Utilization of value chain analysis in the livestock development sector

Ahmed E SidahmedAssociate Director for Development and Partnership College of Agriculture and Environmental Sciences

University of California -Davis

For presentation at The Livestock Week (IALDG)4-6 May 2010 IFAD Rome Italy

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Outline

1. VC and VCA

2. Objectives of VCA in livestock industry

3. Examples of practical benefits from VCA▫ Research and innovations

▫ Poverty reduction

4. The case of Zambia beef industry

5. A final note

Value Chain Analysis

VC : - a range of activities required to bring a product or service from conception to final disposal after use;- a connected string of players working together to satisfy market demand for a product /products.

VCA: an approach for identifying the value created at each step of the production (Porter 1985).

Objectives of VCA in livestock industry

• Increase commercial profit;• Improve competitiveness;• Reduce rural poverty. e.g. by explaining why the

poor may face barriers along the chain it becomes quite possible to overcome these barriers;

• Reform governments’ laws to help improve their business environments;

Also• Contribute to research and innovation (climate

change, environment, water use, etc);• Assist the development community to determine

where to focus support.

Examples of practical benefits

from VCA

Research: Environmental health (Source: researchers at Duke University Feb 2009; BSR-WSCC May 2009)

USA beef industry ($50 billion, one million farms). UK dairy industry (e.g. suppliers of milk for Cadbury

chocolate manufacturing).The industries are major sources of greenhouse gases, water pollution and use of fossil fuel.

Challenges: To reduce the severe sources of environmental emissions/ waste.

Benefit from VCA :Identification of the actors along the chain who have the strongest leverage for effecting such change, e.g.▫ Feedlot companies-influence feed content; ▫ Dairy value chain;▫ Farmers - influence manure management practices.

Development: Poverty reduction (Sources: various e.g. COPLA-Trade and poverty ,social exclusion project in

LAC Dec 2009; WB’s FIAS VCA analysis in Pakistan March 2006)

Livestock industry:• Is under performed and most of the rural producers are poor.Challenges : • To access technological, institutional and market capabilities.Benefits from the VCA:• Identification of the critical issues and barriers to entry of the

poor e.g.▫ Lack of economic power of rural poor;▫ Need for institutional and economic frameworks for interventions

to change the circumstances of the resource poor.

The case of Zambia beef industry

• Global Development Solutions (GDS) - 2007

• World Bank Zambia - 2010

Cattle industry in Zambia: Huge potential, key

to reducing rural poverty

• Livestock owned by most rural households;

• Higher proportion of household incomes than crops;

• Cattle industry provides income to 300,000 households;

• Cattle is the largest asset (US$1-1.5 billion).

Cattle Sheep Goats Pigs Poultry

Million heads 3.1 0.485 0.746 0.704 9.9

GDS’ VCA approach (2007)

•Attempted to find out why Zambia beef sector has declined;•Selected a “snapshot” representative of the cattle industry (commercial beef) where the data collected was assumed as being accurate and real;•Selected a VC: a feedlot operation of an abattoir that has thedesire, intension and qualification to export;•Performed a “cost based analysis” capturing each value addition event along the product chain in monitory terms;•Confirmed and validated, once the analysis is complete, in an open “player forums” .

The feedlot value chain:

The Abattoir value chain:

Results (priority needs):

• Reduced animal and feed cost in order to increase competiveness;

• Improved breed that allow entry of cattle to feedlots at lower costs;

• Rural financing in order to allow farmers to access veterinary services (PS: Veterinary cost is very small (<1.0%) but a very important constraint);

• Enhanced GoZ proactive role as coordinator of donor supported resources, improved hygiene, health, transport and regulatory conditions.

WB Zambia Approach (2010)Done�Looked at the whole stages of beef and dairy industry; �Analyzed competitiveness (national/regional and international levels) and identified the drivers and productivity;

�Defined results (priority needs/outcomes) that- if achieved -would improve productivity and competiveness;

�Identified via stakeholder forums specific action plans (policies, regulations, programs) that would help achieve the targeted outcomes.

In Progress�Further communication and advocacy (building accountability

for results);�Identification of “actions” to achieve these Results (use

competitions to generate & select best ideas and monitor implementation).

Zambia beef value chain: Immature but

evolving Traditional 80% Emergent 15% Commercial 5% :

• Immature but evolving: firms

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Independent Independent

19%

32%

49%

Zambia’s beef value chain ( cont):

• Cattle population traditional 80%, emergent 15%, commercial 5% ;

• Traditional losing to commercial (urbanisation);• Modern retailing is developing• A small % (5- 10) of traditional cattle find its way to

feedlot operations; • Annual slaughter : feedlot commercial 10%, non-

feedlot commercial 33%, traditional slaughter 57%;• Dollar value: feedlot based 29%, commercial non-

feedlot 33%, Traditional informal 49%; • Grade: bulk of commercial standard, 25% of

commercial feedlot-based is choice;• Problems: affordability – high price, low quality, poor

hygiene.

