Value Chain Analysis HandbookandToolkit

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Value Chain Analysis: Analytical toolkit and approaches to guide the

development of sustainable African Agrifood Chains
Book · January 2010

DOI: 10.13140/RG.2.1.1669.3525
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International Institute of Tropical Agriculture (IITA)
International Fund for Agricultural Development (IFAD)
PRONAF (Cowpea Project for Africa) An IFAD Grant
Training Course
Value Chain Analysis
Analytical toolkits and approaches to

guide the development of sustainable
African Agri-food Chains
Ousmane Coulibaly, Djalalou-Dine Arinloye, Cathelijne van Melle, Landry Fanou,
Johanes Agbahey, Raymond Allomasso, Theodore Nouhoheflin, Leonie Koumassa,
Sounkoura Adetonah & Kerstin Hell
IITA-IFAD © 2010
1
TABLE OF CONTENTS
Course
Module Page Day
Duration
Module 1: General Introduction 1 2h
Module 2: Value Chain Analysis: Concepts and Key Elements 7 2h Day 1
Module 3: Value Chain Actors 20 3h
Module 4: Post-Harvest 29 3h
Day 2
Module 5: Marketing in Value Chain 39 3h
Module 6: Value Chain Information and Traceability Systems 58 4h

Day 3
Module 7: Undertaking a Value Chain Analysis 70 4h
Module 8: Chain Performance 100 4h

Day 4
Module 9: Innovation & Upgrading 115 3h
Module 10: Chain Governance 123 3h

Day 5
Module 11: Empowerment of Stakeholders 138 3h
Sample Terms of Reference for Value Chain Analysis 156 - -
2
MODULE 2: VALUE CHAIN ANALYSIS: CONCEPTS AND KEY ELEMENTS IITA-SSLCB
GENERAL INTRODUCTION
1 Guiding Questions:
❒
❒
❒
How is this course organized?
What are the objectives of this course?
What are the outcomes of the course?
❒ Who are the target groups and what are the participants’ expectations?
❒ What is the history of Value chain concept?
❒ Why is the Value chain approach considered as a market system and an end-
markets focus perspective?
1. Introduction to the course

In all parts of the world, the modern retail revolution is reshaping the way food is produced,
procured and retailed. Rapid changes in dynamic modern markets affect the entire value chain—
consumers, retailers, wholesalers, processors and producers—with enormous implications for the
competitiveness and future viability of small-scale producers. So, it is important to provide a
methodology (a set of concepts and analytical tools) for finding ways to better link small-scale
producers to these modern markets. Indeed, in most of developing countries, the major part of
farmers is composed of small-scale producers. But as modern markets replace traditional
markets, something which is happening very quickly, outlets for small-scale producers are
reduced. With this comes the risk of increasing poverty, not just for those producers, but for
entire rural communities. To avoid this risk, it is important that small-scale producers become
efficient and reliable providers of quality produce; in other words good business partners.
There are several advantages to market actors if small-scale producers can access modern as well
as traditional markets. Consumers are increasingly demanding locally produced food, and food
that is produced and traded fairly. As transnational agrifood corporations expand their reach, they
are being expected by governments and society to operate in socially responsible ways.
Governments are also looking for sustainable models of rural development that bring the best and
widest benefits to society. For these reasons, finding ways to include small-scale producers can
be a sensible business strategy. Yet, businesses are often unable to achieve this on their own. The
organizing and mobilizing power of farmer organizations or NGOs may be a critical ingredient.
This all requires constructive engagement and effective partnerships between government,
business and civil society organizations— a “three-way deal” that requires joint learning among
different actors along entire value chains.
In order to make such engagement and partnerships work to enhance the opportunities for small-
scale producers, this course has been initiated by the International Institute of Tropical
Agriculture (IITA-Benin). The main focus of the course is to provide a set of concepts and tools
for analyzing and mapping out the institutions and policies that affect the participation of small-
scale producers in modern markets. The course is designed for universities, technician staff,
MODULE 1: GENERAL INTRODUCTION IITA-IFAD
business managers, decision-makers, government and civil society actors. The estimated number
of participants is about 30. The course might be developed in 35 hours and will cover 5 days. It is
composed of 11 modules. Each module has a theatrical part and a practical part. By combining
theory and practice, the participants are engaged in learning by doing process; so that they will
better master the content of the course. So, the training modules will cover presentations
developed by the trainers and group works, based on value chain case study.
It has been written in an accessible language, so those who are unfamiliar with VCA terminology
will, nevertheless, be able to pick it up and make good use of it. It has also been structured to be
flexible and user-friendly.
Let’s mention that at the end of the course, there is a closing session, devoted to assess if the
course’s objectives and the participants’ expectations were reached. The needed materials for the
training are flip chart stand and pads, PowerPoint projector, pens, pencils, markers, erasers and
note books.
2. Objectives of the course
The main objective of the course is to strengthen the capacity of agricultural actors (farmers,
extension service workers, firm managers, ONGs staff, Researchers, decision-makers, etc.) on the
understanding of the links between the full range of activities and services required to bring a
product from its production place to sale in the final market.
3. Outcomes of the course
At the end of the course, the participants will be able to:
- Understand the Value Chain concept and the other concepts related to it
- Identify the Value Chain actors and their role in the chain
- Characterize production systems and post harvest quality control systems
- Understand the marketing steps in the Value chain approach
- Understand the importance of Information and traceability Systems in Value Chain
approach
- Master how to lead a Value Chain analysis
- Assess the chain performance and its governance
4. Assessment of participants’ expectations

Before the running of the training workshop, the needs of the Facilitators will be assessed, in
order to make the course met their expectations. Participants are invited to give their views on
what they expected from the workshop. At the end of the course, the participants will be invited
to assess the whole course and mention if their expectations at the beginning were reached.
5. History of Value chain concept
The history of the value chain concept goes back to the 1960’s, when French scholars developed
the filiere concept based on the analyses of value added process in US agricultural research. The
early filiere analysis emphasized local economic multiplier effects of input-output relations
between firms and focused on efficiency gains. It was then applied in French colonial policy on
the agricultural sector and, during the 1980s, to industrial policy, particularly in electronics and
telecommunications. The later work gave the modern version of filiere analysis an additional
political economy dimension (Kaplinksi, 2001). The French filiere approach is a loosely-knit set
of studies with the common characteristic that they use the filiere (chain) of activities and
1
exchanges as a tool and to delimit the scope of their analysis( Raikes et al. 2000). It has
incorporated elements from the regulation school, transaction cost and convention theory.
Michael Porter was the first to use the term value chain in the 1980’s. He defined the value chain
as the various activities which were performed in particular links in the chain. In the mid-1990s
Gereffi introduced the concept of Global Commodity Chains (GCC). Gereffi’s contribution has
enabled important advances to analytical and normative usage of the value chain concept,
particularly because of its focus on the power relations. By explicitly focusing on the
coordination of globally dispersed, but linked, production systems, Gereffi has shown that many
chains are characterised by a dominant party (or sometimes parties) who determine the overall
character of the chain, and as lead firm(s) becomes responsible for upgrading activities within
individual links and coordinating interaction between the links.(Kaplinksi, handbook).
Roughly we can distinguish two types of chains; chains where coordination is undertaken by
buyers (‘buyer-driven) and those in which producers play the key role (‘producer-driven). More
elaborate and nuanced classifications according to level of explicit coordination and power
asymmetry exist (Gereffi, 2004). The governance concept is a key analytical contribution to the
value chain concept.
When putting the French filiere and the GCC approach together we can see that there is a strong
adaptation in the development of the approaches to the francophone versus the Anglophone
situation respectively with regard to commodity trade issues. While both approaches cover the
same general field, they are separated not only by geography and language but in their political
and theoretical grounding (Raikes et al. 2000) Historically the francophone economic science
found its core in accountancy, therefore the filiere approach has a quantitative character, whereas
the Anglophone approach is considering behavior aspects and the role of social actors as well.
When Raikes et al (2000) compared the two approaches they concluded that the GCC approach is
the most useful basis to build value chain analysis on, because of its concern of the chain in full
length (cross boundary), it deals with power issues more specific and stresses the control of key
agents in the chain. Furthermore, the filiere tended to be viewed as having a static character,
reflecting relations at a certain point in time. It does not indicate growing or shrinking flows
either of commodity or knowledge, nor the rise and fall of actors (Kaplinski, handbook,)
In order to make the concept a useful analytical tool, Gereffi’s GCC approach should be
completed with insights from the filiere approach, like paying more systemic attention to
regulatory change, and a more elaborate quantification of the distribution of profit/value added
along the chains. Finally, the application of some of the insights of convention theory could also
benefit GCC approach, in particular the analysis of how quality conventions may shape the
structure and/or restructuring of commodity chains, and the importance of quality conventions in
determining current competitive strategies (Raikes et al 2000). Convention theory suggests that
different markets come to embody a succession of different criteria under which the goods traded
on them become ‘qualified’ for trade, and according to which trade is subsequently ’managed’.
Current economic dynamic is characterized by an ‘obsession with quality’, and quality can not
only be expressed in price. In this theory, economic agents set up ‘quality conventions’ that lead
to four different forms of coordination namely: domestic, industrial, market and civic
coordination.
However, Ponte and Gibbon argue that ‘forms of coordination’ should be distinguished from
modes of governance. Governance is about defining the terms of chain membership,
2
incorporating/excluding other actors accordingly and allocating to them value-adding activities

that lead agents do not wish to perform. Marginalization/exclusion and upgrading/participation
are the axes along which (re)distributional processes take place (Ponte and Gibbon, 2005).
Economic agents set up ‘quality conventions’ that lead to four different forms of coordination
that can occur side-by-side at the same time (domestic, industrial, market and civic coordination)
(Raikes et al., 2000). Quality issues are central in understanding the way lead firms shape the
functional division of labor and entry barriers along a value chain. The governance is then an
important aspect of value chain approach.
Table 1 : Summary of Value chain history
Major Disciplines
Period Concepts / Paradigms Engineering Level of Analysis

Business
Economics /Management Science,
Management
Operations Research
Input/Output Analysis ✔ ✔ Macro
’50s
Agribusiness ✔ ✔ Meso
Industrial Dynamics& Systems ✔ ✔ ✔ Macro/Meso/Micro

Science
Industrial Organization (S-C-P) ✔ Meso (horizontal)
’60s and
Sub sector Analysis (Commodity ✔ Meso (vertical)
Systems Approach)
‘70s
French “Filiere” ✔ ✔ Meso
Porter’s ‘value chain’ ✔ Initially Micro; later

Macro
’80s
Supply Chain Management ✔ ✔ Intra and Inter
Organizational
Agrifood, agro- industrial; ✔ ✔ ✔ Mostly Meso
productive chains;
Global Commodity Chains ✔ Macro
’90s Transaction cost theory applied ✔ Meso
to vertical coordination analysis
in agri-food systems
Policy Analysis Matrix (PAM) ✔ Macro
‘000s Value chains ( revisited) ✔ ✔ ✔ Micro and Meso

Source: Adapted from Silva and Souza-Filho, 2007
3
6. What is the Value chain approach?
6.1. A Market System Perspective

Taking a value chain approach necessitates understanding a market system in its totality: the
firms that operate within an industry—from input suppliers to end market buyers; the support
markets that provide technical, business and financial services to the industry; and the business
environment in which the industry operates. Such a broad scope for industry analysis is needed
because the principal constraints to competitiveness may lie within any part of this market system
or the environment in which it operates. While it may be beyond the capacity or outside the
mandate of a donor or implementing agency to address certain constraints, the failure to
recognize and incorporate the implications of the full range of constraints will generally lead to
limited, short-term impact or even counter-productive results.
The decision of where to intervene in a value chain should be primarily driven by the end goal of
sustainable economic growth with poverty reduction. Interventions that target a particular part of
a value chain (e.g., processing) or group of beneficiaries (e.g., small-scale producers) must
therefore be designed and implemented:
i) within the context, and with an understanding, of the value chain as a whole; and
ii) with an explicit focus on benefits to MSEs.
6.2.A Focus on End Markets

The end markets into which a product or service is sold –whether local, regional or international
– provide the opportunities and set the parameters for economic growth. Generally there are
multiple actual and potential end markets, each with different demand characteristics and returns.
It is therefore important to segment the market: list each of the potential end markets, what is
required to compete in them, and what benefits and risks can be expected by selling into them.
Since end markets are dynamic, the identification of trends should complement information about
the current situation1.
By benchmarking key attributes (e.g., quality, price, reliability of supply, flexibility, time from
order to delivery) (see Module 8), against competitors, industry stakeholders can see where they
have a competitive advantage and where they need to upgrade in order to compete. The
information needed for benchmarking can often be obtained through simple interviews with end-
market buyers; secondary information alone is generally insufficient.
Buyers can often also provide information on market trends (see Module 6). Using market-trend
information, together with information about the capacity and constraints within the value chain
and its environment, industry stakeholders can develop a strategy to position themselves in the
market: competing through a combination of price, quality and innovation. To sustain end-market
competitiveness, this strategy will have to be continually revised in response to changes in the
end markets, in the enabling environment or within the chain itself. Additionally, inter-firm
relationships need to be such that firms are able and willing to act cooperatively in response to
new threats and opportunities in the end market over time.
1
ACDI/VOCA- USAID key elements of the value chain approach, Briefing paper
4
References
- Vermeulen, S., Woodhill, J., Proctor, F.J. and Delnoye, R. (2008), Chain-wide learning
for inclusive agrifood market development: a guide to multi-stakeholder processes for
linking small-scale producers with modern markets. International Institute for
Environment and Development (iied), London, UK, and Wageningen University and
Research Centre, Wageningen, the Netherlands.
- Payne, J. Kearns, L. and Schiff, H. (2004) Integrating ICT into value chain development,
USAID and ACDI/VOCA.
- ACDI/VOCA (2006), World Report Fall 2006 : The value Chain Approach,
Strenghtening Value Chains to promote Economic Opportunities.
http://www.acdivoca.org/852571DC006814 14/ ID/resources_worldreportfall06
- Fromma, I. and Dubónb, J.A. (2006). Upgrading and the Value Chain Analysis: The Case
of Small-scale Coffee Farmers in Honduras. Conference on International Agricultural
Research for Development. Tropentag 2006. Available at
http://www.tropentag.de/2006/proceedings/index.html
- Gloy, B. (2005). A guide to understanding the value chain. Department of Applied
Economics and Management, Cornell University, Ithaca, NY 14853. Smart Marketing,
September 2005. 2 pp.
http://www.fruit.cornell.edu/Berries/ marketingpdf/valuechain.pdf
- GTZ (2007). ValueLinks Manual. The Methodology of Value Chain Promotion. GTZ.
http://www.value-links.de/manual/distributor.html
- Roduner, D. (2005). Value-Chains: What is behind this new key word? And what is the
role of development agencies in value chain development in developing countries? Rural
Development News 2/2005. 6 pp. http://www.agridea-international.ch/fileadmin/
10_International/PDF/RDN/RDN_2005/ value_chains_what.pdf
- Schmitz, H. (2005). Value Chain Analysis for Policy Makers and Practitioners.
International Labour Office. http://www.ilo.org/dyn/empent/docs/
- van Melle, C., Coulibaly, O. and Hell, K. (2007), Agricultural Value Chain Development
in West Africa – Methodological framework and case study of mango in Benin. In AAAE
Conference Proceedings (2007) pp. 49-52
5
MODULE 2: CONCEPTS AND KEY ELEMENTS IITA-IFAD
CONCEPTS AND KEY ELEMENTS
How to understand the following concepts from a value chain perspective?
❒
❒
Filière Approach
Benchmarking
❒
❒
Margin
Pro-poor growth
❒ Business linkages ❒ Profitability
❒ Chain Coordination ❒ Supply chain
❒ Commodity ❒ Sustainability
❒ Contract Farming ❒ Transaction cost
❒ Competitiveness ❒ Upgrading
❒ Effectiveness ❒ Value chain governance
❒ Efficiency ❒ Value added
❒ Facilitator / facilitation ❒ Vertical coordination
1. Understanding value chain concept
A value chain is a sequence of target-oriented combinations of production factors that create a

marketable product or service from conception to the final consumption. This includes activities
such as design, production, marketing, distribution and support services to the final consumer.
The activities that comprise the value chain can be contained within a single firm or divided
among different firms, as well as within a single geographical location or spread over wider
areas. The term Value Chain refers to the fact that value is added to preliminary products through
the combination of other resources (ILO, 2006). It conceptualizes economic activities, not as
separate discrete units or functions, but as part of chains, holistic networks and systems of
different linked production and exchange activities operating in different geographical areas:
local, national and international (Mayoux, 2008). In other words, a value chain is:
- A sequence of related business activities (functions) from the provision of specific inputs for a
particular product to primary production, transformation, marketing, and up to the final sale of
the particular product to consumers (the functional view on a value chain).
- The set of enterprises (operators) performing these functions i.e. producers, processors, traders
and distributors of a particular product. Enterprises are linked by a series of business transactions
in which the product is passed on from primary producers to end consumers. According to the
sequence of functions and operators, value chains consist of a series of chain links (GTZ, 2007).
The terms “value chain” and “supply chain” are often used interchangeably. In this course we use
the term value chain to reflect the understanding that value is added at each point in the chain.
6
2. Value chain analysis: Related concepts
Filière Approach
It is one approach to study commodity chains. It emphasized local economic multiplier effects of
input-output relations between firms and focused on efficiency gains resulting from scale
economies, transaction and transport costs etc.
Benchmarking
The process of comparing own performance parameters with the performance parameters of
businesses or value chains considered the leaders in the field. Parameters can refer to various
aspects. Important benchmark parameters are productivity, cost of production or product quality.
Benchmarking is used to identify gaps in the performance of the value chain promoted.
Broker
A broker is a market intermediary who brings buyers and sellers together and is paid a
commission by either party.
Business environment / investment climate
Business environment means the broad legal, regulatory and infrastructure conditions under
which enterprises operate in a country. These are conditions at the macro level. They include
macroeconomic and political stability, an effective governance and judicial system in general, as
well as the regulations specifically relevant for doing business, such as well-defined property
(e.g. land and water) rights, business registration and employment regulations, financial
institutions, the transport system, and the efficiency of administrative procedures. There are
general conditions of the business environment cutting across many sub sectors, as well as
conditions specific for each value chain.
Business linkages
Value Chain operators relate to each other both horizontally (among enterprises at the same stage
of the value chain, pursuing the same type of activity) as well as vertically (between suppliers and
buyers of produce). Vertical business linkages can range from accidental market exchanges to a
full coordination of activities regulated by contracts (see market relationships). Horizontal
business linkages range from informal networks to associations and business membership
organizations (BMO).
Business matchmaking
Business matchmaking is the activity to create and promote business contacts and sales
opportunities of specific business groups or of the entire value chain community. It is a support
service for the value chain.
Chain Coordination
Chain coordination should be understood as a process of transmitting information, stimuli and
controls to guide the movements of players, so that they are consistent with the strategic
objectives of market leaders, which are usually the same as the objectives of the chain as a whole.
Coordination can assume a spectrum of modalities that include spot markets, strategic alliances,
contractual partnerships and full vertical integration. All of them determine how product flows
are regulated in terms of prices, quality, quantity, and delivery specifications, among other
7
aspects.
Full vertical integration exists when one firm has total control among two or more stages of a
chain. A tobacco company that also owns and operates tobacco farms would be an example of a
vertically integrated operation. Alternatively, this firm could opt for an outgrower scheme,
whereby tobacco farmers would be contracted to produce independently, but under closely
specified production terms, price determination rules and delivery schedules. Coordination, in
this example, would be specified by the contractual provisions. A third alternative would be for
the firm to procure tobacco in the market place. Such a modality would characterize a
coordination system based in spot markets. Alliances between producers, processors and retailers,
not necessarily involving formal contracts, but clearly specifying transaction terms and mutual
responsibilities and are another form of coordination that is gaining increased acceptance in
agrifood chains.
The choice of coordination strategy by firms in agrifood chains is influenced by many factors,
among which the so-called ‘institutional environment’ (also referred to as ‘enabling
environment’) is of particular relevance.
The institutional environment in which firms establish relationships may enhance or impair the
performance of the chain and its component parts. Institutions are formal rules, informal
constraints, and the mechanisms responsible for the effectiveness of these two types of norms
(North, 1994). Examples of formal rules include laws in general, the constitution, property rights,
commercial and tax legislation in general, food safety legislation in the case of agrifood chains,
and warranty and sales pricing policies, among others. Informal constraints are determined by
conventions and self-imposed codes of conduct inherent to different cultures. They are also called
informal rules and are usually unwritten2
According to Williamson (1985), institutions set the ‘rules of the game’ and attenuate
uncertainty. They generally help to make sure the market, society and socio-economic
interactions function properly. Thus, institutions are important for the ‘coordination’ of linkages
among firms operating in a chain. For example, as a mechanism for improving milk quality and
safety, a government can set a combination of formal regulations, incentives and penalties to
encourage adoption of cooling tanks. Government agencies will try to enforce adoption by means
of penalty charges, combined with incentives, such as special credit terms and price
differentiation for quality products.
Informal rules are equally important. Dairy farmers may informally agree with a processing firm
on price and quality standards for raw milk. Both sides may respect the agreement because
cheating is seen socially as a major non-ethical behavior. Opportunism may not be punished by
legal sanctions, but may cause irremediable damage to the agent’s reputation and put him or her
out of the market. Thus, formal rules are not always the main instrument for coordination
2
Note that coordination is associated with the concept of governance, which is very much used in the neo-institutional economics literature and
in the global commodity chain studies. A difference in focus exists, though, as this use of the terminology is chiefly related to discussions
regarding power asymmetry in a chain, especially in distinctions between supplier driven chains and buyer driven chains. For a discussion of
governance, see Gereffy, G., Humphrey, J. and Sturgeon, T. The Governance of Global Value Chains, Review of International Political Economy
(2004)
8
purposes, as relations between companies and growers transcend them and extend to a universe
of values relating to tradition, local culture, etc.
Coordination in the chain may be established through contracts, which determine how product
flows are regulated in terms of prices, quality, quantity and delivery specifications, among other
aspects. Contracts may be formal (written and regulated by law) or informal
(guaranteed by informal constraints). While formal contracts may be well-constructed in legal
terms, from the standpoint of economic theory they are always imperfect instruments that cannot
account for all possible developments in relations between the parties. The presence of contracts,
whether formal or informal, reduces the uncertainty involved in economic relationships, but does
not eliminate either uncertainty or the risk of opportunistic behavior, which at worst can entail
breaches of contracts. Thus the challenge of coordination is how to define and operate
mechanisms (economic, regulatory and contractual incentives) that reduce conflicts,
contradictions and transaction costs along the entire chain, while at the same time strengthening
the incentives for each player to act in accordance with the strategic objectives of the leaders,
thereby limiting the cost of overseeing or monitoring the system (Silva and Souza Filho, 2007).
Cluster
A cluster is a geographic concentration of enterprises which are closely connected, along a value
chain or as a network settling around an important buyer or industrial company (e.g. value chain
actors in the cut flower export business all located close to an international airport). A simple
definition says: A cluster is a value chain that is concentrated at the same location.
Certification
Certification is a procedure by which a third party (the certifier or certification body) gives
written assurance that a product, process or service conforms to specified requirements – a
standard. Being certified is an asset for producers.
Commodity
Commodities are bulky (natural-resource based) product, that are internationally traded either as
a raw product or after basic industrial processing. The most important agricultural commodities
include grains (rice, wheat), green coffee, palm oil, cotton or white sugar. The value chains of
commodities mostly are loosely integrated, although trade may be concentrated. In terms of
increasing the value-added an interesting strategy is “decommodification”, that is the
diversification of conventional commodities into high-value variants (e.g. specialty coffee,
specialty rice, aromatic cocoa or organic cotton).
Competitiveness (determinants and indicators)

The performance of an economy results from a series of variables: At the micro level,
competitiveness is determined by “hard” comparative advantages such as the location, the
availability of primary resources and the cost of labour, as well as by “soft” conditions, e.g. the
entrepreneurial competence.
9
Yet, competitiveness also is a function of value chain coordination and the existence of
supporting agencies at the meso level. Finally, the business enabling environment determines the
overall cost of business making. Taken together, competitiveness is expressed by measures
indicating technical efficiency and profitability as well as innovation and investment rates.
Contract Farming
A form of production in which farmer and buyer enter into a contract in advance of the growing
season for a specific quantity, quality and date of delivery of an agricultural output at a price or
price formula fixed in advance. The contract provides the farmer an assured sale of the crop.
Sometimes, the contract includes technical assistance, credit, services, or inputs from the
purchaser (see embedded service arrangement).
Embedded service arrangement

In an embedded service arrangement, operational services are delivered in combination with a
basic business transaction (sale of products or loans). The basic idea is to finance the service as
part of the business transaction, e.g. linking technical advice to the sale of inputs.
Embedded arrangement may include other business partners as the service providers, such as
input dealers or processing companies, or professional service providers as third parties.
Effectiveness
It is related to the accomplishment of stated objectives. Effectiveness is a determinant in chain
success or failure. It is a measure of performance that is related to getting the right things done.
Efficiency
Accomplishment of stated objectives at a low cost: technical & resource allocation
Facilitator / facilitation
Facilitators are initiatives pursuing a public interest in economic development (such as the pro-
poor growth goal). This includes government programs for private sector development as well as
development projects funded by international donors. Contrary to the VC actors, such programs
and projects are funded publicly (by tax money). They remain outsiders to the regular business
process and restrict themselves to temporarily facilitating a chain upgrading strategy. Typical
facilitation tasks include creating awareness, facilitating joint strategy building and action and the
coordination of support activities.
Food safety / product safety

Safety means freedom from environmental and other contaminants and sources of toxicity
(physical, chemical and/or biological) which are injurious to health.
10
Impact Model / Results framework

This is the sequence proceeding from ´project outputs´ to óutcome´ and on to direct and indirect
ímpacts´. The sequence entails causal linkages (íf-then relationships´). Synonyms are “results
framework”, “results chain”, “impact chain” or “impact pathway”. The impact model is the
theory of action of a project, i.e. it brings together the hypotheses about the results expected from
taking action.
Institutions and policies

Markets only work because of institutions. They are the implicitly and explicitly agreed ways of
interacting (“rules of the game”) that govern individual and collective behavior at different
scales. For example, institutions protect private property, make it possible for contracts to be
signed and upheld, protect workers’ rights, create incentives for new investments, or ensure fair
competition. Our cultural preferences are also institutions, and heavily influence consumer
demand. Some institutions are formalized and may be enshrined in law, while others, such as
consumer likes and dislikes, are informal. Public policy is a special sort of institution, used to
influence other institutions to achieve particular social and political objectives. Public policy
either works or fails depending on how well it meshes with a whole set of other formal and
informal institutions. Hence the focus in this guide is on the wider institutional environment
rather than only on public policy.
Lead company
Lead companies are key traders or industrial companies assuming a coordination role within a
value chain. Highly integrated value chains often depend on lead companies who are the main
buyers of the produce (see value chain governance).
Chain Macro level

The macro level refers to the public agencies and institutions constituting the business enabling
environment. Typically, the macro level of a value chain is made up of national, regional and
local government, the judicial system and major providers of public utilities (especially roads and
water supply). The macro level determines the general cost of doing business cutting across
different value chains and sectors of the economy.
Chain Micro level

In a value chain, the micro level includes the Value Chain operators and the operational service
providers taken together.
Chain Meso level

In a value chain, the meso level includes all chain-specific actors providing regular support
11
services or representing the common interest of the VC actors. Functions at the meso level
include, for example, public research and technology development, agreement on professional
standards, promotional services, joint marketing or advocacy. They are taken by support service
providers.
Macro level
The macro level refers to the public agencies and institutions constituting the business enabling
environment. Typically, the macro level of a value chain is made up of national, regional and
local government, the judicial system and major providers of public utilities (especially roads and
water supply). The macro level determines the general cost of doing business cutting across
different value chains and sectors of the economy.
Markets / market relationships

A market is the interaction of demand and supply (buyers and sellers) of particular types of goods
or services. The exchange rules differ depending on the character of the good traded (e.g.
commodities, perishable products, investment goods or services). There are different forms of
market relationships: The basic market transaction is a once-off purchase of product displayed by
a seller, e.g. in a traditional street market (so called arms-length market relationship in a “wet
market”). Sophisticated forms of market relationships include order contracts or regular
subcontracting.
Modern the markets associated with today’s large-scale supermarket retail and wholesale
operations. The demand in such markets is for large volume and low price produce that meets
stringent quality and safety standards. The procurement systems in such markets are often
vertically integrated, global in reach and highly sophisticated. They aim to meet the large
turnover demand of supermarkets with maximum efficiency. Such markets are also highly
dynamic, responding very quickly to price changes, consumer demands and new technological
opportunities. The scale of turnover is such that what might seem a very small cost saving on an
individual item can lead to dramatic increases on overall profits. There is often considerable
concentration in these markets, with just a few large businesses accounting for most of the sales.
Margin (profit margin or price mark-up):

The gross (profit) margin is the difference between “sales revenue” and “cost price”, expressed
as percentage of the cost price or as discounted percentage of the sales price. The net (profit)
margin is the same, excluding VAT (Value Added Tax).
Micro level
In a value chain, the micro level includes the VC operators and the operational service providers
taken together.
12
Meso level
In a value chain, the meso level includes all chain-specific actors providing regular support
services or representing the common interest of the VC actors. Functions at the meso level
include, for example, public research and technology development, agreement on professional
standards, promotional services, joint marketing or advocacy. They are taken by support service
providers.
Multi-stakeholder processes
In today’s complex and highly interconnected world, innovation and change require different
stakeholders to work together. Collaboration is required among policy-makers, researchers and
practitioners; across different industry sectors; and among government, business and civil society
actors. In this guide we use the term “multi-stakeholder process” (MSP) to refer to any set of
activities that enables different groups to interact with each other for shared learning, joint
decision-making and collective action. Generally a multi-stakeholder process is not a just a one-
off event, but rather a series of activities carried out over time. Activities may include one-one
meetings, meetings and discussions with single-stakeholder groups, as well as events and
workshops that bring representatives of different groups together. An effective multi-stakeholder
process will also involve much informal “behind the scenes” networking and communication.
Operational services / operational service providers

Operational services are those services that either directly perform value chain functions on
behalf of the VC operators or are directly related to them. Operational services therefore are
business-to-business (B2B) services. They include value chain specific services as well as generic
business services such as, for example, accounting services.
Product
This is a generic category comprising physical, tangible products as well as services sold to
costumers. The value chain is defined by a product or group of products, e.g. a tomato value
chain or a fresh vegetable value chain.
Productivity
The amount of output per unit of input, e.g. the quantity of a product produced per working hour
or per hectare
Profitability of chain actors

To be sustainable, competitiveness has to be the consequence of the combined, synergistic action
of chain participants. Such actors, in turn, have to be able to cover their costs and receive an
acceptable return on their investments. Otherwise, they will not remain in business. Profitability
is thus a classical performance indicator. Yet, profitability must be achieved in a sustainable
basis. If a chain’s competitive position is a result of, say, subsidies or other distortions that
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artificially generate profits for chain participants, this is a potentially threatening situation in
terms of future performance.
Pro-poor growth (PPG)

Pro-poor growth is the most commonly quoted objective of value chain promotion. There is a
relative and an absolute concept of pro-poor growth. The relative concept states that economic
growth is pro-poor if poor people increase their incomes above the poverty line, even if their
share in the national income does not improve (a positive growth rate for poor). The absolute
concept states that growth is pro-poor, when the income of the poorest (e.g. of the lowest quintile
in a population) increases at least equally or more than the average income. PPG stresses the need
to make the poor participate directly in the economic growth, and does not rely on social
transfers.
Public-private partnership (PPP)

Whenever private companies share the public interest in economic development, public agencies
may realize certain development activities jointly with a company. PPP denotes a joint project of
government and a private enterprise to realize certain upgrading activities. An important criterion
for a public agency engaging in a PPP is that an adequate proportion of the benefit accrues to the
other VC actors or to the general public.
Sector / Sub-sector
The economy can be divided into sectors following different criteria. Here, the term “sector” is
defined according to broad product market categories. These include, for example, the “agrifood
sector”, “forestry”, the “apparel sector” or the “tourism sector”. Each sector comprises the
companies operating in the respective market as well as the specific market rules. Sectors can be
further broken down into sub-sectors by differentiating into specific product or service markets,
e.g. “horticulture”, “non-timber forest products” or “ecotourism”. Further differentiating these
markets leads to the definition of a value chain. However, there is no generally accepted
classification of sectors, sub-sectors or value chains. In practice, terms often overlap. The term
sector (or economic sector) is a higher-order term than sub-sector and aggregates several sub-
sectors.
Services
Services are economic goods delivered by a service provider to a client. Services differ from
physical products, because service delivery and consumption are closely interconnected. One
important distinction is between private services delivered to private clients or to enterprises
(business-to-business services), and public benefit services delivered to groups of people in their
collective interest. In value chains, it is necessary to distinguish between operational services and
support services. Another category is membership services provided to insiders of an
organisation, e.g. a cooperative, association or board.
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Standards
Standards are a means of defining and regulating product quality by specifying the characteristics
which a product or the process of making it must have. This regards intrinsic as well as ethical
attributes. Business linkages in value chains have to observe product safety standards, as well as
product quality standards and ecological and social standards wherever applicable. Once
standards have been formulated and agreed upon, they still have to be implemented – and the
compliance with standards verified. Operators fulfilling standards receive a certificate (see
certification).
Support services / support service providers

Contrary to the operational services, support services do not directly support (or perform) the
basic functions in a value chain. Instead, they refer to general investment and preparatory
activities benefiting all or at least several value chain operators simultaneously. Support services
therefore provide a collective good shared by the VC actors. Typical examples are the setting of
professional standards, provision of sector-specific information, joint export marketing, the
generation of generally applicable technical solutions, or political lobbying. Support services are
often provided by business associations, chambers or specialized public institutes.
Supply chain / supply chain management

The basic concept of a supply chain is similar to the value chain. The difference is that the supply
chain refers to sequence of (upstream) sourcing and (downstream) marketing functions of
individual enterprises, mostly of lead companies. Therefore, supply chain management is a
business management tool rather than a development concept. It is concerned with logistics rather
than market development.
A supply chain is a set of linkages between actors where there are no binding or sought-after
formal or informal relationships. Some supply chains are impersonal: traders buy from farmers
through an auction, and then sell to wholesalers through another auction. The actors may not
know one another, they may never meet, and they may never do business with each other again.
In contrary a value chain is a specific type of supply chain – one where the actors know each
other well and form stable, long-term relationships. They support each other so they can together
increase their efficiency and competitiveness. They invest time, effort and money to reach a
common goal of satisfying consumer needs. That enables them to increase their profits.
Sustainability: Meeting the needs of the present without compromising the ability of future
generations to meet their own needs. The Sustainable Growth is the one that does not negatively
affect the poor, workers and the environment; economic growth that is just and fair and improves
the likelihood of such growth in the future
Transaction cost
Apart from the cost of production and marketing at each stage of the value chain, the market
relationships between suppliers and buyers engender “transaction cost”. They include the cost of
search for business partners, for seeking information and screening the market, and for
negotiating, monitoring and enforcing contracts. High transaction costs often are the result of
15
market inefficiencies, such as low market transparency, lacking grades and standards or
deficiencies in the business environment. They can be brought down by organizing markets and
by improving value chain coordination.
Upgrading / chain upgrading

The term upgrading denotes the development path of a value chain. Gary Gereffi distinguishes
“product upgrading”, that is the innovation, diversification or improvement of the final product,
and “process upgrading”, which is the improvement of production and distribution technology
and logistics. These forms of upgrading improve overall efficiency. “Functional upgrading”
means the shifting of value chain functions from one VC operator to another (e.g. shifting
primary processing to farmers). It leads to a different distribution of value added across the stages
of the value chain.
The terminology upgrading implies activities in different fields of action, which can be
summarized as ímproving business linkages, associations, and partnerships´, ´strengthening
service supply and demand´ and íntroducing standards and improving policies and the business
environment of the chain´. Another aspect is the expansion of productive capacity which
enhances the volume sold.
Value
At each stage in the chain, the price of the product goes up. That is because each actor in the
chain adds to its value – by growing, harvesting, sorting, grading, packaging, processing,
labelling, transporting, storing, and putting it on shelves for us to buy. Each of these steps costs
money, which the actor recoups by charging for the service.
Value added
Value added is a measure for the value created in the economy. It is equivalent to the total value
generated by the operators in the chain (chain revenue = final sales price * volume sold). The
value added per unit of product is the difference between the price obtained by a Value Chain
operator and the price that the operator has paid for the inputs delivered by operators of the
preceding stage of the value chain and the intermediate goods bought in from suppliers of inputs
and services who are not regarded as part of the value chain. In short: “The worth that is added to
a good or service at each stage of its production or distribution” (McCormick/ Schmitz). Part of
the additional value created remains in the chain (= value captured), another part is captured by
suppliers external to the chain
Value capturing / value captured

The additional value added as a consequence of value chain upgrading that remains with value
chain operators.
Value chain governance

Governance refers to the way business activities in a value chain are vertically coordinated. We
can distinguish different forms of governance, of which the most important are markets, modular
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value chains, captive relationships and vertical integration. While in a modular value chain an
independent supplier makes products according to buyer specifications, captive relations describe
a form of governance, in which small suppliers depend on a much larger lead company.
Value chain map / value chain mapping

The value chain map is a visual representation (chart) of the micro and meso levels of the value
chain. According to the definition of the value chain it consists of a functional map combined
with a map of VC actors. Mapping can but does not necessarily include the macro level of a value
chain.
Value chain promotion

Promoting a value chains means supporting its development by externally facilitating a value
chain upgrading strategy.
Value Chain actor

This term summarizes all individuals, enterprises and public agencies related to a value chain, in
particular the Value Chain operators, providers of operational services and the providers of
support services. In a wider sense, certain government agencies at the macro level can also be
seen as VC actors if they perform crucial functions in the business environment of the value chain
in question.
Value Chain operator

The enterprises performing the basic functions of a value chain are VC operators. Typical
operators include farmers, small and medium enterprises, industrial companies, exporters,
wholesalers and retailers. They have in common that they become owners of the (raw, semi-
processed or finished) product at one stage in the VC. Thus, there is a difference between
operators and “operational service providers”, the latter being subcontracted by the VC
operators.
However, in a service value chain the VC operators include both the enterprise providing the
service product to the final consumer (be it an individual client or a company) as well as other
specialized providers of inputs and (secondary) services upstream.
Value Chain supporter / support service provider

Value chain supporters provide Value Chain support services and represent the common interests
of the VC actors. They belong to the meso level of the value chain.
Vertical coordination / vertical integration

As value chains upgrade, the vertical coordination between the different stages of the value chain
increases. This means that relationships are being regulated through agreements and written
contracts. This coordination function is often taken by a lead company. At the extreme, the
relationship between suppliers and buyers is “integrated” to the extent that the production and
17
marketing functions of a supplier are entirely controlled by the buying company (also see value
chain governance)
Vision / visioning (for value chain development)

Value chain promotion needs a strategic perspective. The vision describes the aspired change of
the value chain answering the question: How should the value chain in question look five years
from now? It is very important to make sure that the vision is formulated and shared by the VC
operators and supporters, so as to derive operational objectives and facilitate the coordination of
upgrading activities. (GTZ, 2007)
Exercise
Match concepts and their definitions. This exercise consists in taking some piece of paper. Then,
the facilitator/trainer chooses some concepts learned during this module, and writes on each
piece of paper a concept. He writes also the definition of each of the selected concepts on the
other piece of paper. After that, he distributes the papers to each participant; the number of piece
of paper must be equal to the number of participants. Then, a participant takes his paper and
read louder the concept or the definition on it. The other participant who has the corresponding
definition or concept must manifest himself and read what is on his paper. If the note learned by
the second participant correctly matches with the first one, all participants will approve it and
then these two people will stay together.
Reference
- GTZ (2007). ValueLinks Manual. The Methodology of Value Chain Promotion. GTZ.
http://www.value-links.de/manual/distributor.html
- Vermeulen, S., Woodhill, J., Proctor, F.J. and Delnoye, R. (2008), Chain-wide learning for
inclusive agrifood market development: a guide to multi-stakeholder processes for linking small-
scale producers with modern markets. International Institute for Environment and Development
(iied), London, UK, and Wageningen University and Research Centre, Wageningen, the
Netherlands.
- Keane, J. (2008), A ‘New’ Approach to Global Value Chain Analysis. Overseas Development
Institute, London
- van Melle, C., Coulibaly, O. and Hell, K. (2007), Agricultural Value Chain Development in West
Africa – Methodological framework and case study of mango in Benin. In AAAE Conference
Proceedings (2007) pp. 49-52 .
- Mayoux, L., Mackie, G. (2008), Making the strongest links: A practical guide to mainstreaming
gender analysis in value chain development. International Labour Office. Addis Ababa.
- Silva, C. A. B. and Souza Filho, H. M. (2007) Guidelines for rapid appraisals of agrifood chain
performance in developing countries, Rome : FAO, 2007
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MODULE 3: VALUE CHAIN ACTORS IITA-IFAD
VALUE CHAIN ACTORS
3
Guiding Questions:
❒ Who are the chain actors at micro level and what are the roles?
❒ Who are the chain actors at meso level and what are the roles?
❒ Who are the chain actors at macro level and what are the roles?
❒ How these chain actors liked and what are the forms of relationships within and
between them?
3.1. Introduction
There are three levels of value chain actors. At Micro level, there are value chain stakeholders
who perform the primary functions of the chain. At meso level, there are actors who provide
services and perform support functions at the value chain level. At the macro level, there are
actors setting political and institutional framework in which the two others types of actors
operate.
Figure 1: Three levels of value chain actors
Meso
Input supply Production Processing Trade consumption
Micro
Support functions & Services
Infrastructure Legal framework Political framework
Macro
Micro-level = Actor level (“chain operators”)

Meso-level = Chain level (“chain supporters”)
Macro-level = Institutional and policy level (“chain enablers”)
3.2. Actors at the micro level of a value chain.

