Value chain promotion for economic. - An introduction into the concept of ValueLinks
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1 1 Value chain promotion for economic development in Ethiopia i - An introduction into the concept of ValueLinks Elke Peiler (ded-ecbp) Based on the Value Links Manual, gtz (2007)
2 2 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
3 Fertile land Factors of Competitiveness Productive plantations Branding 3 1 Planting material Know-how Harvesting technology Quality control Cleaning grading Packaging Retail Marketing Competitive Product Mandarine Farm advice Fertilizer Safe Transport
4 4 Value chain a definition Value chain means. 1 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 The set of enterprises that performs these functions i.e. the producers, processors, traders and distributors of a particular product a business model for a particular commercial product using a particular technology and a particular way of coordinating production and marketing
5 5 Apple value chain in pictures 1
6 6 Value Chain: visualization as map 1 Basic sequence of functions in the tomato paste value chain Specific Inputs Production Conditioning Processing Trading Consumption Provide right variety, equipment, inputs -Growing -Harvesting - Grading - Washing - Processing - Packing - Storing - Transporting - Distributing - Selling Categories of operators in value chains and their relations - Retail - Sales - Consume Specific Farmers, Input (primary providers producers) Packers, Agro-industry Traders Consumers of tomato paste (domestic market) Suppliers of ingredients, packaging material
7 7 Increasing significance of VC 1 Increasingly integrated t value chains (VC) VC organization is a competition factor, costs are reduced through logistics (private supply ppy chain management ), Value chains are an instrument of quality management Conditions 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
8 8 1 The need for coordination Uncoordinated, inefficient transactions Traditional spot markets are often highly fragmented Small producers have little access to services, information and inputs Lacking trust Producers seek only short-term t benefit Consequences: Transaction costs are high Low prices Little value added Incentives for quality and innovation are weak
9 9 What can be achieved? 1 Strengthening forward and backward ard business linkages in the value chain - improving coordination Integrating small-scale scale farmers and firms into global value chains Improving technology and skills Assisting Government agencies to serve business needs Introducing and enforcing grades and standards
10 10 Some basic principles i for Value Chain promotion 1 Growth potential as starting point: Build on market demand and on competitive advantages Key role of private sector: Build on private initiative and on partnerships mobilizing services and investment of companies Learning process: Development is conceived as a gradual process leading from quick improvements to more complex change Multi-level approach: Addressing enterprises, sector organizations (meso level) and the government support agencies in parallel
11 11 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
12 ValueLinks methodology - modules Setting project boundaries Chain analysis & strategy formation Implementation in different fields of action 12 Monitoring and evaluation 2 Deciding whether to engage in chain promotion 0 2 Selecting a value chain for promotion 1 3 Analysing a value chain Determining a chain upgrading strategy Strengthening business linkages Engaging in PPPs Strengthening services in VC Monitoring and measuring impact 4 Facilitating the chain development process 8 Financing value chains Obliging 9 Introducing quality standards According to priorities 10 Improving the biz environment of VC
13 ValueLinks task Analytical and decision-making tasks Modules Issues / Tasks 13 0 Decide whether to Assess potential and limits of value chain promotion engage in VC Combine VC promotion with other development promotion approaches 2 1 Select a value chain Decide on the size of markets to be promoted Priority setting across value chains Conduct or support market research 2 Analyze the selected VC Participatory chain mapping Quantify and analyze value chains in detail Economic analysis of VCs and benchmarking 3 Build a VC promotion strategy Agree on a vision Analyzing constraints to upgrading Set operational objectives and prepare upgrading action Identify actors implementing upgrading activities Construct impact models 4 Facilitation of chain Clarify yp public,,p private, and donor roles development Design the upgrading process, entry + exit points Organize chain promotion project and scaling-up Institutionalize collective action of chain actors
