Module III ABE - Guiding Frameworks and Tools KVR-ENR

AGRI BUSINESS ENTERPRISE DYNAMICS
MODULE II: CASES
Prof KV Raju & Prof EN Reddy
MOVE Approach
CASE 01. Amul-Cooperative – Design and Operational Efficiency
CASE 02. AGROCEL
CASE 03. MEADOW
CASE 04. Women in Agri Value Chain
CASE 05. LIJJAT
CASE 06 Rural Enterprises

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Agribusiness Subsector Assessments

By Theresa Miles
Development Alternatives, Inc.
Keywords: subsector assessment, mapping, linkages, market dynamics, market analysis, surveys.
Abstract: If interventions into markets are to have maximum impact and yet be cost effective, key
points of leverage must be identified. One useful tool for identifying such opportunities is subsector
assessment. The author clealy sets out the principles behind conducting such an analysis; describes
how to construct and refine a map of the subector and illustrates, with a detailed case study, how
that map can then be used to analyse market dynamics and identify critical points of leverage.
I. Introduction
Subsector assessment is a systems approach to the study of economic activity1 which helps analysts
better understand the dynamics of the subsector. The objective of subsector assessment is to
analyze all of the participants, their linkages, and influential factors in the agribusiness system in
order to identify constraints and opportunities for growth. Subsector assessment is a powerful tool
for project designers and decision-makers because it clearly illustrates where change can have the
most significant impact on the subsector.
A Subsector is defined as a vertical grouping of enterprises involved in the production and

marketing of one well-defined product or several closely related products.2 A commodity subsector
does not necessarily lie strictly within one particular sector; it can cut across other sectors. For
example, cotton is grown in the agriculture sector, shipped to factory by the transport sector,
processed in the manufacturing sector, and so on. The key is the network, which is based around a
common raw material or a common output.
II. Key Principles and Issues

The following key concepts must be considered when performing an assessment:
• Vertical Perspective: Agricultural commodities start on the farm and work their way vertically
through the marketing system to the consumer. This vertical perspective is an important
element of the assessment because it shows who the subsector participants are and illustrates
where they function in the marketing system.
• Competition: In agriculture, competition exists across every level. Small-scale farmers

compete with other small-scale farmers; they also compete with large agribusiness.
Competition comes from domestic sources, as well as other countries. Understanding one’s
competition, domestic and international, can shed considerable light on the problems being
faced by all in the subsector, as well as illustrate the techniques that successful enterprises are
using.
• Coordination: Coordination defines how firms within the subsector are linked and how they
affect one another. It examines the impact that participant actions have on the various aspects of
the subsector. These actions can be formal, such as government policies and regulations or
informal, such as internal self-regulating mechanisms.
• Leverage: Leverage is the ability to affect large numbers of subsector participants with the
least action. Subsector assessment aims to find cost effective opportunities where this can be
accomplished. These are known as points of leverage. The point of leverage can be access to
credit, a law that is preventing access to or expansion of a subsector, or a new technology that
would dramatically improve production capabilities.
Finally, if a project is envisioned to follow the assessment, two more issues must be considered:
• Stakeholder commitment: A critical condition for a successful project design, as well as

implementation is the early commitment of local organizations that have a stake in the
subsector. These organizations can vary from farmer co-ops and NGOs to trade associations,
but they must play a substantial role in the subsector and be involved in the implementation
once the assessment is done.
• Markets: Is there a viable market for the subsector commodity? A subsector is part of
domestic and international markets, and as such understanding the markets is essential when
performing an assessment.
IIIa. The Roadmap
Subsector Mapping
An essential tool for the analysis of this system is the subsector map. The map illustrates the flow
of products from producer to consumer in quantitative, graphic terms, as well as the inter-
relationship among participants in the subsector. There are several components that should be
illustrated in the map:
• Markets: Markets are the final destination of the product. This can be defined either by
location such as domestic or international or by the type of consumer.
• Functions: Each step that the product goes through during the production and distribution
system is referred to as a function. For example, in the Botswana sorghum beer subsector,
sorghum is collected, malted, brewed and then retailed. Each of these steps is a function that
should be illustrated in the map.
• Participants: Participants are the key actors and their roles within the subsector.
• Channels: Channels are made up of participants, differentiated by technologies, functions and

linkages. Goods flow to the market through different channels. Four channels exist in the
sorghum beer subsector in Botswana. Channels 1 and 2 revolve around home brewing. In
channel 1 home brewers malt their own sorghum, brew, and sell the beer. In channel 2 the
home brewers purchase factory produced trade malt and brew and retail the beer. In channel 3
factory brewed beer is purchased and then sold by home retailers. In channel 4 factory brewed
beer is purchased and then sold by licensed retailers.
IIIb. How to do a Subsector Assessment.

The following section describes a step-by-step approach to subsector assessment. Subsector
assessment is an iterative process; (VWDEOLVK,QLWLDO8QGHUVWDQGLQJ
analysts hone their skills and develop
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assessments by actually doing them.
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larger subsectors may take 2-3 months.
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the industry? What channels exist and
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ESTABLISH INITIAL
UNDERSTANDING
Step 1. Define Subsector for study.

This can be a very important step, even though in most instances the country and/or donor have
already selected the subsector(s) to be studied. This was the case in the Morocco Agribusiness
Promotion Project (MAPP), where USAID and the Government of Morocco had identified eight
subsectors to be studied prior to project implementation.
In some instances, the subsector will not be clearly identified or defined and data must be collected
that provides an overview of those working in the Agriculture Sector. The objective of this
overview is to identify subsectors where interventions are likely have the largest payoff and lead to
large-scale sustainable growth.
In order to obtain an overview of the sector, data should be collected that reflects the size of the
different markets in the subsector, as well as growth prospects and target groups of those markets.
Typical sources of data are population surveys, national accounts, labor force surveys, previous
studies by multilateral Banks and/or NGOs, consumption studies, trade statistics and key
informants. Selection and definition of the subsector is generally made prior to any fieldwork,
although some rapid reconnaissance may be conducted to fill information gaps or provide
supplemental data.
Step 2. Familiarization with the subsector.

Once the subsector(s) has been selected the principal functions, technologies, participants and
product flows must be identified. The following questions should be answered:
- What are the main functions in the subsector?

- How does the product flow from raw material through producers and ultimately
to the consumer?
- What types of technologies and scales of production compete in each function?
- At what points do small and large enterprises compete?
These questions can be answered through a combination of research and fieldwork. Participants, as
well as knowledgeable observers, should be interviewed. Interviews can be open-ended or
structured and should include the following questions: (1) Where do you get your raw material? (2)
Who do you sell to? (3) Who do you buy from? (4) What technology do you use? Why? (5) What
changes have occurred in your industry? In addition questions about prices, profits and returns can
be asked. In Morocco, important information was obtained about the olive subsector by
interviewing local participants, Spanish and French Processors, the World Olive Council in Madrid
and British and German Brokers.
It may be useful here to roughly sketch a diagram of the subsector. First, it can be a useful tool for
getting information. Many people may not be willing to give personal information, however most
will be more than willing to tell you where you are making erroneous assumptions. Secondly, it
will provide a foundation for the preliminary subsector map.
Step 3. Draw preliminary subsector map.

The map offers a useful overview by clearly illustrating the operational framework of the subsector.
The information obtained during the research and interviews are diagramed and the desired result is
a graphic summary of the principal subsector functions, participants and channels. The map should
illustrate the analyst’s initial understanding of the subsector and serve as a guide through the next
steps of the assessment.
As can be seen in the generic subsector map (see Figure 1), the functions are listed down the left
side, the final markets across the top, and the participants and alternative technologies for each
function are drawn in according to the functions they perform. Arrows illustrate the product flows
among the participants and three principal channels and enterprise boundaries are clearly defined.
Figure 1. Generic Subsector Map
Channel 1 Channel 2 Channel 3
Retailing
Wholesaling
Production
Input
Assembly
Inputs
Location Enterprises
= Assembly Point = Enterprise Boundary
= Skipped or implicit function

Overlays
N = Number of Firms
S = Sales Coordinating Mechanisms
L = Employment = Sale of good in spot market
V = Volume = Contract sale
= Gearing Ratio
= Subcontract
Step 4. Specify Environment.

Once the subsector map is diagrammed, the environment in which it exists and operates must be
investigated. The environment consists of the formal and informal rules that affect the subsector, as
well as the organizations that support them. Rules include labor regulations, trade policies, other
macroeconomic issues, and sociocultural factors. Support organizations include trade associations,
export agencies, ministries, chambers of commerce and NGOs. An improved understanding of how
the environment affects the dynamics and competitiveness of the subsector can be obtained through
dialogue with subsector participants, and support organizations, as well as through the study of
formal and informal rules.
All interviews and research in this step should seek to answer one question: how does the
environment affect the different channels in the subsector? For example, MAPP’s 1993 Olive
Subsector study found that Moroccan olive oil processors mixed extra virgin and virgin olive oil
with acidic "lampante" oil. Because of strong local market prices and a preference for higher
acidity, the extra virgin and virgin olive oil was blended with the more-acidic lampante oil to extend
lampante volume. Extra virgin and virgin olive oils were being exported mainly during the years
when Morocco had a bumper crop. It was suggested that, rather than extend local lampante
supplies by mixing with lower acidity oil, Morocco could import the less expensive grades of olive
oils from countries such as Tunisia, freeing some extra virgin and virgin olive oils for export on an
annual basis. At the time, the Moroccan policy environment kept foreign olive oil out of the
market. Project staff determined that if the government let in foreign oil, Moroccan consumers
could benefit from lower olive oil prices, and Moroccan producers could become regular suppliers
to the international virgin olive oil market.3 In 1995, the law was changed, granting licenses for the
importation of lampante oil and eventually enabling the increased export of higher quality oil,
thereby benefiting both domestic consumers and exporters.
REFINE YOUR UNDERSTANDING
Step 5. Refine subsector map.

The objective here is to refine and simplify the map, by making appropriate changes and integrating
the details obtained from step 4. If necessary, additional interviews can be performed where there is
unclear or insufficient data. This second round of mapping interviews should be conducted in
concert with step 6; in addition to seeking clarifications and filling information gaps, a more
concerted effort should be made to collect reliable quantitative data.
Figure 2 represents an example of a refined subsector map. The channels and subsector participants
in the Moroccan strawberry subsector are clearly identified. Channel one shows large vertically
integrated Northern growers that sell fresh and frozen berries. These growers have a minimum of
30 ha, producing 40-50 tons/ha. About 50% of production is exported fresh, 25% is exported frozen
and the remainder is sold in local markets. Channel two shows small growers, who produce almost
exclusively for the domestic fresh fruit market. In channel three, large vertically integrated growers
sell mostly fresh berries for export. While production in this channel is similar to channel one, 50%
is exported fresh and 30-40% sold locally with the remainder sold to processors of jams and other
products.
Figure 2. Morrocan Strawberry Subsector Map
FRESH AND FROZEN STRAWBERRY

SUBSECTOR
-----------------------------------
VOLUME AND VALUE MAP 1993-1994
FRESH 1993/94
FROZEN EXPORT
1993/94
T. 8,400 tons DOMESTIC
Markets EXPORT
V. 60 mn DH Estimated Wholesale volume: volume: 6,967 t
10, 000 tons
TRUCK:
5000 t @ $0.40/kg
TRUCK TRUCK & AIR
CONTAINER:
Transport TRANSPORT TRANSPORT cost/kg:
3,400 t @ $0.16/kg
cost/kg:0.40/kg $0.40/kg
Independent
Storage factories freeze processed
@ 2-3 dh/kg strawberries
---------- -------------------- (jams, etc)
Freezing
----------
35-40% of
production
Cold 30-40% for
going for about 50% for export,
Storage freezing at export at 11.5 rest for local market
3.5 dh/kg dh/kg --------------------------
---------- export: 11-14 dh
25% local local fresh: 4-5 dh
SMALL
Packing/ at 2.5 processing: 3.5-4 dh
GROWERS
Sorting dh/kg
sell on local
LARGE VERTICALLY INTEGRATED ---------------------------
mkt at 6.5
GROWERS DOING FRESH AND LARGE VERTICALLY
dh/kg
FROZEN INTEGRATED
Production GROWERS DOING
MOSTLY FRESH
(located in South)
NATIONAL
Plant FOREIGN
NURSERIES
Production NURSERIES
BREEDERS
CHANNEL I CHANNEL II CHANNEL III
Step 6. Quantify "overlays" of particular interest.

As the map becomes more refined, it may be necessary to add detailed information to illustrate
more clearly the dynamics of the subsector. Quantitative, as well as qualitative detail can be added
to the map through the use of overlays. An overlay, as defined by Haggblade, et al. is information
superimposed onto a basic subsector map to describe differences among participants and channels.
The most common overlays used relate to size, income and it’s distribution, efficiency, leverage and
target groups. When assessing the strawberry subsector in Morocco it was decided that volume and
values were the most important overlays to include.
There is no clear-cut method for determining which overlays to use. If information is important to
the study and it hasn’t been clearly reflected in the basic map, then it should be added as an overlay.
Once the relevant overlays are determined, data must be collected in order to quantify them.
Quantification at times will be approximate due to the accuracy of key informant estimates and their
uneasiness with sharing this information. Data should be cross-checked with official government,
shippers, and trade association sources in order to ensure consistency and minimize errors.
IDENTIFY LEVERAGED INTERVENTIONS
Step 7. Analyze dynamics.

At this point in the process it is necessary to understand how the subsector is changing. The first
step in analyzing the dynamics of the subsector is determining which channels are growing and
which are declining. Once the growing and waning channels are identified, key driving forces and
constraints can be examined to determine which are responsible for the growth or decline. Key
forces that affect change in the subsector include: market demand, technological change,
profitability of different niches, risk, barriers to entry, large firm behavior, input supply, and
policies. Finally, the consequences of the growth or decline must be determined. Identification and
understanding of the key forces driving change in the subsector and the consequences of that change
will oftentimes reveal opportunities for growth.
In the strawberry subsector three key driving forces were identified:
1. The plants for planting. 80-90% of the strawberry plants were provided by Spain, the remaining
10-15 million plants were provided by domestic growers. The Moroccan strawberry industry was
overly dependent on Spain. Shortage of plants, or poor quality plants from Spain could seriously
impair the industry. A clear opportunity existed for Moroccan growers to expand their sales of
strawberry plants.
2. Transport. Truck size was clearly a driving force in the subsector. It took at least 30 ha of
production to fill a refrigerated truck. Opportunities will be made available for increased transport
access to small farmers, if the transport system is modified to include smaller trucks.
3. The Markets. Higher prices are available for products that are ready earlier in the season. In
Morocco, opportunities still exist for even earlier harvests by using improved technologies and
strawberry varieties.
Step 8. Identify sources of leverage.

