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Genesee County Agricultural and Farmland Protection Plan

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APPENDIX D: INDUSTRY PRACTICES<br />

Market segments might include the end user (green-popcorn-type products); processors<br />

seeking specific manufacturing characteristics such as soft-textured, thin-pericap kernels;<br />

cost <strong>and</strong> environmentally sensitive producers dem<strong>and</strong>ing pest-resistant varieties; or<br />

economic developers needing special growing-condition attributes. Keys to success for<br />

these seed companies controlled by chemical <strong>and</strong> pharmaceutical firms will be sale<br />

economies in research <strong>and</strong> the ability to extract returns from differentiated products.<br />

Pursuing these success factors will necessitate identity-preserved product distribution <strong>and</strong><br />

marketing channels. Developing these channels might be accomplished through strategic<br />

alliances, administered pricing, <strong>and</strong> tightly controlled production <strong>and</strong> marketing systems.<br />

Vertical integration, joint ventures, <strong>and</strong> production <strong>and</strong> market contracting will be<br />

strategic structural tools employed to accomplish the risk- sensitive return-on-investment<br />

objectives.<br />

Food processors, in attempting to meet the needs of an increasing number of segmented<br />

markets, will adopt new search, monitor, <strong>and</strong> control information technology, flexible<br />

manufacturing approaches, <strong>and</strong> alliances with specific attribute-sensitive suppliers. Their<br />

sourcing alliances might stretch all the way back to the attribute-design breeding<br />

activities within the seed companies. As product attributes attain recognizable property<br />

rights, a more vertically coordinated sourcing channel will be needed to preserve product<br />

identity. These channels will necessitate improved coordinating methods, including<br />

resource <strong>and</strong> production contracting, <strong>and</strong> backward integration into storage <strong>and</strong> h<strong>and</strong>ling<br />

functions.<br />

The move toward specialized product <strong>and</strong> commodity markets will increasingly define<br />

the importance of seed companies, food manufacturers, <strong>and</strong> global bulk commodity<br />

trading firms. Of course, many service firms will emerge as new functions are identified<br />

<strong>and</strong> performed. But in general, the firms that survive will be those that create a position in<br />

the end-use market <strong>and</strong> back it up with an efficient system for producing <strong>and</strong> h<strong>and</strong>ling<br />

agricultural raw materials. These leading firms will have minimized their production <strong>and</strong><br />

transaction costs by managing risks through well-designed, information-intensive<br />

governance structures. Economics suggests that for the foreseeable future these<br />

governance structures will tend more toward vertical coordination <strong>and</strong> negotiated pricing<br />

than the open price system. This means that, at least during this phase in the evolution of<br />

the marketing system, grain <strong>and</strong> oilseed producers will find themselves in a more<br />

vertically coordinated global food system.<br />

Copyright©, 2000: <strong>Agricultural</strong> & Community Development Services, Inc, Columbia MD 10

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