Integrating innovation systems perspective and value chain analysis into agricultural R4D: issues and challenges


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A presentation by Ponniah Anandajayasekeram (CaSt) and Berhanu Gebremedhin (IPMS), ILRI, prepared for the UNU-MERIT Training Programme in Design and Evaluation of Innovation Policy in Developing Countries (DEIP), EDRI training hall, Addis Ababa, Ethiopia, February 22-26, 2010.

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Integrating innovation systems perspective and value chain analysis into agricultural R4D: issues and challenges

  1. 1. Integrating Innovation Systems Perspective and Value Chain Analysis into Agricultural R4D: Issues and Challenges Ponniah Anandajayasekeram Berhanu Gebremedhin CaSt and IPMS, ILRI
  2. 2. Outline of presentation <ul><li>Introduction </li></ul><ul><li>Innovation, Innovation Systems (IS), and Innovation Systems Perspective (ISP) </li></ul><ul><li>Value Chains (VC) and Value Chain Analysis (VCA) </li></ul><ul><li>Integrating ISP and VCA into Agricultural R4D </li></ul><ul><li>Issues and Challenges </li></ul>
  3. 3. Introduction <ul><li>Consensus that in the 21 st century agriculture remains fundamental for poverty reduction, economic growth and environmental sustainability of agriculture-based countries (WDR, 2008). </li></ul><ul><li>Enhancing smallholder productivity and sustainable economic growth are pre-requisites to achieve this. </li></ul><ul><li>Agricultural R4D expected to play a significant role in the process </li></ul>
  4. 4. Introduction (2) <ul><li>Currently, the knowledge generation, adaptation, dissemination and utilization process in the agricultural sector is guided by four complementary and mutually reinforcing concepts: </li></ul><ul><ul><li>Innovation systems perspective </li></ul></ul><ul><ul><li>Value chains analysis framework </li></ul></ul><ul><ul><li>Impact orientation </li></ul></ul><ul><ul><li>R4D </li></ul></ul><ul><ul><li>Impact orientation and R4D are implicit in the concept of innovation </li></ul></ul><ul><li>Integrating these concepts and principles in an operational model to guide impact oriented R4D is a challenge facing many actors in the business </li></ul><ul><li>The core of this paper is looking at these integration issues. </li></ul>
  5. 5. <ul><li>Part I: Innovation, Innovation System and Innovation Systems Perspective </li></ul>
  6. 6. System <ul><li>A collection of related elements that must function in a coordinated manner to achieve a desired result (Bean and Radford, 2002) </li></ul><ul><ul><li>Consists of interlinked sub-systems </li></ul></ul><ul><ul><li>The whole is greater than the sum </li></ul></ul><ul><ul><li>Inter-related parts drive the system </li></ul></ul><ul><ul><li>Feed back loops are central to the system behavior and are circular rather than linear in nature </li></ul></ul><ul><li>System thinking is not new to agriculture </li></ul>
  7. 7. What is Innovation? <ul><li>Successful application of “knowledge” to economic, social & environmental benefit. </li></ul><ul><li>Knowledge creation, adaptation, dissemination and use of knowledge, not just knowledge creation </li></ul><ul><li>Both new knowledge and novel combination of exiting knowledge </li></ul>
  8. 8. <ul><li>Different forms – codified and tacit </li></ul><ul><li>Different sources – Indigenous and scientific </li></ul><ul><li>Different type – technical, institutional, organizational, managerial, service delivery </li></ul><ul><li>Note: </li></ul><ul><ul><li>Knowledge is necessary but not sufficient for innovation </li></ul></ul>Knowledge: forms and sources
  9. 9. <ul><li>Network of organizations, enterprises, and individuals that focuses on bringing new products, new processes, and new forms of organizations into economic use, together with the institutions and policies that affect their behavior and performance (World Bank, 2008). </li></ul>Innovation System
  10. 10. <ul><li>Components of the Innovation System are </li></ul><ul><ul><li>Actors (individuals, organizations) </li></ul></ul><ul><ul><li>Actions, interactions </li></ul></ul><ul><ul><li>Rules governing interactions (institutions) </li></ul></ul><ul><ul><li>Framework conditions </li></ul></ul><ul><ul><li>Associated learning </li></ul></ul><ul><li>Can be defined at different levels (national, sectoral, commodity, intervention based) </li></ul><ul><ul><li>most relevant one is problem/intervention focused </li></ul></ul><ul><li>IS is a “soft system”, an organizing principle and analytical construct </li></ul>Components and levels of an innovation system
  11. 11. Evolution of ISP <ul><li>Innovation System is a logical evolution </li></ul><ul><ul><ul><li>To address shortcoming of the existing R&D system </li></ul></ul></ul><ul><ul><ul><li>To benefit from successful application in industrial sector </li></ul></ul></ul>
  12. 12. Systems Thinking and Its Application in Agriculture
