Problems and deterrents to growth of small-scale food processing

There are multiple constraints on small-scale food processors, but the three most important areas are: 1) raw material supplies and planning production; 2) packaging supplies; and, 3) distribution and sales.

Raw material supplies and planning production

There are special problems that make food processing different to most other types of manufacturing business. For example, the composition and yield of crops and animals vary according to the variety, the climatic and soil conditions, and the actions of weather, pests and diseases. Many raw materials spoil rapidly after harvest or slaughter unless they are quickly processed (Table 7). Some are also highly seasonal, and can only be processed for part of the year. Each of these factors can cause unpredictable supplies and large variations in the quality and cost of raw materials. This in turn makes financial planning and production planning more difficult.

Processors need to properly plan production to avoid delays in processing, which would result in spoilage of the raw material. Many processors lack the skills and knowledge to ensure that all inputs required for production are in place each day. Lack of an ingredient, staff shortages or machinery breakdowns due to lack of maintenance are each causes of delays and lost production, which can lead to failure of the business. In some areas, shortages of fuel are a major constraint and, in others, there may be seasonal shortages of water that restrict processing activities. Some processed foods also have a seasonal demand (for example, foods used in festivals and ceremonies, or those that are consumed at specific times of the year) and this further complicates the planning and operation of a food processing business.

TABLE 7 Spoilage of foods food

Type of food	Spoilage rate and storage life
Animal products: meat, fish, milk.	Very rapid: a few hours.
Leafy vegetables: lettuce, some types of herbs or cabbage.	Rapid: 24 to 48 hours.
Soft fruit: raspberries, strawberries.	Rapid: 24 to 48 hours.
Hard fruit: apples, citrus, pineapples, bananas.	Slow: days or weeks.
Roots and tubers: yams, potatoes, cassava.	Slow: days or weeks.
Seeds: spices, grain, nuts, oilseed.	Very slow: months or years if dry.

Source: Fellows and Axtell, 2001

Packaging

Packaging is used to control the shelf life of some foods, but in most developing countries there are serious shortages of plastic films, pots, jars, bottles, cartons, etc., which make packaging one of the most important constraints on small-scale food processors. Traditional packages including leaves, clay pots, etc., do not perform technically as well as plastics, metal or glass containers and may be perceived by customers as less attractive or inferior. For marketing purposes, smallscale processors also need to use attractive packaging to compete with larger producers or imported products.

Distribution and sales

After processing, the shelf life of processed foods can vary from a few days to several months or years. This, together with the quality of feeder roads and the availability and cost of transport, determines the geographical area in which a processed food can be distributed. Products that require chilled or frozen transport and storage facilities are not suitable for village processing in countries where a cold distribution chain is difficult to set up and manage. Problems may also arise because processors have little influence over the activities of retailers and other buyers. Products may be poorly displayed or left on display after their "sell-by" date. They may be incorrectly stored, which leads to accelerated spoilage, or buyers may not pay for foods for many weeks, which causes cash flow problems for the processor. The processors therefore need to pay great attention to who distributes and sells their products, and influence them to protect and promote the products.

Other constraints on small-scale food processors can be grouped into those that are intrinsic or within the control of a business, including:

lack of capital for expansion, inadequate management of finances;
little market investigation or understanding of marketing concepts;
under-developed entrepreneurial characteristics, selling or negotiating skills;
lack of networks with suppliers and retailers;
poor understanding of quality requirements by consumers, inadequate hygiene and quality assurance;
poor understanding of opportunities for product diversification.
Those that are extrinsic, or beyond the control of the business include:
little information on alternative technologies, lack of equipment production by local metal workshops;
insufficient support from research institutions and inappropriate training courses at teaching institutions;
little influence over services provided by support agencies or government field staff;
high cost of finance for small loans, land titles required for collateral on a loan;
poor coordination between government institutions and non-governmental organizations and conflicting government policies (e.g. taxation vs promotion of small businesses).

CASE STUDY 6 Assistance from a development agency

Bakery products are increasingly popular among the rural population of Malawi, where the market has been dominated by a few large bakeries in the main towns. However, their supplies to rural areas were intermittent and inadequate. Since 1989, the Development of Malawi Traders Trust (DEMATT) has introduced more organized progressive small-scale bakeries in rural areas throughout the country with encouraging results. It has provided training in baking buns, bread and cakes, production planning, quality assurance, costing and pricing, accounting, hygiene, business management, promotion and marketing. It also introduced fuel-efficient wood burning ovens that can be constructed from locally available materials using the expertise available in rural areas. The bakeries are able to produce between 80 and 100 loaves and 150 buns per day using a smaller oven, or between 800 and 1 000 loaves per day using a larger design. To date 33 individuals and a women's group have started new bakeries. Their main problems were shortages of flour and ingredients, and a controlled price for bread. Large bakeries have lower unit costs because they can buy bulk ingredients at a lower price. Rural bakers had higher costs because of transport charges and the need to buy smaller amounts, and these substantially reduced profit margins. DEMATT arranged with suppliers to sell ingredients to the bakers as a group rather than to individuals, thus reducing the price. The other main points that have led to the success of the rural bakeries are the small start-up investment of US$46-US$460 per bakery, the large demand for their products, and the use of efficient ovens that reduced fuel costs. (Source: Makoko, 1994).

In contrast to larger, formal companies and international conglomerates, most small-scale food processing enterprises have little political influence and do not receive government support (e.g. subsidies, foreign exchange allowances, price guarantees or access to specialist advice from government institutions). Some join associations to increase their economic or bargaining powers. Others seek external technical or financial assistance from development agencies, trade associations or government institutions to guide them to solutions for their individual problems (Case study 6). In South Asia and especially in India, small-scale food enterprises have been actively promoted by the central government for many years and there are many hundreds of thousands of successful rural enterprises.