INTRODUCTION TO VALUE CHAIN (3 ECTS)

THE VALUE CHAIN APPROACH: Definition, Importance

and Principles

Chapter one
 1.1 Definition of value chain

Value is defined as:

 A fair return or equivalent in goods, services, or money for something

exchanged.
 The monetary worth of something: market price.
 Relative worth, utility, or importance.
 A numerical quantity that is assigned or is determined by calculation or

measurement.
 value is an experience, and it flows from the person (or institution) that is the
recipient of resources – it flows from the customer.
 Value has meaning in a number of contexts, including trading relationships,
consumer purchases, and the interests of company shareholders.
 For the value chain aspect we may focus on the context of value as linked to
needs satisfied and experience developed through the provision of goods and
services in order to satisfy human wants.
 A key distinction in defining value is whether the exchange that generates value
is between firms – i.e., Business to Business (B2B) – or between a firm and a
consumer – i.e., Business to Consumer (B2C).
 There are three forms of value that occur in B2B commercial transactions:
 Technical (Resource Value);
 Organizational (Business Context); and
 Personal (Career and Idiosyncratic).
 Contin...
•Technical value - intrinsic to the resource being provided and occurs in virtually
all exchanges.
For the thirsty man, the water has a technical value regardless of the source or
any other consideration. The water will have technical value regardless of some
aspects such as: the type of cup used or even dirty or the man providing it is a
criminal.
•Organizational value- It is value built upon the context of the exchange, and may
derive from a range of factors such as ethical standards, prestige, reliability, and
association.
Brand image may build organizational value, as well as company reputation.
When at a fine dining establishment, the label on the water bottle generates value
far in excess of the bottle’s content.
 Contin...
•Personal value is derived from the personal experiences and relationships
involved in the exchange of resources and the benefits provided.
•While technical and organizational values accrue to the firms involved in a
commercial exchange, personal value accrues to the individual.
•Manager motivation, preferences, feelings of comfort and trust create
value for individuals that engage in trading relationships on behalf of firms,
and can be extremely influential in the determination of successful
exchange.
Measuring Value

•Before we try to measure, let’s see what gives things a value or

importance. Or what makes something desirable?
 Contin...
•Things that make something desirable could be price (cheap or high value);
Appearance (looks); Experience (taste); Ease of use (fresh-cut and washed);
Availability (year round like Coca Cola).
•In all the attributes which make things desirable, consumer is the basis. In other
words consumers are the basis to determine value.
•Value to Customer involves branding (good feel, quality, image….), Product
(quality, technical specification, usability…), service (availability, customization,
friendliness…) and other factors.
• These will set what the consumers are willing to pay for that particular good or
service.
•Value to producer (Cost) involves costs for promotion (Advertisement…),
operations (manufacturing, logistics,), Management (human resource, organization
structure, finance…) and other factors.
 Contin...
•These all together set the cost of supplying a particular good or service.
•Measuring the net value for both producers and consumers will give us consumer
premium for consumers (difference between willingness to pay and actual product
price) and profit for producers (difference between selling price and cost of
production).
• Value chain concept
•The term ‘Value Chain’ was used by Michael Porter in his book "Competitive
Advantage: Creating and Sustaining superior Performance" (1985).
•Value chain” refers to all the activities and services that bring a product (or a
service) from conception to end use in a particular industry—from input supply to
production, processing, wholesale, retail and finally, consumption. It is so called
because value is being added to the product or service at each step.
 Contin...
•A value chain comprises of interlinked value-adding activities that convert inputs
into outputs which, in turn, add to the bottom line and help create competitive
advantage.
•This means that businesses within the value chain are involved in handling and
adding direct value or consuming the product and also the service network
indirectly involved in the production (eg. quality control, ICT, financial partners
(banks, insurance, and training and research).
•A value chain is a connected string of companies, groups and other players
working together to satisfy market demands for a particular product or group of
products.
•A value chain links the steps a product takes from the farmer to the consumer. It
includes research and development, input suppliers and finance. The farmer
combines these resources with land, labor and capital to produce commodities.
 Contin...
•The value chain describes the full range of activities which are required to bring a
product or service from conception, through the different phases of production
delivery to final consumers, and final disposal after use.
•A value chain is a network of strategic alliances between independent companies
that together manage the flow of goods and services along the entire value-added
chain.
•[According to Porter (1985)] value chain activities can be classified generally as
either primary or support activities that all businesses must undertake in some
form.”
• Primary activities

