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food processing

food processing

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Published by: anon-168153 on Sep 06, 2008
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03/22/2015

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Contents
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 Food processing 
Background
Kenya has a large agro-processing industry, reflecting the importance of the agricultural sector in theKenyan economy. The majority of the pioneering industries during the colonial period were agro-based.A wide spectrum of agro-industries exists today, ranging from processing staple food and fruits, to beverage and tobacco production for both the domestic and foreign markets. Food processing is thusone of the key activities in Kenya's agro-processing industry.
History of firms in the sample
Origins, ownership and structure
Two large firms, one processing pineapple and the other producing a wide range of household productsusing agricultural raw materials, were studied. Pineapple canning and the production of pineapple juiceconcentrates is one of the most successful agro-processing industries in Kenya today. It is dominated byone multinational company, Del Monte (Kenya) Ltd. which is owned by the US-based Delmonte FoodsInternational. Almost all of its canned pineapples and juice concentrates are exported.Del Monte, the only pineapple processing firm in Kenya, started operation in 1965 when it took over from a local company, Kenya Canners Ltd. which had been in existence since 1948. The companyachieved a remarkable growth in export sales between 1970 and 1990 (see Table 10.1).The second firm studied in the agro-processing sector is East Africa Industries (EAI). EAI wasestablished by the British colonial government in 1943 in Nairobi to achieve a specific wartimeobjective, i.e. provide food products and other provisions for a large number of soldiers and recruitsduring the Second World War. The company was consequently expected to reduce imports of nonmilitary requirements and ensure regular supplies. The firm, then under the Kenya IndustrialManagement Board (KIMBO), manufactured soap and bricks.Due to the inability of the British government to manage the firm adequately, Unilever joined in partnership with the colonial government in 1956. In 1978 the Kenyan government, through the ICDC, bought 34 per cent of the shares, with Unilever retaining 66 per cent. By the early 1960s, EAl's focushad shifted to the manufacture of household goods for the needs of the indigenous people, many of whom had acquired a taste for a wide range of products. The firm's labour force grew rapidly from 155in 1965 to over 3 500 workers (including casuals) by 1992 (Table 10.2).Unilever, with its wide and successful international experience and connections, provided EAl'smanagement training and technology requirements. The Unilever Conglomerate has 529 companiesworld-wide, from which it draws management and technological expertise. EAI staff are frequentlysent for training at Unilever establishments outside Kenya.
 Production structure
Del Monte has constructed a large cannery plant backed by workshops, training facilities and a large plantation at Thika, near Nairobi. The factory has a large electronic 'ginaca' machine which processes pineapples efficiently. It has been able to achieve close to 100 per cent usage of the pineapples: theoutput is 22 per cent solid pineapple, 34 per cent juice concentrates, 21 per cent mill juice sugar and 22 per cent cattle feed. Del Monte produces high-quality pineapple products destined primarily for theEuropean market. The firm's success in the export market can be attributed to processing efficiency,strict quality control on raw materials and final products, a disciplined workforce and a well-designedinternational marketing network and strategy.
 
Table 10.1
Production and export trends for Del Monte 
1970 1980 1985 1990
Employment (numbers)6914 9506 0006 052Production (000 tonnes)9.3730.5053.32072.48Export sales:Canned pineapple (000 tonnes)6.2224.5144.4759.43Juice concentrate (000 tonnes)2.704.546.319.60Labour costs (% of totaloutput)10.49.38.57.1
Table 10.2
Structure of employment for EAI
 Employment 1970 1980 1985 1990 1992
Permanent (numbers)9619561 2601 2601 600Casuals (numbers)9001 3001 6301 9501 944EAI produces four main product ranges; namely body care, edible oils and drinks, detergents andindustrial products. The body care products include jellies, body cream, lotion, body sprays andtoothpaste's. Edible oils include cooking fats, oils and margarines. EAI also produces a range of fruit juices, spices and tomato sauces. The soap and detergent products include beauty soaps, general purpose bar soaps, detergent powder and non-soapy detergents.
External factors affecting export growth
 Raw material problems
Del Monte's main raw materials are locally available and include fresh pineapples, sugar and water.The firm relies on its 10 000 acre pineapple plantation at Thika, about 50 km from Nairobi. The pineapple is a perennial plant which yields its first fruit 20 months after planting. Once planted, a pineapple plant can go on producing fruit for several years but the quality and size of the 'ratoons'deteriorate over time. Del Monte harvests only the first ratoon to avoid poor quality. The offcutsobtained during harvesting are then replanted. Because of the scanty rainfall in the area, Del Monteirrigates the crop to stabilize production. The firm relies heavily on imported fertilizers, fumigants, pesticides and hormones to achieve high yields and faster maturation.Some pineapple production activities are highly mechanized. The heavy investment in farm machineryand the cannery requires an expansion of the pineapple plantation. However, acquisition of more landhas become a critical problem in the firm's attempts to expand at its current location, due to rising population density and the attachment of local people to their plots. Further export expansion will thusdepend on the company's ability to acquire more land.EAI, on the other hand, relies heavily on imported inputs. In its early years of operation, the companyimported cotton oil seed from Uganda for the manufacture of cooking fats. Other edible oils rawmaterials were available in East Africa: coconut oils from Tanzania, palm oil from Zaire' groundnutsfrom Tanzania and tallow and sesame oil in Kenya and Tanzania. However, these are not produced inlarge quantities and it was uneconomical for EAI to acquire them from these sources. During this period, EAI had a storage capacity of just 800 tonnes. By 1992, the company had expandedtremendously hut locally available raw materials were still negligible and it had to rely on imported oilsand other raw materials. In recent years, the firm has been intensifying efforts to encourage domestic production of raw materials, especially sunflowers.
 
