Commodity Systems

Actualizing vision |
NORTHWEST SAMAR STATE UNIVERSITY Harnessing potentials | Improving lives
AGRIBUSINESS
COMMODITY SYSTEMS
WENDELL L. ULTRA, L. Agr.
PROCESSING SECTOR
• The Agribusiness Processing
Subsystem
oThe transformative activity in the
agribusiness system
oProvides competitive advantage to
the raw and undifferentiated
agricultural product
oThe agro industrial sector of
agribusiness
• Agroindustry – defined by James Austin

(1981), as an enterprise/s that processes
agricultural raw material including ground
and tree crops as well as livestock.
Characteristics of Agricultural
Raw Materials
•Seasonality
•Variability
•Perishability
• Seasonality – because raw materials for agroindustry's

is biological, its supply is seasonal, available at the end
of the crop or livestock reproduction cycle. Although raw
material supply is usually available only during one or
two brief periods during the year, the demand for the
finished product is relatively constant throughout the
year.
• Perishability – unlike the raw material used in non-

agro industries biological raw materials are
perishable and often quite fragile. For this reason,
agro industrial products require greater speed and
care in handling and storage, which can also affect
the nutritional quality of food products by reducing the
damage or deterioration of the raw materials.
• Variability – quantity is uncertain because of

weather changes or damage to crops or
livestock's from disease.
• Quality varies because standardization of raw
materials remains elusive, even though there
have been advances in animal and plant
genetics (this is in sharp contrast to the
extensive specifications for standard materials
used in other manufacturing industries).
• These variations exert additional pressure on
an agro industrial plant's production scheduling
and quality-control operations
Importance of Agro-industries
• Agricultural products increase value through agro-
industries. This sector therefore maximize the use of
agricultural raw materials.
• Agro-industries strengthen the agricultural base of the
country which consequently improves the industrial
base. The development of industrial sector relies
heavily on the developed production and agro
industrial sectors.
• In the Philippines, processed products accounts for a
larger percentage of exports as compared to fresh
one. Of the country's top 25 agricultural exports, 20
are processed products.
Importance of Agro-industries
• Agroindustry's have been contributing more
than 50% to the total manufacturing sector's
gross value added.
• Play an important role in economic
development through increased employment
• Add storability, palatability, transportability and
nutritive value through different levels of
transformation
• Pave the way for activating "sideway linkages" -
linkages derived from the use of by-product
Three Classification of Agro

Industries
Level Processing Activities Illustrative products
1 Cleaning, Grading, Sorting, Washing Fresh fruits, vegetables,
eggs
2 Stripping, Cutting, Deboning, Slicing, Mixing, etc. Cereals, grains, meat,

spices, animal feeds, jute,
cotton, abaca, lumber,
rubber
3 Cooking, Pasteurization, Canning, Dehydration, Dairy products, fruit,
Freezing, Weeding, Extraction, Assembly, etc. vegetables, meat, sauces,
textile and garments, oils,
furniture, sugar, beverages
4 Chemical alteration Instant food, textured
vegetables, tires.

Industries
By Activities (Upstream and Downstream
activities)
• Upstream industries – companies that are
engaged in the initial processing activities
oe.g. cleaning, grading, ginning, cutting,
mixing, milling, tanning
• Downstream industries – companies engaged
in further processing of agricultural products
oe.g. cooking, canning, dehydration chemical
alteration
Upstream
Sorting / Grading
Downstream
Canning facility

Industries
By type of product produced (Food and Non-
food Product)
• Food Industries – basically follow the same processes
and have the same end use (food)
o Processed meat
o Milk and dairy products
o Processed fruits and vegetables
o Processed fish
o Bakery products
o Beverages e.g. chocolate, coffee, tea
o Condiments and flavoring extracts
o Cereals and grains
Food industries
Processed meat Milk and dairy products Processed fruit
Processed fish Beverage (Coffee)