• The goal of primary activities is to create value that exceeds the cost of
providing the product or service, thus generating a profit margin.
 Contin...
•Inbound logistics: This involves receiving raw materials from suppliers and
storing them until they’re needed for production.
•Operations: This includes all processes transforming inputs into finished goods or
services.
•Outbound logistics: Once products are completed, this component deals with
warehousing, packaging, transportation, and distribution to customers.
•Sales & marketing: This covers everything from promoting products/services
through various channels (eg, advertising), managing customer relationships
(CRM),to pricing strategies that help drive sales revenue growth over time.
•Maintenance & support services: This consists of providing after-sales support
like warranty repairs, maintenance contracts, technical assistance, etc., ensuring
long-term client satisfaction, thus building loyalty and brand reputation.
 Contin...
•Support activities
•Support activities often viewed as “overhead”, but some firms successfully have
used them to develop a competitive advantage.
•They are activities of the value chain that either add value by themselves or add
value through important relationships with both primary activities and other support
activities.
 Procurement: - The function of purchasing the raw materials and other inputs
used in the value-creating activities. Those are:
•Procurement of raw material inputs, development of collaborative “win-win”
relationships with suppliers, analysis and selection of alternate sources of inputs to
minimize dependence on one supplier etc…
 Contin...
•Technology Development: - Includes research and development, process
automation, and other technology development used to support the value-chain
activities, related to a wide range of activities.
•Human Resource Management: - The activities associated with recruiting,
development, and compensation of employees, effective recruiting, development,
and retention mechanisms for employees, quality relations with trade unions,
Reward and incentive programs to motivate all employees.
• Firm Infrastructure: - Includes activities such as finance, legal, quality
management, typically supports the entire value chain and not individual activities,
effective planning systems, excellent relationships with diverse stakeholder groups,
effective information technology to integrate value-creating activities
1.2. Value chain approach
• The Value Chain Approach is a means for examining the development of
competitive advantage which is achieved when an organization links its activities in
its value chain more cheaply or more expertly than its competitors.
•The chain consists of a series of activities that create and build value.
1.2.1. Origin and Evolution of the value chain approach
•Michael Porter of the Harvard Business School established the concept of value
chain in 1980.
•Porter saw the entire production system as a series of activities with value addition
to each activity resulting in the improvement of quality and the reduction of cost.
•The value chain was originally defined as how a business receives raw materials as
input, adds value to the raw materials through various processes in the middle of
the chain and sells the finished products to consumers.
 1.2.2. Assumptions of Value Chain Approach

•There are a number of basic assumptions underpinning the Value Chain Approach.

These include:
• Clearly stated policy statement indicating the expected role of agriculture

in the socio-economic development of the country.

• Understanding of the gap between agricultural potential and actual

performance.
• An assessment of the strength and weaknesses, opportunities and threats

(SWOT analysis) in the agricultural sector.

• Clear identification of the various value chains and market opportunities
• All chain actors and facilitators understand and assume their roles with

dedication and purpose.

 • Certain actors or change agents are willing and able to motivate others to
follow.
• Operators/actors act in their individual and collective interest and assume
responsibility from the start.
• All actors benefit from upgrading
• Both positive and negative experiences are taken as basis for progress.
• Timely availability of critical information.
1.2.3. Importance of Value Chain Approach
•The importance of the Value Chain Approach lies in seeing agriculture as a
comprehensive system of agro-based business activities comprising input
provision, primary production, processing, marketing/trade and consumption.
•In this approach, market and consumer demands determine the nature, conduct
and performance of modern agri-business at any point of the value chain.
x. Ability to project market supply
Enables the processors to ensure the following:
i. Reliable supply of raw materials
ii. Quality supply of raw materials.
iii. Optimum supply of raw materials (Just-In-Time)
iv. Production of finished products
v. Reduced cost of raw materials
vi. Reliable employment opportunities
vii. Reliable supply of finished goods
Enables the Consumer to enjoy the following:
i. Quality products assured
ii. All year availability of products
iii. Quality products at reasonable prices

