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GVC analysis elements of successful Global Value Chain (GVC) engagement
This document discusses elements of successful global value chain engagement and analysis. It provides an overview of global value chain analysis, which examines trade in value added terms and how globalization influences development. Key aspects of global value chain analysis include understanding the entire input-output process, mapping value added at different stages, and assessing jobs, wages, and participating firms. Several principles of sustainable food value chain development are outlined, including being economically and socially sustainable, environmentally friendly, and driven by end market demands. Global value chain analysis can help assess impacts on poverty reduction and improve performance for greater engagement in global value chains.
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GVC analysis elements of successful Global Value Chain (GVC) engagement
- 1. www.fao.org/ag/ags GVC analysis elements ofsuccessful Global Value Chain (GVC) engagement Resource material prepared for a Training of Trainers Advanced Workshop to enhance Pro-poor Policy Formulation and Implementation at Country Level (GCP/RAS/276 & TCP/RAS/3405 ) 30th May - 3rd June 2016, Hanoi, Vietnam.
- 3. Global Value ChainsAnalysis • Analysis of trade in value added terms ▫ Importance of trade in intermediate inputs (both goods and services) in improving a country’s competitiveness • Informs the relationship between trade growth and jobs, investment and overall economic growth ▫ Related to the calculation of national accounts and the measures of socio-economic development. • Informs how globalization influences national and regional development WTO (2015), International Trade Statistics
- 4. GVC Analysis • Understandingthe entire input-output process that brings a product or service from initial conception to the consumer’s hand ▫ input-output structure involves both goods and services, as well as a range of supporting industries • Map the value added at different stages in the chain and assess important aspects such as: ▫ jobs, wages, gender, and the nature of firms participating at diverse stages of the chain.
- 5. Economies by sizeof merchandise trade, 2014 51%The top 10 traders in merchandise trade accounted for a little over half of the world’s total trade in 2014 41%Developing economies had a 41% share of world merchandise trade in 2014 US$ 18.0 tn Merchandise exports from WTO members totalled US$ 18.0 trillion in 2014
- 6. of trade inGDP fell 5 percentage points to 26 per cent in 2009 from 31 per cent in 2008. Much of this decline was attributed to a drop in the price of commodities. Despite a robust recovery in 2010-11, the ratio of trade to GDP in value terms remains below its 2008 peak. Ratio of trade in goods and commercial services to GDP, 1995-2014 22% to 24% Ratio of trade to GDP from the Asia crisis to the dotcom crisis 1997: 22% 2000: 24% 31% to 30% Ratio of trade to GDP from the f nancial crisis to high oil prices 2008: 31% 2009: 26% 2011: 30% 20% to 30% Ratio of trade to GDP over the past 20 years 1995: 20% 2014: 30% Note: Trade to GDP ratio is estimated as total trade of goods and commercial services under BPM5 (exports + imports,balance of payments basis) divided by G DP,which is measured in nominal terms and with market exchange rates. WTO (2015), International Trade Statistics
- 7. What has enabledthis success? • Structural changes in the global economy ▫ Distributed production capacity ▫ Global flows in investment capital, technology, knowledge and skills ▫ Development in infrastructure, including Information and Communication Technology, Aviation, Marine Transportation, storage, etc. ▫ Rising levels of income, knowledge and changes in preferences
- 9. Understand trends anddrivers • Study the evolution of the industry, the trends that have shaped it, and its organization ▫ Strengths, weaknesses, opportunities and threats ▫ Barriers to efficient organization • Study firm dynamics and structure ▫ The composition of business (size, number, ownership structure) ▫ What is the geographical focus – local, regional, national, global? ▫ What changes make them more responsive? ▫ What are their risks and vulnerabilities?
- 10. Global Food ValueChain complexity • Agribusiness value chain is defined by UNCTAD as: ▫ “the suppliers of inputs (seeds, chemicals and machinery), farmers and other agricultural producers and service providers, processors of agricultural goods (such as manufacturers of foods and beverages), trading companies dealing with agricultural commodities, and retailers (such as supermarket chains).” (UNCTAD, 2013)
- 11. Global Value ChainAnalysis: A Primer Figure 13. Commercial and Social Driversfor Up/Downgrading Economic Up/Down‐grading Social Up/Down‐grading Commercial Drivers • Cost (wages, transportation, inputs) • Time to market • Volume & quality • End‐market demand/preference • Technology and skills • The nature and location of GVC lead firms • Safety/quality standards & certifications • Cost (wages, transportation, inputs) • Time to market • Volume & quality • End‐market demand/preference • Technology and skills • The nature and location of GVC lead firms • Social (ethical) standards & certifications • Corporate social responsibility Social Drivers • Policies and regulations: trade/competition; labor/workforce development; technology/innovation • National and regional industrial policy (incl. SEZs, industrial clusters) • Demand for more jobs and higher standard of living • Entrepreneurship • Effectiveness of labor law • Policies and regulations: education/skills; health/safety; gender; environment • Degree of activation of NGOs • Existence and power of trade unions • Nature of industrial relations (e.g., tripartite cooperation) Economic Up/Down‐grading Social Up/Down‐grading Commercial Drivers • Cost (wages, transportation, inputs) • Time to market • Volume & quality • End‐market demand/preference • Technology and skills • The nature and location of GVC lead firms • Safety/quality standards & certifications • Cost (wages, transportation, inputs) • Time to market • Volume & quality • End‐market demand/preference • Technology and skills • The nature and location of GVC lead firms • Social (ethical) standards & certifications • Corporate social responsibility Social Drivers • Policies and regulations: trade/competition; labor/workforce development; technology/innovation • National and regional industrial policy (incl. SEZs, industrial clusters) • Demand for more jobs and higher standard of living • Entrepreneurship • Effectiveness of labor law • Policies and regulations: education/skills; health/safety; gender; environment • Degree of activation of NGOs • Existence and power of trade unions • Nature of industrial relations (e.g., tripartite cooperation) Source: Gary Gereffi and Joonkoo Lee. Divers of change in GVC scope Gereffi and Fernandez_Stark, 2011)
- 12. International markets National markets Environmental Natural elements Sustainability Societal Socio-cultural elements Organizational elements Institutional elements Infrastructural elements Service provision Input provision Finance Distribution Processing Aggregation Production Economic Governance Corevalue chain Extended value chain National enabling environment Global enabling environment SFVC Analytical framework
- 13. Points to remember •Two key challenges in SFVC development… ▫ Understand the sources, key leverage points and approaches that will maximize value impact ▫ How to facilitate VC activities by bringing together the capacities of the public sector, the private sector, and civil society into an effective partnership ▫ SFVC development is guided by performance measures that reflect contribution to well-being – economic, environmental and social
- 14. 10 principles inSFVC development 1. Economically sustainable (profitable) 4. Dynamic systems based 5. Governance-centered 6. End-market driven 2. Socially sustainable (inclusive) 3 .Environmentally sustainable (green) 7. Vision/strategy driven 8. Upgrading Focused 9. Scalable 10. Multilateral
- 15. Conclusion • Sustainable foodvalue chain development, VC Analysis: ▫ Help assess broad-based impacts on poverty reduction in agriculture in the context of globalization ▫ Offers a systematic approach to measuring, analyzing and planning to improving performance to facilitate GVC engagement • Value chain mapping and policy analysis are two powerful tools for in-depth Global Value Chain Analysis.