Leverage is the ability to affect large numbers of subsector participants with a single, preferably
low-cost action. Points of leverage can be identified through system nodes, geographic
concentration, and policy constraints. System nodes are points where large amounts of the product
pass through the hands of a small number of subsector participants. In the strawberry subsector a
clear system node existed between the production of strawberry plants and strawberry production.
Increased domestic seedling production would assist Morocco to produce higher quality berries. A
useful overlay used to represent system nodes is the "gearing ratio," which illustrates the average
number of participants in one function purchasing inputs from the function below it. Geographic
concentration offers the opportunity for targeted interventions that reach many participants in the
same region. Finally, policy constraints offer a very powerful point of leverage. Policy reforms can
have a large impact, although they can be difficult and time consuming to achieve.
Step 9. Explore opportunities for leveraged intervention.

The objective of this step is to determine where opportunities for intervention (identified in step 7)
and points of leverage (identified in step 8) converge. The following question should be answered:
Which opportunities offer the chance of reaching the largest number of participants within the
subsector? After performing the assessment it may be determined that such opportunities do not
exist; if so, efforts should be focused elsewhere. However, if opportunities for leveraged
intervention do exist they constitute the skeleton of the project design.
In the Moroccan strawberry subsector, plant seedling production was identified as an opportunity
and the fact that most of the plants were provided by Spain was determined to be a source of
leverage. The first step taken to leverage this opportunity was a Moroccan Strawberry Industry
Tour to the United States in 1995. A direct result of this trip was a joint venture between a
California firm and a Moroccan company that created a high-altitude strawberry plant nursery for
certified plant production. One million plants were shipped to Morocco and in the 95/96 season
they out-produced the Spanish plants at a lower cost.
Sample Subsector Report Outline

Executive Summary
Introduction
Dynamics in the Subsector
Opportunities and Constraints
Recommendations for Project Actions
I. Overview of Commodity Production
II. Markets and Consumer Demand
III. Structure of the Subsector/Subsector Map
IV. Environment
V. Driving Forces and Points of Leverage
VI. Opportunities and Constraints
VII. Conclusions and Recommendations/Opportunities for Intervention
III. Resources
Related Learning Tools on this site

Rapid Appraisals of Commodity Subsectors
Diagnostic Assessments of Urban Food Distribution Systems
Contacts
Development Alternatives, Inc., 7250 Woodmont Avenue; Suite 200; Bethesda, Maryland 20814
Tel: 301 718-8699 Fax: 301 718-7968 Internet: info@dai.com http://www.dai.com
Jim Boomgard, Vice President, Finance, Banking and Enterprise group. jim_boomgard@dai.com
Bill Grant, Agricultural Economist, Finance, Banking and Enterprise grou. bill_grant@dai.com
Don Humpal, Sr. Agriculturalist, Agriculture and Economics group. don_humpal@dai.com
Jerry Martin, Agribusiness Specialist, Agriculture and Economics group. jerry_martin@dai.com
Paul Guenette, Agribusiness Specialist, Agriculture and Economics group.
paul_guenette@dai.com
Chemonics
1133 20th St. NW, Suite 600; Washington, D.C. 20036
Tel: 202 955-7453; Fax: 202 955-3400 e-mail: info@chemonics.com
Internet: http://www.chemonics.com
$EW$VVRFLDWHV,QF0RQWJRPHU\/DQH6XLWH%HWKHVGD0'86$
)D[ZZZDEWDVVRFFRP
ACDI/VOCA Agricultural Cooperative Development International/Volunteers in Overseas

Cooperative Assistance
50 F Street, N.W. Suite 1075; Washington, D.C. 20001;
phone: (202) 383-4961 fax: (202) 783-7204 www.acdivoca.org
-($XVWLQ$VVRFLDWHV,QF$UOLQJWRQ9$MHDXVWLQ#DROFRP
Publications
GEMINI Publications Series available from PACT Publications:

A Field Manual for Subsector Practitioners. Steven J. Haggblade and Matthew Gamser; Also
available in Spanish and French; November 1991.
Facilitator’s Guide for Training in Subsector Analysis. Marshall A. Bear, Cathy Gibbons;
Steven J. Haggblade, and Nick Ritchie; with video; December 1992.
Lesotho Small and Microenterprise Strategy -Phase II: Subsector Analysis. Bill Grant;
November 1990.
The Subsector Methodology: A Field Orientation for CARE/Egypt, January 20-February 7,

1992. Bill Grant; April 1992.
Additional Resources:
Boomgard, James J., Stephan P. Davies, Steve Haggblade, and Donald Mead. "Subsector Analysis:
Its nature, conduct and potential contribution to small enterprise development." MSU
International Development Papers, Working Paper no. 26 (East Lansing, MI: Department of
Agriculture Economics, Michigan State University, 1986).
Boomgard, James J., Stephan P. Davies, Steve Haggblade, and Donald Mead. "A Subsector
Approach to Small Enterprise Promotion and Research." World Development 20, no. 2 (Feb.
1992): 199-212.
Holtzman, John S., Jerry Martin and Richard D. Abbott. 1993. Operational Guidelines for Rapid
Appraisal of Agricultural Marketing Systems. Agricultural Marketing Improvement
Strategies Project. Abt Associates Inc. Bethesda, Maryland.
Kumar, Krishna. 1990. Conducting Mini-Surveys in Developing Countries. A.I.D. Program

and Evaluation Methodology Report No. 15. PN-AAX-249. Washington, D.C.: Agency for
International Development.
Kumar, Krishna. 1987. Rapid, Low-Cost Data Collection Methods for A.I.D. A.I.D. Program
Design and Evaluation Methodology Report No. 10. PN-AAL-100. Washington, D.C.:
Agency for International Development.
Pagliaro, John. 1984. Method for Conducting a Diagnostic Assessment of Wholesale/Retail Food
Distribution Systems in Developing Countries. Prepared for USAID/Washington. Dana
Associates, Fort Lee, New Jersey.
Shaffer, James D. 1973. “On the Concept of Subsector Studies” American Journal of Agricultural
Economics. Vol. 55: 333-335.
Wilcock, David C. "The Subsector Approach to Agribusiness Projects." Developing Alternatives 1,

no. 2(1991): 1-7.
The Morocco Agribusiness Promotion Project (MAPP, contract # 608-0210-C-00-2044) was funded
by USAID. Subsector studies were performed on the following horticultural commodities: olives,
fresh fruit, fresh-cut flowers, herb/spices, early vegetables, fresh vegetables, strawberry and wine.
Information on these studies can be obtained through the USAID Center for Development
Information and Evaluation

Economic Activity, as defined by the UN International Standard Industrial Classification can be categorized into the
following nine sectors: agriculture, mining, manufacturing, utilities, construction, commerce, transport, services and
government.
2
Wilcock, David. “The Subsector Approach to Agribusiness Projects.” Developing Alternatives (DAI, Bethesda, MD)
1, no. 2 (1991).
([SRUWLQJ7KH5LJKW6WXII$JULEXVLQHVV0DUNHWLQJ,QYHVWPHQW'HYHORSPHQW$OWHUQDWLYHV,QF0DUNHWLQJ0DWHULDOV
Community Based Inclusive Business Plan for FPO
Templates for the Business Plan prepared by community leaders and team
Name of the FPO:
Year of Establishment
Key contact person and address
With Ph no.,
Date of Registration:
Key Commodities & Core
Activities
Proposed commodity and

activities
Acknowledgement
Executive Summary
Overview
• General overview of the
sector-agriculture
• Importance of the sector-
agriculture
• Scope of the new product or
service
• Importance of the new
product or service
Governance structure
Management Structure
Human Resource
• Organization Structure
(Hierarchy Chart)
• Employment Offerings
• Task and Duties
• Skills required to perform
the duty
Physical Resources &

Infrastructure
Salary Structure
Vision
Mission Statement
Key commodities/activities
Business Idea and Business

Opportunity Guidance
• Rivals Analysis (Product,
Price, Weight, Unique
Features etc)
Gap Analysis (Product, Price, Weight,

Unique Features etc)
a. Present status of the
commodity/activity/share
holders
b. How the idea was
conceived to improvise
the present
activity/commodity (value
chain)
c. What are the
improvement options
available (value chain
development plan)
d. How did you zero down to
the option on which
Business Plan is being
worked out
e. How do you converge
with local groups for
Micro Enterprise
Development out of
Business Plan
Sensitivity analysis
Plan Assessment
• Location Details
• Layout Details
• Process Flow Chart
• Nature of Organization
• Legal Laws Applicability
• Taxation Aspect
• Value Chain Development
Plan Canvas
Overall Objective
Specific Objectives
Key outcomes expected out of
Business Plan
Key Performance Indicators
a. Outreach Indicators
b. Operational Indicators
c. Financial Indicators
d. Impact Indicators (soft
and concrete
Summary of Micro Plans of FPGs
SWOT Analysis
Market analysis
• Market Research
• Details of Product
• Details of Pricing
• Details of Distribution
Channel (Place)
• Mode of Advertisement (if
any)
• Segmentation, Targeting and
Positioning
Ability Analysis
Environment analysis
Risk Analysis
Policy Analysis
Who are the competitors?
Stakeholder analysis
Financials
• Cost-Sheet
• Financial Statements:
Trading Account, Profit and
Loss Account, Balance-Sheet
• Cash Flow Statements
• Capital Budgeting
Techniques (Net Present
Value, Pay-Back Period,
Internal Rate of Return)
List of Assumptions
Cost Benefit Analysis
Projected Cashflows
Projected Income and
Expenditure
Projected Profit and Loss
Projected Balance sheet
Government subsidy
planned/applied for
Release schedule
Repayment schedule
Conclusion – you can also add
simple key ratios like CB ratio, %
of profit, NPV, CB Analysis, Break
Even Analysis, Quick Ratio, Net
Worth, Debt Equity Ratio, EPS
etc.,
Annexures
a. Regn copy
b. Copies of Licenses
GST, PAN, FSSAI, Shop,
Seeds, Fertilizers,
Pesticides
c. Organo gram
d. Board structure
e. Audited/Unaudited
Financials
f. List of FPGs
g. List of working
committees
h. Area Map
i. Copies of MoA and AoA
j. Copies of Business Rules if
any
k. Copies of service
conditions if any
l. Bank statement
m. Subsidy sanction letters
n. Merit
certificates/testimonials
o. Case studies/success
stories if any
p. Photographs of activities
Projected Cashflows
Projected Income and Expenditure
Projected Profit and Loss
Projected Balance Sheet
Pedagogy
Trainer should help trainees (CEOs and BoD Members) develop business plan in bottom up approach
way
Business plan is always two step process first being the community prepared business plan which will
form road map for FPO to take up activities for the FY. They need to prepare bankable business plan
which should evolve out of basic CB business plan and the second one can be prepared with the help of
a professional consultant. However they should own it and internalize the total elements and
components of the business plan.
Any business plan may have the following frame work (templates) which is suggested but not limited to
any other critical information that FPO feels may add importance.
The trainer should ask the trainees to be ready with summary of the micro plans in place containing
house hold level basic data about acreage, crops, in put requirement, expected out put of commodity,
quantities of disposable commodity after providing for domestic consumption and required technology
in puts.
Resource Material
a. Copy of micro plan in local language

b. Copy of business plan template in local language
Hardware
Charts with pens

Methodology
Question and answers; small group discussion preferably all the trainees of each FPO shall prepare their
own plan in group
Introduction
Trainer will explain the critical importance of business plan in terms of statutory requirements and
leveraging bank and government finance. He/she can give illustrative examples
(yet to be completed)
INTRODUCTION TO BUSINESS
PLANNING.
June 2011
1
CON TENTS
1 Introduction ................................................................................................................................................... 4
1.1 Why Do You Need a Business Plan? ..................................................................................................... 4
1.2 What can a Business Plan do for you? ................................................................................................. 4
1.3 How will this handbook help you? ........................................................................................................ 4
1.4 The Business Plan belongs to you ........................................................................................................ 4
2 The Malta Enterprise Business Planning Philosophy ................................................................................. 5
2.1 What a Business Plan is not.................................................................................................................. 5
2.2 What a Business Plan is ........................................................................................................................ 5
2.3 Identifying your needs ........................................................................................................................... 5
2.4 The thinking process ............................................................................................................................. 5
2.5 SUCCESS OR FAILURE .......................................................................................................................... 6
3 The Business Plan Format ........................................................................................................................... 7
3.1 The Contents .......................................................................................................................................... 7
3.2 Useful points .......................................................................................................................................... 7
3.3 A simple format ..................................................................................................................................... 7
3.4 Table A - Essential contents of a Business Plan ................................................................................. 7
3.5 KEEPING IT SIMPLE ............................................................................................................................ 12
4 The Business Plan....................................................................................................................................... 13
4.1 EXECUTIVE SUMMARY ........................................................................................................................ 13
4.2 ENTERPRISE DESCRIPTION ............................................................................................................... 14
4.3 PRODUCT OR SERV1CE DESCRIPTION .............................................................................................. 14
4.4 INDUSTRY ANALYSIS .......................................................................................................................... 15
4.5 COMPETITION ANALYSIS .................................................................................................................... 15
4.6 SWOT ANALYSIS .................................................................................................................................. 16
2
4.7 MARKETING AND SALES SUB-PLAN ................................................................................................. 17
4.7.1 THE PRODUCT OR SERVICE (WHAT you want to sell)............................................................... 17
4.7.2 THE CUSTOMER (WHOM

WHOM you wish to sell to) ............................................................................ 17
4.7.3 THE PLACE (WHERE

WHERE you sell your product).............................................................................. 17
4.7.4 THE METHOD (HOW

HOW you advertise and sell your product) ....................................................... 18
4.8 OPERATIONS SUB-PLAN .................................................................................................................... 18
4.9 HUMAN RESOURCES SUB-PLAN ....................................................................................................... 20
4.10 FINANCIAL SUB-PLAN ....................................................................................................................... 21
4.11 SELECTED OPTIONS AND CRITICAL MEASURES.............................................................................. 22
4.12 MILESTONE SCHEDULE...................................................................................................................... 22
3
1 INTRODUCTION.
INTRODUCTION .
The Business Plan is a useful and versatile tool. It is a guide that can also be described as the
businessman’s best friend. In today’s global and highly competitive business environment, enterprises,
whether large or small, cannot hope to compete and grow without proper planning.
1.1 W HY DO YO U N EED A B USINE SS PLA N?

