Presented by Berhanu Gebremedhin at the LIVES Commodity Value Chain Development Inception Workshop, Addis Ababa, 21–24 January 2013

1. The value chain development approach
in the LIVES project
Berhanu Gebremedhin
LIVES Commodity Value Chain Development Inception Workshop
Addis Ababa, 21–24 January 2013

2. The Value chain defined
• An agricultural value chain describes the full
range of actors and their value-adding activities
required to bring a product or service through
the different phases of production, including the
procurement of raw materials and other
inputs, assembly, physical
transformation, acquisition of required services
such as transport, cooling, storage, and
ultimately respond to consumer demand.
• Hence, value chains include all of the vertically
linked, interdependent stages/processes that:
– generate value for the consumer,
– as well as horizontal linkages to other value chains
that provide intermediate goods and services –
• Value chain within a value chain

3. The Value Chain
Post-
Input
Production harvest Trading Processing Trading Consumption
supply handling
• Value chain actors: Actors involved in ownership
of a commodity and its value addition
• To be contrasted with service providers (also
called business development services (BDS))

4. Service Providers/ Business Development
Services (BDS)
• Public (extension, input supply, research, market
information etc.): provide service mostly for
free, but also on fee
• Private (transport, processing, storage, etc.):
provide service on fee
• If service is provided by the value chain actor
itself for own business, service becomes part of
the value chain actor activities
• A service is expected to add value

5. The Value Chain
& Business Support Services
Consumption
Trading
Processing Research
Transportation
Trading
Govt. policy regulation
Post-harvest Communications
handling
Production input supply
Production Tech. & business training & assistance
Input Financial services
supply
Market information and intelligence

6. The Value system
• The value system comprises the value
chain actors, service providers and the
institutional environment in which the
value chain actors and service providers
operate, including the institutions that
govern their actions and interactions.
• Therefore, value chain development
requires system thinking.

7. The value chain analysis
• Value chain analysis breaks up a chain to its constituent parts in
order to better understand its components and its functioning
• Identifies chain actors at each stage and discerns their functions
and relationships
• Analyzes services available to chain actors
• analyzes chain governance
• identifies value adding activities in the chain and assigns cost and
added value
• evaluates the flow of goods, information and finance through the
various stages of the chain
• identifies chain constraints and opportunities
• examines the interactions of the chain and its policy and
institutional environment (its enabling environment)
• Develops chain upgrading vision and strategies

8. The value chain development approach
• Building a competitive value chain:
– understanding the demand for products and services in
key markets,
– investing in the factor inputs, capacity, and services to
best meet the needs of those markets, and
– Improving the policy and institutional environment of
businesses
• In increasingly integrated regional and global
markets, firms do not merely compete against firms-
value chains compete against value chains.
• The value chain framework, therefore, ensures both
systematic and systemic analysis of the value chain
and the factors and relationships that affect its
competitiveness

9. Prioritizing Value Chains for Development
• Participatory approach to value chain
selection needed
• Participants:
– Policy makers
– Decision makers
– Farmer organizations
– Private sector
– Service providers
– Development partners

10. Prioritizing value chains (2)
• Sources of list of potential chains
– Consultation with experts
– Previous assessments
– National priorities
– Sectors supported by other initiatives
– Market analysis
– Quantitative analysis
– Capacity to respond to market demand

11. Value Chain Governance
• Governance refers to the rules operating in a value
chain, and the system of coordination, regulation and
control in which value is generated.
• Governance refers to both the formal rules of and the
informal institutions of competition that influence how
production and marketing is structured.
• Hence, governance aims to understand what factors affect
the organization of production and the position of chain
actors in the arrangements.
• Instruments of governance range from contracts between
value chain participants to government regulatory
frameworks, to unwritten norms that determine who can
participate in a market
• Requirements may be official or unofficial, and may
originate from within or outside the chain.

12. Developing vision/model for a value chain
• Upgrading a value chain requires a vision and strategic perspective
• The upgrading vision describes the aspired change of the value chain
answering the question:
– How should the value chain look like five years from now?
• Determining the desirable future/vision of a value chain is important
because:
– Visioning defines what the endeavor to develop the value chain is all about
– Visioning defines the actual justification for upgrading
– Visioning helps to prioritize action and stay focused
– Visioning helps build consensus among stakeholders on the way forward
• it is very important to ensure that the vision and strategy is
formulated and shared by the stakeholders
• Building on the vision, the upgrading strategy describes how the vision
can be reached by improving services, processes, capacity and the
relationships of operators.

13. Analyzing Chain Constraints and Opportunities
• Constraints and opportunities have to be derived in
relation to the vision/model for the chain
• It is important to note that the objectives of
intervention should not just be inferred from current
chain problems but from the opportunities and the
necessary changes implied by the vision.
• The key question to answer is :
– What gaps exist between the requirements of a value
chain derived from the vision and its current structure
and performance?
• The basis for constraint and opportunity analysis is
the chain map.

14. Identifying areas of upgrading
• Interventions can be systematically identified
by:
– Determining possibilities to remove barriers
hindering progress towards the vision
– Determining possibilities to fulfill the
requirements connected to the vision
– Identifying points of leverage in the value chain
• The interventions must be visualized in the
value chain map by indicating the stages and
actors of the chain they refer to.