14 ValueLinks task Fields of implementation ti and supportive action Modules Issues / Tasks 5 Strengthening g Fostering horizontal cooperation - professional associations business Brokering vertical cooperation - supplier / buyer contracting linkages Business match-making Cooperation with the private sector 7 Strengthening Service Capacity 8 Supporting VC financing 9 Social, ecological and product quality standards 10 Sectoral Economic Policy Engaging private enterprises in development Public-Private Pi Partnership projects Assessing service needs and service markets Strengthening private service markets and arrangements Improving responsiveness of public service providers Strategic use of external services Strengthening private financial services in VCs Channeling public funds to support VC development Introducing social, ecological and product safety standards Implementing standards Building the capacity for verification and certification Supporting private initiatives addressing business constraints Fostering coherent VC promotion policies
15 ValueLinks task 15 Monitoring & Evaluation 2 Module 11 Impact Monitoring Issues / Tasks Defining indicators and measuring impact Designing an Impact monitoring system
16 16 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
17 ValueLinks methodology - modules Setting project boundaries Chain analysis & strategy formation Implementation in different fields of action 17 Monitoring and evaluation Deciding whether to engage in chain promotion Analysing a value chain Selecting a value chain for Determining a chain upgrading 3 promotion strategy Obliging Facilitating the chain development process Strengthening business linkages Engaging in PPPs Strengthening services in VC Financing value chains Introducing quality standards Monitoring and measuring impact According to priorities Improving the biz environment of VC
18 Level of (dis)aggregation 18 Sector Agriculture & Food Tourism Textiles & Clothing 3 Sub Sector Chain Horticulture Dairy Meat Flowers e.g. Horticulture: - French Beans - Tomatoes - Wildlife Tourism Cultural Tourism Beach Tourism Conferences e.g. Wildlife Tour. - National Park visit - Animal watching - Safaris - Clothing Textiles Carpets e.g. Clothing: -Apparel - Knitwear - Channel according to end product / marketing system - e.g. table tomatoes t sold in supermarkets according to marketing system - e.g. as part of a package offered by tour operators according to marketing and retail system - e.g. brand name apparel sold in specialty stores
19 19 3 Selecting a chain to promote: Generic criteria Growth potential, competitiveness (Unmet) market demand/growth potential/potential for value adding Comparative advantage in national and export markets (unique product, cost advantage compared to benchmark, proximity to markets) Competitors and their products Poverty reduction potential, social benefits Potential for income creation Potential for employment creation Relevance to the poor, social inclusion, SMEs participating Relevance to gender Social and ecological l standards d
20 20 Selecting a chain to promote: Generic criteria Prospects of success Conducive policy environment Own initiatives of VC partners, commitment Readiness for change Urgency of interventions Outreach 3 Number of enterprises, number of households Regional coverage Programme-related aspects Relevance to components of programme, demand of partners Synergies/linkages/cooperation with other programmes Problems that may be addressed by programme, added value & own experience that can be contributed Relevance to mandated area
21 21 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
22 ValueLinks methodology - modules Setting project boundaries Chain analysis & strategy formation Implementation in different fields of action 22 Monitoring and evaluation Deciding whether to engage in chain promotion Analysing a value chain Selecting a value chain for Determining a chain upgrading 4 promotion strategy Obliging Facilitating the chain development process Strengthening business linkages Engaging in PPPs Strengthening services in VC Financing value chains Introducing quality standards Monitoring and measuring impact According to priorities Improving the biz environment of VC
23 23 Mapping VC functions and actors (micro level) Basic sequence of functions in the tomato paste value chain Specific Inputs Production Conditioning Processing Trading Consumption Provide right variety, equipment, inputs -Growing -Harvesting - Grading - Washing - Processing - Packing - Storing - Transporting - Distributing - Selling 4 Categories of operators in value chains and their relations - Retail - Sales - Consume Specific Farmers, Input (primary providers producers) Packers, Agro-industry Traders Consumers of tomato paste (domestic market) Suppliers of ingredients, packaging material