  13. 13. As one moves from NARI to AIS.. <ul><li>The goal of the system becomes broader </li></ul><ul><li>The number of organizations considered as “components” becomes larger and all inclusive </li></ul><ul><li>Issue of linkages, partnerships and interactions become central to organizational performance </li></ul>
  14. 14. Innovation Systems Perspective (ISP) <ul><li>Using the innovation lens in analyzing critical constraints; identifying, implementing and assessing appropriate interventions, and the subsequent utilization of knowledge generated </li></ul><ul><li>Suggests as analysis of three elements </li></ul><ul><ul><ul><li>Components (organizations and actors) </li></ul></ul></ul><ul><ul><ul><li>Relationships and interactions (partnerships and institutions) </li></ul></ul></ul><ul><ul><ul><li>Competencies, functions, results and outcomes of such interactions </li></ul></ul></ul>
  15. 15. Key Features of ISP <ul><li>Focus on innovation as its organizing principle </li></ul><ul><li>Makes the distinction between “invention system” and “innovation system” </li></ul><ul><li>Makes the distinction between “organizations” and “institutions” explicit </li></ul><ul><li>Partnerships and networks are integral parts </li></ul><ul><li>Learning and role of institutions are critical </li></ul><ul><li>Is problem specific </li></ul>
  16. 16. Invention vs Innovation Systems <ul><li>Invention system deals with knowledge generation </li></ul><ul><li>Innovation system = Invention system + adaptation, dissemination and utilization of knowledge generated </li></ul>
  17. 17. Organisations and Institutions <ul><li>Organizations are entities created by individuals to support the collaborative pursuit of specified goals. Formal organization is that kind of cooperation that is conscious, deliberate, and purposeful. </li></ul><ul><li>Institutions are the “rules of the game” which prohibit, permit, or require certain actions. Whether formal or informal, they are recognized and generally followed by members of the community. </li></ul>
  18. 18. <ul><li>Innovation ecology: Set of individuals usually working within organizations who are repositories and generators of existing and new knowledge. A generic concept, national in scope with sub-national degree variation, more permanent in nature. </li></ul><ul><li>Innovation systems are constructed to address specific problem, connects the relevant components of the ecology. </li></ul><ul><ul><ul><li>Transient and transboundary in nature. </li></ul></ul></ul><ul><ul><ul><li>Are spatially unconstrained. </li></ul></ul></ul>Innovation Ecology and Innovation system
  19. 19. Part II: Value Chains and Value Chain Analysis
  20. 20. Why worry about markets and market orientation? <ul><li>Increased income through: </li></ul><ul><ul><ul><li>The realization of specialization, and comparative and competitive advantages </li></ul></ul></ul><ul><ul><ul><li>Economies of scale </li></ul></ul></ul><ul><ul><ul><li>Dynamic technological, organizational and institutional change that arises due to information flows through increased exchange </li></ul></ul></ul><ul><li>Markets are essential to realize the benefits of specialization and exchange </li></ul>
  21. 21. Basic concepts in value chains <ul><li>Value Chain </li></ul><ul><li>An agricultural value chain is considered as an economic unit of analysis of a particular commodity (eg. milk) or group of commodities (eg. dairy) that encompasses a meaningful grouping of economic activities that are linked vertically by market relationships. </li></ul><ul><li>A value chain encompasses a set of interdependent organizations, and associated institutions, resources, actors, and activities involved in input supply, production, processing, and distribution of a commodity. </li></ul><ul><li>The emphasis is on the relationship between networks of input suppliers, producers, traders, processors, and distributors. </li></ul><ul><li>A value chain entails the addition of value as the product progresses from input supply to production to consumption. </li></ul><ul><li>Value chains are also the conduits through which finance (revenues, credit, and working capital) move from consumers to producers; technologies are disseminated among producers, traders, processors and transporters; and information on customer demand preferences are transmitted from consumers to producers and processors and other service providers. </li></ul>
  22. 22. Basic concepts in VC (2) <ul><li>Stages of value chain </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>A stage of production in a value chain performs a function that makes significant contribution to the effective operation of the value chain </li></ul></ul><ul><li>Vertical coordination </li></ul><ul><ul><li>The key issue addressed in value chain analysis is vertical coordination: the way of coordinating and harmonizing the vertical stages of production, transformation and marketing </li></ul></ul><ul><ul><li>Verticality implies that conditions at one stage in the value chain are likely to be strongly influenced by conditions in other stages in the vertical chain, in direct and indirect ways, and in expected and unexpected ways. </li></ul></ul><ul><ul><li>Intra-chain linkages are mostly of two-way nature </li></ul></ul>