You may need a Business Plan for a number of reasons. Here are the most important:
• If you are starting a new project or venture
• If you are looking for a business partner
• If you require finance, government or EU grants and incentives
• To manage your business better
• To measure actual performance compared to what was planned
1.2 W H A T C A N A B U S IN E S S P L A N DO F O R Y O U ?
A good Business Plan can be useful to you in a number of ways. It can:
• Help highlight aspects of the business that need special consideration
• Help identify your core competencies (what you can do best) and weaknesses
• Help identify weaknesses and threats to the business
• Open your eyes to new opportunities
• Help you understand your competitors
• Help you plan your operational setup better
• Help you use your financial resources more efficiently and ultimately more profitably
• Assist your management capabilities in relation to specific tasks and functions as well as bring
awareness to human resources and capacity needs
1.3 H O W W I L L T H IS H A N D B O O K H E L P YO U ?
This Handbook is intended to answer the following basic questions in a simple and practical manner:
• What is a Business Plan?
• How does it help you to achieve your goals?
• What are the thinking processes you have to go through?
• What value does it have for you as a manager or as an entrepreneur starting up a new business?
• How is it prepared?
1 . 4 T H E B U S I N E S S P L A N B E L O N G S TO Y O U
Remember, nobody knows your business as well as you do. Knowing what you are capable of, and where
you want to be in the future, is the essence of a good Business Plan. With these two points in mind, all you
need to do is develop the right strategies to achieve your goals.
4
2 THE MALTA ENTERPRISE BUSINESS PLANNING
PHILOSOPHY.
PHILOSOPHY .
Business Planning is fundamental to Malta Enterprise’s mission in assisting Maltese enterprises to start
up, restructure and grow to become more competitive in line with Malta’s economic policy.
Before we proceed to explain what a business plan is, it would be useful to eliminate some common
misconceptions and explain what a business plan is not.
2. 1 W HAT A BUSINE SS PL AN IS NOT

Contrary to what some may think, a business plan is not:
• A set of financial projections
• An application for financial assistance
• A guaranteed formula for success
2. 2 W HAT A BUSINE SS PL AN IS
Malta Enterprise sees the Business Plan as a thinking process performed by the enterprise for the
enterprise itself. Every start-up enterprise needs to go through a thorough thinking process in order to
come up with viable options and strategies that will strengthen its present position and facilitate its future
development. Finally, the thinking process should culminate in a set of measures for the implementation of
these strategies. This implementation plan is generally referred to as the milestone schedule.
2 . 3 I D E N T IF Y I N G Y O U R N E E D S
The milestone schedule referred to in 2.2 above should form both the starting and concluding point of your
planning process. In the first instance, well before you start writing the plan, you should make a list of all
the things that you could possibly need in order to make your business a success.
Once you have gone through the business planning process you will be in a much better position to identify
and prioritize your needs in line with the realities of your business venture.
2. 4 THE THINKING P ROC ESS

All entrepreneurs think about their business. In fact, most businessmen do nothing else but brood and
worry about problems and challenges that are the daily companions of every entrepreneur. To think about
your business is not enough. It is important to think in a logical and structured manner, looking at every
aspect of your business (both internal and external) in a SYSTEMATIC, OBJECTIVE and ANALYTICAL way. This is
what we mean by the thinking process.
5
A good thinking process should lead to good Business Planning where sensible decisions are based on
reliable information and not on ‘gut feeling’. This handbook is intended to guide you through your thinking
process in a structured manner putting all the issues that you need to consider in a logical order.
2 . 5 SU C CE SS O R FA ILU R E
Often, the cause of failure is that entrepreneurs do not anticipate simple factors that could easily have
been foreseen had they taken the time and trouble to go through a logical thinking process. The process of
formulating a business plan helps scrutinize, in a formal way, basic matters that need clarification, such
as:
• Gut feelings and ideas
• Assumptions that have not been verified
• Calculations made without full knowledge of underlying principles e.g. tax rates and bank interest
charges
• Regulations and legislation that could affect you
• External dynamics such as political changes and new technology that could have implications for
your business
Scrutiny within a broader plan can help identify weak points early enough to make positive changes and / or
adapt plans accordingly.
6
3 THE BUSINESS P LAN F ORMAT.
ORMAT .
In reality there is no standard format for the presentation of a good business plan. Business plans vary in
content and size according to the nature and size of the business concerned and on the emphasis that is
placed on certain critical areas as opposed to others.
3 . 1 T H E C O NT E N T S
Every business plan should address a number of fundamental issues without which it would not be
complete. These issues can be grouped under six major areas that are the pillars of every business activity
whether large or small. The six major areas are:
• Sales and Marketing
• Operations
• Human resources
• Finance
• Technology and ITC
• Management Information
3. 2 U SE FUL POINTS
Table A lists the important elements of a business plan and offers some simple points that need to be
taken into consideration in regard to each section. It is worth noting that these points are by no means
exhaustive and are meant to serve only as examples. The table is intended to provide you with a simple
framework/format upon which to base your business plan.
3. 3 A SIMPLE FOR MAT

The format provides you with a framework for presenting your thoughts, ideas and strategies
in a logical, consistent and coherent manner. In other words the business plan format helps you to clarify
your own ideas and present them clearly to others.
3 . 4 T A B L E A - E S S E N T I A L C O N T E N T S O F A B U S IN E S S P LA N
The various sections are explained in detail in section 4 of this manual.
CONTENTS USEFUL POINTS
1. EXECUTIVE SUMMARY Highlight the attractions of your business.
Show that your plan is well researched with

This section is a brief overview of the whole
figures to back up your forecasts.
Business Plan.
Demonstrate your management ability.
Show that your product has a market.
2. ENTERPRISE DESCRIPTION Provide an overview of your business idea.
State why you chose to go into this particular
7
It is important that you demonstrate a clear business.
understanding of the business you would like to be Show any personal skills and/or experience that
in. will help you in your business.
You should also explain your business concept and State why you believe the business will be a
the reasons why you think it will be a success. success.
3. PRODUCT OR SERVICE DESCRIPTION Describe your range of products or services.
Mention plans for new additions to your range.

This section helps you to think
about your product or service which reflects on your Speak about innovative ideas.
ability to understand and cater for your clients’ What value would the clients place on your
expectations. products?
What will your clients expect from your

product?
Example: Quality, Design, Reliability, Innovation,

Reasonable Price, Customer Care
4. INDUSTRY ANALYSIS How big is your sector?
How many companies operate this sector?

This section helps you to understand the industrial
environment you intend to be working in and What are the general trends?
through it you can identify important changes that How is your industry changing?
are likely to take place in your market.
How will these changes affect you?
Are you aware of legislation and/or regulations

that could affect your business?
Have you thought about any other changes -

political, economical or technological - that
could affect your business?
5. COMPETITION ANALYSIS
Who are your competitors?(local and foreign)
In order to compete successfully in any business
What are their strengths and weaknesses?
you need to know your competitors. It is useful to
study how and why they achieve success. Also you How can you be different?
need to be aware of their failures to avoid How can you become more competitive?
committing the same errors.
6. SWOT ANALYSIS INTERNAL
S = Strengths What are your strengths?

W = Weaknesses
8
O = Opportunities What are your weaknesses?
T = Threats
EXTERNAL
This section enables you to look closely at the
internal strengths and weaknesses of your What are the opportunities?
business, and to identify external threats and
What are the threats?
potential opportunities.
7. MARKETING SUB-PLAN Is the market STATIC, GROWING or

DECLINING?
It is no use having the greatest product in the world
What market segment/s do you wish to operate
if you cannot sell it.
in?
This section focuses on your potential customers Who are your target clients?
and allows you to see whether your products can Do you have niche or mass market products?
satisfy their needs.
What is your pricing policy?
How do you compare with the competition?
How do you intend to sell your product?
Where do you intend to sell your product?
8. OPERATIONS SUB-PLAN How strong are your management

systems?
This section helps you to look at your internal
operations in detail to see if your business can be • general management
run efficiently and effectively. It draws attention to • marketing management
your team and allows you to develop strategies for • financial management
good and effective management.
How will you ensure an efficient production
system?
Have you thought about quality certification?
How important are health & safety standards

for your product?
Do you intend to invest in product development?
Will you invest in new or second hand

equipment?
Has consideration been given to whether the

equipment is manufactured in the EU or non
EU?
9. HUMAN RESOURCES SUB-PLAN Describe your management structure

People are the greatest resource of any business
9
venture. This section focuses your attention on your What technical skills will your employees have?
work force, their training needs as well as their
Do you need to invest in training?
material needs in terms of health & safety,
professional development, job satisfaction and How will you motivate your workforce?
remuneration. How will you monitor their performance?
10. THE BUDGET
The budget provides the financial planning detail for

every aspect of the business e.g. employee costs ,
rent, IT investments, machinery costs, sales value , How will you go about setting up the budget?
direct material costs, shipping and freight charges,
etc. The ultimate target that should result from the How often will you review actual performance
budget is the budgeted net profit. It is a key tool for against budget?
operating the business, and by facilitating
comparison of actual performance versus budgeted How will you carry out the task of looking into
performance, it highlights the operating VARIANCES the reasons for the variances and taking
to management. corrective action?
The budgeted net profit, after taxation, when On what basis will you set the ROI that you wish
expressed as a percentage of the net investment in the business to give you?
the business, gives the Return On Investment - ROI
- the single most important piece of financial data
and the reason for being in business in the first
place .
11. LIQUIDITY
Liquidity is fundamental to every business in

relation to being able to trade and meet obligations.
How will you keep control of your cash flow?
Management monitors the risks in liquidity by
tracking cash movements with a Cash Flow How will you finance the changes you may need
Forecast ensuring adequate cash or facilities to to make in your business?
raise money to carry out the business.
10
12. FINANCIAL SUB-PLAN
Business is all about the management of products,

services and money. To enable management to do Keep management accounts and produce them
their job, the tool they need is management with regular frequency.
information.
Will you provide the resource to develop the
Information relating to business performance is contents of the management accounts to
transmitted via management accounts. These are provide quality information, both within the
therefore a very powerful and essential reporting business and with external information that
mechanism requiring high priority attention. would best assist and support management to
Successful businessmen understand how money do their job efficiently?
works but need to have the information to support
the decision making.
13. SELECTED OPTIONS AND CRITICAL MEASURES As a result of the analysis carried out in the
preceding sections make a list of the critical
Following a careful analysis of your business you measures you need to carry out. Example:
should now be in a position to make a list of logical
options open to you. Look into energy savings efficiencies on
machinery
Once the options have been identified, you should be Apply for ISO certification
in a position to list a number of critical measures Invest in training for management
that need to be implemented in line with the options
Invest in training for employees
you have selected.
Employ new staff
Carry out market research
Invest in Information Technology Systems
Seek new premises
Seek foreign partners
Look for new market segments
Others
14. MILESTONE SCHEDULE Once you have identified the critical measures, you
should plan their implementation.
This is a list of all the critical measures that are
mentioned in the Business Plan. When List all the important critical measures.
implemented, the measures in the milestone
schedule will help your enterprise become more List the time frames for the implementation of
efficient each critical measure.
Estimate the cost of implementation of each

critical measure.
11
3 . 5 K EE P ING IT SIMPLE
The Malta Enterprise Business Plan format is simple and easy to follow. It is designed as a guide to help
you understand your business better. It helps you to analyse your strengths and weaknesses, and makes
you think about your goals. It also helps you to develop the right strategies in order to achieve your goals.
Remember:
• Business planning involves a thinking process. It is not how much you write
but what you write that matters.
• Each section of the business plan is directly linked to the others and cannot be
viewed in isolation. Thus, for example, you cannot speak of marketing
strategies without considering their implications on your human resources,
operational and financial requirements.
• Every decision you take in one area of your business has a direct bearing on
all others.
12
4 THE BUSIN
BUSI N ESS P L A N .
Business planning can be a highly beneficial exercise for the entrepreneur. In order to derive the desired
benefits from business planning it is important to take full ownership of the process, and make it your own
from beginning to end. While this does not mean that you should not seek professional advice when
needed, you should be careful, not to commit the common mistake of asking others to write the plan for
you or being influenced by unqualified opinions even if well intentioned.
4 . 1 E XE C UT IVE SU MMAR Y
The Executive Summary is a brief overview of the whole business plan. Here are some simple hints to help
you build your Executive Summary:
• Description of Business: Provide some information about the product or service you wish to offer.
• The Market: What markets do you intend to target?
• Growth Potential: What is the potential for your business? (What do you hope to achieve in one to
three years’ time?)
• Sales & Profit Forecast: Give a summary of the sales and profit forecast figures (for the next three
years).
• Financial Requirements: How much money would you require:
o To start the business.

o To sustain your business during the first three years.
• Utilisation of Finances: What will the loan/overdraft/investment be used for?

• Where will you source your funding from: Loan, Bank Overdraft, Personal funds ?
• Repayment of Loans: How long do you expect the loan repayment period to be?
• List of Critical Issues for the Success of the Project: Present a list of the critical success factors
most likely to affect your project.
• Assistance required: What assistance would you require to help you launch your project?
Remember:
• To highlight the attractions of your business — (you have to get the reader’s
interest).
• To show that your plan is well researched with figures to back up your
forecasts.
• To demonstrate your management ability.
• To show that your product has a market.
13
4.2 E NT ER PR ISE DE SC R IP T IO N
Here are some simple hints to help you in this section:
• Provide an overview of your business idea

• What inspired you to choose this line of business?
• What personal qualities and experience will you invest in the business?
• In what way is your concept innovative? What are you offering that other businesses do not offer
already?
• Do you believe there is a real need for your product or service?
• Where do you see your business in the medium and long term?
Remember:
• Show a clear understanding of the business you want to be in

• Describe what market needs your business will be fulfilling
• Explain why you believe your business will prove successful
4.3 P RO DU CT OR SE R V1C E DE SC R IPT ION

• Provide a detailed description of your product or service.

• What innovative features does your product or service offer?
• How does your product or service distinguish itself from other products or services already
existing on the market?
• Can you list three unique selling points offered by your product or service?
• How will your product or service satisfy client needs and expectations?
Remember:
• Bring out what is special about your product/service

• Show how your product or service satisfies client needs and expectations
14
4.4 IN D U STR Y A NAL Y SIS
• How big is the sector you will be operating in?

• How many companies already operate in this sector?
• What are the general sector trends? Is it growing, static or slowing down?
• Can you perceive any important changes in this sector?
• How can these changes affect your business?
• Are you aware of any political, regulatory, social, environmental or technological changes that
could seriously affect your business in the medium or long term?
• How desirable do you consider this sector to be for new, local entrants and from other EU areas?
Remember:
Before you embark on any project it is important that you understand the environment
you will be working in and can identify any important changes that are taking place, or
that are likely to happen in the near future. A clear understanding of your industrial
environment could make all the difference between success and failure for your
business.
4 . 5 C O MP E T IT IO N A N AL YSIS
• Who are your most important competitors?

