Modules on Sustainable Agriculture 11 MOSA Sustainable Value

Modules on Sustainable Agriculture 11 MOSA Sustainable Value Chains

Key questions • What is a sustainable value chain? • Why working with and promoting value chains for development? • How to develop a value chain development project? 2

Modules on Sustainable Agriculture MOSA 11. 1 Sustainable Value Chains What is a sustainable value chain?

Example: Cassava value chain C: AVA Project 4

“Value chain” means…. Ø “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” Ø “an institutional arrangement linking and coordinating producers, processors, traders and distributors of a particular product. ” 5

The value chain “map” Basic sequence of functions in an agribusiness value chain Specific Inputs Provide - equipment - inputs Production Grow, harvest Produce the primary stage etc. Transformation Classify Process Pack Trade Transport Distribute Sell Consumption Prepare Consume Categories of operators in value chains and their relations Specific Input providers Farmers, (primary producers) Packers, Agroindustry Traders (sales pt. ) Consumers of pineapple juice (the market) 6

Objective of the value chain • …. to efficiently capture value in end markets in order to generate greater profits and create mutually acceptable outcomes for all farms and firms involved in the VC from production to consumption and disposal. VC stakeholders capture VALUE ADDED via: 1 ] salaries for workers 2 ] a return on assets (profits) to entrepreneurs and asset owners 3 ] tax revenues to the government 4 ] a better food supply to consumers (consumer surplus) 5 ] a net impact on the environment (externalities) FAO (2014): Developing sustainable food value chains – guiding principles. Rome 7

Supply Chain versus Value Chain concept • Supply chain: refers to a sequence of sourcing and marketing functions of individual enterprises. • Supply chain management is a business management tool rather than a development concept. • It is rather connected with logistics than with market development. 8

Modules on Sustainable Agriculture MOSA 11. 2 Sustainable Value Chains Why working with and promoting value chains for development?

Advantages of a chain approach: • Allows to understand the chain as a system, which favors a more comprehensive management of information between actors. • Facilitates the identification of critical points that limit strategic chain development, both organizational and technological. • Allows the identification of key stakeholders that make the chain work and encourage processes of negotiation between them. 10

An extended definition – The sustainable food value chain… is defined as… …the full range of farms and firms and their successive coordinated valueadding activities that produce particular raw agricultural materials and transform them into particular food products that are sold to final consumers and disposed of after use… in a manner that is profitable throughout, has broad-based benefits for society, and does not permanently deplete natural resources. (FAO, 2014) 11

The sustainability element Institutional mechanisms • Leading to a more equitable distribution of the increased value added • to a reduced use of and impact on non-renewable resources FAO (2014): Developing sustainable food value chains – guiding principles. Rome 12

Why promote value chains? Private Sector: • Markets do not always develop & function on their own! • The growth potential remains unused, because public support services are insufficient Economic globalization calls for: • Close coordination of production and distribution along the chain to comply with quality requirements and reduce cost of logistics THE ANSWER OF PUBLIC POLICY: • Economic development generates social benefits by promoting market success: • jobs are created and incomes increase • more tax income is generated that can be spent on education, infrastructure, protection of resources etc. • MSMEs and marginalized regions can be integrated into the market 13

Rural context • Focus on production or commercialization, but not on marketing and value addition. • Lack of coordination between economic actors. • Individualistic vision versus systemic competitiveness. • Little or no coordination of support activities. … Supply chains 14

Generic factors limiting the market participation of the poor Business environment and policy • higher risks and relatively higher costs of doing business for small enterprises as compared to large ones. Access to cross-cutting service markets • Small farmers and micro enterprises are negatively affected by the conditions of access to formal financial markets requiring securities and guarantees. • Problems of access to input and business service markets. Productive assets and property rights • Low education and health problems lead to disadvantage in labor markets. • Lack of assets and missing property rights on land water Conditions of the location • Concentration at marginal locations, where market access is critically limited. Source: GIZ. Value. Links Manual. 2008. 15

Dimensions of pro-poor growth “Pro-poor growth” = greater employment and income of poor people Economic growth = greater volume sold, higher value products (“the cake grows”) Poverty alleviation = the poor benefit at least equally or above average from the income generated (poor get their “share of the cake”) 16

Differences in products and value chains Export products (flowers, fruits…) Value added, costs, income Staple food (Grains) Subsistenc e economy, Excess pro -duction sold Commercial agricultural products (low-value vegetables, onions, spices. . . ) Traditional agricultural markets (often inefficient) High-value products (fresh produce, Vertical dairy products. . ) integration Partly integrated VC Organised agricultura l markets Migration Infrastructure, institutions, specialisation Source: GIZ. Value. Links Manual. 2008. 17

Horizontal & vertical business linkages The coordination between different chain operators is at the core of the value chain concept Vertical business linkages • between operators of various stages of the value chain • especially those between suppliers and buyers Horizontal collaboration • between operators working at the same stage • particularly important from a pro-poor perspective as linked with market access for farmer associations, SME, women Source: GIZ. Value. Links Manual. 2008. 18

