Presented by Getachew Legese (ICARDA consultant) at the ICARDA-ILRI Training on Tools for Rapid Assessment of Sheep and Goat Value Chains in Ethiopia, Addis Ababa, 5-8 November 2012
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Basic concepts of value chain analysis for sheep and goat value chains development in Ethiopia
1. Basic concepts of value chain analysis for
sheep and goat value chains development
in Ethiopia
Getachew Legese
(ICARDA consultant)
ICARDA-ILRI Training on Tools for Rapid Assessment of
Sheep and Goat Value Chains in Ethiopia
Addis Ababa, 5-8 November 2012
2. Presentation outlines
• Basic concepts in Value Chain Analysis
– Value and value addition
– Value Chain
– Stages of a value chain
– Business development services
– Value chain leader
• Potential objectives of VCA
• How to conduct VCA
– Data collection
– Value chain mapping
– Analysis of constraints and opportunities
– Value Chain frame work
– Validating findings of VCA
3. Basic concepts of Value Chain Analysis
Value and value addition
Value
– Amount a good or service is worth of in the market
– Three types of value
• Form value – associated with the change of the form of a
raw material (production, processing)
• Time value - related with availing at another period of
time produce produced at a period of time (storage)
• Space value - related with availing at another location
product produced in one location (transport)
4. What is a Value Chain (1)
• VC encompass the full range of activities and
services required to bring a product or
service from its conception to sale in its final
markets.
• VC includes input suppliers, producers,
processors and buyers.
• They are supported by a range of technical,
business and financial service providers
5. What is a Value Chain (2)
• A value chain entails the addition of value as the
product progresses from input supply to production
to consumption.
• Value chains are also the conduits through which:
– finance (revenues, credit, and working capital)
moves from consumers to producers;
– technologies are disseminated among producers,
traders, processors and transporters;
– information on customer demand and preferences
are transmitted from consumers to producers and
processors and other service providers.
6. What is a Value Chain (3)
• VCA focuses on chain governance and power
relationships which determine how value is
distributed at different levels.
• Through the analysis of systems and power
relations at different levels, value chain analysis
enables a more comprehensive modeling of the
effect of interventions at different levels, thus
enabling better targeting of interventions aimed
at poverty reduction.
7. Stages of a value chain
• Any operating stage capable of producing a saleable
product or service serving as an input to the next
stage in the chain or for final consumption or use
• Typical value chain linkages include input supply,
production, assembly, transport, storage, processing,
wholesaling, retailing, and utilization, with
exportation included as a major stage for products
destined for international markets.
8. Business development services
• Services that play supporting role to enhance the operation of
the different stages in the value chain and the chain as a whole
– Infrastructural services (market place development, roads
and transportation, communication, energy supply, water
supply)
– Production and storage services (input supply, genetic and
production hardware from research, farm machinery services
and supply, extension services, weather forecast, storage
infrastructure)
– Marketing and business skills (market information, market
intelligence, technical and business training, facilitation of
linkages of producers with buyers, organization and support
for collective marketing)
– Financial services (credit, saving, risk insurance)
– Policy and regulatory services (property rights, market and
trade regulations, investment incentives, legal services,
taxation)
9. The Value Chain and Business support services
Consumption
Retailing
Trading
Research
Processing Transportation
Trading Govt. policy regulation
Transport Communications
Post-harvest
handling Production input supply
Production
Tech. & business training & assistance
Financial services
Input
Supply Market information and intelligence
10. Value chain leader
• An organization with major stake in the value chain and
plays crucial role in the functioning, performance and
development of the value chain.
• Value chain leaders are especially critical in the development
of new and emerging value chains
• Value chain leader could be private business which intends
to make profit or a public agency which intends to promote
the development of the value chain.
11. Potential objectives of VCA
• Identification of leverage points to improve chain
performance
• Analysis of agriculture-industry linkages
• Analysis of income distribution
• Analysis of employment issues
• Analysis of economic, social and environmental impacts of
interventions
• Guide collective action for marketing
• Guide research priority setting
• Conduct policy inventory and analysis
12. How to conduct a VCA
Value chain analysis consists of a four step process:
1. Data collection and analysis,
2. Chain mapping (actors, functions and relationships) and
end market analysis
3. Analysis of opportunities and constraints, and
4. Validating the findings of the VCA through stakeholders
forum
13. Data collection (1)
• Good value chain analysis begins with good data
collection, from the initial desk research to the
targeted interviews.