• What are their main strengths and weaknesses?
• How can you be different?
• How can your product or service be more competitive?
• What are your competitors’ pricing policies? How do these affect your sales strategies?
• Can you list your main competitors and their estimated market share?
Example:
C OMPETITORS MARKET SHARE %
15
Remember:
In order to compete successfully in business it is important for you to know about your
competitors, their strengths and their weaknesses and to learn from these
observations. You also need to be aware of failures so that you can avoid committing the
same errors.
4.6 SWO T A NA L YSIS
STRENGTHS OPPORTUNITIES
Provide a list of your core competencies that give Given the right conditions, which business
your product or service certain advantages. opportunities can you identify for growth and
greater profitability?
Example: Example:
• High quality • New markets
• Competitive pricing • Export potential
• Customer Care • Joint Venture proposal
WEAKNESSES THREATS
Given the necessary resources, which areas of your Think about possible factors which could adversely
business would you need to improve? affect your business in the future.
Example: Example:
• Lack of funds • Imported products

• Lack of management skills • New entrants
• Unskilled workforce • Political I Economic changes
Remember:
• The SWOT analysis is a very important element of your Business Plan. It

enables you to look at your internal strengths and weaknesses and at your
external opportunities and threats.
• It is sufficient if you list these in point form; but it would be helpful for you if you
could analyze each point in further detail.
16
4.7 MA R KE T IN G A N D SAL ES S U B-
B - PL A N
The following questions are designed to guide your thinking and planning process.
4.7.1 THE P RODUCT OR SERVICE (WHAT YOU WANT TO SELL)

• List three important features that make your product or service worth having. Example: design,
functionality, reliability.
• List three features where you think your product or service could be improved.
• Can you list three major competitors that offer similar products or services to yours? Can you
identify differences between your product and theirs?
• In what aspects can your product or service be described as innovative?
• What image do you want to project with your product or service?
• Do you have any plans to add more products or services to your current portfolio?
Remember:
• If you cannot sell your product you have no business.

• Show that you have a thorough understanding of your clients and market.
• The marketing sub-plan is all about understanding what you want to sell and
planning to whom, where and how to sell it.
4.7.2 THE CUSTO MER (WHOM YOU WISH TO SELL TO )
• Will your business depend on one main customer or will you sell to a wide variety of customers?
• If you plan to sell to a wide variety of customers, list five types of customers that are likely to buy
your product or service.
• Do you plan to have a uniform approach to all customer groups or will you vary your strategies
accordingly?
• What measures will you employ to identify customer requirements with regard to your product or
service?
• How do you plan to collect customer feedback in order to ensure that your product or service has a
high degree of customer satisfaction?
4.7.3 THE P LACE (WHERE YOU SELL YOUR PRODUCT)
• Where do you plan to sell your product or service?

o Directly from the factory
o From a showroom
o E-Commerce
o Other (give details)
17
• How easy will it be for your customers to gain access to your products or services? Give details.
• If you feel that customers will find it difficult to access your products, can you suggest ways of
improving the situation?
• Mention three ways in which your competitors facilitate access to their products or services for
their customers.
• How do you plan to get the product to the market?
o Distribute the product yourself?
o Employ full/part-time salesmen?
o Enter into a distribution agreement with third parties?
o Online sales
4.7.4 THE METHOD (HOW YOU ADVERTISE AND SELL YOUR PRODU CT)
• What methods of advertising do you intend to use for your product or service?
o Newspapers and magazines
o Television
o Radio
o Sponsorships
o Internet (websites, e-newsletters, search engine optimization)
o Other (please specify)
• If you intend to use any of the media mentioned above, which do you rate as the most effective and
why?
• How do your competitors advertise their products? Do you think their methods are effective?
• How will you price your products? Explain the reasons behind your pricing strategies.
• How will your prices compare with those of your competitors?
• Do you intend to give your customers credit? Explain the reasons behind your decision.
4 . 8 O PE R AT ION S SU B-
B - P LAN
• Do you already have business premises or are you planning to buy/lease/rent them in the near
future?
• Give details of your business location and premises (if any). Example:
Address:
Area in sq. m.:
Plan:
18
• How long and how well will the present premises (if any) meet your business needs?
• Are the business premises you have identified easily accessible to your clients?
• Give details of equipment/machinery/vehicles you will require to operate your business. Example:
Item and Purpose:
Current Value/Current Cost:
Replacement Date:
• Give details of equipment/other items which you plan to acquire or lease in the near future.
Example:
Item and Purpose:
Cost of Purchase/Rental:
Supplier Credit Term in Days:
Remember:
• Give details of your business location and say whether it is suitable or not for
your product or service.
• Show how you plan to cope with the operational side of change and growth in
your business.
• Make up a list of your main suppliers and their credit terms. Example:
Suppliers Credit Terms
19
• Have you thought of other suppliers in case of emergencies?
• Do you intend to operate a quality management system of any sort? Are you planning to apply for
quality certification?
o What type of quality system?

o Who will take charge of implementing it?
o What are the timings for its introduction?
• How conscious are you of Health and Safety and/or Environmental regulations in your business?
4.9 HU MAN RE SOU

S OU RC E S SUB-
SUB - P LA N
• Describe your Management Structure (If you do not have a management structure, list those
people who can assist you with the running of the business).
• How many people do you plan to employ? (Full Time / Part Time)
• What types of skills and/or experience are you looking for?
• What training will your work force require to be able to meet your future plans?
• What measures do you plan to adopt to ensure employee loyalty?
• How soon do you think you will need to expand your work force?
• Have you thought of your own development and that of your management team as your business
continues to expand? Do you believe this is necessary?
Remember:
This is a crucial section. The success or failure of your business is dependent on the
managerial capabilities of the people running it as well as on the best performance of
the workers.
• If you are a sole operator list your qualifications, skills and experience and
achievements (if any) in the business you have chosen to operate in.
• If you are going to have other members on your management team, list their
qualifications, skills, experience and achievements to date.
• Do not hesitate to list weaknesses in your management team. Show how you
propose to overcome them.
• If there are other key people in the business you are proposing, give a
summary of their qualifications and experience
20
4 . 10 F IN ANC IAL SU B - PLA N
• What is the break-even point of your business? How soon can you reach it?
NOTE: To calculate the break- even point for the whole business or for each product or service, you will
need to fully understand the costs of the business. There are two main groups of costs:
o Direct Costs are generally straight forward to identify as they relate specifically to a product:
e.g. labour, material and shipping costs.
o Indirect costs, for example rent and service charges, will need to be included in the general
overheads and a proportion of those general overheads will need to be added to the cost of each
product to arrive at its true cost. The principle is that overheads also need to be covered and
therefore “the overhead recoupment cost” is an important financial that needs to be kept up to
date to make sure that your sales prices cover all the costs of running the business.
• Give amount of overdraft / funds needed as shown in cash flow forecast.

• Can you offer any security to support your financial requirements?
• Over what period will loan/overdraft be repaid and are these repayments included in the cash flow
forecast?
• How much do you and your partners plan to invest in the business?
• Do you have access to other sources of funds? Give details if any.
• Do you have any contingency plans if your sales turn out to be lower or the costs higher than your
forecast?
• Have you taken account of tax consideration in your calculations?
Remember:
For the purpose of raising a bank loan, banks will generally require a business plan
and projections for three years:
• Cash Flow Forecast

• Profit and Loss
• Balance Sheets
21
4 . 11 SEL EC TE D O PT ION S A ND CR IT IC AL MEA SU R ES
Now that you have carried out a systematic analysis of your project, you should be in a position to look at
your options in a more formal manner. If you have doubts as to how to proceed at this stage, do not worry,
this is a natural part of the process. In fact it is considered a very healthy thing to have doubts after having
gone through a thorough thinking process about your project.
This is the time when you should consider your options very carefully and seek advice before you jump in at
the deep end. Once you have considered your options, you should be in a position to draw up a list of critical
measures you need to implement in order to launch your project. These measures should also indicate
what kind of assistance (technical and financial) you require to get started.
4 . 12 MIL E ST O NE SC HE DUL E
In the beginning of this manual, you were advised to make a list of all the things that you think would make
your business a success, including any ideas that may seem far-fetched. These should form the basis of
your Business Planning Process.
At this stage, after having gone through the Business Planning Process, you should be in a much better
position to identify and prioritize your needs in line with the realities of your business venture.
Once you have identified the critical measures, you should plan their implementation over a three year
period. Base your decisions on the information provided by your Business Plan. When implemented, the
critical measures in the milestone schedule will help your enterprise become more competitive.
The table below is an example of what information could be included in a Milestone Schedule. The
information given within is by no means exhaustive and it is only meant to serve as an example. It is
important however to:
• State the type of assistance required (critical measures mentioned above)

• State the date of implementation of these measures
• State the cost of implementing such measures
Remember:
• List all the important critical measures to be implemented

• List the time frames for the implementation of each critical measure
• Estimate the cost of implementation of each critical measure If there are other
key people in the business you are proposing, give a summary of their
qualifications and experience
22
Milestone Schedule (Example)
ASSISTANCE REQUIRED DATE OF IMPLEMENTATION COST (€ )
OPERATIONS
ISO Certification January - May 10,000

Health & Safety Standards February 3,000
IT Systems March – April 8,000
Payroll System May 3,000
New Machinery January 11,000
HUMAN RESOURCES
Consultancy January - May 5,000

Employ New Staff March - May
Management Training September 1,000
February 800
April 1,500
Overseas Training February 2,000
November 1,500
EXPORT MARKETING
Market Survey March - July 4,000

Enhance Product for Export July - October 4,500
Promote Product (Abroad) November 6,000
Participate in Fairs (Abroad) May 2,500
23
www.maltaenterprise.com
24
Five Competitive Forces Model Michael Porter
Porter’s ‘Five Competitive Forces’ model (figure 1) is used to assess a company’s

relative competitive position within an industry. The framework is essentially a
shorthand arrangement of 40 years of industrial economics research. The
framework’s popularity stems from its use as a tool to assess the overall degree of
competitive pressure within a given industry from the viewpoint of ascertaining the
industry’s likely profitability. For instance, high regulatory barriers to entry result in
the pharmaceutical industry having a consistently higher average rate of profitability
compared to agriculture. Note the centrality of the Internal Rivalry force and how this
is fed by the interaction of the other forces.
Each force is broken into its component factors and the general significance of
each of the factors and their application to the relevant market, is presented in the
accompanying tables for discussion and analysis.
: Porter’s Five Competitive Forces Model
Figure 1: Porter’s Model of the Five Forces that Determine the Degree of
Competitive Pressure within an Industry
Threat of New
Entrants
Supplier Power Internal Rivalry Buyer Power
Substitutes and
Complements
Competitive Force 1: The Threat of New Entrants
The threat of entry into the industry depends on the barriers to entry (BTE) that are present combined with the expected reaction from
existing competitors to a new entrant. If barriers are high, or a new competitor expects brutal retaliation, the threat of new entry is low.
Part 1: Barriers to Entry. The major sources of barriers to entry, as understood at this time, are listed below.
Sources of General Description Description within the Industry Current Rating Projected Rating over
Barrier the Next Five Years
Economies of Scale economies deter entry .
Scale into an industry by forcing the
entrant to come in at a large
scale (MES) and risk strong
reaction and financial risk, or
come in at a small scale and
accept potential cost
disadvantages.
Product Product differentiation means
Differentiation that firms have brand
/ Branding identification and customer
loyalties from past service. It
creates a BTE by forcing new
entrants to spend heavily to
overcome these loyalties.
Capital The need to invest large
Requirements financial resources in
equipment and advertising to
successfully compete in an
industry creates a significant
BTE. Significant working
capital is also likely to be
required.
Uncertainty Uncertain prospective changes
Within the to government regulations /
Industry policies can deter new entrants
from investing substantial
resources.
Cost Established participants have
Disadvantages cost advantages not
other than immediately replicable by new
Size Related entrants no matter their size
and attained scale economies
e.g. favourable locations,
favourable access to raw
materials and an advanced
position on learning curves.
Other Existing participants could be
Strategies competing in an industry
such as because it either provides them
backward or with a source of raw material or
Forward an outlet for their main activity.
Integration A BTE exists unless new
entrants are in similar
circumstances.
Existing New entrants may have to
capacity expend considerable resources
to take market share away
from existing participants or to
develop new markets in
industries with over capacity.
Product supply New entrants may not be able
to enter an industry without
access to reliable supply of
products
Access to A BTE can be created by the
distribution new entrant’s need to secure
channels distribution for its product
Switching These are the once only costs
costs incurred by a customer
switching suppliers.
Overall
average
Part 2: The Expected Reaction from Existing Competitors. If a new competitor expects sharp retaliation, the threat of entry is
lowered.
Indicators of General Description Description within the Industry Current Rating Projected Rating
Likelihood of over the Next Five
Retaliation Years
History An industry with a history of
strong retaliation to new
entrants is likely to continue
that trend in the future.
Resources of Existing participants are more
existing likely to retaliate where they
participants have substantial resources to
fight with.
Commitment Firms with high exit costs and
Indicators of General Description Description within the Industry Current Rating Projected Rating
Likelihood of over the Next Five
Retaliation Years
a commitment to the industry
are more likely to retaliate.
Slow growth Established firms with low
industry growth are more likely to
retaliate because any new
entrant will be forced to take
market share away from them
Average
Competitive Force 2: Factors Affecting or Reflecting Pressure from Substitute Products and Support from Complements
Indicators of General Description Description and rating within the Projected Rating over the
Substitutes or industry Next Five Years
Complements
Availability of Close Do they exist and if so, what are their performance
Substitutes characteristics?
Price value Close substitutes may pose little threat if they are
characteristics of priced too high. Are there new products that may
substitutes / be weak substitutes but gain in importance are
complements producers develop the product and prices fall?
Price elasticity of When large, rising prices drive consumers to
industry demand purchase substitutes.
Availability of Close Do they exist and if so, what are their performance
Complements characteristics?
Price Strong complements may not increase demand if
valuecharacteristics they are too highly priced. Are there new products
of substitutes / that may be weak complements, but gain in
complements importance are producers develop the product and
prices fall?
Competitive Force 3: Bargaining Power of Customers
Buyers compete with the participants in an industry by forcing down prices, bargaining for higher quality or more services and playing
industry competitors off against each other.
Indicators of General Description Description and rating within the industry Projected Rating over
Buyer the Next Five Years
Bargaining
Power
Switching When a buyer faces few switching
costs costs his bargaining power over a
supplier increases because of his
ability to easily switch to other product
sources
Profitability of Buyers who earn low profits have a
buyers greater incentive to lower purchasing
costs while highly profitable buyers
are less price (and more quality)
sensitive.
Concentration When a large proportion of industry’s
of buyers sales are to a single or small group of
buyers, this enhances the buyers
bargaining power.
Proportion of When a product represents a
costs significant proportion of a buyer’s total
represented by costs the buyer is more selective.
purchases
Threat of Buyers who are able to pose a
backward credible threat of backward integration
integration are in a better position to seek
bargaining concessions.
Importance of Buyers tend to be less price sensitive
Indicators of General Description Description and rating within the industry Projected Rating over
Buyer the Next Five Years
Bargaining
Power
product to and more flexible when the quality of
buyer the buyers final product is dependent
on the quality of inputs
Information When buyers have sufficient
available to information about demand,
buyers comparable market prices and
supplier costs, they are in a stronger
bargaining position.
Product Buyers of an undifferentiated product
differentiation tend to have strong bargaining power
because they can always search for
alternative suppliers of the product.
Average
Competitive Force 4: Bargaining Power of Suppliers
Indicators of Seller General Description Description and rating within Projected Rating over
Bargaining Power the industry the Next Five Years
Switching costs When a seller faces few switching costs his
bargaining power over a buyer increases because of
his ability to easily switch to other product sources
Profitability of sellers Sellers who earn low profits have a greater incentive
to raise prices while highly profitable sellers are less
price sensitive.
Concentration of When a large proportion of industry’s sales are from -
sellers a single or small group of sellers, this enhances the
sellers bargaining power.
Indicators of Seller General Description Description and rating within Projected Rating over
Bargaining Power the industry the Next Five Years
Proportion of revenue When a product represents a significant proportion
represented by sales of a seller’s total costs the seller is more selective.
Threat of forward Sellers who are able to pose a credible threat of
integration forward integration are in a better position to seek
bargaining concessions.
Information available When sellers have sufficient information about
to seller demand, comparable market prices and buyer costs,
they are in a stronger bargaining position.
Product differentiation Sellers of an undifferentiated product tend to have
weak bargaining power
Average
Competitive Force 5: Intensity of Rivalry
Intensity of rivalry: rivalry between existing industry participants takes many forms. It occurs because one or more competitors either
feels the pressure or sees the opportunity to improve its relative position within the industry.
Indicators of Rivalry General Description Description within Projected Rating over the Next Five
the industry Years
Number and relative When there are a large number of competitors,
size of competitors the likelihood of maverick behaviour is
increased, so firms are less likely to be
accommodating towards each other.
Production Both of these reduce rivalry between firms
Differentiation and
Switching costs
Level of storage costs Where a product is difficult or costly to store,
competitive rivalry will be high
Indicators of Rivalry General Description Description within Projected Rating over the Next Five
the industry Years
Level of fixed costs Industries with high fixed costs create strong
pressures to fill capacity, which leads to price
cutting.
Pace of industry growth Slow industry growth encourages market share
competition among participant seeking entry or
expansion.
Diversity of competitors This will increase rivalry if competitors have
difficulty in perceiving competitor’s strategies
and signals.
Exit barriers Rivalry is increased when firms cannot leave
because of high exit barriers. These costs
commonly arise from specialised assets with
low sales value and high overheads following
exit.
High strategic stakes Increased when strategic inter-relationships
exist.
PRO-POOR
VALUE CHAIN DEVELOPMENT
25 guiding questions for designing
and implementing agroindustry projects
DIIS
Danish
Institute for
Enabling poor rural people International
to overcome poverty Studies
Practitioner’s Guide
Pro-poor Value Chain Development

