Agroindustrial project analysi

98 AGROINDUSTRIAL PROJECT ANALYSIStheir nutritional well-being if they are small, low-income producers.Seller-buyer power relations clearly need examining, and these willbe discussed in the section on procurement organization, below.OPPORTUNITY COSTS. One of the limitations to buyer power andinfluences on raw material prices will be the opportunity costs tothe farmer who supplies a particular agroindustrial product. Theanalyst must determine what the farmer's crop flexibility is andthen compute the profit of alternative crops relative to the profit ofthe crop the agroindustry requires. Although the project is not investingin agricultural production, it is still necessary for the firmto understand the farmer's economics.17SYSTEM STRUCTURES. Structural factors in the farm-to-factorychain can also influence raw material costs. The most common ofthese is the middleman who buys the product from farmers andthen sells it to the factory. There is a tendency to label these intermediariesautomatically as exploiters and to consider their presencein the food system as undesirable. There is, of course, much evidencejustifying such labeling, and intermediaries certainly haveat times exercised oligopolistic control over supply channels. Butthese middlemen usually perform essential functions such as assembly,transport, or financing that someone else would have toperform in their stead if they did not exist. The analyst shoulddetermine the costs of these intermediary services and comparethem to the costs, efficiency, and equity of alternative methodsforexample, direct farm-gate procurement by the factory or directdelivery to the factory by farmer cooperatives.LOGISTICAL SERVICES. Service costs can significantly increase rawmaterial costs. Transport, a particularly important service charge,is often superficially analyzed or overlooked. Because raw materialprices are often calculated to include delivery to the factory door,17. For a practical approach to farm-level financial analysis, see J. PriceGittinger, Economic Analysis of Agricultural Projects (Baltimore: Johns HopkinsUniversity Press, 1972), pp. 130-55. See also Howard N. Barnum andLyn Squire, A Model of an Agricultural Household: Theory and Evidence,and Maxwell L. Brown, Farm Budgets: From Farm Income Analysis to AgriculturalProject Analysis, World Bank Staff Occasional Papers, nos. 27 and29, respectively (Baltimore: Johns Hopkins University Press, 1979).