value chains and poverty alleviation
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International Training Program: Labor Market Policy in Poverty Alleviation
Maputo24th April, 2012
The Value Chain and Its Role in Poverty Alleviation
Abraham SarfoAgribusiness and Value Chains Consultant
Value Chains & Livelihoods
What’s the difference and why should we care?
WHAT IS THE RATIONALE FOR THE VALUE CHAIN APPROACH?
• Integrating poor households into growing markets
• Empowering poor households to benefit from increasing globalization
• Economic Growth• Poverty Reduction
Value Chain DefinitionsDefinitions….
World Bank 2010: “Chains composed of companies …that interact to supply goods and services are variously referred to as productive chains, value chains, filières, marketing chains, supply chains, or distribution chains. These concepts vary mainly in their focus on specific products or target markets.”… “What they have in common, however, is that they all seek to capture and describe the complex interactions of firms and processes that are needed to create and deliver products to end users.”
IDS Study 2010: “There is a simple element at the heart of value chain analysis. The idea of a chain is a metaphor for connectedness. It highlights the simple point that most goods and services are produced by a complex and sequenced set of activities. In many cases, these activities are split across a number of economic agents (people, enterprises, cooperatives, etc.).How these different economic agents interact matters for development.“
FAO 2007: “we use the term value chain to characterize a system composed by different actors, activities and institutions, all functioning interrelatedly, so as to enable the accomplishment of a common goal”.
Definitions….
USAID 2010: “Series of actors and activities needed to bring a product from production to the final consumer”. “Value chains are a chain of actors but they operate like a system. … We can’t just focus on production without ensuring that there is sufficient processing capacity to absorb increases or w/o ensuring that there is market demand and access to markets”.
Value Chain Definitions
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
“Value chain” means….
the set of enterprises that performs these functions i.e. the producers, processors, traders and distributors of a particular product
A Generic Definition Of Value Chain
Categories of operators in value chains and their relations
SpecificInputproviders
Farmers,(primaryproducers)
Packers,Agro-industry
Traders(sales pt.)
Basic sequence of functions in an agribusiness value chain
Trade
TransportDistributeSell
Final productSpecificInputs
Provide- equipment- inputs
Production
Grow, harvestProduce theprimary stage etc.
Trans-formation
ClassifyProcessPack
Consumers ofpineapple juice(the market)
The “value chain map”
Categories of operators - in different channels
Seed provision
Production Trans-formation
CommerceTrade
Seed producers
Farmers 1 Companies Traders 1 Market
Concept Of The “Value Chain”
EndProduct
Farmers 2 Traders 2 Market
Private sector Organizationrepresenting the industry
Commodity markets & industry as analytical perspective & framework
Segment 1
Segment 2
Markets 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…
So: When promote value chains ?Market failure
The Market SystemInclusive Market Development along the Value Chain
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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
Emerging Models of Value Chain Development
Inclusive value chain models include integrating the poor and smallholder farmer into value chains as producers, enablers and business owners or developing affordable 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.
Emerging Models of Value Chain Development
• Sustainable Value ChainsEnviromental Impact• Biodiversity• Climate• Soil Toxcity• Water
Social Impact• Labour Right• Child Labour• Social Context of
Communities
Ecomomic Impacts• Farm Profitability• Livelihood• Value Chain Reselience
Value Chain Approach and Africa Sustainable Development
Food Security……Provide Food for
All……
Environmental Sustainability………..In an environmentally
Sustainable way…….
Value Chain Approach to
Agricultural Design and
Implementation
Economic Opportunity…………….While Generating
Economic Growth and Opportunity………
UNDP’s Private Sector Strategy (2007) focuses on Inclusive Market Development, i.e. markets that include the poor and excluded groups on the demand side as clients and customers and on the supply side as employees, producers and business owners at various points along value chains. Also incorporates environmental sustainability.
17
Under the Inclusive Market Development (IMD) approach, activities focus on developing private sector markets by strengthening the whole market system – enterprises, business relationships, market structures or the business environment. Focus is on Value Chains and Base of the Pyramid markets.