24 24 How to proceed in mapping 4 Specify the final product and end market(s) Establish the stages/segments of the chain (specifying functions performed) Establish the main sequence of operators Assessment of the degree of chain integration Differentiate the chain into channels if appropriate Quantification of chain map Map support service providers Institutional analysis (Governance) lead actors, market power, transaction cost Prepare thematic detail maps if required Economic analysis
25 25 Micro level Symbols for Value chain mapping Generic function Specific c function Value chain operator 4 Types of chain relations Spot market transactions Order contracts / Forward contracting Persistent network relationship Vertical integration e.g. Contract production
26 Fresh Table Apple, Georgia 26 Fresh apples traditional varieties 2006: t average: t Retail Supermarkets in big urban centres Small food Open Street stores market vendors traders 4 intermediary trade (sorting for quality) Sorting table/industry apples Fruit traders Farmers Antonovka 3-5 Lari / kg Kechura 1-2Lari i/k kg Farmer associations Primary production Ministry of Agriculture Provision of seedlings Local tree nurseries
27 27 Finished leather, Ethiopia Leather Product Industry Leather trade Traders of finished leather Processing of skins Tanneries 4 Raw skin trade Collection Preservation Skin Traders 94% 0,5% 5,5% Skin collectors Slaughtering Private slaughterers Abbatoirs Animal Husbandry Pastoralists Small farmers Commercial breeders
28 28 4 Criteria for segmenting Type of product - Conventional / organic - different quality grades and packaging - Intermediate t / final product End market - Domestic / export - End consumers / institutional buyers - Type of market (supermarket / street market) Technology - Handmade / mechanised Chain organisation - Separate firms / integrated t production system - Small scale / large scale
29 29 Concept: micro, meso, macro levels l Micro Functions directly related to the product in question including operational services delivered to operators Specific inputs Production Processing Trade Transport Consumption Support Functions Services benefiting all operators Meso 4 Information on markets, services Research + extension Financial Services Collaboration & prof. organization Advocacy /common interests Fairs, joint marketing Necessary general public functions enhancing businesses Macro Infrastructure: Roads, electricity, water Legal framework: Food laws, taxes Political framework Sector support
30 Actors of the value chain: Example Ethiopia - Mango juice 30 4
31 31 Quantifying value chains E.g. Numbers of involved enterprises 4 (Research Primary Institute) Large processing companies Producers 1 1 Customers Market 1 n=1 n=40 n=3 n = 50 SM Primary Producers 2 n = 3000 Industrial SMEs Retailers A n=10 n = 120 Importers Retailers B 3 n = 5 n = Customers Market 2 n.a. N.B. Possible to use the map to to assess jobs, wage sums or the importance of product
32 32 Quantifying value chains e.g. Production flow (volume) (Research Pi Primary Institute) Large processing companies Producers 1 20% 20% Customers Market 1 4 SM Primary Producers 2 Industrial SMEs Retailers A 50% 20% 20% Customers Market 2 Importers 30% 60% 60% Retailers B
33 33 Linkage between actors of the VC (vertical integration) and identification of lead companies (Research institute) Primary producers 1 Large processing company X 1 Customers Market 1 4 Importers Retailers A Industrial SMEs Primary Retailers B producers Customers Market 2 Legende Spot market transactions Order contracts, forward contracting, persistent network relationship Vertical integration, e.g. contract production
34 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
35 35 Value-added along the value chain Primary Producers Product Makers Traders Consumers Value-added captured by the VC Value-added captured by Input providers 4 Value-added added Other Inputs Value-added Intermediate Product Other Inputs Vl Value-added d Intermediate Product Other Inputs Total Value consumed Service / Input Providers Service / Input Providers Service / Input Providers Value-added Value-added Value-added
36 36 Value added and cost/margins in a given VC Example: Fresh apples Production Grading Packing Trade Consumption 4 Sales Prices / kg 040 0,40 Other inputs 0,16 0,14 Net value added 024 0, ,21 Total cost 0,32 0,70 Margin 0,08 0, , ,99 0, ,95 1,80 0,19 Apple producers Pack house Traders Final Consumers
37 37 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
38 ValueLinks methodology - modules Setting project boundaries Chain analysis & strategy formation Implementation in different fields of action 38 Monitoring and evaluation Deciding whether to engage in chain promotion Analysing a value chain Selecting a value chain for Determining a chain upgrading 5 promotion strategy Obliging Facilitating the chain development process Strengthening business linkages Engaging in PPPs Strengthening services in VC Financing value chains Introducing quality standards Monitoring and measuring impact According to priorities Improving the biz environment of VC