Broadly, there are five groups of actors at the micro level of a value chain.
3.2.1. Input suppliers
This cluster has the primary role to provide specific input to value chain actors. In agriculture,
they provides some facilities such as small farm implements, packaging, processing equipment
and input for primary production (fertilizers, pesticides, seeds, seedlings) or processing
19
production. There are often linking to local suppliers and constituted by importers, who rely on
international market with multinational inputs factory.
They have a great importance within a value chain. Indeed, agricultural inputs primarily seeds,
fertilizer and agrochemicals have an enormous potential to leverage in good or bad way the
efforts of hard-working farmers. New hybrid seed varieties are acknowledged as a potential
vehicle with which to fight famine and poverty in Africa and elsewhere.
If seeds are the vehicles, then fertilizer is the fuel in the tank. And to extend the metaphor,
agrochemicals such as pesticides, fungicides and herbicides must be the -wipers, heater and air
conditioning- the tools that help the driver to optimize the performance and deal with
environmental conditions encountered along the way.
However, by applying the value chain approach, agricultural input can’t be viewed as more than
just a way to increase production volume. They must be specific to the value chain and thus meet
the final consumer needs. So by selling appropriate input to a value chain, the input supplier
doesn’t only increase the production volume at farm level, it also allows him to be eligible for the
product marketing at the international market.
Value chain approach also allows supplier to know more about demand level (quantity, quality
and periodicity) to deliver an accessible product to smallholder’s producers.
In many developing countries, agricultural input suppliers undergo very little state control over
the quality of product supply on the local market and are also very few on the market, which
limits competition.
In Burkina-Faso for example, there is SOFITEX firm which leads the specific input supply to
cotton fiber value chain. She is responsible for input ordering and distribution (fertilizers and
pesticides) at the cotton fiber value chain. Orders are made with the participation of producers.
Seeds supply is made by state through Agricultural and Environmental Research Institute
(INERA), which produce foundation seeds and yield to SOFITEX certified seeds producers.
In Benin precisely one fresh pineapple value chain for European market, there are input suppliers
such as Input Distribution Society (SDI), National Company of Agricultural Promotion
(SONAPRA) which supply fertilizers and pesticides. There are also producers who supply stump
sprout; printers ho provide etiquette and cards, and importers who provide cardboard box.
In addition to commercial companies and State agencies, some NGOs also contribute to input
supply. It’s the case of Catholic Relief Services (CRS) and United State Agencies for
International Development (USAID), which found cassava mosaic resistant cutting multiplication
in the area of lakes Tanzania.
3.2.2. Producers
Agricultural producers carried out primary production. They purchase specific inputs, cultivate
different crops by combining these inputs, harvest and sell their production. Within agricultural
value chains, there are many smallholders farmers who implement low-yield rainfed production.
The production techniques are traditional with a high vulnerability to climate change and insect
pest.
Producers usually are not collectively organized for input supply, production, harvest and
marketing. Thus there are vulnerable. They can’t impose their demands (quality and price) both
20
to suppliers and traders. They are weakly linked to final consumers of their product and therefore
does not control the characteristics desired by them.
In Benin cashew nut production for export is implement by approximately 200 000 farmers, with
0.76 ha of average farm size. However, there are farms larger than 5 ha belonging to landowners,
to economic operators and State officials. Plantations productivity is very low, around 300 kg/ha
to 500 kg/ha while the current potential can reach 1000 kg/ha to 1500 kg/ha with available
varieties.
The cashew nut producers’ organizations have begun to emerge only in recent years. According
to collected information in 2009, a few number (2%) of cashew nut producers involved in
association. Producers organizations are linked into a national federation called “National
Federation of Cashew nut producers in Benin (FENAPAB”. This federation is regionalized into
four “Regional Union of Cashew nut Producers (URPA)” widespread on cashew nut producing
area in Benin. The latter is represented on local level by “communal Union of Cashew nut
Producers (UCPA)” which themselves are decentralized at the village level by the “Village Union
of Cashew nut Producers (UVPA)”. They are the basic operational units around which targeted
action are taken. The raw cashew nut producers are weakly linked to exporters (final
consumer).They don’t dry, grad and sort cashew nut before marketing and therefore are not
aware on the economic benefits they could gain by the respect of the production technical
standards.
At the level of shea nut value chain, the producers are gatherers women also isolated within the
value chain. Their main role is to collect, preprocess, dry and store shea kernel before sell to
exporters or local processors. However shea kernels collecting and storage methods must be
improved to allow West African processor to export high quality of shea butter. Rural women
collect shea nut within the period from June to October. To address these problems, economics
incentives must be provided.
The West African market for shea nut, a market largely undifferentiated does not reward women
who use improved farming practices to produce high quality of kernel. Here come processors or
traders who should impose according to value chain approach the desired characteristics at
producer’s levels and rewarded by giving them bonuses and other benefits.
3.2.3. Sellers
They often act as intermediaries between primary producers and local or international consumers.
They also serve as an intermediary between producers and processors. Their role is to transport,
distribute and sell the product. Within the agricultural value chains we can distinguish four main
categories of traders.
The collectors: they are at local level, close to primary production areas. Their main task is to
collect and assemble marketable surplus at each producers. They package the product before
yield to the wholesaler. They have or not financial resource and are often native to production
areas.
Wholesalers: these are great sellers, with financial resources. They have a dealer card and
involved in the marketing of several agricultural products at a same time. They buy the product
from collectors’ ant market it at national level or exporters. Their task is to assemble the products
supplied by collectors, putting them in trucks and sent to the byer. They are aware on quality
21
standards but does not applied. They are related to local retailers and locals exporters.
Retailers: They buy from wholesalers. They redistribute their product directly to consumers in
households, market place, streets, etc. The frequency of supply is relatively higher than other
actors in the chain due to very small amount of products purchased.
Exporters: These are often large commercial companies that are found at national level. They
know quality standards. They are often linked to global distribution channels or large industries
to which they deliver the exported product. They design the rules of the game within the value
chain by define the purchase price. They intervened rarely in the value chain, to present their
requirements, to build capacity and make aware producers about quality standards. They are often
in very few numbers and are highly organized.
Within the agricultural value chains, sellers are highly organized and are able to impose their
prices to producers. They often use some form of advances such as credit, pre-financing, to
compelled producer to sell the production at the low price. However, they depend heavily on
exporters that define the quantity and price of products within the value chains.
Within a value chain, sellers have important roles to play. They must inform producers about the
desired products characteristics and economic benefits associated. They have also to provide a
good handling of the product in order to yield in the state to the actor at the other end of the chain
(processors, exporters, international importers).
3.2.4. Processors
They make the processing of raw products for local, regional or international market. They grade
raw products, process and make packaging. A distinctive feature of agricultural products
processors in developing countries is that they are also in charge of their products marketing.
They often process a small amount of raw product (5-30%) and are divided into three categories
in the agricultural value chains.
The individual processors or processors clusters: they use rudimentary technology for raw
product processing. In Benin raw cashew nuts processors, convert approximately 20 tons per year
and produce roasted kernel mainly for the local market. The yield is low and is about 10%. They
buy raw cashew nut from local sellers or directly from producers. They rarely insist on raw nut
quality and are looking for a low price. They pack their products in small plastic bags or in a
bottle and market them in traffic lights, along the roads and sometimes in supermarkets. Links
with other actors in the value chain are on sight and are determined by the price offered or
received.
The semi-industrial processors: They have a higher processing capacity, by using more modern
equipment, and market their product in supermarkets. In Benin cashew nuts semi-industrial
processing units have a capacity of 150 tons per year with technology based on Indian
technology, but with smaller adapted equipment. However the production capacity is variable. In
Ghana, there are semi-industrial units with high capacity (530 T / year). However, the rate of
return after processing does not follow technology. In West Africa, for example, the rate of
sheabutter extraction from kernels is about 33% at craft units level whereas is about 31% at the
semi-industrial units level. Then, the advantage of these units lies in the economies of scale
which derive from their greater capacity. However, these units often face great financial
difficulties (raw materials purchase and storage), technical difficulties (traceability implemented
22
within the supply chain, production and marketing). The formal export of food products requires
taking into consideration target market standard and business requirements. Even if the products
packaged are attractive, in fact these units don’t meet these requirements. In addition to
equipment, the production environment, especially for critical operations such as roasting and
packaging, should be reviewed in these units. Similarly, the hygiene control system by workers in
contact with the products and visitors should be reviewed. An audit by a local consultant will
show critical control point based on HACCP analysis.
Industrial processors: they are not numerous and are found in a limited number of African
countries. They are big through their processing capacity and their processing technologies. They
have laboratory to analyze the quality of inputs and output. However a common feature of these
processors is that they produce below their processing capacity. In West Africa, for example most
of the industrial shea butter processing units produced at least 25% of their capacity. Industrial
processors are integrated into value chains. They often produce under contract, based on an order
from European or American importers.
3.2.5. Consumers
A consumer is a person or entity who uses in a personal way a good or service. The consumer is a
rational agent who only interested in their well-being maximizing (Ruffieux, 2004: 93). The
concept of consumer and consumption are essentially economic, but there is also a legal
definition of these concepts. If we taking into account the consumer rationality information on the
product will influence its behaviour and aggregate demand of the product. Then consumer
demands become increasingly remarkable on the product composition, the effects of their use, but
also the working conditions under which the product was manufactured. At the level of poor
developing countries, consumer demands are not strong as consumers in international market
(niche market).
Consumer expectations are changing fast. With awareness of environmental issues, companies
must now take into account a new type of consumer: the responsible consumer. Indeed, by
developing their sustainable development approach, consumers are increasingly paying greater
attention to social, environmental and ethical characteristic of products they buy. Linnemann et
al. (1999) make these consumers classification:
 Hedonist consumer;
 Price sensitive consumer;
 Animal friendly consumers;
 Environmentally conscious consumer;
 Convenience consumer;
 Research variability consumer;
 Health-conscious consumers.
3.3. The meso-level actors in the value chain

The actors at the meso level of a value chain can be divided into two groups:
23
3.3.1. Services providers

This group generally consists of producers associations, transporters and financial services
providers.
Producer associations are poorly developed within the agricultural value chains, particularly in
Africa where production is mostly individual. However collective organization has to play an
important role in the value chain. It allows for example to harmonize production techniques based
on consumer demand. Then these organizations could organize collectively, the supply of inputs,
production management and harvesting, which allows the farmer to integrate themselves more
easily within the value chain, but also make economic of scale.
In Benin, for example they are cashew nuts producers associations. These organizations support
individual producers in their respective areas. These supports consist in awareness of producers
on Good Production Practices, harvesting techniques and primary storage to ensure the quality of
the nuts. They also organize collective marketing to improve producers' incomes.
In 2008 URPA has collectively sold 430 tons of raw cashew nuts. The selling price ranged
between 225 and 230 FCFA francs/kg. However 10 FCFA/kg of management fees are taken and
are distributed as follows: 4 FCFA for CVPA, 4 FCFA for UCPA and 2 FCFA for URPA. In
order to improve maintenance of cashew nut plantations by farmers, the union has purchased a
Husqvarna 343R brush cutter. The purchase price (550,000 FCFA) is subsidized 50% by
PAMRAD if union has mobilized their part. Actually, 17 brush cutters have been delivered. Since
2007 the URPA-AD supports the use of quality seedling materials, through a partnership with
seedling producers. In this campaign, 164 kg of improved seeds have been also purchased. They
sell the seeds at 500 FCFA/kg instead of 750 FCFA/kg, negotiated by the AD-URPA with Forest
Research Programme (FRP).
Transporters are economic agents who offer private traders and exporters handling services of
their goods from production area to consumption place. They must ensure suitable handling of
product to preserve quality.
Financial services often represent by Micro Finance Institution (MFIs) and commercial banks.
They are often inaccessible to several agricultural value chains actors, including small producers
and processors. Other actors such as wholesalers and exporters have in contrary easier access to
financial services allowing them to carry out their activities and dominate other actors in the
value chain.
In Benin for example FECECAM is a national microfinance institution with branch located
throughout the country. It provides loans to farmers for plantation maintenance. However, very
few producers have access to these loans because they do not have adequate guarantee. But at
exporters level we find a multitude of Bank, which finance collection, packaging and export. The
small scale processors have no access to financial services.
3.3.2. Support services

It includes public services, NGOs piloting projects and programs within the value chain and
national and international research institutions. These actors are essential for value chain
24
improvement. They provide organizational and technological innovations to value chain actors.
They facilitate social intermediation through the establishment of multi-stakeholder platform,
where actors could share about their requirements.
Public services consist in extension services, state control services, agriculture and trade
chambers etc.. Their role is to inform, educate, sanction and certify products derived from the
value chain. In Benin, extension services trained producers on good production practices,
harvesting and post-harvest storage. Control services examine products for export and gives
origin certificates to the exporter. The trade chambers regulate commercial activity within the
value chain.
They work in the development of new varieties, new production techniques, processing, new
products etc... They help actors in the value chain to develop strategic plans for local value chain
improvement and integration within the global value chain.
In Benin and in cashew nuts value chain, support services are composed of a multitude of actors
(Research, CeRPA, DGFRN, DPQC, INRAB, IITA, etc...) many more concentrated at the
primary production level. However it should be noted that roasted cashew value chain for local
market have support from development programs like ProCGRN, PADSA, PAMRAD, PADFA.
Research and extension: These services are provided by the National Institute for Agricultural
Research in Benin (INRAB), the Faculty of Agricultural Sciences (FSA) of Abomey-Calavi
University (UAC), the International Institute of Tropical Agriculture (IITA) and the Regional
Centre for Agricultural Promotion (CERPA). INRAB interventions are divided in four axes are:
• Variety development, conducted by the Forest Research Unit (URF).
• Technical sheet on production practices developed by INRAB to improve the productivity on
smallholder’s levels, but its scale is still limited.
• The development and diversification of other products, including valorisation cashew apple in
addition to nuts, in study at food and technology program (PTAA).
• Improving the quality of cashew and shea nuts through STDF 48 project funded by the World
Trade Organization (WTO) over the period 2008-2010 and implemented in collaboration with
IITA.
The extension services interventions consist in operational implementation of agricultural policy.

They operate at the value chain through the Directorate for agricultural Sectors Promotion and
Food Security (DPFSA). Their operations are funded by Agricultural Development Sectors
Program (PADF) and are limited for this time in the establishment of producer’s organization.
Export support services: a part from CEBENOR which in charge of quality standards setting in
Benin, we have the Plant Protection Service (SPV) in Agriculture Department (DAGRI) and
Directorate of Quality Promotion and vegetable Products Packaging (DPQC).
The SPV works mainly at the raw nut export level, providing phytosanitary certificate to
exporters after controlling. The DPQC is responsible for quality inspection of agricultural
products and provide a certificate required by national regulations. However, the certificate of
25
inspection required by importing country is provided by a private company, SGS. For exporters
this private company is more competent on the determination of quality standards. Currently, the
DPQC strengthens capacities with the current installation of mycotoxins analyses laboratory. It
also tries to establish a traceability system in many agricultural value chains in Benin.
3.4. Actors at the Macro level of the value chain

There are State Ministries which intervene at the level of value chain by setting legal framework
for value chain activities development. Thus they make road facilities, communication systems,
energies supply etc.
In Benin for Example, there are Trade Ministry (MC) and Fishing, Raising and Agricultural
Ministry (MAEP), which play an important role within cashew nut value chain for export.
The Trade Ministry intervenes within this value chain through two directorates;
Directorate of Foreign Trade (DGCE): it’s intervenes at the export level and is in charge of
origin certificate delivery. This paper is very important for exportation outside ECOWAS. This
Directorate also manage agricultural export promotion project through the integrated framework
carried out by CCI and CNUCED. Finally there is in this Directorate de Information and Training
Centre on multilateral trade system rules. By this Centre this Directorate trained and informed
producers and exporters on the questions linked to international trade liberalization and
multilateral trade system.
Directorate of local Trade (DGCI): It’s the lead of private sector and public sector commission
which fixe the lower price of cashew nut at the start of the campaign. It also regulated the
intervention of private actors in cashew nut marketing. It’s give approval to buyers/collectors,
which does not allow exporters to operate directly with producers. This Directorate also houses
the metrology and quality control Department (DMCQ), which make calibration of measuring
instrument used in cashew nut marketing. This department undertakes sometime repressive action
in particular vis-à-vis of entrepreneur who sell expired product. The compatibility of function
becomes a big preoccupation, since DPQC also make this function.
The Fisheries, Livestock and Agricultural Ministry (MAEP) is the institution responsible for the
development of agricultural sub sectors in partnership with others Ministries and support of
financial and technical partners. The strategic plan to revitalize agricultural sub-sectors (PSRSA,
2006-2011) is the current global framework for agricultural sub-sectors development. The
intervention area identified in this plan are, among others, agricultural input sub-sectors
organization, agricultural mechanization, improved access to agricultural area, agricultural
research, agricultural sub-sector diversification such as cashew nut. Cashew nut sub-sector has
been the subject of the development strategic plan jointly did by MAEP and MIC for 2007-2011
periods. Five intervention areas are identified, namely:
 Improving the competitiveness of cashew production (establishment of seeds farm,
productions equipment purchase, training on crop management, installation of drying areas,
provision of credit, introduction of Quality/traceability approach…);
 Valorisation of cashew tree products (installed semi-industrial and industrial processing unit);
 Control the marketing of cashew tree products through the marketing which support
sustainability of the sub-sector. (promotion of collective marketing by producers);
 Actors organization and capacity building;
26
 Regulatory of local market organization;
3.5. Practical exercises for participant assessment
 Make the choice of specific agricultural value chain

 What are the different types of actors within the value chain?
 What are the different types of actors who support the value chain?
 What are the different types of actors who performing a role in regulating activities within the
value chain?
Note: Present the characteristics, the classification and flows estimation at each identified chain
level
REFERENCES
Adegbola P. ; Oloukoï L. ; Sossou H.; Arouna A. (2005) compétitivité de la filière anacarde au

Bénin: une analyse des effets aux prix de référence, rapport technique final, PAPA/INRAB
Bénin ; 35p
Dorothy McCormick and Huber Schmitz (2001) Manual for value chain research on
homeworkers in the garment industry, Institute of Development Studies, University of
Sussex, UK.
Gouyahali M. S., et Traorer S., (2002) Analyse du secteur de l’anacarde situation actuelle
et perspective de développement. (Rapport d’activité).
MAEP (2006) Stratégie de relance de la filière anacarde, document de référence 2007-2011,
République du Bénin 58p.
Ruffieux, Bernard (2004), «Le nouveau consommateur: que peut-on attendre en termes
d’efficacité économique», Sciences de la société No. 62, mai 2004.
Tandjiekpon A. (2009) ; la filière anacarde au Bénin : Problématique, enjeux sociaux,
économiques, environnementaux et perspectives, Centre d’Etudes, de Recherche et de Formation
Forestières ; MEPN ; Bénin ; 8p.
van Melle C., Coulibaly O., Hell K., (2007) Agricultural Value Chain Development in West
Africa – Methodological framework and case study of mango in Benin IITA Bénin, 4p.
27
MODULE 4: POST-HARVEST & PROCESSING IITA-IFAD
POST-HARVEST & PROCESSING
4
Guiding Questions:
❒ What does the post harvest means?

❒ Why is it important to investigate postharvest practices in the Value Chain?
❒ Who are the post harvest stakeholders?
❒ Which factors affect postharvest losses?
❒ What are the quality losses concerns for fresh and processed fruits and vegetables in
Sub-Saharan Africa?
❒ What are the quality attributes and what causes of quality losses?
❒ What are the impacts of post harvest losses?
❒ Which strategic approaches are needed to mitigate losses?
❒ What are the constraints affecting postharvest technologies adoption?
❒ How to assess and evaluate postharvest losses in a value chain analysis
1. Understanding postharvest meaning
Field observations have reported that 40 to 50% of horticultural crops produced are lost before
they can be consumed, mainly due to high rates of bruising, water loss and subsequent decay
during postharvest handling (Kitinoja, 2002, Ray and Ravi, 2005). Losses can show up as
decreased nutritional quality (loss of vitamins, development of health dangers such as
mycotoxins) or decreased market value. The magnitude of these losses and their impact on farm
income varies greatly from place to place and can be difficult to calculate since the postharvest
handling chain includes all the steps between harvesting and consumption, including sorting,
cleaning, packing, cooling, storage, transport and processing. Reducing postharvest losses for
fresh produce has been demonstrated to be an important part of sustainable agricultural
development efforts meant to increase food availability (Kader 2005), but during the past thirty
years less than 5% of the funding provided for horticultural development efforts has gone toward
postharvest areas of concern, while more than 95% has gone toward trying to increase production
(Kader and Rolle, 2004).
2. Why is it important to investigate postharvest practices in the Value Chain?
 Tropical fruits and vegetables are usually of high value (compared to grains) and need to
be handled carefully in order to preserve that value.
 They are living commodities and deteriorate in quality very quickly.
28
 A lot of money and other resources are invested in growing the crop, and to get the best
price possible for the crop, it must be looked after appropriately until it reaches the
consumer.
 Tropical fruits and vegetables are rich source of vitamins, minerals, plant proteins and
medicinal substances - proper care helps maintain nutritional and pharmacological value.
 Due to absence of proper storage and marketing facilities, farmers are forced to sell their
produces at throwaway prices.
 Sometimes farmers do not even get the two way transportation cost, so they would rather
dumb their produce near the market area than bearing the transportation cost required for
taking the produce back.
3. Post harvest stakeholders

Horticultural producers in developing countries are mostly small farmers, and they are rarely
organized into a formal cooperative or association. The vast majority of horticultural crops
producers in Sub-Saharan Africa and many horticultural producers in South Asia are women, and
as women they usually lack technical knowledge, and often have poor access to current
information, markets and credit, which all contribute to these observed losses. Fruits and
vegetables crops, especially low value or subsistence food crops, are typically considered
"women's crops" while men tend to be more involved with cash crops such as cotton, grains or
palm oil. The packing and marketing of these crops is also dominated by women, and a recent
assessment reported that in Africa over 50% of production and 80% of the labor for packing and
marketing of horticultural crops was performed by women (http://www.globalhort.org/success-
stories/). Almost 85% of the producers in Benin and Ghana are male. In vegetable trading, males
only play a role in transportation, packing, unpacking and carrying of produce. Many women
involved in the vegetable trade started at a young age, some as early as 14 or even earlier, when
they had to assist their mothers or other relatives in the market.
Other chain actors involved in the postharvest practices are the middlemen, transporters, and
processors.
4. Factors affecting postharvest losses

For perishables such as fruits and vegetables there are four major factors that contribute to
finding postharvest losses to be consistently high.
1. The first is that as temperature increases, water loss and respiration rates increase,
which immediately leads to weight loss. So while there are no piles of waste to see, the
farmers and marketers can have 10 to 20% less food to sell by the next day. If we are
talking about spinach, herbs or other leafy green vegetable crops, we can even see 30%
water loss within a day or two. Green beans can lose 20% of their weight before showing
any sign of shriveling. If produce is sold by weight, this translates directly into 20 to 30%
lower income potential from the same cost of production.
2. Second, poor quality packages such as sacks or baskets will allow the produce to be
bruised, squashed and receive abrasions during handling and transport to market, and this
29
damage will allow postharvest decay organisms to gain easy entry. Most postharvest
organisms cannot gain a foothold if the produce has not been damaged or allowed to
become stressed (from heat or water loss), so avoiding any abrasions, cuts or bruises will
immediately reduce decay rates. High losses in developing countries are mainly due to a
lack of technology and infrastructure as well as intrinsic and extrinsic factors such as
high levels of insect infestation, unwanted microbial growth, injuries and blemishes due
to improper handling or transportation and prevailing high (Brackett, 1993)
3. Third, as the days pass, and if the ambient temperature is high, the overall quality of fresh
produce will quickly decline and its market value will be lower than it was on the day of
harvest. So while there is food to sell a day or two later, it will bring in less cash. A bunch
of spinach will appear so wilted that the market value may be only ½ of its original price.
A conservative estimate is that the wilted, bruised, squashed or decaying produce will
have a 20% to 30% lower market value compared to the same freshly harvested produce.
These three sources of postharvest losses might easily add up to 30 to 40% less in value
compared to what was estimated at the farm gate, all without even one item of produce having
been thrown away. It is well known that using better packaging and providing some form of
cooling is effective in reducing these types of food losses, while the use of proper sanitation
procedures is very effective at reducing contamination with human pathogens and decay causing
organisms. The best type of package and the cooling method and degree of cooling will depend
upon the crop and its market value, and local costs and market prices will determine whether or
not the practice is affordable for any given small farmer or marketer.
4. The fourth important factor that acts to increase postharvest losses is the tendency for
horticultural crops, especially fruits and fruit-vegetables such as tomatoes, to experience
an steep peak period of production, when there is so much produce on the market all at
once that its market value falls precipitously. It is not uncommon during these times for
farmers to sell their fresh produce at a loss, abandon their horticultural crops in the field
or utilize them as very expensive animal feed, since the cost of transporting the crops to
market can be higher than their current market value. In these cases, being able to slow
down the rate of ripening by doing some kind of cooling or by using a treatment such as
the ethylene action inhibitor 1-Methyl-cyclopropane (1-MCP) can help spread out the
supply peak, extend the marketing period and prevent prices from crashing. Alternatively,
transforming this fresh produce of low value at the peak of production into more stable
high value products can be done using simple, low cost food processing methods.
The post harvest losses varied from crop to crop and within different stages (Table 1). Among the
crops, the highest total loss was recorded in tomato (25.25 %) followed by Banana (22.00%). The
highest post harvest losses were recorded during transportation in tomato and banana. Maximum
loss during marketing was recorded in banana (12.00%) followed by tomato (9.75 %).
30
Table 1: Post Harvest losses (%) of Horticultural Crops at various Stages of Handling
Marketing/
Total
Crops Harvesting Grading Transportation Storage Retailer
loss(%)
Wholesaler
Orange 3.25 0.75 1.25 1.20 7.50 13.95

Pineapple 1.73 0.54 1.95 2.66 2.37 9.25
Banana - - 10.00 5.00 7.00 22.00
Ginger 1.5 2.25 1.50 2.75 2.50 10.50
Tomato 0.75 3.75 11.00 2.50 7.25 10.50
Cauliflower - 2.75 7.50 1.75 3.75 15.75
Spine Gourd - 8.30 4.30 1.80 2.70 17.10
Pointed
- 5.40 7.50 1.90 2.10 16.90
Gourd
Source: DRAAU (2005)
5. Quality Losses Concerns for Fresh and Processed fruits and vegetables
5.1.Quality attributes
Quality has been defined as ‘fitness for purpose’ as it depends on who is the recipient in the
marketing chain. For example, farmers’ definition of quality is high yields and high returns;
wholesalers and retailers want products with a good appearance and long shelf life; and
consumers refer to quality products with a good appearance, flavour and shelf life (INCLUDE
AAD’s TABLE HERE, Ruben et al, 2007). This definition of quality has changed today due to
increasingly consumer-driven production/postproduction systems. It has been resolved in a series
of international conferences on ‘Managing Quality in Chain’ that quality is the composite of
product characteristics that impart value to the buyer or consumer. Therefore, products with the
following quality description are qualified accordingly:
 Low quality - not meeting consumer expectations
 Acceptable quality – satisfying consumer expectations
 High quality – exceeding consumer expectations
Quality can be described using many parameters such as the following:
 Appearance, including size, colour and shape, condition and absence of defects
 Mouth-feel or texture
 Flavour or taste
 Nutritional value
Qualitative measurement of color can be done using color index (CI) and color charts such as the
tomato ripening stages as follows:
31
CI-1 Green
CI-2 Breaker, definite break in colour <10% of fruit surface
CI-3 Turning, more green than red
CI-4 Pink, more red than green
CI-5 Light red, trace of green
CI-6 Full red
There are some methods that are used by growers and packers to improve the appearance
of their products in order to encourage more sales. As for other products, presentation and
marketing can have a positive influence on consumer sales. For example in tomato and
chilli, the fruits are packed in pink plastic bags to enhance the colour. It is important to
note that customers that are dissatisfied with the internal quality of the product will be
reluctant to buy that product again. This means that repeat sales and total profits will
decrease. Appearance is only one part of fruit quality. Consumers buy with their eyes but
they will only return to buy again if the product tastes good too. The following table lists
some of the components that can be used to measure the quality of a product.
Table 2: Components attributes for product quality assessment

Main Factor Components/attributes
Appearance Size: dimensions, weight, volume
Shape and form: diameter/depth ratio, smoothness, compactness, uniformity
Colour: uniformity, intensity
Gloss: nature of surface wax
Defects: external, internal, morphological, physical, physiological, pathological
or entomological
Texture (feel): Firmness, hardness, softness, crispness, succulence, juiciness, mealiness,
grittiness
Flavour (taste Sweetness, sourness, astringency, bitterness, aroma, off-Flavours and off-
and smell): odours
Nutritive value: Dietary fibre, proteins, vitamins and minerals
Safety: Naturally occurring toxicants, contaminants (chemical residues, heavy metals),
mycotoxins and microbial contamination
32
5.2.Causes of Quality Losses

Thanh and Acedo (2006) have indentified several causes inducing fruits and vegetables quality
losses. These include:
1. Growing conditions - Lycopene (red color) in tomatoes is restricted under high
temperature conditions. As a result, the fruits develop light red or yellowish red color
since B-carotene formation is favored instead;
2. Transpiration and water loss - Water loss causes fresh produce to lose their “freshness”.
Produce displayed in supermarkets is often exposed to dry air for long periods and this
causes a loss of quality;
3. Mechanical injury - Faulty handling causes mechanical injury such as bruise, cuts or
cracks. Care must be taken along all steps in the chain to reduce product losses as a result
of physical damage;
4. Infection by microorganisms - Microorganisms cause rots and these make the product
unsaleable. Latent fungi are on the skin of the fruit at harvest and when the conditions are
right after harvest these pathogens can quickly grow and infect and damage a product;
5. Cardboard packaging - Cardboard packaging can cause a loss of product quality as it can
produce musty off-flavours. This is more common in processed food particularly when
stored for extended periods. The musty odours are the result of moulds converting
trichlorphenol to trichloroanisole. Tricholorphenols are a by-product of bleaching or
chlorination during the pulping process of papermaking and they can also occur in cork;
6. Metabolic stress or natural senescence - Many tropical produce including tomato and
chilli are damaged if stored below 12oC because of the development of chilling injury.
Natural senescence also causes a loss of quality and may involve loss of color, softening
and development of rots.
6. Post harvest losses impact

If losses are as high as they are typically estimated to be, and are found to be even in the lower
range of 30 to 40% in Africa, India and other developing countries, this represents a waste of not
just food, but also the land, water, fertilizers and human labor that went into producing the crops.
Losses may not even be visible, for example when water loss causes loss of market value when
produce is sold by weight, or when vitamin content is lost when fruits and vegetables are handled
under high ambient temperature conditions.
A more recent study in Tanzania reported that up to 86% of sweet potatoes were damaged during
postharvest handling and transport to local market, resulting within a few days in a 9% loss of
market value (Ndunguru et al, 2000). Kodjogbe et al. (2008) have measured postharvest losses in
tomatoes of 28% in volume and 40% in market value per kg over 4 to 5 days during local
marketing. losses amplitude varies and differs by region, crop and season.
In Benin and Ghana, the economic losses of vegetables are quite high. For lettuce they are
estimated at 9.900 FCFA per purchase by wholesalers (IITA, 2008). For tomato and fresh chili
pepper they are respectively 13.750 and 10.200 FCFA per purchase.
In Ghana, it was observed that for tomatoes, wholesalers incur the highest level of post-harvest
losses (45.62 %), for lettuce it is the retailers (31.94 %), whereas for okra traders, retailers incur
33
losses of 22.3 %. Lowest levels were observed for fresh chili pepper traders with an average loss
of approximately 1 % as indicated in table 3.
Table3: Value and quantity of post harvest losses per actor in Ghana (Accra)
Value of post Quantity of post Quantity of post

Vegetables Actors
harvest loss (GH¢) harvest loss (kg) harvest loss (%)
Collectors 13.29 30.0 2.0

Tomato Wholesalers 97.46 80.51 45.62
Retailers 36.68 38.37 39.75
Wholesalers 12.87 8.20 32.07
Dry chilli pepper
Retailers 20.81 9.87 37.22
Wholesalers 0.53 0.56 1.07
Fresh chilli pepper Wholesalers/retailers 0.44 0.46 0.92
Retailers 0.92 0.74 1.51
Collectors 80.13 32.22 31.75
Lettuce Wholesalers 23.22 11.59 31.63
Retailers 13.97 13.75 31.94
Collectors 3.65 3.65 5.28
Okra Wholesalers 29.21 19.72 17.86
Retailers 10.49 7.66 22.3
Source : Kodjogbe et al., 2008 (IITA)
7. Strategic approach to mitigate losses: Processing technology improvement

All this waste makes the lives of farmers, their husbands and children very difficult, as they often
receive low prices for their foods, since marketing intermediaries know that the foods they
purchase from growers will lose a lot of value before they can be sold to consumers. Most small
farmers use a price taker marketing strategy, whereby they grow a commodity and offer it for sale
to the highest wholesale bidder at the farm gate or in the marketplace on the day of harvest. This
marketing strategy usually means that farmers receive low prices because when they have
produce for sale, often so does every other local farmer, leading to a glut of a particular kind of
fresh produce in the marketplace.
Implementing simple postharvest technologies can help small farmers successfully store produce
for a short time and enable them to potentially get better prices by selling during off peak
production times. Use of postharvest technologies to reduce fruit and vegetable losses enhances
farming sustainability by reducing demands on natural resources used to grow horticultural crops.
Ultimately the best choice of postharvest technology for each locale and each crop will be based
upon the actual costs and expected benefits of the practice or technology. In general, if we invest
in packages that protect the produce, we can reduce damage and subsequent decay, and if we
invest in cooling, we can immediately reduce water loss, weight loss and loss of market value, so
we should be able to repay the investments in a very short time. If we can process ripe mangoes
during peak production times into fruit leather or dried strips by using solar drying, and these can
be eaten like candy later in the year, nutritious food can be made available at relatively low cost.
Whether these technologies are appropriate in any given location in Sub-Saharan Africa or South
Asia will depend upon the crop, its market value, local consumer demand and the associated costs
and expected benefits. The figure bellow (Fig1) shows an example of procession process (chilli)
34
that can be seem as appropriate way to mitigate the postharvest losses.