Palm oil, the principal input used by EAI, is imported from Malaysia, where Unilever has substantialinterests. It is used as a base in the production of most of its products. The firm also uses sunflower seeds, which are grown locally on small-scale farms. An oil crop development project jointlyundertaken by EAI and the Kenyan government to supply EAI with oil-bearing seeds stalled when theKenyan government pulled out, but there have been recent attempts to revive the project.Exports by EAI were adversely affected in the 1990s by the emergence of competing firms, whichappeared to have government support and received first priority in the allocation of foreign exchange toimport raw materials. However, with the liberalization of the foreign exchange market in 1993, allfirms were expected to operate on a level playing field. But EAI has not won government support for the potentially lucrative oil crops development project because some influential businessmen regardedthe project as a threat to their own firms. An attempt by EAI to establish a cattle feeds production lineto integrate production activities and improve the efficiency of raw material utilization was alsosuspended by the government after some heavy equipment had been installed. The production of cattlefeeds would have adversely affected firms owned by these influential businessmen.ExportEAI is currently one of the most competitive firms in the East African region in the production of household consumables. Its goods, especially edible oils and detergents, are in great demand in theregion. The company started exporting in 1978 when the Kenyan government permitted the export of selected items to the Eastern Africa region. One of the first major export items was soap to Uganda.However, due to acute foreign exchange shortages experienced in Kenya around 1987, export quotaswere imposed on the firm as the government had insufficient hard currency to allocate to EAI to importthe necessary raw materials. The government pegged exports to production levels in an attempt toensure that the domestic market was satisfied. The quota was progressively increased from 10 per cent(within the PTA region) in 1987 to 30 per cent in 1990. Neighbouring countries, which constituted a large part of the firm's market, were also constrained bylack of foreign exchange to pay for the goods. However, despite these obstacles, the company remainsan important exporter of household consumer goods in the region (Table 10.3).The firm's exports to PTA countries had increased considerably by 1992. The company has had acompetitive edge in the PTA market especially in the export of detergents and body care products. Themain PTA export markets continue to be Uganda, Tanzania, Zimbabwe, Zambia, Zaire, Rwanda andBurundi. Limited quantities of some products have been exported to some EU countries.Unlike EAI, Del Monte's products are mainly for the European market. Less than 5 per cent of total production is marketed locally or in the PTA region. Some of the factors behind Del Monte's success inthe export market are its high quality control and ability to fulfill orders on time. Production and exportorders are computerized and closely monitored to ensure timely delivery. The firm's distribution systemto export destinations is well organized and efficient. It took an average of five days to fulfil orders,which was highly impressive by Kenyan standards.
Table 10.3
Export trend for EAI 1981-91 (000 tonnes) 
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
Exportvolume2 3501 7603 9504 0004 9806 1403 8003 8503 9704 2104 020
Technology and productivity
EAI has more than 30 different products, four refineries and storage tanks in Nairobi and Mombasa. In1989, EAI completed construction of a large, modern edible-oil refinery. The expansion andimprovement consisted of a continuous deodorizing/stripping plant, pre-treatment equipment and an oil

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