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UNIT I

PROJECT DEVELOPMENT AND MANAGEMENT


IN RETROSPECT

INTRODUCTION

Before embarking on the hard core of project development and management, let
me first introduce you to the basic project concepts and the processes involving the area
of project development. Afterwhich, you will be introduced to a case study of a rural
development endeavor in the province of Bulacan to enlighten you to the common
problems and controversies of project management. Understanding these (I presume!)
will make you a better practitioner (learning from others mistakes) once you go along
with the planning and implementation phase of the project development cycle.

COURSE OBJECTIVES
At the end of Unit I, you should be able to:

relate the basic project concepts and features as well as its characteristics;
demonstrate and discuss the different processes and phases involved in project
development; and
identify some common pitfalls of project development and management.

SUGGESTED TIMEFRAME:

THE PROJECT CONCEPTS

3-6 hours

The following paper which I intentionally prepare for you was mainly taken and
summarized from the Project Development Manual developed by the National
Economic Development Authority (NEDA) and Agricultural Project Analysis Manual
authored by Price Gittinger of the World Bank (WB). Going through it will help you
comprehend the basic concepts, characteristics and nature of projects. The processes and
phases of project development are likewise presented herein for you to properly
understand where we are heading to as we go along with the succeeding topics.
Definition of Project
The term project refers to a great variety of endeavors. This range from
activities with single-purpose, well-defined structures such as small infrastructure
projects, to complex, multicomponent systems such as integrated and area development
projects.
Projects may be viewed as an investment, wherein investment encompasses not
only the physical infrastructure facilities and equipment but also the development
services such as agricultural extension, research and training. To distinguish it from a
program, a project is a smaller, separable operational element that lends itself to being
planned, financed and implemented independently.
The whole complex of activities using resources to gain benefits constitutes a
project. Of course, an enormous variety of agricultural activities may usefully be cast in a
project form. The World Bank itself lends for agricultural projects as widely varying as
irrigation, livestock, rural credit, land settlement, tree crops, agricultural machinery,
agricultural education, etc.
Generally, in agricultural projects we are thinking of an investment activity where
we expend financial resources over an extended period of time; we call such as the initial
capital outlay or fixed asset investments. In some projects, however, costs are incurred
for production expenses or maintenance which are incurred within a year, we call such as
operating or working capital investments.
Indeed, the dividing line between an investment and production expenditure
in an agricultural project is not all that clear. Fertilizers, pesticides, and the like are
generally thought of as production expenses used up within a single crop season or, in
any event, within a year. A dam, a tractor, a building or a breeding herd is generally
thought of as fixed asset investment from which we realize a return over several years.
But the same kind of activity may well be thought of as a production expenses in one
project and an investment in another. Transplanting rice is a production expense. Planting
rubber trees is an investment. Agronomically and economically they are not different
kinds of activities at all. In both cases we put up young plants in a nursery, from which

we expect to receive a benefit when they mature. The only difference is the time span
during which the plants grow.
All we can say in general about a project is that it is an activity on which we will
spend money in expectation of returns and which logically seems to lend itself to
planning, financing, and implementing as a unit. It is the smallest operational element
prepared and implemented as a separate entity in a national plan or program. It is a
specific activity with a specific starting point and specific ending point intended to
accomplish specific objectives. A project is something that you can draw a boundary
around, at least a conceptual boundary to say this is the project, which will have a
specific geographical location or a rather clearly understood area of geographic
concentration. Usually, a project has a specific clientele group that it intends to reach. It
has also a well-defined sequence of investment and production activities that we can
quantify and to which we can normally put a money value for.
A project sometimes has partially or wholly independent administrative structure
and set of accounts and is financed through specifically defined financial package.
As a specific activity with defined set of objectives and boundaries, a project
usually possesses key elements by which it can be further categorized, namely:

Area of coverage or location;


Intended beneficiaries and clientele;
Specific period of time for implementation;
Specific and quantified costs and benefits;
Methodology and processes; and
Organization/Management structure.

Sometimes people are concerned with the subtle issue of not being able to define
a project. There is no need for such a worry. In practice, the definition works itself out;
there are much more important aspects of project analysis to grapple with than trying to
formulate an academic definition of a project.
Project Categories
Projects are usually categorized as follows:

Independent Projects those that can be implemented without precluding


the implementation of other projects;

Mutually-Exclusive Projects those which when implemented preclude the


implementation of other projects (single unit versus tenement housing in the
same residential space); and

Complementary Projects those that require implementation of other


projects to attain certain development objectives (component projects of an
integrated area development projects).

Types of Rural Development Projects


To effect developmental change in the rural communities, rural development
projects (RDP) may vary depending on the need of its constituents and/or beneficiaries.
Nature of RDPs usually includes:
Nature of RDP

Focus

A. Technology Transfer

Technology utilization and


commercialization

B. Capability Development

Seminars and Workshops


Hands-on Trainings
Apprenticeship (On-the-Job)

C. Institution Building

Organization of cooperatives
Formation of livelihood enterprises
Formation of associations/federations
Provision of public service centers
(e.g. health, education, etc.)

Mobilization and utilization of


existing community resources
Provision of infrastructure and
service projects (e.g. communal dam
and irrigation, electric power, potable
drinking water, farm-to-market roads,
post-harvest facilities, etc.)