Figure 1: Simplified flow-chart for processing of pickled chilli
Source: RETA, 2006
New processing technologies can therefore be a panacea to reduce most perishable products such
as fruit and vegetable losses and consequently enhance farming sustainability. Nevertheless, the
adoption and diffusion of these technologies are hampered by some constraints that need
emphasizing.
7.1. Constraints to Postharvest technologies adoption

Postharvest technology interventions have been introduced over many years in many places
worldwide, but their adoption has generally been much slower than expected by scientists and
extension workers. Adoption appears to have been slowed by a variety of socio-economic,
cultural and environmental constraints, as for example when farmers cannot apply the technology
due to cost or availability constraints, or when they do not like a technology due to food taste or
texture preferences. Another example is from Senegal, where farmers readily adopted early
morning harvesting to take advantage of cooler weather to reduce postharvest losses. Subsequent
evaluation, however, showed that only the men were still using the practice, while women had
disadopted early morning harvesting. Inquiries among target farmers determined that women had
35
too much competing work that needed to be taken care of in the morning before they went to
work in the fields, including water carrying, child care and cooking for the family, and therefore
could not perform the morning harvesting on any kind of regular basis.
Followings are the technological concerns of fresh and processed products, particularly tomato
and chilli, and how they could be addressed:
1. Minimizing product respiration – proper temperature management.

2. Minimizing water loss – Use of proper packaging, waxing and/or low temperature
storage to do this. Fast pre-cooling after harvest also reduces the total amount of water
loss. Bruises and injuries are sites for excessive water loss and so careful handling is
important.
3. Minimizing mechanical damage – Physical injury may result from impact (package
failure, careless loading and unloading, throwing of produce or containers of produce),
compression (overpacking, overstacking, too deep containers) or vibration (underpacking,
poor suspension system of transport vehicle). Aside from adversely affecting appearance
quality of produce, mechanical damage increases the rate of respiration, ethylene
production and water loss. It also provides entry point for rot-causing microorganisms.
4. Exposure to extreme temperatures – Exposure of produce to the heat of the sun and
holding produce in extremely low temperatures result to injuries, such as sunscalding,
chill injury and freezing injury. High temperature could also prevail during transport or
holding due to poor ventilation. Thus, proper air circulation must be provided to the
container, transport load and holding areas.
5. Exposure to injurious atmospheres - exposure to ethylene, anaerobic conditions (low
oxygen) and excessive carbon dioxide can cause damage to fresh produce such as
premature ripening, browning or skin bronzing.
6. Insect damage - Good field management is important but disinfestations treatments of
harvested produce can be applied. In many countries fruit fly is a quarantine issue and in
some produce, this has been addressed using non-chemical heat treatment or irradiation.
7. Disease damage - Reducing the physical damage, good hygiene in the field and
packinghouse, and use safe chemicals and non-chemical treatments can contain the
problem.
8. Minimizing time to market - Storage and packaging treatments slow down senescence
and the loss of quality but they don’t prevent it. Stored products are never as good as
fresh. The longer the product is stored, the shorter its shelf life on removal from storage.
Determining proper storage time without much loss in quality and efficient marketing
system are essential to ensure product marketability and desirability.
8. Methods of postharvest loss assessment

Commodity Systems Assessment Methodology (CSAM) is a form of value chain research, taking
into account the linkages of production with post-harvest and markets, and looking all the way to
consumption and policy so planning for subsequent action can take into consideration the whole
36
system. CSAM was developed in the 1990's by Jerry LaGra and utilizes a team approach, with
horticultural researchers, extension workers and private sector members all playing a role (LaGra
1990). It involves looking at the arrangements that link different operators in taking fresh produce
and processed products from producers to consumers, and documents the flow of information
between such partners, incentives for making changes, and coordination and governance
mechanisms. According to the CSAM process, there are 24 components to be systematically
studied and documented, from production planning and production activities that affect produce
quality to postharvest handling and marketing.
Analyses have recently been made of global value chains in the agricultural sector by UNIDO
(Humphrey & Memedovic, 2006) which looked at opportunities and problems for smallholder
producers when they try to supply supermarket chains (Fearne et al., 2007). Other studies looked
at the role of farmer organizations in increasing the roles of smallholder farmers in such chains
(Ton et al., 2007). Value chains have also been analyzed in the Global Horticulture Assessment
(UCDavis & AVRDC, 2005) and by GFAR & CGIAR (2005). Commodity Systems Assessment
Methodology incorporates all these and serves to identify adaptive research needs (how existing
technologies might need to be modified), extension/training needs and advocacy needs, taking
into consideration gender issues, socio-economic constraints and policy constraints. However, it
needs to be adapted to better fit sites and selected crops.
Quantitative loss estimation:
Harvested (or Purshased )  Sold

Loss(%)  X 100
Harvested (or Purshased )
(Genova et al., 2006 and Kodjogbe et al. 2008)
9. Final Evaluation and Exercises
Expresse the quantity as a percentage given as the difference between the quantity purchased and
the quantity sold (or the Loss) in relation to total quantity harvested or purchased
Case 1: Use data from Vegetables Survey in Benin and Ghana  see Guy and Hell
Case 2: Use data from Mango Survey in Benin  see Djalal, Cathelijne and Jean-Francois
Estimate the quantity harvested (Purchased) for Ghana data, and in number of baskets for Benin
Data.
- What are the quantitative losses and losses causes?
- Categorization/Sort/Rank products regarding the physical attributes: softness, level of green- or
redness, brittleness, and other specifications identified by the various chain actors (farmers,
wholesalers and retailers)?
Requested Software: WOLD and EXCEL
Material : Computer
37
MODULE 5: MARKETING IN VALUE CHAIN IITA-IFAD
MARKETING IN VALUE CHAIN
5
Guiding Questions:
❒ What are the characteristics and particularity of African commodity chains?

❒ What are the costs and risks for trading in Africa?
❒ What is Consumer Buying Behavior?
❒ What are the roles of Marketing Channels?
❒ How to develop a target market strategy?
❒ What factors affect Market Outlet Choices?
❒ What are the common conflicts and competition in the value chain? And how
to overcome them?
❒ How to evaluate added value and shares in value chain?
1. Marketing Channels: Concepts and Definitions
Market: Aggregate of people who, as individuals or organizations, have needs for products in a
product class and who have the ability, willingness and authority to purchase such products
(conditions needed for an exchange). We can distinguish two types of markets:
1. Consumer who intends to consume or benefit, but not to make a profit.
2. Organizational/Business For:
 Resale
 Direct use in production
 or general daily operations.
Marketing channel or Channel of distribution is a group of individuals and organizations that

directs the flow of products from producers and customers. It is a set of interdependent
organizations involved in the process of making a product or service available for use or
consumption. It can also be considered as a system of marketing institutions that promotes the
physical flow of goods and services, along with ownership title, from producers to consumer or
business user; also called a distribution channel.
Travelling traders meet the farmer at his or her farm to collect the produce. They spend their
time mainly on the road, bringing goods from farmers or small village markets to an urban
market. Travelling traders usually pay the transport costs. In many African countries, travelling
traders have a bad reputation, and they are often called “middlemen” or “Intermediaries”
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Merchants: intermediaries who buy, take title to, and resell the merchandise.
Agents: search for customers and may negotiate on the producer's behalf but do not take title to
the goods.
Facilitators: assist in the distribution process but neither takes title to goods nor negotiates
purchases or sales.
Resident wholesalers stay in the larger markets to receive goods from travelling traders and
large farmers, which they resell to retailers and large, regular buyers such as schools, restaurants
and prisons. Each commodity is sold in complete wholesale units (such as 100 yams, or a crate of
tomatoes), so consumers planning a big family event may also buy here.
Retailers sell goods in whatever quantity a consumer wishes buy at one time. They also offer
goods at convenient times and in convenient locations, including small neighbourhood markets
and roadside kiosks.
Hawkers carry goods for sale from house to house by foot, or sometimes on a bicycle.
Brokers match up buyers and sellers and help them negotiate a price. They do not buy the goods
themselves and often earn a commission, so they are not really traders but service providers.
Exporters/importers buy and sell goods across national borders.
Push versus pull marketing

Push strategy: manufacturer induces intermediaries to carry, promote, and sell the product to end
user. Push strategy is appropriate where there is low brand loyalty in a category, brand choice is
made in the stores, the product is an impulse item, and product benefits are well understood. Sole
reliance on a push strategy means that the firm is only devoting resources to motivate desirable
behavior at the next vertical level of the channel. Smaller firms facing major resource constraints
often resort to sole reliance on a push strategy.
Pull strategy: manufacturer using Induces consumers to ask intermediaries for the product. Pull
strategy is appropriate when there is high brand loyalty and high involvement in the category,
when people perceive differences between brands and when people choose the brand before they
purchase. Sole reliance on a pull strategy means that the firm is only devoting resources to
motivate brand or firm preference with end customers. In theory, when a pull strategy is
successfully implemented, the end customers would contact intermediaries requesting the
products-services in question. A pull strategy can be very expensive, especially for consumer
products and services.
Normally, however, firms rely on some combination of push and pull strategy. What is lacking in
39
the channels literature is guidance as to the conditions under which certain combinations of push
and pull strategy are appropriate.
Marketing Management
Marketing management can be described as carrying out the tasks that achieve desired
exchanges, between the corporation, and its customers. There are different philosophies that
guide a marketing effort.
 Production Concept: demand for a product is greater than supply. To increase profit, focus on
production efficiencies knowing all output can be sold. Also useful concept when increasing
production raises economies of scale etc. to reduce price. Dominant era: From mid 19th
century to early 20th century, industrial revolution etc.
 Selling Concept: demand for a product is equal to supply. Emphasis is needed to sell the
product to increase profits. Focus on advertising. Useful for unsought goods, i.e.,
encyclopaedias, funeral plots. Political candidates, selling important, not post consumer
satisfaction. Dominant era: 1920's to mid 1930's to early 1950's.
 Marketing Concept: supply for a product is greater than demand, creating intense competition
among suppliers. Company first determines what the consumer wants, then produces what the
consumer wants, then sells the consumer what it wants. The dominant era is from 1930's
to1950's until present.
 Societal Marketing Concept: Focus on other stakeholders, as well as the business and its
customers. There is a need to balance 3 items: Company profits, Customer wants and
Society's interests. A difference exists between short term consumer wants and long term
consumer welfare.
2. Characteristics and particularity of African commodity chains
Most attention is given to supply chains of vulnerable (mostly perishable) tropical food products
(fruit, vegetables, fish, dairy and meat) that are highly heterogeneous in terms of production and
supply and are delivered to (inter- ) national market outlets through complex systems of
brokerage and interlinked commodity exchange regimes. Common features that are
characteristic for agro-food supply chains of tropical food products (Lambert and Cooper, 2000
and Ruben et al. 2007) and justify a specific treatment refer to:
 large irregularities in supply (production subject to weather and climate);

 high variability in quality attributes;
 scattered production by a large number of smallholder producers;
 thin local markets (limited number of traders; local oligopoly);
 high transaction costs (long distance between producers and consumers);
 deficient public regulation and limited collective action.
These characteristics together imply that traded volumes, delivery frequency and product quality
attributes are strongly dependent on supply chain coordination, while at the same time
organisational adjustment mechanisms can be used to call upon an endogenous process of
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supply chain integration and optimisation.
Generally in developed countries, markets are regulated through a complex system of rules,
institutions and formal organizations that coordinate and support trade relations. But for KIT and
IIRR (2008) African markets function without many of the formal arrangements described as
follows:
• Standardization: When somebody buys food, she or he wants to be sure about the
quality, the amount, and the safety of the produce. In Africa the formal systems to ensure
reliable labelling, quality grading, objective weighing and food safety are often deficient.
Most agricultural products are unsorted, and buyers need to personally inspect the produce
to make sure that it is what she or he wants. Only a few agricultural sectors, mostly export
commodities, meat and milk, are regulated by formal systems of standardization and
quality assurance.
• Contract enforcement: In any business transaction, breach of contract is an important
risk. Buyers may not pay the seller for produce they took on credit; sellers may not supply
the promised produce. Disputes may arise about the quality of produce, the exact amount,
or possible contamination. In African markets, contract conditions, whether oral or
written, are difficult to enforce through formal laws and regulations. Courts tend to work
slowly and may be expensive. Even if courts were to work well, then how to get financial
compensation from your business partner who often is small and has no capital assets to
seize?
• Market information: In Africa it is difficult to get reliable information on the supply,
demand and prices of food products. It is equally difficult to get information on the
reliability of buyers and sellers. Even though there has been a revolution in
telecommunications recently, farmers and traders normally find it difficult to make
informed decisions about when to buy or sell, to whom, where, and at what price. Formal
systems for market information are either weak or absent. Buyers and sellers normally get
the information they need through their personal networks.
• Formal business organization: In many countries buyers and sellers are formally
organized in, for example, farmer unions, trader associations, consumer organizations, and
branch or sector platforms. These organizations not only represent their members’
interests, but are also important in supporting trade: farmer unions bulk products, trader
associations provide market information, consumer organizations demand proper quality
standards, and sector platforms promote policy dialogue. In Africa these organizations
tend to be weak or absent, and therefore markets are less well coordinated.
Hence, where farmers and traders in industrial countries can rely on a whole set of formal market
institutions, in Africa they have to rely on themselves for getting food products from the rural
hinterlands to consumers in the cities. This is a demanding task, full of challenges.
3. Costs and risks of trading in Africa

Agricultural trading in Africa is in general a high-risk business, because there is no support from
41
formal institutions such as quality standards, market information and mechanisms for contract
enforcement. Roads and rural infrastructure are inadequate, and widespread poverty raises the
likelihood of theft and swindling. Among the many risks of trading are: non-payment by clients,
lack of supply, large price fluctuations, theft, physical insecurity, wastage of produce, “informal
taxation” at road blockades, and cheating on quality grades, just to name a few. Traders can take
no insurance against these risks, so they need to compensate in the margin that they make on the
produce.
Some of the major costs faced by traders are as follows (the figures are based on research in
Benin, Ethiopia, Malawi and Madagascar reported by Gabre-Madhin, 2001; Fafchamps and
Gabre-Madhin, 2002; and Fafchamps, 2004 and the one of KIT and IIR, 2008.):
• Transport The overwhelming majority of traders have no motorized transport, so they

need to hire it from others. The physical transport of produce can account for 40–60% of
the marketing margin.
• Handling These are the costs of loading the produce at the time of purchase and off-
loading at the time of sale. They also include the costs of packing the produce, and of the
packaging material such as sacks or crates. Research shows that these costs can represent
20–30% of the marketing margin.
• Search Normally there is no public market information, so traders may spend a long
time looking for crops or animals to buy. They also spend money on bus tickets, lodging,
meals, etc. These costs vary significantly from one situation to another, but they can
represent up to 15–20% of the marketing margin.
• Taxes, tolls, tips and fees These include taxes from the government, tolls for market
stalls, fees for brokers, membership fees, and tips at road blockades. Research shows that
these costs account for 10–15% of the marketing margin.
• Product losses Traders inevitably lose some of the produce that they buy. Among the
many causes are delays in transport, theft, improper handling, lack of storage space and
refrigeration, post-harvest pest and disease attacks (for stored produce), selection and
grading, inadequate packaging, and unsold produce. Obviously the losses are likely to be
larger for perishable produce.
Research also shows the costs that African traders do not have. They have few finance costs, as
they make little use of loans from banks and have few capital assets such as vehicles or
warehouses. They also have low storage costs, which implies that they tend to sell the produce as
quickly as possible and thus achieve high capital turnover, rather than store it and speculate on
price increases. Finally, traders have few personnel costs; most are self-employed entrepreneurs
with nobody assisting them.
4. Market interactions matrix

The matrix is divided into four quadrants, each corresponding to a certain type of market
interaction. Markets can be located in any of the four quadrants (figure 1):
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Figure 1: Market interaction matrix and movements

Source: KIT and IIR (2008)
Ad hoc spot trading

In the lower left corner of Figure 1 are markets which have weak business relations and few
business institutions. Traders and farmers engage in short-term transactions. Trust, quality
assurance, value adding, service provision and innovation are low. Prices are negotiated on
instant needs. Farmers’ claim that traders cheat on them – they want overfilled bags, charge
exorbitant interest rates, and abscond with produce without paying for it. Traders make the same
complaint about farmers – that farmers hide over-ripe produce at the bottom of the crate, they put
stones in bags to make them weigh more, and they break contracts to sell produce at a certain
price. Farmers and traders do not know each other well, and do not trust one another. There is no
partnership, no cooperation. Both farmer and trader have short-term visions, taking advantage of
each other. They provide bad services and add no or little value to the product. They may be
tempted to cheat on quality or weighting. This may be rational behaviour in a context of strong
price fluctuations, weak infrastructure and failing institutions.
Stable trade relations

This is where there are still few market institutions, but chain relations are stronger. Traders and
farmers do business with each other for several years. Levels of mutual trust and service
provision, such as credit, are higher. Farmers and traders may organize themselves to improve
their businesses and their role in the value chain. They start to communicate and develop mutual
understanding. This may result in more cooperation, lower transaction costs, lower risks, and
better chain services. But the market institutions are still weak. There is a lot of unexplored
potential for improving the trade system through quality standards and market information
systems and by involving financial institutions and government agencies.
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Formalized markets
This is the mirror image of stable trader relations: market institutions are stronger, but chain
relationships are still weak (bottom right corner of Figure 1). Buyers and sellers engage in short-
term transactions based on institutionalized standards and regulations. Prices are set as a function
of general supply and demand. Buyer and seller no longer meet in person to do business, because
market prices are transparent, quality grades are standardized and contracts are enforced by third-
party institutions, such as an auction authority. However, due to the impersonal trade relations,
there is little scope to work together on innovation, value adding and niche marketing. Trade
transactions are governed by formal standards and procedures. This can be through commodity
exchanges, warehouse receipt systems, market information systems, etc. There is an array of
supporting services from finance and policy sectors. This may result in more transparency, lower
transaction costs, and lower risks. But it may also lead to exclusion of those who fail to comply.
Chain partnerships
This is where both market institutions and chain relationships are strong. Farmers, traders and
buyers engage in long-term business relationships with formal contracts to jointly work on, and
invest in, up-scaling, quality improvement, market development, value-adding, service provision,
risk reduction, etc. Prices are often negotiated for a longer period and farmers tend to obtain
larger profit shares. Farmers and traders develop business alliances in which they acknowledge
their specialized roles and together look for synergy. They agree on clear standards and
procedures to regulate the business relation. This may result in added value, new markets,
innovation, competitiveness, sustainability. But specialization also entails risks as it enhances
dependency and reduces flexibility.
5. What is Consumer Buying Behavior?

Buying behaviour is the decision processes and acts of people involved in buying and using
products. To understand this behaviour it is important answer the following questions: (1) why
consumers make the purchases that they make? (2) what factors influence consumer purchases?
and (3) what are the changing factors in the society.
Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs
to analyze buying behaviour for:
 Buyers’ reactions to a firms marketing strategy has a great impact on the firms success.
 The marketing concept stresses that a firm should create a Marketing Mix (MM) that
satisfies (gives utility to) customers, therefore need to analyze the what, where, when and
how consumers buy.
 Marketers can better predict how consumers will respond to marketing strategies.
5.1.Stages of the Consumer Buying Process

A major part of buying behaviour is the decision process used in making purchases. The
consumer buying decision process, shown in Figure 2, includes five stages: (1) problem
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recognition, (2) information search, (3) evaluation of alternatives, (4) purchase and (5) post-
purchase evaluation. Although it is important to conduct a detailed review of these stages, a
number of general observations are also pertinent. First, the actual act of purchasing is only one
stage in the process; the process is begun several stages before the actual purchase. Second, not
all decision processes lead to a purchase, even though the process implies that it does. A
consumer may stop the process at any time. It is also possible that the different sequence of
stages will be followed, with buyers revisiting certain stages. Finally, consumer decisions do not
always include all five stages. People engaged in extensive decision-making usually go through
all the stages of this decision process, whereas those in limited decision-making and routine
response behavior may omit certain parts.
Five stages to the Consumer Buying Decision Process:

1. Problem Recognition (awareness of need): difference between the desired state and the
actual condition;
2. Information search: (Internal and external search or memory). Information can come
from comparison shopping; public sources, etc. A successful information search leaves a
buyer with possible alternatives;
3. Evaluation of Alternatives: criteria for evaluation are established and features the buyer
wants or does not want are known.
4. Purchase decision: Choose buying alternative taking into account the product attributes
(package, store) and the method of purchase. Purchase: May differ from decision
depending on the time lapse between 4 & 5, and the product availability.
5. Post-Purchase Evaluation outcome: Satisfaction or Dissatisfaction of the buyer. At this
stage, common question asked by the consumer is “have you made the right decision?”.
Problems can be reduced by warranties and after sales communication.
Figure 2: Consumer buying decision process and possible influences on the process
Source: Dibb et al. 2001
45
We distinguish four type of consumer buying behaviour. They are:

 Routine Response/Programmed Behavior: consumer has a low buying involvement, he
frequently purchases low cost items and needs very little search and decision effort. He
purchases almost automatically (e.g. soft drinks, snack foods, milk etc).
 Limited Decision Making: where the consumer buys the product occasionally. This
happens when there is a need to obtain information about unfamiliar brand in a familiar
product category. In this case consumer requires a moderate amount of time for
information gathering. Examples include clothes. The buyer knows the product class but
not the brand.
 Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or
infrequently bought products. This presents a high degree of
economic/performance/psychological risk. Examples include cars, homes, computers,
education. A lot of time is spent seeking information and deciding. In this case the buyer
goes through all six stages of the buying process.
 Impulse buying: Here the buyer does not make a conscious planning of the product he
wants to purchase.
Not that the purchase of the same product does not always elicit the same buying behavior.
Product can shift from one category to the next.
6. Role of Marketing Channels

There are a number of roles in the channel that have to be fulfilled and each type of channel will
fulfil them in different ways. Firstly, there are a number of specific gaps between production and
consumption that need to filled, specifically, time, space, quantity and variety. Secondly,
intermediaries perform various functions in order to bridge these gaps.
Moreover, market channels help producers increasing investment in their main business. Also the
flows of information, product and communication and marketing strategies from the company
through each channel to the customers help the company in distributing the product to the
customers and increase the sales volume.
The marketing channels allow making goods widely available and accessible to target markets.
They require a permanent experiences, specialization, and scale of operations. In other world the
marketing channels allow the firm to achieve more than it can when acting on its own.
A firm selling a physical product and services might require three channels:
o A sales channel,
o A delivery channel and
o A service channel.
All channel functions have three feathers in common:
o They use up scarce resources.
o They can often be performed better though specialization.
o They can be shifted among channel members.
46
We distinguish different channel levels:

o A zero-level channel (also called a direct-marketing channel) manufacturer directly
to final consumer,
o A one-level channel contains one selling intermediary-such as a retailer,
o A two-level channel contains two intermediaries-wholesaler and a retailer.
o A three-level channel contains-wholesalers, jobbers, and retailers.
7. Developing a Target Market Strategy

Developing a target market strategy has two major phases: 1) Analyzing consumer demand, 2)
Targeting the market(s), and developing the marketing strategy
7.1.Selecting Target Markets : Analyzing Demand

The selection of targeting market needs to aggregate consumers with similar needs. In this
process it is important to identify the demand patterns (do all potential customers have similar
needs/desires or are there clusters?) Types of demand patterns are:
Homogeneous Demand: uniform, everyone demands the product for the same reason(s).
Clustered Demand: Consumer demand is classified in two or more identifiable clusters.
Diffused Demand: Product differentiation is more costly and more difficult to communicate.
Firms try to modify consumer demand to develop clusters of at least a moderate size.
7.2.Targeting the Market and developing marketing strategy
o Undifferentiated Approach (Total Market Approach)

Here, all consumers have similar needs for a specific kind of product (Mass Marketing). The firm
tries to reach a wide range of consumers with one basic marketing plan. These consumers are
assumed to have a desire for similar goods and service attributes “One product for everybody”.
The elements of the marketing mix do not change for different consumers; all elements are
developed for all consumers. Examples include Staple foods-sugar and salt and farm produce.
o Market Segmentation Approach

Individuals with diverse product needs have heterogeneous needs. Market segmentation is the
process of dividing a total market into market groups consisting of people who have relatively
similar product needs. The purpose is to design a Market Mix that more precisely matches the
needs of individuals in a selected market segment(s). A market segment consists of individuals,
groups or organizations with one or more characteristics that cause them to have relatively
similar product needs. There are two Market Segmentation Strategies.
47
Concentration Strategy: A single market segment with one MM.
Advantages
It allows a firm to specialize can focus all energies on satisfying one group's needs. A firm with
limited resources can compete with larger organizations.
Disadvantages
It is like putting all eggs in one basket. Small shift in the population or consumer tastes can
greatly affect the firm. There may have trouble when expanding into new markets (especially up-
market).
Figure 3: Single market segmentation approach

 Multi-segment strategy
Two or more segments are sought with a MM for each segment, different marketing plan for each
segment. This approach combines the best attributes of undifferentiated marketing and
concentrated marketing.
Advantages
The shift excesses production capacity. The same market coverage can be achieved as with mass
marketing. Price differentials among different brands can be maintained and consumers in each
segment may be willing to pay a premium for the tailor-made product. In this type of market
segmentation, less risk is registered and actors do not rely on one market.
Disadvantages
Demands a greater number of production processes.
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Costs and resources and increased marketing costs through selling through different channels and
promoting more brands, using different packaging etc. There is a need to be careful to maintain
the product distinctiveness in each consumer group.
Figure 4: Multisegment strategy

8. Factors affecting Market Outlet Choices
8.1.Farm-household characteristics
Market outlet choice is likely to be influenced by farmers’ attitudes to risk (Agarwal et al.,
1992). When actors face uncertainty, they will turn to others whom they know and trust
(Galaskiewicz, 1985; Podolny, 1994). Baker (1994) asserts that relationships are a fundamental
human need, whereas Coleman (1988) argues that social context shapes, redirects and constrains
a person’s actions; consequently, personal relations (shaped in a specific social context) will
reduce chances for opportunistic behaviour and moral hazards (Baker, 1990 and Ben-Porath,
1980) and are likely to enhance cooperation (Granovetter, 1985). Farmers select market outlets
depending on their social network and background, and hence seek to reduce transaction costs
and uncertainty, but they feel safer in a market setting where they maintain long-term
49
relationships with participating agents. In addition, Sáenz-Segura (2006) found that the location
of the production area (proximity to the customers or buyers) defines the market outlet choice of
the producer.
8.2.Production system
Agarwal and Ramaswami (1992) emphasise that potential sales (i.e. market size and growth rate)
is an important business factor influencing market selection. Sáenz-Segura (2006) and Sáenz and
Ruben (2004) find that scale of production and experience are positively related to the choice of
export markets. Location-dependent costs arise from raw material acquisition and
heterogeneous costs of operation at different sites (Rhim et al., 2003). Ohyama et al. (2004)
stress that an open economy regime creates a mechanism that selects new entrants in the order of
their entrepreneurial abilities. This implies that entrepreneurs that are more capable run larger
firms, and it is expected that early entering firms have a larger scale of production than later
entrants under the open economy regime. Regardless of their type, older (mature) firms tend to be
larger than new firms (Agarwal and Gort, 2002).
8.3.Price attributes
Price is usually considered as one of the most important attributes in the (neo-classical) analysis
of economic regimes; according to Williamson (2002), is to understand how the price system
coordinates the use of resources. Sáenz-Segura (2006) and Sáenz and Ruben (2004) find in Costa
Rica that prices for products in the export market are higher than those in the national market.
Most producers, including mango producers, allocate part of their production to the domestic
market for different reasons: first, to ensure an alternative source of income (flexibility), second
to gain bargaining power (reducing hold-ups), and third to reduce the losses in production
(decrease risk and uncertainties, in addition to being able to sell the fruit rejected by the export
market). As asserted by Wilson (1986), farmers rely on market diversification as a protective
device. Whereas prices remain important for outlet choice, they are certainly not the only device
and strategic factors may lead to a marketing mix based on different outlets.
8.4.Market context
Three main factors for market selection have been described by Brewer (2001), namely business
factors, chance of success and physical distance.
 Business factors: many firms may not engage in exports either because they do not have the
necessary resources or because they do not want to commit themselves (Christensen, 1991).
Resource scarcity can restrict the ability of small firms to enter the export market (Moen, 1999).
Papadopoulos et al. (2002) identify demand potential and trade barriers as major determinants for
the market selection strategy followed by the firm. Demand potential is related to market
similarity and consumer behaviour, and differentiates between substitute and complementary
50
commodities. Trade barriers, both tariff and non-tariff barriers, and entrance barriers, together
with geographical distance have implications for transaction costs. Hart and Holstrom (1987) and
Chiarelli et al. (2002) state, however, that other purchasing conditions such as terms of payment,
provision of credit for inputs, frequency of delivery, seed, and technical assistance could enable
producers to improve their product quality and thus influence their options for alternative market
outlet choice. Sáenz-Segura (2006) and Sáenz and Ruben (2004) found indeed that in Costa Rica
the availability of credit tends to increase the export orientation
 The chance of success factor has been explained by Erramilli and Rao (1990) and Terpstra and
Yu (1988) from the fact that firms try to follow competitors as well as clients into new markets.
Hoang (1998) finds that small firms are usually more reactive than pro-active in market selection
issues.
 Regarding physical distance, Driscoll and Paliwoda (1997) found that the socio-cultural
distance between economic agents is important for entry mode choice without consideration of
experience. Other authors such as Andersen and Buvik (2002) and Papadopolous and Denis
(1988) explain, though, that physical distance often results in targeting markets close to the firm’s
immediate neighbours, since geographic proximity is likely to imply more knowledge about
markets and guarantees easier access to information.
9. Conflicts, Cooperation, and Competition
Although all channel members work towards the same general goal-distributing goods and
services profitably and efficiently-members may sometimes disagree about the best methods for
attaining this goal. Each channel member wants to maximize its own profits while maintaining as
much autonomy as possible. However, if this self-interest creates misunderstanding about role
expectations; the end result is frustration and conflict for the whole channel. For individual
organizations to function together in a single social system, each channel member must clearly
communicate and understand role expectations. Communication difficulties are a potential form
of channel conflict and can lead to frustration, misunderstandings and poorly coordinated
strategies.
Channel conflict often arises when a given channel member does not conduct itself in the manner
expected by other channel members. Wholesalers expect producers to monitor quality control
and production scheduling, and they expect retailers to market products effectively. Producers
and retailers expect wholesalers to provide co-ordination, functional services and
communication. But if members do not fulfill their roles-for example, if wholesalers or
producers fail to deliver products on time or the producers' pricing policies cut into the margins
of down-stream channel members-conflict may ensue.
Channel conflicts also arise when dealers over emphasize competing products or diversify into
product lines traditionally handled by other, more specialized intermediaries. In some cases,
conflict develops because producers strive to increase efficiency by circumventing
intermediaries, as is happening in marketing channels for microcomputer software and video
games. Many software-only stores are establishing direct relationships with software producers,
bypassing wholesale distributors altogether. Some dishonest retailers are also pirating software
or making unauthorized copies, thus cheating other channel members out of their due
compensation.
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Many traders have long-term relationships with farmers, buying from them year after year. These
preferred supply relations serve to reduce risks for both parties: the farmer has a secure market
outlet, and the trader has a secure supply base. They also facilitate the exchange of credit and the
sharing of information on market conditions. However, despite these mutual benefits, cooperation
between farmers and traders is relatively underdeveloped. Their inherent conflict of interest over
prices puts the relationship under pressure. Most farmers are sceptical about cooperation,
claiming that traders are not trustworthy and only interested in their personal gains. Traders tend
to think the same about farmers, complaining that farmers fail to deliver produce that they
promised, or hide low-quality produce at the bottom of bags or crates. Research in central Ghana
shows that only onequarter of farmers maintain longstanding relations with traders (Poole et al.,
1999). In general, traders seem more interested in having regular suppliers. Half of the traders in
Kumasi market, central Ghana, said they maintain longstanding relations with farmers (Clark,
1994). Also in Madagascar, half of the traders reported they had regular suppliers (Fafchamps,
2004).
Long-term business relationships become more common as you go downstream in the value
chain. Travelling traders, wholesalers and retailers tend to have close relations to ensure smooth
business operations. When selling on a wholesale market, the travelling trader needs a friendly
wholesaler to dispose of her goods as quickly as possible, so she can go on the road again to buy
more goods. And when buying at a wholesale market, the travelling trader needs a preferred
wholesaler to get a purchase at a good price and quality, especially in times of scarcity. Their
major problem being a lack of working capital, retailers tend to buy exclusively from particular
wholesalers or travelling traders. This allows them to get produce on credit, and they may even
get discounts if they fail to sell all the produce. The wholesalers, in turn, may use the dependency
of travelling traders and retailers to prevent others from selling in the market, thereby
safeguarding the interests of their businesses. Often the cooperation between traders is partly
based on ethnic and gender ties. It is common for traders in a particular commodity to come from
a specific ethnic group associated with that commodity’s producing area. In addition to a
common language, these ethnic ties can provide habitual commercial practices, methods of
settling disputes and shared cultural values that make doing business more pleasant and extending
credit less risky.
Much conflict between chain actors is based on prejudices, assumptions and incorrect
information. In particular, a recurrent source of misunderstanding is about prices and margins in
the value chain. The chain dialogue needs to address these issues in an objective way, based on
careful research and factual analysis of gross margins, costs and risks. When people compare the
price for the producer at the farm gate with the price for the consumer in the city, and see
differences of 100% and more, they may easily conclude that farmers are being ripped off. But
these figures should be understood in relation to the costs, risks and services that are provided in
the value chain.
52
Figure 2: Consumer buying decision process and possible influences on the process
Factors affecting Market Outlet Choices
Source: Ruben et al. 2007
10. Evaluating added value and shares in trading
Calculating profit margins in the value chain requires

various types of information and takes several steps. It is
necessary to know the following information about costs,
revenues and benefit (profit margins)
Variable costs
Variable costs are expenses that change in proportion to the

activity of a business. In other words, variable cost is the
sum of marginal costs. It can also be considered normal costs or sometimes unit-level costs as
they vary with the number of units produced and according to the amount of produce handled (e.g
costs of feed and vaccinations, fertilizers, seed, purchase price, commission paid to brokers,
certificates, local taxes, interest on loans, transport, etc.)
Fixed costs
In economics, fixed costs are business expenses that are not dependent on the activities of the
business. They tend to be time-related, such as salaries or rents being paid per month.
In management accounting, fixed costs are the expenses that do not change in proportion to the
53
activity of a business, within the relevant period (e.g. rental, land, trading licenses and wages of
assistants. In practice, it is hard to include some of these costs in calculations
Total costs
Along with variable costs, fixed costs make up one of the two components of total cost. In the
most simple production function, total cost is equal to fixed costs plus variable costs.
Selling price of the produce This is the actor’s revenue. It is the money she or he earns by
selling the produce, plus any other income earned by selling by-products or waste.
 For some commodities, the product sold at the farm gate is essentially the same as that
bought by the consumer (e.g. Yams, milk, etc.).
 For others, some grading and sorting is needed: tomato traders, for example, may sell the
top-grade tomatoes in a batch at one price, smaller tomatoes at another, and over-ripe fruit
very cheaply. Mangoes, green beans and wool are carefully selected before being packed
for export.
 For another group of commodities, some processing is involved. For livestock, for
example, a slaughterhouse sells not only the meat, but also the offal, hide or skin of an
animal. Soybean processors may sell both oil and soybean cake.
Profits and margins
Once we know the costs and revenues of each actor in the chain, we can calculate their financial
positions. Here are some things to look at:
 Gross income, or operating profit This is calculated by deducting variable costs from
revenues:
Gross income = Revenue – Variable costs
The gross income is easy to calculate, but it does not take the fixed costs into account.
 The gross margin is the gross profit per unit of produce. Calculate this by dividing the
gross income by the revenue earned from sales. Then multiply by 100 to give a
percentage. Again, this ratio neglects the fixed costs.
Gross margin = Gross income x 100 / Revenue
54
 Added value is the amount of value that each actor in the chain adds. It is the difference
between the price the actor pays for the produce, and the price she or he sells it for.
Added value = Price received by actor – Price paid by actor
In most of the cases, this is equal to the actor’s revenue minus the previous actor’s revenue.
 Value share is the percentage of the final, retail price that the actor earns. Calculate this
as the added value divided by the final retail price. Then multiply by 100 to give a
percentage.
Value share = Added value x 100 / Final retail price
 Value Adding Efficiency is a percentage measurement that combines two input factors:
labor costs and equipment costs (as measured through depreciation). It is calculated using
the following formula:
Value Adding Efficiency = Total Value added / Labor Cost + Depreciation
 Net income, or net profit, is calculated by deducting total costs (both variable and fixed
costs!) from revenues:
Net income = Revenues – Variable costs – Fixed costs
This is the real profit that the actor makes, so is a better measure than the gross income. However,
it is hard to calculate because it is difficult to put a figure on the fixed costs.
 Net margin is the net profit per unit of produce. Calculate this by dividing the net income
by the revenue earned from sales. Then multiply by 100 to give a percentage.
Net margin = Net income x 100 / Revenue
This is a better measure than the gross margin, but it also relies on knowing the fixed costs.
55
Exercises with Participants
1. Constitute pair groups

2. Insert your training CD-R in your respective computer.
3. Use the data base entitled Mango_Cost-Benefit
4. Use SPSS (or if you wish EXCEL) software to calculate for each actor the Variable costs,
Revenue, the Gross income, Added value, Gross margin and the value share.
5. Use the calculated indicators to fill the following table
6. Draw bar charts of revenues and costs.
Table 1: Performance indicators in mango value chain in Benin
Chain Variable Revenue Gross Added Gross value share
actor costs income value margin
Farmer
Traveling
trader
Wholesaler
Retailer
Total
REFERENCES
KIT and IIRR. 2008. Trading up: Building cooperation between farmers and traders in Africa.
Royal Tropical Institute, Amsterdam; and International Institute of Rural Reconstruction,
Nairobi.
56
MODULE 6: VALUE CHAIN INFORMATION & TRACEABILITY SYSTEMS _IITA-IFAD
6
VALUE CHAIN INFORMATION & TRACEABILITY
SYSTEMS
Guiding Questions:
❒ What is the traceability and what are its key drivers?