39 39 Designing a chain project has two dimensions The first concerns what tthe VC actors must tdo to become more competitive and to generate greater value added We call this the value chain upgrading strategy The second dimension i concerns the role of facilitators, i.e. government and development 5 agencies running chain development projects and providing assistance We call this facilitation the value chain rpomotion strategy
40 40 Elaborating the strategy 5 Steps Assess market opportunities and competitive advantage Agree on the vision and strategy for chain upgrading Analyse upgrading opportunities, constraints and the needs of chain upgrading Determine the fields of upgrading accordingly Determine actors implementing the upgrading strategy Agree on action to be taken Anticipate the impact of value chain upgrading
41 Vision, opportunities and constraints: Example Mango juice 41 Vision: Production of a high amount of quality juice for the local & international market which will increase the income of farmers, producers & investors and contribute to the economic growth of the country 5
42 42 What has to change in the chain? Identifying fields of upgrading Constraint / need / opportunity related to Market access Contract conditions Field of Upgrading Vertical business linkages Producer associations 5 Technology, inputs Information Finance Skills Quality assurance Access to specialty markets Product safety Service arrangements Capacity of service providers Financial arrangements Introduction of standards Implementation of standards Certification systems Business environment Resource degradation Private-public dialogue Sectoral economic policy
43 43 ValueLinks modules 5-10 Modules Issues / Tasks 5 Strengthening Fostering horizontal cooperation - professional associations business Brokering vertical cooperation - supplier / buyer contracting linkages Business match-making 6 Cooperation with Engaging g g private enterprises in development the private sector Public-Private Partnership projects 5 7 Strengthening Service Capacity 8 Supporting VC financing 9 Social, ecological and product quality standards Assessing service needs and service markets Strengthening private service markets and arrangements Improving responsiveness of public service providers Strategic use of external services Strengthening private financial services in VCs Channeling public funds to support VC development Introducing social, ecological and product safety standards Implementing standards Building the capacity for verification and certification 10 Sectoral Economic Policy Supporting private initiatives addressing business constraints Fostering coherent VC promotion policies
44 Upgrading objectives, interventions and actors: Example Mango juice 44 Vision: Production of a high amount of quality juice for the local & international market which will increase the income of farmers, producers & investors and contribute to the economic growth of the country 5
45 Synthesis How to arrive at the value chain project 2 1 Value chain analysis Assessing markets and competitive advantage 45 3 Vision and upgrading strategy 5 Assessing opportunities & constraints Fields of upgrading Action planning Facilitating ti the start t of VC upgrading activities iti
46 46 Contents 1 2 Value chains a perspective on development The ValueLinks concept 3 Scoping & selecting a value chain for promotion 4 The toolbox for value chain analysis 5 Designing a value chain upgrading project 6 Implementing a value chain project
47 ValueLinks methodology - modules Setting project boundaries Chain analysis & strategy formation Implementation in different fields of action 47 Monitoring and evaluation Deciding whether to engage in chain promotion Analysing a value chain Selecting a value chain for Determining a chain upgrading 5 promotion strategy Obliging Facilitating the chain development process Strengthening business linkages Engaging in PPPs Strengthening services in VC Financing value chains Introducing quality standards Monitoring and measuring impact According to priorities Improving the biz environment of VC
48 Upgrading Solutions 48 Service arrangements Facilitator Service provider Policies Norms & standards Facilitator Technology providers Primary producers Processing Industry Traders Consumers (the market) 6 Association Vertical linkages Buyer Credit Vertical linkages Horizontal linkages Facilitator
49 49 Implementation know-how The technical aspect: Upgrading g solutions New and/or more sophisticated business links & contracts Associations, both micro and meso New, more appropriate, adjusted d service arrangements Market regulation with standards and codes of conduct The facilitation aspect: How to promote solutions 6 Raising awareness, information Brokering, Mediation, facilitating meetings Accompanying upgrading processes Institutional capacity development Technical consultation
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