Agroindustrial project analysi

THE PROCUREMENT FACTOR 71* Cost. The analyst investigates the economic importance of theraw materials, cost determinants, and pricing mechanisms.* Organization. The analyst examines the composition of theproject's procurement system, its structure, power, vertical integration,and producer organization.Adequate QuantityAgroindustries frequently have excess capacity because they failto ensure that an adequate supply of raw material will be available.The analyst should examine the determinants of output and thealternative users of the raw material with whom the processor willbe competing.Output determinantsThe first step in analyzing the raw material supply is to examinethe principal production determinants-area planted and cropyields.' For current crops, field surveys or trade sources give indicationsof the area and yield. For an indication of supply trends,production statistics should be examined by region over severalyears, and the forces affecting area and yield variables should beconsidered. The analyst will then be able to judge whether thehistorical production trend will continue and to assess the project'sdesign in relation to the supply trends.One of the factors affecting land area is the prevailing and expectedland-use pattern. The analyst should calculate the actualcultivated land area and the arable but unused land; this latterestimate should be of "economically arable" land or land that canbe cultivated with the economic resources likely to be available.Trends in land expansion should be examined because area increasescan be the source of significant growth in supply. In Brazil,from 1947 to 1965, yields increased little, if at all, but outwardmigration in frontier areas almost doubled crop area. 2 The analyst1. For livestock, production determinants are herd size and procreationrates.2. John H. Sanders and Frederick L. Bein, "Agricultural Development on theBrazilian Frontier: Southern Mato Grosso," Economic Development and CulturalChange, vol. 24, no. 3 (April 1976), pp. 593-610.