Chapter 1. Introduction

The context

Latin America and the Caribbean (LAC) is a region of developing countries with an average Human Development Index of 0.777, whereas the value for the highest-ranking country in the world in the year 2001 was 0.944 (UNDP, 2003). This Index is a summary appraisal of human development and measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge, as measured by the adult literacy rate and the combined primary, secondary and tertiary gross enrolment ratio (with one-third weight); and a decent standard of living, as measured by GDP per capita (adjusted by purchasing power parity, in US dollars) which serves as a surrogate for all the dimensions of human development not reflected in a long and healthy life and in knowledge. Many Latin American countries rank below the average value. Mean annual household income is very low, and within the region 77 million people (15.1 percent of the population) are living on the equivalent of less than one US dollar per day (1999 data according to UNDP, 2002). These people are probably confronting low food availability and therefore have low per capita daily dietary energy intakes, and belong to that sector of the population with low levels of nutrition. In several Latin American and the Caribbean countries over 15 percent of the population is undernourished. That is to say, their right to access to safe food in appropriate amounts and of the right quality is undermined. As a result, there are 53 million undernourished people in Latin America and the Caribbean, approximately 10 percent as a proportion of the regional population (FAO, 2004a). In eight countries in the region, at least ten percent of children under the age of five are underweight for their age group. Nine countries have less than 2 500 kcal/person/day of dietary energy supply (FAO, 2002a). Table 1 compares selected indicators describing the prevailing situation in Latin

American and the Caribbean with those in other countries.

TABLE 1
Selected social and economic indicators for Latin America and the Caribbean

* Purchasing power parity in USD; data for 2001 except under-nutrition (2000), adapted from UNDP, 2003.

It is known that a population with a high prevalence of hunger also has high rates of mortality for infants and for children under the age of five, and that life expectancy is lower. Hunger, undernutrition and food insecurity have a negative impact on the economic and human development situation in such societies. Arguably, this is inherent in the poverty syndrome, with upstream and downstream effects, in a self-catalyzing cycle where poverty generates undernutrition and malnutrition, which in turn increase poverty, and so on in a vicious circle.

The economically active population in agriculture is 7 percent in developed countries, 54 percent in developing countries, and 19 percent in the LAC region; agricultural exports relative to agricultural GDP are 64.1 percent for developed countries, 18.3 for developing ones, and 43 percent for the LAC region. However, the region has the highest rate of agricultural exports as a share of total exports (FAO, 2004a). There are other non-food indicators that give a clear idea of the state of development of a given country or region. As an example, regarding technology diffusion and creation indicators, the LAC region has an index of 162 telephone mainlines, 160 cellular telephone subscribers, and 49 internet users per 1 000 people, and 49 percent manufactured exports (in relation to merchandise exports), whereas countries with high human development indexes have 511 telephone mainlines, 529 cellular telephone subscribers and 328 internet users, all per 1 000 people, and 81 percent manufactured exports. The region has been affected by disasters, weather events, social and political conflicts and external economic processes. There has been very poor access to markets and services, and many services still need to be developed or improved. Economic growth, development and food security are linked to agricultural production in almost all countries (UNDP, 2003).

Nevertheless, Latin America and the Caribbean has five of the ten richest countries in the world in terms of biodiversity, forests, humid areas and renewable water resources are in the region, which is a globally important region in a number of crops, with yields above the world average. According to Dixon et al. (2001), the LAC region has one of the most diverse and complex range of farming systems in the world, with at least sixteen major distinct farming systems. Regional trends indicate that the LAC region is important or getting strong in world trade in a range of commodities. Also, cereal, fruits and vegetables, and oil crops are areas with growing trends in terms of yields and production. Ironically, selfsufficiency regarding cereals seams to be declining slightly. The region has gone through an intensive process regarding structural adjustment and economic liberalization. Among the potential strategies for poverty reduction are diversification, including a shift into off-farm employment, income generation and added-value activities such as processing and agroindustries, including quality aspects. These would result in increased small farm competitiveness (Dixon et al., 2001).

From the mid-1980s, the characteristic socio-economic policy climate featured trade and currency liberalization, reduced public sector intervention, and marked efforts to increase competitiveness through greater private sector participation. However, lagging agricultural trade liberalization plus farm protection and support policies in the industrialized countries, combined with trade barriers such as sanitary and phytosanitary regulations, agricultural tariffs and subsidies were major obstacles for the development of agricultural exports in Latin America and the Caribbean. Despite this, agricultural exports have slowly improved in the region due to demand from import partners, but the recent economic slowdown in developed countries has affected trade in this highly agriculture dependent region. As described above, this situation points to the importance of focusing policy and strategy on the development of technological, managerial and marketing capacity to enhance value addition in farm products through the development of the agroindustrial sector and marketing infrastructure alike.

