Business analysis

Business analysis

The promotion of value addition in the agricultural sector through agroindustrialization is generally considered as one of the most efficient policies towards sustainable economic development. Indeed, investments in agro-processing are known to have significant multiplier effects, through backward and forward linkages across productive chains. Other benefits from such investments stem from the relatively high levels of employment generation, the improvement in food and fiber quality and the possibility of efficient operation at small scales.

The recognition of these characteristics by governments and international organizations has led to the creation of several development programs that provide incentives to the creation of agroindustries throughout the world. These programs typically include the provision of credit and technical assistance to potential investors. Many of them specifically target small farmers groups and small scale investors as beneficiaries.

In order to assess the feasibility of an agroindustrial enterprise, a potential investor must take into account a considerable number of issues, ranging from market to technological, financial and organizational questions. There are also several inherent sources of risk and uncertainty that must be properly considered, so as to minimize the likelihood of enterprise failure. Hence, proper investment project formulation and analysis becomes instrumental for the success of agroindustrial development programs.

As a way to contribute to the process of preparation and evaluation of an agroindustrial project, FAO has developed the software tool Agriventure. This software guides users through the entire process of data entry and analyses required in the formulation of an agroindustrial investment project. In a stepwise fashion, Agriventure follows both intermediate and final stages in the computation of raw material and input needs, product cost estimates, revenues, fixed and working capital requirements, financing schemes and all other details required for a comprehensive assessment of the financial feasibility of the project.

 While necessary for full fledged project preparation and evaluation, this complete set of functionalities has been simplified in a version of Agriventure tailored for preliminary assessments of an investment’s attractiveness from the financial standpoint. The simplified tool Mini-Agriventure has a fixed planning horizon of 10 years and requires that intermediate estimation steps in the calculation of costs, revenues and investments be made externally, prior to its utilization. In such a way, it offers a user friendly, basic platform for preliminary evaluations and rapid screening of alternative agroindustrial investments. Once initially appraised, a more detailed formulation of the project can be carried out with the support of the full version of Agriventure.

By developing and freely making available both of these decision support tools, FAO hopes to be contributing to improved project preparation and evaluation, thus leading to more sustainable agro-industrial enterprises and enhanced incomes in agribusiness worldwide.