  23. 23. Basic concepts in VC (3) <ul><li>Business development services </li></ul><ul><li>Services that play supporting role to enhance the operation of the different stages in the value chain and the chain as a whole </li></ul><ul><ul><li>Infrastructural services (market place development, roads and transportation, communication, energy supply, water supply) </li></ul></ul><ul><ul><li>Production and storage services (input supply, genetic and production hardware from research, farm machinery services and supply, extension services, weather forecast, storage infrastructure) </li></ul></ul><ul><ul><li>Marketing and business development services (market information, market intelligence, technical and business training, facilitation of linkages of producers with buyers, organization and support for collective marketing) </li></ul></ul><ul><ul><li>Financial services (credit, saving, risk insurance) </li></ul></ul><ul><ul><li>Policy and regulatory services (property rights, market and trade regulations, investment incentives, legal services, taxation) </li></ul></ul>
  24. 24. Production Post-harvest handling Processing Retailing Consumption Trading Trading Market information and intelligence Financial services Transportation Communications Govt. policy regulation Tech. & business training & assistance Production input supply & Business Support Services Research The Value Chain Transport Input Supply
  25. 25. What is value chain analysis (VCA)? <ul><li>Value chain analysis is a heuristic or analytical tool designed to provide operational guidelines to improve efficiency of vertical coordination of chains. The research can be descriptive (positive) or prescriptive (normative). </li></ul><ul><li>VCA is a dynamic approach that examines how markets and industries respond to changes in the domestic and international demand and supply for a commodity; technological change in production and marketing; and developments in organizational models, institutional arrangements, or management techniques </li></ul><ul><li>VCA looks at the chain as a set of institutions and rules; as a set of activities in producing, processing and distributing commodities; and as a set of actors involved in the value addition and distribution process. </li></ul>
  26. 26. What is value chain analysis (VCA)? (2) <ul><li>VCA focuses on chain governance and power relationships which determine how value is distributed at different levels. </li></ul><ul><li>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. </li></ul><ul><li>VCA aims at identifying how the productivity of chain activities can be improved, either through improved technologies, organizations, institutions to better coordinate the various stages of production and distribution, and meet consumer demand. </li></ul>
  27. 27. Why the interest on VCA? <ul><li>A comprehensive understanding of the operation of commodity markets requires an understanding of the operation of the different stages through which a product and its associated value additions pass on from production to consumption or end use </li></ul><ul><li>A comprehensive understanding of the coordination of the value chain requires a careful assessment of consumer demand characteristics and the organizational and institutional arrangements that are in place to meet these demands. </li></ul>
  28. 28. Concepts underpinning VCA <ul><li>Effective demand </li></ul><ul><ul><li>Effective demand as the force that pulls goods and services through the vertical system </li></ul></ul><ul><ul><li>Hence the need to understand how demand is changing both at the domestic and international markets, and the implications for value chain organization and performance </li></ul></ul>
  29. 29. Concepts underpinning VCA (2) <ul><li>Verticality and vertical coordination </li></ul><ul><ul><li>Verticality implies that conditions in one stage in the chain are likely to be strongly affected by conditions in the other stages in the chain, in direct and indirect ways and in expected and unexpected ways </li></ul></ul><ul><ul><li>Hence, primary focus of VCA is on the vertical dimension and the interest is how productive, efficient and effective value chain are in the production, transformation and distribution of the commodity </li></ul></ul><ul><ul><li>VCA needs to unravel this </li></ul></ul>
