Chapter 4: The Processing Sector PDF

Chapter 4 THE THE PROCESSING SECTOR Andrew Del-ong Lecture Notes in AB 11 1st Semester 2024-2025 PROCESSING SECTOR The agro industrial sector of agribusiness Agroindustry - consists of enterprises that processes agricultural raw materials including ground and tree c...

Chapter 4 THE THE PROCESSING SECTOR Andrew Del-ong Lecture Notes in AB 11 1st Semester 2024-2025 PROCESSING SECTOR The agro industrial sector of agribusiness Agroindustry - consists of enterprises that processes 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 and consequently improves the industrial base. Contribute significantly to the total manufacturing value added in developing countries.  Importance of Agro- industries Play an important role in economic development through increased employment. Add storability, palatability, transportability and nutritive value through different levels of transformations.  Importance of Agro- industries Pave the way for activating “sideway 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, mixing Level 3 – cooking, canning, pasteurization, dehydration, freezing, weaving, extraction, assembly Level 4 - chemical alteration, texturization  By activities Upstream industries o Companies that are engaged in the initial processing activities. E.g., cleaning, grading, ginning, cutting, mixing Downstream industries o Companies engaged in further processing of agricultural products. E.g., cooking, canning, dehydration, chemical alteration  By types of product produced  Food Industries – basically follow the same processes and have the same end use (food). * 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  By types of product produced  Non-food industries Leather and leather products Wood and woodworks and cork products Tobacco manufactures Rubber and rubber products Textile manufacture Paper and paper products Fiber products Considerations in Venturing In Agroindustrial Enterprises Selection of processing technology Plant location Inventory Management Supplies for processing Programming and Control By-products  A. Selection of Processing Technology Considerations 1. Qualitative requirements  Determine what the markets require  The more strict the requirements are, the higher is the cost of processing and the higher the value attached to the processed products.  2. Process requirements  Depends on the level of transformation that could be done to the raw materials  This could serve as barriers to entry to processing companies  Potential investor must consider optimum labor- capital combination, availability of technology and suitability of raw materials  3. Rated and Annual Capacity Utilization  Investor must look into the possibility of the multiple uses of equipment and machinery. 4. Management Capability  Supervisors must have techno- managerial competence in 5. Nutritional value of processed food  An investor must also evaluate the effect of the processing technology in the nutritional value of the processed food.  Prolonging shelf-life and increased digestibility are only one side of the issue. B. Plant Location Decision to make  Locating the plant near the source of raw materials or near market. * In both cases, an investor has to determine availability of: labor basic utilities like electricity and water basic provisions such as roads and communication networks land costs development costs Factors favoring plant location near the raw materials source:  Perishability of raw materials  Sensitivity or fragility of raw materials  Difficulty of transporting raw materials as compared to finished products * Not meeting the above conditions would favor locating the plant near market.  C. Inventory Management  Agro-industrial raw materials are characterized by seasonality, perishability and variability  Thus, it requires a careful inventory management  Dependent on availability and timing of raw materials supply. Things to Consider in Inventory Management  Storage capacity of raw materials and storage cost  Capacity of other physical facilities like refrigerators  Storage capacity of warehouse of finished products  Shelf life of raw materials and finished products  D. Supplies for Processing  Next to raw materials in terms of importance to the processing activities.  Include ingredients or parts other than the raw materials, packaging materials, and other finishing products such as varnish in the case of wood furniture manufacture. Supplies for Processing  Contribute a considerable proportion in the cost of processing e.g. packaging materials such as 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  Production engineering  Specifies physical facilities and layout E. Programming and Control  Production scheduling  Specifies production runs and timing of production operations  This is important in scheduling raw material deliveries and marketing activities  F. Use of By Products  Processors must be able to identify potential by-products and their commercial value  e.g., molasses and ethyl alcohol as by-products of sugar milling operations  Marketing-linkaging activities must also include by- products marketing AGRO-INDUSTRIES AND THE ENVIRONMENT Agroindustries also cause environmental hazards  Discharge of organic or hazardous wastes in water supplies  Emission of dust gases that affect air quality and produce toxic substances  Use of dangerous machinery affecting health and safety of workers  Problems in the  Processing Sector Lack of raw materials which meet quality specifications  Presence of many substitute processed products resulting to increased competition – specially in food  Technological disadvantage of small processing firms  High cost of processing  Lack of quality standards Potentials for Agro- industries  Increasing demand for processed food products.  Increasing demand for non-traditional non-food products.  Largely a private sector undertaking with strong industry associations, increased attention is given to make the sector flourish.