15. Strengthening services in value chains
• Value chain upgrading regularly implies better access to services
• Profitable value chains are supported by services that allow the chain to
grow, be more efficient, and enhance its competitiveness.
• Essential services include input supply, financial services, market
information, product development support, technical
support, transportation, quality assurance (eg. Certification), extension
and skills development, etc..
• Demand for services can also offer opportunities for businesses to
emerge as suppliers.
• Services can be provided through many different mechanisms:
– Public
– Private
– Embedded services in transactions
• Once needed services are identified interventions can be developed to
introduce a service

16. Steps in identifying needed services
• Map services currently provided along the value chain
• Identify services needed to upgrade the chain
• Develop indications of service
sustainability, profitability, quality and location within
the chain
• Improve the responsiveness of public service
providers
• improve the private services currently being offered
• Develop business plans to introduce private services
• Strategically use temporary external services

17. Improving the business/enabling environment of
value chains
• Macro policies and sector-specific conditions affect chain
performance through:
– Increasing costs and decreasing competitiveness
– Decreasing product and service quality
– Increasing risk
– Decreasing FDI and constraining long-term strategies
• These include:
– macro-economic policies (monetary, financial, duties, taxation etc.)
– Laws and regulation for business registration, employment, contract
security and enforcement
– Infrastructure (roads, power, water, telecommunication etc.)
– Product grades and standards
– Property rights (eg. land and water rights)
– Publicly supported services (research, technology promotion etc.)

18. RBM&E of Value Chain Performance
• Focus is on results, not just on inputs and
activities
• Logic Model (LM)
• Performance framework (PF)
• Performance measurement framework (PMF)
• Data collection
• Comparison of performance against vision
• Explaining deviations and feed back to
project management

19. THANK YOU
www.lives-ethiopia.org

20. The value chain analysis (2)
• Reasonably flexible and the value chain can be analyzed from the
point of view of any one of the large number of actors in the
chain
• Value chain analysis can help design projects and programs to
provide support to a value chain in order to achieve a desired
development outcome
• Desired development outcomes include:
– Increasing the level of income
– Increasing the level of export
– Generating employment
– Benefiting a particular group in a society
– Concentrating development in underdeveloped regions.
• The entry point, and therefore the concentration of the value
chain analysis, is directly related to the desired development
outcome

21. The Value Chain Development process
• Selecting a value chain for development
– Determine the scope of value chains to be developed
– Conducting market research
– Prioritizing alternative value chains
• Analyzing a value chain
– Value chain mapping
– Quantifying value chain in detail
– Economic and technical analysis of a value chain
– Identification of constraints and opportunities
• Determining the chain development strategy
– Setting a vision/model and strategy for value chain development
– Setting operational development objectives and activities
– Identifying actors to implement the development activities
– Clarifying public, private and donor roles
• Implementing value chain development
– Strengthening business linkages (facilitating vertical integration and horizontal collaboration,
– Strengthening services in value chains (assessing service needs, and service
provision, strengthening private service provision, strengthening public service provision)
– Financing value chain development (brokering private and public value chain financing)
– Improving policy and institutional environment of value chains)
• Monitoring and managing impact

22. Factors affecting competitiveness of value chains
• End markets
– Local, National, Regional, international
• Business support services
– Inputs
– Finance
– Technical support
• Business enabling environment
• Inter-firm cooperation
– vertical linkages
– Horizontal linkages
• Firm-level upgrading

23. Why the value chain approach to agricultural
development?
• The Value Chain approach is a conceptual framework for the design of market oriented
developmental interventions.
• Value chain promotion is a development approach
• The Value chain development can either be a stand alone project or part of a
development program that also encompasses other approaches.
• Value chain promotion harnesses market forces to achieve development goals.
• Value chain development promotes economic growth
• Value chain development promotes poverty reduction by increasing market
participation of the poor and or by influencing the distributive outcomes of market
forces
• Value chain development is oriented towards business opportunities and builds on
existing or emerging economic potential
• Value chain development starts from the market demand
• Value chain approach strengthens the business links between successive stages of a
value chain
• In the course of economic development, the coordination between different business
activities becomes increasingly important.
• Value chain analysis describes the economic system organized around particular
product markets

24. Prioritizing value chains
• Four steps
– Determine criteria and build understanding of priorities
– Determine weights
– Identify potential value chains
– Rank value chains

25. Governance
• Analysis of value chain governance has three dimensions:
– Coordination structures (key actors, mechanisms, the coordination structure)
– Rules and regulations (compliance to rules and regulations, sanctions and incentives to ensure
compliance)
– Control mechanisms (transmission of information and services)
• There may be more than one system of coordination operating in a single value chain in any
given area.

26. Value chain governance
• Steps in analyzing governance
– Determine demand and supply conditions – seasonality etc.
– Determine the system of coordination (formal and informal
arrangements between actors)
• May range from very-loosely coordinated, market-based trading structures, to
intensely coordinated vertical integration
– Analyze how target populations participate in the value chain –
understanding target populations functional range and formality of
participation can be useful in understanding opportunities for upgrading
to benefit target population
– Identify formal and informal rules and regulations
– Analyze the impact of rules and regulations on value chain participants
– Analyze target sector knowledge and awareness of rules, norms, and
standards and identify gaps.
– Analyze how information and service are provided internally through the
value chain and externally

27. Interventions to strengthen services
• Address the supply side – service providers
• Address the demand side
• Address the institutions governing service
demand and supply