GVC Governance and Policy Analysis
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1) The document discusses facilitating engagement in global value chains (GVCs) for smallholder farmers through appropriate policy frameworks and market development. 2) It emphasizes that markets alone are not enough and need to be complemented by policies that support skills, infrastructure, and social/labor policies. 3) Meeting consumer expectations around quality, reliability, and social values requires collaboration through standards and traceability systems that build trust in credence attributes.
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GVC Governance and Policy Analysis
- 1. www.fao.org/ag/ags GVC Governance and Policy Analysis 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.
- 2. Facilitating GVC engagement • It is important to stress that while markets are crucial, alone they are insufficient. • GVCs also need to be complemented with appropriate and wide-ranging policy frameworks ▫ allow countries and firms to capitalize on their existing productive capacities and spillover benefits from foreign investment, knowledge, and innovations. ▫ labour market policies, social policies and competition policies as well as policies for investment in education, skills, technology and strategic infrastructure can facilitate GVC success
- 3. Market formalization • Informal markets dominates in emerging economies ▫ Poor coordination, lack of trust, missed opportunities • Smallholders account for 70% of global food production but most of them in the developing world operate in the informal markets ▫ Developing formal markets will gradually replace them over time ▫ But delays in market development means lost income, jobs and opportunities for improving quality of life
- 4. Governance • “authority and power relationships that determine how financial, material and human resources are allocated and flow within a chain” (Gereffi 1995). • Managing power relations is critical for performance ▫ how a chain is controlled and coordinated when certain actors in the chain have more power than other? A processor can control volumes and prices paid (monopsony power) Entry and exit regimes– how easy it is for newcomers to join a chain?
- 5. GVC Governance • Voluntary standards provide the coordination among participants within global value chains (GVCs), providing a system of cross-border private governance of the global agri-food sector • Improving compliance and collaboration ▫ Environmental, social and governance frameworks ▫ strengthened regulation, enforcement, and capacity-building support to local firms
- 6. Meeting consumer expectations • Consumers who drive value chains seek ▫ Quality, ▫ Reliability ▫ Social values • meeting quality attributes, food safety and other unobservable credence characteristics (“Credence” attributes – cannot measure but need to develop trust through standards and systems of collaboration) • Maintaining reliable supply require minimum supply volumes
- 7. Sanitary and phytosanitary measures (SPS) • Sanitary and phytosanitary (SPS) measures are quarantine and biosecurity measures which applied to protect human, animal or plant life or health from risks arising from the introduction, establishment and spread of pests and diseases and from risks arising from additives, toxins and contaminants in food and feed. • These measures are governed by the World Trade Organization’s (WTO) Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS agreement), and its Committee of Sanitary and Phytosanitary Measures (the SPS committee)
- 8. Gaining VC competitiveness • Trade and other policies ▫ Low tariff structures ▫ Trading agreements (ASEAN FTA) - higher levels of intra-regional trade ▫ Non-tariff barriers, SPS, TBT ▫ Logistics performance, including trade facilitation, intellectual property protection, ▫ The quality of infrastructure, as well as the quality of institutions impacts on GVC integration. ▫ Inward FDI openness – facilitate improvements in systems facilitate access to the most competitive inputs
- 9. Improving GVC benefits to smallholder agricultural producers • Why smallholder focus? • Economies of scale • Farm size • Sustainable intensification of their production and access to capital for making the necessary investments
- 10. 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 Core value chain Extended value chain National enabling environment Global enabling environment SFVC Analytical framework
- 11. Points to remember • Two key aspects of VCA … ▫ 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 ▫ Policy analysis can identify performance measures that reflect contribution to well-being – economic, environmental and social
- 12. Conclusion • Sustainable food value chain development: ▫ Can be a successful strategy for poverty reduction in agriculture in the context of globalization ▫ But requires a systematic approach to measuring, analyzing and improving performance in order to realize its potential • Value chain mapping and policy analysis can be powerful tools to facilitate gainful links to Global Value Chains.
Editor's Notes
- GVCs have a direct economic impact on economic growth, jobs and income. Domestic value added in GVC activities can be considerable in comparison with the size of the domestic economy and can be an important source of economic growth. With positive correlation between participation in GVCs and growth rates of GDP per capita (UNCTAD, 2013), GVCs can also offer an important avenue for developing countries to build productive capacity, including through technology dissemination and skill building.. Like any other activity in driving economic growth and development, planning and policy settings for effective governance is clearly important for success.
- Trade facilitating measures are vital to successful participation in GVCs; trade cost reductions from practical and relatively inexpensive actions could be as high as 16% of GDP for some developing countries UNCTAD/OECD/WTO 2013.
- Global value chain based formal markets may also offer opportunities for smallholders to tap into fast growing international markets for high value agricultural products.
- Different Governance arrangements reflect the state of development of a chain as well as the host country context. The underlying institutional setting influences what VCs do in terms of governance to mange economic, environmental and social trade-offs in business organisation.
- Meeting thee measures require capacity for undertaking tests, demonstrating compliance and certification requirements. Emerging economies lack such support and GVC related policy analysis can highlight the benefits for investing on such measures.
- TBT – technical barriers for trade
- Smallholder farms are typically family owned enterprises producing crops and/or livestock on less than two hectares (5 acres) of land. Family members provide most of the labour and derive their primary means of livelihood from the farm. Much of the production is often for family consumption and ‘new agriculture’, creating high-value products for markets is a sought after strategy to pull smallholder farmers out of poverty (world Development Report 2008). Improving the likelihood and effectiveness of aggregation – grower organisations, extension, education
- 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.
- For well-functioning markets governance is very important. When governance structures and enablers that support the VC the end result is that all actors within the systems become disadvantaged with usually those who take the highest level of risk – primary producers and consumers suffer most, with others also missing out of opportunities through collaboration.