1. International Training Program:
Labor Market Policy in Poverty
Alleviation
Maputo
24th April, 2012
The Value Chain and Its Role in Poverty
Alleviation
Abraham Sarfo
Agribusiness and Value Chains
Consultant
sarforo@gmail.com

2. Value Chains & Livelihoods
What’s the difference and
why should we care?

3. WHAT IS THE RATIONALE
FOR THE VALUE CHAIN APPROACH?
• Integrating poor households into growing
markets
• Empowering poor households to benefit
from increasing globalization
• Economic Growth
• Poverty Reduction

4. Value Chain Definitions
Definitions….
World Bank 2010: “Chains composed of companies …that interact to
supply goods and services are variously referred to as productive
chains, value chains, filières, marketing chains, supply chains, or
distribution chains. These concepts vary mainly in their focus on
specific products or target markets.”… “What they have in
common, however, is that they all seek to capture and describe the
complex interactions of firms and processes that are needed to create
and deliver products to end users.”
IDS Study 2010: “There is a simple element at the heart of value chain
analysis. The idea of a chain is a metaphor for connectedness. It
highlights the simple point that most goods and services are produced
by a complex and sequenced set of activities. In many cases, these
activities are split across a number of economic agents
(people, enterprises, cooperatives, etc.).How these different
economic agents interact matters for development.“

5. Value Chain Definitions
Definitions….
USAID 2010: “Series of actors and activities needed to bring a product
from production to the final consumer”. “Value chains are a chain of
actors but they operate like a system. … We can’t just focus on
production without ensuring that there is sufficient processing
capacity to absorb increases or w/o ensuring that there is market
demand and access to markets”.
FAO 2007: “we use the term value chain to characterize a system
composed by different actors, activities and institutions, all functioning
interrelatedly, so as to enable the accomplishment of a common goal”.

6. A Generic Definition Of Value Chain
“Value chain” means….
 the sequence of related business activities (functions) from the
provision of specific inputs for a particular product to primary
production, transformation, marketing and up to final consumption
 the set of enterprises that performs these functions i.e. the
producers, processors, traders and distributors of a particular product

7. The “value chain map”
Basic sequence of functions in an agribusiness value chain
Specific Trans- Final product
Inputs Production formation Trade
Provide Grow, harvest Classify Transport
- equipment Produce the Process Distribute
- inputs primary stage etc. Pack Sell
Categories of operators in value chains and their relations
Specific Farmers, Packers, Consumers of
Input (primary Agro- Traders pineapple juice
providers producers) industry (sales pt.) (the market)

8. Concept Of The “Value Chain”
Commodity markets & industry as analytical perspective & framework
Seed Production Trans- Commerce End
provision formation Trade Product
Categories of operators - in different channels
Seed
Farmers 1 Companies Traders 1 Market
producers Segment 1
Farmers 2 Traders 2 Market
Segment 2
Private sector Organization
representing the industry

9. So: When promote value chains ?
Market failure
Markets do not always develop & function on their own !
The growth potential remains unused, because
- public support services are insufficient – or lack altogether
- infrastructure is bad
- the legal and administrative rules are not appropriate
- lack of trust, skills, transparency…

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11. Implementation Approach of M4P
Point of departure is the understanding of poverty as a Symptom:
- Analysis of the undelying reasons of poverty in the market system
- Design of interventions to change “core functions, rules, supporting
functions” of markets – and then
- Implementation of market development activities for systemic change

12. Emerging Models of Value Chain
Development
Inclusive value chain models include integrating the
poor and smallholder farmer into value chains as
producers, enablers and business owners or developing
affordable goods and services needed by the poor.
These value chain models may be developed by
entrepreneurs, private sector, and public institutions within existing
or new value chains; large or small.
• They may be driven by actors from the country where they are being
established or from outside actors, be it from developed or
developing nations.

13. Emerging Models of Value Chain
Development
• Sustainable Value Chains
Enviromental Impact
• Biodiversity
• Climate
• Soil Toxcity
• Water
Ecomomic
Social Impact
Impacts
• Labour Right
• Farm Profitability
• Child Labour
• Livelihood
• Social Context of
• Value Chain Communities
Reselience

14. Value Chain Approach and
Africa Sustainable Development
Food Security
……Provide Food for
All……
Value Chain
Approach to Economic Opportunity
Agricultural Design …………….While Generating
and Economic Growth and
Environmental Sustainability Implementation Opportunity………
………..In an environmentally
Sustainable way…….

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17. Significant scale and impact
Demand driven – know the end market
Commercial viability
Systemic, holistic approach - multiple
levels
Inclusion of stakeholders
Partnership approach
Avoid market distortion
Governance and relations between
market players – level playing field
Flexible design, continuous monitoring

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20. Significant scale and impact
Demand driven – know the end market
Commercial viability
Systemic, holistic approach - multiple
levels
Inclusion of stakeholders
Partnership approach
Avoid market distortion
Governance and relations between
market players – level playing field
Flexible design, continuous monitoring

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27. PRINCIPLES OF
INTERVENTION/SUSTAINABILITY
• Redundancy
– Don’t do it, if its going to happen anyway
• Sequencing
– Are there things that need to happen first?
• Sustainability
– Are the incentives adequate?
– What happens when I leave?
– Does it increase learning and benefits?
– Does it create win-win relationships?
• Clear Exit Strategies
– Am I leaving? If yes, When?
– What happens when I leave?
– Have I left adequate incentives beyond?
• Resource Allocation
– Does it make optimal use of project resources?
– What are the trade-offs?