D. Community Resource
Development

Types of Agribusiness Project


Generally, agribusiness projects can be classified as an on-farm activity (e.g.
production of crops, livestock, fish and forest products) and an off-farm activity (e.g.
agro-industries and agro-services). Table 1 shows some example of an on-farm land
intensive and land extensive agribusiness activities.
Tables 2 and 3 on the other hand show the different types of agro-industries based
on the nature and extent of processing activity, respectively. Sample agro-services are
likewise presented in Table 4.

Table 1. On-Farm Agribusiness Projects


LAND EXTENSIVE
Annual
Multiple
LAND INTENSIVE
Aquaculture
Floriculture
Livestock
Seeds
Nursery
High value
Horticulture

Rice, corn, soybeans, vegetables, sugar,


mungo beans, tobacco, cotton, potato
Corn soybeans, rice corn,
corn mungo beans, coconut pineapple
Tilapia, prawn, shrimps, mussels
Roses, carnation, chrysanthemum, orchids
Piggery, poultry, duck-raising, cattle
fattening
All kinds of certified seeds
Planting materials of fruit trees, coconut,
oil palm, rubber, and ornamental plants
Vegetables, strawberries

Table 2. Agro-industry: Levels of Transformation

PROCESSING
Cleaning and grading
Milling
Crushing/Extraction

Mixing
Dehydration
Chemical alteration

EXAMPLES
Fresh fruits
Fresh vegetables
Eggs
Rice and corn
Coconut
Oil palm
Sugar
Fruit juices
Animal feeds
Rubber
Fruits
Vegetables
Meat
Tires
Instant foods

Adapted from: James Austin, Agro-industrial Project Analysis

Table 3. Categories of Agro-industries


SIMPLE

Rice milling
Cocoa drying
Slaughtering

Corn milling
Sugar milling
Vinegar making

INTEGRATED

Cattle and Dairy


Tree Growing and Paper
Poultry Growing and Dressing
Logging and Wood Products
Pineapple Production and Canning

Table 4. Types of Agro-services

Product Marketing
And Distribution

Input Processing

Input Marketing and


Distribution

Wholesale and retail trade


Export marketing
Transportation
Port handling
Packaging
Storage and refrigeration
Advertising
Capital Goods :
Irrigation pumps
Agricultural processing machineries
Sprinkler and drip irrigation equipments
Tractor and other land preparation equipments
Harvesting and threshing machineries
Dyers and sorters
Sprayers
Consumables :
Fertilizer, pesticides, herbicides, flowering
inducers, packaging, feeds, petroleum products,
spare parts
Wholesale and retail trade
Import firms
Transportation
Packaging
Warehousing/Storage
Advertising

The Project Development Cycle


Regardless of its type or nature, all projects are subject to a similar process: all
undergo a salient transition from inception to maturity, which is referred to us as the
Project Development Cycle.
The process of project development normally includes the following:
1. Pre-investment Phase
A. Project Identification
B. Project Preparation
C. Project Appraisal and Financing
2. Investment Phase
A. Detailed Engineering Design
B. Project Implementation
3. Post-investment Phase
A. Project Operation
B. Ex-post Project Evaluation
Project development logically starts from generation and/or conceptualization of
investment opportunities. Once the identified investment idea is properly justified,
preparation of the detailed project plan follows. This then is subject to the tests of project
feasibility. Once the project is proven feasible in all aspects, required project financing is
arranged and secured. Afterwhich, detailed project engineering for the construction of the
project is done. If everything is prepared and readied, project implementation follows.
Operation of the project during the implementation phase, however needs to be
effectively supervised, managed and monitored to immediately check any deviation from
the original plan. Moreover, the project shall be evaluated to determine whether it really
attained its overall project goals and objectives or not. The process is called ex-post
project evaluation.
Take note that the project development cycle continues as long as the project
exists. The cycle stops however, when the investors decided to divest or abandon the
project. Upon completion of project implementation and ex-post evaluation, this signifies
the end of one cycle and feeds into pre-investment phase of the next cycle. In this way,
the cycle repeats and renews itself as a continuous process. Please refer to Figures 1 and
2 regarding the process of Project Development.

Figure 1
The Project Development Cycle

Project
Identification

Project
Preparation

Project
Evaluation

Project
Monitoring

Project Appraisal
and Financing

Project
Implementation

Source: NEDA, Project Development Manual

Detailed Project
Engineering

Figure 2
The Process of Project Development

Project
Identification

Project
Preparation

Pre- investment
Phase

Project Appraisal
and Financing

Detailed Project
Engineering
Investment
Phase
Project
Implementation

Project
Operation

Post - Investment
Phase (Operational Phase)

Ex-post Project
Evaluation

Source: NEDA, Project Development Manual

10

YOUR ACTIVITY

1. Before sleeping tonight, please read the case of Sta. Maria Dairy Cooperative, Inc.
(attached at the end of Unit I). During your free time the next day, outline your case
analysis using the following format:
I.
II.
III.
IV.
V.

