A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS

Transcription

1 A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS micrreport #185 MARCH 2012 This publicatin was prepared by Dn Sndgrass fr ACDI/VOCA, with input frm Ruth Campbell, ACDI/VOCA, Jeanne Dwning, USAID, Elizabeth Dunn, Impact LLC, Michael Field, Adam Smith Internatinal, and Jennefer Sebstad, USAID, as well as frm suggestins made by participants in the AMAP Value Chain Learning Event held in Washingtn, D.C. n February 7-8, It was prepared with funding frm USAID under the Accelerated Micrenterprise Advancement Prject (AMAP) Knwledge and Practice II task rder.

2 A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS micrreport #185 DISCLAIMER The authr s views expressed in this publicatin d nt necessarily reflect the views f the United States Agency fr Internatinal Develpment r the United States Gvernment.

3 CONTENTS I. INTRODUCTION... 1 II. SOME DEFINITIONS... 2 III. SELECTING INDICATORS OF SUSTAINABILITY: UNDERLYING PRINCIPLES... 4 IV. SOME SUGGESTED INDICATORS... 6

4 I. INTRODUCTION This nte deals with the challenging prblem f hw t determine whether sught-after changes bserved during the implementatin f a value chain prject are likely t be sustainable beynd the life f the prject. The ideas and suggestins put frward here are intended t be useful fr thse charged with designing and evaluating value chain prjects. A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 1

5 II. SOME DEFINITIONS T clarify the discussin that fllws and the presentatin f ptential indicatrs f sustainable value chain develpment, it will be useful t start with a set f definitins. Value chain prject: A cmplex and multidimensinal but industry-specific package f interventins, usually aimed at imprving the lng-term welfare f participating farmers, micr and small enterprises, and ther lw-incme participants in the value chain as well as the natinal and internatinal cmpetitiveness f the industry cncerned, and implemented indirectly thrugh activities aimed at facilitating apprpriate actins by the private sectr. Sustainability: A flw f psitive utcmes and impacts that cntinue beynd the duratin f the prject. Sme prjects may temprarily imprve welfare, e.g., by prviding subsidies, but the effect des nt utlive the prject. T have a sustainable impact the prject must help bring abut lasting behaviral changes. The sustainability f individual firms and even whle industries cannt be guaranteed by a value chain prject because in business nthing is frever. Over time, individual businesses ften fail r therwise disappear and business relatinships can break dwn fr a variety f reasns. Yet a brader market system, nce established, has psitive characteristics that bring cntinued ecnmic benefits, even in the face f change. Sustainability als has scial and envirnmental implicatins: fr example, develpment cannt rely indefinitely n the explitatin f nn-renewable resurces. Indicatrs: An indicatr is a sign f whether the desired utcmes and impacts are being achieved. It is nt a direct measure f the prject s gals, which in many cases are nt measurable, but rather an indirect yet quantifiable reflectin f changes that the prject is trying t bring abut. Indicatrs f sustainability: Indicatrs f sustainability are particularly hard t define and measure. The basic prblem is that while sustainability is smething that nly ccurs in the future (if it ccurs at all), the indicatr must be smething that can be measured in the present. Many f the changes that can be bserved and measured nw may nt be sustainable. Cnversely, many indicatrs f sustainability will becme measurable nly later n. The challenge is t identify currently measurable indicatrs that pint t sustainability. Upgrading actins: Actins taken by prducers, prcessrs, input suppliers, and traders at varius pints in the value chain t increase future prductive capacity and cmpetitiveness. Upgrading actins can be divided int three grups: Investment in physical capital: expenditure f mney t acquire plant, equipment, and inventries. Investment in human capital: expenditure f time, effrt, and mney t learn and apply better ways f prducing, prcessing, and marketing the cmmdity r cmmdities cncerned. Investment in new and better business relatinships: expenditure f time and effrt t create and maintain new and mre prfitable business relatinships that ffer imprved incentives t prducers and fster grwing trust amng thse invlved in the business relatinships. As these definitins indicate, upgrading is nt free. Each type f upgrading requires sme frm and degree f effrt and sacrifice. Physical investment must be financed, either by saving, which invlves freging current cnsumptin, r by brrwing, which invlves freging future cnsumptin. Effrts t imprve knwledge, skills, and business relatinships als have mnetary csts, but mre imprtantly they require the dedicatin f time and energy that culd be used fr ther purpses. Business enabling envirnment (BEE): As defined by the Micrlinks value chain wiki, the BEE includes nrms and custms, laws, regulatins, plicies, internatinal trade agreements, and public infrastructure that either facilitate r hinder the mvement f a prduct r service alng its value chain In additin t these mre frmal factrs, scial nrms, business culture, and lcal expectatins can be pwerful aspects f the business enabling envirnment. A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 2

