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Agribusiness Subsystems

input subsystem support subsystem

support subsystem

PROCESSING
Government Agencies
production
subsystem Private Institutions

Industry Associations

SUBSYSTEM
processing
subsystem Education/Research Institutions

marketing
subsystem

Consumers

Agroindustry / Agroindustrial / Agroprocessing Sector Importance of Agroprocessing

o maximizes the use of agricultural raw materials
o consists of enterprises that processes agricultural raw materials
including ground and tree crops as well as livestock and poultry o provides competitive advantage to an otherwise raw and undifferentiated
agricultural product
o similar to agro-processing industry
o strengthens the agricultural base of the country and consequently improves
o transformative activity in the agribusiness system the industrial base

o transforms agricultural products into new forms of consumer goods

 add storability, palatability, transportability and nutritive value
through different levels of transformation
 minimize or eliminate physical (weight) and quality (value) losses
 aims to provide a better alternative that would satisfy the consumers’
needs and wants better than the competitors

Importance of Agroprocessing Importance of Agroprocessing

o generates employment that is expected to provide incomes for rural o results in increased demand for a wide variety of machinery, equipment,
households and addresses time smoothing in the labor market packaging materials, and intermediate goods used in the processing itself

o provides relief on rural underemployment o paves the way for activating sideway linkages (derived from the use of by-
products)
o addresses food security  demand for these products are called derived demand since they are
dependent on the demand of the processed/ main product
o improves access to food and other necessities to large groups of population

o significantly contributes to the total manufacturing value added in

developing countries

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Classification: Type of Products Produced Classification: Type of Activities

Food Industry Upstream Industry

o much more homogenous; processed mainly for preservation purposes o engaged in initial processing (cleaning, grading, ginning, cutting, mixing,
o processed meat, fish, fruits and vegetables; milk and dairy products; bakery milling, tanning, etc.) of agricultural commodities
products; beverages; cereals; condiments and flavoring extracts o fruit puree and jams; abaca fiber stripping; rice and flour milling; leather
tanning; saw milling
Non-food Industry
o requires a high degree of processing; there is usually a definite sequence of Downstream Industry
operations o undertakes further processing (cooking, canning, dehydration, chemical
o leather products; wood, woodworks and cork products; paper and paper alteration, etc.) on intermediate products made from agricultural products
products; fiber and textile products; tobacco manufacturers o bread, biscuit and noodle making; fish processing (canning); meat
processing; textile spinning; paper production; clothing and footwear
manufacturing

Classification: Levels of Transformation Considerations in Entering the Agro-processing Industry

o Level 1 – cleaning and grading 1. Selection of processing technology

o Level 2 – ginning, cutting, and mixing 2. Plant location

o Level 3 – cooking, pasteurization, canning, dehydration, freezing, weaving, 3. Inventory management

extraction, and assembly
4. Supplies for processing
o Level 4 – chemical alteration and texturation
5. Programming and control

6. Use of by-products

1. Selection of Processing Technology 1. Selection of Processing Technology

Qualitative requirements
o determine what the market requires Management capability
o the more strict the requirements are the higher is the cost of processing o must have techno-managerial competence in managing the agroindustrial
and the higher the value attached to the processed products plant

Process requirements Cost of technology and labor

o depends on the level of transformation that could be done to the raw o level of mechanization one adopts does not only depend on the nature of
materials the production process but also on the cost of labor in the site
o this could serve as barriers to entry to processing companies
o potential investors must consider optimum labor-capital combination Nutritional value of processed food
o evaluate the effect of the processing technology on the nutritional value of
Rated and annual capacity utilization the processed food
o must look into the possibility of the multiple uses of equipment and o prolonging shelf-life and increase digestibility are only one side of the issue
machinery

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2. Plant Location 2. Plant Location

Decision to make: where to locate the plant Factors favoring plant location near the raw materials source:
o plant near the source of raw materials or near the market? o raw materials perishability
o raw materials sensitivity or fragility
In both cases, an investor has to determine availability of: o difficulty in transporting raw materials vs. finished products
o labor o products that are affected by the supply of labor and the availability
o basic utility like electricity and water of power and other structure
o basic provisions such as roads and communication networks
o land costs
o development costs Not meeting the above conditions would favor locating the
plant near the market.

