Fifo stands for FIRST IN FIRST OUT. This is a principle where earlier acquired produce is sold first before that which is newly acquired in the production cycle.
In urban farming and agribusiness, all produce dealt with is mostly perishable and therefore it’s very wise to sell off the old produce within the validity period before that which is new to prevent losses that could result from expiry and rancidity.
The principle also holds true for goods that have undergone some value addition and simple processing like curing, canning, vacuum sealing, and packaging.
FIFO is also used in-store management. Here, goods are arranged in batches with the newly acquired produce put at the back while the older is being pushed at the front as it is being removed for sale.
Let’s take an example of Seth who is a fruit farmer in California. He harvests his fruit and organizes it in batches in his warehouse. Each of the batches is labeled with a batch number, the amount, section of the farm where it was harvested, the operator, and the date of purchase. Seth is a smart farmer who stores his fruit on organized separated racks with rows in a cold storage room to preserve them. He also washes his fruits, packages them in boxes, and follows quality assurance standards. He also keeps records of all the batches and the entire production cycle.
To apply the FIFO in his agribusiness, Seth sells the old fruit first to his customers which is always at the front while the new fruit is arranged at the back in a continuous production process.
Advantages of FIFO
FIFO is very important in agribusiness management because of its many advantages which include;
- 1. Loss prevention
- Since old stock is sold before that which is new, this prevents expirery of goods in store which would result in loses for the business if they went bad.
- 2. Helps in record maintanance
- Goods are recorded as they come in, sorted and organised in batches. This helps to establish business inventory and also ease business planning and budgheting
- 3. Reduces impacts of inflation
- Suppose old stock was purchased at a lower price than the new stock, selling the same stock at the current selling price would counteract the losses made by purchasing the new stock.
- 4. Globally accepted method of business inventory management and book keeping .
- 5. Saves time
- since goods are documented and sold in a FIFO production circle it becomes easy to document everything and manage the entire production selling process of the business.
Bottom line
FIFO is a very important aspect in agribusiness management because of its importance in business growth and loss prevention. Once adopted, business owners can see a positive effect in their businesses.