Title of the Case Study


Point of View (your name as the Case Analyst)
Introduction (provide brief background of the case)
Problem Situation (briefly discuss and prioritize your concern as to
urgency and magnitude of the problem)
Recommendations (provide your action plan to solve the problem(s) of the
firm)

2. After doing the case analysis, please do the following:


A. As a rural development concept, Farmers Cooperatives are oftentimes regarded
as vehicle for rural change. The project idea is noble, no doubt about it. Due to
management failures, however, most farmers cooperatives collapsed. Please list
down five major considerations to effectively manage and implement a rural
development project.
B. In general, why do projects fail? What stage(s) of the project development
cycle are considered critical and most delicate? What should be properly
observed in each phase? Please list down at least three pointers for each phase
respectively.
3. Please handcarry and/or submit your output immediately through LBC or express
mail the following Monday next week. Address it to the Department of AgriManagement, College of Agriculture, Central Luzon State University, Muoz, Nueva
Ecija. Ill wait for it . . . Okay? You may call me by phone if you have any problem
regarding this activity (044-947-1838).

How did you fare in your brainstorming activity? If you were able to answer the
above requirements, Im sure you already have the grasp of what project development
and management is. It requires deeper conceptual, analytical and decision-making skill,
isnt it?
Dont bother with the case anyway, mine is just to introduce you to the realities of
project development and management. I hope that your proposed rural development

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project will be better than Sta. Maria Dairy Cooperative, Inc. If you make your Project
Feasibility Study, please consider and try to avoid the occurrence of similar problems.
This would help you become an effective project planner and manager then. Take this as
a piece of advice from me. Okay?

RECAPITULATION
Unit I has introduced you to the basic concepts and processes of project
development and management. The key words associated with the definition of a project
is herein provided for your comprehension and self-understanding. The stages of project
development cycle is likewise incorporated for you to be guided on where we are heading
through as we go along with the succeeding topics.
I intentionally included the different types of RDPs for you to be aware of the
nature and focus of Rural Development Projects. Likewise, different types of agribusiness
projects are herein presented for your consideration if you opt to focus your mind in the
preparation of agribusiness or rural livelihood projects. You may use all these things as
your basis in your project idea generation later.
REFERENCES:
1.
2.
3.
4.
5.
6.

Austin, J., Agro-Industrial Analysis


Dy, R.T., The Concept of Agribusiness: A Seminar Paper
Gittinger, P., Agricultural Project Analysis
NEDA, Project Development Manual
Velasco, C.V., Introduction to the Project Concepts: A Seminar Paper
Velasco and Parungao, Sta. Maria Dairy Cooperative, Inc.: A Case Study

12

TRAINING MATERIALS
Department of Agribusiness Management

CASE STUDY: STA. MARIA DAIRY FARMERS MULTI-PURPOSE


COOPERATIVE, INC.
Agricultural cooperation is normally conceived to effect developmental change
in the rural communities. Despite the governments effort to promote and support this
rural development concept, however, many agricultural cooperatives have still failed.
This case was solely designed to present some of the issues and controversies of
Project Development and Management. Likewise, it aims to present common problems
that deter the growth of agricultural cooperatives in the Philippines.

_____________________
This case was developed by Prof. Clodualdo V. Velasco and Mr. Edwin T. Parungao of
the Department of Agribusiness Management, Central Luzon State University, Muoz, Nueva
Ecija.
The case was solely designed for instructional purposes and not to illustrate correct or
incorrect handling of administrative problems. Copyright, 1996.

13

STA. MARIA DAIRY FARMERS MULTI-PURPOSE


COOPERATIVE, INC.

INTRODUCTION
Agricultural cooperation and promotion of self-help has long been adopted as a
development concept in the Philippines. As a rural development approach, agricultural
cooperatives were organized to promote self-help among small farmers.
Like in any other developing countries however, implementing a development
concept in the Philippines is not free from difficulties and controversies. With the
impressive move from the Philippine Government, there are doubts as to whether the
procedures followed were correct. It was disconcerting to discover that in many places,
the idea of agricultural cooperation did not produce any dynamics beyond the concrete
program itself, and that there were the actual problems of follow-up costs and follow-up
management.
The need to re-orient the operation and management of agricultural cooperatives
is imperative. As a business enterprise, its agribusiness systems orientation needs to be
properly managed for it to become operationally viable and effective.
Sta. Maria Dairy Farmers Multi-purpose Cooperative Inc. (SMDFMPC, Inc.), a
processor of pasteurized milk in Bulacan, is a typical example of a firm that uses the
agribusiness system concept. The interrelated and interdependent operational facets from
raw material sourcing to milk processing to marketing seemed to be a major structural
strength of SMDFMPC, Inc. Likewise, the support subsystem is believed to be capable of
doing their coordinative roles (see Exhibit 1 Integrated Set-up of SMDFMPC, Inc.).
Despite these strengths however, SMDFMPC Inc. was not operating effectively and
efficiently. The systems non-viability remained a major concern of the management ever
since. Likewise, the resultant effect of uneconomical operation had most of the time put
the Dairy Processing Cooperative on the red (See Exhibit 2 Financial Performance of
SMDFMPC, Inc.).

COMPANYS BACKGROUND
The Sta. Maria Dairy Farmers Multi-Purpose Cooperative Incorporated was first
named as Sta. Maria Dairy Project. It was initiated by the Bureau of Animal Industry
(BAI) in the early fifties through its cattle dispersal project. BAI initially dispersed cows
and bulls (Murrah Buffalo) to qualified farmers in Sta. Maria to serve as sources of raw
milk for its proposed milk pasteurizing plant. In 1956, the former Sta. Maria Farmers
Marketing Cooperative (FACOMA) put up its Milk Pasteurization Plant, named Sta.