Value Chains, Inclusive Markets and Poverty Alleviation
Inclusive Growth Requires Inclusive Markets
18
What is inclusive growth?
Inclusive growth – requires focusing on both the pace and pattern of growth. Rapid pace / higher rates of growth is necessary for substantial poverty reduction, but not sufficient. To be sustainable over time, growth must also be broad-based across sectors, and inclusive of a large part of the labor force.
Increasingly – also recognized that growth needs to be green. Inclusive growth – economic, environmental, social – Growth must also bring broad benefits – social protection measures
supported by higher growth are important to protect those not directly benefiting
While high growth rates without equality can be achieved, there is evidence that inequality will reduce growth rates in more advanced economies
While high growth can be achieved in early stages of development without
Why are inclusive markets important to inclusive growth?
Market activities generate the bulk of economic growth – in all / most sectors
Market activities can be more or less inclusive and sustainable – growth in market sectors that generate significant jobs, in ways that don’t harm environment
Significant scale and impactDemand driven – know the end marketCommercial viability Systemic, holistic approach - multiple levels Inclusion of stakeholdersPartnership approachAvoid market distortionGovernance and relations between market players – level playing fieldFlexible design, continuous monitoring
Inclusive Markets ApproachGuiding Principles
Inclusive Markets and Poverty Alleviation
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What is inclusive growth?
Inclusive growth – requires focusing on both the pace and pattern of growth. Rapid pace / higher rates of growth is necessary for substantial poverty reduction, but not sufficient. To be sustainable over time, growth must also be broad-based across sectors, and inclusive of a large part of the labor force.
Increasingly – also recognized that growth needs to be green. Inclusive growth – economic, environmental, social – Growth must also bring broad benefits – social protection measures
supported by higher growth are important to protect those not directly benefiting
While high growth rates without equality can be achieved, there is evidence that inequality will reduce growth rates in more advanced economies
While high growth can be achieved in early stages of development without
Why are inclusive markets important to inclusive growth?
Market activities generate the bulk of economic growth – in all / most sectors
Market activities can be more or less inclusive and sustainable – growth in market sectors that generate significant jobs, in ways that don’t harm environment
The Market SystemInclusive Market Development along the Value Chain
21
Significant scale and impactDemand driven – know the end marketCommercial viability Systemic, holistic approach - multiple levels Inclusion of stakeholdersPartnership approachAvoid market distortionGovernance and relations between market players – level playing fieldFlexible design, continuous monitoring
Value Chains Inclusive Markets Approach
Guiding Principles
Private Sector Engagement
Work with larger “lead firms” in strengthening their supply/value chains and make them more beneficial for development – e.g. through commitment to local sourcing, provision of financial or technical resources to build capacity of their suppliers or distributors, etc.
Engage private sector actors of all sizes in public private dialogue with governments about how to strengthen a specific market sector (i.e. value chain) and address relevant policy issues, how to “green” the specific market sector etc.
Private Sector & Market Development
Provide policy advice and capacity development for governments and public institutions
Support provision of business development services and targeted technical assistance to local private actors in specific market sectors / value chains, partner with technical agencies (UN, DPs NGOs, others) when needed
Support cross-cutting issues such as environment, gender
IMD
Value Chain Inclusive Markets Approach
Private Sector Engagement and Development
23
The Inclusive Markets ApproachRole of Private Sector, Government and
Development Partners
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Engaging in sound core business operations and value chains;
Innovate, increase productivity, identify opportunity and allocate resources to meet demand.
Complement by providing social / philanthropic investments in capacity building (through UNDP projects);
Engaging in policy dialogue and advocacy.
Support interventions in line with national plans;
Facilitate public-private dialogue and collaboration;
Capacity development;
Providing policy advice relevant to markets
Support integration of social (incl. gender), environmental aspects;
Advocate and support inclusive business approaches
Engaging, leveraging the UN System.
Set the overall policy and regulatory framework;
Capacity to enforce rules
Provide soft & hard infrastructure etc.