iv. Wider range of goods to choose from v. Healthier life

1.3. The Principles of the Value Chain in Agriculture
•The basic principles underlying the Value Chain Approach in agriculture are that
agricultural markets and consumers demands determine the nature, structure and
conduct of modern agri-businesses.
The principles mentioned earlier are listed below:
 The breakdown of the course of production (input supply to consumption) into
chain links;
 Chain links are activities;
 Value is added to each activity;
 Overall output will be with improved quality, improved quantities and reduced
cost; and
 Be able to stay in the competitive world
1.4. Characteristics of Value Chain
•A value chain is characterized by:
• Production line consists of series of chains
• Each chain consists of activities
• Value added to an activity affects all other activities (link)
• Works when there is free and timely flow of information among the
operators/actors
• Each of the operators of the activities monitors and evaluates along the chain
• All the operator/actors benefit when value is added
• The quality of linkages and coordination between producers, processors,
traders and distributors of a particular product development determine the
success of the value chain.
• Value chain is competitive and its competitiveness depends on trust,
cooperation and communication among actors.
• The performance of every single partner in the chain determines the strength
of the entire value chain.
• The weakest link in the value chain also determines the competitiveness of the
final product.
• Certain actors or change agents are willing and able to motivate others to
follow
• Operators act in their individual and collective interest and assume
responsibility from the start.
• All actors benefit from upgrading
• Both positive and negative experiences are taken as a basis for progress
• Timely availability of critical information.
1.5. Dimensions of Value Chain
 The value chain concept has several dimensions.
• The first is its flow, also called its input-output structure.
• In this sense, a chain is a set of products and services linked together in a
sequence of value-adding economic activities.
• A value chain has another, less visible structure.
• This is made up of the flow of knowledge and expertise necessary for the physical
input-output structure to function.
• The flow of knowledge generally parallels the material flows, but its
intensity may differ.
• The second dimension of a value chain has to do with its geographic spread.
Some chains are truly global, with activities taking place in many countries
on different continents. Others are more limited, involving only a few
locations in different parts of the world.
• The third dimension of the value chain is the control that different actors can
exert over the activities making up the chain.
• The actors in a chain directly control their own activities and are directly or
indirectly controlled by other actors.
• The pattern of direct and indirect control in a value chain is called its
governance.

1.6. Traditional Marketing Systems Versus Value Chain Marketing System

Traditional Marketing Systems

• In the traditional marketing system, farmers produce commodities that are

"pushed" into the marketplace.
• Farmers are generally isolated from a majority of end-consumer and have little
control over input costs or process received for their goods.
• The primary exception is where local farmers sell produce in local markets and

where there is a direct link from farmer to consumer.

• In most traditional selling systems formers/producers tend to receive minimal

profit.

• Any integration up or down the value chain can help to increase the profit.

• In this marketing system, marketing is market “Push”. This tends to be based on

independent transactions at each step, or between each node.

• Research and Development is focused on production and on reducing costs of

production, and may not take account of other steps, links, or dependencies in

the chain (e.g. environmental or social costs).

 Value Chain Marketing Systems

• In a Value Chain marketing system, farmers are linked to the needs of consumers,
working closely with suppliers and processors to produce the specific goods
required by consumers.
• Similarly, through flows of information and products, consumers are linked to the
needs of farmers.
• Rather than focusing profits on one or two links, players at all levels of the value
chain will benefit.
• Here the system is market “Pull”. This is based on integrated transactions and
information.
• Research and development, whilst including techniques targeted at increased
production, is also focused on consumer needs, and attempts to take account of all
of the links, and dependencies in the value chain, e.g. processing, environmental
environmental and social costs or considerations, as well factors such as health
impacts, education and learning.

1.7. Value Chain Versus Supply Chain

 Value Chain

• A value chain is the full range of activities required to bring a product from
conception, through the different phases of production and transformation.

 The value chain focuses on activities that create value for a company.

 Works aligned with consumers or end users- consumer and demand driven
 Value chains are concerned with what the market will pay for- market driven.
Hence, the focus is to make what you can sell profitably.
 The main objectives of value chain management are to deliver quality as desired
by the customers/consumers
 Focus is on Pie-Growing, Coordination, Continuous Improvement & Innovation
 Key processes in value chain include design, production, marketing and
customer support.
 Each step in value chain adds value to the final product.

 Supply Chain

• Supply Chain Management (SCM) emerged in the 1980s as a new, integrative

philosophy to manage the total flow of goods from suppliers to the ultimate user
and evolved to consider a broad integration of business processes along the
chain of supply (Martha et.al. 1997).