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Maria Dairy Plant. With donated milk processing equipments from the government of
Australia, the initial operation was marred with various problems particularly in its
ownership with which the property was subleased to the BAI in 1967. The BAI operated
and managed the project until 1975. Afterwhich, the operation and management was
relinquished to the Cooperative Marketing System of the Philippines (CMSP) upon
instruction from the Bureau of Cooperative Development of the Department of Local
Government and Community Development. In less than two years, the CMSP abandoned
the project where BAI again took charge. The job of picking up the pieces was left to the
BAI. It started anew by imposing again its cattle dispersal program to build up the base
herd. Some 2000 Brahman heifers and 229 crossbred Sahiwal cows were dispersed, but
were concentrated only in Sta. Maria on December 1987.
On April 16, 1989, the operation and management of Sta. Maria Dairy Plant was
turned over to the Sta. Maria Dairy Farmers Association Incorporated. Two years after,
through the interest of its members to convert the association into a cooperative, and with
enough requirements for conversion, the Sta. Maria Dairy Farmers Association became a
full-pledged cooperative on October 25, 1991. The project then was named STA. MARIA
DAIRY FARMERS MULTI-PURPOSE COOPERATIVE.
To date, the Dairy Processing Plants activities (e.g. dairy farming, milk
collection, processing and marketing) were totally managed by the Cooperative with the
DA-BAI only providing the technical assistance.
The Sta. Maria Dairy Farmers Multi-Purpose Cooperative is only one of the milk
shed areas being developed by BAI in the Philippines. Under this scheme, BAI is
committed to perform the following functions:
1. To provide credit assistance to small farmers, through its Multi-Livestock
Loan Program for the purchase of dairy animals;
2. To provide technical assistance to farmer-beneficiaries through trainings
(technology transfer) and actual delivery of extension services regarding dairy
husbandry and health care; and
3. To provide assistance to farmers cooperatives/associations regarding dairy
plant operation and management and dairy product development.

Objectives of the Firm


The objectives of Sta. Maria Dairy Farmers Multi-purpose Cooperative, Inc.
include the following:
1. To enhance dairying in the area by serving as an example for other small
farmers;
2. To increase the farmers income and to broaden employment opportunities;
3. To improve nutritional intake in the area especially the young children; and

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4. To properly serve both farmers and consumers through the Cooperatives


technical and nutritional support.

Location and Size of the Firm


SMDFMPC, Inc. is 22 kilometer north of Manila and is situated in a 2,198 sq.m.
lot in Barrio Bagbaguin, Sta. Maria, Bulacan. The establishment includes the Processing
Plant Office, Boiler and Pumphouse, Motorpool and Superintendents Quarters.
Originally concentrating in the town of Sta. Maria, the firm had expanded its service
areas to involve 48 barangays from 9 municipalities in Bulacan.

Organizational Set-up
Like any other cooperatives the organizational structure of SMDFMPC, Inc. was
divided into three major levels: General Assembly, Board of Directors and the
Management and Staff (See Exhibit 3 Organizational Chart).
The overall plant operation was carried out by the Plant Manager. Under him were
the cashier, bookkeeper, quality controller, salesmen/delivery men, and utility and plant
workers. On the upper level, the Chairman has the overall control over the plant manager
and the administrative affairs of the cooperative.
Each unit and/or a position in the organizational hierarchy are briefly discussed
below:

1. General Assembly. Composed of 15 Farmers Association. They serve as the


2.
3.
4.
5.

6.

highest governing body of the organization.


Board of Directors. Composed of 11 elected members. They formulate
organizational policies that provide the right direction towards the attainment
of organizations set goals and objective.
Chairman. Conducts the regular meeting of the cooperative. Performs minor
decisions regarding the cooperative operation.
Plant manager. Executes and supervises the operations within the processing
plant. Also responsible for the improvement of the plant operation.
Quality Controller. Receives milk and conduct quality test on it (e.g. Acid
Precipitation Test, Butterfat Test and Lactometer Test). Distributes milk to
BAI-sponsored school feeding programs. Also performs recording and
bookkeeping.
Cashier. Serves as cash disbursing officer of the cooperative. Receives sales
and issue receipts for all sales transactions.

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7. Bookkeeper. Keeps the record of all financial and production related


transactions. Responsible for the safekeeping of past and present records of
the cooperative.
8. Extension Unit. Composed of five DA-BAI technicians. Provides technical
assistance to farmer-cooperators in terms of dairy management (e.g. proper
selection of dairy animals, proper nutrition, prevention and disease control,
training and seminars, etc.). They also facilitate the implementation and
monitoring of the DA-BAI livestock dispersal program.
9. Deliverymen/Salesmen. Responsible for searching prospective buyers and
product deliveries. Frequently, they also act as plant workers.
10. Utility Worker. Maintains plant cleanliness. Sometimes, he is also
occasionally called upon to collect milk.
11. Plant Workers. Composed of four (4) plant personnel responsible for the
processing operation. They are also utilized as deliverymen/salesmen and milk
collectors.
The salaries/wages received by the employees of SMDFMPC, Inc. is shown in
Exhibit 4.

PRESENT STATUS OF SMDFMPC, INC.


