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ValueLinks Module 2
Value chain analysis
2
Business models
Value chain strategies
Value chain
analysis
Programs and projects
VC upgrading
solutions
Chain analysis
and strategyMonitoringSetting
boundaries
Scope of value chain development
Business linkages
Managing data
& monitoring
VC Financing
Services
Policy instruments
Quality and standards
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3
2 5
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7
8
9
10
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Solutions for
improving
the value chain
ValueLinks 2.0
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2
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Contents
Economic analysis of value chains
Value chain mapping
Environmental analysis of value chains
The Toolbox for Chain Analysis
Social and poverty analysis of value chains4
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Basic value chain maps visualise�
Contents of value chain maps
� The sequence of production and marketing functions performed
� The value chain „operators“ taking these functions (micro level)
� Vertical business links between the operators
� The chain „support service providers“ (meso level)1
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Categories of actors in value chains and their relations
Specific
Inputs
Provide
- equipment
- inputs
Production
Grow
Harvest
Dry etc.
Trans-
formation
Classify
Process
Pack
Commerce
Trade
Transport
Distribute
Sell
Con-
sumption
Consume
Specific
Input
providers
Primary
producers
Packers,
Industry
Traders
(sales pt.)
Consumers
(the market)
1
Basic concepts
Value chain functions
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Support
Service
Provider 1
Support
Service
Provider 2
Packers /
Industry
Specific input
providers
Primary
Producers
Wholesalers
Consumers
(the market)
Retailer
Specific
Inputs
Production
Trans-
formation
Wholesale
Retail
(final sales
point)
Consump-
tion
1
Value chain map
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Steps
� Specify the final product and end market(s)
� Establish the stages of the chain (specifying the functions performed)
� Establish the main sequence of operators
� Differentiate the chain into channels if appropriate
� Map support service providers
� Prepare thematic detail maps if required
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How to proceed in mapping
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Farmers
Local tree
nurseries
Primary
production
Sorting
table/industry
apples
Intermediary
trade
(sorting for
quality)
Supermarkets
in big urban
centres
National
Consumers
Provision of
seedlings
Small food
stores
Open
market
traders
Street
vendors
Fruit traders
Consumption 2006: 35000 t
average: 70000 t
Antonovka 3-5 Lari / kg
Kechura 1-2 Lari / kg
Extension services
Ministry of Agriculture
Farmer associations
Retail
1
Fresh Table Apple (traditional varieties),
Georgia
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Raw skin
trade
Processing
of skins
Leather
trade
Collection
Preservation
Slaughtering
Animal
HusbandryPastoralists Small farmers
Skin collectors
Skin Traders
Commercial
breeders
Abbatoirs
Tanneries
Private
slaughterers
Traders of
finished leather
Leather
Product
Industry
94% 0,5% 5,5%
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Leather, Ethiopia
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� Type of product
o Low, medium or high quality product
o Price
o Intermediate or final product
� End market
o Rural, urban or export market
o Type of customers (price-sensitive or quality conscious)
� Technology
o Stage (from low to high input / hand-made or mechanized)
o Type and (minimum) scale of processing enterprises (from small artisanal to large-industrial)
� Linkages
o Type of business linkages between suppliers and buyers
1
Criteria
Segmenting channels & business models
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1
Value chain mapping
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Jute products, Bangladesh
Intermediaries
Jute Mills
Exporters/ Traders
Local Traders/ Purchase Centres
Milling
Conversion
Yarn - fabric
DJP
Production
Foreign buyers of CJPCJP for
export
90% of Jute
Fibre
Trade
Fibre
Collection
Jute
Growing Jute Growers
Furnishers/ Converters
Semi-industrial factories
Retailers
Producers (organized in
a cluster)
DJP for
exportForeign buyers of DJP
Exporters/ Traders
DJP for
local
2 % of Jute
8% of Jute
Jute product value chain
CJP = conventional jute productsDJP = diversified jute products
Export
Retail
1
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Maize, African country
1
Domestic
markets
food/feed
Maize
production
Intermediate
trade
Milling
Seed
supply
Retail
Wholesale
Smallholders(selling surplus)
Seed dealers
Commercial farmers
Contract farmers
Local assemblers
Wholesale traders
Institutional buyers (WFP)
Exporters Flour traders Feed traders
Traders on food markets
Public programs
Food shops
Intra-
regional
export
Domestic
flour
markets
Animal
feed
markets
Industrial millers
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1
Honey value chain
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carding