❒ What are the types and levels of traceability?
❒ How to used Identification (ID) technologies for product traceability?
❒ What are the importance of Chain Information Systems (CIS) and
Information value chain (IVC)
❒ What are the role of Information and Communication Technologies (ICT)
in value chain development
❒ What determine critical control points and what are the key quality
indicators in value chain analysis?
1. Introduction
Food traceability system, also called food tracking and tracing system, has become an effective
way in food safety management (Liu et al. 2009). Traceability reflects a growing demand for
more information on the product by others in the supply chain. Traceability is the means by
which the information is provided. This is explained by the need for traceability to be provided
by modern food supply chains that increases internationally. Within the supply chain, traceability
has a myriad of meanings, and thus, the value of traceability, or the associated information, is
multifaceted and depends on the perspective of the user of the information (Bollen and Riden,
2006).
The objectives of this module are to review the concept of traceability as applied to perishable
food products, and to present the application of traceability in value (information) addition and
quality management. The module examines the subject of tracing food products throughout the
production and supply chain from farm to fork. The focus of the training encourages viewing
traceability planning and information systems as a way to limit the potential damage caused by
breaches in security and subsequent, intentional contamination of the food supply. After taking
this course, participant will have a better, general understanding of how traceability is used across
the supply chain; exposure to examples of diagrams and technologies that can make traceability
more manageable and efficient; and knowledge of specific points of vulnerability.
2. What is the traceability?
La traçabilité est définie par l’Organisation internationale de normalisation (ISO 9000: 2000)
comme étant l’“aptitude à retrouver l’historique, l’utilisation ou la localisation de ce qui est
examiné. Dans le cas d’un produit, elle peut être liée à l’origine des matériaux et composants,
57
l’historique de réalisation, la distribution et l’emplacement du produit après livraison”.

Le Codex Alimentarius définit de la traçabilité comme: “la capacité d’identifier une denrée
alimentaire (identification du produit), l’historique de sa transformation (le cas échéant), son
origine et sa destination (une étape en amont et une étape en aval) (information sur le produit)
ainsi que la mise en relation de l’identification du produit et des renseignements sur le produit,
tout en faisant observer que l’applicabilité de ces éléments dépendra des objectifs visés par
chaque texte”
La Commission de l’UE définit la traçabilité comme étant: “la capacité de retracer, à travers
toutes les étapes de la production, de la transformation et de la distribution, le cheminement
d’une denrée alimentaire, d’un aliment pour animaux, d’un animal destiné à la production de
denrées alimentaires ou d’une substance destinée à être incorporée dans une denrée alimentaire
ou un aliment pour animaux ou susceptible d’être utilisée à cet effet.
Selon la FAO, la traçabilité devrait être considérée comme un moyen “de protéger la santé des
consommateurs et de garantir des pratiques loyales dans le commerce des denrées alimentaires ”.
Les exemples ci-dessus montrent bien qu’il n’existe pas encore de définition internationalement
reconnue de la “traçabilité” (ou de “traçage du produit”) pour les produits alimentaires.
Cependant, de façon générale deux sortes de traçabilités :
 La traçabilité externe désigne des systèmes qui permettent la traçabilité d’un produit et/ou
des attributs de ce produit à chaque étape de la chaîne de distribution (du bateau ou de la
ferme piscicole à l’assiette du consommateur).
 La traçabilité interne désigne la traçabilité de la matière première, de la matière
intermédiaire et du produit final à l’intérieur d’une unité de production ou d’une unité
commerciale (par exemple dans une usine de transformation du poisson). Les systèmes de
traçabilité interne visent également à améliorer la productivité et à réduire les coûts.
3. Drivers for traceability
There are a number of drivers for traceability in food supply chains. The drivers define what is
meant by ‘traceability’ in that they scope the requirements for the identification and information
systems. The initial set of drivers setting current needs can be considered ‘hard’ traceability
requirements. These are those that international traders and domestic marketers are required to
meet to conform to regulatory or international trade treaty requirements (Bollen, 2004a):
 Traceback for food safety and quality issues, which are evident in the market, or supply
chain, and market access, is contingent on the ability to provide this traceback.
 Compliance with minimum production standards, such as Good Agricultural Practice
(GAP) protocols, requires the product to be tracked forward with associated information
to ensure GAP compliance.
 The ability to provide secure track-and-trace systems for the product in international
trade, particularly in sea and airfreight owing to current security concerns.
58
There is a second set of drivers for traceability that can be considered ‘soft’ requirements, in that
they do not control the ability to trade, but do impact on the commercial viability of trade. These
range over delivering to sophisticated marketing needs, response to increasing consumer
expectations, improved postharvest quality management and more competitive value chains.
Specifics of these include:
 Market segregation – the separation of inherently variable biological products into a

number of more consistent lines, which match consumer preferences and market
segments.
 The introduction of improved grower payment schedules to better match product quality
turnout in the market and also to feed back information to growers.
 The use of new information sources for producer feedback as well as market planning.
Both the potential to monitor quality change through the value chain, using non-
destructive measurement technologies, and the prediction of quality changes are based on
product and processing traceability.
 Provide confidence to consumers through the assurance of quality and safety by having
the traceback capability.
 The possibility to add value to other parts of the supply chain by sharing information,
enabled by the traceability system.
 Multiple use of information for a number of purposes, such as packhouse management,
quality assurance, supply chain management, production feedback, compliance and
consumer feedback.
The above main drivers are derived from the use of and access to information about a particular
food product at various points in the supply chain. As a result of developments elsewhere in
industry, new technologies are now available which can assist and make possible the capture,
storage and reporting of this information that provides much of the impetus and interest in
improved traceability systems for perishable products. For traceability to be truly effective it
needs to be standardised throughout the chain.
An essential feature of modern food quality management systems is the ability for fresh, or
processed, food products to be traced back to their raw materials, the producer and/or previous
handlers in the supply chain (Opara, 2003). It is also important to trace forward in order to
guarantee the location of products in the postharvest chain and, essentially, facilitate their recall
when food safety (and quality) standards have been breached. These activities all require product
traceability through the production, packing/processing, logistics, storage and retail parts of the
supply chain. This traceability requires high quality identification (labelling) and sophisticated
information systems.
59
4. Types of traceability
Furthermore, Opara (2003) identified several components of an integrated agricultural and food
supply traceability system. These can be summarised into four broad types of traceability,
namely:
1. Production system traceability: This involves the ability to verify the farming system and
production inputs such as fertiliser, chemical sprays, water use, feeds and supplements, as
well as social considerations such as labour conditions. These are all components of a GAP
protocol.
2. Process system traceability: This involves the ability to verify any processing and postharvest
activities and treatments, such as washing, drenches and dips, storage conditions, additives or
chemicals used and temperature conditions within the supply chain. These are all components
of a Good Manufacturing Practice (GMP) protocol.
3. Pest and disease traceability: Involves the ability to assure that no prohibited pests or
diseases are introduced to the market, and that in the event of an incursion, all products can be
located.
4. Genetic traceability: Information on the type and origin of genetically modified organisms
and food products.
5. Levels of traceability
A product may be tracked to different levels of detail, or granularity, through the supply chain.
The typical Traceable Resource Units (TRU) are shown in Figure 1. The TRUs are generally
defined as any unit that is unique and cannot have the same attributes as another unit (Moe,
1998). Any one TRU comprises a number of smaller TRUs; for example, a shipping container is
filled with pallets, which in turn have a number of cartons or packs stacked on each.
Figure 1: Typical Traceable Resource Units (TRU) in fresh produce supply chains
Source: Bollen (2004b)
60
The sub-unit TRUs are also potentially traceable, but in most modern supply chains for
perishable products, track-and-trace systems extend to the pallet level only. There are two sectors
in the supply chain where TRU transformation takes place. At the production end of the chain the
main TRU transformer is the packhouse, where the product is taken from bulk bins from the
field, handled individually for sorting and sizing and then placed into retail- or market-ready
packaging and stacked onto pallets. At the receiving end of the supply chain the reverse activity
takes place, where the product is removed from pallets and sometimes repacked into retail display
packs. These TRU transformer points have major influences on the reliability of traceability for
the whole supply chain.
6. Identification technologies
Basic traceability between businesses in the supply chain is currently achieved by the exchange
of relevant information linked by the TRU identification (ID). There are a large number of
technology providers seeking to supply solutions that are claimed to provide:
 More reliable and enhanced traceability through automated ID systems, hence minimising
human error and speeding up ID capture processes.
 Added assurance for security, particularly technology such as electronic door seals for sea
containers to identify any unauthorised interference.
 Improved real-time data exchange, particularly with regulatory bodies that are
increasingly looking for data in electronic formats.
For assigning and reading IDs, the following technologies are used:
1. Barcode
Widely used in the supply chain, this technology involves the printing of a machine-readable
code on individual packages or pallets. The code conforms to some international standard (e.g.,
EAN), which means that it can be read elsewhere in the supply chain. There are a number of
handheld and distance readers (for forklifts) available to automate the reading. Barcode
packaging also has alphanumeric representations of the barcode to be human readable for
logistics and management purposes.
 Traceability code design
Encoding system generally follows the UCC/EAN-128 standard (Lin Ling et al., 2004), which is
a worldwide standard for exchanging data between different companies. The identification
number consists of five parts, including enterprise identification number, commodity
identification number, batch number and two kinds of verifying number. The first two items in
fact form the Global Trade Item Number (short for GTIN). The code structure for cereal and oil
products is shown in Fig.2, and an example is shown in Fig.3.
61
Figure 2：The code structure
Figure 3： ID number for cereal and oil products

Source : Liu et al. 2009
2. Radio Frequency ID (RFID)

Radio frequency identification (RFID) transmits product information using radio waves. The
agri-food industry is beginning to use this automatic identification technology to enhance food
quality, safety and traceability. RFID manages and updates information on food materials (ex:
product identity, supplier, or serial number) as they enter and move through the farm-to-fork
distribution chain. This is a highly promoted technology that has yet to achieve a breakthrough
level of application in perishable product supply chains, despite being available for over a
decade.
The basic application is a ‘tag’ that communicates its ID when close to a reader. Systems are
under evaluation, but the technology is still several years from implementation in the postharvest
chain. Limitations are lack of standards, current short reading ranges and technology costs. Tags
attached to pallets or shipping containers that are traded internationally are an ongoing cost
unless they can be incorporated into closed-loop trade lanes or otherwise be easily recovered.
One variation of RFID is the read/write tag, which allows a significant amount of information
about the product to be written on the tag, which means that the ID system also doubles as the
information system.
There are several other different systems that can be used for traceability within an organisation
or throughout a supply chain, each having advantages and disadvantages. They include paper
based; Computer Based, DNA and Biometrics IDs (confer AquaTT and IFQC, 2004).
62
7. Chain Information Systems
The main formal and informal information links in a generalised supply chain are shown in
Figure 4. A difficulty at present is that for most chains, very similar information is often
exchanged with a number of different businesses under different data exchange protocols and
arrangements. The feature of this current structure is that information generally flows in the same
direction as the product. This structure renders supply chains vulnerable to the weakest link, or
that with the poorest IT system.
Figure 4 Current formal exchange of information in a generalised perishable product supply

chain
Source: Bollen (2004b)
One option previously proposed (Bollen, 2004b) is to utilise the track-and-trace identity
information as a set of unique identifiers as part of a more open information system. If all supply
chain participants make their information available through some Common Data Access protocol
based on the TRU IDs, the flow of information can be less constrained and does not have to pass
along the chain with the product, but can be made available to those who need to have access at
other parts in the supply chain. Essentially, using unique identifiers in conjunction with
appropriate open information systems allows businesses to directly share information further up
and/or down the supply chain rather than through intermediaries.
Other weaknesses of the current systems include the fact that imperfect information is often
captured, information is often captured associated with a TRU but never retrieved (downloading
temperature loggers is a common problem), available information is difficult to access,
information is not shared, and data capture is often costly. In addition, potential users of
information in the supply chain are often not highly educated, too busy or not interested in
making improvements. Much of the current analysis and interpretation software is too complex or
the analyses not intuitive or appropriate for commercial application.
63
8.1 Information value chain (IVC)

Having the right information at the right time to make the right decisions means a new culture it
means viewing information as a part of an information value chain (IVC). The figure 5 describes
this value chain. It shows that effective decision making begins by identifying needs and
capturing, updating and storing information effectively. Strategies can then be developed to
verify that information is passed to the right people at the right time. Access at the right time will
enable analysis, action and learning that will help promote the right decision.
Figure 5. IVC supports a seamless flow of information needed to get the right information at the
right time to make the right decisions.
Source: Gresham and Andrulis, 2002.
8.2 ICT in value chain development
Information and communications technology (ICT) offers a growing number of ways to exploit
opportunities and ad-dress constraints to value chain growth and competitiveness. Examples of
ways in which ICT can increase competitive-ness include the following:
 Bar coding can speed the delivery of products to markets, thereby reducing spoilage of
shipments of perish-able products such as tropical fruit.
 SMS text messaging can help farmers to negotiate with transport providers by supplying
farmers with real-time information on market prices.
 Cell phones can strengthen horizontal links (between like firms) or vertical links (between
buyers and sellers) by enabling reliable and rapid communication.
 The Internet can provide information about new pro-duction technologies and processes
that help actors up-grade, leading to entry into new, higher-value markets.
ICT toolkit: The term ICT is often used synonymously with the Internet. However, ICT
encompasses a broad set of technologies that can be used alone or in combination. These are a
few examples: Radios - satellite, digital, conventional terrestrial; Cell phones - including text
messaging and data applications; Hand-held computers - personal digital assistants (PDAs) like
64
the Black-berry; Televisions; Use of and presence on the Internet; Print media; Bar codes; Digital
cameras, etc.
Considering the following ICT-related questions during value chain analysis can provide
important information for project de-sign:
 What types of ICT are value chain actors already using and how affordable is it? Do they
have cell phones or radios or Internet access? Do they share these or have their own? Where can
the project take ad-vantage of ICT already in use to achieve program objectives?
 What are the sources of energy and how reliable and expensive is energy? There are ways to
charge ICT devices with solar power if power is intermittent. A com-munity Internet center can
earn extra revenue by using its generator to charge phones, increasing its sustainability.
 Are there legal or regulatory barriers to ICT access and affordability? Are these likely to
change during the term of the project?
 How are industry competitors using ICT? Are there opportunities to utilize those ICTs for the
value chain be-ing assisted?
 Is there competition between ICT providers that the project can leverage? One provider may
be willing to partner with the project to take advantage of the project’s understanding of a new
market or to increase its market share.
9 Determine critical control points and key quality indicators
Determination of critical control points and quality indicators coupled with the information flow
analysis, provides fundamental data in the traceability system. In our research, through HACCP
(Hazard Analysis and Critical Control Point) and FMECA (Failure Mode Effect and Criticality
Analysis). The model is shown in Fig.6.
65
Figure 6：Tracking down and tracing up in the information flow

Source: Liu et al. 2009
Table1 shows the critical control points and the corresponding key quality indicators. If any of
these critical control points missed, it would result in quality information loss and broken of the
quality information flow.
Table 1：The critical control points and the key quality indicators of peanut oil production
Critical Control Points Quality indicators
Agricultural input Seed, pesticide, fertilizer
Material test Rate of oil, PH value, percentage of mouldy peanuts,
impunities in peanuts, humidity
Primary oil-filtering Temperature, additives
Detection of semi-finished oil PH value, colour, humidity, volatile
Secondary oil-filtering Temperature, additives
Detection of refined peanut oil color and luster, PH value, humidity, volatile, infusible
precipitate, peroxide value, residual menstruum, aflatoxin
66
Consumer wishes/Demand
Regulation/food low
Quality attributes
Steps in
the
Factors affecting quality performance QACCP
procedure
CCPs in various chain elements
Measuring performance indicators
Measuring impacting performance

Figure 7: Critical control points and key quality indicators
Case studies: Demonstration of opportunities for enhanced traceability (quality feedback)
An example highlights how improved traceability can also facilitate information exchange
between businesses in the supply chain (packhouses grade and pack fruit for marketing). The fruit
can be graded on a range of quality attributes, such as size, colour, firmness, dry matter or levels
of defects. Growers do not receive very detailed information back from the packhouse, despite
the fact that every individual fruit or vegetable has often been graded over a sophisticated
electronic grader. Praat et al. (2003) demonstrated an enhanced traceability system where every
bin of kiwifruit picked was located within the orchard and then tracked through the packing
operation. It was then possible to link the grader data to the original location in the orchard and
feed back to growers their packout information in terms of average bin performance for every
individual bin. This data was then mapped using a Geographical Information System (GIS) to
provide the grower with postharvest information in a format that is easy to understand and
enables improved management decisions. The typical output is illustrated in Figure 8. This map
shows that there is smaller-sized fruit in the south-western section of the orchard and there is also
fruit with low dry matter in the same area, but with a different pattern. There is also an area of
fruit with high dry matter occurring in the top north-eastern corner of the orchard. The use of
traceability information in this example allows two businesses in the postharvest chain to share
information in considerably more detail than was previously possible. This is all accomplished at
a marginal cost to the packhouse, but can potentially add considerable value to the grower. There
are a number of associated benefits, including the use of the traceability system for logistics and
packing planning.
67
Figure 8: Orchard-wide patterns of size and dry matter for a kiwifruit orchard
Source: Bollen and Riden, 2006
Participants Evaluation and Exercises

Practices on barcodes reading and the use of ICT technologies in value chain
References
Bollen, A.F., Riden, C.P.and Opara, L.U. (2006) ‘Traceability in postharvest quality
management’, Int. J. Postharvest Technology and Innovation, Vol. 1, No. 1, pp.93–105.
Liu, L., Zheng, H., Meng, H., Hu, H., Wu, J. and Li, C., 2009, in IFIP International Federation
for Information Processing, Volume 295, Computer and Computing Technologies in Agriculture
II, Volume 3, eds. D. Li, Z. Chunjiang, (Boston: Springer), pp. 2265–2273.
FAO, 2006. Traçabilité et information du consommateur dans le commerce du poisson. Comité
des pêches : sous-comité sur le commerce du poissoncofi:ft/x/2006/6
Gresham M.T. and J. Andrulis, 2002. Optimization of information to improve decision making in
government: The information value chain way, IBM Institute for Business Value. p. 19
68
MODULE 7: UNDERTAKING VALUE CHAIN ANALYSIS IITA-IFAD
7
UNDERTAKING VALUE CHAIN
ANALYSIS
Starting
Upgrading & point:
Guiding Questions Capacity Chain
Building Selection
 What are the benefits – practical and conceptual relevance – of
implementing a value chain analysis?
 What are the basic organisational and analytical tools needed to
be knew and understood before starting a value chain analysis?
And how important are these tools? Analyze chain
Governance and STEPS IN
 How to select relevant and appropriate chain for VCA? Institutional VALUE CHAIN Chain
 What are the different steps and tools needed for mapping a influences ANALYSIS Mapping
value chain?
 Which aspects should we put emphasize on when measuring the
chains?
 How to identify the chain constraints and opportunities?
 What are the influences of governance mechanisms and Identify
institutional environment dynamism on chain performance? Constraints
and
Chain
 Which upgrading strategy is appropriate for small and medium Opportunitie
Measurement
scale enterprises for demand driven technology development and
adoption for market access and income generation?
1. Why Value Chain Analysis?
Value chain analysis is important both conceptually and practically. Conceptually, the value
chain approach presents a good picture of the process of creating value. For one thing, it shows
clearly that production is not the only way to create value. A product is brought to market
through a combination of activities, all of which contribute to its final value. The value chain
concept also enhances our understanding of the way trade takes place today. Research on value
chains shows that an increasing amount of international trade occurs within trading networks.
Firms in the networks are formally independent of one another, but linked by personal relations,
repeated transactions, and often dense information flows. Networks contain firms of many
different types, from global buyers to small-scale producers.
The practical usefulness of value chain analysis allow to understand problems and find ways of
improving the situation of the “weaker” links in the chain, i.e., those with low returns and little
bargaining power (small-scale agricultural producers). So VCA can be helpful for:
 Understanding problems of market access: Even when developed countries reduce tariffs
or eliminate other trade barriers, your country’s producers will not automatically gain
market access. This is because many chains into European and North American markets
are directed networks. In order to participate in them, developing country producers need
access to the lead firms in these chains. Larger firms and those with other international
connections are more likely to gain this access than small, unknown producers.
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 Acquiring production capability: Those producers that gain access to a chain’s lead firm
are pushed to upgrade their production capability very quickly. The lead firms are very
demanding with regard to reducing cost, raising quality, and increasing speed. But they
also transmit best practices and provide hands-on advice. This combination of high
challenge and high support explains how relatively underdeveloped regions can become
major export producers in a short period of time.
 Understanding the distribution of gains along the chain: Knowing how and by whom a
chain is governed helps to understand the distribution of gains among firms along it. The
ability to govern often comes from strength in particular competences such as design,
branding, marketing, which command high returns, but are difficult for developing
country firms to acquire. Developing country firms tend to be locked into production
activities, in which they produce to the specifications of the lead firm. Since many
producers are capable of doing this, competition is intense and returns are low.
 Finding leverage points for policy and organizing initiatives: Understanding the
workings of a chain helps to identify levers where policy and/or organizing could be used
to improve the distribution of gains. Chain analysis can help to answer questions like
“Who has the power to change things?” or “Which actors are the right ones to
pressure?”
 Identifying funnels for technical assistance: Multilateral and bilateral donor agencies
wanting to provide effective technical assistance to developing country producers are
beginning to look at value chains. Their idea is to combine technical assistance with
connectivity. The lead firms become the entry point for reaching out to many distant small
and medium sized suppliers. These efforts are still in the experimental stage, but they
promise to offer a way of ensuring that more of the gains from chain participation reach
small producers.
In sum, VCA lends itself easily to dealing with particular issues of concern, such as market
access, skill acquisition, labor standards and many others. Once the basic value chain has been
mapped out, it becomes possible to examine, for example, the gender and ethnic character of
production, the impact of the chain on the production location, or the returns to different types of
labor. Once these are known, they can become the focus of advocacy work in both developed and
developing countries.
The main challenges for analyzing value chains, especially in developing countries, remain the
same for all methods and approaches: Availability of information, reliability of information, and
Cost / benefit /time balance.
This module aims to provide the tools for doing the basic VCA. It also emphasizes the types of
survey process needed to carry out VCA. Finally, provides description of VCA step.
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1. Basic tools for value chain analysis
1.1. Organizational tools
1.1.1. Survey processes
A cardinal rule in research design is that what you want to know determines the way you carry
out your research. If the goal is to know how wages of factory workers vary between two regions,
we will then need quantitative information that we can best get either by consulting published
statistics or by administering a survey questionnaire. If we want to know more about
homeworkers’ feelings of loneliness and alienation, we will choose a different method – perhaps
in-depth interviews of a few respondents. In practice, however, the choice of method is less
straightforward than this. Researchers often use more than one method in a given study
(McCormick and Schmitz. 2001).
 Using Secondary Sources: Some of the information that you will need, might already been
collected by others – for example, data on income distribution. Secondary sources are
information sources that do not directly originate from the sector stakeholders themselves (for
example, through interviews or observation), but would instead consist of data gathered by
researchers, government officials, private sector organisations, non-governmental
organizations, journalists etc. Consulting these sources can help you a) to avoid duplication of
existing material, and b) to be well prepared for interviews with your stakeholders. Existing
studies of global value chains of particular sectors might be of interest for your work and
make it much more easier. UNIDO and Schmitz have for example done research on the
global wood furniture and apparel value chain. If your target sector operates in one of these
value chains, these studies will make it much more easier to understand your part of the value
chain and save time and money on research and analysis.
 Conducting Interviews with Key Informants: Interviews with key individuals are an
important part of every research project. Key individuals are people anticipated to have
particular insight or opinions about the topic under study. They may include specialists, such
as academics who have studied the industry or the chair of the manufacturing association’s
textile committee. They may also include government officials at national or local level, or
officials of important organizations such as a national women’s group or garment workers’
union. Key individuals can also be ordinary people. A woman who remembers when the
factories first began putting out work can be an invaluable resource. Key informants are often
identified in a sequential process, beginning with the obvious official types and continuing by
asking each interviewee who might provide additional information (Schmitz, 2005).
 Observations: “Observation can be a powerful teacher. Before beginning to ask questions,
we may simply want to observe the daily routine of one or more homeworkers” (McCormick
and Schmitz, 2005). Observation is a useful tool, when assessing working place conditions.
We might also want to make use of a camera to document our observations and to show them
later to potential donors, decision-makers or stakeholders.
 Focus Groups: Focus groups are a powerful means to get insider information and evaluate
results of research through people of your target group themselves. Basically, focus groups
are interviews organized in workshop form, with 6-10 people at the same time in the same
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group. One can get a great deal of information during a focus group session. The Focus
Group needs not to be a one-time event that merely serves the collection of information. It
can become a continuous and integral part of an upgrading project. It can even set the stage
for a deeper Social Dialogue between sector stakeholders within an Upgrading Workshop
(Module 9). During the research phase, it is a useful instrument to continuously review the
progress of the project and discuss open questions that might occur.
 Questionnaire Survey: Questionnaires are an inexpensive way to gather data from a
potentially large number of respondents. A well-designed questionnaire that is used
effectively can gather information on both the overall performance of the test system as well
as information on specific components of the system. It is a useful tool for gathering both,
quantitative information for a statistical analysis as well as qualitative information on
people’s opinions, expectations and feelings. A questionnaire survey should be considered
under the following circumstances: a) when resources and money are limited; b) When it is
necessary to protect the privacy of the participants; and c) When corroborating other findings.
There exist different methods for different needs. Thorough sub-sector and (often international)
value chain analysis are carried out by external experts: a time and money intensive approach.
Other methods base on participatory principles. These approaches are usually led by an expert /
facilitator who try to bring the most important and interested actors into the analyzing process.
Participatory processes involve a lot of time and some money, and at the same time are important
for creating or fostering trustful relationships. Entrepreneurial thinking people don’t bother on
extensive studies, but develop a business idea, talk about it with key informants (usually other
businessmen) and then ‘just-do-it’.
Figure 1: Different types of value chain analysis.

VCA: In depth value chain study
SSA: Sub-sector analysis
RMA: (Participatory) rapid market appraisal
AR: Action research / R&D
LBC: Local business support centers
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Four (4) types of VCA can be distinguished:

1. In depth value chain analysis
2. Sub Sector Analysis
3. Participatory Rapid Market Appraisal
4. Action research
Combining subsector analysis with in depth value chain analysis (1+2) is the traditional approach
for what is going on within a specific market or sector. The approach is quite time and money
consuming. Local participants participation is sought for information gathering, however despite
that it remains an externally led in depth study.
Participatory rapid market appraisal (RMA) (3). The importance of trust building and therefore
including key actors since the very beginning lies in the center of this approach. The key criteria,
available tools and sources of information are basically the same as in an ‘in-depth-study’, but the
implementation practice is different: The information is generated and gathered through local
stakeholders. This approach is mostly used by NGOs and local consultants.
An Action-Research (4) is either done for re-assuring or changing findings of previous value
chain analysis (in-depths or RMA); or it is done first hand in a trial-and-error approach. The
action research or R&D program is usually performed by entrepreneurs and based on a business
idea or a hypothesis how a value chain works. Based on this idea or hypothesis concrete action
(support, intervention) is made. This triggers a fast learning process; adjustments can be made
quickly and the idea or hypothesis is confirmed or contradicted.
It is important to look at all the value chains in the whole subsector, to understand their dynamics
and interdependences. This will indicate whether the majority of the growers is in prosperous or
dying channel; and when necessary, how to upgrade these farmers into an other channel. The
differences lie within the focus of the analysis, not within the methods. A suggestion of the
discussion is (SDC) to always get the whole picture first (SSA), then decide on specific value
chain(s) and implement VCA(s). And it makes a difference for practical approaches: When
concentrating on a specific VC without identifying other channels of the same commodity,
important possibilities for upgrading can be missed. Further, when programs or projects support
farmers or other actors in a dying channel, increased employment and income will never be
achieved.
1.1.2. Survey instruments for different types of VCA – measuring
Table 1: Survey instruments for chain measuring
Type of VCA Survey instruments to be applied for chain measuring
Rapid & participatory In 1 or 2 workshops, where all chain stakeholders are brought together,
they will actively and collectively map the chain and estimate its
performance.
Rapid & external Quick desk research, some interviews with key informants.
In-depth & participatory First perform an extensive desk study based on secondary information
as well as interviews with key informants. Then organise several
workshops to confirm findings and add data on chain performance,
opportunities constraints and possible interventions.
In-depth & external Extensive desk study based on secondary information, interviews with
stakeholders and semi-structured interviews with a representative
sample of all actors. Interviews with representants of other stakeholders
(institutions).
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This learning by doing approach involves a lot of hard-nosed decisions and some money, while it
delivers real insights, information and experiences. A magic formula for the most adequate
method does not exist. In any case, before starting an intervention some kind of study or analysis
is needed; and the method has to consider all basic information (see the five points mentioned
above).
1.1.3. Triangulate the data

If it is accepted that all the actors are partly correct, then a process of triangulation is useful to
understand the larger picture of the chain. What is triangulation? It can be understood as a
relation between three or more persons who are examining something in particular. Each one can
see a part of the object, but not all of it. If we ask them to draw the object, we get three points of
view that need to be combined into the full picture of the object. Each one sees the system from
their perspective, and therefore can describe what they see or experience, but is partially blind to
the realities of the other actors. To have a more complete picture then, all the points of view must
be combined-or triangulated-as shown in Figure 2.
Figure 2: Triangulation of data
In practice, triangulation implies combining and contrasting data from various viewpoints. It is
common to find that actors describe diverse issues from their viewpoint, but when these are
reviewed, they turn out to be part of the same problem. For example, producers tend to talk of
low prices for their products, while processors and traders talk of the problems of quality and
continuous supply. All are describing the Slime problem (lack of information on what to produce.
when and how) from their own points of view. When data from diverse actors is compared and
contrasted relationships become clear and solutions that benefit the chain as a system, and not a
specific group of actors are evident.
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1.1.4. Managing power relationships

In a complex system with multiple actors (e.g Focus Group Discussions) it is common to find
unequal power relationships. Some feel comfortable talking to outsiders and others will not speak
more than necessary. Likewise, some actors have formal education, or economic resources, etc.
The diverse implications of power in relationships can fill multiple sociological studies, but is
also important for a strategy to increase competitiveness.
In chain analysis, technicians and men with a certain degree of formal or informal education
speak easily from the start. While these actors may have valuable knowledge to share, they tend
to dominate the scene, obscuring the others (persons with little or no education, youth, women,
ethnic minorities, etc.). As a result, only part of chain reality is heard. How do we manage these
power relations to ensure more equitable participation among diverse chain actors?
While many methods exist" experience has shown that the formation of separate groups to map
the chain, analyze business development services, and review chain history is useful. With
separate groups different points of view are heard more clearly, and the final strategy to increase
competitiveness will be more complete and firmly grounded. This practice implies separating
producers, processors, traders, and those offering business development services into different
groups. In addition, if there are important sub-groups within each functional category it may be
necessary to have them work separately as well. This is especially important if the strategy
focuses on a specific population group (small-scale producers with certain characteristics, groups
of women, old or young people, ethnic minorities, etc.), since the problems and solutions
analyzed, should correspond to the focal group and not to other actors in the chain.
1.2. Analytical tools
1.2.1. Cost-benefit analysis (chain Performance measurement)
Cost-benefit analysis is consist in weighing the total expected costs against the total expected
benefits of one or more activities in order to choose the best or most profitable option. The formal
process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).
Benefits and costs are often expressed in money terms, and are adjusted for the time value of money,
so that all flows of benefits and flows of function costs over time (which tend to occur at different
points in time) are expressed on a common basis in terms of their “present value.” Closely related,
but slightly different, formal techniques include cost-effectiveness analysis, economic impact
analysis, fiscal impact analysis and Social Return on Investment (SROI) analysis. The latter builds
upon the logic of cost-benefit analysis, but differs in that it is explicitly designed to inform the
practical decision-making of enterprise managers and investors focused on optimizing their social
and environmental impacts.
1.2.2. Policy Analysis Matrix (PAM) (FOR Chain performance, competitiveness and
Policy implications)
The PAM is a computational framework, developed by Monkey and Pearson (1987) and augmented
by Masters and Winter-Nelson (1995), for measuring input use efficiency in production, comparative
advantage, and the degree of government interventions. The basis of the PAM is a set of profit and
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loss identities that are familiar to any businessman (Nelson and Panggabean, 1991). The basic format
of the PAM as shown in Table 2 is a matrix of two-way accounting identities.
Table 2: Policy Analysis Matrix

Value of input
Value of output Profit
Tradable Domestic Factor
Private Prices A B C N
Social prices D E F O
Policy Transfer G H I P
From this table there is some indicators:

Private profit: N=A−(B+C)
Social profit: O=D−(E+F)
Output transfer: G=A−D
Input transfer: H=B−E
Factor transfer: I=C−F
Net policy transfer: P=N−O
The data in the first row provide a measure of private profitability (N), defined as the difference
between observed revenue (A) and costs (B+C). Private profitability demonstrates the
competitiveness of the agricultural system, given current technologies, prices for inputs and
outputs, and policy. The second row of the matrix calculates the social profit that reflects social
opportunity costs. Social profits measure efficiency and provide a measure of comparative
advantage. In addition, comparison of private and social profits provides a measure of efficiency.
A positive social profit indicates that the country uses scarce resources efficiently and has a static
comparative advantage in the production of that commodity at the margin. Similarly, negative
social profits suggest that the sector is wasting resources, which could have been utilized more
efficiently in some other sector. In other words, the cost of domestic production exceeds the cost
of imports suggesting that the sector cannot survive without government support at the margin.
The third row of the matrix estimates the difference between the first and second rows. The
difference between private and social values of revenues, costs and profits can be explained by
policy interventions.
1.2.3. Lorenz Curve (Equity and Value Distribution)

In economics, the Lorenz curve is a graphical representation of the cumulative distribution
function of the empirical probability distribution of wealth; it is a graph showing the proportion
of the distribution assumed by the bottom y% of the values. It is often used to represent income
distribution, where it shows for the bottom x% of households, what percentage y% of the total
income they have.
The percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It
can also be used to show distribution of assets. In such use, many economists consider it to be a
measure of social inequality. It was developed by Max O. Lorenz in 1905 for representing
inequality of the wealth distribution. This tool is useful for gender and equity measuring in the
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value chain.
Figure 3: Lorenz Curve
Every point on the Lorenz curve represents a statement like the bottom 20% of all households
have 10% of the total income. A perfectly equal income distribution would be one in which every
person has the same income. In this case, the bottom "N"% of society would always have "N"%
of the income. This can be depicted by the straight line "y" = "x"; called the "line of perfect
equality."
By contrast, a perfectly unequal distribution would be one in which one person has all the income
and everyone else has none. In that case, the curve would be at "y" = 0 for all "x" < 100%, and
"y" = 100% when "x" = 100%. This curve is called the "line of perfect inequality."
The Gini coefficient is the area between the line of perfect equality and the observed Lorenz
curve, as a percentage of the area between the line of perfect equality and the line of perfect
inequality. (This equals two times the area between the line of perfect equality and the observed
Lorenz curve.) The higher the coefficient, the more unequal the distribution is.
The Gini coefficient is usually defined mathematically based on the Lorenz curve, which plots
the proportion of the total income of the population (y axis) that is cumulatively earned by the
bottom x% of the population (see diagram). The line at 45 degrees thus represents perfect
equality of incomes. The Gini coefficient can then be thought of as the ratio of the area that lies
between the line of equality and the Lorenz curve (marked 'A' in the diagram) over the total area
under the line of equality (marked 'A' and 'B' in the diagram); i.e., G=A/(A+B).
The Gini coefficient can range from 0 to 1; it is sometimes multiplied by 100 to range between 0
and 100. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to
complete equality, while higher Gini coefficients indicate more unequal distribution, with 1
corresponding to complete inequality. To be validly computed, no negative goods can be
distributed. Thus, if the Gini coefficient is being used to describe household income inequality,
then no household can have a negative income. When used as a measure of income inequality,
the most unequal society will be one in which a single person receives 100% of the total income
and the remaining people receive none (G=1); and the most equal society will be one in which
every person receives the same percentage of the total income (G=0).
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Some find it more intuitive (and it is mathematically equivalent) to think of the Gini coefficient
as half of the Relative mean difference. The mean difference is the average absolute difference
between two items selected randomly from a population, and the relative mean difference is the
mean difference divided by the average, to normalize for scale.
We will now look step by step how to perform a value chain analysis.
2. Different Phases to Undertaking VCA
2.1. Step 1: Value Chain Selection (Starting Point)
Value chain selection begins with a list of value chains for consideration. If a pre-determined list
does not already exist, primary and secondary sources of information can be used to create one.
Information on value chains to consider can be collected from interviews, surveys, and/or
workshops with key informants (who have good general knowledge of the local economy). This
primary data can be supplemented with secondary data from sources including government
agencies, donors, financial institutions, and other development organizations. Multi-lateral
agencies are also a good source for country-specific data on various industries and sectors3.
Micro, small, and medium scale enterprise (MSME) surveys, if they exist, can also provide a
wealth of information about different value chains and assist in ranking their relative
attractiveness for development programs.
Box 1. Issues to be taken into account in chain delimitation
❒ Consider the objectives of the analysis. Why? For whom? For what purpose?
❒ Be pragmatic; what is ideal might not be doable. What resources do we have? Who will do
the analysis? How much time do we have?
❒ Inform yourself about the general issues to be addressed by the desired chain analysis
❒ When defining a focus, look at the relative importance of products and their constituting
raw materials. What is most important, given the stated objectives?
❒ Start with the most logical geographical delimitations (county, region, province, country,
etc.) and ponder the trade-offs of the alternative choices
❒ Draw preliminary chain diagrams (see discussion in next section); discuss and evaluate
them
❒ Think about the analytical convenience of alternative delimitations
❒ Look at the present, but learn about the past and think about the future
3
The websites of the International Trade Centre of the UNCTAD/WTO (www.intracen.org/menus/countries) and
the World Bank (www.worldbank.org/html/extdr/regions) are two examples.
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2.1.1. Determine and Prioritize Criteria
Determining criteria for value chain selection is a critical step in program design. It is a task that
requires strategic thinking about overall program objectives and how to maximize impact. For
example, some development organizations may select value chains primarily on the basis of
market potential - choosing those that show the most promise for increased growth in the
economy. Others may have institutional priorities that mandate a particular focus, such as women
or environmental conservation. Still others may be more interested in targeting value chains with
the largest number of MSMEs. Most likely, donors and implementing organizations will have
some combination of priorities and will have to balance the tradeoffs involved in making
selections (e.g. one value chain might have the greatest number of MSMEs but low prospects for
growth, while another might have a high rate of growth but low participation of women).
Moreover, a donor with various sectoral priorities could target different value chains to achieve
different objectives.
In all cases, value chain selection criteria should reflect the goals of the donor/implementing
agency as well as the capacity, experience, and expertise of the facilitating organization(s).
Examples of selection criteria are described in Table 1 below:
Table 3: Illustrative criteria for value chain selection