3. Inventory Management 4. Supplies for Processing

The need for a careful inventory management o next to raw materials in terms of importance to the processing activities
o agroindustrial raw materials are characterized by seasonality, perishability
and variability o include ingredients or parts other than the raw materials, packaging
o depending on the availability and timing of raw material supply, there is a materials, and other finishing products such as varnish in the case of
need to examine: wood furniture manufacture
 storage capacity of raw materials and storage cost
 capacity of other physical facilities like refrigerators o contribute a considerable proportion in the cost of processing
 storage capacity of warehouse of finished products
 shelf-life of raw materials and finished products o reliability and availability of supplies must be ensured

5. Programming and Control 6. Use of By-Products

o Aspects: production design, production scheduling, control systems o Processors must be able to identify potential by-products and their
commercial value
o Production design – implementation plans and production engineering
(specifies physical facilities and lay out) o Market-linkaging activities must also include by-products marketing

o Production scheduling – specifies production runs and timing of

production operations (important in scheduling raw material deliveries
and marketing activities)

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Food Quality Control System

o an important concern in the food processing business

AGRO-PROCESSING/ o ensures that food safety requirements are met

o important in local and global marketing

MANUFACTURING o examples are:

STANDARDS  GMP – Good Manufacturing Practices

 HACCP – Hazard Analysis and Critical Control Point
 ISO – International Organization for Standardization
 Codex Alimentarius – Latin for “Book of Food”

Good Manufacturing Practices (GMP) Good Manufacturing Practices (GMP)

o also referred to as 'cGMP' or 'current Good Manufacturing Practice’
o covers all aspects of production; from the starting materials, premises
o is a system for ensuring that products—such as food, cosmetics, and and equipment to the training and personal hygiene of staff.
pharmaceutical goods— are consistently produced and controlled according
to quality standards o is designed to minimize the risks involved in any pharmaceutical
production that cannot be eliminated through testing the final product
o is the aspect of quality assurance that ensures that medicinal products are (the main risks are: unexpected contamination of products, causing
consistently produced and controlled to the quality standards appropriate damage to health or even death; incorrect labels on containers, which
to their intended use and as required by the product specification could mean that patients receive the wrong medicine; insufficient or too
much active ingredient, resulting in ineffective treatment or adverse
o defines general measures to ensure that processes necessary for effects)
production and testing are clearly defined, validated, reviewed, and
documented, and that the personnel, premises and materials are suitable  The first World Health Organization draft text on GMP was adopted in
for the production 1968 and was first published by WHO in 1992.

Good Manufacturing Practices (GMP): The 5 P’s Good Manufacturing Practices (GMP): The 5 P’s

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Good Manufacturing Practices (GMP): 10 Principles Hazard Analysis and Critical Control Point (HACCP)

1. Create Standard Operating Procedures (SOP) for processes and design o Developed by NASA in 1960 to ensure food safety of astronauts in the
specifications for facilities and equipment space program
2. Follow the SOP and specifications
3. Validate the SOP and specifications o is a management system in which food safety is addressed through the
4. Document everything analysis and control of hazards from procurement to consumption of the
5. Monitor the facilities and equipment finished products.
6. Employ competent and qualified personnel
7. Protect products against contamination o requires an identification of all the steps where “hazards” or problems
8. Control components and processes that are related to the product might occur; monitoring of the said steps; and taking corrective action
9. Ensure quality in operations, manufacturing, logistics, and distribution
10. Perform periodic audits with certified auditors o focuses on hazard prevention instead of hazard detection

HACCP: 7 Principles International Organization for Standardization (ISO)