Agribusiness as a system is composed of all (1) the input subsystem (2) the
production subsystem (3) the processing subsystem (4) the marketing subsystem and (5)
the support subsystem. All these subsystems are interdependent and ultimately serving
the needs of the final consumers. The very interdependent nature of the various
subsystems suggests that for the whole system to be viable, each and every subsystem
should be well coordinated, orchestrated and synchronized to achieve positive synergism.
The effectiveness of systems coordination and integration, more often than not spells the
difference between organizations failure and success.
The Input Subsystem
A total of 229 Sahiwal cows were initially dispersed among the farmercooperators in 1986. The primary purpose of which was to maintain an adequate number
of milking cows and to supply the raw milk requirement of the cooperative processing
plant. Through the years, however, the total number of cattle dispersed is decreasing little
by little. Out of the 229 Sahiwal breed dispersed, only 70 remained (of which only 30
were active milk producers). The decreasing number of cows was attributed to the
following: (1) lost of cattle due to reported incidence of cattle rustling, (2) some farmers
sold their respective cows without the approval of the cooperative management, and (3)
death of animals due to incidence of cattle pest and diseases.

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Production Subsystem
The farmer-cooperators had played a special role in the production subsystem
since they were the primary instruments in the production of raw milk. They were
likewise expected to produce and supply the raw milk requirement of their dairy
processing plant. Supposedly, each farmer should produce at least 8 liters of raw milk per
day. Due to production constraints and weaknesses, however, average daily production
was registered at only 5.13 liters per farmer-cooperator.
Findings showed that previous practices on proper care and management were no
longer performed by most farmers. Concentrate feeding was replaced totally by grazing.
The necessary veterinary services of DA-BAI were likewise done irregularly as before.
Feedbacks gathered from farmers proved that there were lot of production inefficiencies
due to negligence and/or unattended responsibilities of DA-BAI Extension Unit.
Processing Subsystem
The processing Subsystem of SMDFMPC, Inc. comprises the following
operational facets:
Milk Sourcing. Prior to milk processing, collection of milk from individual
farmers was done early in the morning. Three vehicles were mobilized by SMDFMPC,
Inc. for milk collection purposes. House to house collection was done among the
individual active farmer cooperators by the plants milk collectors. On the average,
farmer-cooperators are located within 10-km radius from the plant. As a normal practice,
collected milk were placed in pails or milkcans.
From as high as 169,188.5 liters being collected in 1988, volume of milk
collection decreases to only 52,566.9 in 1995. The big gap or shortfall in the volume of
milk collection relatively affected the degree of plant capacity utilization in 1995 (See
Exhibit 5 Raw Milk Collection).
Milk Processing Activities. The primary function of the processing plant was to
produce pasteurized milk. All collected milk were subjected to acidity, lactometer, and
butterfat test before pasteurizing. Milk that passed the test were considered good milk and
were placed in the milk receiver. From the milk receiver, the good milk were
mechanically transferred to the pasteurizer then steamed at a temperature of 65 oC for 10
minutes. Cooling process follows which is usually performed within 20 minutes. After
which, through the milk dispenser, the pasteurized milk were packed manually in plastic
packs at 1 liter each. The packed milk were sealed through the plastic sealer. These were
later on placed in the plastic crates for temporary cold storage before finally marketing it.
Aside from pasteurized milk, the plant also produced white cheese, soft ice cream
and choco milk. From being a hot pasteurized milk, cheese were formed by adding

18

sulfuric acid and salt. This process is performed in the cheese vat. Each white cheese
weighs 200 gms. and was packed in a wrapper foil. Soft ice cream on the other hand were
manufactured by using the pasteurized milk as raw material. The ice cream mix contained
33 liters of cowsmilk, 7.2 kg of sugar, 1.4 kg of skimmilk, 3.0 liters of corn oil and 4
boxes of gelatin to produce 45 liters or 11.25 gallons. The ice cream were mixed
thoroughly, stirred manually and packed in a plastic container. Prior to final disposal, the
ice cream mix is passed through a solidifying machine for it to become soft and real ice
cream. Like the ice cream, choco milk products follow the same process. They only differ
in terms of ingredients. Same is true with the milk bar products which only differ in terms
of flavoring. To solidify, milk bars were freezed for about 12 hours.
Based on gathered facts, the processing subsystem was found out to have
operational gaps and weaknesses. These gaps are presented as follows:
1. At 450 liter capacity per batch, at 16 batches per day and 8 hours working day,
the milk pasteurizer of SMDFMPC, Inc. has an estimated effective maximum
capacity of 7200 liters/day. Actual production however, was only registered at
153.33 liters per day. This indicates that the plants milk pasteurizer was only
utilized at 2% of its effective maximum capacity per day.
2. The four plant workers are expected to work 8 hours per day at 6 working
days per week or 24 days per month. They were however, underutilized since
their effective working time only averaged 4 hours per day. Most of their time
was utilized in the collection of milk which was done early in the morning (2
hours on the average). Moreover, hours utilized during actual processing
activities including the packaging activities was only observed at 2 hours/day.
Because of very low production of pasteurized milk, the plant workers
oftentimes become idle after lunchtime.
3. Products being processed in the plant usually include the pasteurized milk
(70%), choco milk (5%), ice cream (15%), cheese (5%) and milkbars (5%).
These products during the process utilize only the pasteurizer, cheese vat, milk
dispenser, plastic sealer and milk storage. Because homogenized milk were no
longer produced due to zero supply of caramilk formerly supplied by the
farmer cooperators, the homogenizer and condensing tank were no longer
utilized. Likewise, the cold storage, freezer, and the pasteurizer were
underutilized.