Criteria Description
Market Demand and • Evidence of strong effective demand for products being produced
Growth Potential • Buyers have ready market for products but are unable to meet demand
• Unmet demand from municipal authorities or large public works projects
Potential Increase in • Potential for increased revenues at all levels of value chain.
Income and Wealth • Projected increases in sales, profits, or returns to labor
Opportunities For • Potential forward/backward linkages between large and small enterprise.
Linkages • Large buyers are overlooking MSMEs as a source of supply or unable to
organize them to meet their demands.
Potential For Employment • Potential for enterprises (large and small) to create new employment
Generation opportunities as the value chain develops or expands.
Number of MSMEs • Number of MSME operating in the value chain
Value Added Potential • Potential for MSMEs to add value to raw materials and gain higher
Potential For Increases in • Potential for technologies or management systems to increase the productivity
Productivity and earnings of enterprises in the value chain.
Government or Donor • Government interest in a value chain (can translate into positive linkages with
Interest / Existing government services, and favorable policies)
Support Programs • Existing programs that can provide synergy and complementary activities.
Competitiveness Competitiveness of the value chain on the world market and/or of MSMEs in the
value chain.
Agency Mandates • Mandates such as participation of women, rural focus, environmental impact, etc.
can be considered and weighted in accordance with the importance the agency
puts on them
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Box 2: How to select Value Chain Criteria

An international development organization is designing an enterprise development program in country X.
Having reviewed existing data and reports from government agencies and interviewed several development
organizations in-country, nine value chains were identified for consideration:
• green beans • tourism • building construction
• dairy (milk) • avocadoes • wood furniture
• handicrafts • beef • poultry
Based on the organization’s strategic focus on economic development and issues of rural poverty, the following
selection criteria were identified:
1. Unmet Market Demand
2. Potential Increase in Rural Incomes
3. Potential for Employment Generation
4. Government or Donor Interest / Existing MSME Support Programs
2.1.2. Narrow-Down Value Chains

Once selection criteria have been established, it is important to narrow down possible value
chains into a short-list for further consideration. One method of doing this is to create a shortlist
of each value chain under consideration. During this exercise, a matrix is completed which shows
the relative rating of each value chain (i.e., high, medium, low) against the two selection criteria
considered most important to the implementing organization.
For example, the following table presents two illustrative selection criteria, "unmet market
demand" and "potential to increase rural incomes" - one on each axis of the matrix. Any value
chain that falls within the shaded area (i.e., low/medium market demand and low/medium income
potential) is considered less attractive than the other more higher-rated value chains and would be
given lower priority for further analysis.
Potential to Increase Rural incomes
High − green beans

− dairy (milk)
− avocadoes − tourism
Medium
− beef
− poultry
− building construction
Low − wood furniture
Low Medium High
Potential for Employment Generation
Attractive
Not Attractive
Figure 4: Short-listing matrix
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2.1.3. Rank Shortlisted Value Chains

Having narrowed down the choice of value chains, it is important to rank and prioritize the final
short-list. A ranking system to evaluate prospective value chains can be used to conduct this
exercise. Each value chain selection criteria is given a score on a scale of 1 to 5 (with 1 being the
lowest and 5 being the highest score).
The scoring can be done with key informants during a focus group discussion, or internally based
on available primary and secondary data of the value chains. Other tools and theories can be
incorporated into the value chain selection step as well4.
The score for the more important criterion should be weighted higher than the others. A multiple
of three (3), for example, could be assigned to criteria deemed relatively more critical. The score
of that criterion would then be multiplied by three to reflect its higher weighting. Using a value
chain ranking table, the total weighted scores for each value chain can then be compared to
determine their relative ranking. An example of the ranking and scoring process is shown using
the illustrative table below (table 4).
Table 4: Ranking and scoring results

CRITERIA PROPOSED VALUE CHAIN
Unmet Market Demand [weighted 3x] 4 3 2
Potential Increase in Rural Incomes [weighted 2x] 4 4 3
Potential for Employment Generation (weighted 1x) 3 3 3
Government or Donor Interest / Existing MSME Support Programs 3 4 2
(weighted 1x)
Total Weighted Score 26 24 17
2.1.4. Make Final Value Chain Selection

Having ranked a short-list of value chains, the final step is to decide which ones to select for
further analysis. In determining how many value chains to analyze it is important to consider the
amount of time and resources available for value chain analysis as well as subsequent
implementation activities.
Based on the results of the weighted ranking against the selection criteria, as well as the
availability of resources, both the green beans and milk value chains were chosen for more in-
depth analyses.
Once value chains have been chosen the next step in the approach is to map the chain
2.2. Step 2: Value Chain Mapping

The purpose of this activity is to develop a shared understanding of the market structure for
small-scale producers and other participants in the market. A value chain diagram enables the
flows of products, key actors and value-adding processes in the chain to be seen clearly, ensuring
that none of the key elements of the value chain are ignored.
4
Competitive Advantage: Creating and Sustaining Superior Performance, Michael E. Porter, 1998.
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The key questions to do basic value chain map are:
 What are the main stages in the value chain for the product?
 Who are the main actors at each point in the value chain?
 What are the flows of the product (and by product) between different actors?
 Where and to what degree is value added, or value lost, as the product moves along the
chain?
 Which stages of the value chain are most profitable for which actors?
Once there is answer for these questions the first step in chain mapping is the determination of
the product market served: It constitutes the destination of the product and the end point of the
chain map. For example, final market of row cashew nut export in Benin are India (70%),
Vietnam, Pakistan and Singapore (25%); Instead of final market of egg in Benin are household,
public and private restaurant.
2.2.1. How to map the chain?

ican beef chain
Chain mapping is the core of VC analysis. It serves both an analytical purpose and a
communication purpose, as chain maps
reduce the complexity of economic reality
with its diverse functions, multiple
stakeholders, interdependencies and
relationships to a comprehensible visual
model. Map symbols and descriptive
statistic are tools which are used in this
level.
Diagrams representing the chain
functions, main actors, flows and
supporting services are useful tools that
help us to develop an understanding of the
way a chain operates. They should offer a
general overview of the chain structure
and might be drawn with varying levels of
detail and patterned after different design
arrangements.
Experience has shown that it is often
advisable to start with a simplified map, as
the South African beef chain illustrated in
Figure 4, and gradually refine it, as
knowledge is gained during the analysis.
Complex chains, with many activities,
links and subsystems, can be better
visualized when some of specific parts are
aggregated in logical clusters, which can be separately viewed by scaling-up into further maps, if
need be.
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Chain segments will normally be represented by boxes that will be linked by arrows, in order to
symbolize product, information or monetary flows. Some authors will go as far as to propose
conventions to characterize the type of arrows and boxes one should use, but there is no
universally accepted standard to be followed. So, practitioners have flexibility to opt for a
mapping format that is convenient for the specific purposes at hand. A general word of caution is
that we should try to avoid overly detailed representations. Complex chains, with many activities,
links and subsystems, can be better visualized when some of specific parts are aggregated in
logical clusters, which can be separately viewed by scaling-up into further maps.
In some cases, the agrifood chain can present a high level of heterogeneity among agents and
components. For instance, high tech firms can be supplying the most demanding external market
while traditional firms are in charge of the low income internal market. In these cases, it could be
advisable to split the system into two subsystems which will provide a better picture, thus
reducing the complexity of an aggregated map.
One of the important purposes of the chain mapping exercise is the support it provides for
decisions regarding chain delimitation. As we have seen, this decision process can be a rather
complex one. By drawing tentative maps for the alternative delimitation options, we can certainly
make more informed choices. The chain map can also show the share of each actor in the product
flow and the marked added value (figure 5).
Consumers
Producers
Fertiliser <5%
>90 % Domestic
Input 85% Cons.
Extensive, small Traders
suppliers 90%| orchard
>94%
Fruit Wholesalers
GRAFTED
3%
mangoes
losses: < 9%
Seedlings Input use, small Regional cons.
orchard 46 %
Retailers (Niger,Burkina )
Herbicide 2% Processors
Tractor use, big Retailers
Fertilizer orchard
Dried mango processed mango
International
<1%
consumers
4% | LOCAL mangoes Fruit <1% Juice Exporter (EU)
(extensive, small orchard) losses: dried mango
68 % Marmalade
Figure 5: Simple value chain map: Overview of mango value chain in Benin
A related function performed by a chain map is the provision of a tool for the development of a
shared vision, among stakeholders, of the way in which a chain is organized. Practitioners of
chain analysis will agree that the perceptions of different chain actors about the structure and
functioning of their sector of activities are not necessarily similar. A cowpea producer, for
example, might understand well the chain stages where he or she directly acts, i.e. the immediate
links upstream and downstream from the farm business. On the other hand, it is far more difficult
for him or her to have a precise idea of the organization of the processing industry, including the
interactions with other chains, such as the poultry one, as we mentioned earlier. Conversely, corn
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syrup buyers might not be as informed about the chain structure at the levels closer to the farm
business. Therefore, the discussion of chain maps with actors is an important aspect of promoting
a common understanding among these stakeholders.
Chain maps are additionally useful as a guiding resource for research planning. As we will see
next, by knowing the logical organization of a chain, its extent and geographical coverage, one is
enabled to assemble and deploy the team of investigators, as well as better estimate the timing
and resource needs.
Figure 6: Value chain mapping: Theory and reality

Source: Kaplinsky 2000
2.2.2. Chain map quantification
The basic chain map is a descriptive conceptual model of the value chain. To become useful for
decision making and planning, the value chain map has to be complemented by information that
allows comparing the current state of the chain with potential alternative states. Therefore, the
elements of the chain map are treated as variables which are changing over time. For example,
functions may be performed more efficiently, the number and sizes of operators may increase,
contractual relations be formalized, and chain supporters may change their behavior. Many of
these chain elements can be influenced by the (collaborative) action of enterprises and support
agencies. In order to assess the potential impact of the different alternatives for upgrading, a
“baseline” of the current state of the value chain needs to be established.
Conceptually, quantifying the basic chain map is quite straightforward. Quantification means
attaching numbers to the elements of the chain map. For example:
 Number of operators (possibly differentiating size of farms and enterprises)
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 Number of jobs and employees for each category of operators (also according to gender)
 Number of poor operators in each stage
 Prices paid at each chain link between stages
 Volumes and turnover in each chain stage
 Shares of product flow of the different sub-chains / distribution channels
 Market share of the value chain (or sub value chain) defined as percentage of the sales
value in the overall market.
Each type of information produces another perspective, an “overlay” of quantitative information

on the same basic chain map. Quantification obviously depends on the availability and reliability
of secondary data, especially statistics. Data therefore need to be cross-checked from different
sources. This is particularly true for information based on statistics, which in many countries are
just not reliable. Cross-checking will allow at least rough estimates, which are usually good
enough for taking decisions.
2.2.3. Mapping chain elements and segments
The descriptive analysis can be elaborated in more detail by specifying particular parts of the
basic chain map creating detailed “thematic” maps. For example, a thematic chain map may show
support service providers, or it may focus on categories of operational service providers and their
interaction with the operators in the main line. Detailed mapping is a matter of map scale: As in
geographical maps the overview chain map is at a “small scale”, while detailed maps on specific
chain segments or distribution channels use a “large scale”. It is generally useful to produce a
series of chain maps instead of including too much information in just one. Any aspect of value
chains can become the subject matter of specialized chain studies. The following topics are
typical areas of concern for facilitators of agricultural chain development.
2.2.4. Analysis of business linkages and governance

The forms of chain governance range from spot market to vertical integration of the entire value
chain. Analyzing the existing business linkages includes, to judge the intensity and sustainability
of cooperation, the existence of lead firms and their attitude and commitment. A related point is
the analysis of conflicts arising from differences in negotiation power, asymmetric information
and competition for resources between VC operators. Business linkage studies also include the
degree of sector organization, especially the capacity of commercial business associations (e.g.
producer groups and associations and professional organizations).
2.2.5. Stakeholder analysis

Each category of operators and service providers has characteristics that may be relevant for their
ability to participate in an upgrading project. A stakeholder analysis is particularly important in
the case of poor and weak market participants. A relatively straightforward criterion is the
number of chain operators classified as “micro”, “small” or “medium”. In the case of agricultural
producers, important aspects include off-farm income, number of household members, food
security situation and the competition of cash crops for farm labor and cash resources.
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Addressing their capacity to contribute to and benefit from upgrading also includes analyzing
their technical, entrepreneurial and marketing competence, current market access and capacities
for horizontal and vertical cooperation. A source of templates for stakeholder analysis in value
chains can be found in Bourgeois, R. and D. Herrera, 2000.
2.2.6. Framework conditions at the macro level
The assessment of the macroeconomic and legal framework of chain development includes
studying the relevant national and international trade policies and the existing legal provisions for
the market in question. Attention should also be paid to the social and cultural factors
determining business behavior. The influence of trust, the behavior and willingness of operators
to cooperate are decisive factors. However, social norms are often excluded from the discussion
since they are difficult to analyze and bear conflict potential. Research on the influence of social
norms in business networks is quite new, even in industrialized countries. Some indications may
be found in the proceedings of the conference on “Trust and Risk in Business Networks”.
2.3. Step 3 : Identifying Constraints and Opportunity
In general, two analytical tools can use to make constraint and opportunities identification:
SWOT diagram and the problem solution tree
2.3.1. SWOT diagram

The underlying purpose of a Value Chain Analysis is to identify weaknesses and opportunities,
thus showing up areas where there is a need for change. By carrying out field research and
comparing diverging perceptions and performances as well as identifying value chain governance
types, leverage points and change agents, you will have come across many Strengths,
Weaknesses, Opportunities and Threats. This is commonly called a “SWOT Analysis”.
The constraint analysis shows that the major bottleneck is the supply of certified wood. Both the
chain map as well as the analysis of opportunities and constraints is simplified.
Another form of presenting the information is by linking the chain map with a SWOT analysis
that summarizes the insights of the different value chain studies. Box 3 shows the principal stages
of the cashew kernel value chain in Benin, complemented with results of a SWOT analysis
below, thus linking operators at different value chain stages and level to constraints and
opportunities identified in a SWOT analysis. Another way consist in use of simple table and
present in the column some constraint and opportunities and in the line different stage of value
chain.
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Box 3: SWOT analysis in fish sub sector, Kenya

INTERNAL
- Associations exist, representing the - Limited human/ financial capacities

fishermen - Weak buyer-seller linkages
- Clear objectives & commitment knowledge on quality is limited despite
of fishermen’s Executive Council training
- Potentially high lobbying power - Out-dated technology of artisan and
due to 5% share in GDP industrial vessels
- Service offers available for entire - Insufficient access to finance
value chain
NEGATIVE
POSITIVE
- Increasing investment in
processing and marketing S W
O T
- Access to Regional and EU market - Rising fuel prices
- New products (e.g. deep sea fresh - Artisan fishermen poverty; stricken
fish, value addition) - Insufficient storage and port
- New technologies for improved infrastructure
fishing - Overfishing; increasingly ambitious
- New technologies for improved Standards of buyer markets
processing and waste reduction Deficiencies of the vocational and
higher education system
Inadequate legal provisions
EXTERNAL
2.3.2. Problem solution tree

Problem and solution trees (PASTs) have been extensively used in developing countries, in part
because of their role in logical framework analysis (LFA), and their value is therefore widely
recognized. LFA has become a key tool for a number of major international and bilateral donor
agencies.
Initially LFA involved a
matrix only, however it has
expanded, and guidelines
now include a number of
additional tools, including
PASTs. Problem trees can
help to ‘determine the root
causes of the main
problem, identify the
effects and also possible
solutions.
The approach
recommended for
developing the tree is to
work with a group of
informed individuals or
stakeholders in a
Figure 7: Exemple problem Tree
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workshop-style environment. The first step in the process of developing a problem tree is to reach
agreement on the specific starting problem to be addressed, for example, low rates of rice yield.
The main word used to aid the development of a problem tree is ‘why’. Why does that situation
occur? Beginning with the starting problem, the factors contributing to the problem are identified
by the group, and then what underlies these and so on. This builds up levels or layers of
underlying factors or determinants (represented as roots). The process can continue until the
analysis reaches a point where solutions become apparent, or when a certain number of levels,
commonly three, have been detailed. The impacts of the problem, such as low income, hunger
etc. are also identified (represented as branches and leaves). The entire tree can be displayed as a
stylized tree drawing, or as a series of boxes interlinked by lines or arrows.
Once the roots and branches have been completed, the final check is done to ensure that it
‘works’, that the statements are logical and reasonable, and that identified factors do lead to the
starting problem being discussed. Once the problem tree has been completed, the solution or
objective tree can be developed (Figure 8).
Figure 8: Exemple solution Tree
The objective tree uses exactly the same structure as the problem tree, but with the problem
statements (negatives) turned into objective statements (positives). Most simply this is done by
reversing the problem factor, so, for example, low adoption of Integrated Pest Management is
turned into high adoption. An entire solution tree which has the same number of solutions as
there were problems is developed, not just focusing on one area, so all the possibilities are
included. This ensures a more comprehensive assessment, although not all the actions would
necessarily be taken.
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Figure 9: From limitations to solutions

Source: CIAT, 2004
2.4. Step 4: Value Chain Measuring
After make the value chain map, we have to measure the value chain. This analysis of the value
chain is an important input into the decision on development objectives and the upgrading
strategy. In fact VC measuring complement chain map with additional qualitative and
quantitative data. VC measuring allows getting a thorough understanding of the performance,
critical control points and opportunities of the chain. But the problem is that all of these VCA is
highly challenging, not only in developing countries or emerging economies. Empirical research
is costly and does not guarantee sufficiently accurate data. In most cases, analysts will have to be
content with rough estimates. In view of the fact that economic analyses are used to facilitate
business decisions bearing income risks for the operators, it is recommended to have cost
calculations and benchmarking done by trained staff. Facilitators have to keep in mind that they
are responsible for the quality of their recommendations and the economic data on which they are
based. In any case, economic data generated in the context of value chain promotion can only
give indications. The entrepreneurial decisions have to rely on firm data, anyway.
They have three levels of VC measuring:
 Micro –level : Actor level (“chain operators”)
 Meso-level: Chain level (“chain supporters”)
 Macro-level : Institutional and policy level (“chain enablers”)
So there are six groups of indicators which allow us to make value chain measuring. These
groups of indicators can spread in each level of analysis or can cover more than one level.
89
Table 5: Groups of indicators per chain level

Micro-level Meso-level Macro-level
Actor segmentation Financial and economic Policy impact (policies, laws,
Micro-level
Market segmentation profitability and regulations)
Chanel decision
Growth
Competitiveness
Quality management
Supplier quality management
Product
Process management
Gender equity
Public or private services
Horizontal coordination Policy impact (policies, laws,
Meso-level
Vertical coordination and regulations)
Type of governance
structure
Value added distribution
Public services
Policy impact (policies, laws,
Macro-level
and regulations)
The follow table will summarize the different elements to measure the chain. It is important to
note that it is important to first check whether the indicators can be retrieved from secondary
information (reports, statistics, journal articles etc.) before developing the survey instrument.
Some of the elements might already have been discussed in the mapping phase, and can be
skipped if the already available information is accurate and from a trustful source.
Also we want to note that the list of variables and even indicators is not exhaustive. It should be
adapted and completed according to the chain specifics and characteristics of the product under
study.
Chain measurement indicators
A B C D E F
Channel* Actor/chain Quality Governance Equity Institutional
choice performance performance and policy
environment
Spot market
Actor Profitability Product
segmen-
tation Hybrid Gender Policy
Quality equity impact
Growth management
Market Verticaly
segmentation integrated Value Public
added services
Competitive- Supplier distribution
Vertical and ness quality
horizontal management Private
integration services
Process
Channel management
decisions
Figure 10: Indicators for chain measurement
90
Table 6 : Summary of elements to measure the chain

Main chain Indicators Analytical tool Level of Variables (=data to be collected) at each chain actor level. Not
concepts analysis an exhaustive list! To be adapted according to chain specifics.
5
Quality Quality Perception Micro - Has the employer received training on quality management
performance management survey, practices?
(effectiveness of descriptive - Are the employees trained regularly on quality practices
meeting statistics.
customer Supplier Perception Micro - Do you have access to good quality inputs ( e.g. seeds)?
expectation) quality survey, - Do you choose your input suppliers on quality or price?
management descriptive - Do you pay a price premium for high quality inputs?
statistics. - Do you communicate your preferred quality attributes of
inputs to your supplier?
- Do you (carefully) check the quality of the inputs before
usage?
Product Perception Micro - What is the level of variability of the product quality?
survey, - Is the product complying with public and private sanitary and
descriptive phytosanitary norms and standards?
statistics. - Is the product responding to consumer preferences at targeted
market6?
- What is the rejection rate of the product at the market?
- What is the % of product losses?
- What are the causes of losses? (pests/diseases, transport,
storage, handling, packaging..)
- What is the nutritional value of your product?
- Is your product safe ( free of pesticide residues, harmful
micro-organisms and treated hygienically)?
Process Perception Micro - Do you work with fixed employees that are aware of
management survey, procedures and operation standards or every time different
descriptive workers?
statistics. - Is there a quality control system in place?
- What are CCP’s in the production process?
- Are the CCP’s technological (e.g. storage temperature) or
organisational (e.g. handling practices) of nature?
Actor/chain (Financial and Cost-Benefit Micro/ - What are your input, output and transaction costs? (for an
performance economic) analysis meso example of detailed survey on costs/benefits of producer see
profitability annex/box…)
- What are the respective opportunity costs/ shadow prices?
Growth Descriptive Micro - Did the volume of sales increase over the past years?
statistics - Did you receive a higher price over the past years?
Competitivene Cost benefit Micro - How did the firm perform compared to competitors
ss analysis and (benchmarking)?
PAM - Is it more efficient to import the product from another country
( domestice resource costs-ratio)
Equity Value Added Cost-benefit Meso - Use the results from the profitability analysis on micro-level
distribution analysis/
Lorenz C &
Gini
5
Micro=actor-level, meso=chain level and macro=instutional and policy level. Results from analysis on micro-level
with all chain actors can be combined to make conclusions about meso-level.
6
In absence of secondary information available on consumer preferences (preferred product attributes), for an in-
depth VCA an analysis of consumer preferences will be necessary.
91
Main chain Indicators Analytical tool Level of Variables (=data to be collected) at each chain actor level. Not
concepts analysis an exhaustive list! To be adapted according to chain specifics.
5
Coefficient
Gender equity Perception Micro - Do women and other minorities have equal access to input and
survey, output markets?
descriptive - Is the level of profitability different for female and other
statistics minority actors, which can not be explained by the input-output
costs?
Institutional Policy impact Policy Micro- - What taxes and subsidy rates are applied on the inputs and
and policy (policies, laws, Analysis macro outputs?
environment regulations) Matrix (PAM) - What other informal taxes exist (e.g. corruption)?
For an example of PAM analysis on cowpea/mango juice see
annex/box…
Public or Perception Micro - Do you receive technical assistance?
private survey, - Do you receive training/ advice?
services statistics - Do you have access to credit?
- Do you have any kind of assurance?
Public services Perception Meso - Is there a Market Information System (MIS) in place to
survey, support chain functioning?
statistics - What is the status of infrastructure along the chain? (e.g roads,
storage, market facilities, water availability etc.)
- Does public inspection and a penalty/sanction system exist?
Governance Type of Survey Meso - Wat kind of agreement exists between the actors? ( spot
governance market transactions, formal, informal, outgrower system etc.)
structure - Is one of the chain actors (explicitly) coordinating the
activities of other actors?
- Does power asymmetry exist within the chain?
- Who are price setters and who are price takers?
- In transaction between chain actors, who has negotiation
power?
- Is the transaction (product) complex characteristics?
- What is the level of trust between actors (e.g. can the buyer
buy on credit)?
- Co investment in resources and capabilities occur within the
chain?
Channel choice Actor Survey Micro - Typology of chain actor (based on selected criteria that are
(mostly already segmentation expected to influence the profitability of the actor) (see for
covered in example annex..
mapping
process) Market Survey Micro - Are you targeting one or more consumer categories?
segmentation - Do you have an alternative market in case of insufficient
demand in the first targeted market?
- Do you always manage to sell your complete production?
Horizontal Survey Meso - Are you active member of a formal or informal cooperation?
coordination - What are the advantages of being member of cooperation?
Vertical Survey Meso - Are you performing various activities in the chain?
coordination
Channel Survey Micro - At what basis do you select your chain partners (e.g. seed
decision suppliers, buyers)
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2.5. Step 5: Value Chain Governance
The type of value chain governance will essentially determine the success of your intervention
strategies. Interventions in value chains based on market relationships will be different from
interventions in value chains that are characterized by hierarchical relationships (see “Value
Chains”, in: Explaining Concepts).
The Box 4 presents the indicators that can help identifying the type of relationships. We have to
keep in mind that sector may probably feed into several chains that might each differ in terms of
governance.
Box 4. Value chain governance indicators

Indicators of market-based or arms-length relationship:
❒ Many customers/many suppliers
❒ Repeat transactions possible, but information flows limited
❒ No technical assistance.
Indicators of balanced network:
❒ Supplier has various customers
❒ If supplier has few customers, customer has few suppliers
❒ Intense information flow in both directions
❒ Both sides have capabilities, which are hard to substitute.
❒ Commitment to solve problems through negotiation rather than threat or exit.
Indicators of directed network
❒ Main customer takes at least 50% of output
❒ Customer defines the product (design and technical specification)
❒ Monitoring of supplier performance by customer
❒ Supplier’s exit options are more restricted than customer’s
❒ Customer provides technical assistance
❒ Customer knows more about the supplier’s costs and capabilities than supplier
knows about customer’s.
Indicators of hierarchy
❒ Vertical integration of several chain stages within the firm
❒ Supplying establishment owned by customer or vice versa
❒ Very limited autonomy to take decisions at the local level. Having to consult
with or obtain permission from ‘headquarters’.
Within value chain maps, different types of relationships can be illustrated by using varying
styles for the lines connecting different value chain actors (figure 11).
93
Figure 11: Illustrating different types of Governance

Source: Adapted from ILO, 2005
However, it is also important to know about the implications for an upgrading solution that
different governance types have. In general, one can say that the more hierarchical relationships
get, the more global lead firms will have to play a constructive role in local upgrading. Within
large companies that have integrated several stages of the value chain, an upgrading solution
cannot be found without the cooperation of its management. On the contrary, the more market-
based relationships get, the more interventions will have to concentrate on an enabling business
environment and supporting institutions. The more market-based value chain relationships are,
the wider spread upgrading solutions have to be. This will be discussed deeply in Module 10.
2.6. Step 6: Determining Chain Upgrading Strategy
The term upgrading denotes the development path of a value chain. Four trajectories should be
considered to make chain upgrading. There are:
(1) Process upgrading: This is the improvement of production and distribution technology
and logistics. It’s consisting in increasing the efficiency of internal processes, both
within individual links and between the links in the chain. These forms of upgrading
improve overall efficiency. An example of these upgrading trajectories is cowpea
storage in plastic bags for longer shelf life.
(2) Product upgrading: that is the innovation (new product), diversification or
improvement (old product) of the final product. This upgrading trajectory consists for
example in train workers on good harvesting practices for increased mango quality.
94
(3) Functional upgrading: means the shifting of value chain functions from one value
chain operator to another (e.g. shifting primary processing to farmers). It leads to a
different distribution of value added across the stages of the value chain. In summary
it’s consist in change the mix of activities within the firm. For example, on-farm
seedling production, instead of buying from nursery.
(4) Chain upgrading: consist in moving to a new value chain. For example in Taiwan firms
move from transistor radio manufactured to calculator, and from television
manufactured, to computer monitor, lap-top and actually to mobile phone. In agriculture
chain upgrading can result in moving from mango production to cashew nut production.
The chain upgrading strategy consist in four steps bases on opportunities and key issues
identification from the previous stage. This methodology is based on value link methodology
design by GTZ. In fact the identified solutions will be translated into innovations that will follow
a logical path to get from a general limitation to the general objective, by innovations in the shape
of activities or products that will form a strategy to increase the competitiveness of the chain.
2.6.1. Agreeing on a vision and strategy for value chain
Value chain promotion needs a strategic perspective. The upgrading vision describes the aspired
change of the value chain answering the question: How should the value chain at stake look five
years from now? Determining the desirable future of the value chain is an indispensable task
because:
 Visioning defines (or confirms) what the endeavor to develop the chain is all about. Beyond the
selection of a particular value chain, visioning defines the actual justification for promotion.
 Visioning provides strategic direction. Unless the perspective for chain development is clear, it is
difficult to prioritize action and to keep focus. In fact, some key elements of an upgrading
strategy only appear after a systematic check on what it takes to realize a vision.
 Visioning is the basis for a consensus among stakeholders on the way forward. Motivation and
the willingness to cooperate presuppose that stakeholders share the view on the future.
The upgrading vision and strategies can be visualized in the value chain map by combining the
anticipated aggregate change - the vision, (e.g. “increased chain revenue”) with the strategies
(e.g. “improved product”, “better quality management”). The following figure present typical
combinations of vision and strategic objectives. These visions and strategies roughly correspond
to the generic options introduced above:
 a product development or quality strategy
 a cost reduction / market penetration or market development strategy
 a (foreign) investment strategy (mainly for market penetration)
 a value redistribution strategy
Each graph shows the operators to which the visions refer, as well as the points in the chain
where strategies would set in. The chain map can be used to exactly locate the objectives. The
wording is kept generic. When applying these templates in practice, the formulation of visions
and the strategic objectives have to be worked out properly.
95
Figure 12: Product development/Quality upgrading strategy
2.6.2. Setting operational upgrading objectives
Vision and strategies have to be translated into concrete and realistic action plans. In preparing
upgrading action it is important to distinguish between the roles and responsibilities of
enterprises, supporters at the meso level and the external facilitators. The action to resolve
constraints and address the opportunities has to be taken by the enterprises and chain supporters.
Consequently, these actors also have to set the operational tasks for upgrading. This involves
assigning concrete responsibilities, either to individual actors or to representative bodies if
solutions have to be generated in a joint effort. The contributions and facilitating role of an
external development agency is determined later and follows a different logic Formulating
operational objectives includes synthesizing the analysis of opportunities and constraints and
turning them into action proposals. Action proposals should name the functions and operators
they refer to. The proposals can be aggregated into “fields of action”.
2.6.3. Identifying actors implementing the upgrading strategy
Obviously, any strategy remains incomplete if it does not specify who implements the action
program. As a general rule, the responsibility for upgrading action has to be taken by the chain
operators (groups of enterprises, lead companies or business organizations) and by the meso-level
organizations in the respective value chain. Unless the chain actors assume this responsibility,
external support will not be successful – and no impact be achieved. A key task in planning chain
upgrading is to carefully identify those value chain actors who are capable and willing of taking
the project ahead. To the extent that these actors need support themselves, they become partners
for an external development agency during implementation. Chain actors bearing responsibility
for the upgrading action should:
❒ fully subscribe to the upgrading strategy including the expected public benefit, and
❒ be able to contribute to upgrading the value chain.
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2.6.4. Anticipating the impact of chain upgrading
Wherever a public agency engages in promoting private sector development, be it a development

agency, a ministry of economic development, or an export promotion bureau, tax money is spent
to achieve a political objective. In the present case, the rationale of the public support is to foster
pro-poor economic growth (PPG). It is assumed that PPG is achieved by strengthening the
organization and the capacity of key chain actors in value chains that have been selected for their
PPG potential.
The prototype impact model is an approximation to a wide range of chain promotion projects,
every such project has to come up with a formulation of its own. Basically, the procedure of
constructing an impact model is to work from the vision and objectives down-wards identifying
the logical preconditions for the benefits. The procedure is very similar to operationalizing the
chain vision into upgrading objectives as described in task 2 of this module. The difference is that
the impact model specifies the whole sequence of events between the action at the bottom of the
model and the benefits by adding the intermediate steps. Each step explains and illustrates the
logical connection between the interventions and the expected impact.
Figure 13 : Connection between the interventions and the expected impact on chain upgrading
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GTZ (2007) Value Links Manual the Methodology of value chain promotion, first Edition;
Agriculture, Fisheries and Food and Economic Development and Employment; 221p
ILO (2006) A guide for value chain analysis and upgrading Genève; 211p
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MODULE 8: VALUE CHAIN PERFORMANCE IITA-IFAD
VALUE CHAIN PERFORMANCE
❒ What are the metrics of chain performance in a context of less

developed countries dominated by small scale stakeholders?
❒ What are the definitions of major chain performance indicators?
❒ How to evaluate/calculate these indicators?
❒ What are the role and importance of benchmarking in performance
evaluation? How to use it considering the existing challenges?
❒ What are the drivers of chain performance?
1. Metrics
The performance of an industry or sector may be explained by: examining various

activities in the production chain and comparing these with national or international
benchmarks; identifying gaps in performance; and probing into the underlying policies,
institutions, and infrastructure-related inefficiencies that directly affect productivity and
competitiveness.
The metrics used to measure the performance of a value chain include:
1. Cost 5. Effectiveness
2. Time 6. Efficiency
3. Value added distribution 7. Gender/Equity
4. Productivity 8. Sustainability
Cost and productivity are the underlying factors in determining the competitiveness of an
industry. Costs encompass both monetary costs (such as raw material costs, input costs,
and utility costs) as well as transactions costs (such as time delays, red tape, and
regulatory barriers).
Interpreting cost and time in a meaningful way and then relating it to policy and
institutional factors requires establishing benchmarks and conducting a performance gap
analysis. It entails tracing the overall performance of the supply chain and sifting through
the layers of qualitative and quantitative information (obtained from mapping the value
chain; computing time, cost, added value and productivity; benchmarking; and drawing
out policy insights) to reveal the underlying reasons for the gaps, which often point to
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priorities for action. These reasons could include policy distortions, institutional
inefficiencies, infrastructural gaps, factor market rigidities, and market failures. This stage
of analysis essentially involves compiling and evaluating information and data from
multiple sources to determine cause-and-effect relationships (Confer Module 7).
The tracing process (See Module 6) needs a systematic approach with a starting point that
will then be linked to critical areas that underlie specific causes linked to policy
distortions, institutional inefficiencies, infrastructural gaps, factor market rigidities, and
market failures.
It is critical to choose the right starting point—and therefore the appropriate metric, which
should help in evaluating the overall competitiveness of the chain. A useful metric in this
context that yields a tractable measure is the shipment value or, more specifically, the
FOB price of a consignment at the point of transfer to the buyer.
Value added and productivity are useful measures to show whether a firm is competitive
in its current operating and regulatory environment. Value added is defined as the value
of output at market price (factory gate price, or more often, the FOB price) minus the
value of all intermediate inputs purchased from other firms. Value added thus represents
the contribution of, and payments to, the primary factors of production.
The more value a firm can add to a product for a given primary and intermediate cost
configuration, the greater its profitability. The potential to add value to a product lies in a
firm’s ability to keep raw and intermediate input costs as low as possible and to increase
the price of its finished product in the market. Given that most firms in developing
countries are price takers, value added therefore is dependent on the following two
factors:
1) Productivity: Greater productivity enables higher levels of final output given a
particular configuration of inputs. Productivity is one of the critical factors in determining
competitiveness.
2) Costs of production: Costs of production are affected by policies, institutions, and the
industry structure that governs the supply of primary and intermediate inputs. These could
include tariffs on imported inputs, poor logistics that cause delays in import procurement,
licensing restrictions that impede lower-cost domestic supplies or the poor enforcement of
standards that affect the cost and quality of inputs; labor costs; poor utility services; and
so on.
The basic measurement units that should be computed as part of a value chain analysis
include the following:
• Intermediate inputs as a percentage of shipment value (or FOB price)

• Value added as a percentage of shipment value
• Value added as a percentage of the total wage costs
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• Logistics costs as a percentage of shipment value

• Inventory cost as a percentage of shipment value
• Cost of factor inputs:
! Land as a percentage of shipment value
! Capital as a percentage of shipment value
! Labor as a percentage of shipment value
! Administrative overhead as a percentage of shipment value
• Cost of utilities as a percentage of shipment value
• Repairs and maintenance as a percentage of shipment value
• Profit as a percentage of shipment value
2. Performance indicators calculation
Calculating profit margins in the value chain requires various types of information and
takes several steps. It is necessary to know the following information about costs,
revenues and benefit (profit margins). For further information on performance indicators
(variable costs, fixed costs, total costs, revenues, profits and margins, gross income, gross
margin, added value, value share, value adding efficiency, net income, etc) and their
calculations see Module 7.
2.1. Indicators of effectiveness
Une action sera jugée efficace si elle atteint son but, quels que soient les moyens utilisés pour y
parvenir. Prenons l’exemple d’un producteur qui cherche à vendre sa récolte. Ce producteur est
jugé efficace s’il arrive à vendre tout son surplus commercialisable. Mais à quel prix ? La réponse
à cette question se retrouve dans le paragraphe 2 du présent document. The following three
indicators help to measure effectiveness of activity in the value chain stage.
2.1.1. Access to input and services
Access to right input and services in a right time for agricultural producers, processors and
traders is important to enable value chain activity. To measure this indicator, try to know:
• Number of farmers which have access to input market such as: fertilizer, seeds, herbicides and
pesticides
• Input acquisition unit price
• Number of farmers which have access to input extension service
• Number of farmers which have access to input by microfinance
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• Input quantity by producers

