Agroindustrial project analysi

120 AGROINDUSTRIAL PROJECT ANALYSISWithin the constraints imposed by the market and process requirements,the project attempts to select the technology that willminimize costs. In calculating costs, however, the analyst shouldconsider public as well as private costs because they can differsignificantly. Different technologies can also make varying uses ofthe factors of production. Thus, the analyst should examine therelative scarcity and costs of these factors. The principal productionfactors to be considered are labor, capital, energy, and raw material.LABOR VERSUS CAPITAL. The tradeoff between factors most discussedin the debate over "appropriate technology" is the paradigmof labor versus capital. 3 By this model labor is viewed as abundantand capital as scarce; therefore, labor- rather than capital-intensivetechnology should be used. Pools of surplus labor that face fewemployment opportunities cause low opportunity costs. Accordingly,a shadow pricing of costs would favor the labor-intensivetechnological option, especially when increased employment is asocial priority. But the wage paid by the factory may be higher thanthe opportunity cost because of minimum wage laws, social benefits,and other factors. Furthermore, artificially low interest ratesor overvalued exchange rates may make the import and use ofcapital equipment more financially attractive to the owner of thefactory than an intensive use of labor. (These "prices" could beadjusted in the analysis of the social costs and benefits.) In thiscase the public and private interests would diverge, and means ofreconciling these differences through policy adjustments or the redesignof the project would be in order.There are, however, variations on the paradigm. C. Peter Timmer'sanalysis of alternative levels of rice-milling mechanization inIndonesia will serve to illustrate. 4 Timmer concludes that a smallplant, milling four tons per hour and consisting of two machinesfor hulling and whitening, is economically superior to hand poundingor to larger mills with mechanized drying and storage facilities(see table 4-1). His conclusion may be debated, however, becauseof the possible negative effects on employment and income distribu-3. See the fourth section of the bibliography for additional references.4. C. Peter Timmer, "Choice of Technique in Rice Milling on Java," Bulletinof Indonesian Economic Studies, vol. 9, no. 2 (July 1973), pp. 57-76;reprinted as a Research and Training Network Reprint (New York: AgriculturalDevelopment Council, Inc., September 1974).