Presented by Getachew Legese (ICARDA) at the Workshop on ICARDA-ILRI Training on Tools for Benchmarking Sheep and Goat Value Chains in Ethiopia, Addis Ababa, 6-9 November 2013

1. Sheep and goat value chains development in
Ethiopia: Basic concepts of value chain
analysis
Getachew Legese (ICARDA)
ICARDA-ILRI Training on Tools for Benchmarking Sheep and Goat
Value Chains in Ethiopia,
Addis Ababa, 6-9 November 2013

2. Presentation outline
• Basic concepts in Value Chain Analysis
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Value and value addition
Value Chain
Stages of a value chain
Business development services
Value chain leader
• Potential objectives of VCA
• How to conduct VCA
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Data collection
Value chain mapping
Analysis of constraints and opportunities
Value Chain frame work
Validating findings of VCA

3. Basic concepts of Value Chain Analysis
Value and value addition
Value
– Amount a good or service is worth of in the market
– Three types of value
• Form value – associated with the change of the form of a
raw material (production, processing)
• Time value - related with availing at another period of
time produce produced at a period of time (storage)
• Space value - related with availing at another location
product produced in one location (transport)

4. What is a Value Chain (1)
• VC encompass the full range of activities and
services required to bring a product or
service from its conception to sale in its final
markets.
• VC includes input and service
suppliers, producers, processors and buyers.
• They are supported by a range of
technical, business and financial service
providers

5. What is a Value Chain (2)
• A value chain entails the addition of value as the
product progresses from input supply to production
to consumption.
• Value chains are also the conduits through which:
– finance (revenues, credit, and working capital)
moves from consumers to producers;
– technologies are disseminated among
producers, traders, processors and transporters;
– information on customer demand and preferences
are transmitted from consumers to producers and
processors and other service providers.

6. What is a Value Chain (3)
• VCA focuses on chain governance and power
relationships which determine how value is
distributed at different levels.
• Through the analysis of systems and power
relations at different levels, value chain analysis
enables a more comprehensive modeling of the
effect of interventions at different levels, thus
enabling better targeting of interventions aimed
at poverty reduction.

7. Stages of a value chain
• Any operating stage capable of producing a saleable
product or service serving as an input to the next
stage in the chain or for final consumption or use
• Typical value chain linkages include input
supply, production, assembly, transport, storage, pro
cessing, wholesaling, retailing, and utilization, with
exportation included as a major stage for products
destined for international markets.

8. Business development services
• Services that play supporting role to enhance the operation of
the different stages in the value chain and the chain as a whole
– Infrastructural services (market place development, roads
and transportation, communication, energy supply, water
supply)
– Production and storage services (input supply, genetic and
production hardware from research, farm machinery services
and supply, extension services, weather forecast, storage
infrastructure)
– Marketing and business skills (market information, market
intelligence, technical and business training, facilitation of
linkages of producers with buyers, organization and support
for collective marketing)
– Financial services (credit, saving, risk insurance)
– Policy and regulatory services (property rights, market and
trade regulations, investment incentives, legal
services, taxation)

9. The Value Chain and Business support services
Consumption
Retailing
Trading
Processing
Trading
Transport
Post-harvest
handling
Production
Input
Supply
Research
Transportation
Govt. policy regulation
Communications
Production input supply
Tech. & business training & assistance
Financial services
Market information and intelligence

10. Value chain leader
• An organization with major stake in the value chain and
plays crucial role in the functioning, performance and
development of the value chain.
• Value chain leaders are especially critical in the development
of new and emerging value chains
• Value chain leader could be private business which intends
to make profit or a public agency which intends to promote
the development of the value chain.

11. Potential objectives of VCA
• Identification of leverage points to improve chain
performance
• Analysis of agriculture-industry linkages
• Analysis of income distribution
• Analysis of employment issues
• Analysis of economic, social and environmental impacts of
interventions
• Guide collective action for marketing
• Guide research priority setting
• Conduct policy inventory and analysis

12. How to conduct a VCA
Value chain analysis consists of a four step process:
1. Data collection and analysis,
2. Chain mapping (actors, functions and relationships) and
end market analysis
3. Analysis of opportunities and constraints, and
4. Validating the findings of the VCA through stakeholders
forum

13. Data collection (1)
• Good value chain analysis begins with good data
collection, from the initial desk research to the
targeted interviews.
• Both qualitative and quantitative data are required
for the VCA.
• The qualitative data are collected using PRA tools
such as: focused group discussions, Key Informant
interview, personal observations, etc
• Quantitative data for VCA are collected through
formal surveys using structured questionnaire

14. Quantitative analysis
• Most of the VCA works focus on qualitative analysis to
understand trends, incentives and relationships
• We did rapid VCA mainly using the PRA tools
• Quantitative analysis plays an important role in VCA by
illustrating the current situation and revealing inefficiencies
that can be addressed to increase competitiveness
• It involves:
– mapping of value added distribution along the chain
– Measuring profitability
– Measuring competitiveness
– Productivity and productive capacity
– Comparing competitiveness of the VC and VC actor against
its competitors (Benchmarking)