Industries
• Non-food industries
oLeather and leather products
oWood and woodworks and cork products
oTobacco manufacturers
oRubber and rubber products
oTextile manufactures
oPaper and paper products
oFiber products
Non-food industries
Leather products Wood products Rubber products

Processing makes the product…

• Palatable
• Preserveable
• Portable
• Better alternatives
Considerations in Venturing in Agro

industrial Enterprises
1. Selection of processing technology
2. Plant location
3. Inventory Management
4. Supplies for Processing (Packaging and
other Inputs)
5. Programming and Control
6. By-products
1. Selection of Processing Technology

a. Qualitative requirements
• Determine what the markets require the more strict the
requirements are, the higher is the cost of processing and
the higher the value attached to the processed products.
b. Process requirements
• Depends on the level of transformation that could be done
to the raw materials
• This could serve as barriers to entry to processing
companies
• Potential investor must consider optimum labor-capital
combination, availability of technology and suitability of
raw materials.
1. Selection of Processing Technology

c. Rated and Actual Capacity Utilization
• Investor must look into the possibility of the multiple uses of
equipment and machinery.
d. Management Capability
• Supervisors must have techno managerial competence in
managing the agro industrial plant
e. Nutritional Value of the processed food
• An investor must also evaluate the effect of the processing
technology on the nutritional value of the processed food.
• Prolonging the shelf life and increased digestibility are only
one side of the issue.
2. Plant Location
•It has implications on:
oQuality of the raw materials received
oProducts sold to the market
oCosts involved in moving the RM and
the finished products.
• Decision to make – locating the plant

near the source of raw materials or near
the market in both cases, an investor has
to determine availability of:
oLabor
oBasic utilities like electricity and water
oBasic provisions such as roads and
communication networks
oLand costs
oDevelopment costs
Factors favoring plant location

near the raw materials source:
• Perishability of raw materials
• Sensitivity or fragility of raw materials
• Difficulty of transporting finished
products as compared to raw materials
• Not meeting the above conditions
would favor locating the plant near
the market.
Plant location factors include:

•Nearness to raw material sources
•Proximity to the market
•Transport factors
•Adequate labor supply
•Acceptable infrastructure
•Cost of land
•Effects of development in the location
3. Inventory Management
• Seasonality of raw materials
• Minimize imbalance between supply and capacity
o Less storage capacity for perishable materials but more
processing capacity
• Proper and adequate physical facilities
o Storage for finished good, supplies and equipment parts.
• Agro-industrial raw materials are characterized by
seasonality, perishability, and variability
• Inventory management – dependent on availability
and timing of raw material supply
Examples:
• Storage capacity of raw materials and storage cost
• Capacity of other physical facilities like refrigerators
• Storage capacity of warehouse of finished products
• Shelf life of raw materials and finished products
More space for lower level processing such as

sorting and drying.
Sufficient working capital for processing
activities with peak and slack season.
4. Supplies for Processing

• Next to raw materials in terms of importance to the
processing activities
• Include ingredients or parts other than the raw
materials, packaging materials, and other finishing
products such as varnish in the case of wood
furniture manufacture
• Contribute a considerable proportion in the cost of
processing (e.g. packaging materials such as
cans)
• Reliability and availability of supplies must be
ensured.
Packaging and other inputs

•Protects the product’s quality
•Facilitates product’s transportability
•Enhances product’s identity
•Adds value thru differentiation
Purposes/Benefits of Packaging
•Protect
•Perform
•Inform
•Safety in delivery and transport
•Consumer choice
•Tailored portion sizes
•Convenience
Which packaging must be used?