1. Conduct a hazard analysis: Analyze biological, chemical, and physical hazards
o one of the oldest non-governmental international organizations
that could affect the safety of the food
2. Determine critical control points (CCPs): Determine where to focus on to o brings global experts together to agree on the best way of doing things –
prevent hazards for anything from making a product to managing a process.
3. Establish critical limits: Set limits for the CCPs
o has enabled trade and cooperation between people and companies the
4. Establish monitoring procedures: Create procedures to monitor the CCPs world over since 1946
5. Establish corrective actions: Decide what to do if something goes wrong
6. Establish verification procedures: Test the end product and verifying that the o The International Standards published by ISO serve to make lives easier,
controls are working
safer and better.
7. Establish record-keeping and documentation procedures: Keep
detailed records of hazards and corrective actions

International Organization for Standardization (ISO) ISO 9000 Series:

Quality Management
o a set of international standards on
quality management and quality
assurance developed to help
companies effectively document the
quality system elements needed to
maintain an efficient quality system.

o can help a company satisfy its

customers, meet regulatory
requirements, and achieve continual
improvement

o considered to be a first step or the

base level of a quality system.
PHOTO SOURCE: https://www.etq.com/app/uploads/2023/12/7-QUALITY-MANAGEMENT-PRINCIPLES-UNDER-ISO-90012015.png

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ISO 22000: Food Safety Management Codex Alimentarius

o is a collection of internationally adopted food standards and related texts
o sets out the requirements for a food safety management system and can
presented in a uniform manner which aims at protecting consumers’ health
be certified to it
and ensuring fair practices in the food trade
o maps out what an organization needs to do to demonstrate its ability to o intends to guide and promote the elaboration and establishment of
control food safety hazards in order to ensure that food is safe definitions and requirements for foods to assist in their harmonization and in
doing so to facilitate international trade.
o can be used by any organization regardless of its size or position in the
food chain. o includes standards for all the principal foods, whether processed, semi-
processed or raw, for distribution to the consumer.

o includes provisions in respect of food hygiene, food additives, residues of

pesticides and veterinary drugs, contaminants, labelling and presentation,
methods of analysis and sampling, and import and export inspection and
certification

Codex Alimentarius

AGROINDUSTRY

PROBLEMS,
POTENTIALS, &
RECOMMENDATIONS

Problems in Agroindustries Problems in Agroindustries

o Raw agricultural product supply and other critical input o Raw agricultural product supply and other critical input
problems (seasonal, variable and perishable) problems (seasonal, variable and perishable)

Seasonality effects: Variability effects:

 high financial requirements during months of high supply for primary  since most supply of commodities comes from small and non-
processing and inventory of raw materials for future production integrated farms, there is wide variability in cultural management
practices
 under-capacity processing plants in commodity specific processing
equipment and machineries  problem on consistency of quality and volume produced; the non-
integration of the supply chain due to small and fragmented farms
 higher prices during the off-season make it difficult to have control over quality and volume

 product failure due to disease outbreaks and weather disturbances

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Problems in Agroindustries Problems in Agroindustries

o Raw agricultural product supply and other critical input o Lack of quality standards
problems (seasonal, variable and perishable)  hampers the ability of the processing industry to enter foreign
markets; for example:
Perishability effects: • absence of industry quality standards (cut flowers and cut foliage)
 inadequacy of transport, cold storage facility and processing - constraint in the entry to lucrative Japanese floriculture market
technology
• Netherlands is able to penetrate and dominate the international
 technology limitations in packaging and low adoption of controlled trade due to industry domestic standards that are superior to the
environment have decreased effective utilization of raw material average international standards

• Food industry importing countries include food safety such as

certification for HACCP, ISO, FAO, WHO, and Codex Alimentarius
as part of their quality requirements

Problems in Agroindustries Problems in Agroindustries

o Inadequate support for farmers o Human resources and labor supply limitations
 lack of access to technologies, technical knowledge, and quality inputs  inadequate occupational standards makes it difficult for firms to hire
 lack of access to financing, with many excluded from the formal skilled and professional manpower in production operation and
financial system due to lack of collateral or high transaction costs. management

 for the meat processing industry, the lack of accredited butchers has
o Insufficient provision of public goods been identified as constraint in the establishment of livestock
 agricultural innovation is a public good that requires investments in slaughterhouses and meat cutting and processing
infrastructure, R&D and extension activities, with the public sector
playing a key role in provision.