Ensure relevant capacities and relevant education / training exists
Good governance, anti-corruption
Commitment to engage with private sector
Private sector role DP role Government role
Many examples show that providing basic goods & services as well as income opportunities to the poor can be a sustainable and profitable business strategy and contribute to human development.
Businesses benefit from including the poor: Demand side:
finding new customers, creating long-term customer loyalty, developing transferable innovations
• Supply side: improving production capacity, getting access to high-quality inputs, expanding customer reach
Profitabil
ity
Participation of the Poor
The poor benefit from participating in markets: access to goods
and services access to income
opportunities as suppliers, employees, distributors and entrepreneurs
increased choice and power
The goods & services provided have a human development impact:
water & sanitation, energy
financial services, ICTs
housing, education, nutrition
Human Development
ImpactSustainability
Inclusive businesses contribute to social & environmental sustainability
clean energy, protection against natural disasters
fight against rural exodus and hyper-urbanization etc.
Inclusive Business
The Inclusive Markets Approach Mutual benefits through mutual contributions
25
Private Sector Engagement
Work with larger “lead firms” in strengthening their supply/value chains and make them more beneficial for development – e.g. through commitment to local sourcing, provision of financial or technical resources to build capacity of their suppliers or distributors, etc.
Engage private sector actors of all sizes in public private dialogue with governments about how to strengthen a specific market sector (i.e. value chain) and address relevant policy issues, how to “green” the specific market sector etc.
Private Sector & Market Development
Provide policy advice and capacity development for governments and public institutions
Support provision of business development services and targeted technical assistance to local private actors in specific market sectors / value chains, partner with technical agencies (UN, NGOs, others) when needed
Support cross-cutting issues such as environment, gender
IMD
Inclusive Markets Approach Private Sector Engagement and Development
26
The Inclusive Markets ApproachRole of Private Sector, Government and DPs
27
Engaging in sound core business operations and value chains;
Innovate, increase productivity, identify opportunity and allocate resources to meet demand.
Complement by providing social / philanthropic investments in capacity building (through UNDP projects);
Engaging in policy dialogue and advocacy.
Support interventions in line with national plans;
Facilitate public-private dialogue and collaboration;
Capacity development;
Providing policy advice relevant to markets
Support integration of social (incl. gender), environmental aspects;
Advocate and support inclusive business approaches
Engaging, leveraging the UN System.
Set the overall policy and regulatory framework;
Capacity to enforce rules
Provide soft & hard infrastructure etc.
Ensure relevant capacities and relevant education / training exists
Good governance, anti-corruption
Commitment to engage with private sector
Private sector role DP role Government role
Many examples show that providing basic goods & services as well as income opportunities to the poor can be a sustainable and profitable business strategy and contribute to human development.
Businesses benefit from including the poor: Demand side:
finding new customers, creating long-term customer loyalty, developing transferable innovations
• Supply side: improving production capacity, getting access to high-quality inputs, expanding customer reach
Profitabil
ity
Participation of the Poor
The poor benefit from participating in markets: access to goods
and services access to income
opportunities as suppliers, employees, distributors and entrepreneurs
increased choice and power
The goods & services provided have a human development impact:
water & sanitation, energy
financial services, ICTs
housing, education, nutrition
Human Development
ImpactSustainability
Inclusive businesses contribute to social & environmental sustainability
clean energy, protection against natural disasters
fight against rural exodus and hyper-urbanization etc.
Inclusive Business
The Inclusive Markets ApproachMutual benefits through mutual contributions
28
• 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?
PRINCIPLES OF INTERVENTION/SUSTAINABILITY
1
3
Contents
Methodology of VC analysis
Opportunities and constraints analysis; Summary Characteristics
2 Value chain mapping
Priority value chains: Analysis
Key Question
What are the Key Criteria on which to
base the value chain to be analysed?
Which Value Chains is most important to be
analysed?
