The value chain approach examines all activities involved in bringing a product from conception to end markets. It identifies participants at each stage and their strengths/weaknesses. For forest enterprises, value chain analysis helps add value, identify problems, improve quality and market access, reduce costs, strengthen linkages among actors, and inform policy/decision making. It provides insights to develop strategies that increase benefits for all stakeholders in the chain.

1. Unit-3 VALUE CHAIN OF FOREST
PRODUCTS BASED
ENTERPRISES
Nabaraj Upadhaya
Agriculture and Forestry University
nabaraj2077@gmail.com
9868560353

2. 3.1 Define value chain in forest-based enterprises
• The value chain approach was developed by Michael Porter in the 1980s. The concept of
value added, in the form of the value chain in the business era of the 21st Century.
• Value chain is the process or activities by which an enterprise/company adds value to an
items/product including production, marketing, and the provision of after sale services.
• Value chains encompass the full range of activities and services of market actors required to
bring a product or service from its conception to its end use and beyond.
• A value chain (VC) is a chain of value-creating activities which are not isolated from one
another. Rather, one activity often affects the cost or performance of the others. It is a
sequence of productive processes from the provision of specific inputs for a particular
product to primary production, transformation, marketing and distribution, and final
consumption (Amatya, 2009).

3. • The products pass through all activities of the chain in order, gaining value
with each activity.
• To analyze the specific activities through which firms can create a
competitive advantage, it is useful to model the firm as a chain of value-
creating activities.
• Value chain uses a participatory, stakeholder- driven approach to exploit
opportunities for investment and growth in industries with high levels of
micro and small enterprise (MSE) involvement.
• Strategies to upgrade value chains refer to a conscious change in chain
participation of actors that enhances their rewards and or reduces their
exposure to risks (Bolwig et al., 2010)

4. Why Value chain analysis????
• To identify and select major products/raw material in the site.
• To classify major actors and their functions with the VCs
• To identify potential service providers (SPs), and
• To design commercially viable business solution.
Value chain of most NTFPs at five main stages:
1. Production/Collection
2. Local head trade
3. District head trade
4. Regional
5. Wholesale and expoter

5. TheValue Chain Model

6. TheValue Chain Model…
• This approach allowed us to analyze the costs of each strategically important process
to reduce expenses or increase differentiation. The VC shows at what stage of the
production process profit is earned, and at what point it is lost.
• The total value of the company’s services is measured by revenue, which is
determined by the volume of services provided and the assigned price. A company
that achieves competitive advantage through differentiation will perform its activities
better than competitors.
• If a company is able to produce products at a lower price without losing quality, it
can bet on lower prices in order to gain a greater market share. Or it should market
only superior products. Otherwise, the company will soon face marketing
difficulties.

7. • When a company effectively combines cost reduction for certain types of
activities and implements services of excellent quality, the customer is willing
to pay more. In this situation, conditions are created to maximize profits in the
long run.
The classical model of the VC includes four main activities of the organization
(chain links) aimed at creating value for the organization’s consumers:
 input logistics;
 production operations;
 output logistics;
 marketing including sales and services.
In addition, four supporting activities are also included in the value chain model:
organizational infrastructure; human resources management; technological
developments; procurement involving the acquisition of everything necessary
for the conduct of core business.

8. Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support
of a product or service. They consist of the following:
1. Inbound logistics – These are all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key factor in creating
value here.
2. Operations – These are the transformation activities that change inputs into outputs
that are sold to customers. Here, your operational systems create value.
3. Outbound logistics – These activities deliver your product or service to your customer.
These are things like collection, storage, and distribution systems, and they may be
internal or external to your organization.
4. Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and how well
you communicate them, are sources of value here.
5. Service – These are the activities related to maintaining the value of your product or
service to your customers, once it's been purchased.