•As the name implies, the primary focus in supply chains is on the costs and
efficiencies of supply, and the flow of materials from their various sources to their
final destinations.
The supply chain:

 Supply driven

 Supply chains are concerned with what it costs and how best we can utilize our
capacity profitably (individual business profit).

 The main objectives of supply chain management are to maximize capacity

utilization
• Focus is on Pie-Sharing, Capacity and Profit optimization, maintaining status-
quo
• The supply chains focus primarily on reducing costs and attaining operational
excellence, while value chains focus more on innovation in product
development and marketing.
•The supply chain encompasses the entire flow of goods and services from
suppliers to customers.
•Key component of the supply chain include sourcing raw materials,
manufacturing and distribution.
•The supply chain ensures efficient delivery of products to consumers.
1.8. The Value Chain System
•The value chain system consists of four levels i.e. micro (business), meso
(institutional), macro levels (framework conditions) and meta level (building on
encouraging attitudes), which foster cooperation among all stakeholders.
• Market-oriented production and logistics at the level of private businesses
(micro level): value chain coordination, hygiene management along the value
chain, design, strategic management and marketing, continuity and reliability
of supplies, product innovation etc.
• Business-oriented services at the level of public and private institutions (meso
level): consultancy and training services, financial services, marketing
information, food control, laboratory services, research and development etc.
• Business-oriented legislative and administrative framework conditions
(macro level): food law harmonized to international standards, streamlined
food control systems, liberalized laboratory services etc.
• Effective public-private dialogue (meta level): adaptation to market-economic
norms and business culture granting small and micro enterprises the
possibility to lobby for sub-sector interests.
 Chapter two
VALUE CHAIN ANALYSIS
2.1. Concepts of Value Chain Analysis in Agriculture
 Value chain analysis describes the activities within and around an
organization, and relates them to the analysis of the competitive strength of
the organization.
 Therefore, it evaluates the value each particular activity adds to the
organization’s products or services.
 The value chain analyses are the base for value chain improvement,
development or the setup of completely new value chains.
 Value chain analysis plays a key role in understanding the need and scope
for systemic competitiveness.
• Value chain analysis is useful for identifying constraints and opportunities for
the provision of financial services.

• The process of value chain analysis helps to identify demand for services within
value chains.

• There are four major basic concepts in agricultural value chain analysis are:
 Understanding the value chain and context;
 Development of interventions and innovations;
 Testing and implementation; and
 Evaluation and recommendations for improvement.
 Value chain analysis (VCA) includes both qualitative and quantitative
approaches.
• Key issues that can be addressed through the value chain analysis are;
 Share of benefits and costs from value chains and market development.

 Distribution of added value along the chain.

 Growth potentials

 Infrastructure development.

 Institutional and legal framework, such as regional production and

processing zones, trade protocols, regulations on movement of people,
agriculture marketing policies and financial institutions.

 Potential for poverty reduction and rural income generation.