15. Mapping Value the Value chain
• Value chain mapping is the process of developing a
visual depiction of the basic structure of the value
chain.
• It is a compressed visual diagram of the data
collected at different stages of the VCA and
supports the narrative description of the chain

16. Value chain mapping(2)
Objectives
• To gain basic overview of the value chain to guide the
full VCA to be undertaken
• Identify constraints and possible solutions at
different levels in the VC
• Visualize networks to get a better understanding of
connections between actor and processes
• Demonstrate interdependence between actors and
processes in the VC
• Create awareness of actor to look beyond their own
involvement in the VC

17. Value Chain Mapping (3)
A two phased process for developing the value chain
mapping is recommended
a) initial basic mapping based on the information
derived from desk research and knowledge at the
outset of the analysis, and
b) adjusted mapping that includes revisions based on
interviews and feedback from firms and
individuals brought into the analysis process

18. value chain mapping (4)
• There is no such a thing as a comprehensive, all
encompassing VC map
• There are many potential dimensions of the VC that could be
included in an initial mapping exercise:
– The core processes in the VC
– The main actors in the process
– The product flows,
– Volume of product flow
– Costs and margins at different levels
– Constraints and opportunities at the different levels
– Flow of information etc

19. Mapping Value- Added
Distribution
• The first step in mapping the distribution of value added is
to record prices at different stages in the chain for one unit
of a good beginning at the raw material and ending with the
final product sold to the consumer
• In order to assess value added at each stage, we need to
have information on total input costs
• This exercise identifies the roles of each segment and
incremental value that the market assigns to each role based
on additional inputs and services to the product

20. Mapping the core processes
• The first question that must be asked in any value
chain analysis is what the different processes in the
value chain are.
• Example: Core processes in sheep VC (SNNP & Oromia)
Input
Supply
Production
Trading
Processing
Domestic
Consumption/
Export

21. Mapping actors along the value chain
Example: Actors along the core processes of the sheep value chain
Input
Supply
• Sheep
producers
• The
extension
system
Production
Small
holder
farmers
Trading
• Collectors
• Brokers
• Small traders
• Big traders
• Sheep
fatteners
Processing
• Export
abattoirs
• Shoat
butchers
• Super
markets
Consumption
• Meat exporters
• Live animal
exporters
• Individual
consumers in big
towns and Addis
• Hotels and
restaurants
• Farmers (for
fattening/rearing)

22. VC actors
Enablers
Supporters
Small
farmers
Traders
Union
companies
Operators

23. Mapping activities along the VC
Example: Core processes and activities in the sheep VC
Input
Supply
• Breeding
stock
• Veterinary
services
• Feed
• Water
• Housing
Production
• Rearing
• Fattening
Trading
• Collection
• Transportation
• Distribution to
consumers(retail
, wholesale)
Processing
• Slaughter
• Chilling
• Packing
Domestic
Consumption/
Export
• Domestic
consumption
• Export to
MENA
countries

24. Mapping product flows
Example: Sheep value chain functions, actors, and product flows
Consumption
Export
markets
Processing
Export
abattoirs
Live animal
Trading
Big
traders
Production
Input Supply
Hotels and
restaurants
Consumers in big
tows and Addis
Ababa
Live
animal
exporter
Small
traders
Shoat
butchers
Collectors
Small holder farmers
Business and Extension services
Local
consumers
Super
markets
Brokers
Farmers
(breeding/
fattening)

25. Mapping Volume of product flows
Example: Product Supply Pattern in the Shoat Value Chain (Borena)
Producers
23%
100%
Collectors
77%
46%
60%
54%
Small traders
12%
14%
6%
Big traders
23%
Purchasing agents
50%
22%
Cooperatives
50%
Live animal exporters
8%
63%
28%
61%
Export abattoirs
3%

26. A typical VC depicting revenue per kg of products at
each stage of the chain

27. Mapping the flow of values and benefits
Example: Costs and margins of actors involved in a market channel selling
shoats to supermarkets
Small
Producers Brokers Collectors traders
Selling price
Super
markets
750
810
820
870
1280
Marketing cost
-
0
16
39
95
Marketing margin
-
60
70
50
410
Net margin
Producer's share
of final price (%)
-
60
54
11
315
-
-
-
-
59

28. Making a value chain map matrix
• A VC map matrix is the matrix which summarizes
the key information from maps in one table.
• The matrix can be used as the basis for designing
questionnaires, determining which actor groups to
interview and which geographical locations to
concentrate field work in.
• It can also serve as an easy to interpret sector
summary from VC perspective.

29. VC map matrix
Input supply Production
Activities
actors
Inputs
outputs
locations
challenges
Possible
solutions
trading
processing
consumption

30. Measuring Profitability
• After capturing the value added at each link in the
value chain, the next step requires the analyst to
establish the relative profitability of each activity.
• To do this, more detailed data on costs are neededincluding : material costs,
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depreciation costs,
labor costs,
financing costs,
utilities, and
the profit margin at each stage.
• This data can be obtained by adding more inquiry
points to the interviews and surveys

31. Measuring Productivity
• Productivity measures the efficiency of economic units
in employing resources in the production process.
• It is frequently expressed as a ratio of output over
input.
• Productivity measurements are useful for tracking
changes over time in a firm or value chain to assess and
bring about improvements, and for benchmarking
against competing firms and value chains.
• Productivity measures are important indicators for
potential investors and customers, as well as for
managers--who use them to determine how efficient
their firms are and to identify upgrading strategies.