9. Support Activities
• These activities support the primary functions above. In our diagram, the dotted lines
show that each support, or secondary, activity can play a role in each primary
activity. For example, procurement supports operations with certain activities, but it
also supports marketing and sales with other activities.
1. Procurement (purchasing) – This is what the organization does to get the resources it
needs to operate. This includes finding vendors and negotiating best prices.
2. Human resource management – This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR practices.
3. Technological development – These activities relate to managing and processing
information, as well as protecting a company's knowledge base. Minimizing information
technology costs, staying current with technological advances, and maintaining technical
excellence are sources of value creation.
4. Infrastructure – These are a company's support systems, and the functions that allow it to
maintain daily operations. Accounting, legal, administrative, and general management are
examples of necessary infrastructure that businesses can use to their advantage.

11. VALUE CHAIN ANALYSIS:
• The value chain analysis (VCA) examines the full range of activities that are required to bring
a product in a particular enterprise from its conception to its end markets. A good VCA
provides a snapshot/glimpse of an enterprise at a particular time, while VC mapping indicates
the way a product flows from raw material to end markets.
• Value chain analysis helps identify the participants at specific functional levels such as
primary producers, processors, product makers, retailers, exporters etc. including the
identification of strengths and weaknesses at each stage. Such analysis provides a sound basis
to develop appropriate strategies and implement interventions that will contribute to develop
the sub sector to its potential level, increase value addition, and to achieve a significant
increase in the number of target beneficiaries.

12. How to obtain information needed for Value Chain Analysis
Analysts can explore various sources to find information necessary for conducting the value
chain analysis. These sources are:
1. Records of the company or enterprise:
• Up to three years of annual reports of the enterprise can be analysed to see how the costing of
the activities are changing over the period and whether they are in unison with the
competitive strategy of the firm. These annual reports of the company can be compared to the
annual reports of the key competitors in order to see how competitive strategies differ
between the companies, along with finding the difference in the contribution of activities to
the company’s profitability. In order to gain knowledge about the core competence of the
company, analysts can look at the company and competitor websites.

13. 2. SWOT analysis:
• SWOT analysis of the enterprise done by companies, which can help the
analyst to understand the key strengths and weaknesses of the company and
how the firm differs from its competitors.
3. Read journals and articles
• Furthermore, journal articles, trade publications and magazines are also useful
sources of information to identify how value is created in the particular
enterprise or business in which the company operates and which activities
play a key role in the generation of that value.
4. Consult the different actors of value chain:
• Information given by the actors of value chain are also useful to identify how
value is added in the particular enterprise in which who has played a key role
in the generation of that value.

14. Mapping the value chain
• Value chain mapping was done for the commodities prioritized by the value
chain selection process. Value chains were mapped and analyzed using VCA
that included qualitative tools such as semi structured interviews and focal
group discussions. Here, we Identified the role and function of the actors.
Value chain mapping indicates the way a product flows from raw material to
end markets. The value chain map of one product differs with another
products. Lokta and allo are the forest products, from which Nepali handmade
paper and rope can be prepared respectively. In both enterprises, four main
types of actors were involved in value chain of these products. These are:

15. o Collectors/harvesters
o Local processors
o Local traders/urban wholesalers and
o National traders/urban exporters.
• Each actor added value to the product along theVC from the transformation
of raw material ultimately into marketable finished products.

16. Actors of value chain
• According to the function analysis of VC, it mainly acts by 3 bodies:
A. Functions:
• This includes input supply, production, and local processing at the farmers level; collection,
domestic trading, and exporting at traders’ level; and processing and manufacturing for value
addition at the processors/manufactures’ level.
B. Actors:
• A particular tool that can be used in a participatory manner to foster understanding of markets
is the market map. This consists of three main elements or levels. The middle level shows the
value chain actors, including all economic actors owning and transacting a particular product
as it moves from primary producers to final consumers. The upper level of the map represents
the value chain environment, comprising the critical factors and trends shaping operating
conditions, such as collection, transport, electricity supply, etc. The lower level shows
business development services (both existing and required) that support the actors and
transactions in the value chain, including services embedded within other

