Case Study: COFCO
Q3. Why did COFCO integrate backward into seed production? What are the advantages of such a move?
COFCO has many so many clients for tomato paste in bulk from different countries i.e. Japan, Italy, Russia, U.K. etc. These different clients have different requirement/ quality in final tomato paste i.e. Japanese client want more lycopene in tomato paste. Thus to cater wide range of quality requirement in tomato paste, COFCO is presently produces 60 customised varieties of tomato seeds. COFCO now produces about 80% of seeds for farmers.
Advantage of producing on seeds:
Uniform quality in tomato can be achieved when different farmer uses same tomato seeds. If farmer are using their own seeds then tomato have uneven quality in tomato, which is cumbersome to manage to sort out every tomato into different grades. Inspection cost for quality of tomato will be very high in this case.
As tomato seeds are manufactured by COFCO, it can have tailor made properties according to client’s requirement and as per demand from clients they can also change seed variants.
Ease in standardization of procedures for processing of tomatoes which will reduce the processing cost. I.e. if high TSS required in tomato paste, Tomato from seed variety with high TSS can optimize cost of heating /processing and for entire lot production no change in processing parameters is needed further. Otherwise different seeds will have different properties in tomato and accordingly processing parameters need to be adjusted to have uniform quality in final product.
Uniform quality can be achieved in every batch of tomato paste from same variant of tomato seed if uniformity of farm practises is ensured as in the case. Thus lower consumer complaint.
If they outsourced this seed production activity, they need to depend on someone and it will be very difficult (costly) to determine quality of every seed distributed to farmer. After cultivating tomato only one can say about quality of seeds and it will be too
COFCO has many so many clients for tomato paste in bulk from different countries i.e. Japan, Italy, Russia, U.K. etc. These different clients have different requirement/ quality in final tomato paste i.e. Japanese client want more lycopene in tomato paste. Thus to cater wide range of quality requirement in tomato paste, COFCO is presently produces 60 customised varieties of tomato seeds. COFCO now produces about 80% of seeds for farmers.
Advantage of producing on seeds:
Uniform quality in tomato can be achieved when different farmer uses same tomato seeds. If farmer are using their own seeds then tomato have uneven quality in tomato, which is cumbersome to manage to sort out every tomato into different grades. Inspection cost for quality of tomato will be very high in this case.
As tomato seeds are manufactured by COFCO, it can have tailor made properties according to client’s requirement and as per demand from clients they can also change seed variants.
Ease in standardization of procedures for processing of tomatoes which will reduce the processing cost. I.e. if high TSS required in tomato paste, Tomato from seed variety with high TSS can optimize cost of heating /processing and for entire lot production no change in processing parameters is needed further. Otherwise different seeds will have different properties in tomato and accordingly processing parameters need to be adjusted to have uniform quality in final product.
Uniform quality can be achieved in every batch of tomato paste from same variant of tomato seed if uniformity of farm practises is ensured as in the case. Thus lower consumer complaint.
If they outsourced this seed production activity, they need to depend on someone and it will be very difficult (costly) to determine quality of every seed distributed to farmer. After cultivating tomato only one can say about quality of seeds and it will be too