Value chains and poverty alleviation

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  • So what is a market and who are the actors? Normally we think of a market as the space where producers and consumers, supply and demand coming together and transact. But markets are wider, also include government at different levels, various parts of the private sector (small and large enterprises, cooperatives, business organizations, workers, consumers etc). In addition to the core market function of supply and demand, there are two other main sets of functions important to make markets work: i) rules and regulations; ii) supporting functions. These pieces all need to work in some form of harmony, in concert, supporting and enabling the market function to happen as smoothly as possible, to create efficiency, transparency, safety, quality while avoiding acting as barriers for the producers and consumers. So to support markets / IM – opportunities to intervene at multiple levels with various actors – wherever the key barriers are determined to be. Micro, meso or macro levels. With the private sector or government.Let me also say a few words about value chains and markets – there is a lot of discussion about VCs. Value chains are market systemsAccess to modern markets mostly happens through value chainsRealization that in the past there may have been too much focus on increasing production without sufficient attention to understanding demand of markets and the role of effective supply chains.
  • So what is a market and who are the actors? Normally we think of a market as the space where producers and consumers, supply and demand coming together and transact. But markets are wider, also include government at different levels, various parts of the private sector (small and large enterprises, cooperatives, business organizations, workers, consumers etc). In addition to the core market function of supply and demand, there are two other main sets of functions important to make markets work: i) rules and regulations; ii) supporting functions. These pieces all need to work in some form of harmony, in concert, supporting and enabling the market function to happen as smoothly as possible, to create efficiency, transparency, safety, quality while avoiding acting as barriers for the producers and consumers. So to support markets / IM – opportunities to intervene at multiple levels with various actors – wherever the key barriers are determined to be. Micro, meso or macro levels. With the private sector or government.Let me also say a few words about value chains and markets – there is a lot of discussion about VCs. Value chains are market systemsAccess to modern markets mostly happens through value chainsRealization that in the past there may have been too much focus on increasing production without sufficient attention to understanding demand of markets and the role of effective supply chains.
  • CAADP Encourages annual budgetary allocation of 10% to agricultureTargeted expenditure must enable at least 6% annual sectoral growth
  • The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities.
  • Value chains and poverty alleviation

