1,000 units A capacity. • If addtl. skilled workers hired: • 1st addtl. unskilled hire = 2,000 units • A capacity, and each addtl. unskilled • hire = + 1,500 units A capacity.

24. Firm Variables, Cont. • 7. Change in skilled labor -- takes effect • immediately: • 4 initially, $25,000/yr. • 1st addtl. hire = +3,000 units A capacity • 2nd addtl. hire = +2,500 units A capacity • 3rd and above = +2,000 units A capacity

25. Firm Variables, Cont. • 7. Change in unskilled labor -- takes effect • immediately: • 4 initially, $25,000/yr. • 1st addtl. hire = +4,000 units A capacity • 2nd addtl. hire = +3,000 units A capacity • 3rd and above = +2,000 units A capacity • 8. Change in sales personnel -- takes effect • immediately: • 0 initially, $40,000/yr.

26. Firm Variables, Cont. • 9. Advertising $ for B. • Affects this period only. Advertising for • this product is kind of like “check-off” • dollars for dairy producers. The • advertising $ spent help your firm, but • also help everyone else in the industry.

27. Firm Variables, Cont. • 10. Advertising $ for C. • Carries over some to future periods. • Advertising affects only demand for • your product. You are building “brand • equity.” In addition, the carry-over effect • is mimicking what happens in the real • world with frequency of advertising • building awareness and demand.

28. Firm Variables, Cont. • 11. Purchase of increased production • capacity for A -- takes effect NEXT period: • 10,000 units initially • Can purchase additional capacity for • $60,000/unit -- EACH UNIT can process • 1000 units of A.

29. Firm Variables, Cont. • 12. Purchase of new storage for B & C -- • takes effect next period: • 1,000 units capacity initially • If inventory of B & C exceeds capacity, • rent = $6.50/unit. • Can purchase additional 500 unit • warehouse for $22,500/warehouse.

30. Firm Variables, Cont. • 13. Disaster insurance premium: • $15,000

31. Firm Variables, Cont. • 14. Payment on short-term notes: • Long - term debt is repaid through short - • term notes. A firm can pay up to • maximum reported on results sheet.

32. Firm Variables, Cont. • 14. Payment on short-term notes: • Long - term debt is repaid through short - • term notes. A firm can pay up to • maximum reported on results sheet. • 15. Dividends to be paid.

33. Firm Variables, Cont. • 14. Payment on short-term notes: • Long - term debt is repaid through short - • term notes. A firm can pay up to • maximum reported on results sheet. • 15. Dividends to be paid. • 16. Investment in money market.

34. Firm Variables, Cont. • 14. Payment on short-term notes: • Long - term debt is repaid through short - • term notes. A firm can pay up to • maximum reported on results sheet. • 15. Dividends to be paid. • 16. Investment in money market. • 17. Investment in stock market.

35. Firm Variables, Cont. • 18. Consulting fees. • If your firm is really stuck for what to do, • instructor will help for a price!

36. What You Do • 1. Each team will be given a user ID and • password, with which to access the • Agribusiness Management Simulation • on the Internet. Each firm should decide • who will be their data entry person • (However, all team members can access • the program).

37. What You Do • 1. Each team will be given a user ID and • password, with which to access the • Agribusiness Management Simulation • on the Internet. Each firm should decide • who will be their data entry person • (However, all team members can access • the program). • 2. The data is entered on the Internet Site, • and the simulation will be run at a time • specified by the instructor.

38. What You Get • 1. After a simulation is run, the results are • available for displaying or printing.

39. What You Get • 1. After a simulation is run, the results are • available for displaying or printing. • 2. If your instructor has not made them • available at the outset, Balance sheets, • income statements and financial ratios • will be available for viewing during a • later time period.

40. Examples of Output

41. Examples of Output

42. Examples of Output Select Another Variable Menu Log Off

43. Examples of Output Select Another VariableMenuLog Off

44. Examples of Output Select Another VariableMenuLog Off

45. Examples of Output Select Another VariableMenuLog Off

46. GOOD LUCK!!