 Potential for sustained food supply at affordable competitive prices for

consumers.
2.2. Principles in Selecting a Sub-Sector to Promote
• In choosing a sub-sector to promote, the principles to consider include the
following:
- Assessing the growth potential of different sub-sectors and their respective
contribution to gross national income e.g. choosing between a horticultural
crop and a livestock commodity.
- Distribution of expected additional income across different groups of the
society e.g. farmers, processors, traders
- Consideration of the resources available for value chain promotion e.g.
human and financial capital, and time frame.
- Identification of promising opportunities for bringing together stakeholders
in the public and private sectors, and any other development partners.
2.3. Criteria for Choosing a Value Chain to Promote/upgrade
The following are some important criteria that we can use in choosing a value
chain to promote:
 Growth potential and competitiveness of the product on local, national and
international markets in terms of:
• Meeting market demand e.g. quantities, quality, type of product.
• Potential competitive advantage e.g. uniqueness of product, lower cost of
production and proximity to market.
 Poverty reduction potential and social benefits of product to the community in
terms of:
• Income and employment creation
• Relevance to the poor and disadvantaged in society, including women.
 Product should have a high chance of success, in terms of the following:
• Conducive public policy environment
 • Self-initiative and commitment of value chain operators and supporters.
• Readiness of operators and other stakeholders to change, if necessary
• Skills and abilities of operators to effectively manage activities in the chain
at each level.
 Outreach (wider coverage):
• Number of households and enterprises that can be reached
• Regional coverage e.g. nations in the West African sub-region
• Potential to replicate (duplicate) the value chain.
 Agencies involved in implementation in terms of:
• Relevance to the set mandate and objectives
• Cooperation with other partners
• Skills and abilities to facilitate value chain development (e.g. based on own
experiences, technical and facilitation skills, financial capacities etc.).
 • Impact of value chain product on the environment:
• Effective waste management practices
• Controlling environmental degradation
• Prevention of health problems in the community.
Value Chain Actors
• Value chain stage defines the various chain actors and their roles for the
functioning of the entire chain.
• Accordingly, the various actors in the value chain can be grouped under three
levels or stages based on the roles they play. They are:
1. Value chain core actors: This is chain of actors who directly deal with the
products.
 Activities of value chain main actors regarding a specific product or group of
products involves producing, processing, trade and owning the produces.
 Actors in a value chain may include
 Input suppliers,
 Producers,
 Itinerant collectors (small and mobile traders who visit villages and rural
markets),
 Assembly traders (also called primary wholesalers who normally buy from
farmers and other itinerant collectors and sell to wholesalers),
 Wholesalers (who deal with larger volumes than collectors and assemblers and
often perform important storage functions),
 Retailers (who distribute products to consumers),
 And processors (firms and individuals involved in the transformation of a
product).
2. Value chain supporters: these are services providing various actors who never
directly deal with the product, but whose services add value to the product.
• These are services that play supporting role to enhance the operation of the
different stages of the value chain and the chain as a whole.
• In order for farmers to engage effectively in markets, they need to develop
marketing skills and receive support from service providers who have better
understanding of the markets, whether domestic or international.
• Local business support services are essential for the development and efficient
performance of value chains.
• The business development services can be grouped into infrastructural services;
production and storage services; marketing and business services; and financial
services.
Basic infrastructural services include market place development, roads and

transportation, communications, energy supply, and water supply.

Production and storage services in value chain include input supply, genetic and

production material from research, farm machinery services and supply, extension

services, weather forecast and storage infrastructure.

Marketing and business support services include market information services,

market intelligence, technical and business training services, facilitation of linkages

of producers with buyers, organization and support for collective marketing.

Financial services include credit and saving services, banking services, risk

insurance services, and futures markets.

3. Value chain influencers (enabling environment): These are the third group of
chain actors.
• These include the regulatory framework, policies, etc.
• Specific policy and regulatory service elements influencing value chain
performance include land tenure security, market and trade regulations,
investment incentives, legal services, and taxation.
Value Chain Mapping

•Value chain mapping is the process of developing a visual depiction of the basic
structure of the value chain.

•A value chain map illustrates the way the product flows from raw material to end
markets and presents how the industry functions.

•It is a compressed visual diagram of the data collected at different stages of the
value chain analysis and supports the narrative description of the chain.
• Value chain mapping undertakes a SWOT analysis (i.e. of the Strengths,
Weaknesses, Opportunities and Threats) of all institutions that will be involved in
development of that value chain product.
•A major goal of value chain mapping is laying foundation for design of a sound and
viable intervention strategy for the targeted product. This is achieved through:
- An analysis of the functions of that value chain e.g. management,
marketing, production, processing etc.
- Identifying all operators that play a role in the value chain e.g. input
suppliers, producers, processors, consumers etc.
- Identification and assessment of the effectiveness of all organizations that
support the chain, at one point or other (e.g. their name, services
provided, location etc.).
•The following example from the eastern Ethiopia is used to illustrate a
typical value chain map:
2.4. Steps in Value Chain Analysis

• Step One: Data Collection

• Good value chain analysis begins with good data collection, from the initial desk

research to the targeted interviews.

• Once the desk research is conducted, an initial value chain map can be drafted

for refinement during the primary research phase.

• Interviews are conducted with

1) Firms and individuals from all functional levels of the chain, and

2) Individuals outside the value chain such as writers, journalists or economists.

