How to select cost effective technology and ensure capacity utilization in agribusinesses?
Vijay Sardana

Selection of right technology at right price is always crucial. In fact wrong-processing equipments can add to a permanent defect or inefficiency in the system.

An agro-processing project can save significant capital without sacrificing product quality or jobs by purchasing used machinery. High labour costs in developed and industrialized nations put a premium on labour saving innovations; hence, manufacturers purchase new machinery to compete. Due to rising human resource cost and shortage of competent human resource, many Indian companies are looking forward to technologies, which can deliver desired results in cost effective manner.

Although the equipment displaced by this practice is not economically viable in the developing economies like India because these nations have lower labour costs and are willing to install the labour-intensive equipment for both financial and social reasons.

The alternate way to bridge this gap is the use of used equipments. The used equipment does not alter the quality of the end product but simply takes advantage of the cost differentials between factors; what has become inappropriate technology for one environment can be quite appropriate for another. For example, one dairy product manufacturer purchased many packaging equipments from a foreign firm that was shifting to a newer labour saving technology. The capital savings to the Indian firm from purchasing used equipment were sufficient to pay for the training of workers in disassembling and operation of the equipment, the freight costs, and the reassembling and installation of the whole packaging equipment complex.

Why companies don’t buy Second hand Machines?

There are several reasons why second-hand equipment is not purchased more frequently.

• The information on the kind and quality of available equipment is frequently scarce, and the purchaser from a developing country may have to travel to the industrialized country to inspect the machinery.
• The supply of replacement parts for older machinery may be difficult to secure.
• Policymakers or plant managers and engineers may psychologically view used equipment as “low status” or “unprogressive.” In such cases, the management should remind these parties that, in socioeconomic terms, new are not necessarily always better.
• Used equipment is also difficult to appraise and, therefore, its purchase complicates the government’s task of fiscal assessment in order to extend the incentives and grants.
• Policy incentives and environment also discourages low cost used equipment adoption.

Many companies are often forced to go for the acquisition of technology by licensing, subcontracting, or direct foreign investment. The reason is high cost of new technology and new equipments and an alternative to buying second-hand equipment. This also adds to the legal cost of doing business.

Energy Efficient Technologies

Energy is one of the most vital factors in today’s business decisions. While selecting an appropriate technology this factor of production must be considered on high priority. This factor is becoming a major economic concern to companies, both in developed as well as developing nations. Evaluation of energy requirement is an important parameter in technology selection.

Agro-food industries are energy intensive and use significant amounts of energy.

Before committing itself to one technology and energy source, the agro-food industrial factories should assess the supply and price of alternative fuels and the energy usage of various technologies.

In grain industry like rice, maize, pulses, etc it is economical option to create sun-drying platform but there is high risk of the contamination. Solar energy is, of course, free, but the energy savings of this source would have to be weighed against other factors, such as the quality of the end product. Grain dried in the open-air is subject to damage by insects or weather. If the alternative sources were coal, fuel oil, or wood, the product would have to be indirectly heated to avoid contamination by soot or smoke. If the alternative were natural gas, the cost might be greater but the processor could use direct combustion heaters, which have lower capital and operating costs and a higher efficiency. Energy is some times subsidized by the government. It is true in some cases and can lead to certain private entrepreneurs to set up value-addition.

There is a need to assess the social as well as the financial costs for determining energy costs as it is for analyzing the labour and capital factors. Procedures for “energy auditing & accounting” of agri-food processing operations are well developed. The managers and entrepreneurs should;

• Decide on an objective of the audit (for example, to improve the efficiency of heating energy used in a process);
• Choose a system boundary which you want to analyse (for example, a piece of processing equipment like dryer or a series of processing operations like pasteurization in HTST operations);
• Draw a flow diagram of the process as mentioned in the identified system (using standard symbols);
• Identify and quantify all forms of mass and energy inputs (for example, steam, heated air, or electrical energy that crosses the system boundary);
• Identify and quantify all forms of mass and energy outputs (including any increase in energy incorporated in the product itself).

This accounting can generate alternative energy costs per unit of product of different technologies and fuel sources. It can also reveal points in the process that can benefit from alternative energy source. For example, the use of solar energy to heat water required to feed the boilers in processing operations like steam drying or pasteurization. Food technologists, agriculture engineers or industrial engineers can provide the requisite calculations. An emerging source of energy for some countries is the agro-industrial production of bio-fuels like ethanol form biomass. Biomass-based ethanol is particularly useful as a gasoline substitute and as a chemical feedstock, and it can be produced from sugar-bearing materials like sugarcane, starches, or celluloses. The basic technology is well known, and sugarcane-based ethanol appears to be economical at current oil prices per barrel.

A major consideration or constraint is that sufficient land be available for crops intended for ethanol production and that these lands not to displace acreage needed for staple food crops.

Use of Processing Capacity

One of the common problems facing most of the agro-food industries is the under utilization of capacity because of the uncertainty due to seasonality of raw material availability and market demand for the product.

To some extent, it is sensible to select the kind of technology that can reduce idle time caused by seasonal factors. In many operations, many processing steps are the same for different products requiring the same kind of transformation.

Consequently, a plant constructed to process beans, for example, can readily process certain other vegetable or fruits with modest additional equipment and changes in labour procedures. Similarly, fryers and dryers equipped for heat processing or canning could process wide range of vegetables and fruits. By adjusting the technology to handle a broader range of products, agro-food industries can procure raw material over longer period that encompasses the cycles of different crops.

Other means to enhance capacity utilization other than technological options exist for reducing the effects of seasonality on raw material availability as well as demand.

For some agro-food industries the scarcest resource may not be capital or energy but raw material for example strawberry for jam industry. Consequently, priority must be given to that technology which makes most efficient use of the raw material because raw material costs are the greatest expense for most of the agro-industries.

Any technology that can produce cost savings in raw material use can yield a significant economical benefit.

On the other side, focus on raw material production for longer duration is important to address supply side constraint. These include the planting of multiple crops through use of modern irrigation techniques or new seeds, the introduction of shorter breeding cycles through animal genetics, the substitution of stored, semi processed raw material in the production process like use of concentrate and pulp for juice making, and the introduction of special advertising to consumers during the off season like ice cream promotion in winters.

Finding ways to increase full use of project capacity is important not only for increasing the revenue-generating period of the investment but also for reducing the adverse socioeconomic consequences of seasonal unemployment and maintenance cost.