• Both qualitative and quantitative data are required
for the VCA.
• The qualitative data are collected using PRA tools
such as: focused group discussions, Key Informant
interview, personal observations, etc
• Quantitative data for VCA are collected using
structured questionnaire
14. Value Chain Mapping (1)
• Value chain mapping is the process of developing a
visual depiction of the basic structure of the value
chain.
• It is a compressed visual diagram of the data
collected at different stages of the VCA and
supports the narrative description of the chain
15. Value chain mapping(2)
Objectives
• To gain basic overview of the value chain to guide the
full VCA to be undertaken
• Identify constraints and possible solutions at
different levels in the VC
• Visualize networks to get a better understanding of
connections between actor and processes
• Demonstrate interdependence between actors and
processes in the VC
• Create awareness of actor to look beyond their own
involvement in the VC
16. Value Chain Mapping (3)
A two phased process for developing the value chain
mapping is recommended
a) initial basic mapping based on the information
derived from desk research and knowledge at the
outset of the analysis, and
b) adjusted mapping that includes revisions based on
interviews and feedback from firms and
individuals brought into the analysis process
17. value chain mapping (4)
• There is no such a thing as a comprehensive, all
encompassing VC map
• There are many potential dimensions of the VC that could be
included in an initial mapping exercise:
– The core processes in the VC
– The main actors in the process
– The product flows,
– Volume of product flow
– Costs and margins at different levels
– Constraints and opportunities at the different levels
– Flow of information etc
18. Mapping the core processes
• The first question that must be asked in any value
chain analysis is what the different processes in the
value chain are.
• Example: Core processes in sheep VC (SNNP & Oromia)
Domestic
Input
Production Trading Processing Consumption/
Supply
Export
19. Mapping actors along the value chain
Example: Actors along the core processes of the sheep value chain
Input
Production Trading Processing Consumption
Supply
• Collectors • Export • Meat exporters
• Sheep Small
• Brokers abattoirs • Live animal
producers holder
• Small traders • Shoat exporters
• The farmers
• Big traders butchers • Individual
extension • Sheep • Super consumers in big
system fatteners markets towns and Addis
• Hotels and
restaurants
• Farmers (for
fattening/rearing)
20. VC actors
Enablers
Supporters
Small Traders
farmers
Union
companies Operators
21. Mapping activities along the VC
Example: Core processes and activities in the sheep VC
Domestic
Input
Production Trading Processing Consumption/
Supply
Export
• Breeding • Slaughter
• Domestic
stock • Rearing • Collection • Chilling
• Veterinary consumption
• Fattening • Transportation • Packing
• Export to
services • Distribution to
• Feed MENA
consumers(retail
• Water countries
, wholesale)
• Housing
22. Mapping product flows
Example: Sheep value chain functions, actors, and product flows
Consumers in big Hotels and
tows and Addis restaurants
Export
Consumption markets Ababa
Local
consumers
Live Shoat Super
Export
animal butchers markets Farmers
Processing abattoirs
exporter (breeding/
fattening)
Small Collectors Brokers
Live animal Big
traders
Trading traders
Production Small holder farmers
Input Supply Business and Extension services
23. Mapping Volume of product flows
Example: Product Supply Pattern in the Shoat Value Chain (Borena)
Producers
23%
100%
Collectors Cooperatives
77%
46% 54% 60% 22% 6%
Small traders Big traders
12%
23%
14%
Purchasing agents
63%
8% 28% 61% 3%
50% 50%
Live animal exporters Export abattoirs
24. Mapping the flow of values and benefits
Example: Costs and margins of actors involved in a market channel selling
shoats to supermarkets
Small Super
Producers Brokers Collectors traders markets
Selling price 750 810 820 870 1280
Marketing cost - 0 16 39 95
Marketing margin - 60 70 50 410
Net margin - 60 54 11 315
Producer's share
of final price (%) - - - - 59
25. Making a value chain map matrix
• A VC map matrix is the matrix which summarizes
the key information from maps in one table.
• The matrix can be used as the basis for designing
questionnaires, determining which actor groups to
interview and which geographical locations to
concentrate field work in.
• It can also serve as an easy to interpret sector
summary from VC perspective.