25 GUIDING QUESTIONS FOR DESIGNING AND IMPLEMENTING
AGROINDUSTRY PROJECTS
DIIS
Danish
Institute for
Enabling poor rural people International
Studies
to overcome poverty
25 Guiding Questions for Good Practice in Project Design and Implementation

DISCLAIMER
Copyright © 2011 by the United Nations Industrial Development Organization.
This document has been prepared by Lone Riisgaard and Stefano Ponte of the
Danish Institute of International Studies (DIIS) together with a team of experts
at the Agribusiness Development Branch at UNIDO under the leadership
of Frank Hartwich and Patrick Kormawa. For comments please contact:
f.hartwich@unido.org Special thanks go to Thomas Elhaut and Laura Puletti of
IFAD’s Asia and the Pacific Division who have been supporting the project and
guiding the development of the tool.
The opinions and information contained are the responsibility of the author(s)
and should not necessarily be considered as reflecting the views or bearing the
endorsement of UNIDO. Although great care has been taken to maintain the
accuracy of information herein, neither UNIDO nor its Member States assume any
responsibility for consequences which may arise from the use of the material.
This document may be freely quoted or reprinted but acknowledgement is requested.
Reference: UNIDO (2011). Pro-poor Value Chain Development: 25 guiding questions for
designing and implementing agroindustry projects. United Nations Industrial Development
Organization (UNIDO). Vienna, Austria.
Practitioner’s Guide. Pro-poor Agro Value Chain Development

Table of contents
What This Guide Is About 1

How This Guide Helps In Developing Pro-Poor Value Chains 3
1. Value Chain Selection And Validation 5
1.1 Is Value Chain Development The Right Approach? 7
1.2 Are Appropriate Selection Criteria Being Used? 9
1.3 Has The Value Chain Been Selected Based On Evidence And Methodologically? 11
1.4 In Case Of Pre-Selected Value Chains, Has Validation Been Carried Out? 14
1.5 Have Stakeholders Participated In The Selection/Validation Process? 15
2. Functional Value Chain Analysis 19
2.1 Are The Nature And Diversity Of The End-Products Sufficiently Understood? 22
2.2 Which Functions And Actors Are Involved In Generating The End-Product? 24
2.3 Are The Prevailing Product Flows And Related Business Interactions Sufficiently Understood? 26
2.4 Is The Information Adequately Visualized? 28
2.5 Does The Analysis Build On Existing Data? 29
3. Social Value Chain Analysis 31
3.1 Are Rewards And Risks Adequately Captured? 33
3.2 Are Poverty Issues Adequately Covered? 35
3.3 Are Working Conditions Sufficiently Examined? 37
3.4 Is Youth Being Considered In Value Chain Development? 38
3.5 Are Gender-Based Constraints Adequately Understood? 39
4. Design Of Value Chain Interventions 41
4.1 Were Value Chain Development Strategies Identified In A Sufficiently Rigorous Manner? 42
4.2 Have The Identified Strategies Been Adequately Evaluated? 45
4.3 Were Practical Action Points Defined? 47
4.4 Are Adequate Competences Built Into The Project? 49
4.5 Have Stakeholders Participated In Project Design? 50
5. Implementation 51
5.1 Is There Sufficient Flexibility To Reorient The Project? 52
5.2 Is Stakeholder Engagement Maintained? 53
5.3 Is Trust Being Built Among Project Partners And Value Chain Actors? 54
5.4 Has A Baseline Been Established To Monitor Chain Development? 56
5.5 Does Monitoring And Evaluation Focus On The Most Relevant Impacts Of Value Chain Development? 57
25 Guiding Questions for Good Practice in Project Design and Implementation

Practitioner’s Guide. Pro-poor Agro Value Chain Development
WHAT THIS GUIDE IS ABOUT
What is value chain development?
A positive or desirable change in a value chain
G overnments and development

agencies increasingly use value chain
development as a key element in their
to extend or improve productive operations
and generate social benefits: poverty reduction,
income and employment generation, economic
development strategies. Frequently such growth, environmental performance, gender
strategies aim at improving the income of equity and other development goals.
poor groups of the society through value
addition. Pro-poor value chain initiatives What is a value chain development
often try to overcome entry barriers for intervention?
poor agricultural producers and providers Concerted activity to drive value chain
of inputs and services. Often they make use development of a certain kind. Value chain
of lead firms to build up supplier networks development interventions can focus on
among poor and marginalised farmers, improving business operations at the level
helping them gain access to knowledge and of producers, processors and other actors
production technologies. in the chain and/or the (contractual)
However, those who help to build and relationships among them, flow of knowledge
strengthen agroindustrial value chains and information and innovation. Value
in developing countries can find their chain development can also foster overall
interventions are not very effective. While coordination in the chain; participation of
improvements work for some parts of the selected beneficiaries in local, national or
value chain, others remain underdeveloped global value chains; reduction of entry barriers
and all together little is achieved. For example, and a higher share of value addition for certain
any effort to enhance farm production may actors.
prove insufficient if challenges in agro-
processing and marketing are not dealt What is a value chain approach?
with simultaneously. Further, value chain An approach to development which puts at
development initiatives may yield technical the centre the interrelatedness of actors in the
results translating into improved production value chain who - separated by time and space
and processing, but do not necessarily bring - gradually add value to products and services
social benefits to poor and marginalised as they pass from one link in the chain to the
population groups. next.
25 guiding questions for designing and implementing agroindustry projects 1

It is therefore crucial that value chain projects
make use of a sound analysis that detects both
How this guide was developed?
technical and social development challenges,
The guide builds on a review of common followed by a solid design process that
practices in value chain development projects targets opportunities in both these realms
in Asia and the Pacific region as well as on at the various levels of the value chain. The
experience from six case studies of value chain analysis and design process should lead to a
development projects in Sri Lanka, Vietnam mix of interventions necessary for value chain
and Indonesia1. The guide moreover draws development; if their implementation cannot
from a consultation of experts in agricultural be achieved by one project or organization
value chain development orchestrated by alone, partners must be found that complement
UNIDO in Vienna, September 2010, and was the value chain development effort.
tested during an interactive training workshop
The aim of this practioner's guide is to assist
with programme managers from Asia in
programme designers and project managers
February 2011, in Kerala, India.
working for governments, development
The 25 questions plus the many checklists, agencies and the private sector alike, in
tools and lists of guiding questions have been designing and implementing projects for the
developed on the basis of project analysis development of agricultural and agro-industrial
and design activities that the authors have value chains. It addresses two challenges in
engaged in during the last decade also making particular:
use of, and adapting the many existing tools
a. Making transformation and value
on the market. All tools have been tested and
addition processes integral to value chain
practiced in the field.
development, in addition to primary
agricultural production and marketing; and
b. Overcoming difficulties of designing value
chain development initiatives that focus on
social benefits, especially poverty reduction
and gender equity.
1
Henriksen, L.F. , Riisgaard, L., Ponte, S,. (2010):
Agro-food Value Chain Interventions in Asia and
the Pacific: A review and analysis of case studies.
Vienna: UNIDO Working Paper. Available at
www.unido.org
2 Practitioner’s Guide. Pro-poor value chain development

HOW THIS GUIDE HELPS IN DEVELOPING PRO-POOR
VALUE CHAINS
T his guide introduces 25 questions to help

lead programme designers and managers
of agricultural value chain projects to success.
that need to be considered in answering the
question, and iv) pitfalls that may occur
when dealing with the question.
It aims to complement existing value chain
development tools that focus less on bringing Users of the guide may find certain elements
together technical and social dimensions. of the manual more useful than others and can
focus on the particular questions of greatest
The questions focus on problems and concern to them. Figure 1 summarizes the
complications that often occur during the main questions.
different phases of value chain selection and
analysis, and design and implementation of
related projects. The guide does not attempt
to provide the user with all the information
A value chain in a nutshell
needed to develop a full-fledged project
implementation plan. Rather, it offers Actors are connected along a chain produc-
recommendations on project management ing, transforming and bringing goods and ser-
and organization for the analysis and design vices to end-consumers through a sequenced
phases of a project, complementing in-depth set of activities. To function properly, value
planning and formulation. chains require some sort of coordination
and depend on services such as transport
Following the steps of project cycle infrastructure, electricity and water sup-
management, the manual is structured in plies, finance, management support and ac-
five sections: (1) selection/validation of counting services, knowledge providers, re-
the value chain; (2) functional value chain search laboratories and information services.
analysis; (3) social value chain analysis; (4)
A segment is a vertical part of a value chain
project design; and (5) implementation.
that relates to a certain function, e.g., pri-
Each section provides five key questions
mary production, first-level processing,
that draw attention to good practices. Under
second-level processing, or marketing.
each question there is information regarding
i) objectives, ii) the relevance of the question
in practical situations, iii) important elements

Figure 1: Overview - 25 Strategic Questions in Pro-Poor Value Chain Development
1.Value Chain 2.Functional Value 3.Social Value 4.Design of Value 5.Implementation

Selection & Chain Analysis Chain Analysis Chain Interventions
Validation
1.1 Is value chain 2.1 Is the nature and 3.1 Are rewards and 4.1 Were value chain 5.1 Is there sufficient
developing the right diversity of the end- risks adequately development flexibility to
product sufficiently captured? strategies identified reorient the
approach?
understood? 3.2 Are poverty issues in a sufficiently project?
1.2 Are appropriate 2.2 Which functions adequately covered? rigorous manner? 5.2 Is stakeholder
selection criteria and actors are 4.2 Have the identified engagement
3.3 Are working
being used? involved in strategies been maintained?
conditions
generating the end- adequately
1.3 Has the value chain sufficiently 5.3 Is trust being built
product? evaluated?
examined? among project
been selected based
2.3 Are the prevailing 4.3 Were practical partners and value
on evidence and 3.4 Is youth being
product flows and action points chain actors?
considered in value
methodologically? related business defined?
development? 5.4 Has a baseline been
interactions
1.4 In case of pre- 4.4 Are adequate established to
sufficiently 3.5 Are gender-based
selected value competences built monitor chain
understood? constraints
chains, has into the project? development?
adequately
2.4 Is the information
validation been understood? 4.5 Have stakeholders 5.5 Does monitoring
adequately
carried out? participated in and evaluation
visualised?
project design? focus on most
1.5 Have stakeholders 2.5 Does the analysis relevant impacts of
participated in the build on existing chain development?
selection/validation data?
process?

Rarely are value chains selected on
the basis of rational arguments alone.
The analyst can only make sure that
relevant information on best choices
is made available and that, once made,
decisions are validated.
VALUE CHAIN SELECTION

AND VALIDATION
1. VALUE CHAIN SELECTION AND VALIDATION
T he starting point for a value chain

project can be the selection of a
particular value chain. If done rigorously,
Depending on the entry point, the
programme planner will have some or all of
the following tasks:
this involves collection of data on various
1. Define objectives and main beneficiaries
dimensions of value chain development and
of value chain development;
choosing on the basis of a set of criteria.
However, in most cases the value chain is 2. Develop selection and/or validation
pre-defined in terms of geographical area and criteria;
product. While this should be of concern to 3. Identify value chains to be considered on
development planners, it is also a reflection of the basis of data collection; or
the real world where rational choice is only 4. Validate the choice of a value chain based
part of policy decisions largely influenced on an evaluation of its potential.
by political calculations and multi-faceted
interest groups. One task, however, is obligatory: the
collection of criteria-based information
Be that as it may, once a value chain is providing empirical evidence for any choice
chosen, there is still a great deal of latitude and validation.
for orienting interventions so as to enhance
the probability of success and determine
where the most development impact can
be achieved, for example, through targeting Value chain selection: A sufficient condition
the poor and addressing gender and for value chain development?
environmental concerns. The probability of
The selection of a value chain should not be
success depends on the type of interventions
considered a “silver bullet” automatically
as well as the underlying framework
leading to the development outcomes desired.
conditions for value chain development.
No matter what the value chain development
Impact moreover depends on the scope of
intervention, there are tricky decisions to be
activities, the number of people potentially
made. Success is more likely when there is
affected, and existing and potential multiplier
sufficient information about the possible value
effects.
chains under consideration and knowledge of
Figure 2 illustrates the different entry points potential development options.
for value chain selection or validation.