• Requirements of the consumer and
distribution channel
• Unmet needs
• Requirements due to the nature of the
product
• Transportation, storage, handling demands
• Government regulations, technology,
environmental considerations.
FOOD PACKAGING: Different Levels

of Packaging
• Packaging may be defined as the activities of
designing and producing the container or wrapper
for a product. The container or wrapper is called
the package. The package is either the primary,
secondary or shipping package.
FOOD PACKAGING: Different Levels

of Packaging
• The primary package is
that which is in contact
with the food itself, e.g. a
tin can for packaging
mango juice. The product
in its primary container
as in the example cited
may be used for retail
sale.
• The secondary package – the material that

protects the primary package, such as carton
over wraps for products in pouches. The
secondary package is that which appears on
the product shelf for retail sale.
• Tertiary packages – assembly of a number of

secondary packages, e.g. pallet packaging,
tension nets, or ties for strapping the load.
• Transport packaging – packaging that is

devised to facilitate handling, transport and
storage of a number of primary packages in
order to provide efficient production and
distribution as well as prevent physical
handling and transport damage.
Criteria for the evaluation and selection of

specific food packages and containers
Preservation of Food Prolong shelf life
Quality
Barrier function Isolation of water/moisture, water vapor,
gas, light, odor, heat and others
Mechanical Protection Protection from vibration, shock, resistance
to moisture, loading, etc.
Stability Resistivity to chemicals, oils, frigidity, heat,
aging dimensional, stability, etc.
Mechanical Processing Strength and other properties
Printing Suitability Ink adhesively, fastness, printing accuracy,
etc

specific food packages and containers (cont.)
Air tightness and Adaptability to processing by heat sealing,
adherence ultrasonic wave and high frequency methods
(temperature, pressure, etc.
Safety Free from food disease and pathogens
Sanitation Transfer of toxic substances, inhibitions of
insect filtration, etc.
Working safety Safety in handling of hazardous substances,
etc
Convenience
• In distribution set-up Convenience in transportation, handling, etc.
• In process of Convenience in preservation after unsealing,
consumption repacking after use, disposal, etc.

specific food packages and containers (cont.)
Commercial viability Easy to market
Standardization Weight, unit, dimensions, etc.
Display of message Brand name, marks, date of
manufacturers, etc.
Display of product Transparency, graphic effect,
display shape, etc.
Economy Manufacturing and processing
costs
Function of Food Packaging

A. Packaging to Contain, Protect, and Preserve
• The food package should protect the product from
spoilage or damage, which may either, be on of the
following three types:
1. Chemical
Caused by contact of the food with air, light, heat and
containing gases.
May be manifested in the product as browning due to
the reactions between protein and sugar, rancidity due
to the fat oxidation when excess fat or oil is released
by the food, or other chemical reactions, which may
lead to off-flavors or off odors.

2. Physical
• Results from contamination by dirt
and other foreign materials,
infestation by insects, and other
pests.
• Loss or gain of moisture also
constitutes physical damage. An
example is when crisp snack items
loses its crispiness, or when dry
powder such as soluble coffee starts
to cake or lump due to moisture
absorption.

3. Microbial
• Results from contamination by
microorganism because of
condition of pH, oxygen, water
activity, temperature and nutrients
favorable for microbial growth.
B. Packaging as a Marketing Tool

Factors that contributed to the use of packaging
as an effective marketing tools
1. Self-service all round the world
• The package must now perform a sales task. It must
attract attention, describe the product features, give
the consumer confidence, and make a favorable
overall impression.
2. Convenience
• Rising income of consumer means that consumer
are prepared to pay a little extra for the convenience,
appearance, dependability and prestige of better
packages
B. Packaging as a Marketing Tool