Participants Assessment of Value Chain Program
Participants involved in the assessment should have common understanding of the value chain development of the Country/Sub-region
Undertake pre-evaluation exercise in of sub-sectors, product or commodity to Identify key actors and informants to ensure that participants: • Have Relevant Knowledge• Are Adequate representative of the value chain• Try to keep participants number small
4 Steps of Prioritizing Process
•Understanding Criteria •Build on Priority
Step 1
•Weighting of CriteriaStep 2•Identifying a List of Potential ProductsStep 3
•Ranking of Products/ActivitiesStep 4
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
Step 1: Determine Criteria and Build Understanding
•Present integration of the smallholder in the market-what are they producing, selling and employment?
•Potential for the activity/product for poverty reduction and food security
•Low barrier for entry for the smallholder farmer
•Low risk•Potential for labor intensive technologyPotential of
the Value Chain to
improve the activities of smallholder
farmers
Step 1: Determine Criteria and Build Understanding
•Strong domestic, regional and international demand for the product
•Growth potential for the product•Possibility of Scaling Up•Involves many farmers•Potential for leveraging public
investment with Private Investment
Market Potential
Step 1: Determine Criteria and Build Understanding
•Within the framework of Regional Strategies
•Value Chain Actors have entrepreneurial capacity to achieve improvement
•Environmentally sustainable•Gender, Nutrition and Social
Inclusion of The Vulnerable
Other Criteria
Such As
ValueLinks Modules
Strengthening business linkages
Determining a chain upgrading strategy
Analysing a value chain
Facilitating the chain develop-ment process
ImplementationChain analysisand strategy
MonitoringSetting project boundaries
Selecting a value chain for promotion
Engaging in public- private partnership
Deciding whe-ther to engage in chain pro-motion
Monitoring and managing impact
Financing value chains
Strengthening services in VC
Improving the biz environment of VC
Introducing social, & quality standards
1
0
4
3
2 5
6
7
8
9
10
11
Obligatory
according to priorities
Chain analysis helps to:
The use of chain analysis
1
• Start a process of change • Provide information: Chain analysis is a service for
enterprises and public agencies• Design and prepare a fields of investment• Create a baseline for monitoring
Analytical tools of value chain analysis
Elements of a value chain analysis
Value chain mapping Quantification: Numbers of operators 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
1
Basic value chain maps visualise…
Contents of value chain maps
• The sequence of production and marketing functions performed
• The value chain „operators“ taking these functions (micro level)
• Vertical business links between the operators• The chain „support service providers“ (meso level)
2
Categories of operators in value chains and their relations
SpecificInputs
Provide- equipment- inputs
Production
GrowHarvestDry etc.
Trans-formation
ClassifyProcessPack
CommerceTrade
TransportDistributeSell
Con-sumption
Consume
Value chain functions
SpecificInputproviders
Primaryproducers
Packers,Industry Traders
(sales pt.)
Consumers (the market)
2
Basic concepts
Packers / Industry
SpecificInputs
Specific input providers
Value chain map
2
Production Primary Producers
Traders
Consumers (the market)
Trans-formation
CommerceTrade
Retail(final sales
point)Retailer
Support ServiceProvider 1
Support ServiceProvider 2
mic
ro Input provision Production Trans-
formation Distribution, sales
Con- sumption
mac
rom
eso
Technical Agencies, Research, Extension
BDS providers, NGOs, Development Partners
Groups, Associations, Organisations
Local Government, Providers of Utilities / Infrastructure
National Government (Line Ministries) & Public Administration
Source: adapted from Hoeffler
The VC System for increased competitiveness
Maize: Generic overview of (typical) VC map
2
Seed supply Maize production Milling WholesaleIntermediate
trade
2
Importers
Seed dealers
Localassemblers
Smallholders (selling surplus)
Intra-regional export
Domestic flour
markets
IndustrialMillers
Retail
Food shops
Commercial farmers
Domesticmarkets
food/feed
Exporters
Wholesale traders
Flourtraders
Traders on food markets
Own con-sumption