28. Priority value chains: Analysis
Contents
1 Methodology of VC analysis
2 Value chain mapping
3 Opportunities and constraints analysis; Summary Characteristics

29. Key Question
What are the Key
Which Value Chains is
Criteria on which to
most important to be
base the value chain to
analysed?
be analysed?

30. Participants Assessment of
Value Chain Program
Participants involved in the assessment should
have common understanding of the value chain
development of the Country/Sub-region
Undertake pre-evaluation exercise in of sub-
sectors, product or commodity to Identify key
actors and informants to ensure that participants:
• Have Relevant Knowledge
• Are Adequate representative of the value chain
• Try to keep participants number small

31. 4 Steps of Prioritizing Process
Step 1 • Understanding Criteria
• Build on Priority
Step 2 • Weighting of Criteria
Step 3 • Identifying a List of Potential
Products
Step 4 • Ranking of Products/Activities

32. Step 1: Determine Criteria and
Build Understanding
As the key entry point for this analysis is
the Smallholder Farmer, food security and
poverty alleviation, the criteria for entry
and analysis should reflect that.
The priorities of considerations should
reflect the smallholder farmer and food
security

33. Step 1: Determine Criteria and
Build Understanding
Potential of • Present integration of the smallholder in
the Value the market-what are they
producing, selling and employment?
Chain to • Potential for the activity/product for
improve the poverty reduction and food security
• Low barrier for entry for the smallholder
activities of farmer
smallholder • Low risk
• Potential for labor intensive technology
farmers

34. Step 1: Determine Criteria and
Build Understanding
• Strong domestic, regional and
international demand for the
product
Market • Growth potential for the product
• Possibility of Scaling Up
Potential • Involves many farmers
• Potential for leveraging public
investment with Private Investment

35. Step 1: Determine Criteria and
Build Understanding
• Within the framework of
Other Regional Strategies
• Value Chain Actors have
Criteria entrepreneurial capacity to
achieve improvement
Such • Environmentally sustainable
As • Gender, Nutrition and Social
Inclusion of The Vulnerable

36. ValueLinks Modules
Setting project Chain analysis Implementation Monitoring
boundaries and strategy
0 Deciding whe- 2 Analysing a 5 Strengthening 11 Monitoring and
ther to engage value chain business linkages managing
in chain pro-
motion impact
6 Engaging in public-
1 3 private partnership
Selecting a Determining a
value chain for chain upgrading
promotion strategy 7 Strengthening
services in VC
4 Facilitating the
chain develop- 8 Financing value
ment process chains
9 Introducing
Obligatory social, & quality
standards
according 10 Improving the biz
to priorities environment of VC

37. The use of chain analysis
Chain analysis helps to:
• Start a process of change
• Provide information: Chain analysis is a service for
enterprises and public agencies
1 • Design and prepare a fields of investment
• Create a baseline for monitoring

38. Elements of a value chain analysis
Analytical tools of value chain analysis
 Value chain mapping
 Quantification: Numbers of operators
1  Quantification of markets: Volumes & prices, turnover
 Geographical spread
 Market (market segmentation, demand potential)
 Upgrading opportunities
 Economic analysis (production cost, shares of value added)
 Summary description of VC characteristics

39. Contents of value chain maps
Basic value chain maps visualise…
• The sequence of production and marketing functions
performed
• The value chain „operators“ taking these functions (micro
level)
2 • Vertical business links between the operators
• The chain „support service providers“ (meso level)

40. Basic concepts
Value chain functions
Specific Trans- Commerce Con-
Inputs Production formation Trade sumption
Provide Grow Classify Transport Consume
- equipment Harvest Process Distribute
- inputs Dry etc. Pack Sell
2
Categories of operators in value chains and their relations
Specific Primary Packers, Consumers
Input producers Industry Traders
(the market)
providers (sales pt.)

41. Value chain map
Consumers
(the market)
Retail
(final sales Retailer
point)
Commerce Traders
Trade
2 Trans- Packers /
formation Industry
Support
Service
Production Primary Producers Provider 2
Support
Service
Specific Provider 1
Specific input
Inputs providers

42. The VC System for increased competitiveness
Input Trans- Distribution, Con-
Production
provision formation sales sumption
Groups, Associations, Organisations
BDS providers, NGOs, Development Partners
Technical Agencies, Research, Extension
Local Government, Providers of Utilities / Infrastructure
National Government (Line Ministries) & Public Administration
Source: adapted from Hoeffler