Marketing Subsystem
The primary marketing motive of the organization was to dispose all processed
products as effective as possible. Product produced must be delivered at the right time, to
the right place and at the right price.

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Product Packaging. As a normal practice, milk products were packed in clean,


sanitary and durable plastic packs. Pasteurized milk were packed in 1000 ml per unit and
125 ml for milkbar. Cheese, on the other hand, was processed into pieces, each equivalent
to 200 grams, and was packed with foil wrappers. Likewise, ice creams were also packed
in plastic containers and were retailed using ice cream cones @100 gms/cone.
Product Promotion and Advertisement. As a means of advertising the coops
name and the products it produced, billboards were installed in front of the plants
compound and beside the coops rolling store in Sta. Maria. The delivery van also bears
the name of the coop and the brand name it uses.
In terms of product promotion (which was only practiced inside the plant), the
usual practice is to provide free sample products to walk-in buyers. Likewise, as a form
of entertainment, visitors were also provided free samples to taste the products and to
encourage them to buy.
Product Pricing. Normally, SMDFMPC, Inc. used the cost plus mark-up
approach as method of pricing. Because of higher unit cost however, selling price of the
coop was usually set higher than the price of its leading competitor. Pasteurized milk of
SMDFMPC is sold at P28 per liter while SELECTAs milk is only sold at P24 per liter.
Product Distribution. SMDFMPC, Inc. practiced door-to-door product delivery
system. Two service routes in Metro Manila were serviced by the deliverymen once in
each route per week. Deliveries were usually done in Metro Manila only during
Wednesdays and Fridays (See Exhibit 6 Service Route in Metro Manila). The rest of the
week, the deliverymen/salesmen only stayed in the plant performing processing-related
activities.
Pasteurized milk were usually delivered to individual residences of the contacted
customers in Metro Manila. If there are, however, interested buyers who would like to
avail of the product during the house-to-house delivery, they were also served. Because
of this weak marketing practice coupled with the irregularity of the customers
availability, there are, in most instances, cases wherein the deliverymen failed to totally
dispose all the product they carry. Most of the time, almost 34 percent of the available
products for sale were returned back to the plant (See Exhibit 7 Volume of Sold and
Unsold Products). Unsold milk were normally processed into white cheese to lengthen its
shelf life and to minimize spoilage.
During the next deliveries, white cheese were carried along with the pasteurized
milk to hopefully dispose it to the service clients. Records show that out of 156 kg. total
cheese produced per month by the plant, only 40.5 kgs. were sold. Although cheese has a
longer shelf life than pasteurized milk, the deliverymen/salesmen however failed to
dispose it at the right time and at the right place. Most often, about 87 percent of unsold
cheese reached its expiry date which consequently were just thrown as wastes.

20

For other milk products (e.g. choco milk, ice cream, milkbars), no distribution
strategy was adopted. The plant only relied on walk-in buyers and orders made by small
vendors.
The plant had no established contacts with retail centers both in Metro Manila and
in Sta. Maria.
Support Subsystem
For the agribusiness system to operate efficiently, a need for institutional support
and/or services must be present. SMDFMPCs support services (as a system) include the
technical assistance of DA-BAI Extension Unit, supportive roles of politico-entrepreneur,
financing support from Rural Bank and devoted participation and cooperation of
Farmers Association.
DA-BAIs supposed role was to assist the farmer-cooperators by providing
technical assistance regarding dairy management. Likewise, they were
intended to support farmer-cooperators in the proper handling and care of
animals, animal selection, nutrition, and disease prevention and control.
A local politico-entrepreneur, specifically the Vice-Mayor of Sta. Maria who was
a former BOD of SMDFMPC, Inc., provides livelihood support services through its own
cattle fattening and dispersal program. The Vice-Mayor provides free cattle for fattening
purposes to selected participating coop members. Under this scheme, the farmer-grower
is obliged to sell the fattened cattle to the former. The cost of cattle was deducted later
from the sales of the concerned farmer.
The Rural Bank, on the other hand, being a financing institution provides support
to the SMDFMPC, Inc. by providing financial assistance in the form of operating capital
(e.g. purchase of raw materials, payment for labor, supplies, etc.).
The Farmers Associations also play their supportive roles to SMDFMPC, Inc.
These Associations were expected to perform their roles as concerned members of
SMDFMPCs General Assembly. Being the highest governing body, proper coordination
of the whole agribusiness system is expected among them.

Weaknesses of the Support Subsystem


The support agencies and/or services seemed to be ineffective and inadequate in
delivering the required coordinative services to SMDFMPC, Inc. nowadays! This was
the message consensuously received from the farmer-cooperators, the Board of Directors,
and the management of SMDFMPC, Inc.
It was hurtingly, but a feedback of truth, that the SMDFMPC, Inc. had already lost
some of the expected support services from its systems coordinators.