6 Understanding these unwritten rules f sciety is essential if practitiners are t understand why value chain actrs behave the way they d, and reasnably predict hw they will behave in respnse t value chain interventins. A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 3

7 III. SELECTING INDICATORS OF SUSTAINABILITY: UNDERLYING PRINCIPLES The definitin f indicatrs grws ut f the prcess f designing a value chain prject. That begins with the selectin f an apprpriate industry (r industries) fr the prject. The selectin f an apprpriate industry is a cmplex challenge. The industry chsen shuld have the ptential fr substantially and sustainably imprving the welfare f large numbers f pr peple. It is equally imprtant that it meet tw ther criteria: There must be significant identifiable prblems/limitatins that leave rm fr imprvement. These might invlve: Knwledge gaps (e.g., imprved cultivatin techniques that have nt yet been widely adpted), which may be exacerbated by a lw value placed n learning and pervasive mistrust that impedes the sharing f knwledge. Market imperfectins (e.g., mnply, mnpsny, r weak bargaining psitins arising frm gvernment regulatin r ther causes). Capital inadequacy exacerbated by lack f access t credit fr primary prducers and thers in the value chains, pssibly arising frm lender beliefs (valid r nt) that smallhlders are unreliable brrwers. Inefficient technlgies (e.g., use f unselected and lw-yielding seed) that may persist because t unstable r undiscriminating markets, making investments in imprved technlgies seems t cstly r risky. While shrtcmings may be numerus, they need t be clearly identified and priritized t effect imprvement. Only by easing priritized cnstraints can we realistically expect t imprve industry perfrmance. Typically this requires sme frm f cllective actin that ges beynd what the individual farm r firm can d n its wn. There must be plausible ptential means fr dealing with these prblems/limitatins t effect imprvement. These are likely t be a mix f interventins t address tangible cnstraints and intangible underlying causes f these cnstraints. Interventins t address tangible cnstraints may include Training and ther means f disseminating relevant knwledge Plicy/regulatry refrms Credit prgrams Prgrams t develp and disseminate imprved technlgies Interventins t address underlying causes f these cnstraints may include: Building lasting hrizntal and vertical linkages amng firms A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 4

8 Increasing transparency in market systems Addressing plicies that create disincentives t upgrading It is clearly nt enugh t be able t identify prblems and limitatins that leave rm fr imprvement. Prmising means f dealing with these difficulties must als be defined. Addressing tangible cnstraints withut addressing the underlying causes is unlikely t lead t lasting change. By changing the ways that business is dne, value chain develpment prgrams can strengthen the ability f market systems t address these and ther cnstraints as they ccur withut cntinued dependence n dnr assistance. Interest in leading and participating in cllective effrts t deal with the industry s prblems n the part f at least a few f the key participants in the value chain is imprtant fr the success f a value chain prject. Facilitatin f activities undertaken by these private sectr actrs is preferred t direct prvisin f cmmdities and services by dnrs. Dnrs can help t stimulate public sectr and civil sciety actrs, but a dnr that tries t d t much n its wn thrugh direct prvisin f gds and services can undermine the sustainability f the value chain. By stimulating actin by businesses and ther bdies, the facilitatin apprach helps t increase the likelihd that changes brught abut by the prject will be sustained, since cntinued activity is less likely t be dependent n cntinued invlvement by the dnr. Having selected an industry that meets these criteria and defined a set f prblems/limitatins t be addressed as well as plausible means f dealing with them, the next step is t define a specific and detailed causal mdel fr the value chain prject. A set f prject activities is chsen n the basis f their expected impacts n the value chain. The anticipated effects f these activities are traced thrugh the utput, utcme, and impact stages. Apprpriate budgets and time perids are defined fr the activities planned. A typical causal mdel will encmpass activities aimed at raising the quantity f selected prducts that are prduced and ften als prduct quality and the average price received by the primary prducer. These changes are expected t cntribute t the twin gals f the prject: raising the incmes f the primary prducers and ther lw-incme participants and imprving industry cmpetitiveness. Indicatrs f sustainability seek t determine whether an nging prcess f transfrmatinal change is ccurring, a prcess that invlves bth tangible and intangible factrs that interact t define the develpment prcess f a value chain. They can measure effrts n the part f prducers t upgrade their enterprises, grwth in human and rganizatinal capacity, and imprvements in the business enabling envirnment, all f which freshadw sustained increases in prductin, higher prduct quality, greater earnings frm sales, and rising husehld incmes. Despite these imprvements, unfreseen challenges may arise in the future. Fr this reasn the emergence f resiliency the capacity t adapt t changes in dynamic markets is an imprtant criterin fr sustainability. All indicatrs f sustainability will necessarily be measures f utcmes (bservable changes alng lines sught by the prject). By definitin, sustainable impacts (changes that can be attributed t prject activities thrugh cmparisn t a cunterfactual) will nly be achieved in the future and cannt be measured at present. A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 5

