Analysis of the factors and prospects for a processed food industry cluster in Bohol / Tristan L. Abando

Year : 2012

Number of Pages : 68 leaves

Adviser : Dr. Roger D. Posadas

Executive Summary

This paper aims to analyze the factors and prospects of developing a processed food industry cluster in Bohol. The development of an industry cluster is seen to be a driving force towards the development, utilization, and diffusion of innovation within the different aspects of the industry. Bohol's processed food is a strategically vital industry that contributes to the continued growth of the province's economy. The processed food industry of Bohol mainly covers pasalubong items and delicacies such as kalamay, ube-based products, peanut-based products, and bakery & pastry products. With the growing tourism industry in the province, food processing has been considered as a major and fast growing business sector. With the steady growth of the industry, these enterprises are beset with several challenges to meet market demands and standards. There were several interventions and assistance extended by both government and non-government organizations. However, these interventions provide less impact on the industry mainly because these are overlapping and poorly-coordinated efforts and initiatives. These problems and challenges can be effectively addressed through the development of a cluster for the processed food industry in Bohol. It is imperative to assess the current state of the industry, set the desired level of innovation for the industry cluster, identify the gaps towards developing an innovative cluster, and recommend actions, strategies and interventions for the development and enhancement of the cluster. To carry out the analysis of the factors and prospects of developing the cluster, several steps are undertaken. The current state of the Bohol processed food sector is assessed. Consequently, the factors critical to the development of a Bohol processed food cluster is studied. Considering all these factors, the potentials and prospects of developing further the food industry cluster in Bohol are evaluated so that development strategies can then be proposed. This paper utilized three models to analyze the factors and prospects of developing Bohol processed food industry cluster. These are SWOT (Strength, Weaknesses, Opportunities and Threats) Analysis, Value Chain Analysis (VCA) and Porter's Diamond Model. The SWOT Analysis takes into account the strengths, weaknesses, opportunities, and threats facing the Bohol processed food industry. The VCA is used to analyze the specific activities through which firms under the sector can create competitive advantage. The Porter's Diamond Model would demonstrate that competitive advantage of the sector is made possible by the four correlated factors of the local economic environment. The four factors are : factor conditions, demand conditions, related and supporting industries as well as firm strategy and company structure. Two other factors also belong to the diamond model : the roles of the government and chance. These factors are studied, evaluated and analyzed to come up with a conclusion on the state of the sector in terms of developing towards an innovative industry cluster. Besides looking at the four determinants of competitiveness in the original model, the study specifically examines the impact of government on industry competitiveness. At the onset, specific recommendations would be made to make the Bohol processed food sector achieve its optimal competitiveness. The project is geared towards identifying major sets of information - the current status of the Bohol processed food sector the factors critical to the development of an industry cluster the potentials, prospects, and roadblocks towards the development of the cluster the strategies and recommendations towards developing an innovative industry cluster. The project studies the members of the Bohol PROFOODS (Boholano Processed Foods Business Association, Inc.). The Bohol PROFOODS is an association involved in the promotion and development of the Food Industry in the Province of Bohol. Currently, the association is composed of eleven (11) established food processing companies in the province. These eleven firms are the main players in the province's food sector.

