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Small, Medium Food Enterprises As Catalyst For Rural Development, Job Creation

Published by Guardian on Sat, 04 Feb 2012

FOOD industries can be classified as small, medium or large based on certain features that include the size of the operation, investment, finance and working capital, management, production technique, physical facilities, quality control, marketing, and number of employees. Large food enterprises invariably obtain their capital through joint ventures with equity and loans from national and international financial institutions (the multinationals) and have ready access to local banks and governments.They have well-structured management, clearly identified and based on horizontal and vertical integration with several sections, including general administration, operations, purchase and marketing, quality control, personnel, finance etc. Their production techniques involve continuous operations achieving high volumes and their quality control is a modern management function consisting of specific sections, including analytical, inspection, production and sanitation services and Hazard Analysis and Critical Control Points (HACCP) system.Large-scale industries employ several hundred workers and have market outlets that cover entire countries, with great export potentials. The large-scale food industries in Nigeria are involved mainly in brewing and beverage production, flour milling, production of complementary foods, sugar refining and production of sugar confectionery, milk and dairy products processing, vegetable oil refining, and production of biscuits and other bakery products, condiments and flavorings.There is no doubt that large-scale food industries have a unique role to play in promoting industrial development through employment generation, value-added processing and training of skilled manpower. They are contributing significantly to the nation's economy, but they are located predominantly in urban areas where their impact is greatest. Moreover, Nigeria's large-scale food industries are yet to realize their full potentials and there is the need to increase their contributions to overall value-added. The major problems faced by large-scale food industries in Nigeria relate to power supply, low capacity utilization, supply of raw materials, access to foreign exchange, maintenance of machinery and equipment, low local technology input and over-reliance on imported technology, as well as the need to improve the overall efficiency of their operations so as to reduce the unit costs of their products.Compared to large-scale industries, small and medium enterprises (SMEs) have lower investment and less access to financial institutions. Their management is mostly based on individual ownership or partnership and number of employees is usually no more than 100. Their production techniques invariably involve batch operations and their quality control is often limited to an inspection function. Rural development and agro-industrialization are closely linked with the promotion of food SMEs that rely on locally produced raw materials and traditional technology. By generating employment opportunities in the rural areas, food SMEs reduce rural-urban migration and the associated social problems. They are vital to solving the problem of imbalance between the rural and urban areas and are crucial to reducing post-harvest food losses, increasing food availability and attaining food security. The small and medium food industries in Nigeria include those involved in root and tuber processing, especially cassava and yam processing, cereal and legume processing, baking, fruit and vegetable processing, brewing and beverage production, flour milling, vegetable oil milling, cheese-making (warankasi) and production of yoghurt and other fermented milk products, fish and meat smoking and drying, and production of condiments. Two of the areas for strengthening food SMEs in Nigeria are as suppliers for large food industries and obligational subcontracting between SMEs and large firms.Food SMEs are a veritable source of foreign exchange from food exports as is the case in many of the developing countries of Latin America and Asia that realizes substantial foreign exchange from processed food exports. Argentina, Brazil, Malaysia, Thailand and Taiwan account for 40 % of all processed foods exported by developing countries. In contrast, Nigeria and most African countries realize little from export of processed foods. Indeed, in the case of Nigeria, Africa's leading oil-producer and one of the ten largest in the world, with crude oil accounting for over 90 % of government's earnings, substantial foreign exchange is spent on food imports. Nigeria spent N991billion on rice and wheat importation alone in 2010 and total food imports currently stands at about N1.3trillion annually. It is tragic that Nigeria, with a land mass of 924,000 km2, of which 80 % is potentially available for agriculture, and where 70 % of the population derive their livelihood from agriculture, imports hundreds of thousands of tons of diverse food commodities annually, some of these from countries that are less than one-tenth her size and are much less endowed.Nigeria which used to be an exporter of vegetable oil now imports about 60 % of the vegetable oil and over 90 % of the sugar consumed in the country. Reliance on food imports undercuts local agricultural production and stifles the growth of food SMEs. It is regrettable that except for Mauritius, Nigeria and other African countries have failed to take advantage of the African Growth and Opportunity Act (AGOA) that gives preferential access to African products to the United States market. Eleven years after it was established, AGOA that was founded on the premise that export-driven growth would provide sustainable economic development and prosperity in Africa, is yet to make an appreciable impact on the economies of sub-Saharan African countries that comprise 12 % of the world's population but accounts for less than 2 % of global GDP.Small and medium enterprises (SMEs) are important component of the food processing sectors of the economies of the developed countries, particularly in Europe and Japan, both in terms of number of companies and manufacturing value-added. It is instructive that about 90 % of the total number of food processing companies in the European Union are SMEs underscoring the critical role that small and medium enterprises play in terms of production, employment generation and overall growth of the economy, even in the most developed economies. Unfortunately, rapid growth and development of food SMEs in Nigeria are hampered by poor infrastructure including the deplorable state of electricity supply, the adoption of inefficient or inappropriate technologies, poor management, inadequate working capital, and limited access to banks and other financial institutions, high interest rates and low profit margins. Government policies should be directed at reducing food imports and removing the constraints that stifle food SMEs and provide an enabling environment for food SMEs to thrive for rapid rural development, agro industrialization and employment generation.'Aworh (FNIFST) is Professor of Food Technology, University of Ibadan and Chairman, Body of Fellows of the Nigerian Institute of Food Science and Technology.
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