  30. 30. Concepts underpinning VCA (3) <ul><li>Value chain governance </li></ul><ul><ul><li>The roles of coordination and associated roles of identifying dynamic profitable opportunities and apportioning roles to key players </li></ul></ul><ul><ul><li>Implies interactions between firms reflect organization, rather than randomness </li></ul></ul><ul><ul><li>Three types of power in chain governance </li></ul></ul><ul><ul><ul><li>Setting basic rules for participation in the chain </li></ul></ul></ul><ul><ul><ul><li>Monitoring the performance of chain actors in complying with the basic rules </li></ul></ul></ul><ul><ul><ul><li>Helping chain actors adhere to basic rules </li></ul></ul></ul><ul><ul><li>Some value chain may exhibit very little governance </li></ul></ul><ul><ul><li>There may be multiple sources of governance </li></ul></ul><ul><ul><li>Power of governance may be vested with the chains, in local communities, or in business associations </li></ul></ul>
  31. 31. Concepts underpinning VCA (4) <ul><li>Leverage </li></ul><ul><ul><li>Interventions that could have the most significant impact on the value chain </li></ul></ul><ul><ul><li>With a large number of firms, interventions aimed at each individual firm may be infeasible </li></ul></ul><ul><ul><li>Hence, VCA helps identify leverage points: </li></ul></ul><ul><ul><ul><li>System nodes </li></ul></ul></ul><ul><ul><ul><li>Geographic clustering </li></ul></ul></ul><ul><ul><ul><li>Policy constraints </li></ul></ul></ul>
  32. 32. Potential objectives of VCA <ul><li>Identification of leverage points to improve chain performance </li></ul><ul><li>Analysis of agriculture-industry linkages </li></ul><ul><li>Analysis of income distribution </li></ul><ul><li>Analysis of employment issues </li></ul><ul><li>Analysis of economic and social impacts of interventions </li></ul><ul><li>Analysis of environmental impact of interventions </li></ul><ul><li>Guide collective action for marketing </li></ul><ul><li>Guide research priority setting </li></ul><ul><li>Conduct policy inventory and analysis </li></ul>
  33. 33. Innovation possibilities in VC <ul><li>Input supply </li></ul><ul><li>Production and post harvest </li></ul><ul><li>Marketing options </li></ul><ul><li>Technical assistance and training </li></ul><ul><li>Organization and coordination of marketing functions </li></ul><ul><li>Market information and intelligence </li></ul><ul><li>Market institutions </li></ul><ul><li>Market infrastructure </li></ul><ul><li>Financial services </li></ul><ul><li>Policy and regulatory issues </li></ul>
  34. 34. <ul><li>Part III: Integrating ISP and VCA in AR4D </li></ul>
  35. 35. Integrating ISP and VCA <ul><li>Enterprises and value chains are embedded in the AIS </li></ul><ul><li>Market process and IS are mutually embedded and cannot have one without the other </li></ul><ul><li>Innovation can occur any where along the value chain </li></ul>
  36. 36. <ul><li>An Innovation is a continuous learning process in which individuals/group of individuals/organizations/firms master and implement the design, production, and marketing of goods and services that are new to them, although not necessarily new to their competitors domestic or foreign (Metcalfe, 2008). </li></ul><ul><ul><li>Embraces: </li></ul></ul><ul><ul><ul><li>Continuous improvement in product design and quality </li></ul></ul></ul><ul><ul><ul><li>Change in organization and management routines </li></ul></ul></ul><ul><ul><ul><li>Creativity in marketing </li></ul></ul></ul><ul><ul><ul><li>Modification to production processes </li></ul></ul></ul>Within the value chain context
  37. 37. Agricultural Innovation System Source: (Birner & Spielman, 2007) Linkages to other economic sectors Linkages to general science & technology Linkages to international actors Linkages to political system Agricultural value chain actors & organizations Input suppliers Agricultural producers * Different categories Trade processing, wholesale, retail, Consumers Agricultural research system * Public sector * Private sector * Third sector Agricultural education system * Primary / secondary * Post-secondary * Vocational training Agricultural advisory services * Public sector * Private sector * Third sector Bridging institutions Agricultural research and education systems Informal institutions, practices and attitudes Examples: Learning orientation; trust; communications; practices; routines Integration in value chains Political channels Stakeholder platforms Agricultural policies and investments General agricultural policies and specific agricultural innovation policies
  38. 38. AIS in an Agri-value chain Facilitating Institutions Policies, legal framework, market, information, quality control Research, extension, training, credit, etc.) Facilitating Services Transport, storage, packaging, facilitating, equipment, import and export, communication, promotion, etc. Agro-industry (Input supply) Agricultural production (Farm production) <ul><li>Agro industry </li></ul><ul><li>(Product marketing) </li></ul><ul><ul><li>Processing </li></ul></ul><ul><li>Value adding </li></ul><ul><li>Marketing </li></ul>Enabling environment Political stability, law and order, infrastructure, Governance favorable micro-macro and sectoral policies, etc.