9 IV. SOME SUGGESTED INDICATORS Fr a value chain t underg sustained develpment, interrelated changes have t ccur in several spheres. The lcus f many f these changes is the individual farm r firm. Hwever, bth the ways in which these firms interact within the value chain and the envirnment in which their activities take place are als imprtant. Sme indicatrs f ptential sustainability that meet these criteria are suggested in the attached table. They are gruped int fur categries: Indicatrs f changes in farm/firm behavir Indicatrs f changes in the business enabling envirnment, including bth frmal and infrmal elements Indicatrs f changes in supprting markets and institutins Indicatrs f changes in individual and husehld behavir The indicatrs f ptential sustainability that wuld be apprpriate fr a particular value chain prject will vary by the industry invlved, its setting, and the prject s bjectives. The examples f specific indicatrs listed in the table are illustrative and may r may nt apply t a particular prject. Althugh many specific indicatrs are listed belw, t gauge whether bserved and measurable changes in a particular value chain pint in the directin f sustainability requires the use f multiple indicatrs t prvide triangulatin. Value chain prgrams seek t bring abut brad systemic change and n single indicatr can tell us whether this is ccurring. Cnsistently psitive measurement ver a wide range f indicatrs will prvide much strnger assurance f sustainability than culd be gained by measuring nly ne r a few indicatrs. Table: Pssible Indicatrs f Sustainability AREA OF CHANGE Farm/firm behavir TYPE OF CHANGE Farms & ther firms demnstrate greater respnsiveness t market incentives Farms & firms upgrade by investing in physical & human resurces SELECTED EXAMPLES Agricultural prductin increases when the farm gate price rises Farmers shift land & ther resurces frm crps that are expected t be less prfitable in the lng run t mre prfitable crps Agricultural prductivity (utput/ha. f land) rises Firms adapt prduct lines in respnse t changing incentives Farms & ther firms demnstrate resiliency in the face f market shcks, e.g., by crdinating respnses with ther firms Firms becme mre specialized & gain multiple marketing channels Firms becme mre innvative Amunt f envirnmental degradatin declines Purchases f imprved inputs & equipment increase Mre trees are planted (fr perennial crps) Mre farmers participate in training events & spread learning t indirect recipients Farm/firm management imprves A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 6

10 The business enabling envirnment Supprting markets & institutins Individual & husehld behavir Farms & firms enter int new r mdified vertical r hrizntal relatinships that demnstrate imprved trust & incentives Plicy, regulatry, & legal imprvements facilitate upgrading by prducers, prcessrs & marketers The infrmal business envirnment becmes mre transparent & equitable Imprvements in infrastructure supprt firm upgrading Financial services are imprved & made mre accessible Systems & institutins that supprt firm upgrading are strengthened Husehlds imprve their ability t withstand shcks Mre transactins are based n cmmercial rather than familial r ethnic criteria Supply cntracts are renewed Farmers assciatins & ther frms f hrizntal linkages survive & increase their capacity & utreach Farmers adhere t cntracts, even at a shrt-term lss, t preserve relatinships Price cntrls & taxes that discurage prductin are remved Dispute reslutin mechanisms imprve Legal & regulatry refrms cut the cst (in time & mney) f establishing & perating a business, building facilities, & hiring & firing labr Gvernment prmtes new business creatin, cmpetitin, & labr mbility Predatry trading practices decline Trust in business relatinships rises (repeat custmers, renewed cntracts) Rent-seeking behavir decreases Benefits are distributed mre equitably within the value chain The speed with which innvatins spread thrughut the value chain increases Farm-t-market rads are built & better maintained Electricity supply becmes mre reliable Exprt facilities (prts, air freight) are expanded & imprved Infrmatin infrastructure imprves SME access t institutinal brrwing n sustainable terms imprves as better-tailred prducts are intrduced Safe & cnvenient savings vehicles are prvided & used Input suppliers strengthen their distributin systems t small farmers Research institutins becme mre market-driven & sustainably financed Standards bdies becme mre market-driven & sustainably financed Agricultural extensin services imprve Exprt prmtin activities imprve Persnal saving increases Financial services are used increasingly t cushin ptential shcks Human capacity increases, enhancing the ability t cmpete in this r ther value chains A NOTE ON INDICATORS OF SUSTAINABILITY FOR VALUE CHAIN PROJECTS 7