Figure 2: Entry Points for Value Chain Selection and Validation
ENTRY POINTS TASKS
Free choice of value chain 1) Define main beneficiaries in

(sectoral of regional dev. approach) value chain development
Target beneficiaries 2) Develop selection / validation

have already been identified criteria
A set of selection criteria 3) Identify value chains to be

has already been defined considered
A (set of) value chain(s) 4) Gather criteria-specific

has been pre-defined information for each value chain
5) Choose value chain based on

criteria or validate choice
Source: The authors
The following five sections elaborate on five crucial questions that programme planners and
project managers should attempt to answer in the process of value chain selection and validation:
1.1 Is value chain development the right approach? 1.2 Are appropriate selection criteria being
used? 1.3.Has the value chain been selected based on evidence and methodologically? 1.4.In case
of pre-selected value chains, has validation been carried out? 1.5 Have stakeholders participated in
the selection/validation process?
Further Reading on Value Chain Selection/Validation

• GTZ (2007). Selecting a Value Chain for Promotion. Value Links Module 1. GTZ, Eschborn, Germany.
Available at www.value-links.de
• Hamre, C. (2008). Selecting Pro-poor Value Chains: A Useable Framework. African Enterprise Partners,
Toronto, Canada. Available at www.microlinks.org
• Herr, M. and M. Tapera (2009). Value Chain Development for Decent Work. A Guide for Development
Practitioners. Government and Private Sector Initiatives. ILO, Geneva, Switzerland. Available at
www.ilo.org
• USAID (undated): Selection of Industries in the Value Chain Framework. Briefing Paper. USAID,
Washington, U.S.A. Available at www.microLINKS.org

1.1 IS VALUE CHAIN DEVELOPMENT THE RIGHT APPROACH?
This question challenges the argument that a

full-fledged value chain development project Why do governments, development agencies
is the best way to bring about development. and other stakeholders take a value chain
It encourages development planners to development approach?
re-assess whether certain development
objectives could be better achieved via other, Many governments tend to find the commodity
less complex approaches not focusing on the and subsector focus the value chain appropriate,
entire value chain. The question also aims at particularly if their experiences with other
identifying situations where the value chain less integrated development approaches have
approach appears to be a good choice. been negative. Decisions may also come
from development agencies, which may have
WHY THIS MAY BE RELEVANT preferencees about the approach that projects
they support undertake. Lead-firms may also
At times development projects aim at
promote supply-chain development approaches

social issues that are difficult to address via
that ensure support for sourcing primary
AND VALIDATION
commercial approaches. For example, a
materials. In Nepal, for example, USAID has
value chain project that supports farmers to
made a strategic choice to connect small-holder
produce and market a cash crop may be good
farmers to markets in high-value agricultural
for increasing incomes, but less effective in
value chains such as vegetables, fruits, spices,
addressing household food security than a
herbs, and livestock products. Main criteria for
project where farmers secure their daily diets
the choice included:
by producing a variety of staple crops on
their land. • Water-intensive and external input-
dependent crop agriculture is inappropriate
On the other hand, there may be situations for growth and income sustainability in the
where a value chain approach is indispensible. context of small holder agriculture.
A project hoping to expand the tanning • Market opportunities emerged for
capacity in the leather industry to create diversifying and commercializing small
new income and job opportunities serves holder farming.
as an example. If the project only supports • Quick outcome interventions are
pilot processing plants it will fail, because appropriate in the given political-economic
processors cannot assure supplies of primary context.
materials and sale of larger quantities to • Building on the achievements in existing
new markets and buyers. Another example: value chain support programmes and scaling
a project engages in the development of these up is more promising than engaging in
industrial (green-house) tomato production new fields.
facilities among smallholders. However,
Source: Karkee, M. (2008). Nepal Economic
unless adequate processing facilities are set
Growth Assessment Agriculture. USAID.
up and new marketing channels are opened,
Katmandu, Nepal. Available at www.nepal.
primary production cannot meet demand.
usaid.gov
WHAT TO CONSIDER
It is important to think carefully about

potential negative implications of using
“commercially-oriented” value chain
development approaches. Promoting
competition in markets, for instance, may
squeeze out smallholders and small-scale
industries, mostly or exclusively benefitting

chain development.
How to find out if desired project outputs • Desired development outcomes depend
depend on the development of the entire on the functioning of the entire value
value chain? chain. If one group of actors, region, or
The interdependence between value chain segment in the value chain cannot be
development interventions can be depicted, improved without improvements in the
for example by constructing “results chains” other segments, a value chain approach
or “impact chains” that specify in detail the should be considered. Though one
various cause and effect relationships of agency or donor alone may not have
activities, outputs, outcomes and impacts of sufficient leverage to address all segments,
value chain-related development interventions in combination and partnerships there
(www.enterprise-development.org/page/rm). should be enough resources to develop all
the segments.
If the analysis suggests that value chain
bigger players. Likewise, building exclusively
development may not be the most
on low cost and low wages can lead to market
appropriate approach the analyst needs
integration but fails to impact poverty
to look at others, such as local economic
levels. Great attention needs to be paid
or territorial development (focusing on
to the conditions under which vulnerable
the development of a region with all its
groups of workers - especially migrant and
different sectors), enterprise development
women workers, casual and child labourers
(development and upgrading of individual
- participate in the value chain. Another
enterprises and training of entrepreneurs),
risk to consider is that measures to improve
market development (developing products,
productivity in agrifood products with low
improving quality and targeting specific
value addition can diminish profit margins
markets), or livelihoods (improving people’s
for processors, since they will be obliged
lives on the basis of their access to physical,
to compete through better quality at lower
financial, natural, human and social capital).
costs in order to remain in the market. A
somewhat different effect to bear in mind is
STUMBLING BLOCKS
that in specialised (industrialized) production
versus food security, small-scale cash crop Answering the question of whether value
monoculture production may negatively affect chain development is the right approach may
household and community food security. To require a substantial amount of information
find out if the value chain approach is the right not usually available at the beginning of a
one, consider investigating the following: project. The choice of the approach could
possibly be postponed until a stage where
• Scope of the activities required to induce
more information on the value chain
further development of the value chain.
becomes available (e.g. through a value chain
If the scope of required interventions
diagnostic study). However, often substantial
is beyond the means and resources that
information already exists on the conditions
the project and potential partners can
in a given value chain. Experience and
mobilize it is better to refrain from value
discussions with well-informed stakeholders
chain development, or at least wait till
may complement this information and
complementary resources are in sight.
enable the analyst to determine at an early
• Direct versus intended benefits. If project stage if the value chain approach is useful or
efforts including “direct” support to necessary.
beneficiaries (e.g. lead firms or other
well-off actors in the chain) are too high
in relation to the gains of the intended
beneficiaries (e.g. small-scale farmers or
processors) one should restrain from value

1.2 ARE APPROPRIATE SELECTION CRITERIA BEING USED?
This question is designed to ensure that the

most relevant criteria are used in selecting the
value chain and reflect technical and practical Value chain selection criteria
considerations as well as the intended A. Criteria based on supply and demand
development impact.
1. Market demand exists for a given or improved product.
2. There is potential to apply/adopt available/improved
WHY THIS MAY BE RELEVANT
knowledge and technology.
The point of departure for many value chain 3. Resources, capacities, infrastructure, and raw materials
development initiatives is the perception are available and can be used (more efficiently).
that there is a development deficit or an 4. There are real or potential competitive advantages in
opportunity. Often-used arguments are: the production/processing of a certain good.
there is a market or a promising product, B. Development of goal–based criteria
there are abundant resources available, or
1. Can poverty be reduced in general and for selected

new knowledge and technology should be
vulnerable groups? What is the percentage of poor
AND VALIDATION
used. For example, development planners
engaged in the chain? What are the barriers to entry
may see markets for frozen vegetables as
in the chain?
an opportunity, find technical options to
2. Can additional employment and income be generated?
generate energy from residues attractive,
Who is benefiting? Can work conditions be improved?
or focus on copying an irrigation system in
3. Can economic growth be promoted by expanding
a neighbouring country. What these three
value addition? Who benefits from this?
examples have in common is that analysis
4. Can productive enterprises develop (especially SMEs)
is still only partial and can cause value chain
and take part in local and global value chains? Who
interventions to focus on certain segments of
runs those enterprises, and who do they employ?
the value chain while neglecting others.
5. Are cleaner production and compliance with
It is also commonplace for projects to choose environmental safety standards possible? Can criteria
value chains on the basis of purely practical of environmental sustainability be met?
or opportunistic considerations, for example 6. Can gender equity be promoted? Do women receive
in response to government priorities, donor rewards and reduce risks with respect to income,
funding or to continue an existing project. employment and food security through engaging in
Often no considerations are made in such the chain?
cases concerning the technical feasibility of 7. Can objectives for specific local development be
the project and its likelihood of development addressed, e.g. social inclusion of specific ethnic groups
success. or protection of local natural resources?
To overcome these problems, what is 8. Can foreign currency be earned through exports
needed is a set of criteria that address various or import substitution? Who profits from ancillary
development constraints and opportunities public spending?
simultaneously. C. Strategic criteria
1. Government priorities
WHAT TO CONSIDER
2. Availability of funding support
Key criteria for selecting a value chain should 3. Opportunity for partnerships
build on the existing and potential demand 4. Likelihood of development impact
and supply for value chain products. Unless
buyers can absorb additional quantities or
are willing to pay higher prices for better
qualities, value chain development efforts
that aim at the growth of agricultural and
agribusiness sectors may be of limited positive

Sometimes the major development goals do
Example: When stakeholder dominance not reflect specific development conditions
leads to ambiguous choices. and local contexts, making it necessary to
A case study on an anthurium (an ornamental also define development goals on the basis of
plant) value chain development project in the interests of potential beneficiaries and
Sri Lanka shows that too much emphasis on local development perspectives. Here it is
the “buy-in” of powerful stakeholders can also important to distinguish direct and
lead to biased value chain selection. Despite intended beneficiaries. Direct beneficiaries
the use of development goal-based selection receive support through the project and
criteria, including pro-poor and gender-specific contribute to a better functioning of the
objectives, the value chain was selected based value chain. Often support to them is a
on the interest of a powerful public sector means to reach the intended beneficiaries,
stakeholder who simply sought continuation those who should benefit from attaining a
of a government intervention in the anthurium development goal. It is important to identify
sector. The result was an intervention that who among all the actors of the value chain
turned out to be neither specifically pro-poor are the intended beneficiaries, where they are
nor gender sensitive. located geographically, their functions in the
value chain and their social profile.
Source: Henriksen, L.F., Riisgaard, L., Ponte,
S., (2010): Agro-food Value Chain Interventions Finally, there must also be practical/
in Asia and the Pacific: A review and analysis of strategic reasoning in the choice of the value
case studies. Vienna: UNIDO Working Paper. chain. It would not make sense to engage in
Available at www.unido.org a value chain if the government opposes its
development, or if other organisations are
already cover all aspects of its development.
effect. Meanwhile producers should be The existence of opportunities for
capable of increasing production, enhancing partnerships and collaboration can be
efficiency and lowering their costs; otherwise another strategic factor to consider.
it will be difficult to extend the benefits they
obtain from participating in the value chain. STUMBLING BLOCKS
Increasing supply capacities also depends on
The choice of criteria will be influenced by
the knowledge and technology used at the
the mandates and priorities of the institutions
various levels of the value chain and their
involved and the stakeholders engaged. The
potential for improvement.
challenge is to pick the right criteria satisfying
However, criteria based on the option of all stakeholders. Agreement on criteria can
market growth, production increase and be sought at specific stakeholder meetings, as
improved technology alone are not sufficient long as these are not dominated by certain
for the selection of a value chain. Value chain powerful stakeholders. At times, separate
projects also need to prove they contribute consultations with under-represented or less
to commonly accepted development goals. influential stakeholders offer a good way
Goals related to pro-poor agro-industrial to identify interests and come up with an
development are listed on the right. These inclusive choice of criteria.
objectives are also in line with internationally
accepted development goals such as the
Millennium Development Goals (MDGs):
MDG 1: Eradicate Extreme Poverty and
Hunger; MDG 3: Promote Gender Equality
and Empower Women; and MDG 7: Ensure
Environmental Protection. The analyst must
assess to what extent chain development
complies with these criteria.

1.3 HAS THE VALUE CHAIN BEEN SELECTED BASED ON EVIDENCE AND
METHODOLOGICALLY?
This question emphasizes the need for the

choice of the value chain to be grounded in WEBSITES THAT CAN PROVIDE USEFUL
methodology and evidence. It is not enough to INFORMATION for choosing value chains
define relevant criteria for choice; compliance
of a value chain with these criteria must be Market databases
evident. This means collecting adequate • The Trade Statistics at the International
information and combining the findings by Trade Centre (ITC) at: www.intracen.org
applying an appropriate methodology.
• The Agricultural Market Access Database
of the Centre for the Promotion of Imports
from Developing Countries (CBI), at: www.
While value chain developers and stakeholders cbi.nl/marketinfo/www.amad.org
may be able to agree on criteria for choosing
• The Trade and International Markets

the value chain, they often do not put sufficient
Database of the United States Department
AND VALIDATION
effort into retrieving adequate information,
of Agriculture’s Economic Research Service,
which complies satisfactorily with the set
at: www.ers.usda.gov.
criteria. Even though the information is
usually not difficult to collect, analysts may Trade Regulations
not know where to look and how to bring it
• The “Trade Knowledge Network” of
together using the right methodology.
the Global Research Partnerships for
Sustainable Trade Policy, at: www.
WHAT TO CONSIDER
tradeknowledgenetwork.net
Collecting the necessary information should
not be a lengthy or difficult process. Usually • The “Market Access Database” of the
European Union, available at mkaccdb.
the analyst can draw from a wealth of sector
eu.int, and the European Union Expanding
analyses, market studies and publications
Exports Helpdesk at: www. export-help.cec.
of statistical data. Main sources of such
eu.int
publications include:
• Government strategies and policy • The “Market Access for Goods” webpage
of the World Trade Organization, at: www.
documents;
wto.org.
• Documentations developed in the frame
of projects of international development There are also a number of commodity-specific
agencies; websites dealing with global value chains of
coffee, tea, cocoa, cotton, oilseeds and many
• Statistical units of central banks and
others.
finance ministries, national census
departments/bureaus and statistical
institutes; and
• Internet forums for private sector and
value chain development.
Information from secondary sources should
be validated and double-checked with
information gathered during field visits
and interviews. Main sources of primary
information include:
• Private sector actors in the various
segments of the value chain, including

How to do your own simple rating
The table below illustrates generic rating. A value chain is chosen on the basis of six criteria of which two are
compulsory; the other four criteria are given weights, for example on the basis of stakeholder opinions. (The weights
applied here are random.) For each of the criteria information must be collected from either statistics or interviews.
This information is transferred into rankings from 1-5 (here randomly chosen). The example suggests the choice of
value chain 1 because it qualifies for both compulsory criteria, despite ranking lower in the rest of the criteria.
CRITERIA WITH INDICATORS Compliance ranked from 1-5

AND THEIR WEIGHTS VALUE CHAIN 1 VALUE CHAIN 2
1. Demand/supply criteria
Criteria 1.1 (compulsory) Qualifies Qualifies
Criteria 1.2 (compulsory) Qualifies No
2. Development criteria
Criteria 2.1 (weight 25 %) 3 2
3. Strategic criteria
Total score 0.69 0.73
The web-based Learning Resources of the International Centre for Development-oriented Research in Agriculture
(ICRA) include a “Priority Setting” tool which explains a number of multi–criteria rating approaches. Available at
www.icra-edu.org.
primary producers, processors, marketers The two approaches can be combined.