3. Company and Brand Image
• Companies recognize the power of well-designed
package to contribute to instant consumer
recognition of the company or brand.
4. Innovation Opportunity
• New packages can bring large benefits to
consumers and profits to producers. In many
cases, product innovation may be replaced by
simple changes in packing to again attract (new)
consumers.
A package with its corresponding

label has been referred as “silent
salesman”. In a same way that a
salesman uses his verbal skills to
convince a potential buyer to
purchase his goods, the package,
with the complete information on
its label, couples with an
attractive design will “silently”
convince the potential buyer to
purchase the product.
C. Packaging to Inform
Is best shown by the use of property – make labels
that serve as source of information needed by the
consumer.
A food label includes any tag, brand, mark, pictorial,
or clear descriptive matter, written, printed, marked,
embossed or impressed, or attached to a container
of food.
Labelling means any written, printed or graphic
matter (1) upon any article or any of the containers
or wrapper or (2) accompanying the packed food
(BFAD AO No. 22. Bs. 1984)
Mandatory label information required by

the Bureau of Food and Drugs for locally
produced or imported food include the
following items:
NAME OF THE FOOD

LIST OF INGREDIENTS
NET CONTENT / DRAINED WEIGHT
NAME AND ADDRESS OF
MANUFACTURER, PACKER OR
DISTRIBUTOR
LOT IDENTIFICATION CODE
Name of the food – the product name of the

food identifies the content of the package. The
name should be accurately described what is
inside the package
List of ingredient – all ingredients used,
including additives and colors, should be listed
on the package, ingredients should be listed in
the order of decreasing proportion in the product
Net contents/Drained Weight – contents
should be expressed either by weight or number
of pieces
• Names and Address of Manufacturer,

Packer or Distributor – whether the
product is manufacturers or merely
packed or distributed by a company’s
name should be declared.
• Lot Identification Code – this code is
useful in monitoring purposes
Drivers that Influence Packaging

• Ageing population
• Smaller households
• Greater disposable income
• Time pressures
• Health awareness
• Environmental awareness
• Consumer tastes – fashion and culture
• Technology advancements
• Competition
• Raw material costs
• Supply chain performance
• Globalization
Packaging in Agribusiness
• Packaging – the totality of products,
services and systems used to prepare goods
for preservation, transport, distribution,
retailing and consumption. (Philexport)
• Food packaging - 50% food and 50%

packaging
Four sectors in packaging according to type of

materials:
Paper-based materials – corrugated packaging like labels,
folding cartons, pull-trays, tissue paper (secondary materials)
Glass-based materials – bottles, jars, jugs (Decreasing
popularity)
Metal-based materials – flexible and rigid plastics
o Low density polyethylene (LDPE) introduced in the
1950’s
o Multi-layer laminates
o Modified atmosphere packaging – used to preserve
the quality of fresh produce
o Beverage crates
o Plastic trays
Issues in packaging
• High-cost of packaging materials due to high-tariff
rates.
• Local packaging materials are too limited and do
not meet export market requirements.
• Cost is the related factors.
Solution:
• EO 264 – tariff reduction on non-agricultural products
including packaging materials and inputs thereof (issued
July 1995)
• Tariff reduction is 50% (18% to 9%)
Forecasted effect to Agribusiness of

E.O. 264
• Increased in export by 1.5%
• Increase of imports by 1.44% (imports of packaging
materials)
• Reduction in the cost of production (it was claimed
by Philrootcrops, Visayas State University that
packaging materials constitute of 30% of their cost)
• Lower cost of packaging would mean lower prices of
end products which could trigger demand.
• New product developments and introductions to the
higher value-adding retail products (Sayo, 1997)
Food Packaging Market Demands

• Shorter order lead time
• Smaller order sizes
• Just in time delivery
• barrier/freshness keeping functions
• Convenience
• Tamper evident
• Cost-effectiveness
• Environmental friendliness
• Better graphics/aesthetics
Fresh Food Packaging

• Breathable/perforated film – allows natural
respiration of farm produce to continue
• Modified controlled atmosphere packaging –

modified atmosphere packaging involves the
introduction of specific gas mixtures into barrier
packaging to retard or prevent spoilage.
Modified controlled atmosphere storage

• Welded valves – small plastic one-way valves

are welded onto package to allow for the release
of gases which occur during the respiring
process.
• Cartons and corrugated cases

