Deck 21: Investment Analysis

Question 1

What is a local monopoly? Why are they common in the farm service sector? Look around your com-munity to see if you can identify any farm service local monopolies.

Answer 1

Local monopoly refers to the physical domination in a market by a single vendor that controls the specific market. Generally the local monopolist is situated in a small township or geographically restricted area. It can be limited to a particular location in rural or urban space within a country.
Thus a person with local monopoly can charge somewhat higher price than the equilibrium price due to the location factor. Example can be the only minimarket across the tourist spot which serves to a number of tourists and travelers. As the other market is quiet distant after that, so the tourists have to pay whatever price is charged by the vendor of market.
Local monopolies are common in farm service sector as the farmers depend hugely on service sector for fertilizers, pesticides or other inputs for farming. Moreover these sectors also provide facilities of banking, insurance and legal advices to farmers. Thus with dynamic growth of farming sector has led to reliance on these sectors due to their monopoly over a geographical area.
In the local community, banking sector and government institutions are more prevalent than such farm service sector. The farmers in state C rely on cooperatives and scheduled commercial banks for credit.

Question 2

Compare and contrast an ordinary corporation and a cooperative corporation.

Answer 2

A large firm or group of firms authoritative to act as a sole entity and recognized as such in law is called corporation.
A cooperative corporation is a particular form of corporation that places control and ownership of the corporation in the hands of the employees of the corporation.
An ordinary corporation is a corporation which can be defined as the group of firms which act as a sole entity whereas Cooperative Corporation is a particular form of corporation which is a term specially used in country U.S.
Cooperative Corporation in U.S differs from Ordinary Corporation because Cooperative Corporation is owned by the members of the cooperatives.
The second point of difference is the profit sharing. In ordinary corporations the profit is distributed on the basis of ownership whereas in the Cooperative Corporation the profit is not distributed on the basis of ownership. It is distributed on the basis of patronage.

Question 3

What are the strengths and weaknesses of a franchise agent distribution system?

Answer 3

Franchising agent distribution means the permission to use the name or mode of business operation for a specified period of time. The user of the franchise rights have the exclusive authority to access or use the brand name for business purpose as long as the both parties have a mutual understanding of their shared vision. For the person who seeks the franchise don't have to spend much on chain stores and thus saving his funds from such investment and liability.
Strengths of franchising agent are given below:
1. Working with successful brands as they have already established them as leaders of their business domain. For example taking a franchise of automobile maker X having operations across 60 countries must help the agent to set up his business with such partner.
2. Advertisement expenditures are somewhat minimized as the home office develops marketing campaigns and all the cost of such advertisements are shared by all members of franchise gaining the accessing the world class marketing campaigns incurring nominal costs.
3. Despite having franchise of the particular brand, the individual owners are free to decide their policies and location, service to their consumer on their own terms. They have such leeway to run their business modal on their own terms. Still they are their own boss.
Weakness of franchise owners are as follows:
1. The franchise business requires huge initial investment in terms of land and labor. It has to incur the startup cost once the location is selected.
2. Most of the franchise agents have to adhere to the guidelines given by the owner of the franchise affecting their business goals and self- deterministic zeal in doing business
3. As some franchise owners don't operate completely free of other owners due same location, it can affect the whole chain of the area. Because of poor service, bad location, dilapidated locations or inferior product quality, it will affect the entire chain.

Question 4

Give three examples of agribusiness firms that are horizontally integrated. Do the same for vertically integrated firms.

Question 5

What are the reasons crop insurance is not widely used by farmers?

Question 6

The Farm Credit System is both vertically and horizontally integrated. Explain.

Question 7

Why have rural banks gotten back into the agricultural mortgage market?