James G. Brown
Over the past decade the marketing, storage, and processing of agricultural products have become increasingly important to the economies of most developing countries. With technical progress in agriculture, marketable surpluses of agricultural produce have grown significantly, while rapid growth in urban populations and rising per capita incomes have enlarged and diversified the demand for processed agricultural products—whether food or raw materials for construction or industry.
In Bank usage, the term “agroindustries” covers agroindustrial processes such as grain milling, fruit and vegetable canning, oilseed crushing, and meat packing, as well as the functions of storage and marketing. While the share of agriculture in a country’s total output generally declines with economic development, as industry and services expand, agroindustries maintain or increase their share. They contribute a growing part of total value added in the agricultural sector, as consumers’ rising incomes create demand for more processing and better quality in food and nonfood products. In the least developed countries food processing may contribute less than five percent of GDP while agriculture contributes more than 50 percent. In Bangladesh, for example, these shares are four percent and 53 percent, respectively. In Argentina, at a much later stage of development, food processing contributes about 32 percent of GDP, and agriculture 11 percent.
Agroindustries can play an important role in the development process. As well as absorbing agricultural surpluses and meeting the needs of growing urban populations, these industries add value to domestic raw materials and can create employment at less cost than in many other types of industry. Being based on farm products, they can often be sited in areas where other industries would not be viable. They can also help to disperse the ownership of industry and to reduce dependence on imports for food and industrial raw materials. In practice, however, these benefits have often proved elusive and the results of many well-intentioned investments have been mixed. What factors contribute to the success or failure of these enterprises?