• Input quantity by acreage cultivated or by crop type
2.1.2. Access to market
Access to market is a very important indicator of the value chain analysis. A well-functioning
value chain has to enable market access to each stakeholder. Use the following indicators to
evaluate access to market.
• Distance between market and township or community

• State of market access facilities
• Availability of transports facilities
• Product selling opportunities (good, medium, low)
• Annual and inter-annual price stability
• Product quantity sells by type
• Communication level (good, medium, low)
• Market importance (local, national, regional)
2.1.3. Quality of products

Quality measure reflects effectiveness in meeting the expectations of customers and
stakeholders. Measures of quality include reliability, accuracy, courtesy, competence,
responsiveness, and completeness associated with the product or service. The following
indicators are useful to measure quality of products.
• Respect of the standards

• Number of stakeholders (producers, sellers, processors) training on quality production
• Product quality diversification
• Perception of stakeholders on product quality
2.2. Indicators of efficiency
An economic activity is considered efficient only if the result is obtained with an economy of
means, so on the basis of optimization calculation to minimize the cost. Let’s take the example of
the producer who wants to sell his harvest in market day. This activity will be considered
efficient, if farmers sold the harvest with minimal transactions cost and remunerative price of the
moment. Efficiency is a productivity measure: a method for examining how effectively a
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program is performing the activities it is doing. This is an indicator that measures the cost of
resources (e.g., in dollars, FTE, employee hours, time, etc.) per unit of output (e.g., per repair, per
case, etc.). There is in the following tree main indicators to access efficiency in the value chain.
2.2.1. Profitability
In a value chain framework, to be sustainable, competitiveness has to be the consequence of the

combined, synergistic action of chain participants. Such actors, in turn, have to be able to cover
their costs and receive an acceptable return on their investments. Otherwise, they will not remain
in business. Profitability is thus a classical performance indicator. Yet, profitability must be
achieved in a sustainable basis. If a chain’s competitive position is a result of, say, subsidies or
other distortions that artificially generate profits for chain participants, this is a potentially
threatening situation in terms of future performance. To access profitability we have to collect
data from following sub-indicator:
• Input cost (high, medium, low)

• Transaction cost (transport, incidental expenses, wasted time)
• Tax
• Yield (quantity of product per acreage unit)
• Production per work unit of the labor
• Cost per unit of working time of the labor
• Quantity of labor hours per day or week
• Losses due to the insects or diseases by acreage unit
2.2.2. Growth
At the state level, we talk about growth like sustained increase of Gross Domestic Product (GDP)
for many years. For a value chain of an agriculture product, growth indicator help to have a
comprehensive inside of market share of the product with potential substitute of similar product
from another country on local, regional and international market. Growth indicator also helps to
analyses product price trend. The two sub indicators which are presented bellow helps to access
growth indicators
• Evolution of product quantity sells to market according to the years

• Trend of the prices according to the years
•
2.2.3. Policies impact
This indicators help to access impact of value chain enablers on its performance. There are many
way to perform an impact analysis. However the more useful tolls which allow accessing policy
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impact on agricultural value chain is the Policy Analysis Matrix elaborated by Monke and
Pearson (1989), through Nominal Protection Coefficient (NPC) and Effective Protection
Coefficient (EPC). To know more about this tools see impact analysis lecture in the same
program. However in African agricultural value chain context, we can’t access policy impact
without the following tree sub-indicator listed.
• Land secure
• Taxes on input (high, medium, low)
• Technical assistance (high, medium, low)
2.3. Indicators of Gender/Equity
The two terms - gender and sex - designating the differences between male and female are
frequently confused. The distinction between them is conceptually fairly simple. “Sex” is a
biological term based on a person’s physical characteristics, while “gender” is an abstract
category linked to the social realities of male and female members of any society. Gender
analysis is a systematic process of examining gender and gender relations in a particular setting.
Its purpose is to help us to understand why development processes often affect women and men
differently. Men are more likely to be involved in artisanal activities like carpentry and metal
work, as well as in service such as vehicle repair. Women are concentrated in traditionally
‘female’ activities such as food processing and dressmaking. Both men and women engage in
trade, but more women are found at the lower end of petty trade in fruits and vegetables. Such an
analysis is useful because it allows interventions by government, NGOs, and others to be targeted
more closely to those most in need of help
Gender differences and inequalities operate at all levels of the value chain, affecting not only
women's rights, but also pro-poor development goals in general. Gender difference is about those
differences between women and men that are freely chosen. However, most 'differences' between
men and women, even where they may involve an element of choice (e.g. what to wear) are
nevertheless embedded in structures of gender inequality which generally ascribe lower value to
women's choices and perpetuate unequal access to power and resources.
How is the value that is added along a chain distributed among chain members? Are there
indications of non-competitive behavior by chain actors? Is information freely and evenly
flowing among chain actors? The current discussion about the power exercised by supermarkets
in fruit and vegetable chains in developing countries is an example of how the equity dimension
can become a concern in value chain analysis. The distribution of value among countries that are
part of so-called global value chains is also an example of equity concerns in performance
measurement. There are many way to access gender issues in the value chain by using the
following sub-indicators.
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• Access of production resources by different social layer

• Women and minorities access to land resource
• Quality of land allocated to women and minorities
• Women and minorities access to input market and services
• Women and minorities access to technologies (processing, post-harvest etc...)
• Women and minorities access to credit
• Women and minorities access to labor
• Women and minorities access to transport facilities for product selling.
• Women and minorities access to information, knowledge, and capacity building on quality
• Women and minorities fair access to water resources
• Fair share of value added between women and minorities
• Women and minorities participation to take resources use decision
2.4. Indicators of sustainability
Sustainability consists in meeting the needs of the present without compromising the ability of
future generations to meet their own needs. The Sustainable Growth is the one that does not
negatively affect the poor, workers and the environment; economic growth that is just and fair
and improves the likelihood of such growth in the future. We can access sustainability through
indicators listed below.
2.4.1. Level of Chemical pesticides use
 Chemical pesticides quantity use per farmers

 Degree of biopesticides or recommended chemical pesticides use
 Number of farmer which use biopesticides or recommended chemical pesticides use
 Pollution degree of underground water
2.4.2. Technical itineraries and agricultural hydro technologies
 Seasonal water availability

 Use of good cultural practices which preserve environment
 Destruction rate of nonrenewable resources
 Degree of land overexploitation
 Destruction level of biological diversities
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2.4.3. Profitability in the time
 Number of years where production system are profitable
2.5. Indicators of governance and organization
The type of value chain governance will essentially determine the success of your intervention
strategies. Interventions in value chains based on market relationships will be different from
interventions in value chains that are characterized by hierarchical relationships. The following
indicators help to identify the type of relationships for an actor. This indicator helps to know
more about level of vertical integration and horizontal integration. Vertical integration is about
market and non-market interactions and relationships between firms performing different
functions (i.e., operating at different levels) in the value chain. Horizontal integration is about
Market and non-market interactions and relationships between firms performing the same
function (i.e., operating at the same level) in the value chain.
2.6. Indicator of market-based or arms-length relationship

 Many customers/many suppliers
 Repeat transactions possible, but information flows limited
 No technical assistance
 Existence of alternative strategies to sell the product
2.7. Indicators of balanced network
 Supplier has various customers

 If supplier have few customers, customers has few suppliers
 Intense information flow in both directions
 Both sides have capabilities, which are hard to substitute
 Commitment to solve problems through negotiation rather than threat or exit
2.8. Indicators of directed network
 Main customer takes at least 50% of output

 Customer defines the product (design and technical specification)
 Monitoring of supplier performance by customer
 Supplier’s exit options are more restricted than customer’s
 Customer provides technical assistance
 Customer knows more about the supplier’s costs and capabilities than
 Supplier knows about customers
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2.9. Indicators of hierarchy
 Vertical integration of several chain stages within the firm

 Supplying establishment owned by customer or vice versa
 Very limited autonomy to take decisions at the local level. Having to consult with or obtain
permission from ‘headquarters’
 Establishment of contract between producers and sellers
3. Benchmarking: Uses and Challenges
Benchmarking of key indicators along the value chain helps to detect performance gaps
and identify the main constraints to a firm’s competitiveness. More importantly, it helps
to prioritize constraints that directly affect the overall competitiveness of the value chain.
Benchmarking is often complicated because reliable comparable data is often not readily
available for all sectors and products. In practice, it is possible to identify key data points
on which benchmarks can be obtained through industry experts and secondary sources
including research papers; think tanks; and agencies such as the World Trade
Organization (WTO), the Food and Agriculture Organization (FAO), United Nations
Industrial Development Organization, International Trade Centre, and the World Bank
Group. (See also Box 1.) In this regard, this report contributes to the benchmarking
process by providing a consistent approach for the analytical framework and use of
appropriate metrics, and in identifying a set of indicators that might be useful to plan for
early in the project cycle (Figure 1).
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Figure 1: Sample Benchmark Indicators for a VCA

Source: FIAS, 2007
Followings are some guiding questions for benchmark establishment:
Box 1. Questions for benchmark establishment
❒ What percentage of industry inputs (i.e., raw materials) is imported? How do the price and
quality of imports compare with domestic raw or intermediate materials?
❒ What international benchmarks are used in the industry?
❒ How do the factor costs (for labor, capital, and key inputs) compare with best practice case
firm in the country, the region or the world?
❒ How does the productivity (of labor, capital, and key inputs) of national firms in the sector
compare with best practice case firm in the country, the region or the world?
❒ How does the capacity utilization of domestic firms in the industry compare with best practice
case firm in the country, the region or the world?
❒ How does the technology in the sector compare with best practice case firm in the country, the
region or the world?
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4. The drivers of chain performance
We have seen that the chain paradigm provides a sound foundation for both positive and
normative appraisals of agrifood systems performance. The methodology to be presented later in
this publication is based on the premise that performance, as judged by one or more of the
criteria we have discussed earlier, is the outcome of the combined impact of several factors that
influence the ways in which a chain is organized and operates. These factors are here
denominated performance drivers. To analyze chain performance, one must identify its main
drivers and then assess the extent to which they contribute, positively or negatively, to the
observed situation.
For the sake of analytical convenience, performance drivers can be clustered into a number of
logical categories, which can be derived from the conceptual framework we have been
discussing. Taking into account economic, organizational and technological issues, we will
explore in this discussion six major performance drivers. They are:
❒ The enabling environment
❒ Technology
❒ Market structure
❒ Coordination
❒ Firm management
❒ Inputs
While the six drivers above should cover the essential factors influencing performance for most
agrifood chains, analysts certainly have the flexibility to adapt them and/or define new drivers,
according to their specific needs and circumstances. For most practical purposes, the possibility
of breaking down the drivers into their constituting elements should provide the flexibility one
needs in order to consider these six categories as a general frame of reference. We will briefly
discuss these major drivers next. Methodologies to assess performance drivers in chain analysis
will be the subject of a later section in this document.
• The enabling environment

The ‘enabling environment’ comprises policies, institutions and support services that form the
general setting under which enterprises are created and operate. Depending on the way it is
arranged, it can either support or harm the performance of an agrifood chain. A chain might be
extremely competitive internationally with regard to the quality and costs of its products, for
example, but this competitive advantage may be lost if domestic policies restrict market access by
mechanisms such as export taxes or costly regulations. On the other hand, competitive
disadvantages in cost and quality might be offset by policies that encourage investments in
production technologies and / or support the provision of technical services. Understanding the
enabling environment is thus crucial in chain analysis. As such, it constitutes the first
performance driver in our framework.
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The range of elements that constitute an enabling environment is varied. Annex 6 lists a number
of issues that are generally considered as central components of a conducive climate for
business activities and as such can be used as a source to guide the analysis of this specific
performance driver.
• Technology
Technologies associated with production, processing and distribution operations in agrifood

chains are essential determinants of productivity and costs. Also, technologies can influence
agrifood product safety and quality. The ability to access technologies, including the requirements
of financial resources, might on the other hand be a potential barrier to competition and thus
affect performance in a negative way.
The evaluation of the ‘technology’ driver should take into account such broad issues. It should
consider methods, processes, facilities and equipment used in agrifood chain operations, plus the
aspects related to research and development (R&D), technology adaptability and technology
adoption patterns.
• Market Structure
Evaluation of market structure might reveal the existence of competitive markets or of
concentrated markets, dominated by oligopolies or monopolies. As noted earlier, there is a strong
correlation between market structure and the conduct and performance of firms. In principle,
competitive markets provide the incentives for firms to seek the type of intra and inter-
organizational efficiencies that favor chain performance. However, the association of
performance with the degree of market concentration is not a simple issue for the chain analyst.
There is in fact a controversy among economists, in that respect. For some analysts, market
concentration allows for economies of scale and investments in state of the art technologies,
logistics, governance and other important determinant of firm competitiveness. Large firms
would be able to coordinate horizontal and vertical arrangements to set up capital intensive
infrastructure. Hence, the evaluation of market structure should not only consider the typical
quantitative indicators, such as market concentration ratios or indexes, but also qualitative aspects
regarding the existence of barriers to entry or the distribution of power among chain
participants.
• Chain Coordination
Coordination refers to the harmonization of the physical, financial and information flows and of
property right exchanges along a chain. Well functioning coordination facilitates planning and
synchronizing such flows and exchanges among a chain’s different echelons, thus promoting
organizational efficiencies. These, in turn, should translate into lower systemic costs, better
consumer responsiveness and increased overall competitiveness. Coordination is affected by
governments and/or organizations that can play a direct role in establishing or fostering public
and private sector strategies and policies of interest to a particular chain. Commodity
associations, chambers of commerce and other forms of trader groups, for instance, are known to
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have been instrumental in the promotion of particular chains in a number of countries. The
evaluation of coordination should concentrate on the mechanisms that govern transactions
among chain participants and on the effectiveness of such mechanisms in promoting the
harmonization earlier referred to.
• Firm Management
The ability of individual firms to efficiently allocate resources, respond to consumer needs and
adapt to market changes is to a great extent a function of its managerial prowess. Management
tools enable firms to control and monitor their production and financial processes, identify
process bottlenecks, make decisions under risks, build long-term strategies, explore markets,
reduce costs, etc. These tools comprise cost accounting and controls, production planning,
inventory control and quality management, to name a few.
While the most important management tools are fairly straightforward and generally well known
in business administration, it should not be taken for granted that their widespread adoption is
the norm in any given chain. In fact, lack of adoption of even the simplest managerial tools is
frequently a barrier to improved efficiency, particular in small and medium scale firms of
developing countries. Also, the complexity of some agrifood chains demands a move towards
increasingly more sophisticated systems of management and control. The rise of the needs to
comply with certification standards for processes and products (ISO, EUREPGAP, etc.) is an
example of managerial challenges for which adequate responses are still needed in many areas
of the world. Another example is the growing need for firms to adopt standardized enterprise
resource planning systems, in order to be able to supply major retailers of agrifood products. An
assessment of the extent to which management is affecting chain performance is thus warranted.
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Box 2. Questions to Consider when Assessing Cost, Quality, and Supply of Materials
❒ What percentage of industry inputs (i.e., raw materials) is imported? How do the price and quality of imports
compare with domestic raw or intermediate materials?
❒ What kinds of protective measures such as tariffs, duties, or bans exist on imports?
❒ What is the quality of the sourced inputs? What are wastage and defect rates?
❒ What kinds of certification do suppliers of inputs require?
❒ Are standards on quality of imported inputs enforced?
❒ Are standards of domestic production of inputs enforced? Are national product quality standards aligned with
international standards?
❒ What kinds of policy restrictions (bans, licensing restrictions) affect the domestic production of this material?
❒ Are the criteria for collaborations transparent? How long does it typically take to obtain an import or operational
license?
❒ What are the contract terms between the buyer and seller of intermediate inputs? What is the structure of the
prevalent buying relationships in the industry?
❒ What is the average lead time for sourcing raw or intermediate material? Is there variability in lead time?
❒ What are the inventory holding costs? What part of the inventory holding costs are due to firm inefficiency versus
policy and market factors outside a firm’s control?
❒ How much time does management spend on locating and obtaining supplies?
❒ How often do disruptions and corruptions occur in supply and why do they occur? What alternate methods for
acquiring inputs are in place? What is the associated cost?
• Inputs
The availability and costs of the main inputs (land, labour and capital inputs) in the different
segments of a chain directly affect its performance. Low cost or high quality inputs can be seen as
comparative advantage of an agrifood chain in a country or region. Availability and regularity of
supply of critical inputs, such as skilled labour and capital goods for both processing units and
farms, should also be evaluated.
As previously mentioned, each performance driver can be sub-divided into sets of constituting
elements, which can then be appraised with regard to their contribution to chain performance.
For the driver ‘technology’, for example, three groups of elements could be defined. The first
group could comprise indicators of technology diffusion. It is important to identify the key
technologies for each echelon of the agrifood chain and the degree of diffusion of these
technologies in the respective chain segment. A second group could comprise indicators of public
and private support to R&D. In this case, information on public and private resource allocation
to R&D, number of R&D organizations, number and types of R&D partnerships, human
resources availability, infrastructure availability and number of patents could be used as
performance indicators. A third group could comprise indicators of yields and/or results already
reached from the adoption. Annex 5 presents the interview guide utilized in a comprehensive
analysis of the Brazilian beef chain (Silva & Batalha, 2000). It illustrates the categories of
information that are typically considered in the analysis of the performance drivers described
above.
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Box3: Competitiveness Indicators for Value Chain Analysis

1. Inputs 4. Productivity
a. Cost of key inputs (raw and intermediate) a. Value added per worker
b. Tariff on main imported inputs b. Output produced per labor hour
c. Input conversion ratio c. Yield per hectare
d. Import dependency ratio d. Value added per unit of investment
e. Time to import (Doing Business Indicators) e. FDI per value added
f. Cost to Import (Doing Business Indicators) f. Average production cost per unit
2. Factor of Production 5. Product Quality
a. Wage/labor hour a. Number of rapid alerts
b. Hiring/firing rigidities (Doing Business b. Defect rate
Indicators) c. Percentage share of exports
c. Interest rate (long-term and working capital) d. Number of certified exporting firms/total
d. Getting credit (Doing Business Indicators) exporting firms (or total producing firms)
e. Rate of return on capital
f. Cost and time to lease industrial land 6. Market Access
g. Cost and time to purchase industrial land a. Order to delivery time (days/weeks)
b. Tariff in key export markets
3. Utilities c. Time and cost to export (Doing Business
a. Electricity cost (US$/kwh) Indicators)
b. Water cost (US$/cubic meter) d. Trade openness index
c. Telecommunication cost (3-minute local call) and 7. Business Environment
% of firms using the Internet to interact with clients a. Enforcing contracts (Doing Business Indicators)
d. Power outage (days) and % of sales lost b. Entry barriers (Doing Business Indicators)
(Enterprise Survey) c. Registering property (Doing Business-Indicators)
e. Number of days to get telephone connection d. Protecting investors (Doing Business Indicators)
e. Licenses
f. Senior management time spent on red tape (Firm
Survey)
g. Paying taxes (Doing Business Indicators)
Source : Adapted from FIAS, 2007
References
1. Mayoux, L., Mackie, G. (2008); Making the strongest links: A practical guide to
mainstreaming gender analysis in value chain development. International Labor Office; Addis
Ababa
2. McCormick D., Schmitz H., (2001); Manual for value chain research on homeworkers in the
garment industry, Institute of Development Studies University of Sussex, UK
3. Da Silva C., de Souza F., (2007); Guidelines for rapid appraisals of agrifood chain
performance in developing countries, Food and Agriculture Organization of The United Nations
Rome.
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MODULE 9 : INNOVATION & UPGRADING IITA-IFAD
INNOVATION & UPGRADING
❒
❒
❒
What is Innovation and Upgrading?
What are appropriate Innovation-diffusion model in pro-poor value?
What are the types of innovation adopters?
❒ Is the technology transfer approach useful in chain upgrading?
❒ How to efficiently and sustainability upgrade in agrifood value chains?
Case study: upgrading of small scale producers
1. Concepts definition
 Innovation
Selon Van Den Ban (1994), une innovation est une idée ou un objet perçu comme nouveau par un
individu ou un groupe social à un moment donné. Pour Greenwald (1984), l'innovation est un
concept pragmatique. Elle a trait à l'insertion de quelque chose de nouveau dans les activités du
monde réel. Pour l’innovateur, les innovations sont généralement censées conduire à une
progression et, par conséquent, à une amélioration de la situation initiale des adoptants. Selon
Adams (1982), une innovation est en fait une idée ou un objet perçu comme nouveau par un
individu. Pourtant cette perception peut exister au niveau d'un groupe social. Partant de son point
de vue, Adams (1982) suggère qu'une innovation peut être classée en innovation technique ou en
innovation sociale.
Nous retiendrons comme définition du terme « innovation » celle proposée par Rogers (1983) et
Renard (2001) qui indiquent que le terme renvoie « à l’introduction dans un système stable d’une
idée, d’une technique, ou d’une pratique nouvelle ». L’innovation suppose, dans notre
acceptation du terme, la possibilité d’identifier l’origine, les canaux de diffusion, ainsi que la
cinétique et le niveau d’adoption de l’invention à laquelle on fait référence.
 Upgrading
Upgrading refers to the acquisition of technological capabilities and market linkages that enable
firms to improve their competitiveness and move into higher-value activities (Kaplinksy and
Morris 2001). Upgrading in firms can take place in the form of:
- Process upgrading - increasing the efficiency of internal processes such that these are
significantly better than those of rivals, both within individual links in the chain, and between the
links in the chain.
- Product upgrading - introducing new products or improving old products faster than rivals. This
involves changing new product development processes both within individual links in the value
chain and in the relationship between different chain links.
- Functional upgrading - increasing value added by changing the mix of activities conducted
within the firm or moving the locus of activities to different links in the value chain.
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2. Innovation-diffusion model
This model is composed of four basic theoretical approaches each focusing on a different element
of the innovation process. These are combined to create a meta-theory of diffusion consisting of
four components: the innovation decision process, the perceived attributes of the technology, the
rate of adoption and individual innovativeness (Rogers 1995).
 Innovation decision process.
The innovation decision process is characterized by five stages: knowledge, persuasion, decision,
implementation and confirmation. In the knowledge stage the individual or household is exposed
to the innovation’s existence and gains understanding of how it functions. However, even after
knowing about an innovation individuals may need to be persuaded to use it because they do not
regard it as relevant to their situation. The outcome of the persuasion stage is either adoption or
rejection of the innovation. The implementation stage is when an individual puts an innovation
into use. The final stage is confirmation during which the individual seeks reinforcement for the
decision made.
 Attributes of innovations and their rate of adoption
Rogers (1995) identifies five attributes upon which an innovation is judged. These are relative
advantage, compatibility, complexity, triability and observability. Relative advantage refers to the
degree to which an innovation is perceived as better than the practice it replaces. Relative
advantage is often expressed in terms of economic, social or other benefits. Compatibility refers
to the degree to which an innovation is perceived by potential adopters to be consistent with their
existing values or practices. Compatibility with what is already in place makes the new practice
seem less uncertain, more familiar and easier to adopt. Complexity refers to the degree to which
an innovation is considered as difficult to understand and use. If potential adopters perceive an
innovation as complex, its adoption rate is low. Triability refers to the extent to which an
innovation may be subjected to limited experimentation. Finally, observability refers to the
degree to which the results of an innovation are visible to others.
 Individual innovativeness
This theory posits that innovations spread gradually over time and among people resulting in
various adopter categories. The result is an adoption process that forms a normal shaped curve
when plotted over time (Rogers 1995). Rogers attributes this distribution of adoption to the role
of information, which reduces uncertainty in the diffusion process.
The innovation diffusion model has several limitations. One of the major shortcomings of the
model is that it generally assumes that the most important variable is information and the
willingness of the individual to change. An individual is characterized according to his behavior
without considering factors that influence his behavior. In reality many other factors are known to
influence the adoption of an agricultural innovation. These include the farmer’s objectives, the
level of the resource endowments of the individuals, access to resources, availability of support
systems and the characteristics of the innovation. For example, access to resources such as labor
and land can limit the adoption of an innovation to a small number of individuals in a society.
Access to productive resources is also gendered, with women having less access than men. In
such cases an innovative individual may be labeled as a laggard, while late or non adoption is
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caused by lack of resources. Information and support services from the extension systems may
also limit the spread of innovation by targeting innovators and early adopters while ignoring the
others.
3. Type of adopters
Based on this argument Rogers has classified adopters into five categories: innovators, early
adopters, early majority, late majority and laggards. Innovators are described as individuals who
are venturesome, eager to try new ideas and willing to take risks. Early adopters are described as
the local opinion leaders in the system who function as the role models and are quick to see the
value of innovations. The early majority is formed by the largest category. These people only
make a decision after they are convinced of the benefits. The late majority are cautious and
sceptical persons who do not adopt until the large majority has done so. They are usually the
relatively poor and are averse to risk. The last group of adopters is the laggards. They are
suspicious of innovations and change agents. They are usually poor and seldom take risks.
Figure 1: Type of adopters - Five Rogers’ categories of adopters
2.5%
Innovators
Early
adopters Early majority Late majority Laggards
13.5% 34% 34% 16%
4. Approaches for upgrading current systems

4.1. Transfer of Technology approach
In this model, also known as central source of innovation model, innovations are seen to move
progressively from the international agricultural research institutions, national agricultural
systems, to national extension systems and finally to farmers (Biggs 1990). The major emphasis
in this model is on the transfer of knowledge and technology from research institutions to
farmers. The key features of the model include assignment of clear-cut roles to specific
institutions and groups of people. Research institutions have either an international or national
mandate to conduct research, extension agents are only supposed to pass on the results, whereas
farmers are seen as technology adopters or people who have problems that are fed back to
extension advisers and researchers. The process of technology generation and transfer is seen as a
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linear process where scientists develop technology, demonstrate it to farmers through the
extension agents, and the farmers adopt it in the final stages. In this model research institutions
are the sole source of technology. The farmers’ experience, knowledge and resources are
overlooked and farmers are thus seen as passive receivers of technology (Leeuwis and van den
Ban 2004). However, this paradigm has proved inadequate for managing the emerging challenges
in agricultural research and technology diffusion today. These challenges include: (1) diverse
biophysical environments, (2) multiple livelihood goals, (3) rapid changes in local and global
economies, (4) an expanded range of stakeholders over agriculture and natural resources, (5)
drastic decline in resource investment for the formal research and development sector, and (6) the
impacts of HIV/AIDS on agricultural production (Gonsalves et. al. 2005). These new challenges
suggest that research and development can no longer be the exclusive domain of scientists, but
must be a joint process requiring the participation of a wider range of actors.
4.2. Multiple source of innovation model

This model, which is an improvement of the central source model posits to understand the
clients’ diverse needs and resources and views the users not merely as adopters but as active
participants in the process of technology development and adoption. This model emphasizes that
agricultural innovations are derived not only from agricultural research institutions but from
multiple sources. These sources include farmers, innovative research practitioners, research-
minded administrators NGOs, private corporations and extension agents (Biggs 1990). In the
multiple source model, perspectives of the users of technology are seen as important in helping to
develop and transfer locally usable innovations (Hardon- Baars 1997). Furthermore, it redefines
the role of farmers from being simply recipients to actors, who influence and provide inputs to
the process. The needs of the users, who include women as well as men in farming households,
are taken into account. In addition, the approach looks at the availability of institutional support
required for successive adoption. The multiple source of innovation model encompasses the use
of participatory approaches that have evolved from efforts to improve technology development
and dissemination. Participatory methodologies are often characterized as being reflexive,
flexible and interactive, in contrast with the rigid linear central source model. Experience has
shown that innovations for improving agriculture need to address not only the technological but
also the socio-cultural, political, economic dimensions such as community structures, gender,
collective action, property rights, land tenure, power relations, policy and governance. One of the
characteristics of participatory approaches lies in innovative adaptations of methods drawn from
conventional research and their use in new contexts, in new ways, often by as well as with local
people. The sustainable livelihood framework is one approach that has gained popularity as it
employs participatory approaches in analyzing interventions in people’s livelihoods.
5. Upgrading in agricultural value chains

Gibbon (2003) suggests that a first step in understanding upgrading opportunities available to
producers in particular global value chains (in this case: producers in developing countries) is to
spell out the reward structures of these chains, and the nature of the roles that currently trigger
rewards. A second step is to outline preconditions or mechanisms for achieving these roles. As
argued by Humphrey and Schmitz (2002) a significant problem for firms which had successfully
managed to integrate themselves into value chains characterized by quasi-hierarchical
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relationships is the danger of ‘lock-in’. Firms find that a large part of their output is going to one
or a small number of customers, and they become specialized in one particular activity, usually
production, and they either do not develop design or marketing capabilities, or allow such
capabilities to diminish because of the strength of the relationship with the global buyer. As such,
they become heavily dependent on this relationship. Humphrey (2003) proposes three main
strategic options for combating a lock-in: market diversification, excellence in manufacturing and
effective use of knowledge acquired from within the value chain.
The body of literature on upgrading opportunities for firms in developing countries addresses
buyer-supplier relationships and coordination as a mechanism for access to global markets and
upgrading. Humphrey (2004) states that insertion into value chains can facilitate the entry of
developing country firms into export markets as they can specialize in production and do not
have to be concerned about such issues as product design, logistics or market requirements in
importing countries because these issues are already addressed by the buyers and their agents.
Furthermore, the increasingly stringent requirements (i.e. standards) of global buyers in areas
such as quality and delivery may offer firms opportunities to add value to products. However,
specialization in production activities within the value chain may leave developing country
suppliers with a limited understanding of market requirements and few opportunities to develop
capabilities in the areas of design and marketing. Humphrey (2005) also warns that there is
danger of developing country producers being trapped in narrowly-confined value chain activities
with low skills and low returns. Humphrey (2004) argues that there are several implications for
upgrading agricultural and manufacturing capabilities in developing countries that cannot be
overlooked. Learning and the acquisition of technological capabilities can be stimulated through
involvement in global value chains. However, there is no guaranteed path to upgrading as a result
of this involvement. Upgrading involves the development of both technological capability and
market access by the firm, but complementary efforts at the local and national levels are needed
to stimulate both. Learning requires investment by firms and other support agencies. Insertion
into global value chains provides opportunities for learning, but these have to be acted upon.
Humphrey (2004) explains that one of the most important lessons of the East Asian experience is
that firms and enterprise development policies must consider integration into global markets as a
learning opportunity that has to be maximized through explicit effort and investment by the firms
concerned, supported by public and public-private agencies. ‘Learning by exporting’ or ‘learning
by doing’ is not enough.
In a study conducted on natural resource-based (i.e. agrifood chains) clusters in Latin America
(Pietrobelli and Rabellotti 2004), upgrading opportunities tended to be confined to products and
processes in quasi-hierarchical chains. In other words, upgrading did occur in most of these
clusters but process and product upgrading was more common, while functional upgrading was
rarely achieved. According to this study, intersectoral upgrading was only detected only in the
Chilean salmon chain, with salmon firms venturing into different patterns of governance within
biotechnology and genetics. Gibbon (2003), however, warns that there are difficulties with the
classification of upgrading (i.e. product, process, functional, intersectoral) in distinguishing
product and process upgrading in specific instances (especially for agricultural products, where
for example the introduction of organic processes generates a new category of product), and the
status of ‘inter-chain upgrading’.
Pietrobelli and Rabellotti (2004) point out that the literature on functional upgrading shows that
although inclusion into global value chains facilitates product and process upgrading, it also
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means that firms become tied into relationships that often prevent functional upgrading and leave
them dependent on a small number of powerful customers. Gibbon and Ponte (2005) draw
attention to the fact that lead firms often sought to explicitly block their suppliers from
undertaking functional upgrading. At the same time, lead firms encouraged suppliers to undertake
process and usually also product upgrading. Gibbon and Ponte (2005) argue that combining
internationalization and functional upgrading in the form of moving into multiple downstream
functions or processes is often extremely resource-demanding. Humphrey and Schmitz (2002)
observe also that the process of acquiring new functions (i.e. functional upgrading) which
generates higher incomes is potentially a critical part of an upgrading strategy.
A critical question is, however, how value chain relationships affect the process of learning,
innovation and the acquisition of technological capabilities. It is important to analyze if
upgrading is relatively easy once firms are within global value chains. Furthermore, one can
question whether technological learning is ‘a dynamic, difficult and costly process’ or one that
needs strategic interventions by firms and support from governments and international agencies.
These upgrading strategies require not only the acquisition of capabilities, but also involve
changing relationships with buyers and markets (Humphrey 2004).
6. Case study: upgrading of small producers in Honduras