• Interviews can help to identify where chain participants see opportunities for and
constraints to upgrading.
• In addition to individual interviews, focus group discussions are a useful way to
explore concepts, generate ideas, determine differences in opinion between
stakeholder groups and triangulate with other data collection methods.
• Step Two: Value Chain Mapping
• A value chain map illustrates the way the product flows from raw material to end
markets and presents how the industry functions.
• It is a compressed visual diagram of the data collected at different stages of the
value chain analysis and supports the narrative description of the chain.
• The purpose of a visual tool in the analysis process is to develop a shared
understanding among value chain stakeholders of the current situation of the
industry.
• Step Three: Analysis of opportunities and constraints using the value chain
framework
• Step three uses the value chain framework as a lens through which the gathered
data is analyzed.
• The framework is a useful tool to identify systemic chain-level issues rather than
focus on firm-level problems.
•The factors affecting performance of the chain are further analyzed to characterize
opportunities and constraints to competitiveness.
•These factors are classified under structure and dynamic components.
•Structure
•The structure of a value chain includes all the firms in the chain and can be
characterized in terms of five elements:
1. End market opportunities at the local, national, regional and global levels;
the framework prioritizes this element because demand in end markets defines the
characteristics of a successful product or service.
2. Business and enabling environment at the local, national and international
levels; this includes laws, regulations, policies, international trade agreements and
public infrastructure (roads, electricity, etc.) that enable the product or service to
move through the value chain.
3. Vertical linkages between firms at different levels of the value chain; these are
critical for moving a product or service to the end market and for transferring
benefits, learning and embedded services between firms up and down the chain.
4. Horizontal linkages between firms at the same level of the value chain; these
can reduce transaction costs, enable economies of scale, increase bargaining power,
and facilitate the creation of industry standards and marketing campaigns. E.g.
Cooperatives.

5. Supporting markets; these include financial services, cross-cutting services (e.g.,

business consulting, legal advice and telecommunications) and sector-specific
services (e.g., irrigation equipment, design services for handicrafts).
•Dynamics
•The participants in a value chain create the dynamic elements through the choices
they make in response to the value chain structure. These dynamic elements include:
1. Upgrading; increasing competitiveness at the firm level through product
development and improvements in production and marketing techniques or processes.
2. Inter-firm cooperation; the extent to which firms work together to achieve
increased industry competitiveness.
3. Transfer of information and learning between firms; this is key to
competitiveness since upgrading is dependent on knowledge of what the market
requires and the potential returns on investments in upgrading.
4. Power exercised by firms in their relationships with each other; This shapes
the incentives that drive behavior and determines which firms benefit from
participation in an industry and by how much.
• Step Four: Vetting findings of chain analysis through stakeholder
workshops
• Value chain analysis helps develop a private-sector vision to reflect stakeholders’
interest in improving the efficiency and competitiveness of the chain.
• The fourth step, vetting findings, uses value chain analysis through a structured
event (or series of events) like a workshop or reporting-out day to facilitate
discussion with and among selected participants.
2.5. Value Chain Linkage

 Horizontal and vertical linkage

• Linkages can be classified into vertical and horizontal:

• The vertical linkages; are the relationship between actors along the chain. E.g.,

interaction of farmers with other actors like sales contract with processing

enterprises, production contract with foreign companies, sales through

cooperatives, and the likes.

• Horizontal linkages; on the other hand, are linkages between actors at the same

level of the value chain. E.g., farmers working together with other farmers;

companies in the same sector liaising with each other on a regular basis; etc.
2.6. Gender Issues in Value Chain Analysis
• Concepts of Sex and Gender
• Gender refers to the socially and culturally constructed differences between men
and women; as distinct from sex which refers to their biological differences.
• The social constructs vary across cultures and time.
• It includes expectations about characteristics, attitudes and behaviors of both
women and men (femininity and masculinity).
• Gender refers to the array of socially constructed roles and relationships,
personality traits, attitudes, behaviors, values, relative power and influence that
society ascribes to the two sexes on a differential basis.
• Gender roles are set by convention and other social, economic, political and
cultural forces.
• Sex refers to the biological and physiological characteristics that define men and
women.

• It describes the biological differences between men and women, which are
universal and determined at birth.

• These attributes are universal and cannot be changed.

 Concepts of Gender Mainstreaming

 Gender mainstreaming: Is the process of assessing the implications for women
and men of any planned action, including legislation, policies or programs, in all
areas and at all levels.
 They also help make facilitation in value chain development more gender
sensitive and achieve greater results on gender equality objectives in agricultural
and economic development.
 A gender-sensitive person or organization is: Aware of and understands the
differing needs, roles, responsibilities of women and men arising from their
unequal social relations.

•This manual provides a framework and specific tools to support practitioners in

designing, implementing and monitoring gender-sensitive value chain programs.

 A gender-responsive: person or organization is also aware of gender disparities

and the causes and they take action to address gender inequalities.