43. Maize: Generic overview of (typical) VC map
Seed supply Maize Intermediate
Milling Wholesale Retail
production trade
Own con-
country sumption
Smallholders
(selling surplus)
Domesticm
arkets
Wholesale Traders on food/feed
traders food markets
Local
assemblers
Institutional Public
buyers (WFP)
2
programs
Intra-
Exporters regional
Seed Commercial export
dealers farmers
Industrial Flour Domestic
Food shops flour
Millers traders
markets
Importers
Animal
feed
feed
traders
markets
This VC map is a simplified overview map, showing the major actors and their relations
it is subject to adaptation according to the specific conditions in each country

44. Maize: Market data and food balance
Analysis
country Volume produced
imported/exported (tons) Farm gate price Value
On-farm
con-
sumption
Retail Price Value
2 Domesticm Maize (grain)
arkets Maize (flour)
Maize (feed)
Export Price Value
Regional
export
market
Trade balance
Maize (grain)
Imports

45. Maize: Generic overview of (typical) VC map
Seed supply Maize Intermediate
Milling Wholesale Retail
production trade
Own con-
country sumption 3,2 Mio t
Smallholders
(selling surplus)
Domesticm
arkets
N = 3,5 Mio 75% Wholesale Traders on food/feed
traders food markets
Local
assemblers
Institutional Public
buyers (WFP)
2
programs
Intra-
Exporters regional
Seed Commercial export
dealers farmers
Domestic
N = 1000 25% Industrial Flour
Food shops flour
Millers traders
markets
Importers
Animal
feed
feed
traders
markets
This VC map is a simplified overview map, showing the major actors and their relations
it is subject to adaptation according to the specific conditions in each country

46. Institutional structure of maize subsector, Ghana
Seed supply Maize Intermediate
production Milling Wholesale Retail
trade
Ghana Grains Council
2 MoTI
MoFA
DP Programs - MOAP, Advance

47. What makes a good map
Criteria
• Make sure the map has a clear message
• Avoid overload of information – not more than 2 or 3
channels at a time.
• Separate micro and meso analyses
2 • The map has to be understandable to people who have not
participated in making it!

48. Maize: Market & upgrading opportunities
Market opportunities
• Growing demand with increasing population & consumption per head
• Long-term price trend goes up
Supply potential
• Yields far below potential – can go up with use of fertilizer, seeds
• Smallholders reactive to market incentives
3 •…
Leverage points for upgrading
• Stabilizing the agricultural policy and trade framework
• Coordinating private and public investment along the value chain
•…

49. Maize value chain: Typical constraints
Seed supply Maize Intermediate
Milling Wholesale Retail Markets
production trade
Own con-
sumption
country Smallholders Domesticm
(selling surplus) arkets
Wholesale Traders on Food/feed
traders food markets
Local
assemblers Regional
Exporters export
market
2
Domestic
Seed Commercial Industrial Flour
Food shops flour
dealers farmers Millers traders
markets
Limited demand, Smallholders:
weak private No market info High price volatility
sector Lack of finance
Knowledge gaps
Little use of inputs Cross-border trade:
Soil mining Variable trade flows
Low yields
Post-harvest loss Complicated intra-
Poor market infrastructure (of storage, assembly markets)
regional trade
Poor roads
regimes, standards
Grades and standards not defined or not enforced
not harmonized
Lack of trade finance
Mistrust between VC operators
variable supply Weak market coordination, unreliable links Inconsistent & unpredictable political
high production cost high marketing cost interference (e.g. export bans, tariffs)

50. Priority value chains: Strategy (ValueLinks module 3)
Content
1 Formulating a VC development strategy - different types of value chains

51. The fundamental objective for upgrading
… increased value = price obtained * volume sold
The focus may be on volume, on prices or on both
6% annual sectoral growth
1 Volume Price
Income
Providers of Primary Logistic Traders
specific producers centres, Retailers Market
inputs Industry
Specific
inputs Production Processing Trade

52. “Upgrading Solutions”
Service Policies Norms
arrangements & standards
Service
provider
1
Technology Primary Processing Consumers
providers producers Industry Traders
(the market)
Association
Vertical Buyer Credit Vertical
linkages linkages
Horizontal
linkages

53. The upgrading objective
Formulating a strategic objective
Value added of the industry = prices obtained and/or volumes sold...
• for the product (specify type, quality, etc.)
• in the ... market (specify segment and product)
1 • increased by ...$$ by ...%,
• in the year ... (5 years from now)
By...
• reducing cost (of production and/or marketing)
• expanding capacity (in different stages of the VC)
• penetrating the ...market
• improving / innovating the product (quality etc.)

54. Classifying Strategies
Ansoff Product-Market Growth matrix
Products
New
1 Present
present Market Penetration Product Development
Strategy Strategy
Market Development Diversification Strategy
New Strategy

55. Typical activities for different commodities
Many VC approaches are typical for specific commodities
For example:
• Fresh beans, flowers, pineapple for export:
organizing farmer groups, standards, certification
1
• Sheanut
organizing farmer groups, market linkage
• Rubber:
contract farming, PPP, financial and technical services
• Maize and other cereals
Commodity exchanges, warehouse receipt system
Seed supply systems, contract farming , e.g. with breweries