spinning
dyeing
weaving
finishing
Marketing
Large Integrator
Exclusive buyer/
Exporter
Small integrators
Small integrators
Exporter
1
Vertically integrated value chain
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Department of Tourism (DOT)
Local Government Units (LGU)
Ferries
Private taxis
and buses Tour guides
Event managers
Airlines
Travel
Agencies
Sportservices
Resorts
Cafés
Marketingand Sales
Air / SeaTransport
Ground Transport
ActivitiesAccom-modation
Food and Beverages
Online
Portals
Local public
transport
Hotels
Pensions
Restaurants
Tour operators
1
Chain mapping in the tourism sector
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Dark
green:
within
project
districts
Light
green:
within
provinces
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International Market
Intermediary Trade
Raw Material Supply
HandicraftProduction
National Market
Traders and Focal
Points of Handicraft
Producers/Exporters
Producers of semi-
finished handicraft
articles
(Farmers, Groups
of Farmers)
National Exporters
Provincial Handicraft
Producers
Small Traders/Raw
Material
Processors
National
Traders
Village
Trade
Clusters
Provincial
Handicraft
Producer/
Exporter
Trading and Finishing
Processing
Small Traders
Bamboo and Rattan
Collectors/Harvesters
VC map bamboo/rattan handicrafts, Northern
Vietnam
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Or
� Number of Employees
� % of women employed
� Product quantity
1
Quantification
Retailers A
Retailers B
Industrial
SME’s Small producers
n = 8000n = 120
n = 10
n = 800
Importers
Large scale processing
companies
Producers
n = 40n = 3
n = 5 ExportMarket
Market 1
Market 2
Turnover:
200 Mio €
Turnover:
20 Mio €
Turnover:
30 Mio €
Input suppliers
n = 2
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Micro
Meso
Macro
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Large-scale VC map: Export coffee, Ethiopia
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Criteria
� Make sure the map has a clear message
� Avoid overload of information – not more than 2 or 3 channels at a time.
� Separate micro and meso analyses
� The map has to be understandable to people who have not participated in making it!
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What makes a good map
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3
Contents
Economic analysis of value chains
Value chain mapping
Environmental analysis of value chains
Social and poverty analysis of value chains4
The Toolbox for Chain Analysis
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� Size and market share of VCs in global and domestic markets
o Production and consumption figures
o Export and import figures (using WTO records)
o Share of the VC in the total export value
� Value-added along the value chain
o Contribution of chain segments to total value
� Benchmarking important VC parameters
o Benchmarking of unit cost of production
o Benchmarking of labour and other factor productivities
2
Economic analysis
Elements of the economic analysis
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2
Amla calue chain in India
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Amla Candy
5 Rs
16 Rs
44 Rs
80 Rs
Primary
production
Trading
Wholesale
Retail
Product
price per
kg of Amla
Farmer
60 Rs
Agent Process. Wholes. Retailer
Processing
Intermediate product
Value addition by the VC
Other inputs/operational
services
5 Rs
8 Rs
20 Rs
8 Rs
12 Rs
2
Concept of value addition
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VALUE-ADDED
captured in one stage of VC
• Wages• Interests and rents• Depreciation• Direct taxes• Profit
INTERMEDIATE PRODUCTS
• Raw material, semi-finished or tradedproduct (depending on VC stage)
VALUE GENERATED
by the value chain or
by stages of the VC
= Price*volume of product sold
Used to pay
claims of the
owners of factors
of production
(capital, labour,
land) + taxes
Transferred to
operators at the
previous stage
OTHER INPUTS & SERVICES• Inputs, equipment• Energy, water• Operational services
Transferred to
external suppliers2
Components of the value generated by the VC
Calculation of value-added
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Value-added
going to
Input
providers
outside the VC
Primary
Producers
Product
MakersTraders Consumers
Service / Input
Providers
Service / Input
Providers
Total Value
consumed
Value-added
Value-added
Value-added
Value-added Value-added
IntermediateProduct
IntermediateProduct
Other Inputs
Other Inputs
Value-added
captured by
the VC
2
�along the value chain
Value-added captured by the VC
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0
1
2
3
4
5Quality
Price
Resp Time
PunctualityFlex Small Orders
Flex Large Orders
Innov Design
India
Italy
China
Source: Learning From Global Buyers; H. Schmitz, P. Knorringa
Comparing performance in footwear: India – Italy – China
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Assessing competitive advantage
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2
3
Contents
Economic analysis of value chains
Value chain mapping
Environmental analysis of value chains
Social and poverty analysis of value chains4
The Toolbox for Chain Analysis
29
Value chains may...