The SWOT Analysis yields to several key strengths, weaknesses, opportunities and threats to the industries. The industry strengths include the increasing market demand due to increasing influx of tourists, the existence of industry association promoting collaboration among industry players, the continuous upgrading of the firms' processing technologies, the strong linkage between food processors and government institutions, access to common service food processing facility, and the availability of packaging designers in the province. Low compliance to regulatory requirements such as Good Manufacturing Practices and other food safety standards, shorter shelf life of products, mediocre entrepreneurial skills, common market, low investment for technology upgrading, lack of baseline data and benchmarks on processing of food, reliance on tourist market, limited financial resources on working capital, limited access to venture financing, unavailability of food technology academic program in the province and in the region, limited investment on R&D and product development and limited suppliers and fabricators of equipment are identified as the industry's weaknesses. The opportunities for industry growth are the pouring of more support from government & non-government institutions due to its organized/collaborative cluster status, continuous development of Bohol's tourism industry, the government's strategic development programs for the processed food industry and the upgrading program of Bohol's food processing facility to food innovation center. What seen as industry's growth threats are the possible food outbreak due to poor & unsafe handling of food products, the increasing awareness on food safety and quality, poor implementation of food-related laws, emerging tourist destinations in the country, increasing cost of raw materials and utility cost, practices and systems of doing business, the strict government regulations specifically the new zoning ordinance of Tagbilaran City Government and the loss of technical and skilled workers. In the value chain analysis, it was found out the industry continues to struggle with the various issues that has plagued it for the past years that impede its competitiveness. In the inbound logistics, there are still problems with the quality and reliability of materials supply. Lack of skills, facilities, resources and standards all contribute to variations in the quality of inputs used by the industry. In the operations part of the value chain, cost efficiency still has to be improved to enable the firms to be competitive. Lack of investments in facilities and updated technologies constrain its productivity. There is still heavy reliance on trade fairs as a means of expanding market share and promoting its products. The industry needs to expand the use of the internet, web sites and ICT in general for marketing and promotions. An effective training program is also needed for workers handling product complaints/claims, account management and services/customer relations. A number of concerns have to be addressed for the industry to further grow and be more competitive in future markets. Among others, this include : strict adherence to basic food safety and sanitation standards, adopting good manufacturing practices (GMP), upgrading of packaging and labeling, continuous product development to improve quality, values and business ethics and entrepreneurial capacity building and continuous market information and intelligence. Accreditation of the product from different food accrediting organizations will help the industry to further grow. New technologies in the production process in the future are vital to suit with the changing demands of a dynamic economy. The cluster development stakeholders must carry out a continuous monitoring of the industry that covers from the supply chain of raw materials up to market/consumer behavior to continuously update and monitor the industries performance. Assistance in terms of R & D to promote stable supply of standard raw materials must also be provided to the industry players. Improvement in the technology used specifically in the production is very important. Obtaining certification and approval from food accrediting organizations is essential to improve product quality and safety. Strengthening organized groups is significant for easy implementation of interventions. Relevant and updated trainings for Food Safety and Sanitation, Productivity Improvement, Values and Business Ethics, and Entrepreneurial Capacity Building must be regularly conducted. Since processed food specifically 'pasalubong delicacies' is a key component of Bohol's tourism industry, local government must improve its regulatory framework to provide a favorable way of doing business in the province (e.g., faster processing of permits). DOST is the key government agency that can facilitate innovation in the cluster. The department has already provided several interventions to the industry. In addition, high-impact interventions can be provided by DOST to further the growth and development of the Bohol processed food industry. DOST must intensify the implementation of Small Enterprise Technology Upgrading Program (SETUP) in the province. The department needs to identify more food processing SMEs to be assisted in terms of technology upgrading, packaging enhancements, and product quality improvements, Furthermore, DOST must implement high impact projects that would have multiplier effects to the whole industry. This can be done through institutional support projects such as establishment of food innovation center, establishment of provincial standards and testing laboratory, development of local packaging designers, assistance to SMEs in acquiring certification on food safety standards such as GMP, HACCP and ISO 22000. This assistance can be provided by the existing local food safety team developed by DOST. Due to limited resources, there might be some factors that were not considered in the analysis of the prospects of developing a Bohol processed food industry cluster. The study provides broad brush analyses of these factors, thus, in-depth study and analysis of these factors are recommended. For further studies, other models and frameworks can be utilized on top of SWOT, Value-Chain and Porter's Diamond Analyses to get a thorough analysis. Looking into the technological innovation factors of the cluster is also a good aspect to consider in future studies. This technological innovation can be viewed in five dimensions of technology-orgaware, infoware, humanware, and technoware. The link and interactions of the processed food cluster to the tourism industry of Bohol is also a good way of viewing the potentials of the cluster.