Agroindustrial project analysi

18 AGROINDUSTRIAL PROJECT ANALYSISvalue-adding processing operation rather than as a part of a multistage,multiproduct commodity system. The failure to recognize theinterdependencies in that system created shortages of the raw materialand excesses of the processed products. Analysts must viewagroindustries as part of a larger milieu and recognize that theviability of such projects depends on the success of the wholemultidimensional system.Three components of the analytical frameworkAgroindustrial systems analysis focuses on project design as itrelates to the marketing, procurement, and processing activities.It is equally important, however, to apply the techniques of financialand economic analysis to assess the financial viability and socialcosts and benefits of a project. Thus, the analytical framework foragroindustrial project analysis contains three components, comprisessystems, financial, and economic analyses. This book willfocus on the first of these components by further examining theagroindustrial marketing, procurement, and processing activities.These activities have financial and economic implications andthereby inevitably relate the systems analysis to the financial andeconomic. Because an abundant literature on financial and economicanalysis and methodology is available, these subjects will not beexamined in detail in the text. Instead, a list of readings on financialand economic analytical techniques may be found in the firstsection of the bibliography. Yet the importance of these componentsof agroindustrial project analysis merits brief discussion.Owners and investors in agroindustrial enterprises are concernedabout their return on investment. It is therefore essential to conducta financial analysis to compute these returns. Unless suchcomputations prove the project financially viable, private investorswill channel their funds elsewhere. If the agroindustry is to be astate-owned enterprise, negative financial returns would suggest asubsidy. An adequate financial return on investment, however, isnot sufficient reason to launch a project. Society's return on theresources it devotes to the project must also be determined. Thisrequires an economic analysis, which will provide public policymakerswith a means of ranking projects according to their socialcosts and benefits, an assessment necessary if the use of scarcecapital resources to meet the country's development objectives isto be maximized. Managers in the private sector should similarly