Agroindustry Chapter 4 Overview

Chapter 4: The Processing Sector

• Agroindustry is the agro-industrial sector of agribusiness
• Agroindustry consists of enterprises that process agricultural raw materials, including ground and tree crops, as well as livestock.

Importance of Agro-industries

• Maximize the use of agricultural raw materials
• Strengthen the agricultural base of the country, consequently improving the industrial base
• Contribute significantly to the total manufacturing value added in developing countries
• Play an important role in economic development through increased employment
• Add storability, palatability, transportability, and nutritive value through different levels of transformations
• Pave the way for activating "sideways linkages" – linkages derived from the use of by-products

Classifications of Agro-industries

• By levels of transformation:
  • Level 1: Cleaning and grading
  • Level 2: Ginning, cutting, and mixing
  • Level 3: Cooking, canning, pasteurization, dehydration, freezing, weaving, extraction, and assembly
  • Level 4: Chemical alteration and texturization

By Activities

• Upstream industries
  • Companies engaged in the initial processing activities (e.g., cleaning, grading, ginning, cutting, mixing)
• Downstream industries
  • Companies engaged in further processing of agricultural products (e.g., cooking, canning, dehydration, chemical alteration)

By Types of Product

• Food Industries
  • Processed meat
  • Milk and dairy products
  • Processed fruits and vegetables
  • Processed fish
  • Bakery products
  • Beverages (e.g., chocolate, coffee, tea)
  • Condiments and flavoring products
  • Cereals
• Non-food industries
  • Leather and leather products
  • Wood and wood products
  • Cork products
  • Tobacco manufactures
  • Rubber and rubber products
  • Textile manufacture
  • Paper and paper products
  • Fiber products

Venturing in Agro-industrial Enterprises

• Selection of processing technology
• Plant location
• Inventory Management
• Supplies for processing
• Programming and control
• By-products

A. Selection of Processing Technology Considerations

• Qualitative requirements

  • Determine what the markets require
  • Stricter requirements lead to higher processing costs and higher product value

• Process requirements

  • Depend on the level of transformation
  • Could serve as barriers to entry for processing companies
  • Investors should consider optimal labor-capital combinations, technology availability, and raw material suitability

3. Rated and Annual Capacity Utilization

• Investors must consider the possibility of multiple uses of equipment and machinery

4. Management Capability

• Supervisors must have techno-managerial competence

5. Nutritional Value of Processed Food

• Investors must evaluate the effect of processing technology on the nutritional value of the processed food
• Prolonging shelf life and increased digestibility are only part of the issue

B. Plant Location Decision

• Locating the plant near the source of raw materials or near the market

• Factors favoring location near raw materials

  • Perishability of raw materials
  • Sensitivity or fragility of raw materials
  • Difficulty of transporting raw materials compared to finished products

• If these factors are not met, the plant should be located near the market

C. Inventory Management

• Agro-industrial raw materials are characterized by seasonality, perishability, and variability
• Careful inventory management is needed
• Dependent on the availability and timing of raw material supplies

Things to Consider in Inventory Management

• Storage capacity of raw materials and storage cost
• Capacity of other physical facilities (e.g., refrigerators)
• Storage capacity of warehouses for finished products
• Shelf life of raw materials and finished products

D. Supplies for Processing

• Next in importance to raw materials for processing activities

• Include ingredients, parts, packaging materials, and other finishing products

• Contribute considerably to the cost of processing (e.g., packaging materials like cans)

• Reliability and availability of supplies must be ensured

E. Programming and Control

• Aspects: Production design, production scheduling, control systems
• Production design
  • Implementation plans and production engineering
  • Specifies physical facilities and layout
• Production scheduling
  • Specifies production runs and timing of production operations
  • Important for scheduling raw material deliveries and marketing activities

F. Use of By-Products

• Processors should identify potential by-products and their commercial value (e.g., molasses and ethyl alcohol from sugar milling)
• Marketing-linkaging activities must include by-products marketing

Agro-Industries and the Environment

• Agro-industries can cause environmental hazards
• Discharge of organic or hazardous wastes in water supplies
• Emission of dust gases that affect air quality
• Production of toxic substances
• Use of dangerous machinery impacting worker health and safety

Problems in the Processing Sector

• Lack of raw materials meeting quality specifications
• Presence of many substitute processed products resulting in increased competition especially in food
• Technological disadvantages of small processing firms
• High cost of processing
• Lack of quality standards

Potentials for Agro-industries

• Increasing demand for processed foods and non-traditional products
• Largely a private sector undertaking with strong industry associations
• Increased attention is given to make the sector flourish

Explore the vital role of agroindustries in transforming agricultural raw materials through various processing levels. This chapter highlights the economic importance of agroindustries, their contributions to manufacturing and employment, and the processes involved in agroindustrial practices. Discover how these industries strengthen both agricultural and industrial bases.