Modules on Sustainable Agriculture MOSA 11. 3 Sustainable Value Chains How to develop a value chain development project? • VC selection • VC analysis • VC upgrading and promotion strategy

Short brain storming: • What could be selection criteria for a value chain? • What could be tools used for value chain analysis? ? 20

Selection criteria: Why selecting this vc for promotion? Growth potential/ competitiveness • Unmet market demand / growth potential/ potential for value addition • Comparative advantages regional, national or export market? • Competitors and their products? Potential for poverty reduction • Potential for income, (rural) employment, relevance to the poor, social inclusion, to women and youth, SME participation 21

Selection criteria: Why selecting this vc for promotion? Prospect of success • • Conducive policy environment Own initiatives of VC partners, commitment Readiness for change Urgency for intervention Outreach • • Number of enterprises, number of households Regional coverage Programme-related aspects • • Relevance to programm components, demand of partners Synergies, linkages, cooperation with other programmes Problems that may be addressed by programme, added value and own experience that can be contributed Relevance to mandated area 22

Modules on Sustainable Agriculture MOSA 11. 3 Sustainable Value Chains How to develop a value chain development project? • VC selection • VC analysis • VC upgrading and promotion strategy

VC Analysis …and what it involves Analytical tools Studies • Mapping • Quantification (numbers) • Economic Analysis (cost and prices) • Quality Analysis • Market analysis • Nutritional Analysis (gaps, physical and nutrient leakages along the chain (fat content in milk), harmful substances (e. g. Aflatoxin) • Studies on particular (groups of) actors • Specific analysis, zoom-ins (gender and youth, seed system, food losses etc. ) Source: GIZ. Value. Links Manual. 2008. 24

>> Assessing the market situation • • • General demand trends (prices and volumes) Supply gaps Market access requirements Existence of investors Assessment of competitors and competing products >> Assessing competitive advantage • • • Product features (valuable, rare, functional ingredients, difficult to copy or substitute) Specific assets and competences (location, proximity to markets, skills, social capital, good organisation, technologies, reputation, “a story to tell”) Cost benchmarking with other suppliers of similar products (low cost compared to competitors) Source: GIZ. Value. Links Manual. 2008. 25

Economic Analysis Size and market share of VCs in global and domestic markets • • • Production and consumption figures Export and import figures (using WTO records) Share of the VC in the total export value Value-added along the value chain • Contribution of chain segments to total value Profitability of the chain operators Benchmarking important VC parameters • • Benchmarking of unit cost of production Benchmarking of labour and other factor productivities Source: GIZ. Value. Links Manual. 2008. 26

Value-added along the chain Primary Producers Product Makers Traders Consumers Value-added captured by the VC Value-added captured by Input providers Source: GIZ. Value. Links Manual. 2008. Intermediate Product Total Value consumed Other Inputs Service / Input Providers Value-added 27

Modules on Sustainable Agriculture MOSA 11. 3 Sustainable Value Chains How to develop a value chain development project? • VC selection • VC analysis • VC upgrading and promotion strategy

A fundamental vision for upgrading Increased value = price obtained * volume sold The focus may be on volume, on prices or on both Volume Price Income Providers of specific inputs Primary producers Specific inputs Source: GIZ. Value. Links Manual. 2008. Production Logistic centres, Industry Processing Traders Retailers Final consumers Trade 29

Upgrading / Facilitation Designing a chain project has two dimensions The first concerns what the VC actors must do to become more competitive and to generate greater value added We call this the value chain upgrading strategy The second dimension concerns the role of facilitators, i. e. government and development agencies running chain development projects and providing assistance We call this facilitation of VC upgrading or value chain promotion Source: GIZ. Value. Links Manual. 2008. 30

Upgrading - What has to change in the chain? Constraint / need / opportunity related to… Market access Field of Upgrading Contract conditions Vertical business linkages Producer associations Technology, inputs Information Finance Service arrangements Capacity of service providers Financial arrangements Quality assurance Access to specialty markets Product safety Introduction of standards Implementation of standards Certification systems Business environment Resource degradation Private-public dialogue Sectoral economic policy Source: GIZ. Value. Links Manual. 2008. 31

How to arrive at the value chain project 2 1 Assessing markets and competitive advantage Value chain analysis 3 Vision and upgrading strategy 4 5 6 Assessing needs & constraints Fields of upgrading Action planning Facilitating the start of VC upgrading activities Source: GIZ. Value. Links Manual. 2008. 32

The role of facilitators External agencies facilitate upgrading by collaborating with appropriate partners within the value chain They should NOT directly work on upgrading the value chain. Facilitators • • Create awareness, enhance understanding and trust Help stakeholders get to know each other and to exchange Help building a joint vision of the future and upgrading strategy Enhance business linkages Enhance new business transactions and investment Facilitate joint learning of VC stakeholders and process innovation Capacity Development and Institution building Source: GIZ. Value. Links Manual. 2008. 33