This paper has the objective of proposing a detailed systems analysis approach to the food industry as part of agricultural systems, so that quality and competitiveness may be enhanced in an efficient and sustainable manner. It is mainly intended as a conceptual support for agricultural and agro industry planners and strategy builders, but also for sector policy makers and leaders who are responsible for designing and implementing effective programmes and projects for agro industry development. However, the paper may also be useful for researchers, technology transfer experts, and managers, since it permits to see the agro industry from the viewpoint of an engineer considering the engineering aspects as an essential and interrelated aspect of the agro industry, but together with other economic, management, marketing and political aspects which comprise the food industry and the agricultural sector. The paper analyses food industry competitiveness in Latin America and the Caribbean, and proposes that by utilizing the systems approach to establish the analytical context for all factors affecting enterprise competitiveness, and by identifying and improving the variables intrinsic to the food industries and their environment, it is possible to make the sector more competitive. Food safety and quality, as well as enterprise productivity, will also necessarily improve once they are seen as systemic products, as will sustainable natural resource use and environmental protection. Although the economical and marketing factors need to be addressed, this paper focuses mainly on the technological and engineering factors as essential components of quality and competitiveness. This is done so that the approach is illustrated from the technology and engineering viewpoint. For this purpose, after reviewing some general characteristics of food industries, the agrifood sector is seen as a system composed by many sub-systems, and the systemic nature of competitiveness and quality are analysed. From this the paper presents a conceptual methodological proposal whereby strategies based on the above approach will make it possible to identify and address the priority needs of the small food industries sector in Latin America and the Caribbean, and respond efficiently and effectively to these needs through sound action. A few “hands-on” application examples are given at the end.

Main characteristics of the food industry sector

An analysis of quality and competitiveness in the small food industry requires standardized terms and concepts to avoid ambiguity and streamline the analysis. It is also important to briefly review some of the typical technical characteristics of the sector which differentiate it from the other industrial sectors.

The food industry belongs to the manufacturing industries group known as agroindustries, agricultural processing or agroprocessing industries. These characteristically receive raw and intermediate agricultural sector materials, process them, and produce food for human consumption, or semi-processed materials which will in turn serve as raw materials for other processes. The food industry, by definition and by its very nature, adds value to and stimulates agricultural production, contributing to market expansion and generating collateral activities and industrial services. Generally speaking, the agroprocessing sector or agroindustries transform raw material from fields, forests and even aquatic resources, and therefore comprise many and varied types of activities. The sector ranges from industries with very simple processes and few operations, mostly handling fresh, semi processed, or simplyprocessed goods, to those turning out products with extensive modern technological inputs, and which may also be labour and/or capital intensive. The specific feature of the sector lies in the biological nature of its raw materials, once an integral part of living organisms and hence perishable. Agricultural raw materials are also often seasonal, and subject to geographic, environmental and climatic variations, plus diseases and contaminants, which can occasion substantial losses. All of the foregoing demands careful agroindustrial production planning and organization and excellent coordination between producers and processors (FAO, 1997).

Like any other industrial activity, agroindustries have a so-called “upstream” linkage, relating all stages of the food chain prior to industrial processing, and a “downstream” linkage for the post-process stages. Post-harvest grain drying and storage operations, for example, belong to the first group, whereas transport, logistics, bread-making (with reference to flour) and retailing belong to the second. The technical and economic relations linking the food industries are further distinguishing characteristics (Castro and Gavarrete, 2000). In other words, a given agroindustry has processes linking them to external agents, and internal processes linking their component factors among themselves. Therefore, the agro-processing sector as such is related to the production sector, to the supporting sector (transport, storage, logistics, industrial services), to the marketing (retailing, wholesaling) sector, and to the final processing, food preparation, and consumption sector.

The level and degree of technology, sophistication and innovation in productive processes, the capital investment compared to manpower use, the size of the investment, the scale and annual capacity of operations, the total number of workers and their distribution by level of training, the degree of organization and the managerial style are further distinctive characteristics of the sector. Normally, combinations of various criteria are used to define a certain type of enterprise within the sector, such as the number of workers, the level of productive technology, the relation between manpower and machinery, and the type of organization (Cuevas et al., 2003). Micro enterprises, for example, have been defined as based on very simple technology with sizable inputs of manual labour, ten or fewer workers, and a simple organizational system (Figuerola, 1995). In other countries, it is considered that micro businesses are those with five or less people involved including the owner/manager, or even three or less. Logically, the classification into micro, small, medium and large is conceptually related to the national and local economic, technological and social context, and in practice it usually differs from country to country.

The terms "agroindustry", "agroprocessing industry" and "agrifood industry" exclude industries producing industrial or agricultural equipment and machinery or chemical inputs for agriculture (FAO, 1997). In this paper the term "industry" does not necessarily connote a previously established scale or size of operations, or complexity or cost of installations and equipment, but refers rather to the principles, methods and objective characteristics of a given industrialized production activity.

TABLE 2
Selected food industry compelling issues

Adapted from Cuevas (1998).

Any agroindustry sector can generate undesirable environmental impacts, including emissions, toxic substances and solid and liquid wastes, not to mention the potential for natural resource degradation or unsustainable use. Admittedly, food chain activities are generally less energy-intensive and release less CO₂ per unit of product than other industrial activities, but energy efficiency must also consider the need to develop and use “clean” energy technologies to avoid aggravating problems of environmental quality and climate change (FAO 2000a).

As for the surrounding economic context, the agroindustrial sector has been affected by trade liberalization and economic opening, rapid technological change in data handling and dissemination, and the new global market rules, just like all other economic activities. The current social and economic conditions in Latin American and the Caribbean agroindustries in general and the small food industry in particular confront the sector with new challenges and new consumer attitudes, which will have to be successfully tackled and solved (Cuevas, 1998). Consumer demands and market conditions are thus key factors in the food industry context, as in the wider agroindustrial context. The following table summarizes these factors.

There are many studies on characteristics and conditions in the agroindustrial sector, including the food industry, in various parts of the world. See the work of Boucher (2000), Boucher and Riveros (2000), Boucher et al. (2000), FAO (1995), Hartmann and Wandel (1999), IICA (1990), Lubowa and Steele (2000), Marsden and Garzia (1998), and Riveros et al. (2001), for example.