|Food Chain No. 17 - March 1996 (ITDG, 1996, 16 p.)|
A question that frequently arises in projects that are intended to support enterprises is that of scale of operation.
At the smallest scale of processing, people, often women, process foods to earn extra income. They produce foods and sell them to neighbours or in local markets. Such enterprises should be considered as 'income-generating activities' as they are unlikely to expand and develop. This is because they are not able to supply regular orders to more formal retailers who require a guaranteed supply and a consistent quality product. Similarly, they find it difficult to compete with products from larger companies or with imports, which have more attractive packaging and more uniform quality They rarely have the capital to invest in special processing equipment and quality assurance. Therefore they are not able to operate with equipment that would give economies of scale or that would allow better control over processing conditions.
At a larger scale of operation (often called 'small' or 'cottage' scale), the problems are different. Typically these businesses, which may employ from two to five people and have an investment of up to $US 5000, are intended to provide a major part of the family income for the owner They may have a dedicated room for processing and an investment in some special equipment. At this scale the processors are often attempting to compete with imported equivalent products, with the expectation that they can be made more cheaply because of lower labour and distribution costs. In such cases the main problems are difficulties in obtaining small items of equipment or affordable packaging materials in the amounts required, lack of technical knowledge about production costing or quality assurance, and, in a few cases, lack of access to finance. At this scale, producers can be greatly assisted by appropriately designed training courses in both technical and business aspects of their production and by help in locating suppliers of equipment and packaging.
Finally, at the-largest scale of independent production commonly found in developing countries, the number of employees may be around 20 and the investment in plant and machinery may exceed $US 20,000. This type of enterprise not only provides the major source of income for the but also employs considerable numbers of skilled and unskilled people directly, and indirectly through linkages to farmers and distributors. Historically, this scale of production has been largely ignored by international development organizations because of a commonly held view that larger companies were either exploitative or could afford their own development costs. Today the picture is changing somewhat and it is recognized that such companies, when properly operated, provide desperately needed employment opportunities to a large number of people who are unable or unwilling to establish their own businesses.
The main problems faced by these enterprises are prohibitive tax regimes; competition due to the opening up of national economies to cheaper imports (structural adjustment programmes; inadequate control by standards boards over the quality of imported raw materials and packaging; and inadequate information about markets and consumer requirements in both national and export markets). Slowly it is being recognized that assistance to this scale of enterprise can have significant effects on both national economies (through reduced imports and increased exports) and unemployment levels.
However, in most developing countries there is still little support for either cottage- or larger-scale producers. In some countries, trade associations - such as the Kenyan Federation of Employers, the All India Food Preservers Association, and the Uganda Manufacturers Association - are leading the way as a voice for manufacturers, pressuring governments to improve legislation or tax regimes, and as a coordinating body to improve product standards and provide a service to members. Such organizations can do much more both to directly support smaller food processing industries, which then may grow into larger companies, and to influence the international development community that previous conceptions of 'all business is bad,' are no longer appropriate
Introducing the Asia pages
Food Chain has been published regularly for five years and we now think it is time to make stronger links with IT Sri Lanka and IT Bangladesh. They will be sending a regular feature of articles, news and items from Asia. They already have regular contact with people in Sri Lanka through a newsletter and radio programme about Madam Tasty. Through their communication unit they inform of recipes and methods, old and new, which may interest and benefit to others. They now wish to widen their network and reach more people. We are very pleased to bring you News from Asia.