ZIMSEC O Level Commerce Notes: Beneficiation And Value Addition/ Added Value

  • One of the reasons why developing countries lag behind developed countries is due to the imbalance of trade
  • Developing countries export mainly raw unprocessed materials which have a low price per unit
  • On the other hand developed countries export back high value processed materials
  • This means that developing countries have to exports higher volumes in order to avoid a negative balance of payment
  • One solution that can be used to mitigate this problem is beneficiation
  • Beneficiation refers to the transformation of a mineral (or a combination of minerals) to a higher value
    product which can either be consumed locally or exported
  • Examples of beneficiation include:
    • Polishing diamonds- polishing diamonds does not require a lot of technology but doing so increases the export of value of diamonds
    • Removing waste material (gangue) from valuable minerals which results in a higher grade product (concentrate)
    • Frothing flotation of copper
    • Turning coal into coke
    • Distillation of crude oil
  • All these processes add value to the product and help reduce poverty and the balance of payment deficit

Addition of Value/ Added value

  • Added value can be defined as an increase in the value of a resource, product, or service as the result of a particular process
  • Value addition must not be confused with beneficiation
  • Beneficiation, as mentioned above, refers to various ways of adding value to minerals in the mining sector
  • Value addition refers to both beneficiation and other forms of value addition in other sectors
  • Added value describes the enhancement a company gives its product (which can be a mineral or any product really) or service before offering it to customers
  • In economic terms, added value is the difference between the selling price and the cost of inputs used in the production process
  • Value Added = Sales Revenue – Cost of Raw materials
  • For example, a product sells for $10 when the inputs (raw materials) used to make this product cost $7,
  • the added value is $3
  • For example, a mining company extracts iron ore from within the earth and passes it on to a processing factory which increases the value of the ore which is turned into pig iron.
  • The iron is then processed into steel which further enhances the value of the product.
  •  Value is added as a product moves along the production process from the primary level up to the secondary level of production
  • Businesses ( and the countries in which these businesses are located) that add more value have a higher profit margin that businesses that add little value
  • Value addition should not be confused with profit
  • When calculating value added we only subtract the cost of raw materials
  • On the other hand, when calculating profit we subtract other costs as well
  • Value can be added by:
  • Refining for example distillation
  • Purification processes
  • Cutting and polishing for example diamonds
  • Manufacturing goods into finished or semi-finished goods
  • Branding
  • Packaging
  • Advertising- promotional strategies like these can create brand loyalty allowing businesses to charge more for a product
  • Providing additional features, for example, more storage on a computer

To access more topics go to the Commerce Notes page

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