This VC map is a simplified overview map, showing the major actors and their relationsit is subject to adaptation according to the specific conditions in each country
Animal feed
markets
feedtraders
Institutional buyers (WFP)
Public programs
country
Maize: Market data and food balance
2
Analysis
Regional export market
Domesticmarkets
On-farm con-
sumption
Retail Price
Imports
Volume producedimported/exported (tons)
Value
Maize (grain)Maize (flour)Maize (feed)
Trade balanceMaize (grain)
Farm gate price Value
Export Price Value
country
Maize: Generic overview of (typical) VC map
2
Seed supply Maize production Milling WholesaleIntermediate
trade
2
Importers
Seed dealers
Localassemblers
Smallholders (selling surplus)
Intra-regional export
Domestic flour
markets
IndustrialMillers
Retail
Food shops
Commercial farmers
Domesticmarkets
food/feed
Exporters
Wholesale traders
Flourtraders
Traders on food markets
Own con-sumption
This VC map is a simplified overview map, showing the major actors and their relationsit is subject to adaptation according to the specific conditions in each country
Animal feed
markets
feedtraders
Institutional buyers (WFP)
Public programs
country
N = 1000
N = 3,5 Mio
3,2 Mio t
25%
75%
Seed supply Maize production Milling WholesaleIntermediate
tradeRetail
Institutional structure of maize subsector, Ghana
MoFA
Ghana Grains Council
DP Programs - MOAP, Advance
MoTI22
Criteria
What makes a good map
• 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 analyses• The map has to be understandable to people who have not
participated in making it!2
Maize: Market & upgrading opportunities
3
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 incentives• …
Leverage points for upgrading
• Stabilizing the agricultural policy and trade framework• Coordinating private and public investment along the value chain•…
2
Seed supply Maize production Milling WholesaleIntermediate
trade
2 Seed dealers
Localassemblers
Smallholders (selling surplus)
Regional export market
Domestic flour
markets
IndustrialMillers
Retail
Food shopsCommercial farmers
Domesticmarkets
Food/feed
Exporters
Wholesale traders
Flourtraders
Traders on food markets
Own con-sumption
Maize value chain: Typical constraints
High price volatility
Inconsistent & unpredictable political interference (e.g. export bans, tariffs)
Markets
Poor market infrastructure (of storage, assembly markets)Poor roads Grades and standards not defined or not enforcedLack of trade finance
Mistrust between VC operators Weak market coordination, unreliable links high marketing cost
Cross-border trade: Variable trade flowsComplicated intra-regional trade regimes, standards not harmonized
Smallholders:No market infoLack of financeKnowledge gapsLittle use of inputsSoil miningLow yieldsPost-harvest loss
variable supplyhigh production cost
Limited demand,weak private sector
country
Content
Priority value chains: Strategy (ValueLinks module 3)
1 Formulating a VC development strategy - different types of value chains
Providers ofspecific inputs
Primaryproducers
TradersRetailers
Logisticcentres,Industry
The fundamental objective for upgrading
Specificinputs Production Processing Trade
Volume Price Income
… increased value = price obtained * volume sold
The focus may be on volume, on prices or on both
Market
1
6% annual sectoral growth
Primaryproducers
ProcessingIndustry Traders
Consumers (the market)
“Upgrading Solutions”
Association
Horizontal linkages
Technologyproviders
Serviceprovider
Service arrangements
Buyer Credit
Norms & standards
Policies
Vertical linkages
Vertical linkages
1
The upgrading 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)• 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.)
Formulating a strategic objective
1
Classifying Strategies
Ansoff Product-Market Growth matrix
1
Product Development Strategy
Diversification Strategy
Market Penetration Strategy
Market Development Strategy
Products
present
New
Mar
ket
Present New
Typical activities for different commodities
Many VC approaches are typical for specific commoditiesFor example:
1
• Fresh beans, flowers, pineapple for export: organizing farmer groups, standards, certification
• Rubber: contract farming, PPP, financial and technical services
• Maize and other cerealsCommodity exchanges, warehouse receipt systemSeed supply systems, contract farming , e.g. with breweries
• Sheanut organizing farmer groups, market linkage