MPRA

Agrarian Economy and Rural Development - Realities and Perspectives for Romania
ECONOMIC PERFORMANCE OF INTEGRATED VEGETABLES CHAIN
Raluca Andreea ION 1 , Iuliana DOBRE 2
Abstract
The paper presents the economic efficiency of integrating activities down-stream
agriculture in an associative unit from the region around Bucharest, which collect vegetables from
farmers, process them into vegetables cans and sell them to the market. The research question is
whether the investment of such a business is efficient or not. Analysis, synthesis and calculation of
economic indicators are used to assess the activity efficiency. The main results show that investment
is feasible from economic and financial point of view; the rate of return is 33.8 per cent, the return
of investment is 8.7 years and the economic return of investment is 103 per cent, meaning that total
profit calculating by multiplying the yearly profit by ten years, the average period of using the
industrial equipment, is higher than the quantum of investment.
Key words: vegetables chain, specific investment, integration, economic performance
INTRODUCTION
The paper investigates the feasibility of investing money in a business of processing
vegetables, trying to answer the questions how efficient is this activity and what are the levels of its
profit, rate of return, economic return of investment and other economic and financial indicators of
business achievement.
The need for this investment lies in the external environment and market opportunities that
can be exploited by chain operators and the many weaknesses of vegetables chain which can be
overcome. The main shortcomings consist of high level of losses on the chain of 37 per cent
(Istudor, 2007), and collecting vegetables from many small producers who obtain small quantities
of production (Manole, 2005, Turek, 2008). They deliver to markets small and non-homogenous
batches of products, therefore, it is difficult for farmers to sell their output in hypermarkets and
supermarkets, which requires large and homogeneous batches of vegetables. To meet these
requirements, farmers have the choice of integrating activities of processing and marketing into a
single economic unit. Processing vegetables requires investment in production lines of high value.
This is the reason why it is recommended that the work of processing to be achieved within an
associative form.
As the model involves conducting several activities down-stream agriculture in a single
unit, called cooperative, and it comprises many members farmers, the vegetables chain is integrated
vertically and horizontally: vertically, as all the post harvest activities: collection, reception, storage,
sorting, processing, conditioning, packaging, marketing are undertaken in the same unit; and
horizontally, since the cooperative include several farmers who act as operators at the same stage of
the chain.
Economic performance depends on the mechanism of coordination. These mechanisms are
subsidies system, price, contracts, horizontal and vertical integration (Marion, 1986). Previous
research (Manole, 2006) assesses the impact of coordination upon agro-food system performance. It
was found that performance increases as activities are more integrated. This is the reason why in
this article integrated activities of vegetables chain are investigated for assessing their economic
efficiency.
1
Associate Professor, The Bucharest University of Economic Studies, Faculty of Agro-food and Environmental
Economics, email: raluca.ion@eam.ase.ro,
2 Associate Professor, The Bucharest University of Economic Studies, Faculty of Agro-food and Environmental
Economics, email: iulya_dobre@yahoo.com
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