A gender-transformative: person or organization seeks to understand and address

the causes of gender-inequality, and in doing so takes effective strategic action to
transform the unequal power relations between men and women resulting in
improved status of women and gender equality.
 Chapter 3

Value Chain Development: Challenges, Opportunities And Intervention

Strategies

3.1. Approaches to Identifying Challenges and Opportunities in the Value

Chain
•Constraints is defined as any factor that prevents a unit or system from being
effective or achieving its objectives.
•Constraints may differ from one component of the value chain to the other; it may
also differ from one linkage point in the chain to another.
•But generally, they come in the form of lack of timely information, poorly
developed human resource, mistrust, inadequate material resource, inadequate
technology and low commitment.
•Opportunities, on the other hand, may be defined as avenues/openings within a
unit or system which have the potential to enable the unit/system achieve its
objectives or enhance its effectiveness, if utilized.
•There are two approaches to identifying a value chain for development. These are
the constraint identification and market analysis approaches.

1.Constraint identification approach

• The constraint identification approach considers the problems the producer faces
in marketing his/her produce as the starting point of the value chain development.

2. Market analysis approach

• The market analysis approach considers the evaluation of opportunities from the
market perspective by assessing consumer demand as the starting point for value
chain development.
 It is important for the actors in the value chain to understand that they can only
access market if they succeed in supplying competitive products through joint
effort.
3.2.Opportunities for Value Chain Development
•Several opportunities exist for developing a value chain. These include the
following:
A. Globalization of trade: the way modern technology and transportation have
integrated the world economic systems.
• Globalization enables us to get information about sources of inputs, market
opportunities, technology, etc. that can help us to produce to meet the demands of
the market.
B. World Trade Organization (WTO) agreement on agriculture: it is an
organization established to break the barriers to trade and regulate international trade
by ensuring the enforcement of international standards.
 WTO creates wider market opportunities and ensures transparency in the market
at the national and international levels.
C. International standards: these are standards set at the international level to
ensure that quality goods are supplied to the market.
 They also prevent discrimination against weaker countries.
D. Changing consumer preferences and behavior: people’s taste and preferences
change because of availability of alternative products on the market.
 This creates opportunities for new products to be introduced.
E. Factor endowment: this has to do with comparative advantage. The producers
might have certain resources that enables them to produce certain goods better that
others.
 These resources thus become opportunities for the producers to produce more of

these goods for the market.

F. Advances in technology: advances in, communication, transportation,
information, production and processing technologies have created opportunities to
create and add value thus ensuring the efficient production of goods.
G. Proximity to the European market: this leads to reduction in cost in terms of
freight and ensures the supply of fresh products to the European market.
H. Liberalization of agricultural trade: this has led to the removal of some trade
barriers and ensures the free movement of goods.
I. Expanding domestic market: increases in population and income levels as well
as changes in consumer preferences and taste have combined to expand the
domestic market thus creating opportunities for producers to introduce more
products onto the market.
J. Trade agreements: agreements between regional and international economic

groupings like the Economic Community of West African States (ECOWAS) and

African, Caribbean and Pacific (ACP) and the European Union (EU) as well as bi-

lateral agreement between trade partners have created opportunities for the

production of diverse goods to satisfy the demands of the market.

 They have also created opportunities for accessing inputs, capital, technical

assistance and technology.

3.3. Challenges in Value Chain Development

•There are challenges that one encounters in the development of a value chain. The

challenges have been categorized under the following headings.

1. Input: this refers to the basic items required for production by various actors

along the value chain. The challenges at the input level include:

I. Low performance genetic materials: e.g. seed, planting material, breeding stock,

etc. When these are of inferior quality they do not give the optimum yield.

II. Inconsistency in quality and supply of raw materials: lack of consistency in the

quality and supply of raw materials like agro-chemicals can lead to low quality

output.

 It can also hamper the regular supply of products to the market.