21

DA-BAI, for example, had weakened in terms of providing technical assistance to


the farmer-cooperators. Its extension unit had actually slowed down in providing support
to SMDFMPC, Inc. Based on actual survey, 70 percent of the sample farmer-cooperators
claimed that the supposed obligations and roles to SMDFMPC, Inc. of the concerned
DA-BAI technicians were no longer performed by them regularly and effectively. When
the technicians were interviewed, most of them have reasoned out that they have already
lost their interest because of decreasing number of active cooperators and continuously
diminishing base herd that they have to serve.
Another supporter of the system was a politico-entrepreneur who provides
livelihood financial assistance to SMDFMPCs farmer-members. His cattle dispersal
project, although a good political move to gain respect from voters, proved to be nonintegrative with the operation of SMDFMPC, Inc. Instead of providing dairy cows among
the Coops farmer-members, fattening cattle were instead dispersed to serve as major
source of raw material for his meat processing plant, the Jess-Nor Food Processing
Company. Likewise, the Dairy Coop was only used as his front to import cattle from
Australia.
The Rural Bank of Sta. Maria, another agribusiness coordinator, had also
weakened its linkage with SMDFMPC. It had ceased its financing support to the latter
because of its financial strain. At present, the politico-entrepreneur (Vice-Mayor of Sta.
Maria) serves as interim financier of the SMDFMPC, Inc. Because of continuous
incurrence of losses in the part of SMDFMPC, Inc. however, the politico-entrepreneur
was likewise dismayed and started withdrawing his financial assistance to the
Cooperative.
The Member-Farmer Associations were also losing their support to SMDFMPC,
Inc. Facts gathered implied that most farmers association were no longer interested to
participate in most cooperative undertakings. This was reflected by their poor attendance
during the General Assembly Meetings. The deteriorating financial condition of
SMDFMPC, Inc. likewise disgusted much the concerned Farmers Associations,
especially the active ones.

FINANCIAL PERFORMANCE OF SMDFMPC, INC.


Financial condition of SMDFMPC, Inc. as of 1995 showed that most of the firms
capital were already tied-up on accounts receivable amounting to P30,262.00 and loan
receivable totaling P2,431,172.71. Accounts receivables are collectibles from the plant
workers who made salary advances while loan receivables are collectibles from the
BODs, manager and other employees who make use of the money for personal purposes.
Both receivables were already past due for almost two years. Total liabilities of the firm
on the other hand, had already reached P2,451,771.30 which were borrowed from the

22

Vice-Mayor of Sta. Maria, a politico-entrepreneur in the municipality. Total net worth of


the firm was only P1,373,016.82 (comprising the paid-up capital stock and retained
earnings), 46 percent less than the total liabilities. Total asset of the firm in 1995 was
P3,874,788.12, of which current asset comprises 89 percent. On the other side of the
balance sheet, total debt comprises 63 percent while net worth is equivalent to 37 percent.
To determine the financial performance of the firm, financial records were
analyzed by using generally accepted financial performance indices. These are computed
as follows:

A.

Current Ratio
(CR)

CR

B.

Quick Acid
Test Ratio
(QATR)

Current Assets
------------------------Current Liabilities

3,429,486.85
--------------------2,451,771.30

1.39

Liquid Assets
--------------------------Current Liabilities

324,526.54
------------------

2,451,773
QATR

0.13

Current Ratio figure shows that the cooperative was still solvent in the short run.
However, if subjected to a more severe test of solvency, the project is already insolvent in
the short run. This is reflected by the very low QATR of 0.13. Because of poor liquidity
position, this resulted to continuous borrowing to sustain the Coops operation.

C.

Debt to Equity Ratio


(DER)

Total Debt
-------------------Total Equity

23

2,501,771.30
-------------------1,373,016.82

=
1.82
Debt to Equity ratio shows that the company is fast becoming a debt financed
firm. This is attributed to continuous reliance on borrowing due to continuous occurrence
of operational losses. Likewise, equity becomes smaller and smaller since farmermembers have already lost their support to their coop. Because of very unfavorable
earning power of the firm, most farmers have already lost their confidence to their coop
officials and the management in general.

D.

Return on Asset
(ROA)

Net Income (loss)


-----------------------Total Assets
(247,121.65)
-----------------3,874,788.12

100

100 = (6%)

Return on assets indicates the margin on sales and overall efficiency and speed of
asset turnover. Because of negative net margin and inefficient plant operation, the
company incurred a negative ROA of 6 percent.

E.

Return on Labor
(ROL)

Net Income (loss)


----------------------Total Labor Cost
(247,121.65)
-----------------273,356.65

100

100 = (90%)

The computed ratio reflects the labor productivity of the firm. Return on labor
was computed at negative 90 percent. This reflects that the labor force was not capable of
generating enough profit to at least meet their fixed wages.

MANAGEMENT COMMENTARIES
Structurally, the integrated set-up of SMDFMPC, Inc. is considered a major
organizational strength. Due however to various misconceptions of the key players
(agribusiness participants and support agencies) regarding agribusiness systems concept

24

and cooperative enterprise development, this organizational strength becomes an


organizational weakness and a threat. The Coop is nearly collapsing! These were the
words uttered by the Cooperative Manager.