and service providers; For example, the existence of market and
• Chambers of commerce, trade and production potential can be considered an
industry, and other business membership “absolute” precondition for value chain
organizations; development, while a range of development
goals which can be attained simultaneously
• Specific value chain development platforms
provide for a “relative” ranking. For the
(if existing);
latter a range of multiple criteria rating
• Government ministries and departments methods is available (see link in the box
(e.g. ministries of industry, trade, above). Multiple-criteria rating methods
agriculture and finance); allow, to different degrees, the inclusion of
• Local governments and authorities; and quantitative and qualitative information and
• Development agencies and NGOs engaged expert opinions. However, analysts should
in value chain development. feel free to establish their own selection
approach, using, e.g. an Excel spreadsheet
Information drawn from primary and which accommodates weights, ratings
secondary sources of data must ultimately be and quantitative information. A common
brought together to reach a conclusion on the approach is numeric ranking from 1 to 5,
best choice for a value chain. Two approaches where 5 can represent maximum compliance
are possible. In an “absolute approach” with the criteria and 1 represents minimum
the chosen chain complies with minimum compliance (see example above).
criteria; if it complies, it qualifies for further
development interventions. In a “relative STUMBLING BLOCKS
approach” the value chain ranking highest
The analyst should bear in mind that
across a set of criteria is selected, usually
gathering information to choose a value
starting from a short list of value chains that
chain is not the same as conducting a full-
are likely to fulfil the chosen criteria.

fledged value chain analysis (which may
come at a later stage). The idea here is to
collect only the necessary information for
the chosen criteria. This should be readily
available from existing sources and validated
through a limited number of interviews.
Choosing indicators for which information
is available is one way of limiting work.
However, one should not exclude the most
important criteria. Further, for each of the
compulsory criteria a threshold level needs to
be defined, and this often proves difficult. For
example, deciding if the production potential
is high enough requires a lot of information
on actual production and available resources;

deciding if the market potential for a certain
AND VALIDATION
value chain product is high enough requires
analysis of the potential to improve product
quality and penetrate markets. The answer
may not be a simple “yes” or “no” but can be
rated, e.g. on a scale from 1 to 5; every value
chain which does not rate 2, for example,
could be excluded from the choice.
Finally, it is not easy to decide if a criterion
is compulsory or not. Having too many can
limit the portfolio of value chains to choose
from, so it is often more appropriate to keep
these to a minimum.

1.4 IN CASE OF PRE-SELECTED VALUE CHAINS, HAS VALIDATION BEEN CARRIED
OUT?
In all these cases, validation can be useful to

Example: Building on former projects confirm the choice or suggest alternatives. A
second positive output of a validation is that
Instead of designing a project from scratch, it clarifies to what extent the intervention
the International Fund for Agricultural will aim at certain development goals and
Development (IFAD) partnered with an impact. The latter can be important for
existing USAID programme engaged, among designing project interventions.
other things, in the development of Sri Lanka’s
rubber value chain. IFAD did not need to WHAT TO CONSIDER
carry out a full-fledged value chain analysis but
built its strategy on an existing analysis made In 1.2 an approach to data collection and
by USAID. A validation exercise, however, aggregation has already been described, and
confirmed that the development of the chain 1.3 provides information on evidence-based
led to a number of specific development methodology. These can also be applied to
goals, particularly poverty reduction and the validation of value chain choices.
income generation for small rubber producers, People in charge of value chain development
especially women. IFAD then designed the in governments, donors and development
project with a particular orientation towards agencies may not like the idea of validation,
these goals, including the empowerment of arguing that the right choice has already been
poor farmers via access to credit, knowledge made. One can point out that validation is
and technology. only to confirm the results and clarify how
Source: Henriksen et al. (2010). the choice contributes to certain development
goals- crucial information for project
planners who want to orient their projects
toward attaining certain development goals
This question relates to situations where
and impacts.
the value chain is already chosen. Often it is
opportune to validate (and justify) the choice
STUMBLING BLOCKS
that has been made and provide additional
information that helps shape the project by Problems may occur if the validation
pointing out how and where impact can be reveals substantial doubts about the choice
achieved. of the value chain and whether positive
development impacts will occur. In the
WHY THIS MAY BE RELEVANT worst case, a decision must be made NOT to
engage any further in the development of the
Often an evidence-based approach to value
value chain.
chain selection is substituted by less rigorous
methods. Sometimes the basis for a choice
can be nothing more than the idea of an
opportunity, e.g. to sell a product to a niche
market or use a new technology. Under such
opportunity-driven approaches, value chains
may become selected upon the suggestion of
interest groups and potential beneficiaries
such as private companies, government
ministries or even donors. In other cases the
criterion of choice is the continuation of an
ongoing project or its extension to other
regions or areas of the value chain.

1.5 HAVE STAKEHOLDERS PARTICIPATED IN THE SELECTION/VALIDATION
PROCESS?
This question emphasizes the importance of

engaging the various stakeholder groups in Stakeholders in value chain development
the selection or validation of the value chain.
The term “stakeholders” is commonly used in
WHY THIS MAY BE RELEVANT development but often means different things to
different people. Here stakeholders include all
Stakeholder participation is important not people interested in the development of the value
only to ensure that the right choices are chain. These are, first of all, the private sector
made but also to create ownership among entities and individuals directly concerned with
stakeholders and leverage their support for creating and delivering a product and engaged in
the initiative. However, often stakeholder the businesses of primary agricultural production,
participation is limited to certain influential processing, and marketing.
players, typically the initiator of the chain
development project, donors, government Further, stakeholders in value chain development

authorities and sometimes influential private include many actors not directly engaged in
AND VALIDATION
sector companies. This may be enough to get production but rather the provision of private
the initiative off the ground but frequently and public support such as finance, warehousing,
does not provide sufficient basis for the transport, research, or advisory services.
continued collaboration required for project Stakeholders may also include the regulators
implementation. Indeed, after commencing and government and development agencies that
with a small group of selected stakeholders, intervene, through regulations and development
many times the initiative falls apart when programmes, in the development of the value
additional stakeholders need to be brought chain.
on board.
A list of stakeholders in value chain development
WHAT TO CONSIDER can include:
Stakeholder participation in value chain • Farmers, farmers’ organizations and their

selection could take the form of consultative associations
meetings. As opinions and the level of • Processors (at different levels) and their
understanding may differ substantially among associations
stakeholders, it can be useful for stakeholders • Traders and exporters and their associations
to get together in a series of separate meetings • Transporters and middlemen
targeting certain issues, as opposed to all of • Private advisory, business support and
them at the same time. accounting service providers
• Chambers of commerce, investment and
How to identify stakeholders? export promotion agencies and other
parastatal bodies promoting value chain
Stakeholders should include policy planners development
and agencies that represent interests across • Regulatory agencies such as bureaus of
a number of value chains. Additional standards, food safety agencies and metrology
stakeholders to be included are those that institutes
can represent interests in and have an • Private certification and quality control
overview of the main segments of the value bodies
chain, including production, processing and • Research institutions and universities
commercialization. They should, however, • Training and education institutions
have a sufficiently broad perspective on the • Bilateral and multilateral development
set of value chains from which the choice is to agencies
be made. Stakeholders that represent a certain
chain or have vested interests in a particular

chain will not contribute to objective positions and interests. Organizers of such
decision-making; instead they bring bias to meetings should plan them carefully and be
the choice of the value chain, one of the most realistic about what can be achieved. One
common mistakes in value chain selection. may consider the following:
Inviting biased actors to a stakeholders’
• Present a value chain choice that
meeting should be avoided.
participants discuss and agree upon:
The organizers of the meeting would
How can stakeholders best contribute to the
present information from bilateral
identification process?
meetings with stakeholders as well as
Stakeholders’ opinions are important with analysis of empirical and statistical data
regard to both selection criteria and the suggesting a final choice for a value chain.
degree to which value chains comply with Participants can discuss the choice and
such criteria. While such opinions can ultimately agree or disagree. Preparation
be identified in the course of stakeholder may include collecting stakeholders’
meetings, information can also be collected opinions about appropriate selection
through interviews and fed into higher-level criteria and gathering quantitative and
meetings as background information. qualitative data to rank value chains
meeting these criteria. Alternatively a
How should stakeholder meetings be organized? shortlist of more than one value chain
Often these meetings are held all at once in an options can be presented and discussed.
all-inclusive stakeholder roundtable meeting. • Discussion of value chain options to
Though this may be efficient with regard to be further analyzed and agreed upon
planning time and allow stakeholders to get in subsequent stakeholder meetings:
to know one another, such meetings also Another choice is to have a series of
have limitations for different reasons: increasingly focused stakeholder meetings
• The most dominant stakeholders are in which, at the end, stands the choice
likely to influence the process of choosing of the value chain. Part of this process
the value chain. The voices of less would be the collection of information
influential stakeholders may not be heard on value chain choices that feed into these
or taken into consideration sufficiently. meetings.
• Discussion of value chain options and
• Usually there will not be enough space to
voting for a final choice: Most difficult
lay out rational arguments for choosing
to achieve in a single stakeholder meeting
the chain and discussing them. Individuals
is choosing a value chain from a number
may distort the discussions towards biased
of alternatives, taking on board expert
arguments.
knowledge and participants’ opinions.
• Multi-stakeholder meetings require Numeric rankings from all participants
facilitation by a skilled un-biased can be brought together in a cumulative
moderator, but often moderation is left average. To achieve this, a number
to officials or parties with interests in a of multi-criteria voting methods are
specific outcome. available, such as the Analytic Hierarchy
• In an open voting process there may be Process (AHP) and others. Their use
little scope for consensus on the choice requires experience as well as moderation
of a value chain. Voting by majority rule skills.
may leave certain actors unsatisfied. • Discussion of value chain options
Nonetheless, holding roundtable meetings and validating a given choice: When
is important to establish a dialogue between a value chain has already been chosen,
stakeholders and to develop mutual stakeholder meetings can validate the
understanding and respect for their different choice. This can be a good opportunity

to bring stakeholders together, identify
their interests, motivate them to
participate in the project, and find out
what they can contribute. A convincing
presentation of the rationale for the
choice of the value chain is crucial for
such meetings. Opportunities should be
explored for participants to guide the
design and implementation of value chain
development interventions.
STUMBLING BLOCKS
It is unlikely that the composition of

stakeholders reflects all stakeholder interests
in the various value chains to choose from.

At best, participants should be chosen on the
AND VALIDATION
condition that they have a good overview
of the situation in a broader set of value
chains and not include value chain-specific
stakeholders since they would be biased.
Typical participants in such stakeholder
meetings could include members of trade
unions, chambers of commerce, cross-sectoral
private sector associations, departments
of government ministries, research
organizations, development think tanks, and
development agencies.

A thorough understanding of the value
chain is enhanced through a functional
analysis of processes in the various
segments of the chain.
2. FUNCTIONAL VALUE CHAIN ANALYSIS
I nterventions for value chain development

can only be formulated based on a
thorough understanding of the chain.
the value chain, i.e. a picture of how the
industry functions. Figure 3 below shows
the map of a generic value chain starting
Value chain developers may often focus from the consumer and moving down to the
on development goals such as income producer. Figure 5 shows an example of a
FUNCTIONAL VALUE
generation or poverty alleviation, neglecting
CHAIN ANALYSIS
the underlying technical processes that
enable those development goals to be The importance of detecting root causes in
achieved. Value chains are characterized by value chain development
activities of value addition and industrial
transformation processes. To understand A cocoa processor in Indonesia wanted to buy
such activities and processes and the more cocoa beans from small-scale growers.
connection between them one needs to An international development agency aiming
enter to some degree into the technicalities at increased incomes for small-scale growers
of conversion and transformation as well as entered into a partnership with the processor.
in the organizational and economic details During the planning phase of the joint project
of interaction. The type of analysis required a representative of the processor argued that
for such understanding is referred to here as farmers lack knowledge and technologies to
“functional value chain analysis”. Functional produce larger volumes and better quality and
value chain analysis looks not only at all urged the development agency to concentrate
aspects of supplies, markets or processing, its efforts on training farmers. However, after
but also at the connections between them. two years of training, this argument was proven
to be partly wrong. While knowledge and
One problem in functional value chain technologies have been available in the producer
analysis is that analysts can easily get communities, what actually prevented farmers
caught up in the details of one or another from producing more was the lack of finance
aspect, losing sight of the whole picture. It to buy seeds and fertilizers as well as the lack
is therefore important to assure the analysis of risk-minimizing forward contracts. A solid
covers the complete range of functional functional value chain analysis at the start would
aspects of value chain development. have revealed these constraints to value chain
In the functional value chain analysis one development.
would usually start with drawing a map of

map of the cashew value chain in Tanzania
TEN STEPS TO DRAW A VALUE CHAIN MAP with inverse logic: moving from the producer
STEP 1: Collect information through to the consumer.
desk research (existing studies, reports and
Developing a value chain map is an iterative
statistics).
process. The map’s level of detail depends on
STEP 2: Define the nature of the main the ambitions of the analysis and of the value
products of the value chain. chain support programme that might follow.
STEP 3: Define the various functions that Reaching a certain degree of detail can become
occur in the value chain, such as input supply, quite complicated and time-consuming. Most
production, assembly, processing, wholesale, likely one will start to draw a map at an
export, retail, etc. Separate the functions early stage with the limited information at
graphically into segments, e.g. starting with hand. This helps identifying gaps for which
input supply on the left and moving to retail additional information must be sought. At
on the right. the end a version should be available that
STEP 4: Specify types of actors and allocate has been corrected and revised several times
them to the different functions. Use types of by different experts knowledgeable about
actors and not individual firms. Some actors certain aspects of the chain.
can carry out more than one function. Bear in mind that there is no final map.
STEP 5: Put arrows representing the flow As the value chain develops and becomes
of products from one actor to the next and subject to market forces and development
include information on the type of contractual interventions, it keeps on changing. A
arrangements. continuous mapping exercise may be useful
STEP 6: Specify end-markets and relocate to monitor such changes. Value chain analysis
actors and arrows accordingly. Define market needs to be updated and revised all the way
channels such that end-markets are at the right through the project cycle as stakeholders and
end of the map. managers learn more about the value chain.
STEP 7: Include generic categories of support Many tools for value chain mapping
services, e.g. financial services, transport, and functional analysis are available and
packaging, etc. Arrows can show which actors analysts can adapt these based on contextual
benefit from these services. Information can requirements and their experience. Without
also be included on who the main providers of attempting to summarize the tools available
these services are. for functional value chain analysis, this
STEP 8: Add data overlays when information section points out some important issues to
is available, relevant and helpful for the be considered when conducting a value chain
chain analysis. Overlays can be represented analysis that ultimately enables an integrated
for example by: N = Number of firms, V = view of the value chain’s functioning. It is
Volume of product, or E = Number of people structured around five questions: 2.1 Are
employed/engaged. Data can be collected from the nature and diversity of the end-products
secondary sources, key informant interviews sufficiently understood? 2.2 Which functions
and/or surveys. Numerical data concerning and actors are involved in generating the end-
scale (number of people and enterprises product? 2.3 Are the prevailing product flows
involved) should be segregated according to and related business interactions sufficiently
gender and concentration of poor. understood? 2.4 Is the information adequately
visualised? 2.5 Does the analysis build on
STEP 9: Indicate where in the chain poor or
existing data?
marginalised people are concentrated.
STEP 10: Write a narrative explanation of the
conditions in the chain in order to refer to
important aspects not covered in the map.

