1

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

1

4

3

2 5

6

7

8

9

10

11

Solutions for

improving

the value chain

ValueLinks 2.0

3

1

2

3

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

4

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

5

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

6

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

7

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

1

How to proceed in mapping

8

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

9

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%

1

Leather, Ethiopia

10

� 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

11

1

Value chain mapping

12

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

13

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

14

1

Honey value chain

15

carding

spinning

dyeing

weaving

finishing

Marketing

Large Integrator

Exclusive buyer/

Exporter

Small integrators

Small integrators

Exporter

1

Vertically integrated value chain

16

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

17

Dark

green:

within

project

districts

Light

green:

within

provinces

1

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

18

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

19

Micro

Meso

Macro

1

Large-scale VC map: Export coffee, Ethiopia

20

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!

1

What makes a good map

21

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

22

� 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

23

2

Amla calue chain in India

24

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

25

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

26

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

27

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

2

Assessing competitive advantage

28

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

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

30

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

31

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

33

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

35

� 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

36

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

37

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

39

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

40

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

45

� 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