Processed Food Packaging

Barrier deposition (barrier coatings such as
aluminum oxide or silica provide higher oxygen and
moisture barrier while providing for transparency
and product visibility
Nano-silica coated high

oxygen barrier PET
films for food
packaging

• Barrier films – more environmental friendly and
cost-effective

• Squeezable tubes – for spreads and other foods

•Paper-based cartons and
corrugated cases

• Tin cans

• Bottles
Processed Food Labelling Requirements –

Philippines (Food, Drugs and Cosmetics Act)
• Name of products
Product name

• Ingredient list

• Net contents and drained weight
Net contents

• Name and address (packer, manufacturer,
distributor, importer)

• Country of origin

• Lot identification (code number)

• Open-date marking as per “Guidelines for open-
date marketing for prepacked food

• Nutrition information

• English, Filipino, or major dialect
Growth Areas
Aseptic (sterilized) packaging for fruit juices, drinks
and food
Conveniences and tamper-evident packaging
Modified and controlled packaging particularly for
fruits and vegetables
Microwavable, dual-ovenables
Single serve or unit quantity packaging or one-use
size (OUS)
Venturing of glass into new product application –
light weighing and improves surface decorations
Packaging Potential
• Growth of the food industry means growth of
packaging
• FFV offers a lot of potentials to the packaging
industry because if their high perishability
• Potentials in packaging technology
development
• Potentials in packaging products
manufacturing
• Many potentials in returnable packaging
4. Programming and Control Aspects

• Production design, production scheduling,
control systems
a. Production design – implementation plans and
production engineering
b. Production engineering – specifies physical
facilities and layout
c. Production scheduling – specifies production
runs and timing of production operations
This is important in scheduling raw material
deliveries and marketing activities
4. Programming and Control Aspects

d. Programming and Control
• Ensure orderly flow of materials (RM and
FG)
• Implement the anticipated tasks to meet
desired outcomes
oQuantities and delivery rates
• Planning and production shifts
oNo additional expenses in storage or
penalties for delayed deliveries
d. Programming and Control (cont.)

• Quality of the product
oChecking the quality of RM
oContamination levels, packaging integrity,
nutritional composition
oSampling
• Concern for environment
oCannot damage the environment
oHazard-free for employees, facilities for
treating
e. By-Products
• Economic opportunities that can be derived from
wastes, protect environment
• Processors must be able to identify potential by-
products and their commercial value.
• e.g. molasses and ethyl alcohol as by-products of
sugar milling operations
• Example: sugarcane (30% residues)
o Fuel for furnaces
o Molasses – monosodium glutamate, alcohol
o Mud – manure treatment (high phosphorus content)
Market-linkaging activities must also include by-
products marketing
Agro Industries also case

environmental hazards
• Discharge of organic or hazardous wastes in
water supplies
• Emission of dust gases that affect air

quality and produce toxic substances
• Use of dangerous machinery affecting

health and safety of workers
Problems in the Food Processing

Sector
• Food processing industry is composed of small-
scale enterprises – more than 95% of the food
processors are small in terms of scale of
operations.
Problems
• Lack raw materials which meet quality specification
due to inefficient agricultural production and
marketing
• Low level of technology: Technological disadvantage
of small processing firms.
• Lack of quality standards
• Lack of research and development at factory level
• Market related problems such as competitive
market/low access to large markets (presence of
many substitute processed products resulting to
increased competition – especially in food
Problems (cont.)
• Inconsistency in product qualities due to poor
practices
• Lack of cooperative efforts among small-
scale processors to advance interests
• High cost of processing
• Inability to meet food safety regulations and
packaging requirements
• Poor access to financing institutions
• Inadequate management skills
Solutions to Problems
•Government interventions
oTrainings
oTax incentives
oResearches provided to MSMEs
Potentials for Agro industries