  39. 39. Integration of Value Chain and Innovation Framework Conditions I NS T I TUT I ONS Knowledge Generation Knowledge Adaptation Knowledge Dissemination Knowledge Application + Use INNOVATION CAN OCCURE ANYWHERE IN THE VALUE CHAIN Agro-industry inputs and services Agricultural Production <ul><li>Agro industry </li></ul><ul><li>Processing </li></ul><ul><li>Marketing </li></ul><ul><li>Retailing </li></ul>LEARNING ACTORS + ACTIONS+ INTERACTION Value addition Value addition
  40. 40. Integration of Value chain and Innovation system perspective in Research for Development Target Group Identification Broad understanding of the Livelihood of the Target Groups (Unit of analysis is the HH) Prioritizing enterprises within the Target Group Identifying and describing the Value chain of priority enterprises National Innovation System- Generic (dealing with science and technology at National Level) Intervention Based Innovation System (Based on the priority problem) Agricultural Innovation System-Generic (dealing with Agricultural S & T) Commodity based Innovation System (dealing with the entire value chain of an enterprise) Prioritizing the key component of the Value chain-1 st level priority setting Prioritizing problems within the priority key component identified Analysis of the priority problems identified Identifying potential Intervention Identifying feasible Intervention Planning, Implementation and Evaluation Screening (Ex-ante assessment) Dissemination, Utilization by end users, and scaling out
  41. 41. This implies <ul><li>Much more flexible arrangements in which dense networks of entrepreneurs, farmers, research, training and policy organizations interact and respond to new circumstances is required </li></ul><ul><li>New skills and attitudes are required to work with partners in multi-stakeholder process and networks and platforms. </li></ul>
  42. 42. Key Issues and Challenges <ul><li>Limited awareness of the </li></ul><ul><ul><li>concept, application and implications </li></ul></ul><ul><li>Lack of empirical evidence in the </li></ul><ul><ul><li>application, utility and value addition (agricultural sector) </li></ul></ul><ul><li>Outstanding methodological issues </li></ul><ul><ul><ul><li>assessing successful partnerships, networks and innovations </li></ul></ul></ul><ul><ul><ul><li>reducing transaction costs </li></ul></ul></ul>
  43. 43. Key Issues and Challenges (2) <ul><li>Institutionalization and effective Integration into the agricultural R&D process requires </li></ul><ul><ul><li>Changing the mindset and attitude of various stakeholders </li></ul></ul><ul><ul><li>Building the culture of innovation </li></ul></ul><ul><ul><li>Building capacity </li></ul></ul><ul><ul><ul><ul><li>To apply the concept </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To continue to build capacity </li></ul></ul></ul></ul><ul><ul><li>Sustainable governance mechanisms for AIS </li></ul></ul><ul><ul><li>Incentive and reward system </li></ul></ul><ul><ul><li>Developing coherent set of policies </li></ul></ul><ul><ul><li>Internally driven organizational strategy </li></ul></ul>
  44. 44. <ul><ul><li>How do we scale up the capacity to innovate? </li></ul></ul><ul><ul><li>Absorptive capacity: acquisition, assimilation, transformation and exploitation of knowledge </li></ul></ul><ul><ul><li>How to promote pro-poor innovation? </li></ul></ul><ul><ul><li>How to identify/generate commercially relevant innovation and how to achieve it consistently </li></ul></ul><ul><ul><li>How to ensure socio-economic equity and environmental sustainability? </li></ul></ul>Key Issues and Challenges (3)
  45. 45. Note <ul><li>Effective integration is an evolutionary process which requires long-term commitment by all key stakeholders within the AIS </li></ul>
  46. 46. Thank You! We appreciate your comments and suggestions