Acause negative
impact on climate and
the environment (1)
A be affected by climate
change and environmental
degradation (2)
Acontribute to compensating
emissions and/or contribute
to creating a „green
economy“ (3)
� Production, marketing
and consumption cause
environmental cost
� High, yet
uncompensated GHG
emissions
� Wasteful utilization of
scarce resources
(especially water)
Directly:
� Reduced productivity
� Increasing production cost
� Food insecurity
Indirectly:
� Rising resource prices
(water, energy, raw
materials, waste disposal)
� CO2 sequestration and sale
of carbon credits
� Products and services for the
green economy
(environmental technology,
services and investment)
� Renewable energy
3
The link between value chains and the environment
Environmental analysis of value chains
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Step 1
Conceptual model of the interaction between the VC and the environment.
Step 2
Identification of environmental impacts of the VC and on the VC
Step 3
Assessment and valuation of the environmental impacts
Qualitative assessment Tools
- Environmental impact matrices
- Lifecycle inventory
- TEEB- Measures of resource efficiency- Footprinting- Environmental indicators- Identification of hot spots
Environmental analysis of value chains
Procedure in three steps
3
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Seeddelivery
Productionof paddy
Intermediate trade
Processing(Milling)
Wholesale tradeexport
Traderetail
Preparation,Cooking
Processing(Parboiling)
1 Primary production
3 Processing
2 Intermediatetrade
4 Tradewholesale/retail
5 Consumption
1.1 Upland rice
1.2 Lowland / swamp
1.3 irrigated rice
2.1 bulking, storage
3.2 milling (white rice)
3.1 parboiling
4.1 transport
Stages of the VC Technical systems
5.1 Cooking
4.2 storage, packaging,
From VC functions to technical systems
3
Rice VC – technical systems
32
WaterIssues: Pollution, excessive consumption, price hikes (pumping cost), water shortages due to drought/decreasing water table, late rains/extended dry season
EnergyIssues: Low energy efficiency, fuel price inflation, blackouts, access to fuel wood, charcoal
SoilIssues: Soil fertility, erosion
EcosystemsIssues: Swamp ecosystem services, biodiversity
ClimateIssues: Excessive heat, violent rains, flooding, strong winds
Relevant resource categories and ecosystems
3
Rice VC – resources and ecosystems
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VC stageTechnical
processesWater Energy Soil Ecosystems Climate
Primary
production
Upland, rainfedrice production
Lowland/ swamp production
Irrigated rice
Intermediate
tradeBulking / storage
Processing
Parboiling
Milling
Trade
Transport
Storage/ packaging
Consumption Cooking
Impact of the VC (type 1)
Impact on the VC (type 2)
3
Environmental impact matrix
34
VC stage Technical processesType 1 environmental
impacts of the value chain
Type 2 environmental
impacts on the value chain
Primary
production
Upland, rainfed rice production
• Water pollution
• Downstream silting
• Increasingly unreliable rainfall
• Erosion, loss of soil fertility
Lowland/ swamp production
• Lower water tables
• Loss of biodiversity andecosystem services of swamps
• Temporary flooding
• Iron toxicity
• Loss of soil fertility
Irrigated rice
• Water scarcity aggravated
• Methane emissions
• Plastic waste
• Inefficient irrigation, variable water supply
• Plastic waste in fields
Intermediate
tradeBulking / storage ./.
• Increased variability of climate conditions
Processing
Parboiling• Overexploitation of wood
• Air pollution
• Rising fuel wood prices
• decreasing water availability
Milling • high carbon emissions• Inefficient use / high
energy cost (operating below capacity)
Trade
Transport • high carbon emissions ./.
Storage/ packaging ./.• Losses due to inefficient
storage
Consumption Cooking ./. ./.
3
List of environmental impacts
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� The economics of ecosystems and biodiversity (TEEB)� Measures of resource efficiency and ecological footprints� Measurement against environmental sustainability indicator sets
� A short cut: Identifying the environmental “hot-spots”
Valuation methods
3
Assessment of severity / valuation
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Specifying the relevance of the resource problem concerned:
classify the risk of degradation/depletion and efficiency problems for the resource category at stake, according to a scale reaching from: (0) ‘not relevant‘, (1) minor ‘efficiency and degradation problem´, (2) significant ‘efficiency and degradation problem´, to (3) risk of ‘unacceptable environmental damage‘. The task is to judge the impact on the resource category.
Specifying the importance of the technical process concerned:
The economic importance of the environmental impact is classified according to a scale from (0) ´resource easily replaced or negative impact avoided´, (1) ´low intensity of use´, (2) ´high intensity of use´, and (3) ´indispensable resource´ without which the value chain cannot continue operations.