26. VC map matrix
Input supply Production trading processing consumption
Activities
actors
Inputs
outputs
locations
challenges
Possible
solutions
27. Analysis of Opportunities and Constraints Using the
Value Chain Framework
• The process of value chain analysis requires the use of the value
chain framework to identify opportunities and constraints along the
chain.
• The value chain framework comprises the structure and dynamics of
the value chain.
• The structure of a value chain includes all the firms in the chain and
can be characterized in terms of the following five elements
i. end markets
ii. business enabling environment
iii. vertical linkages
iv. horizontal linkages
v. supporting markets
• The dynamics of the value chain, which refers to the determinants
of individual and firm behavior and their effect on the functioning of
the chain can be characterized in terms of: value chain governance,
inter-firm relationships and upgrading
28. End Markets
• They determine the characteristics—including price, quality, quantity
and timing—of a successful product or service.
• End-market analysis assesses current and potential market
opportunities through interviews with current and potential buyers,
and takes into consideration trends, prospective competitors and
other dynamic factors.
• During chain analysis, the focus should be on the current and
potential production capacity of the chain and its ability to respond
to end market demand.
• It is through the analysis of end markets that we are able to identify
the investment needs that will drive chain upgrading.
29. Business Enabling Environment (BEE)
• Value Chains operate in a business enabling environment (BEE) that
can be global, national and local and includes norms and customs,
laws, regulations, policies, international trade agreements and public
infrastructure (roads, electricity, etc.).
• The analysis process must determine whether and how the business
enabling environment facilitates or hinders performance of the value
chain, and if it hinders, where and how can it be improved.
30. Vertical Linkages
• Linkages between firms at different levels of the value chain are critical for
moving a product or service to the end market.
• Vertical cooperation reflects the quality of relationships among vertically
linked firms up and down the value chain.
• More efficient transactions among firms that are vertically related in a value
chain increase the competitiveness of the entire industry.
• The nature of vertical linkages—including the volume and quality of
information and services disseminated—often defines and determines the
benefit distribution along the chain and creates incentives for, or constrains,
upgrading.
• The efficiency of the transactions between vertically linked firms in a value
chain affects the competitiveness of the entire industry.
• An important part of value chain analysis is the identification of weak or
missing vertical linkages.
31. Horizontal Linkages
• Horizontal linkages—both formal as well as informal—between firms at all
levels in a value chain can reduce transaction costs, create economies of scale,
and contribute to the increased efficiency and competitiveness of an industry.
• It can also contribute to shared skills and resources and enhance product
quality through common production standards.
• Such linkages also facilitate collective learning and risk sharing, while
increasing the potential for upgrading and innovation.
• Value chain analysis also considers competition between firms.
• While cooperation can help firms achieve economies of scale and overcome
common constraints to pursue opportunities, competition can encourage
innovation and drive firms to upgrade.
• One of the objectives of value chain analysis is to identify areas where
collaborative bargaining power could reduce the cost or increase the benefits
to small firms operating in the chain.
32. Supporting Markets
• Support markets include financial services; cross-cutting services such as
business consulting, legal advice and telecommunications; and sector-specific
services (feed produces, veterinary services, market information,
transportation, etc).
• most service providers themselves need supplies, training and financing in
addition to strong vertical and horizontal linkages.
• Value chain analysis should seek to identify opportunities for improved
access to services for target value chain actors in such a way that the support
markets will be simultaneously strengthened, rather than undermined.
• VCA should take due care to uncover informal sector service providers,
which often go unnoticed.
33. Value Chain Governance
• Value chain governance refers to the relationships among the
buyers, sellers, service providers and regulatory institutions that
operate within or influence the range of activities required to bring a
product or service from inception to its end use.
• Governance is about power and the ability to exert control along the
chain
• Governance is particularly important for the generation, transfer and
diffusion of knowledge leading to innovation, which enables firms to
improve their performance and sustain competitive advantage.
• When conducting VCA, the type of governance structure that exists
must be identified since it will contribute significantly to the
selection of interventions to increase competitiveness.
34. Upgrading
• In order to respond effectively to market opportunities, firms
and industries need to innovate to add value to products or
services and to make production and marketing processes
more efficient.
• In VCA, the objective is to identify opportunities and
constraints to firm- and industry-level upgrading;
• specifically the analysis looks for catalyst firms with the
incentives, resources and willingness to promote and facilitate
upgrading within the chain.