Editor's Notes
- #2 The Objective of this Module is to review the basic concepts and highlight the key principles that guide the developments in the global production and market integration Value chain analysis plays a key role in understanding the need and scope for improving systemic competitiveness
- #3 GVCs account for 80% of global trade and developing countries’ share in global value-added trade have been increasing; from 20% in 1990 to over 40% today (UNCTAD, 2013).
- #4 GVCs account for 80% of global trade and developing countries’ share in global value-added trade have been increasing; from 20% in 1990 to over 40% today (UNCTAD, 2013). Trade in value-added goes beyond trade specialists, as it reflects structural changes in the global economy and influences both the calculation of national accounts and the measure of socio-economic development. This is especially of true when we seek to understand the role of personal and firm-to-firm relationships and the influence of power and politics on the development process, things that many of us clearly hold to be crucial aspects of political economy and to the crafting of effective economic development policy.
- #5 Aim is to examine how resources are used, in terms of economic, environmental and social criteria in the context of each country
- #11 Because of the complexity arising from interconnected economic activities, cross-border interdependence, and the high-level of coordination required to function efficiently in a competitive environment, VC governance has become a critical focus in agricultural development policy The nature of the network linkage is characterised by—its information load, connection mechanisms, governance arrangements, power dynamics, and geographic reach. Since value chains can be considered sub-sets of production networks. Then they are governed by the same set of rules that apply to the production network in which they are embedded (Sturgeon 2001). Then it becomes too complex for individual firms to be fully aware of, and comply with. Standards and governance arrangements set by International, national and regional institutions becomes critical for facilitation GVC engagement, in particular for emerging economy participants.
- #13 In SFVC we take a broad systems perspective, which is illustrated by the SFVC analytical framework. The SFVCD framework considers the VC as the core of a system consisting of complex economic, social and natural environments which determine the behavior and performance of farms and other agri-food enterprises. The core VC is composed of VC actors who produce or procure products from the upstream level, add value to the product and then sell it on to the next level. These VC actors, in turn, conduct four functions: production (farming, fishing, forest harvesting or agro-forestry), aggregation, processing and distribution (wholesale and retail). VC actors are linked to each other through a governance structure. There are horizontal linkages between actors at particular stages in the chain, for example farmers organizing themselves into cooperatives; and vertical linkages within the overall chains, for example farmers providing their produce to food companies through contracts. VC actors are supported by business development support providers. These support providers do not take ownership of the product, but play an essential role in facilitating the value-creation process. Services such as transport, laboratory testing, spraying, information, marketing studies, and so on. Together with VC actors, they represent the extended VC. End-markets are critical as this is where value is ultimately determined. This means that in SFVC we start from an opportunity in the market place and then work backwards through the chain to see how it needs to be improved to capture that opportunity. VC actors and support providers operate in a particular enabling environment in which economic, societal and natural environmental elements can be distinguished. Socio-cultural elements – religion, history, language, … Organizational elements – such as ministries, schools, R&D facilities, national commodity associations, … Institutional elements – such as policies, laws and regulations Infrastructural elements - such as roads, markets, ICT, electrical grids, backbone irrigation structures, …. Natural elements - such as water, soil, biodiversity, climate, … The sustainability of the VC plays out simultaneously along three dimensions: economic, social and environmental. On the economic dimension, a VC is considered sustainable if the activities required to be conducted by each VC actor or support provider are commercially viable (meaning profitable for commercial services) or fiscally viable (mainly for public services). On the social dimension, sustainability refers to socially and culturally acceptable outcomes in terms of the distribution of the benefits and costs associated with the increased value creation. On the environmental dimension, sustainability is determined by the ability of VC actors to show little or no negative impact on the natural environment from their activities; and where possible, they should show a positive impact. The main point I want to make with this slide, apart from the fact that end-markets are the drivers, is that when we do SFVCD we look at VCs as part of a broader system in which there are key leverage points where impact is maximized and in which the cause for a problem, and therefor the solution, may be located at some distance from the problem. For example to assist farmers it may be far more effective to change a service provision system or a regulation, than to work directly with the farmers.