Process, product and functional upgrading can enhance value chain productivity and
competitiveness of a firm. Upgrading entails not only improvements in products, but also
investments in people, know-how, processes, equipment and favorable work conditions.
 Product Upgrading
In the study of small producers in Honduras, at least 64% of the producers sampled had engaged
in product upgrading activities. The other 36% did not implement any type of product upgrading
activities. The changes or improvements made to the product changes were defined as a new
variety grown. Perhaps because of the nature of agricultural products, more than half of the firms
(55%) had changed the type of product. In the case of palm oil producers, many had changed the
variety of the palm they were using for production. Furthermore, horticultural producers had
changed in several occasions the varieties as improved seeds become widely available in the local
market. Few firms (12%) had changed the formulation, because many of them sell unprocessed
products.
About 25% of the firms have improved the packaging. Producers evaluated if and how the
upgrading activities had impacted their performance. Of all the firms that had experienced
changes in the performance, 80% said their productivity had improved and 67.2% saw an
improvement in profits. Only 1.5% of the firms had not seen any improvement since the changes
had taken place. A measure of how much a firm is engaging in product upgrading is the
investment in upgrading activities (as a percentage of the total costs). Most firms that have
implemented changes made investments of either 1-3% or 4-6% of the total costs.
In order to understand the driving factors behind product upgrading, the producers were asked to
state the reasons that drove them to implement changes and improve their products. Most of them
agree that it was competitiveness that pushed them to upgrade (65.7%). However, 22.4%
responded that the customer demanded these changes and therefore they had to upgrade. Other
driving factors were to explore new markets (7.5%) and to ‘survive’, in other words to stay in the
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business and not fail (1.5%). A small portion of the interviewed firms stated they had other
reasons for upgrading (3%).
 Process Upgrading
Almost all of the producers interviewed had implemented changes that would improve their
production processes. These changes were oriented towards field practices (77.5%) and post-
harvest management (88.2%). A good portion of the sample also implemented quality standards
that resulted in process upgrading (71.6%). The observed producers were less likely to implement
any changes that would result in improved logistical processes (15.7%) or buy new equipment in
order to create a more efficient environment for production (26.5%). Marketing activities are less
of a preoccupation for most producers, as only 9.8% of the cases have carried out any marketing
activities.
At least 68% of the producers in the sample have reported improvement in productivity since
implementing changes in the production processes. Only 1% did not notice any improvements in
the productivity. Slightly over one tenth of the firms agree that these changes have significantly
improved the productivity and 20% reported that the changes have slightly improved the
productivity. Over half of the firms (64%) have seen profits grow, whereas only 1% have not
seen any profit growth. At least 12% of the firms have seen significant improvements in the
profits. Over 20% have noticed only slight changes in the profits. Just as in product upgrading,
the motivating factor behind process upgrading has been competitiveness (73% of the producers
affirmed this was the reason). Only in few instances (14%) did the firms agree that it was because
of customer demand. Other reasons included new markets, but few of them (6%) have been
motivated by the idea of exploring new markets.
 Functional Upgrading
Functional upgrading can be defined as increasing value added by changing the mix of activities
conducted within the firm or moving the locus of activities to different links in the value chain.
Thus, this section focused on variables such as the new activities absorbed or outsourced, new
marketing or logistics functions or a change in management. The producers were also asked to
explain why and how these changes took place. Only 30% of the firms visited had undergone
such changes. Most of the firms visited had added value to their products or increased the
efficiency of their processes but functional upgrading had not taken place. Furthermore, it
remains unclear whether or not these firms had added value faster or significantly better than the
competition. In essence, upgrading refers to the acquisition of technological capabilities, skills
and market linkages that enable firms to improve their competitiveness. In the case of agricultural
producers in Honduras, the tendency was towards product or process upgrading but not
functional upgrading.
One can observe from Table 6 that the cases in which producers found new market functions
were rare (4.9%). The locus of activities appears to not be moving to other links in the chain.
However, the mix of activities within the firm is more likely to change. At least 27% of the cases
have absorbed new activities that have led to value added. At the same time, 16.7% have
outsourced low-return activities while concentrating on more profitable activities. For example,
one firm decided that it was no longer profitable to produce vegetables in greenhouses, so they
are now buying from other producers and they work the logistics and marketing channels
themselves, while also providing the producers with options to package their products and supply
this company. Because this is a perishables market, the supply has to be guaranteed and steady.
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On the other hand, new logistics functions and new management functions were found in 11.8%
of the times. Most of the firms agree that the reason motivating them to implement improvements
that lead to functional upgrading is competitiveness. Other factors such as customer demand and
new markets appear to be almost irrelevant.
References
- Nguthi, F. (2007), Adoption of agricultural innovations by smallholder farmers in the
context of HIV/AIDS: The case of tissue-cultured banana in Kenya. Ph.D Thesis,
Wageningen University.
- Leewis, C. and A. Van Den Ban, (2003), Communication for innovation in agriculture
and rural resource management. Building on the tradition of agricultural extension
- Rogers E. (1995), Diffusion of innovation, Free Press, New York, 4th edition
http://edutechwiki.unige.ch/fr/Théorie de la diffusion de l’innovation
- Van den Berg H., H. Senerath, and L. Amarasinghe (2003) Farmer Field School in Sri
Lanka: assessing the impact. Pesticide News N° 61, September 2003, pp. 14 - 16
- Van Den Ban A. W., (1984) Les courants de pensées en matière de théorie de la diffusion
des innovations. Economie rurale, n°159, pp 31- 36
- Van Den Ban A., H. Hawkins et J. Browsers, (1994) La vulgarisation rurale en Afrique.
- Fromm, I. (2007), Upgrading in Agricultural Value Chains: The Case of Small Producers
in Honduras. GIGA Working Papers N°64.
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MODULE 10 : CHAIN GOVERNANCE IITA-IFAD
10
CHAIN GOVERNANCE
Guiding Questions:
❒ What are the forms of chain governance and how do they affect channel
choice?
❒ What are the relations between governance, transactions and trust?
❒ How are contract enforced in agro-food value chains?
❒ What guides the decision and bargaining powers in the value chain?
❒ How does governance affect the quality performance and quality
certification?
❒ What are the relations between governance structures and value-added
distribution (equity)?
❒ What determine Collective action and market differentiation in African
agrifood-chains?
❒ How to efficiently optimise chain governance?
1. Introduction
Governance structures are usually those ‘internal’ to the value chain and refer to the
overall form of inter-node linkages which result in systematic efficiency. However,
external governance structures include mandatory standards that producers must legally
adhere to in order to access markets. Linguistically, the word governance has traditionally
signification of ‘the act or process of governing’, with the latter primarily associated with
governmental steering by regulation and sanctions. Modern theories and discourses on
public administration and policy implementation have, however, expanded the
connotation to include many other forms of steering. The evolution originally focused on
economic policy instruments, but has in recent years increasingly focused on other
instruments designed to alter and channel the behaviour of individual and collective
actors. As a reflection of this latter trend, governance has currently come to indicate the
totality of ‘mechanisms’ and ‘instruments’ available for influencing social change in
preordained directions
Governance can also refers to the way business activities in a value chain are vertically
coordinated. Gereffi and al (2005) propose a more complete typology of value-chain governance.
Their typology identifies five analytical basic types of value chain governance derived from
empirical observation. However, before move on value chain governance type, let’s talk about
three important variables to look for when studying value chains in a particular firm, industry, or
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place. There are:
(1) The complexity of transactions: Information and knowledge transfer required sustaining a
particular transaction, particularly with respect to product and process specifications; more
complex transactions require greater interaction among actors in value chains and thus
stronger forms of governance than simple price-based markets. Thus, complex transactions
will likely to be associated with one of the three network governance patterns (modular,
relational, or captive) or integrated within a single firm (hierarchy).
(2) The codifiability of transactions: The extent to which this information and knowledge can be
codified and, therefore, transmitted efficiently and without transaction-specific investment
between the parties to the transaction; In some industries schemes have been worked out to
codify complex information in a manner in which data can be handed off between value
chains partners with relative ease, often using advanced information technologies. If suppliers
have the competence to receive and act upon such codified information, and if the
codification schemes are widely known and widely used, then we would expect to see
modular value chains emerge. If not, then lead firms might either keep the function in-house,
leading to more vertical integration (hierarchy) or outsource it to a supplier that they tightly
control and monitor (the captive network type) or have a dense, idiosyncratic relationship
with suppliers (the relational governance type).
(3) The competence of suppliers: refer to the capabilities of actual and potential suppliers in
relation to the requirements of the transaction. So, the ability to receive and act upon complex
information or instructions from lead firms requires a high degree of competence on the part
of suppliers. Only then can the transfer of complex but codified information be achieved (as
in modular networks) or intense interaction is worthwhile (as in relational networks). Where
competent suppliers do not exist, lead firms either must internalize the function (hierarchy) or
outsource it to suppliers that they tightly monitor and control (captive suppliers).
For further information on chain governance in Value chain analysis, confer Module 10.
Furthermore, if one of these three variables changes, then value chain governance patterns tend to
change in predictable ways. For example, if a new technology renders an established codification
scheme obsolete, we might expect modular value chains to become more relational, and if
competent suppliers cannot be found, then perhaps captive networks and even vertical integration
would become more prevalent. Conversely, rising supplier competence might mean that captive
networks move toward the relational type and better codification schemes might prepare the
ground for modular networks. Gereffi came up with the following forms of chain governance:
(1) Markets: Markets are the simplest form of value chain governance. Value chains
governed by markets contain firms and individuals that buy and sell products to one
another with little interaction beyond exchanging goods and services for money. The
central governance mechanism is price. The linkages between value chain activities are
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not very "thick" because the information that needs to be exchanged and knowledge that
needs to be shared is relatively straightforward.
(2) Modular value chains: This is the most market-like of three network-style value chain
governance patterns. Typically, suppliers in modular value chains make products or
provide services to a customer's specifications. Suppliers in modular value chains tend to
take full responsibility for process technology and often use generic machinery that
spreads investments across a wide customer base. This keeps switching costs low and
limits transaction-specific investments, even though buyer-supplier interactions can be
very complex. Linkages are necessarily thicker than in simple markets because of the high
volume of information flowing across the inter-firm link, but at the same time codification
schemes and the internalization of coherent realms of knowledge in value chain
"modules," such as design or production, can keep interactions between value chain
partners from becoming highly dense and idiosyncratic.
(3) Relational value chains: In this network-style value chain governance pattern we see
mutual dependence regulated through reputation, social and spatial proximity, family and
ethnic ties, and the like. The most obvious examples of such networks are in specific
communities, or “industrial districts,” but trust and reputational effects can operate in
spatially dispersed networks as well. Since trust and mutual dependence in relational VCs
take a long time to build up, and since the effects of spatial and social proximity are, by
definition, limited to a relatively small set of co-located firms, the costs of switching to
new partners tends to be high. Dense interactions and knowledge sharing are supported by
the deep understanding value chain partners have of one another, but unlike the
codification schemes that enable modular networks, these "short-cuts" tend to be
idiosyncratic and thus difficult and time-consuming to re-establish with new value chain
partners.
(4) Captive value chains: In this network-style GVC governance pattern, small suppliers
tend to be dependent on larger, dominant buyers. Depending on a dominant lead firm
raises switching costs for suppliers, which are "captive." Such networks are frequently
characterized by a high degree of monitoring and control by the lead firm. The
asymmetric power relationships in captive networks force suppliers to link to their
customer in ways that are specified by, and often specific to a particular customer, leading
to thick, idiosyncratic linkages and high switching costs all round.
(5) Hierarchy: When product specifications cannot be codified, products are complex, and
highly competent suppliers cannot be found, then lead firms will be forced to develop and
manufacture products in-house. This governance form is usually driven by the need to
exchange tacit knowledge between value chain activities as well as the need to effectively
manage complex webs of inputs and outputs and to control resources, especially
intellectual property. This governance pattern is characterized by vertical integration
(i.e."transactions" take place inside a single firm). The dominant form of governance is
managerial control.
Much of the literature that seeks to categorize cross-border economic activity emphasizes
only two options: market or hierarchy. Firms either invest offshore directly or buy goods
and services from foreign firms. A smaller body of literature has noted the prevalence of
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network forms of organization where there is some form of "explicit coordination"

beyond simple market transactions but which fall short of vertical integration. While this
is a useful insight, there is convincing evidence that not all networks are the same. The
GVC framework specifies three types of network governance (modular, relational, and
captive) along with the two traditional modes of economic governance (markets and
hierarchies).
Figure 1: Chain governance Mechanisms
Figure 11 illustrates much of the above discussion in graphic form, showing the five global value
chain types arrayed along the dual spectrums of explicit coordination and power asymmetry. The
small line arrows represent exchange based on price while the larger block arrows represent
thicker flows of information and control, regulated through explicit coordination. This includes
instructions coming from a more powerful buyer (or manager) to a less powerful supplier (or
subordinate), as in captive global value chains or within the confines of a hierarchy, as well as
social sanctions regulating the behavior of more or less equal partners, as in relational global
value chains. In the case of modular global value chains, thick information flows are narrowed
down to a codified hand off at the inter-firm link, leaving each partner to manage tacit
information within its own firm boundaries, or perhaps by combining some other form of global
value chain governance, such as captive or market-based, for part of the chain. While
relationships between the relational and modular suppliers and the firms providing their material
inputs and components are displayed as market-based in the figure, they could equally take other
forms.
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2. Business transactions in developing countries
Companies in agro- food chains are linked through transactions. Transactions between
companies/actor have a number of features with specific implications for businesses in
developing countries:
Business transactions are subject to uncertainties, regarding quantities, quality, delivery

conditions, price, etc. Especially developing country business relationships are subject to many
uncertainties caused by poor physical infrastructures (storage/cooling facilities, roads,
telecommunication, etc.), weak institutional infrastructures (government support, sanction
systems, etc.), unbalanced trade relationships (dependencies, opportunistic buyer behaviour) and
unfavourable social and political conditions.
Transactions are enabled and need to be supported by information exchange (about

characteristics of the product/service, production, delivery conditions, etc.). Information
exchange between companies in developing countries is in many cases hampered by large
information asymmetries between chain partners, lacking communication infrastructures, and
diffuse market channel structures. This makes ex-ante monitoring of transactions difficult.
Opportunism. Uncertainties as mentioned above may easily force companies at different

stages in the chain to opportunistic behaviour so as to be able to sell their products. However, the
major incentive for parties to behave opportunistic is profit maximisation. Opportunistic
behaviour may imply adverse selection (hidden characteristics) and moral hazard (hidden
actions).
Transactions may be supported by (specific) investments (e.g. in packaging materials, cooling

installations, transportation means, etc.). Such investments can strengthen mutual relationships.
On the other hand, transaction-specific investments require more integrated governance
mechanisms to safeguard against opportunistic behaviour. Other important incentives for
transaction-specific investments in developing countries are the poor (physical) infrastructures
that make investments to support business relationships necessary in many cases. (David and
Han, 2004; Grover and Malhotra, 2003). This is particularly the case in modern retail driven food
chains, for example, investments in storage facilities, transportation means, communication,
training, etc.
Transactions vary in regularity and frequency from one-time transactions to transactions

on a regular basis. Frequency of transactions between the same business partners varies among
market channels and depends on risk behaviour and reward structures in different channels.
3. Governance regimes and channel choice

Channel choice decisions may have wide implications for the selected governance regimes, while
interactions between supply chain agents can be shaped through different procedures, ranging
from spot market exchange to contract farming.
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2.1. Governance, transactions and trust

Transactions between companies are supported by governance mechanisms. The choice of
governance mechanism is largely dependent on the costs of transactions, information
asymmetries between parties, and social and cultural elements such as family relationships and
village social structures (Omta et al., 2001).
Transaction costs consist of ex-ante costs (searching for potential exchange agents, screening of
potential agents, bargaining) and ex-post costs (transfer of property rights, monitoring compliance
with contractual terms, enforcement of sanctions in case of non-compliance). If transaction costs
are low, economic actors will favour market governance. If they are high, they favour contracting
or integration, thereby lowering these costs. Governance forms can range from arm's-length
contracts (market), preferred suppliers, single sourcing, network sourcing, strategic partnership to
internal contracts with vertical integration (Cox, 1996). Key and Runsten (1999) specify under
which particular conditions each type of governance prevails, focussing on the role of input and
output market imperfections as a major motive to rely on contract farming or vertical integration.
In communities with strong social structures trust plays an important role in the choice of
governance mechanism. Trust is dependent on the duration of a relationship, consistency of
exchanges between parties and on (economic and social) reputation. In this respect, trust often
replaces more integrated governance mechanisms as a safeguarding against opportunistic
behaviour and to keep transaction costs low.
Modern market -oriented chains have the tendency to become shorter as intermediaries between
producers and chain downstream parties become superfluous because of the emergence of direct
trading relationship between large producers (or producer groups) and downstream parties. An
example is the transformation of export-oriented producers to producer-exporters in some
countries in order to lower transaction costs and exert full control over the supply chain. Inter-
company relationships in these chains are often enforced by (transaction-specific) investments of
processors or exporters (such as investments in cold stores, seeds, pesticides, credits) to decrease
delivery uncertainty and increase quality and quality consistency of deliveries.
2.2. Contracts
Contracts represent a common governance mechanism. Typical elements of a contract include:
product quality (standards, consistency), delivery conditions (timing), price, information
exchange (e.g. deviations), order frequency and timing, payment conditions, transportation
specifics (e.g. cooling), packaging, traceability, promotion, sanctions in case of non -compliance,
contract duration. Quality standards and certification are in particular relevant for business
relationships in food chains and are often included in contracts. In vertically integrated
companies certification by an independent party is of less importance, although the use of
standards may be required.
One can choose for a classical version of a comprehensive contract (where everything is fixed ex
ante for the entire duration of the contract, covered by the law of contract) or a relational version
(allowing for gaps not closed by contract law, embedded in a social system of relationships and
subject to continuous re-negotiations). Because there is no such thing as a 'complete' contract-
especially not in developing countries with weakly developed institutional structures-many
companies tend to prefer relational contracts implying interpersonal relationships and trust.
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4. Governance and quality performance
A major problem in the discussion about quality is that different chain actors have a different
interpretation of the concept of quality. Ultimately, the goal should be that the end-user, i.e. the
consumer is satisfied, but this is too simple a statement. For instance, pest-resistance of
vegetables and fruit will not be considered to be very important by a consumer, but it is of utmost
importance for the breeder and the grower. Table 1 lists some different meanings for the concept
of quality. The challenge is to reconcile these different interpretations of quality, and it remains
of utmost importance to co-operate in the chain to deliver a desired end quality, but by taking
also into account the needs of the actors involved.
Table 1: Different meanings for the concept of quality

Actor Quality aspects
Grower vitality of seed, yield
Cultivator productivity, uniformity, disease resistance
Auction uniformity, reliability supply, constant quality
Distribution shelf life, availability, sensitivity to damage
Retailer shelf life, diversity, exterior, little waste
Consumer taste, healthy, perishable, convenience, constant quality
Source: Ruben et al., 2007
4.1. Quality certification
Since the 1990s, Western retailers have defined various standards for the production and
processing of food, such as British Retail Consortium (BRC), EUREP-GAP, SQF. Major aims of
private food safety standards are (Vellema and Boselie, 2003):
 to improve supplier standards and consistency, and avoid product failure;

 to eliminate multiple audit of food suppliers- manufacturers through certification of their
processes;
 to support consumer and retailer objectives by "translating" these demands through the
chain;
 to provide concise information to assist with a due diligence defence in case of food
incidents.
These standards are now applied by supermarkets and importers all over the world to coordinate
supply chain activities and control food quality and safety. Retailers and industries increasingly
demand for certification of production processes and facilities of producers and processing
companies in developing countries, according to these standards (Oahn et aI., 2004). From an
industry perspective, due to the high costs of certification and further differentiation of quality
and safety standards by (Western) retailers and food industries in recent years, private standards
tend to strengthen vertical relationships in food chains. This is one of the major rationales for
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theemerging competition between (international) food chains in stead of competition on company

level.
For many developing country producers it is difficult to comply with these quality standards
(Vellema and Boselie, 2003; Giovannucci and Reardon, 2001). Small producers are in most cases
excluded from these chains because of high certification costs (for producers) and high
monitoring costs (for buyers). An interesting example of this phenomenon is shown by Boselie
and Buurma (Vellema and Boselie, 2003). In their study on grades and standards in Thailand,
they described the transition from a traditional supply chain system where personalised
relationships in which family relationships and individual strategic motives prevailed above
company profits to a preferred supplier system between wholesalers and buyers. Professional
large-scale producers remained in the supply chain after introducing the new system. As they
experienced: 'Changes in grades, standards and certification practices have tended to exclude
small firms and, farms from participating in market growth because of the implied
investments:(Vellema and Boselie, 2003: 149) However, in some cases we now see inclusion of
small-holders in modern quality schemes, e.g. through cooperative governance forms or through
retail or food industry programs (e.g. tea production in Kenya for Unilever).
4.2. Monitoring, control and sanctions

Several instruments can be used to reduce uncertainty and opportunistic behaviour from a buyers
perspective (Hueth and Ethan, 2001):
 Monitoring of supplier processes;

 Input control (of suppliers);
 Output quality control;
 Residual claimancy (sanctions).
Quality and certification schemes lead to increasing control and more integrated governance,
such as long- term contracts. At the same time they lower transaction costs. Mechanisms like
output quality control and residual claimancy are common in any food chain. Monitoring of
supplier processes and even input control are increasingly applied by Western retailers and large
food industries in developing countries. These uncertainty-reducing instruments are embedded in
more integrated governance mechanisms, such as contracts or vertical integration.
Above-mentioned instruments can be supported by operational management systems. Most
relevant management systems in the context of food supply chains are quality systems and
logistics systems, supported by information systems (Lancioni et al., 2000; Porter, 2001; Van der
Spiegel, 2004). Inter-company quality systems concern monitoring of supplier processes and
output, tuning of quality systems in the chain (harmonisation), exchange of quality information
(quality requirements, feedback information, etc.), communication of customer demands and
complaints to suppliers. More integrated governance mechanisms are in general accompanied by
integrated quality systems. Quality of food is also strongly dependent on logistics systems in food
chains. These systems concern exchange of planning data (harvesting, storage, transportation),
post-harvest storage and transportation (cooling, type of vehicle depending on type of product
and distances in time), order-delivery cycle (frequency, demands), use of information and (tele)
communication technology (internet, cell-phones, etc.). Quality and logistics systems are in many
cases enabled and supported by ICT technologies. New communication technology such as cell
phones can be used for quality data exchange and strongly improve logistics planning, thereby
improving the quality of fresh products.
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4.3. Standards and quality enforcement

The choice for a certain governance regime will have an effect on quality performance due to
monitoring costs for quality compliance. Quality compliance strongly depends on the way actors
cooperate throughout the chain. If transaction costs are high, there will be a pressure on
controlling costs for maintaining quality, i.e. costs needed for technological measures and costs
needed for management systems. Depending on the organisational structure of the chain, the
motivation for innovations towards better quality performance may be low or high (Boom et al.,
2005). If a key player, like a supermarket chain, is able to enforce certain quality standards-such
as EUREPGAP-the actions of upstream agents are dictated by this key player.
Quality enforcement strongly depends on the possibility to measure certain quality aspects.
Actors can try to achieve compliance to certain quality standards by defining rules and
regulations. Usually, measures to be taken in order to safeguard food safety are launched by
governmental institutions, such as the general food law within the ED. Van der Meulen and Van
der Velde (2004, 2005) provide detailed information on food safety legislation. Measurements
regarding quality in general are not enforced by governmental bodies, but chain actors can do so,
resulting in well-known systems as BRC and EUREP-GAP (mainly from the retailer
perspective). These are actually management systems that describe what chain actors should do,
with the ultimate goal to achieve a certain quality standard at the end.
4.4. Food handling and quality assurance

If a certain quality needs to be reached, this has also implications for the choice of a governance
regime: chain actors will need to cooperate in achieving the goal of reaching a pre-determined
quality level. However, this may strongly depend on a particular commodity. In addition, rules
and regulations may force actors to work along certain lines. If true chain reversal is to be
reached, a supply chain should be designed with the ultimate goal to reach the defined quality
standard. In other words, this calls for a situation where the choice for a certain quality dictates
the structure and organisation of the supply chain.
Food quality is not only determined by the product itself, but also by the way people handle the
food; by people we mean every actor in the chain, including the consumer. In other words, we
should not only study food properties but also what people do with the food when they distribute,
store, and process foods. With such knowledge it can be attempted to design managerial systems
in such a way that the resulting quality is optimal at the end of the chain. Managerial measures
that can be taken in relation to quality performance include:
 transparent organisational and administrative systems;
 support activities for staff working within the food chain (knowledge level, motivation,
experience);
 development of a quality assurance systems;
 development of policy regulations.
Several quality management practices have been described extensively by Luning et al. (2002)
and Luning and Marcelis (2005), emphasising the interactions between changes taking place in
products as well as the dynamics in the way the various chain actors handle food. Human
dynamics can to some extent be influenced by administrative conditions. As part of a quality
management system the instalment of quality assurance (QA) is important. QA should guarantee
the fulfillment of quality requirements and provides confidence in meeting customer
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requirements.
5. Governance structures and value-added distribution

The creation and distribution of value added in supply chains is governed by multiple factors
(Humphrey and Oetero, 2000), like:
 access to market outlets and key consumer information (gender and equity);
 acquisition of production capabilities and prime resources;
 control of intangible competences (e.g. R&D, design, branding);
 nature of inter-firm linkages and governance (hierarchy in networks);
 prospects for reaching economies of scale and scope;
 legal and societal norms (CSR, fair trade, etc.).
Two processes are of particular importance for analysing the dynamics of value chains (Gibbon,
2003): (a) upgrading and (b) bargaining. Upgrading refers to the improvement of product
specifications (specific quality aspects, like taste or convenience) or reorganisation of supply
processes in order to increase total value added. Bargaining refers to redistribution of value added
amongst supply chain partners, based on changing market or power relationships. While
upgrading has the potential to create win-win situations, changes in bargaining gives rise to
emerging conflicts.
Gereffi et al. (2005) identify three variables that playa key role in determining how global value
chains are governed and transformed: (a) the complexity of information and knowledge required
to sustain transactions, (b) the ability to codify and transmit this information and knowledge
efficiently with limited specific investments, and (c) the capabilities of suppliers to respond to
these requirements. With increasing complexities and decreasing codification, supply chain
organisation tends to evolve from modular towards relational contracting (based on knowledge
exchang~ between buyers and sellers). However, if suppliers face significant switching costs,
captive networks are likely to emerge occasioning high monitoring and control costs.
5.1. Decision power

Differences in market power and dependency relationships have - in addition to trust - a clear
impact on the (choice of) governance regime in trade relationships. A powerful party can dictate
governance mechanisms, e.g. direct marketing with Western retailers leading to integrated
contract relationships. Since institutions or formal rules of behaviour that facilitate market
exchange tend to be absent or weakly developed in many developing countries (Fafchamps,
2004), governance regimes in such chains are often diffuse, consisting of many interlinked
agreements. This also implies that exchange tends not to be based on conventions, but on power
and bargaining.
Small-scale producers depend in most cases on downstream parties in the chain, such as
intermediaries, transporters or exporters, for their input supplies, credits and market access.
Banks are mostly not eager to finance smallholders in general, and more specifically perishable
products because of the high risks involved. Dependency relationships easily lead to imbalanced
buyer-supplier relationships. In most of these chains, no written contracts exist between
smallholders and their (larger) customers. However, the embeddedness of small scale producers
in a network of social relationships can provide them with social capital to support their (vertical)
business relationships (Lazzarini et aI., 2001; Coleman, 1990, Uzzi, 1997).
131
5.2. Bargaining
The distribution of margins throughout the supply chains is subject to bargaining, involving both
price and non-price dimensions. Agents with more specific assets and/ or better access to
information are able to capture higher margins (Humphrey and Oetero, 2000). Otherwise,
institutional regulations (grades and standards) could limit bargaining options, while collective
action could be used to influence the distribution of value added.
The value added is strongly determined by local (territorial) factors and institutional governance
relationships. The notion of bargaining power is rooted in principal-agent theory, where agents
can develop or gain bargaining power if they are able to reduce their dependency toward other
agents. Muthoo (2002) identifies key factors and processes that influence the bargaining power of
particular agents, focussing attention on impatience and the risk of contractual breakdown under
conditions of changing marketing options. Bargaining power is usually greater for products that
can easily be stored without too much quality loss. Otherwise, bargaining power becomes lower
when the threat of contractual breakdown is present. The availability of alternative outlets might
increase bargaining power if these are sufficiently attractive. Agents could also increase their
payoffs during the bargaining process by temporarily withdrawing their offers (hold-up). Such
commitment tactics increase the bargaining power in supply chains that strongly depend on
continuous deliveries. Finally, information asymmetries amongst agents may provide additional
bargaining power to the actor with more or better connections to market outlets (Yan and Gray,
2001).
Trade and technological rents are particularly subject to bargaining, and final outcomes are
mainly determined by differences in power relations and contract enforcement capacities.
Delivery contracts between producers, processors and retailers can be based on simple
specifications of observable characteristics (i.e. size, weight, colour, appearance) or include more
complex criteria (i.e. quality, taste, reliability) and even process attributes (labour regime,
environmental pollution). Strict enforcement of the latter aspects may require efforts of co-
investment between supply chain partners and joint implementation of chain upgrading activities.
When quality upgrading becomes a more important criterion and governance regimes are
focussing on process management, supply chain operations tend to be more interdependent. The
incentives for compliance by local agents are directly related to their access to a fair share of
value added that compensates for their investment efforts and risk exposure. Mixed contractual
regimes with a combination of fixed rewards and performance-dependent bonuses usually offer
better incentives for such stable and reliable partnerships (Saenz, 2006).
Opportunity for producers to establish collaborative horizontal relationships such as purchasing
or marketing cooperatives, may deliver economies of scale that may strengthen their bargaining
position and allow for joint investments in production, marketing and distribution. Such
collective action proved to be rather effective for linking smallholders with major market outlets.
5.3. Collective action

Another strategy for relying on governance mechanisms for influencing value added distribution
is based on collective action. This implies that similar agents at a specific level of the supply
chain determine a joint strategy for coordinated negotiations. Most well-known examples include
the organisation of producers' and marketing cooperatives (Ruben, 1998) and the arrangements
made by supermarkets with a selective group of preferred suppliers (Reardon et aI., 2005).
As noticed before, value chains become increasingly differentiated (i.e. serving various outlets)
132
and are therefore evolving from modular (sequential) governance towards relational governance
(Gereffi et aI., 2005). Consequently, interdependence between agents involved in the food chain
is increasing and traditional sub-contracting or outsourcing relations are gradually replaced by
preferred supplier regimes (Reardon and Timmer, 2005). Integrated chain care and joint product
development ask for co-investment under the explicit coordination of chain leaders (agro-food
processors and supermarkets). Consequently, the number of suppliers is usually strongly reduced
(exclusion) while some processing functions are transferred upstream, eventually leading to
greater interdependence between chain partners.
Collective action and horizontal integration can be helpful to improve the bargaining position of
specific agents. Most important ingredient for effective collective action is the creation of trust
between partners and the compliance of agreements (Ostrom and Walker, 2002). Hardin (1968)
defines trust as 'a willingness to rely on another person or institution when one expects the
actions of that other person or institution to take you into account in some relevant way'.
Bornschier and Volken (2005) distinguish different functions of trust as: (a) an asset of agents to
stimulate firm growth, (b) a vehicle for knowledge acquisition and change, and finally (c) a
conducive channel for diffusion of new technologies. Trust and reciprocity reduce enforcement
and information costs for joint activities and thus enable more rapid systems adaptations.
Fafchamps (2004) presents empirical evidence that trust relationships are of key importance for
enabling access to information, technology and market opportunities, selecting job and credit
applicants, risk sharing and penalising cheats. Trust and trustworthiness also reduce control
problems of credible commitment. Better trust relationships are thus generally expected to have a
positive influence on the income derived from rural businesses.
5.4. Market differentiation

Quality demands, internationalisation and market differentiation have led to the emergence of
distinct food sub-systems with specific quality and safety requirements (e.g. local, national and
international market), leaning on different market channels and with different governance
structures, and ranging from vertical integration or contracts to spot market relationships.
Figure 1. Agricultural sub-systems in developing countries

Source: Ruben et al. 2007
It can be inferred from the figure that A-system can be characterised as the local low-income
133
chain. Producers are usually small with traditional production systems. These chains aim at local
market outlets with staple products. Because of many intermediary parties (traders), A-system
chains are relatively long, whereas most of the chain participants add little value. A-systems in
developing countries deliver a high share of agricultural production volume, but generate
relatively little value. The B-system can be characterised as the local middle to high income
chain. They aim at the emerging supermarket sector in many developing countries. Most of the
volume in these chains is delivered by small/ medium size producers, organised in cooperatives
and/or linked in subcontracting arrangements. Micro producers deliver inputs on demand to
balance demand and supply in this system (buffer function). Although the production volume
produced by B-systems is smaller than that of A-systems, the value generated is larger. B-
systems increasingly produce according to national and sometimes international retail quality and
safety standards. Finally, the C-system can be characterised as the export chain. It is completely
focused on export, although low quality or rejected products are sold at the national, in many
cases retail, market. The trend is towards increasing economies of scale and foreign direct
investments. Export chains tend to become more integrated and shorter. Although volumes are
small compared to local markets, the value added is relatively high.
These sub-systems are largely functioning independently, although occasionally one system may
use input from another system to balance demand and supply, see e.g. the flow between A- and
B-system in the figure. The co-existence of such weakly-connected sub-systems poses important
challenges to the development of harmonised quality and safety standards in developing
countries.
6. Optimising chain governance
Supply chains in developing countries usually consist of distinct food sub-systems with specific
quality and safety requirements for local, national and international market outlets. The co-
existence of such weakly-connected sub-systems poses major challenges to the development of
harmonised quality and safety standards. Since complete contracts are difficult to enforce in
developing countries with weak institutional structures, many companies tend to prefer relational
contracts based on personal relationships and trust.
The choice of governance mechanism is largely dependent on the costs of transactions,
information asymmetries between parties, and local social-cultural practices. More market-
oriented chains have the tendency to become shorter as intermediaries between producers and
downstream parties become superfluous, giving preference to direct having relationship between
large producers and retailers. The formation of marketing cooperatives that deliver economies of
scale may be an effective strategy for linking smallholders with major market outlets.
Delivery contracts are increasingly used for reducing transaction costs and guaranteeing quality
compliance. When transaction costs are low, economic actors will favor market governance, but
if they are high contracting or vertical integration is preferred. Quality certification and strict
procedures for monitoring, control and sanctions are used to reduce uncertainty and control
opportunistic behaviour.
134
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MODULE 11 : EMPOWERMENT OF STAKEHOLDERS/CAPACITY BUILDING __IITA-IFAD
EMPOWERMENT OF STAKEHOLDERS/CAPACITY
11
BUILDING
Guiding Questions:
How does IITA-SSLCB use the following capacity building toolkit to enhance and
empower value chain stakeholders?
❒ Farmer field for a (FFS)

❒ Farmer welfare school (FWS)
❒ Seed supply management
❒ Microfinance
❒ Gender and equity
❒ Monitoring and evaluation
I. FARMER FIELD FORA

The FFF is an extension approach that strengthens the capacity of agricultural actors (extension,
research, NGO, development projects, etc.) on safe and effective integrated crop production. The
FFF is useful in Value Chain approach, by allowing small-scale producers to better manage their
production. It also promotes good farming practices and the less use of chemical through the
Integrated Crop Management principles. So that the products put on the market are of good quality.
All the value chain actors are concerned by the FFF approach. Indeed, the implementation of the
FFF implies:
‐ New knowledge on how to manage the production system, the processing and the post-
harvest systems;
‐ New marketing deals, notably more fair conditions;
‐ New governance rules; and
‐ New innovation development process.
This sub module is designed in order to initiate the participants at value chain course to the concept
of Farmer Field Fora and how to implement it.
1. Objectives of the section

Through this section of training, the objectives to reach are as follow:
‐ Strengthen the participants’ capacity on what is safe and effective crop production
‐ Make the participants understand the different steps of FFF
137
‐ Make the participants understand the difference between FFF and classic technology transfer
approaches
2. What is Farmer Field Fora

The extension approaches in the past are characterized by the transfer of technologies. These top-
down approaches create a rigid hierarchy, which discourages the feedback of information. The
farmers often think that the technologies brought to them are not fully suitable for their farms. They
didn’t fit local conditions that depend on soil fertility, water availability, household economic
realities, and the objectives that farm families wish to achieve. The demonstration plots managed by
outsiders may not convince the farmers to try something new. Farmer needs opportunities to
experiment with new technologies, to learn how to evaluate different options and to decide for
himself which are suitable. Only an adult non-formal education can provide such opportunity. Adult
learns best from direct experience. “If I hear it, I forget it. If I see it, I remember it. If I discover it, I
own it for life”.
Since 1993 international NGOs and Institutes have introduced and encouraged a range of
participatory approach and techniques for extension, program planning, project implementation,
project evaluation etc. The main objective of the participatory approaches is to empower farmers
and make them effective demanders of extension services by strengthening their analytical,
planning, monitoring, decision-making and evaluation capacities related to the development of their
agricultural business.
The Farmer Field Fora (FFF) is one of the typical agricultural extensions participatory approaches
developed by IITA and IFAD from the Food and Agriculture Organization (FAO) Farmer Field
School (FFS) as an alternative learning or problem-solving approach. It is a participatory and cost-
effective tool to empower small farmers with knowledge and information for optimal decision-
making and choices of innovations. In Farmer Field Fora the word “Fora” is preferred to “school” to
reflect the aspect of exchange of experiences and knowledge between farmers, scientists and
extension agents.
3. Objectives of FFF
The main objective of FFF is to build farmer’s capacity to become experts in developing
technologies and managerial practices to solve their specific problems, within the agro-ecological
context of their own farms. The aim is to ensure that technologies developed are appropriate to local
agro-ecological and economic conditions, and that the process of technology generation is
continuous and sustainable. So, the FFF approach strengthen farmers’ information and knowledge
basis. Thus, they would be able to carry out their own experiments, and use the results to improve
their production. This is believed to empower them to act according to their needs.
Specifically Farmer Field Fora aim at:
 Providing farmers with a learning environment so that they can achieve the goal of reducing
inputs, and increasing yields and profits.
 Promoting learning through encouraging farmers to directly experiment on their own fields;
 Building farmers’ capacity to analyze production systems, in order to identify main
constraints and to test and adopt solutions through stakeholder-led participatory research.
138
 Promoting self-learning through exchange of experiences and knowledge among farmers

(indigenous local knowledge);
 Identifying appropriate practices and technologies that will solve farmers’ felt production
problems;
 Strengthening linkages between agricultural knowledge information systems in its 4 inter-
related components: Farmer-Extension-Research-Education
 Developing platforms for collective and joint researchers/farmers experimentations,
enhancing processes of co-research. All the stakeholders discuss and share as equals.
 Establish two-way knowledge exchanges by facilitating social networking among actors
 Strengthening the role of farmers in the researcher-extensionist-farmer linkage
 Including farmers in decision making regarding the generation of agricultural practices and
technologies.
4. Setting up and running a Farmer Field Fora

The main steps of FFF approach are the following:
Preliminary meetings: The FFF starts with the preliminary meetings to introduce the FFF concepts
and raise interest for participation. The timing of such a meeting is important. It should be
convenient for potential participants to attend. During the preliminary meetings, FFF participants
are selected by the community itself.
Participatory diagnostic survey: It is a baseline survey to identify the crop production constraints,
the opportunities and the farmer’s coping strategies. This includes socio-economic information, as
well as technical information. Several ways can be used to collect the information: questionnaires,
field walks, discussions with farmers (individual and in groups), discussions with researchers, visits
to markets and discussions with market organizations, etc.
Curriculum development: The FFF curriculum or “Learning Guide” is developed based on the
results of the baseline survey. The curriculum will emanate from a knowledge gap analysis with
farmers.
Training of facilitators (TOF): The objective of TOF is to provide to the participants a full season
hands on experience in growing crop in order for them to subsequently provide appropriate
facilitation to farmers in FFF. The participants to TOF include extension workers, researchers and
farmers. They are selected base on criteria defined by the facilitators and the selected communities.
The training will be handled by qualified master facilitators.
Farmer led FFF (FL\FFF): The farmers led training (FL/FFF) is facilitated by the trained farmers
during the TOF. It is a replication of TOF by the trained facilitators. The FL/FFF can start 2 or
3weeks after the beginning of the TOT. The gap of 2-3 weeks will allow the new facilitators to
replicate what they learned. The coupling of the TOT and the FL/FFF facilitates the feedback and
the problem solving between the master facilitators and the new facilitators.
139
Establishment of learning plots for FFF: The IPM-FFS normally have two fields in which
observations are made. The two fields normally are respectively the Integrated Crop Management
(ICM) plot and Farmer Practice (FP) plot. Additionally to these two types of plots, the FFF site will
have a third type of plot which is the Participatory Action Research (PAR) trials plots. The PAR
plots will be carried out by the participants beside FFF plots. These trials will give to the
participants the opportunity to validate the technologies suggested by research and the endogenous
technologies/knowledge. PAR trials can include variety trial, multiplication for in-situ conservation,
etc. The PAR trials are designed by researchers, implement by the farmers and the results are
discussed by farmers, researchers and facilitators.
Follow-up: All Field Schools normally have at least one follow-up season. Its intensity will be
determined by the motivation of the Field School participants, time constraints of participants and
facilitator, and to some extent - funding. Follow-up has been known to be a little as monthly support
sessions for farmers to discuss their own problems in implementing ICM, to as much as farmers
running a complete Field School for other farmers.
5. FFF daily activities

In each weekly forum, the following activities must be conducted:
Agro-EcoSystem Analysis (AESA)

AESA is the main activity of the Farmer Field Fora. The AESA includes:
 Field observation and data collecting
 Recording of the observations
 Discussion, analysis and interpretation of field information
 Decision-making
 Presentation of results and the decisions taken to the entire group
Group dynamics exercise:

Group dynamics exercises are to develop group cohesiveness and problem-solving skills, and
encourage collaboration, creativity and self-discovery.
Observation of insect behavior through the “insect zoo” trial

The insect zoo is designed to help farmers to observe and understand the insects-crop relationships,
determine the role of each species and gauge the relative strength of natural controls. The insect zoo
helps for live cycle, recognition of insects, functions of insects, predation rates etc.
Follow up of Participatory Action Research (PAR)

The objective of the PAR plots is to develop experimentation skill and to provide to farmers the
opportunity to validate recommended research technologies and indigenous knowledge. The
experiments are carried out by the farmers themselves.
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Special topics
The special topics based on local agricultural problems and conditions are to support the agro-
ecosystem analysis by going more deeply into specific issues relating to agro-ecology, crop
development, ICM principles etc. Though the specific topics, the farmers get the opportunity to
exchange with researchers and other resource persons.
Evaluation of the day
Every day, at the end of the session, all the conducted activities are evaluated by the participants in
order to improve them in the next meeting. The evaluation includes also the facilitation skill of the
trainers and the behavior of the participants.
6. AGRO-ECOSYSTEM ANALYSIS
Agro-ecosystem analysis is the main activity of the field fora. AESA is a tool which enables
Observe To know what is happening to your crop
Learn To understand problems affecting your crop,

interaction between pests and natural enemies,
nature of damage caused, etc.
Decide On the best action to take to face

problems
Act To implement the management decision chosen

to overcome problems
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participants to analyse the plant in relation with its ecosystem, make experimentations, discussion,
decision and identify possible solutions. The decision making includes as well what to do against
pests and diseases but also why and when to take the necessary action and how to get the needed
materials. The following figure summarizes the AESA process.
7. Facilitation skills
The facilitator’s role in an FFF session is important. The Facilitator leads the design and
implementation of the Learning Forum. The facilitator’s role is to draw out knowledge and ideas
from different members of a group. He can help them learn from each other and think and act
together. Facilitation is about empowering others. It involves letting go of control over the outcome
of a process and giving that responsibility to the group.
Thus the facilitators should have received some training in Facilitation, and conversant with skills
such as learner-cantered Education, questioning, listening, Problem solving, decision making,
summarizing.
In addition to Facilitation skills, the FFF facilitator should be abreast with current knowledge in
production of the crop in question in order to be able to encourage the learning. The knowledge
required should include both farmers’ indigenous practices and those “recommended” by Research
Institutes.
The following table summarizes the characteristics and the skills of a good facilitator
Table 1: Characteristics of FFF facilitators
Characteristics of a good facilitator Skills of a good facilitator
• Humble and Generous •Be well prepared whilst remaining flexible
• Understanding and Accepting • Think and act creatively
• Inclusive, Patient and Encourager • Deal with sensitive issues and manage
• Affirming of everyone’s knowledge • People’s feelings
• Sensitive to the needs of others • Encourage humor and respect
• Willing to learn from mistakes • Negotiate with and influence others
• Good at summarizing others’ ideas • Keep to time without being driven by it.
• Confident and Good listener • Good communicating skill
• Dynamic, a motivator
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II. FARMER WELFARE SCHOOL
This approach was elaborated in order to integrate Health and Nutrition concerns in the value chain
analysis. In fact, several studies have proved that chronic diseases, such as HIV/AIDS could affect
agrifood value chain, notably at production level. This pandemic is now a major threat to agriculture
and food security, not because it attacks crops or livestock, but because it reduces agricultural
productivity, diminishes the availability of food, causes the direct loss of family labor, reduces time
for farming, cultivated areas and a blank in the transfer of knowledge between generations.
Considering this impact, the FWF approach has been developed in order to strengthen agricultural
actors and particularly farmers knowledge on:
‐ Awareness of the HIV/AIDS and other chronic diseases
‐ Adapted behavior towards HIV/AIDS
‐ Motivation for use condom and other preventive methods
The FWF is based on Farmer Life School principles.
1. Objectives of FWF
The Farmer Welfare School aims at:
‐ Prevent socio-economic effects of AIDS on rural communities
‐ Strengthen farmers’ knowledge on the linkages between their behavior and their
vulnerability
‐ Strengthen farmers’ knowledge on good behavior to develop in order to stay healthy
2. Setting up and Running a FWF
Participative diagnosis
Before starting the training, an exploratory survey must be conducted with the involvement of the
rural communities. This survey will allow to assess the target people knowledge, constraints and
needs in link with HIV/AIDS.
Selection of training sites

The sites where the training will take place must be chosen, according to objective criteria accepted
by all actors involved in the training.
Selection of the participants

Participants at the training also must be chosen according to objective criteria accepted by all actors
involved in the training.
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Training of the trainers (TOT)

The TOT consists in training some people in the community and after those people will have
to train the remaining of the community. The TOT is composed of four main activities:
‐ The participants work in small groups in order to identify within the community the
vulnerability factors, their causes and the solutions;
‐ The Human-Ecosystem Analysis
‐ The development of specific topics
‐ Group dynamism exercises
Farmers’ training
The farmers’ training is led by facilitators trained during the TOT. Farmers’ training is conducted
simultaneously with the TOT. So that, the difficulties encountered by facilitators at farmers’
training level are reported at TOT level and solutions are searched together with trainers. The
different steps followed during farmers’ training are the same with TOT’s ones.
Curriculum development
The curriculum is like a guide that the trainer must develop before starting the training. In this
curriculum, he must plan the different activities which must take place during the whole training.
Certification
At the end of the training, the participants were reward with certifications.
III. SEED SUPPLY MANAGEMENT
The seed supply is an important link in agrifood value chain. The aim of this session is to make
participants more knowledgeable on :
‐ What is a seed?
‐ What is a seed system?
‐ What is the structure of a seed value chain?
‐ How to do the seed value chain analysis?
1. What is a seed?
Seed is the most important input for agricultural production. It could be a grain or part of any
vegetal material used for planting.
2. What is a seed system

An effective seed system uses the appropriate combinations of formal and informal channels,
market and non market channels. It must be based on farmers’ demand for quality seed.
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3. What is the structure of a seed value chain?
Seed Value Chain Framework
Inputs Production Marketing Consumption
- Farmers
Foundation Seed Certified -NGOs
Seed control seed -Development
seed
Breeding quality production programs
production
- Others
‐Providers of Business
‐ Development
Services,
‐ Financial Services,
 Institutional environment ‐Haulage and Storage
 Public policy
4. How to do the seed value chain analysis?