In spite of the huge potential

the cattle industry is not

performing

Immature industry structure

• Highest incidence of disease in the region;• Droughts;• Under utilised feed resources• Poor investment in preventative veterinary care, animal nutrition

and husbandry;• Slow cattle population growth – low calving & high mortality;• Traditional attitudes mean that farmers keep animals not cash; • Selling at the same time (school fees, droughts) causing prices to

fall;• Cattle sales, prices fluctuate sharply reducing incentive to invest;• High costs of feed, transport and fuel undermine competitiveness.

Most imported input costs are higher than neighbouring SADC countries;

• High prices are slowing down the growth of the local and regional markets;

• Competition is limited and there are barriers to entry.

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Underutilized feed resources

Province Crops

Central Maize, sweet potato, soybean, groundnut, cotton, watermelon, sunflower, wheat, tobacco

Copperbelt Maize, sunflower, soybean, beans, groundnut, wheat, oilseeds

Eastern Maize, soybean, sunflower, orange, sweet potato, cassava, cotton, groundnut, pigeon pea,

sorghum

Luapula Cassava, rice, maize, sunflower, sweet potato, millet beans, banana, groundnut, oilseeds

Lusaka Maize, soybean, sunflower, sorghum, tobacco, sweet potato, pigeon pea, rice, cotton, wheat,

watermelon, orange

Northern Rice, maize, cassava, sunflower, millet, sweet potato, banana, cotton, beaus, soybean, coffee

North-

western

Maize, pineapple, sweet potato, soybean, sunflower, millet, orange, cassava, faba bean,

sorghum, coffee, groundnut, rice

Southern Maize, soybean, sunflower, tobacco, sugarcane, cotton, banana, millet, oranges

Western Maize, sorghum, rice, millet, groundnut, faba bean, cassava

Poor processing efficiency and hygiene

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Mostly under performing All could look like this

Poor /lack of enabling environment

• Poor Policy & Institutional Framework:▫ Livestock sector has been neglected by policy makers;

▫ Lack of coordination among multiple agencies;

▫ Multiplicity of licences & permits;

▫ Misapplied levies;

▫ Poor market infrastructure;

▫ Labour skills – poor productivity;

▫ Competition & consumer protection,

▫ Theft.

• Unfavourable investment climate

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High beef prices compared to regional /

international markets

Source: FAOSTAT, year 2007, Zambia figure: consultants’ calculation

Zambia Kenya Namibia RSA Argentina Brazil UK USA

Live weight

(US$/kg)1.25 1.11 1.19 1.57 1.26 0.99 2.26 1.98

Dressed weight

(US$/kg)3.69 2.16 2.13 2.8 2.7 2.04 4.19 3.81

Competitive in live weight, especially from traditional farmers (US$1.25/kg), but uncompetitive in dressed weight. High beef prices result from low productivity system with high costs. High prices limit market growth, cannot export

Competition limited but growing

• The commercial subsector is vertically integrated /monopolistic;

• Market concentration, integration are barriers to entry of others (emergent, traditional producers);

• Weak supply linkages with farmers;• Few independent abattoirs;

This is changing as a result of growing markets (local and SADC)

• Competition increasing: new entrants gaining market share and exerting competitive pressure on the dominant players;

• More independent abattoirs close to the traditional production sites;

• Demand from the emerging economies of neighboring countries such as Angola and DR of Congo and others.

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Results (priority needs):

Better business models featuring:

• Availability of competitive Inputs:▫ Health , husbandry, feeds, breeds and extension▫ Transport, rural finance, rural power and energy

• Maximized opportunities to increase off-take, productivity and investment;

• Enhanced efficiency along the chain (feedlots, abattoirs, SPS measures and compliance, communication, market access);

• Improved policy, institutional framework conditionsthat encourage effective public/private partnerships, and enhance economic growth.

A final note

• VCA is a powerful analytical tool not constrained by assumptions or strict methodology, nor it has to be only quantitative.

• Could be of use to livestock industry that combines profit seeking commercial with livelihoods based traditional systems if it is able to:

▫ capture the needs and aspirations of most players;

▫ ensure environmental health; and

▫ stimulate policy and legal frameworks that enhance competitiveness while contributing rapidly to rural poverty reduction.

Thank you