    1. 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. 2. Value Chains & Livelihoods What’s the difference and why should we care?
    3. 3. WHAT IS THE RATIONALEFOR THE VALUE CHAIN APPROACH?• Integrating poor households into growing markets• Empowering poor households to benefit from increasing globalization• Economic Growth• Poverty Reduction
    4. 4. Value Chain DefinitionsDefinitions….World Bank 2010: “Chains composed of companies …that interact tosupply goods and services are variously referred to as productivechains, value chains, filières, marketing chains, supply chains, ordistribution chains. These concepts vary mainly in their focus onspecific products or target markets.”… “What they have incommon, however, is that they all seek to capture and describe thecomplex interactions of firms and processes that are needed to createand deliver products to end users.”IDS Study 2010: “There is a simple element at the heart of value chainanalysis. The idea of a chain is a metaphor for connectedness. Ithighlights the simple point that most goods and services are producedby a complex and sequenced set of activities. In many cases, theseactivities are split across a number of economic agents(people, enterprises, cooperatives, etc.).How these differenteconomic agents interact matters for development.“
    5. 5. Value Chain DefinitionsDefinitions….USAID 2010: “Series of actors and activities needed to bring a productfrom production to the final consumer”. “Value chains are a chain ofactors but they operate like a system. … We can’t just focus onproduction without ensuring that there is sufficient processingcapacity to absorb increases or w/o ensuring that there is marketdemand and access to markets”.FAO 2007: “we use the term value chain to characterize a systemcomposed by different actors, activities and institutions, all functioninginterrelatedly, so as to enable the accomplishment of a common goal”.
    6. 6. A Generic Definition Of Value Chain “Value chain” means…. the sequence of related business activities (functions) from theprovision of specific inputs for a particular product to primaryproduction, transformation, marketing and up to final consumption the set of enterprises that performs these functions i.e. theproducers, processors, traders and distributors of a particular product
    7. 7. The “value chain map”Basic sequence of functions in an agribusiness value chain Specific Trans- Final product Inputs Production formation TradeProvide Grow, harvest Classify Transport- equipment Produce the Process Distribute- inputs primary stage etc. Pack SellCategories 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. 8. Concept Of The “Value Chain”Commodity markets & industry as analytical perspective & framework Seed Production Trans- Commerce End provision formation Trade ProductCategories 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. 9. So: When promote value chains ?Market failureMarkets 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…
    10. 10. 12
    11. 11. Implementation Approach of M4PPoint 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. 12. Emerging Models of Value Chain DevelopmentInclusive value chain models include integrating thepoor and smallholder farmer into value chains asproducers, enablers and business owners or developingaffordable 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. 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. 14. Value Chain Approach andAfrica Sustainable Development Food Security ……Provide Food for All…… Value Chain Approach to Economic Opportunity Agricultural Design …………….While Generating and Economic Growth andEnvironmental Sustainability Implementation Opportunity………………..In an environmentally Sustainable way…….
    15. 15. 17
    16. 16.  18
    17. 17. Significant scale and impactDemand driven – know the end marketCommercial viabilitySystemic, holistic approach - multiplelevelsInclusion of stakeholdersPartnership approachAvoid market distortionGovernance and relations betweenmarket players – level playing fieldFlexible design, continuous monitoring
    18. 18.  20
    19. 19. 21
    20. 20. Significant scale and impactDemand driven – know the end marketCommercial viabilitySystemic, holistic approach - multiplelevelsInclusion of stakeholdersPartnership approachAvoid market distortionGovernance and relations betweenmarket players – level playing fieldFlexible design, continuous monitoring
    21. 21.     23
    22. 22.               24
    23. 23.       •   25
    24. 24.     26
    25. 25.               27
    26. 26.        •  28
    27. 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. 28. Priority value chains: Analysis Contents1 Methodology of VC analysis2 Value chain mapping3 Opportunities and constraints analysis; Summary Characteristics
    29. 29. Key Question What are the Key Which Value Chains is Criteria on which to most important to bebase the value chain to analysed? be analysed?
    30. 30. Participants Assessment of Value Chain ProgramParticipants involved in the assessment shouldhave common understanding of the value chaindevelopment of the Country/Sub-regionUndertake pre-evaluation exercise in of sub-sectors, product or commodity to Identify keyactors and informants to ensure that participants:• Have Relevant Knowledge• Are Adequate representative of the value chain• Try to keep participants number small
    31. 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. 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. 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 forimprove the poverty reduction and food security • Low barrier for entry for the smallholder activities of farmersmallholder • Low risk • Potential for labor intensive technology farmers
    34. 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 UpPotential • Involves many farmers • Potential for leveraging public investment with Private Investment
    35. 35. Step 1: Determine Criteria and Build Understanding • Within the framework of Other Regional Strategies • Value Chain Actors haveCriteria entrepreneurial capacity to achieve improvement Such • Environmentally sustainable As • Gender, Nutrition and Social Inclusion of The Vulnerable
    36. 36. ValueLinks Modules Setting project Chain analysis Implementation Monitoring boundaries and strategy0 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. 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 agencies1 • Design and prepare a fields of investment • Create a baseline for monitoring
    38. 38. Elements of a value chain analysis Analytical tools of value chain analysis  Value chain mapping  Quantification: Numbers of operators1  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. 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. 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 Sell2 Categories of operators in value chains and their relations Specific Primary Packers, Consumers Input producers Industry Traders (the market) providers (sales pt.)
    41. 41. Value chain map Consumers (the market) Retail (final sales Retailer point) Commerce Traders Trade2 Trans- Packers / formation Industry Support Service Production Primary Producers Provider 2 Support Service Specific Provider 1 Specific input Inputs providers
    42. 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, ExtensionLocal Government, Providers of Utilities / InfrastructureNational Government (Line Ministries) & Public Administration Source: adapted from Hoeffler
    43. 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. 44. Maize: Market data and food balance Analysiscountry Volume produced imported/exported (tons) Farm gate price Value On-farm con- sumption Retail Price Value2 Domesticm Maize (grain) arkets Maize (flour) Maize (feed) Export Price Value Regional export market Trade balance Maize (grain) Imports
    45. 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. 46. Institutional structure of maize subsector, Ghana Seed supply Maize Intermediate production Milling Wholesale Retail trade Ghana Grains Council2 MoTI MoFA DP Programs - MOAP, Advance
    47. 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 analyses2 • The map has to be understandable to people who have not participated in making it!
    48. 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 incentives3 •… Leverage points for upgrading • Stabilizing the agricultural policy and trade framework • Coordinating private and public investment along the value chain •…
    49. 49. Maize value chain: Typical constraints Seed supply Maize Intermediate Milling Wholesale Retail Markets production trade Own con- sumptioncountry Smallholders Domesticm (selling surplus) arkets Wholesale Traders on Food/feed traders food markets Local assemblers Regional Exporters export market2 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. 50. Priority value chains: Strategy (ValueLinks module 3) Content1 Formulating a VC development strategy - different types of value chains
    51. 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 growth1 Volume Price Income Providers of Primary Logistic Traders specific producers centres, Retailers Market inputs Industry Specific inputs Production Processing Trade
    52. 52. “Upgrading Solutions” Service Policies Norms arrangements & standards Service provider1 Technology Primary Processing Consumers providers producers Industry Traders (the market) Association Vertical Buyer Credit Vertical linkages linkages Horizontal linkages
    53. 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. 54. Classifying Strategies Ansoff Product-Market Growth matrix Products New1 Present present Market Penetration Product Development Strategy Strategy Market Development Diversification Strategy New Strategy
    55. 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, certification1 • 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

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