III. Variability in raw material quality: variations in the quality of raw materials for

production and processing result in inferior goods on the market, high down time
2. Production
a) Limited protocols on good agricultural practices for commodity chains:
limited availability of manuals that provide information on steps for Good
Agricultural Practices (GAP).
b). Producers not fully integrated into the market economy: most production is
not influenced by market expectations and demands.
c). Misuse of agrochemicals: this can lead to the production of inferior quality
goods with serious health hazards for the producer, the consumer and the general
public, loss of market share, increase in cost of production, lower
competitiveness, etc.
d). Seasonal fluctuations in production: this can lead to low utilization of the
factors of production, inadequate supply of goods to the market and price and
income instability.
e). Lack of good agricultural practices: can lead to the production of inferior
quality goods, increase cost of production and lower productivity
f). Excessive dependence on climate: it can sometimes lead to complete crop
failure and livestock death, increases the uncertainty of production and
unreliable supply of raw materials and final products to the market.
g). Poor caliber and quality of labor: this leads to low productivity, high
wastage, inefficient utilization of information and technology, etc.
3. Processing
I. Lack of value addition to farm produce: caused by inadequate research and
development. This affects innovativeness thus leading to lower incomes,
increase in wastage and environmental problems.
II. Lack of adequate processing systems: there is no adequate processing capacity,
obsolete processing equipment.
 These lead to high cost of production, uncompetitiveness, loss of profit margins
and discourage basic production.
III. Inappropriate packaging material: unattractive final products, shorter product
shelf life and low value capturing.
4. Marketing
a) Stringent market requirements by supermarkets: refers to ever increasing
safety and quality requirements by supermarkets and consumers leading to
difficulties in market access.
b) Barriers to external markets as a result of domestic measures of trading
partners: subsidies provided by governments of our trading partners coupled
with the removal of agricultural subsidies by our government make the
domestic products uncompetitive.
c) Cost of certification: the high cost of certification of products tends to
discourage producers from accessing international markets.
d) Misuse of Sanitary Phyto-Sanitary (SPS) and Technical Barrier to Trade
(TBT) agreement: possible abuse of phyto-sanitary and technical requirements
can lead to denial of market access.
e).Inelastic demand for exported commodities: low response of primary product
consumption to lowering of prices. Thus, people do not consume more of the
product even at lower prices.
f).Price fluctuations: seasonal and cyclical movement of price due to bottlenecks
in the supply of goods and instability in incomes.
g).Low level of market information: market information is not organized in a
useful form for value chain actors and limited access to available market
information where organized.
 These lead to high transaction costs, high prices of products, and high wastage

at various segments of the value chain.

5. Consumption
a) Lack of appreciation of consumer culture and behavior: consumers generally
have low appreciation for health and safety consciousness. This results in
ineffective demand for safe and quality goods.
b) Weak and inactive consumer associations: consumer associations are poorly
organized making them weak and inactive. This does not drive the production
and processing segments of the value chain to be competitive.
c).Lack of effective demand for quality products: Low disposable incomes of most
households leading to low effective demand for quality products.
d).Most consumers are not health or safety conscious and may not insist on buying
quality products.
6. Physical Infrastructure
• Physical infrastructure includes irrigation, roads, storage facilities (dry and cold),
utilities (water, electricity, telephone, etc.) and port facilities: these are inadequate
and unreliable thus affecting production, processing, distribution and storage of
primary and final products.
7. Social Infrastructure
• Social infrastructure comprises networking for Value Chain development
(strategic partnership), group formation and development, and trust among others.
Their effect increases transaction costs, cheating, lack of transparency, moral
hazard, and unhealthy competition among the various actors in the value chain.
8.Environmental Concerns
• Environmental concerns relate to waste management and the potential unintended
impact of value chain activities on the environment.
 This can lead to environmental degradation and loss of market opportunities (e.g. some

buyers are averse to environmental degradation caused by production) and social

conflicts.

9.Socio-cultural and Business Ethics

• Socio-cultural and business ethics: these include absence of appreciation for value

addition, slow response to change, mistrust, ineffective communication between actors in

the chain and within actors in a particular segment of the chain and inappropriate

orientation and behavior of operators along the value chain.

• These may result in the collapse of businesses (bankruptcy) because of lack of proper

business succession arrangements.

10.Technical/Technological Inadequacies
• These include inadequate requisite technical and technological know-how, inadequate

research and development, inadequate staff/personnel, equipment and knowledge and

limited opportunities for value addition to by-products.

11.Financial
• Financial challenges: these relate to inadequate and inappropriate financial
products and lack of access to financial services (credit).
• The result is high cost of credit and high default in repayment.
12.Value Chain Development and Facilitation
• Value chain development and facilitation: refers to the responsibility for the
initiation and provision of resources for sustaining the facilitation, monitoring and
evaluation of the value chain development process.
13. Services
• Services: there is usually a mismatch of service need and service provision. In
addition critical information is untimely and there is lack of specialization of
service providers.