Exhibit 1
STA. MARIA DAIRY FARMERS COOPERATIVE, INC.
Integrated Processing Set-up

INPUT
SUBSYSTEM

PRODUCTION
SUBSYSTEM

STA. MARIA
DAIRY
COOPERATIVE

PROCESSING
SUBSYSTEM

MARKETING
SUBSYSTEM

DIRECT
CONSUMERS

*DA BAI
*POLITICIAN
*FARMERS ASSOC.
*RURAL BANK

26

Exhibit 2
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
INCOME STATEMENT
For the Year Ended December 31, 1995
Sales Milk Dairy Products
Less: Cost of Sales:
Inventory, Beginning
Add: Purchases & Cost of Prod.
Total Handled
Less: Inventory, End

P 1,156,759.70
P 65,788.20
595,856.40
661,644.60
76,386.00

Cost of Sales
Gross Profit on Sales
Add: Other Income:
Interest Income
Electric Bill (Recd-BAI)
Gross Income
Less: Operating Expense:
Salaries and Wages (Direct L.)
Salaries and Wages (Gen. Adm.)
Per diems B.O.D.
Meals Allow. Del. Personnel
Lot Rent (Dairy Plant)
Lights, Power and Water
Office Supplies Exp.
Diesel and Gasoline
Repairs and Maintenance
Telephone Exp.
Representation Exp.
Interest Exp.
Packaging selling
- IL
- Milk Bar
Crystal Ice
SS and Medicare
Barangay Meeting Exp.

585,258.60
571,501.10

1,603.69
7,805.42

P 54,460.00
218,896.65
1,685.00
10,457.50
39,564.00
65,025.32
13,305.75
59,953.18
76,715.25
3,786.38
3,000.00
420.74
14,000.50
60,725.00
13,429.00
9,689.25
15,209.00
2,918.25

9,409.11
P 580,910.21

27

Donation and Contribution


Internal Audit and Prof. Fees
Plant Maintenance
Sick Leave Benefits
Gen. Assembly meeting (party)
13th month pay/Bonus
Bad debts
Misc. Exp.
Depreciation:
Dairy Plant Equipment
GE Chest Freezer
Sales Booth Store
Furniture and Fixture
Office Equipment
Service Vehicle
Total Operating Exp.
Total Net Loss for the Year End
Source: Companys Records

4,250.00
6,455.00
27,613.00
6,627.20
11,580.50
25,975.96
10,792.00
40,487.07
3,659.28
3,825.00
6,140.52
143.34
43.34
17,198.88
828,031.86
(P 247,121.65)

28

Exhibit 3
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Organizational Chart

GENERAL
ASSEMBLY

DA - BAI

BOARD OF
DIRECTORS

CHAIRMAN

MANAGER

CASHIER
BOOKKEEPER

QUALITY
CONTROLLER

UTILITY

SALESMAN/
DELIVERYMAN

PLANT WORKERS

Source: SMDFMPC, Inc. Bulletin

29

Exhibit 4
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Salaries and Wages

Name of Employee

Position

Salary/Mo.

1. Leopoldo Fajardo

Manager

P3,000
allowance

2. Emerlita Bailon

Cashier

P3,911

3. Luzviminda Cruz

Bookkeeper

P3,010

4. Pastor Buising

Plant Worker/
Utility

P2,920 +
P40m/a

5. Pedro Gojo Cruz, Jr.

Plant Worker/
Deliveryman

P2,860 +
P40m/a

6. Oscar Lapig, Jr.

Plant Worker/
Deliveryman

P2,860 +
P40m/a

7. Felix dela Cruz

Plant Worker/
Deliveryman

P2,860 +
P40m/a

8. Heidy Buising

Rolling Seller

P85 daily
basis

Source: Companys Records

30

Exhibit 5
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Raw Milk Collection
(in liters)

YEAR

COWSMILK

CARAMILK

TOTAL

1985

38.668.0

24,027.1

62,694.1

1986

81,1886.3

15,201.2

96,387.5

1987

146,116.6

7,104.2

153,220.8

1988

166,177.2

3,011.3

169,188.5

1989

131,476.1

6,444.7

137,920.8

1990

131,476.1

4,115.8

137,345.6

1991

120,940.4

1,132.1

122,072.5

1992

95,400.3

3,664.1

99,064.4

1993

85,179.0

3,186.0

88,365.0

1994

63,237.5

3,768.8

67,006.3

1995

51,021.4

1,545.5

52,566.9

Source : Companys Records

31

Exhibit 6
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Service Route in Metro Manila

DELIVERY SCHEDULE

ROUTE

WEDNESDAYS

QUEZON
CITY

PACO

FRIDAYS

CUBAO

TANDANG SORA

MALATE

SAN ANDRES
BUKID

PASIG CITY

32

Exhibit 7
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Volume of Sold and Unsold Product

DATE

Feb. 5-10
12-17
19-24
26
March 3-8

MILK AVAILABLE
FOR SALE
400 liters
400
350
400
400

NO. OF MILK
SOLD
250 liters
283
194
288
274

UNSOLD

150 liters
117
154
112
126

Total

1,950 liters

1,289 liters

659 liters

DATE

CHEESE
PRODUCED

CHEESE
SOLD

CHEESE
UNSOLD

Feb. 5
9
12
22
26
27
28

TOTAL

36 kg
48
24
24
24

156 kgs

6 kg
3.5
2
4
25

40.5 kgs

64.0 kg
51.5 kg

115.5 kgs