17. 1. Producers
• Wood and non-wood forest products are obtained from the CFUG, national forests
and private individuals etc.
2. Collectors
• Local communities enjoy access to forest products especially NTFPs through their
traditional user rights which are recognized by modern forestry laws but limited to
subsistence purposes. The smallscale commercial use of NTFP is excluded by these
user rights, although local communities especially women, children and indigenous
people regularly collect and sell small quantities of NTFPs allowing them to
purchase food, medicine, clothes, kitchenware and to pay school fees. They sell their
collection to local dealers.
3. Dealers
• Collectors sell their collection to local dealers, who sell their gatherings to the
processers or manufacturers.
4. Processers/manufacturers
• Processers or manufacturers are those persons who make final products from timber
and NTFP resources obtained from the forests.

18. 5. Wholesaler
• Wholesaler is the middle person who purchases the products in huge amounts at
great discounts from manufacturers, and then distribute among the retailers at good
prices. Most of the manufacturers prefer to give the distributors only. The cycle of
value chain goes like this: manufacturers-wholesalerretailers and customers or
consumers.
6. Retailer
• One who sells goods or commodities directly to consumers. These items are
purchased from the manufacturer or wholesaler and sold to the end user at a marked-
up price. The best example of a retailer would be the small family-operated shop on
the corner of a market.
7. Consumers
An individual who buys products or services from retailers for personal use and not for
manufacture or resale is known as consumer.

19. C. Enablers:
• Acts as agents or stakeholders in VC
• In a value chain, the enabler includes all chain-specific actors
providing regular support services or representing the common
interest of the value chain actors. Functions at the enabler level
include, for example, public research and technology development,
agreement on professional standards, promotional services, joint
marketing or advocacy, and other support service providers.

20. Income and employment generated by value chain in wood
and non-wood enterprises:
• Value addition activities in forest products starts from collecting or harvesting forest products to
sell of final products, which help to generate income and employment in following ways:
1. Wood products
Steps in generating income and employment in wood products are:
a) Harvesting of forest products : It includes tree marking, harvesting of trees, logging and log
transportation up to the sawing unit. People gets income and employment opportunities
during these field activities.
b) Processing : It includes sawing of logs and making furniture. Some people get income and
employment opportunities during these processing activities.
c) Sell of final products : It also includes transportation and sell of products. Some people get
income and employment opportunities during these processing activities.

21. 2) Non-wood products
• Most of the forest enterprises in Nepal are small and medium enterprises, and in
many of them are from non-timber forest products (NTFPs), which have been
identified as one of the potentials, high value commodities in Nepal.
• Steps in generating income and employment through NTFPs are as follows:
i. Collection of NTFPs
ii. Store in depots
iii.Processing of NTFPs
iv.Wholesale and retail shop
• In non-wood enterprises, raw materials production, collection, depots (gathering in
one place), processing and marketing (wholesale/retailers) are the major steps for
generating income and employment to people involved in this business.

22. 3.5 Impacts of value chain in forest-based enterprises:
• Add value of forest-based enterprises and their products.
• Identify problems, issues and constraints of enterprise and its products.
• Use ideas of all actors of value chain to improve the quality and quantity of
products.
• Get ideas and information of competitive enterprises and their products.
• Identify market-based problems and solutions. Identify and select
interventions to improve the quality of enterprise.

23. 3.5 Impacts of value chain in forest-based enterprises…
• Better understanding of costs and income, and help to reduce the costs of
enterprise.
• Improve linkage among activities carried out in enterprise and integration
among business unit.
• Identify several diverse of uniqueness. Improve linkage between actors of
an enterprise.
• Improve the capacity utilization of an enterprise.
• Improve the policies and decision-making process of an enterprise.
• Improve the timing of market entry. Help to develop technology.
• Assist in better management of human resources.