32. Value Chain Benchmarking
• Benchmarking analysis involves comparing the
performance of a firm, value chain or link in the value
chain to its competitors
• Through benchmarking, industry stakeholders can
establish their current relative performance and
generate a “menu” of potential actions that could lead to
improved performance and competitiveness,
• based on an understanding of what competitors do
differently, and whether these differences are important
drivers of performance
• Thus, benchmarking exercises provide crucial input into
competitiveness strategies and upgrading plans

33. Analysis of Opportunities and Constraints Using the
Value Chain Framework
• The process of value chain analysis requires the use of the value
chain framework to identify opportunities and constraints along the
chain.
• The value chain framework comprises the structure and dynamics of
the value chain.
• The structure of a value chain includes all the firms in the chain and
can be characterized in terms of the following five elements
i. end markets
ii. business enabling environment
iii. vertical linkages
iv. horizontal linkages
v. supporting markets
• The dynamics of the value chain, which refers to the determinants
of individual and firm behavior and their effect on the functioning of
the chain can be characterized in terms of: value chain governance,
inter-firm relationships and upgrading

34. End Markets
• They determine the characteristics—including price, quality, quantity
and timing—of a successful product or service.
• End-market analysis assesses current and potential market
opportunities through interviews with current and potential
buyers, and takes into consideration trends, prospective competitors
and other dynamic factors.
• During chain analysis, the focus should be on the current and
potential production capacity of the chain and its ability to respond
to end market demand.
• It is through the analysis of end markets that we are able to identify
the investment needs that will drive chain upgrading.

35. Business Enabling Environment (BEE)
• Value Chains operate in a business enabling environment (BEE) that
can be global, national and local and includes norms and customs,
laws, regulations, policies, international trade agreements and public
infrastructure (roads, electricity, etc.).
• The analysis process must determine whether and how the business
enabling environment facilitates or hinders performance of the value
chain, and if it hinders, where and how can it be improved.

36. Vertical Linkages
• Linkages between firms at different levels of the value chain are critical for
moving a product or service to the end market.
• Vertical cooperation reflects the quality of relationships among vertically
linked firms up and down the value chain.
• More efficient transactions among firms that are vertically related in a value
chain increase the competitiveness of the entire industry.
• The nature of vertical linkages—including the volume and quality of
information and services disseminated—often defines and determines the
benefit distribution along the chain and creates incentives for, or constrains,
upgrading.
• The efficiency of the transactions between vertically linked firms in a value
chain affects the competitiveness of the entire industry.
• An important part of value chain analysis is the identification of weak or
missing vertical linkages.

37. Horizontal Linkages
• Horizontal linkages—both formal as well as informal—between firms at all
levels in a value chain can reduce transaction costs, create economies of scale,
and contribute to the increased efficiency and competitiveness of an industry.
• It can also contribute to shared skills and resources and enhance product
quality through common production standards.
• Such linkages also facilitate collective learning and risk sharing, while
increasing the potential for upgrading and innovation.
• Value chain analysis also considers competition between firms.
• While cooperation can help firms achieve economies of scale and overcome
common constraints to pursue opportunities, competition can encourage
innovation and drive firms to upgrade.
• One of the objectives of value chain analysis is to identify areas where
collaborative bargaining power could reduce the cost or increase the benefits
to small firms operating in the chain.

38. Supporting Markets
• Support markets include financial services; cross-cutting services such as
business consulting, legal advice and telecommunications; and sector-specific
services (feed produces, veterinary services, market information,
transportation, etc).
• most service providers themselves need supplies, training and financing in
addition to strong vertical and horizontal linkages.
• Value chain analysis should seek to identify opportunities for improved
access to services for target value chain actors in such a way that the support
markets will be simultaneously strengthened, rather than undermined.
• VCA should take due care to uncover informal sector service providers,
which often go unnoticed.

39. Value Chain Governance
• Value chain governance refers to the relationships among the
buyers, sellers, service providers and regulatory institutions that
operate within or influence the range of activities required to bring a
product or service from inception to its end use.
• Governance is about power and the ability to exert control along the
chain
• Governance is particularly important for the generation, transfer and
diffusion of knowledge leading to innovation, which enables firms to
improve their performance and sustain competitive advantage.
• When conducting VCA, the type of governance structure that exists
must be identified since it will contribute significantly to the
selection of interventions to increase competitiveness.

40. Upgrading
• In order to respond effectively to market opportunities, firms
and industries need to innovate to add value to products or
services and to make production and marketing processes
more efficient.
• In VCA, the objective is to identify opportunities and
constraints to firm- and industry-level upgrading;
• specifically the analysis looks for catalyst firms with the
incentives, resources and willingness to promote and facilitate
upgrading within the chain.