Further messages • Current methods and tools for value chain development promote and measure the creation of economic value and reduction of transaction costs. • However, diversified livelihood strategies for small farmers are necessary to manage risk and increase resilience against external shocks. • To be sustainable value chain development projects should contribute to meaningful asset building at household level. • Donors and governments have recognized the multiple purposes of vc such as better nutrition & health, climate resilience and food security and are increasingly interested in unlocking the potential of VC. • Need for and an opportunity to combine value chain development with other approaches to rural development, such as sustainable rural livelihoods, territorial development, and investments in rural infrastructure and services. 34

Modules on Sustainable Agriculture MOSA Further reading FAO (2014): Developing sustainable food value chains – Guiding principles. Rome. GIZ (2013): Value chain development by the private sector in Africa – Lessons learned and guidance principles. Available at: http: //www. giz. de/expertise/downloads/giz 2013 -en -africa-value-chain-development. pdf. GIZ (2013): Gender and value chains. Available at: https: //www. giz. de/fachexpertise/downloads/giz 2012 -en-gender-and-value-chains. pdf. GIZ (2007): Value. Links manual. Available at: http: //eprints. icrisat. ac. in/10641/1/valuelinks_complete. pdf. Gómez M. I. , Rickets, K. D. (2013): Food value chain transformations in developing countries: Selected hypotheses on nutritional implications. ESA Working Paper No. 13 05. Available at: http: //www. fao. org/fileadmin/templates/esa/ Papers_and_documents/WP_13_05_Gomez_Ricketts. pdf.

Modules on Sustainable Agriculture ANNEX MOSA

Exercise • Participants split up in groups of 3 -4 members each • Select a value chain of your interest in your country and develop the value chain map (as shown on slide no. …. ) including constraints, opportunities, vision and upgrading objective • Present group work to the audience • Time allocation: 1 hour Source: GIZ. Value. Links Manual. 2008. 37

Increasing significance of VC Increasingly integrated value chains (VC) VC organization is a competition factor, transaction costs are reduced. Value chains are an instrument of quality management Condition of market entry change in the process of globalization New chances for producers on global and domestic markets through integration in value chains as suppliers Source: GIZ. Value. Links Manual. 2008. 38

Value adding to local products by: • • • Improving product quality Improving post harvest technology Adding processing steps Improving supply chain efficiency Innovating new products Applying modern packaging Introducing new designs Fulfilling international standards Branding the products Which leads to: • Higher income for producers • Higher income to the processors • New market for exporters and traders • Stable relationships • …. . • • Higher export earnings More investment More jobs Environmental sustainibilty of the sub-sectors 39

Calculation of estimated value-added (US$ Dolar) Quinoa, Puno (Peru), Harvest 2011 Exporter In Peru Farmer Prices per / kilo Cost of production $2. 8 $ 1. 98 $1. 06 Other inputs Net value added $0. 92 % of total value-added 14. 1 % Local Farmers Titikaka Lake Importer EU Retail shop EU $4. 50 $9. 00 $ 1. 98 $2. 80 $4. 50 $ 0. 12 $ 0. 50 $ 0. 80 $0. 70 $1. 20 $3. 70 $6. 52 10. 7 % 18. 4 % 56. 8 % 100% Middlemen or farmer association Importing& Distributing Companies Organic Shops (mostly) 40

Assessing the market situation Identifying market opportunities – and what it implies • • • General demand trends (prices and volumes) Supply gaps Market access requirements Existence of investors Assessment of competitors and competing products HOW? E. g. Market research interviewing buyers • • Qualitative judgements on the points above Specific buyer requirements Specific demand trends Identifying real market opportunities Source: GIZ. Value. Links Manual. 2008. 41

Importance of an upgrading vision Why engage in visioning? • • • Visioning focuses on the opportunities Visioning provides strategic direction - How should the value chain look five years from now? Unless this perspective is clear, it is difficult to prioritize action and stay focused Visioning is the basis for consensus among chain actors – Unless chain actors share the view on the future, they will not be motivated to cooperate! Source: GIZ. Value. Links Manual. 2008. 42

Micro Méso Macro Value Chain Map: The VC map for export coffee varieties Source: GIZ. Value. Links Manual. 2008. 43

Modules on Sustainable Agriculture MOSA 11. 4 Sustainable Value Chains • Linkages between Value Chains and • Gender • Nutrition • Environment and climate change

Source: GREAT Women Project MIDTERM EVALUATION REPORT. May 20, 2011. Department of Trade and Industry. Powperpoint presentation, slide No. 4 45

• The nutrition-sensitive value chain • The products, processes and people which deliver valuable nutrients to vulnerable consumers • Innovations and interventions at any point in the chain post farm gate which address nutritional improvement in target population groups where there is evidence that the focal foods are consumed by the (rural and urban) poor Source: Poole, N. Leveraging Agriculture for Nutrition in South Asia (LANSA). 46

Conceptual Framework for Integrating Climate Change and Environmental Concerns in Value Chain Strategies Source: Pro. GED: Putting Green Economy on the Agenda. BMZ, GIZ, dti 47