Problems in Agroindustries Problems in Agroindustries

o Coordination failures o Other problems

 inaccessibility of markets and inadequate support for farmers may be  presence of many substitute processed products resulting to increased
seen as manifestations of coordination failure. competition – especially in food

o Weak regulatory system  high cost of processing – unstable cost of energy as a result of rising
 effective regulation is one way to promote coordination in markets, by oil prices in the international market substantially raising the cost of
harmonizing expectations about product characteristics and behavior production and threatening the competitiveness of large export-
of agents oriented agro-processing firms and eroding the profitability and
 even if standards are in place, the regulatory system may still fail variability of SMEs
owing to poor quality of regulatory services
 technological disadvantages of small processing firms

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Potentials for Agroindustries Recommendations for Agroindustries

o Increasing demand for processed food products o Development and growth of industry players
 external as well as internal scale economies are important in
o Increasing demand for non-traditional non-food products generating volume and lower production cost
 External scale – entry of more players in the industry thus increasing
o Flourishing healthy lifestyle industry output
 Internal scale – increase of capacity of firms in the industry in the
o Largely a private sector undertaking with strong industry associations, process contributing to the total industry output.
increased attention is given to make the sector flourish
o Development and growth of industry clusters
o Many allied industries are supporting agroindustries  The agro-processing industry cluster should be driven by self-
sustaining and reinforcing inter-relationships among the various
industry players arising from geographical proximity

Recommendations for Agroindustries Recommendations for Agroindustries

o Innovation and technology diffusion and generation o Food and product standards
 boosts development of new products and processes important in  setting of product standards ensures quality and consistency;
driving higher demand and entry to new markets requirement for food safety
 developing countries succeeds because of their ability to facilitate  key issue that is essential in achieving acceptability of Philipine agro-
technology diffusion in the early stages of development and generate processed products in the US, EU, and other Asian nations
technology in the advance state of development.  industry clusters with firms and government cooperation should
 automation to achieve quality and reliability of products implement food traceability
 production facilities should conform to world standards and best
practices should be adopted to achieve higher productivity
 with costs as major constraint, interfirm cooperation or government –
industry cooperation can be developed

Recommendations for Agroindustries References:

o American Society for Quality (ASQ). Quality Resources: ISO 9000. https://asq.org/quality-resources/iso-
o Coordination mechanism among stakeholders
9000?srsltid=AfmBOoq5F6A3eYLoCGhxohb_dFZItbDqqHD1kHSTmwH2ToZaphIwP5Tf
 is essential to have constant communication and collaboration among
o FAO. Codex Alimentarius. https://www.fao.org/fao-who-codexalimentarius/about-codex/en
its players
o GMP (Good Manufacturing Practices). https://safetyculture.com/topics/gmp/

o ISO 22000 Food safety management. https://www.iso.org/standards/popular/iso-9000-family

 can be done by developing a participatory competitiveness working
o ISO 9000 family. https://www.iso.org/iso-22000-food-safety-management.html
group for the agro-industry
o J.J.S. Cabardo Lecture Notes

o L.E. Mojica Lecture Notes

o Rodriguez, R.A., & Echanis, E.S. (2001). Fundamentals of management : text and Philippine cases.

o World Health Organization (2015). Medicines: Good manufacturing practices.

o World Health Organization (2016). WHO good manufacturing practices for biological products, Annex 2, TRS No 999.

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Thank you and

see you next meeting!