• Increasing demand for processed food
products.
• Increasing demand for non-traditional non-
food products.
• Largely a private sector undertaking with
strong industry associations, increased
attention is given to make the sector flourish.
• Many allied industries are supporting agro
industries.
THE PHILIPPINE FOOD PROCESSING

INDUSTRY
• Consists of 11,000 companies producing a
wide variety of products
• Rely heavily on imported ingredients
• Includes:
• Meat and poultry products
• Fish and marine products
• Processed fruits and vegetables
• Seasonings
• Fats & oils
• Beverages

INDUSTRY
• Small and medium enterprises are mostly
family owned.
• Local companies dominate the industry e.g.
San Miguel Corporation and Universal Robina
Corporation, Liwayway Marketing Corporation
(a global company)
• Contributes 40% of the total output in
manufacturing
• Contributes 20% to the total GDP per year.

INDUSTRY
• Food consumption - US$39.7 billion in
2013 and Estimated to grow to US$54
billion in 2017
• Opportunities are in beef and lamb,
dairy, fresh produce, health food and
convenience foods (Australia)
• Annual average growth of the grocery
retail is 7%
Importance of Packaging to the

Agribusiness Sector
• Partner of the Food Industry
• Supports all sectors of the agribusiness
system
• Important in the whole value chain
Trends
• Filipino’s consumption of packaged foods
was encouraged through promotion.
• There is increasing demand for variety of
products which offer new flavors,
convenience and health benefits.
• Increasing income of the consumers is a
driver in the development of impulse and
indulgence products to satisfy consumers
craving for something new and different,
• Nestlé is number one in packaged products
Trends
• Nestlé uses health positioning through
different products emphasizing wellness

Commodity Systems

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Actualizing vision |

NORTHWEST SAMAR STATE UNIVERSITY Harnessing potentials | Improving lives

• Agroindustry – defined by James Austin

• Seasonality – because raw materials for agroindustry's

• Perishability – unlike the raw material used in non-

• Variability – quantity is uncertain because of

Three Classification of Agro

2 Stripping, Cutting, Deboning, Slicing, Mixing, etc. Cereals, grains, meat,

Three Classification of Agro

Three Classification of Agro

Processed meat Milk and dairy products Processed fruit

Processed fish Beverage (Coffee)

Three Classification of Agro

Leather products Wood products Rubber products

Processing makes the product…

Considerations in Venturing in Agro

1. Selection of Processing Technology

1. Selection of Processing Technology

• Decision to make – locating the plant

Factors favoring plant location

Plant location factors include:

More space for lower level processing such as

4. Supplies for Processing

Packaging and other inputs

Which packaging must be used?

FOOD PACKAGING: Different Levels

FOOD PACKAGING: Different Levels

• The secondary package – the material that

• Tertiary packages – assembly of a number of

• Transport packaging – packaging that is

Criteria for the evaluation and selection of

Criteria for the evaluation and selection of

Criteria for the evaluation and selection of

Function of Food Packaging

Function of Food Packaging

Function of Food Packaging

B. Packaging as a Marketing Tool

B. Packaging as a Marketing Tool

A package with its corresponding

Mandatory label information required by

NAME OF THE FOOD

Name of the food – the product name of the

• Names and Address of Manufacturer,

Drivers that Influence Packaging

• Food packaging - 50% food and 50%

Four sectors in packaging according to type of

Forecasted effect to Agribusiness of

Food Packaging Market Demands

Fresh Food Packaging

• Modified controlled atmosphere packaging –

Modified controlled atmosphere storage

• Welded valves – small plastic one-way valves

• Cartons and corrugated cases

Processed Food Packaging

Nano-silica coated high

Processed Food Packaging

Processed Food Packaging

Processed Food Packaging

Processed Food Packaging

Processed Food Packaging

Processed Food Labelling Requirements –

Processed Food Labelling Requirements –

Processed Food Labelling Requirements –

Processed Food Labelling Requirements –