Determining hot spots:
multiply the numbers of both rankings – the points assigned to resource categories and to technical processes. Conventionally, results of (6) or (9) are considered to be “hot spots”.
A short-cut: Identifying hot spots
3
Identification of hot spots
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1
2
3
Contents
Economic analysis of value chains
Value chain mapping
Environmental analysis of value chains
Social and poverty analysis of value chains4
The Toolbox for Chain Analysis
38
Provision of- equipment- inputs
Production
Growing- plantation- maintenance - harvest- field drying
Trans-
formation
Processes- drying- selection- packaging
Wholesale
retail trade
- transport- marketing♂
Bulking
Intermediarytrade
Input delivery
♂♂♂♀♀
♂ ♂♀♀
♂♂
4
Gender mapping
Gender mapping of business operations
Typical division of tasks in African agriculture
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Local
markets
InputSupply
Paddy production
Paddy bulking
Processing;parboiling
Wholesale Trade
Retail
Whole sale
traders
Shops/
Instit-tutionalbuyers
Private agrodealers
Producer groups
Parboiling CentresWomen groups
Semi-industrialrice mills
Urban
markets
Ministry of Agriculture
Individual small-scale parboilersVillage rice farmers
♂♂ ♂ ♂
♂
♂
♂
♀TraditionalProducer Groups
♂
Localtraders ♂♀
♀♀♀
♀
4
Gender mapping
Gender mapping of the rice VC, West Africa
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Smallholder
Growers
village
traders
Local inter-
mediariesRural
markets
for cheap
staple food
Poverty mapping of low-value staple foods
Medium to
large farms
Com-
mercial
retailers
Wholesale
Traders
and
Importers
Own
consump-
tion25%
5%
20%
50%
market
shares
= poor producers = poverty markets
4
Mapping poor producers
41
GrowersRetail
TradersProcessors Consumers
(market)
Wholesale
Traders
4
� Poverty rate: % / number of workers below the poverty line Average income:
Average income L $� Skills: x% illiterate, no vocational
training� Social problems: e.g. work safety,
no child care services for women
� Poverty rate: % / number below the national poverty line
� Average income: Average income: L $,
� Food insecurity: May – July� Skills: x% illiterate, no access to
education� Social problems: e.g. child labor,
at farm level
= poor workers = poor producers
Describing poverty groups
Poverty mapping of low-value staple foods
42
The „multi-chain perspective“ of poor people
Trade IndustrySmallholder producer �.producing commercially
�.pursuing other businesses
�.working as wage labourer
Industry Market
4
Livelihood analysis
Market
Market
43
Constraints of poor producers
Lack of productive resources
� Limited access to productive resources� Lack of capital
Market failure affecting the poor - exclusion
� Absence of services and products for poor producers� Inefficient markets – high cost of transaction, little trust
Scale issues
� Small scale, informality, unfavorable contracts� Barriers to scaling up production (shifting to larger scale business models)
� Weak position of SMEs/excessive buyer power
4
Poverty and competitiveness
44
Financial stability
Technological and ecological sustainability
�linked to their business model
Social sustainability
4
Poverty and vulnerability
� High price volatility � Exclusion of small suppliers in demand crises� Vulnerability of the poor during economic crises
� Pollution and depletion of natural resources (especially in a short-lived export boom)
� Conflicts over the use of natural resources and/or conflictsbetween commercial and subsistence production
� conditions of employment
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� Value chain analysis creates a picture of the socio-economic reality. It always shows the present situation first – as a basis for projections guiding development action.
� The VC map shows the structure of the VC and is the foundation for any other type of VC analysis. Of particular interest for ValueLinks are the economic, environmental and social aspects of VCs and gender dimension.
� Economic VC analysis quantifies the total value created by the value chain and its composition. It also assesses the functioning and the competitiveness of the chain as a whole.
� Environmental analysis shows how the technical processes in the VC interact with ecosystems and the natural resources utilized for producing. The environmental impact matrix allows identifying both environmental impacts on the VC (type 1) and impacts of the VC on the environment (type 2). Analysts have to judge the severity of the impacts to identify hot spots.
� Social analysis identifies three types of poverty groups in value chains – poor micro entrepreneurs, poor wage workers/unemployed, and poor consumers. Each group is located in the VC map. The analysis characterizes these groups and their livelihood conditions.
� Gender analysis starts by introducing gender aspects into the VC map. This refers to the role of women and the constraints they face in economic life.
Summary: Main lessons to remember