Seed value chain analysis is based on the paradigm of Structure-Conduct-Performance (SCP).
Structure-Conduct-Performance (S-C-P) for seed value Chain analysis
Conditions and characteristics of

Structure of cowpea seed value chain Production and marketing
environnemental, institutionnal and physical factors that influence - Seed value chain actors
the interactions between seed value chain actors -Volume of production
-Seasonal supply
-Marketing Channels
Conduct of cowpea seed value chain actors

Includes the strategies of:
-Production of cowpea seed Logics and relation between actors
-Supply of cowpea seed -Correction of imperfections of the
-Marketing of cowpea seed market
Mechanisms of coordination and governance between different - Security and flow of the products
actors
Performance of cowpea seed value chain Economic results

(Efficacy, Efficiency, Equity) -Security in cowpea seed supply
-Determination and evolution of the price - value-added and profit margins
-Different cost and Profit margins
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IV. MICROFINANCE
Accessing credit is a challenge for most agricultural actors in developing countries. While there has
been considerable growth in microfinance institutions and private commercial banks serving micro
and small enterprises (MSEs) in urban areas over the last fifteen to twenty years, too often rural
areas lack sufficient financial services. The growth of rural enterprises and the industries or
subsectors in which they operate is often limited by the scarcity of institutions offering a range of
financial services including overdraft protection, working capital, investment and lease financing,
savings and others. In order to support agrifood value chain, it is important to develop microfinance
towards farm enterprises and other enterprises involved in agrifood value chain such as marketers,
suppliers, transporters.
1. Outcomes of this training session

At the end of this session, the participants must:
‐ Understand the concepts of microfinance and micro-enterprises
‐ Know the Principles of microfinance
‐ Understand how agricultural actors could take profit from microfinance
‐ Concepts of microfinance and micro-enterprise
2. Concepts of microfinance and micro-enterprise

- Microfinance
The microfinance is the offer on a small scale of viable financial services to customers with low
income (made up in particular of small self-employed workers, or "micro-entrepreneurs", who does
not have access to the formal banking structure). It is not a question of charity but of a healthy
economic decision (Malloch-Brown, 2004).
- Savings versus Loans
Rutherford (2000) described two types of savings: saving "at first glance" and saving "with
hindsight". In the everyday usage the saving "at first glance" is simply called "saving". In this kind
of saving, the poor transform a reduced flow of small money entries into an accumulated balance,
which becomes at a certain time a significant outgoing.
In the everyday usage, "the saving with hindsight" is called "loan". In the saving as well as in the
loan, the poor transform a reduced flow of many small money entries into a significant single
outgoing.
With the saving at first glance, the outgoing occurs in the last, while with the saving with hindsight,
the outgoing occurs in first. The majority of the microcredit approaches stresses the saving with
hindsight.
- Individual Loans
Only a small number of conventional financial institutions (for example banks) grant individual
loans to people with low income. That is simply due to the fact that the poorest customers are
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considered at high risks, because of their lack of guarantees, in addition to the lack of profitability
of small loans. The standards on usury (loans with interests) generally establish a "ceiling" for the
interest rates which can be lower than the rates required by the microfinance, limiting thus more the
possibility of seeing individual loans granted to the very poor customers. Often, the banks cannot
enter in competition with the subsidies which the Microfinance institutions obtain at the beginning
of the projects.
- Interdependent Credit
According to the interdependent credit, the lent sums are guaranteed by groups of solidarity
guarantee. They are small groups of solidarity which guarantee the refunding of the credits granted
without preliminary saving by Community Banks. The loans are on average 50 euros per member of
the groups of solidarity with an interest of 12 % over 6 months (2 % per month) and forced savings
of 20 % on the borrowed sums (not of preliminary saving).
- Collective Loans
The collective loans constitute an original approach which makes it possible to lend small money
amounts to a great number of customers who cannot present material guarantees. The size of the
groups varies but the majority counts from four to eight members. The group selects its members
before securing a loan. The loans are granted initially to one or several selected members of the
group and then the others. The majority of the IMF requires that a share of the loan be put on side in
advance, in order to underline the capacity to make regular refundings. This amount then acted as
material guarantee. The members of the group are responsible jointly for the refunding of all the
loans and meet periodically to collect refundings.
- Mutual insurance groups of credit
The mutual insurance groups of credit are popular organizations which operate like co-operatives of
saving and loan, according to the logic of finance company (Poyo, 1995; Adams, 1995). They
collect the savings and provide short-term loans. The loan application generally exceeds the saving
deposited so that the loans with the members are generally limited and fixed on the basis of their
savings. In many rural zones, the mutual insurance groups of credit remain the only sources of
services of saving and credit which exist apart from the informal money market. It was however
noted that certain women did not really profit from the mutual insurance groups of credit because
the level of saving required was too high.
- Village Banking
The Village Banking constitutes a model of financial services which allows the poor communities to
create their own mutual insurance groups of credit and saving. In the 80’s, the Village Banking has
been developed as an alternative to the rural credit. This Village Banking provides to their members
credits without material guarantees for the loans and a place where to place their saving and to
promote social solidarity. The village banking guarantees these loans and counts on the pressures
and the mutual aid between the members to ensure refundings. The modest appropriations of
treasury are refunded the every four to six months. The borrowers start with a very small loan, and
then progress up to an established credit limit. The credit is related to the saving and, in the majority
of the cases, the amount of the loan is in relation to the quantity of money that each borrower saved.
The saving of the members is preserved by the village banking and is being lent or invested to
increase the basic resources of the bank.
- The protective sackings (Groups and associations of mutual aid)
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Rotary Associations of saving and credit (ROSCA) exist in many parts of the world. They are often
organizations dominated by women who save small money amounts and can borrow starting from
the common pot according to a revolving principle. The protective sackings are very largely used in
West Africa. They allow members to save very small amounts, at established intervals, and to
secure free loans (Balkenhol and Gueye, 1995). In West Africa, the protective sackings constitute
the principal form of organization of informal saving and the committed amounts are considerable.
3. Principles of microfinance
According to the advisory Group of Assistance to the Poor, there are 10 major principles related to
microfinance:
1. The poor need a bunch of financial services, not only loans: the poor need a range of
suitable services, flexible and bearable devices. According to each case, they also need in
addition to the loans, services such as saving, insurance, transfers, etc.
2. The microfinance is an effective tool for the struggle against poverty: the poor
populations’ access to financial services has as a corollary the improvement of their level of
income, the improvement of their possibilities for investment, the recovery from exogenous
shocks and the improvement of the access to the health services and education.
3. Microfinance means to build financial systems for poor: the microfinance will be
able to mainly reach the poor if they are truly integrated in microfinance institutions’
policies.
4. Microfinance can even pay for its services if it arrives at mainly reach the poor.
Indeed, presently, many poor cannot reach the financial services. To be financially viable, an
institution must be able to extend its actions in a long-term. But to achieve this goal, the
institution must necessarily pass by the reduction of the costs of transaction, the offer of
useful and relevant services for the customers and the identification of news strategies
towards the poor.
5. Microfinance aims at creating of permanent local finance institutions: in order to
reach the poor, microfinance institutions need an effective local institutional framework able
to provide the services in a sustainable way. But this is feasible only if these structures are
able to attract the savings, to recycle them in loans and to provide other services to the
recipients and in consequence to reduce the dependence of the microfinance institution
towards the givers and the governments.
6. The interest rates constitute a constraint reducing the access of the poor to the loans:
the interest rates applied by the microfinance institutions should not be so high.
7. Microcredit amounts are not to regard as panaceas: the microfinance should not be
regarded as suitable solutions to everyone and to all.
8. government and decision-makers must facilitate and not provide financial services:
The governmental policies should facilitate and stimulate the access of the financial services
to the poor and not replace the microfinance institutions.
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9. The gifts should not enter in competition with the services of the microfinance
institutions: The donors provide purses, loans, equities to the microfinance institutions.
These services must temporarily come in complement to the capital.
10. The lack of qualified institutions is the major constraint: the microfinance generally
combines the financial objectives with the services. And for this purpose, the capacities of
the microfinance workers must be continuously reinforced in order to fulfill the requirements
related to the variations of the institutional environment.
4. Rural finance challenge and value chain actors

One answer to the challenge of rural finance lies in our ability to complement a financial market
orientation, which is focused on institutional sustainability, with a value chain approach, which
addresses service delivery within a particular industry or sector. In this case, a value chain approach
focuses on rural enterprises, the value chains they participate in, the opportunities and constraints
they face and the most critical financial services they demand. This approach is relevant because it
begins with what is already happening in the field—the actors, relationships, rules, range of services
and bottlenecks to growth. It increases the likelihood that interventions and innovations will help to
close the gaps in rural finance by recognizing market realities and incorporating them into the
delivery of expanded financial services.
Trader credit, contract farming and warehouse receipts are three mechanisms for expanding rural
credit that have grown out of value chain relationships. Trader credit refers to short-term or seasonal
loans between buyers and sellers of inputs or products, typically provided in commodity-based
value chains such as rice or other basic grains. In contract farming, loans are tied to purchase
agreements: farmers agree to sell to a given buyer, who in turn often commits to providing
additional services such as technical assistance. This increased level of commitment is more
appropriate for buyers and sellers of high-value, specialty products. Warehouse receipts, issued to
depositors of nonperishable commodities by safe and secure warehouses, allow financial institutions
to use the deposited inventory for collateral and farmers to sell their products for higher prices in the
off-season.
Through mechanisms such as these, buyers and sellers “embed” financial services with other
services, such as technical assistance, marketing and secure storage. This bundling of embedded
services allows traders to sell more inputs, producers to enter into purchase agreements with buyers,
and buyers to increase the volume and reliability of their supply. Yields can increase through
expanded access to quality inputs and through reduced spoilage during storage. The services
embedded in these mechanisms can also reduce transaction costs by facilitating bulk purchases and
sales and reinforcing the use of standards that allow buyers to confidently purchase products sight
unseen.
The embedded services of value chain actors are one mechanism for expanding financial services in
rural areas. These services represent a significant percentage of loans to small-scale producers, and
the ways in which their terms and conditions enhance business transactions offer lessons for
financial institutions committed to expanding their share of the rural market. These services,
however, are not sufficient for meeting demands for expanded rural financial services. Formal
financial institutions, with their ability to attract and intermediate capital, are also critical players.
They can provide loans for investments and make working capital loans to larger-scale rural
enterprises that can in turn extend working capital loans to smaller enterprises. Formal financial
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institutions can use value chain analysis to expand their definition of creditworthy borrowers by
building on the performance of actors within promising chains, in addition to offering savings and
funds transfer services.
As we look to increase access to rural financial services, practices and innovations in the delivery of
these services by value chain players offer significant promise. The value chain approach allows us
to respond to rural entrepreneurs’ demand for financial services, and to identify and address
bottlenecks to economic opportunities with the outcome of increasing the incomes of small
producers and other rural entrepreneurs.
V. GENDER AND EQUITY
1. Concepts definition
The two terms - gender and sex - designating the differences between male and female are
frequently confused. The distinction between them is conceptually fairly simple. “Sex” is a
biological term based on a person’s physical characteristics, while “gender” is an abstract category
linked to the social realities of male and female members of any society. Gender analysis is a
systematic process of examining gender and gender relations in a particular setting. Its purpose is to
help us to understand why development processes often affect women and men differently. Men are
more likely to be involved in artisanal activities like carpentry and metal work, as well as in service
such as vehicle repair. Women are concentrated in traditionally ‘female’ activities such as food
processing and dressmaking. Both men and women engage in trade, but more women are found at
the lower end of petty trade in fruits and vegetables. Such an analysis is useful because it allows
interventions by government, NGOs, and others to be targeted more closely to those most in need of
help.
2. Importance of Gender mainstreaming

Women are statistically the global majority. As the global majority, women cannot be treated as 'a
special case' but their needs and interests must be as an integral a part of any development policy as
those of men. Failing to effectively harness the creativity and effort of at least half the population
inevitably significantly undermines the potential for growth, with serious implications not only for
women themselves but for household and national poverty reduction. Enabling women to realize
their full potential requires removing gender inequalities and discrimination which constrain them at
every level. It also requires affirmative action to enable women, and also men, to promote and
benefit from this change.
Gender equity concerns can, and should, be mainstreamed throughout all approaches, and at all
stages. As discussed above, gender differences and inequalities operate at all levels of the value
chain, affecting not only women's rights, but also pro-poor development goals in general. Gender
mainstreaming therefore requires addressing many interlinked and mutually reinforcing dimensions
(economic, social and political) and levels (individual, household, community, national, and
international) on which gender inequality operates within the value chain.
3. Gender in Value Chain approach

Gender inequalities are often critical to understanding and addressing the 'weakest links' within
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value chains, and the most critical areas for upgrading quality and growth as well as poverty
reduction. Gender analysis is however generally also the weakest point in most value chain
analyses, and largely ignored in most value chain manuals. Gender differences and inequalities
affect the ways in which value chains operate at every level.
‐ Women and men are likely to be involved at different stages of the chain as producers and
entrepreneurs, in marketing and as consumers. Those areas where women are involved are often less
visible and may be overlooked in both analysis and development. Large parts of the value chain,
which are essential to upgrading, are often ignored, particularly homeworking, 'putting out' and
temporary work. These are very important in explaining how value chains operate and indicate
critical links at which upgrading or change should happen in order to bring about development of
the chain as a whole, and for poverty reduction.
‐ Gender inequalities affect where power is located and where and how change can occur in
order to translate chain upgrading into poverty reduction. Gender inequalities are often important in
explaining why different parts of the chain are blockages to growth. Gender analysis is needed to
explain why particular chains are dominated by men or women, in what circumstances women have
been able to become successful at creating employment, and how women can be supported to make
a more effective economic contribution? Gender inequalities also affect men's behavior in
enterprises and markets as well as the household.
Ensuring that value chain analysis is able to identify and promote the 'strongest links' therefore
requires the integration of gender analysis at all stages. Translating this analysis into the strongest
development process also requires the full and equitable participation of women as well as men not
only in design, but also implementation and monitoring.
4. How to do the gender mainstreaming?

The methodology of Gender mainstreaming refers to four main steps:
Step 1: Disintegrate data according to sex criterion
Along the value chain to be analyzed, the data to collect must be disintegrated according to sex
criterion. Such data present quantitative information on men and women. They reveal all inequality
forms along the chain and allow a better understanding of men/women relations and responsibilities
along the chain.
Step 2: Development of an action plan considering gender concern
At this step, the specific needs of men and women must be identified. Men as well as women must
be involved in the prioritization of necessary actions to undertake in order to satisfy the identified
needs.
Step 3: implementation of specific actions towards men and women
Specific actions must be oriented towards women in order to reduce their vulnerability. For this
purpose, the disintegrated data collected according to sex criterion will be used. The program will
have to strengthen women capacity on what represents any weakness for them.
At this step, training could take place in order to create a context for exchange experience between
participants. Furthermore, participants’ capacity will be strengthen in order to make them integrate
gender aspect in all the value chain’s links. For that purpose, some tools could be used, such as
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analytical framework, gender budgeting, problem tree, etc.
VI. MONITORING AND EVALUATION
This training session, is mainly oriented towards decision-makers and NGOs actors. It will make
them more knowledgeable on how to monitor and evaluate the impact of a decision taken in order to
support an agrifood value chain.
1. What is monitoring and evaluation?

Monitoring and evaluation (M&E) is essential to the management of all development activities
(projects, programs, organizations). If we are to manage our activities adaptively, responding to
changes as they occur, we need feedback. This is true for farmers, local project workers, and staff of
research institutes and development organizations, both government and non-government. M&E is
an integral part of participatory research. In conventional terms, monitoring and evaluation are
distinct activities related to the project cycle (Casley and Kumar 1987). Having identified, planned
and initiated a project, we need to monitor its implementation and evaluate its achievements. Thus
monitoring is part of project management and occurs during the life of the project, whereas
evaluation, while it may begin during the project, will extend beyond the project’s life and focus
area.
2. Why use participatory monitoring and evaluation?

Participatory approaches to Monitor and Evaluate (PM&E) entail the active involvement of local
people (farmers, field staff, and other local stakeholders) in the design, elicitation, analysis, and
utilization of M&E information. PM&E has been motivated by functional concerns, i.e. to improve
the effectiveness of M&E, as well as by concerns for the empowerment of disadvantaged groups.
Table 1, adapted from Mikkelsen (1995:170–1), summarizes the differences between conventional
and participatory evaluation. In practice, the distinctions are not always so sharp and a blending of
the two approaches often occurs.
Our concern here will be focused on the use of PM&E in impact assessment. PM&E for impact
assessment can be characterized as ‘… a process of evaluation of the impacts of development
interventions which is carried out under the full or joint control of local communities in partnership
with professional practitioners … Community representatives participate in the definition of impact
indicators, the collection of data, the analysis of data, the communication of assessment findings,
and, especially, in post-assessment actions designed to improve the impact of development
interventions in the locality (Jackson 1995).’
An Impact is the overall, long-term changes in the project area (positive or negative) which result, at
least in part, from the participatory research project, such as reduced poverty, greater gender equity,
and improved natural resource management. These are very difficult to measure and attribute to the
research process, so to evaluate the project, we generally have to focus on the outcomes as
intermediate measures of impact.
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Table 1: Comparison between conventional and participatory approach of M&E

Conventional Participatory
Who External experts Farmers, project staff, facilitators
What Predetermined indicators of success, People identify own indicators of
e.g. production, income success
How Focus on scientific objectivity; Self-evaluation; simple methods
distancing of evaluators from other adapted to local culture; open,
participants; uniform complex immediate sharing of results through
procedures; delayed, limited access local involvement in evaluation
to results processes
When Usually upon completion; sometimes Merging of monitoring and evaluation,
also mid-term hence frequent small-scale evaluations
Why Accountability, usually summative, To empower local people to initiate,
to determine if funding continues control and take corrective action
Source: Adapted from Mikkelsen 1995
3. What should we monitor and evaluate

There are many aspects or effects of a participatory technology development project, which we may
need to monitor and evaluate — some of them immediate, some intermediate, and some longer
term. Following Bennett and Rockwell (1995), the more immediate effects are to do with the
process we are involved in
 Resources (e.g. time and money expended to raise farmers’ awareness)
 Activities (e.g. awareness-raising activities such as field days and cross-farm visits)
 Participation (e.g. involvement of farmers in these activities)
 Reactions (e.g. what farmers thought about their involvement in these activities).
Then there are the impacts of the project, that is, the intermediate and longer-term things that
happen as a result of the above process:
 Knowledge, attitudes, skills, aspirations (e.g. farmers’ knowledge about the chain
governance, their attitude to experimenting with new agricultural technologies, their
aspirations to upgrade the chain, etc.)
 Practices (e.g. farmers’ adoption and adaptation of technologies)
 Social, economic, and environmental outcomes (e.g. social outcome, economic outcome,
environmental outcome).
4. How to do impact assessment

The impact assessment is based on comparison. To conduct an impact assessment analysis, we need
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to be able to answer two questions:

 What was the situation before the project started (i.e. the ‘before-after’ comparison)?
 What would the situation be now if the project had not intervened (i.e. the ‘with-without’
comparison)?
Without these comparisons we cannot be sure to what extent the changes we are monitoring are
actually effects of the project. For example, we might find that crop productivity is high. But was it
already high before the project started? If not, would it have been higher anyway in the current year
because of other factors (e.g. good rainfall resulting)? These questions are relevant whether we are
talking about a farmer group monitoring its own progress or a donor agency/government evaluating
the effectiveness of an action to support the value chain.
The conventional way of making these comparisons is to conduct a baseline study at the beginning
of a project (to permit the before–after comparison) and to monitor change in a non-project or
‘control’ area (to permit the with–without comparison). However, this need not require an elaborate
and time-consuming questionnaire survey; more participatory techniques can be used. For example,
as part of project planning, focus groups can be organized during which techniques such as
community mapping, time lines, problem ranking, semi-structured interviews, etc., are used to
establish the current and recent status of key variables, thus establishing a baseline. Even if this has
not been done at the outset of a project it is possible to construct a ‘retrospective baseline’ in which
participants recall their situation immediately before the project commenced.
Moreover, it may not be necessary or desirable to include a ‘control’ area to obtain a with–without
comparison. It is always difficult to find an area which is sufficiently similar to the project area yet
unaffected by the changes the project is engaged in. In any case, it is somewhat contrary to the
participatory research approach to be monitoring a group of farmers purely to evaluate impacts
elsewhere. If the aim is to establish whether a change is due to the project’s activities, it may be
better to use participatory techniques which draw on the detailed local knowledge and experience of
farmers and field workers within the project area. For example, farmer focus groups could identify
and weight the factors (project and extra-project) which have led to changes in crop productivity,
using flow-charting and ranking-and-scoring techniques. Farmer case studies using semi-structured
interviews might also be used to give an in-depth understanding of the reasons for observed
impacts.
5. How do we develop a monitoring and evaluation plan?

PM&E is a complex process in its own right with several distinct aspects. Estrella and Gaventa
(1998) outline four major steps in applying participatory M&E:
• Planning or establishing the framework for a PM&E process, including identification of
objectives and indicators
• Gathering data
• Data analysis
• Documentation, reporting, and sharing of information.
154
References
Working Within the Value Chain to Get Financial
‐ Working Within the Value Chain to Get Financial Services to Micro & Small Enterprises.
Bob Fries. ACDI/VOCA
http://www.microlinks.org/ev_en.php?ID=7098_201&ID2=DO_TOPIC.
‐ Cramb, R., Purcell, T. (2001) How to Monitor and Evaluate Impacts of Participatory
Research Projects: A Case Study of the Forages for Smallholders Project, CIAT Working
Document N° 185.
‐ Khisa, G. (2004), Farmers field School Methodology: Training of trainers manual (1st
edition). FAO
‐ Minjauw, B., Muriuki, H. and Romney, D. (2002) Development of Farm Field School
Methodology for Small holder dairy farmers in Kenya. International learning workshop on
farmer field schools (FFS): emerging issues and challenges,21-25 October 2002,
Yogyakarta, Indonesia.
‐ The intersection of Health, Industry and the Value Chain methodology. Bob Learmonth.
ACDI/VOCA
‐ Matopoulos, A. and Manos, B. (2007) A conceptual framework for supply chain
collaboration: empirical evidence from the agri-food industry. In International journal of
supply management vol 12, n°3. pp 177-186.
‐ Mayoux, L., Mackie, G. (2008), Making the strongest links: A practical guide to
mainstreaming gender analysis in value chain development. International Labour Office.
Addis Ababa.
‐ Babadankodji, P. (2008), De la transversalité du genre dans les programmes de
développement: “ le gender mainstreming ». Communication à l’atelier de Bohicon 1-5
septembre 2008.
155
ANNEX: Sample Terms of Reference for a Product Value Chain Analysis:_____IITA-IFAD
ANNNEX: Product Value Chain Analysis: Sample Terms of Reference7
This is a generic terms of reference, designed as a guide for outlining the basic scope of work and
research activities necessary for a team of consultants to assess the performance of firms or farmers
involved in the production and export of tradable agricultural products (e.g., coffee, cotton, apparel,
shrimp) using a value chain analytical framework. Consultants would be expected to apply this
framework as a means for identifying, assessing, and prioritizing constraints; as well as remedial
measures and cross cutting policy reforms that would most likely enhance the growth and
competitiveness of an economy. The terms of reference are designed for a single consultant or a
team of consultants with expertise and knowledge of the following:
• Value chain analytical and benchmarking techniques relevant to the industry
• Trade, economic, and industrial policies relevant to both product and service sectors in the country
under review
• Global industry trends, practices, and business management strategies relevant in various
segments of the tradable product(s) in the country
Ideally, consultants should have expertise in value chain analysis, the sector to be assessed, and
have the ability to gather data, perform surveys, and other research.
Objectives of the Study

The purpose of the study is to elicit recommendations to improve the business environment in
Country X in a manner that enhances competitiveness, growth, employment, and business
opportunities. The study should provide input that will serve as the basis for developing a coherent
economic growth development strategy. To this end, the study’s objectives are as follows:
• Develop public and private awareness and consensus on the range, importance, and impact of
market and policy constraints that limit the growth of businesses in the country.
• Assess and document the performance of local industries involved the value chain of the product
(e.g., farmers and producers of final and intermediate goods, such as processors, input suppliers,
freight forwarders, transporters, and so on) relative to global competitors.
• Identify the underlying policy, institutional, and infrastructural issues that affect the
competitiveness of private sector activity in the country, and establish priorities for which public
sector interventions might have the greatest positive impact.
• Identify actions the private sector can take to improve domestic productivity, expand its market
share, reduce costs, increase competitiveness, and add local value along the supply chain for the
product.
• Examine the challenges and opportunities for increasing access to and shares of global and
regional import and export markets for the product and associated inputs.
7
Adapted from FIAS, 2007
156
Scope of Work
The consulting team should provide adequate answers to broad questions such as the following:
• Which segments of the product value chain are competitive, and which ones are not?
• Which externalities, disconnections, and efficiencies in one segment of the product value chain
have significantly affected performance in other segments of the chain, thereby undermining the
growth of the entire industry?
• Which institutional and policy interventions have strengthened the competitiveness of various
segments of the chain, and which ones have undermined it? Which policy and infrastructure
inadequacies currently impede efficient and effective input sourcing, production, and transformation
of value and delivery of the products that can be traded to domestic or foreign consumers?
• What other types of underlying factors limit the ability of local firms to directly contribute to the
product chain? Are there specific factors that limit the benefits (or rents) within the value chain, and
to the local community?
• What public-private remedial measures should be taken to improve domestic productivity, reduce
costs, and strengthen the ability to add local value throughout the chain? What remedial measures
need to be implemented to strengthen the integration of the domestic private sector with the regional
and global supply chains where applicable?
As part of this analysis, the consultant (or team) should complete the following tasks:
Task 1: Analyze the market by compiling a comprehensive profile of the products, associated
industries, and markets
1. Present a brief product and industry profile that should include (but not be limited to) the
following items:
• Global, regional, and national market, production, and trade data to assess the structure of global,
regional, and local demand, production, output, trade volume and values, consumption patterns,
input and output prices, and so on.
• A discussion of the global external shocks that are likely to influence the export performance of
the products or sector (e.g., changing global policies such as phasing out the Multifiber Agreement
(MFA), rising fuel and energy prices, the prevalence of global terrorism and security concerns,
changing consumption patterns, changing climatic conditions, and so on). Benchmark these data
points with competing countries, and regional and global averages.
• An analysis of global, regional, and national product and industry trends, including key export and
import markets, market shares; changes in sourcing, production, and supply chain management
practices; standards and technological practices; and so on. Identify key drivers of the demand for
the product, and specific factors required for local producers to compete in each of these markets,
including, product quality or required processing standards.
• An assessment of the relationship between product sector contributions and broader
157
macroeconomic indicators (e.g., national and provincial GDP, inflation, employment, foreign
exchange, tax revenues, and so on). This should include a review and synthesis of the policy and
administrative framework governing each product. Completing this task will require a review of
other analytical and policy studies covering investment climate, trade and transport, and so on (e.g.,
investment climate assessment, Doing Business indicators, FIAS administrative barriers studies, and
so on).
• A brief discussion of the existing market structure (competition policy) and entry barriers, if any.
It should also include competitive dynamics of core service providers linked to the product value
chain including profiles of economic agents (e.g., input suppliers or producers, core producers and
intermediaries, transporters and freight forwarders, and so on).
2. This phase should also include a good stock taking of all previous relevant studies or
projects (both completed and ongoing) and a gap analysis to clearly identify the added value
of the current project in specific terms. By the end of this phase, the team should already
have identified broad key issues that affect the sector. The task team leader and team must
work closely together at this phase before the first mission trip is launched.
Task 2: Value Chain Analysis
The value chain analysis will include:

• Value chain mapping (i.e., separating the product value/supply chain into its major value-added
activities or segments). For each identified product or sector the consultant should characterize the
product market to include sources of raw materials, buyers, mechanisms for information flow within
the value chain, and key supporting services (energy, transportation, etc.).
• A measurement of the product value chain performance, which includes the following steps:
! Provide estimates of cost, time, and added value of sourcing, transforming, and delivering
raw materials within one segment (or process) of the chain to another.
! Benchmark the indicators in the point against those of competing countries involved in the
production and delivery of similar products.
! Identify key segments and activities within the chain where performance lags behind those
of competing countries/industries.
! Prioritize segments and activities in the chain where poor performance or inefficiencies
severely undermine the competitiveness of the entire value chain.
158
Task 3: Identify key policies, regulatory, and institutional constraints to the performance of
the value chain and identify appropriate solutions
Drawing on the value chain and benchmarking analysis in Task 2, the consultant team should
identify key policy and market factors that will improve the competitiveness of a specific industry,
as well as those that undermine it. These tasks might include the following:
• Identifying cross-cutting/economy-wide bottlenecks that affect the capacity of the private sector to
compete (e.g., a lack of infrastructure, cumbersome customs procedures and facilities, technical
barriers to trade, etc.).
• Identifying underlying sector-specific factors that are causing poor performance along the value
chain (e.g., standards for product quality and testing, certification processes, sector policy
distortions, administrative procedures, skills, access to capital equipment, access to capital, tax
structure, and licensing).
• Establishing monetary costs of policy interventions/regulations (i.e., the costs of compliance and
hidden/informal costs of compliance such as the cost of internal resources used by each company to
comply).
• Identifying good practice cases to support the recommendations to address the issues.
• Analyzing the institutional and policy linkages between the performance of the value chain and
specific policies, regulations, and institutions originating from either the public or private sectors.
Consultants may identify which specific institutional and policy measures would help to enhance
the private sector’s ability to improve the performance of the value chain. Implications of these
policy measures should be discussed and supported by evidence drawn from the value chain
analysis and from international good practices. A summary of these issues and their implications
could be presented in a matrix that highlights their effects on supply-chain competitiveness.
To the extent possible, the consultant (or team) should also provide some sensitivity analysis of the
effect these constraints have on key economic development objectives (e.g., how can the amount of
local added value and income generation be increased; what are the prevailing attitudes toward
investment and risk-taking, safety and security, and working conditions?).
Finally, based on the findings of the study, the consultant should offer recommendations for World
Bank Group support for policy and institutional measures that would improve productivity and
performance along the value chain.
Key Milestones, Deliverables, and a Time Frame
• Desk research might include (i) taking stock of studies or projects and identifying a scope of work
and (ii) market analysis. This should be completed before the first mission trip occurs. Consultant
should submit an inception report containing a research on points (i) and (ii).
• The first mission trip should include field work to collect data for the value chain analysis and a
159
preliminary analysis of issues.

• First draft to be submitted by XX.
• The second mission trip will involve completing field work and filling data gaps. It should focus
on analyzing the underlying policy, institutional, and other constraints affecting the competitiveness
of the product value chain.
• Second draft report to be submitted by XX.
• Following review and feedback by the task team and the peer review committee, a draft of the
final report should be delivered by XX.
• A workshop will be held in the country to discuss the findings and fine-tune the recommendations.
• The consultant team should finish its report by XX. This should be in the form of a manuscript
that can be published with a length of approximately X pages, not including annexes, and statistical
and other tables. The report should draw conclusions about the current status of laws, regulations,
capacities, and programs designed for developing the sector in the country; it should identify areas
that need priority attention; and it should recommend key steps the government, private
organizations, and international development agencies should take. Reference should be made to the
appropriate contexts for such efforts—whether at the national level, at the regional level, or in
relation to international organizations and forums.
The consultant team will report on this study to XX managers.
160
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Value Chain Analysis: Analytical toolkit and approaches to guide the

Book · January 2010

Ousmane N Coulibaly Djalalou-Dine A.A. Arinloye

SEE PROFILE SEE PROFILE

Sehomi Landry Fanou Johanes Agbahey

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Value Chain Development of Agroforestry Products View project

PRONAF/FIDA View project

The user has requested enhancement of the downloaded file.

International Fund for Agricultural Development (IFAD)

PRONAF (Cowpea Project for Africa) An IFAD Grant

Value Chain Analysis

Analytical toolkits and approaches to

Module 2: Value Chain Analysis: Concepts and Key Elements 7 2h Day 1

Module 3: Value Chain Actors 20 3h

Module 6: Value Chain Information and Traceability Systems 58 4h

Module 8: Chain Performance 100 4h

Module 10: Chain Governance 123 3h

Sample Terms of Reference for Value Chain Analysis 156 - -

1. Introduction to the course

4. Assessment of participants’ expectations

incorporating/excluding other actors accordingly and allocating to them value-adding activities

Period Concepts / Paradigms Engineering Level of Analysis

Input/Output Analysis ✔ ✔ Macro

Industrial Dynamics& Systems ✔ ✔ ✔ Macro/Meso/Micro

Porter’s ‘value chain’ ✔ Initially Micro; later

‘000s Value chains ( revisited) ✔ ✔ ✔ Micro and Meso

6. What is the Value chain approach?

6.1. A Market System Perspective

6.2.A Focus on End Markets

CONCEPTS AND KEY ELEMENTS

How to understand the following concepts from a value chain perspective?

1. Understanding value chain concept

A value chain is a sequence of target-oriented combinations of production factors that create a

2. Value chain analysis: Related concepts

Competitiveness (determinants and indicators)

Embedded service arrangement

Food safety / product safety

Impact Model / Results framework

Institutions and policies

Chain Macro level

Chain Micro level

Chain Meso level

Markets / market relationships

Margin (profit margin or price mark-up):

Operational services / operational service providers

Profitability of chain actors

Pro-poor growth (PPG)

Public-private partnership (PPP)

Support services / support service providers

Supply chain / supply chain management

Upgrading / chain upgrading

Value capturing / value captured

Value chain governance

Value chain map / value chain mapping

Value chain promotion

Value Chain actor

Value Chain operator

Value Chain supporter / support service provider

Vertical coordination / vertical integration

Vision / visioning (for value chain development)

VALUE CHAIN ACTORS

Input supply Production Processing Trade consumption