2.5 Intrinsic factors affecting small-scale food processing enterprises
2.5.1 Overview of resources required by a food processing enterprise
Entrepreneurial success not only depends on the entrepreneurial characteristics of an individual, but also on environmental factors that impact on entrepreneurial activity. The main environmentally based factors that cause enterprises to fail are resource availability and the cost of running the enterprise (Chell, 1990).
The availability of one resource, such as appropriate equipment to produce good quality processed food, can only ensure success of an enterprise if other resources such as raw material are available (Chell, 1990). The case study described by Sandhu (1989) illustrates the importance of all the enterprise resources being available. An improved fish smoker resulted in the ability to smoke more fish at a time; this increased the need for raw materials that could not be supplied by the local fishermen. The new technology could have made it possible for the entrepreneur to produce more smoked fish, thus making more money, but the shortage of raw material limited the production.
Another example of a small food processing enterprise failing due to inadequate resources can be seen in the following case study. In Colombia a pilot site for processing potatoes was set up by the government, with the assistance of the Colombian Institute for Agriculture and Livestock, without first establishing the availability of raw materials (Wheatley et al., 1995). A survey carried out after production had started indicated that local farmers had no interest in selling the potatoes they produced to the processing plant,
because the farmers market the potatoes they produced, at an acceptable price, at a fresh produce market. The processing plant experienced a lack of raw material.
When all the necessary resources are available, the chance of enterprise success is improved, as can be seen from the case study described by New (1989). The Situm Banana chip enterprise uses simple production techniques such as drying and frying banana slices.
The stove is manufactured locally from sand and clay, the raw material (yava banana) is readily available all year round, does not change colour easily and is cheap. The enterprise was successful because the equipment, technology and raw material were available and inexpensive; keeping costs low and the group was highly committed to the enterprise. The banana chips were marketed locally through direct orders and reports from local shop owners were that the demand was higher than the supply, indicating that the enterprise had scope to grow.
A further important resource is the availability of skilled labour with both technical and managerial skills (FAO, 1995). Although not a food processing enterprise, the Thusano Silversmiths in Botswana clearly illustrate the detrimental effect that lack of technical and management skills can have on a small-scale enterprise. Even though the raw material (silver and gems) was readily available and equipment was donated to the group, their lack of technical knowledge and managerial skills caused the enterprise to fail. The group members did not have knowledge on cutting gems and they could not fix the equipment when it broke. The lack of financial management skills and of clear leadership resulted in their financial situation deteriorating to a state where the Botswana Co-operative Bank threatened to sell the enterprise in an attempt to recover costs (Harper, 1992). Table 2.5 gives a list of the important resources for a small-scale food processing enterprise, as considered by the FAO (1995); Fellows et al. (1996) and Kindervatter (1992).
From the case study of the Situm Banana enterprise described by New (1989) it is clear that determination and hard work can ensure successful management of a food processing enterprise, resulting in the success of the enterprise. The above-mentioned case studies referred to certain resources that are essential for a successful food processing enterprise.
The entrepreneur needs to take into consideration all the resources required to set up and run an enterprise, in order to prevent failure due to lack of resources (FAO, 1995).
The aforegoing discussion dealt with one of the main environmental issues, that is availability of resources, which is a determining factor in entrepreneurship (Chell, 1990).
Another environmental factor that impacts on entrepreneurial activity is accessibility to customers and markets (Bruno and Tybejee, 1982).
Table 2.4 shows that limited market research, lack of marketing and selling skills and an inability to access or expand markets are major constraints for small-scale processing enterprises, world-wide. The next section will further investigate market-related problems.
Table 2.5 Important resources to consider for the success of a small-scale food processing enterprise
Resource needed FAO, 1995
Fellows et al., 1996
Kindervatter, 1992
Suitable building
• Large enough room for work required (rat and dust proof)
• Storage facilities available
*
* Equipment
• Correct size for production level available
• Cost of purchasing and maintaining equipment *
*
*
* Inputs
• Available, sustainable, good quality raw material
• Cost satisfactory to keep up production
• Suitable, affordable packaging material
* *
*
*
*
* Access to services
• Clean water
• Energy source such as electricity, gas or coal
• Waste disposal system
• Adequate roads and transport
*
*
*
*
*
*
*
*
* Skills
• Technical and managing skills available
• Training facilities available
• Cost of acquiring such skills
*
*
*
*
* Labour
• Available affordable number of people needed to run
business * * *
* = important resource as identified by author
2.5.2 Overview of market-related aspects important for small-scale food processing