Figure 3: Generic Value Chain Map
EXPORT Channel LOCAL Channel
CONSUMER International consumer Local consumers

segment
OUTLET International Wholesaler Local Restaurants Street vendors

supermarkets supermarkets
TRADER International trader Local traders FINANCIAL

SERVICES
AGRO-FOOD Large-size national Farming cooperative SME

PROCESSING processor with integrated processors
postharvest handling MARKETING
and agro-food SERVICES
PRODUCER processing
Contract Large-scale Local
outgrowers producer smallholder
s
TECHNICAL
Large-size national supplier International supplier Small-size
FUNCTIONAL VALUE
INPUT SUPPLY SERVICES
CHAIN ANALYSIS
local
supplier
Further Reading on Functional Value Chain Analysis

• UNIDO (2011). Diagnostics for Industrial Value Chains: An Integrated Tool. UNIDO, Vienna, Austria.
Available at: www.unido.org
• AsiaDHRRA (2008). Value Chain Analysis Report: Cambodia, Philippines, Vietnam. Asian
Partnership for the Development of Human Resources in Rural Asia. Manila, Philippines. Available at:
www.asiadhrra.org
• Bernet, T., Thiele, G. and Zschocke, T. (2006). Participatory Market Chain Approach – User Guide.
International Potato Centre Lima, Peru. Available at: www.infoandina.org
• M4P (2008). Making Value Chains Work Better for the Poor: A Toolbook for Practitioners of Value
Chain Analysis. Tool 3 Governance. Department for International Development (DFID). Available at:
www.valuechains4poor.org
• New Zealand Business Council for Sustainable Development (2003). Business Guide to a Sustainable
Supply Chain: A Practical Guide. Available at: www.nzbcsd.org.nz/supplychain
• USAID (no date). Value Chain Mapping Process. Micro Links Wiki. Available at:
http://apps.develebridge.net
• Springer-Heinze, A.,(2007). ValueLinks: The Methodology of Value Chain Promotion. GTZ, Eschborn,
Germany. Available at: www.value-links.de

2.1 ARE THE NATURE AND DIVERSITY OF THE END-PRODUCTS SUFFICIENTLY
UNDERSTOOD?
The question focuses on a better

understanding of the products that come out
Common functions in value chains
of the value chain.
• Input supply
• Primary production WHY THIS MAY BE RELEVANT
• Sourcing of supplies A wooden chair is a different product than

• Processing, transformation and assembly yoghurt; obviously there are different inputs,
(can be involved in various steps of processes, technologies and knowledge
transformation) engaged in the production of these two
• Transport products. The end-product, or the product
• Packaging and handling that after all transformation stages finally
• Wholesale reaches the consumer, determines the shape
of the value chain. Therefore, it is useful for
• Export
any value chain analysis to address the nature
• Retail
and type of all products (there can also be
Supporting services: a whole range of products) that the value
chains generate.
• Business services such as consulting and
accounting
WHAT TO CONSIDER
• Quality and process certification
• Research and laboratory services Two important features of products are:
• Financial services • Product sophistication: the level to which
For each of these functions, several sub-
knowledge and technology is used in its
functions can be defined.
production; and
• Degree of transformation: the relation of
value at purchasing level to value of raw
material used.
For example, the cotton value chain reaches
into a large number of end-products such
as yarn, garments, and oils and cake from
cotton seed that are less sophisticated and
have a lower degree of transformation. If the
focus is on a product with a higher degree of
transformation, e.g. t-shirts, then the chain
traces back to raw materials such as cotton,
but also other materials like dye and plastic
for packaging as well as cutting and sewing
machinery.
Information about these two parameters
can be gathered in interviews with product
managers and technicians engaged in
production, processing and quality issues.
STUMBLING BLOCKS
By defining the end-product the frontiers of

the value chain are also determined. Here one

needs to be careful to avoid being too narrow
or too broad. For example, considering fresh
The nature of the end-product in the Bihari
green beans as the main end-product of a value
banana value chain:
chain may be too narrow as most producers
and processors in the value chain also An analysis of the banana value chain in
cover other fresh and preserved vegetables. the Indian state of Bihar revealed that due
However, considering fruits, vegetable and to the perishable nature of the end-product,
ornamentals plants as end-products would fresh bananas, in combination with missing
broaden the scope to too many different infrastructure for transportation, bulking and
players that have nothing in common. processing, there is limited value addition in
the commercialization of the product. Further
The end-product can only provide an initial
transformation, e.g. towards processed banana
indication about value chain inputs and
chips and banana flour would change the nature
processes. Since the same end-products can be
of the end-product solving the problem of
produced through various processes, further
perishability and increasing the value added.
analysis is required (see 2.2) to understand
how the chain functions. Source: Bihar Rural Livelihood Project (2007)
NR International Limited. Available at
There may be a wide range of different
www.brlp.in
products that the analyst finds too difficult
to cover. In this case the analyst should at
least try to describe the nature of the most
important products of the value chain.
FUNCTIONAL VALUE
CHAIN ANALYSIS

2.2 WHICH FUNCTIONS AND ACTORS ARE INVOLVED IN GENERATING THE END-
PRODUCT?
The question aims at a better understanding The figure below illustrates how the
of the actors that are engaged in the value number of actors engaged in two segments
chain and the functions they fulfil. of a value chain can be included in a value
chain map. The figure does not include
WHY THIS MAY BE RELEVANT the number of actors engaged upstream in
A common mistake in value chain analysis is input supplies and downstream in trading
to focus only on one or a few groups of value and marketing. However, it still provides
chain actors, missing out on others who cover important information that can orient the
important functions in the chain (and could design of the project. For example, one can
benefit from its development). Support to a make a decision to support poor smallholder
limited number of actors in selected segments farmers and small processors with special
of the value chain may also jeopardize the knowledge and technology packages that fit
overall success of a value chain development the size of their operations. Alternatively,
support programme. packages can be propagated for larger
production and processing units in which
WHAT TO CONSIDER
important economies of scale can be realized,
contributing to the overall competitiveness
The making of each product involves a of the chain.
number of transformation processes carried
out by different actors. Depending on the STUMBLING BLOCKS
product, the functions that actors fulfil
in the value chain can be very different. Analysts may find it difficult to identify all
For example, it takes many steps to put a the various actors that supply intermediary
mechanical watch together and many firms products to main actors (processors) in the
engage in producing raw materials and value chain. While it may be easier to identify
components, assemble clockworks, and put the number of actors involved in functions
together the final watch. Various actors have such as processing or exporting (because the
different functions in the watch value chain. number is few or the government monitors
On the contrary, the production of a plastic activities), in other sectors such as informal
bucket can be performed by one company trading, backyard processing or retailing,
that mixes the raw material, polyethylene, identifying the number of actors engaged
puts it into moulds and assembles the bucket is much more difficult. Nonetheless, the
handle. analyst may want to interview some of these
actors and make assumptions about the total
Value chain actors are the firms and individuals number based on the information retrieved.
who assume different functions in the value
chain, engaging directly in production,
processing, trading and marketing. They
usually become the owner of the product
and/or take active market positions. One can
define certain categories of actors in the cotton
value chain- for example, primary producers,
ginners, garment manufactures, and branders-
and attribute different functions to them,
including primary production, transport,
primary processing, manufacturing, and
retailing. Often certain actors can perform
more than one function.

Figure 4: Example on how to insert numerical data into a Value Chain Map
INPUT PRODUCER AGRO-FOOD TRADER OUTLET CONSUMER

SUPPLY PROCESSING
Smallholder farmers Small processor

N: 917 [354] N: 57[25]
av.emol.2[0] av.emol.2[2]
Producer groups (12) Largeprocessor

Members: 612 N: 5 [0]
[150] av.emol.50
contract
growers
N: 50[3]
av.emol.20[5]
Note: N = number refers to the total number of actors
in a particular group. Bracketed figures indicate the
Large growers with integrated number of female-owned/managed units.
processing
N: 3[0]
av.emol.500 [380]
FUNCTIONAL VALUE
CHAIN ANALYSIS

2.3 ARE THE PREVAILING PRODUCT FLOWS AND RELATED BUSINESS
INTERACTIONS SUFFICIENTLY UNDERSTOOD?

understanding how primary, semi-processed
Contractual arrangements in Vietnam’s
and final products are handed from one actor
cashew value chain
in the chain to the next and how this flow of
In Vietnam, the establishment of contracts products is influenced by the type of business
between cashewnut processing enterprises relationships between those actors.
and cashewnut growers has been found to
provide an effective link contributing to the WHY THIS MAY BE RELEVANT
modernization and improved functioning of
The product flow is the nervous system
the value chain. The ‘outgrower’ contracts
of the value chain. Products get from one
developed for this purpose assure that
actor to another on the basis of contractual
processors are supplied with raw cashew nuts
arrangements that can be random and
of the required quality and quantity. In return,
informal or formalized. The more formalized
farmers are assured their products are purchased
the contractual arrangements are, the more
and get paid in advance to be able to invest in
actors can reduce risks and engage in forward
production. There are also larger processors
planning. If the contractual arrangements
that have developed contracts for outsourcing
are not beneficial to both buyers and sellers,
part of the labor-intensive processing to
the flow of products and consequently the
smaller processing units, paying them advances
functioning of the value chain are placed in
to purchase iron bins for toasting and peeling
jeopardy. The study of product flow and the
machines. In addition, some larger processors
underlying contractual relationships is crucial
have developed contractual relationships with
in any value chain analysis.
international buyers for continuous delivery of
containers of processed kernels.
WHAT TO CONSIDER
Source: Southeast Asian Network for
The flow of product towards end-markets
Agroforestry Education (2006). Cashew
establishes the main connection between the
Nuts Supply Chains in Vietnam: A
different actors in the value chain. A first
Case Study in Dak Nong and Binh
important piece of information is identifying
Phuoc Provinces, Vietnam. Available at
what types of actors deliver what kinds of
www.socialforestry.org.vn
products to whom. It is also important to find
out what volumes and qualities are delivered,
as well as the end-market(s) to which products
are directed.
Having understood from whom to whom the
product flows, it is then useful to look into
the contractual relationships between the
actors, be they verbal or written in nature.
Contracts between value chain actors can
typically include various elements such as
those below:
• The quality and quantity of the products

or services to be delivered on behalf of the
supplier or service provider.
• The practices that need to be applied
in the production and the inputs being

used on behalf of the supplier (e.g. for contracts may stipulate farmer obligations
certification purposes). in terms of quality and delivery, but be less
specific about buyer obligations to purchase
• The date and form (packaging) of delivery
products at a certain price. Making contractual
of the products and services.
relationships less one-sided can be considered
• The guarantee to purchase a certain an important element in improving the
(minimum) quality and quantity on the functioning of the value chain. It can help
part of the buyer. reduce risks and improve the organization
of businesses through the extension of the
• Premiums to be paid in case of higher
planning horizon for both sides, buyers and
quality delivery.
sellers.
• Date and location of payment, perhaps
divided into various instalments.
Payments can be advanced (to allow
producers to invest) or delayed (to allow
the buyer to process and sell).
• The provision of additional inputs as part
of an advance, e.g. seeds, fertilizers and
pesticides for farmers.
• The penalties that apply in case of non-
compliance with the contract.
• The period of time for which the contract
is valid.
FUNCTIONAL VALUE
CHAIN ANALYSIS
The type of contractual arrangement that
buyers and suppliers engage in also depends
on the value chain. For example, in the
ornamental plants industry buyers establish
contracts with suppliers that determine the
quantity and type of plant to be delivered way
in advance. This allows growers to organize
their production. In the fresh vegetable
value chain, on the other hand, orders can
change daily. Contracts could therefore be
based on a framework agreement in which
a supermarket or food-processing company
agrees to purchase a minimum quantity of
products, but will pay a premium for out-
of-scope delivery. Buyers can also stipulate
protocols for production and packaging to
ensure stable quality and the characteristics
of the products they purchase.
STUMBLING BLOCKS
A contractual arrangement is not necessarily

shaped so as to allow optimal functioning
of the value chain; it may instead be subject
to the interest of the more powerful actors
in the value chain. For example, outgrower

2.4 IS THE INFORMATION ADEQUATELY VISUALIZED?
The question suggests that functional superiority in advanced manufacturing and

value chain analysis must engage in the integration capabilities. Finally, there are
understanding of how the chain is governed, processing industries where lead firms can
meaning how power and dependency be either branders or the large processors
relationships between the actors in the who developed their own distribution and
various segments of the value chain determine marketing networks. The adjacent box
its functioning. provides questions the analyst wants to ask
when identifying dominant actors and the
WHY THIS MAY BE RELEVANT type of governance that prevails in the value
chain.
Identifying dominant actors and whether
they are buyers or suppliers is an important
STUMBLING BLOCKS
step in understanding how actors in the chain
are making decisions (freely or dependently) Information on dominance and governance is
and if they are able to reap benefits. usually not readily available from reports or
statistics but requires a nuanced data collection
WHAT TO CONSIDER and interviewing with key actors in the chain.
While data on firm size and market share
Firms of a certain size and market share
may only provide some proxies about actor
can influence the conditions under which
dominance, it is through understanding the
business partners in the value chain operate.
contractual relationships and the behaviour
For example, such lead firms can set
of business partners that one gets hold of
product specifications for suppliers, even
the governance model practiced in the chain.
detailed product blueprints prescribing the
Conducting this type of analysis requires a
production process and the application of
deeper understanding of the organization
certain technological, environmental or
of value chains in general and experience
labour standards, and how much is to be
with governance models in other chains.
produced, including scheduling and logistics.
The analysist may need to reach back to the
The dominant actor could be an end-buyer or
literature on value chain governance and
retailer in which case one would talk about
particularly discuss the results with analysts
a buyer-driven value chain. In other cases,
of other value chains.
a manufacturer or a supplier of primary
materials “drives” the value chain, making
it a supplier-driven value chain. However,
there are also value chains where many firms
operate in parallel and no dominant player
exists.
Certain industries such as footwear,
garments, fashion, and toys are commonly
dominated by buyers, including wholesalers,
distributors, or branded retailers. In these
industries most value added is generated
where buyers are closely linked to end-
markets and have direct relationships with
distributors and brand-building companies.
In other industries the chain is dominated by
firms capable of integrating several strands
of technology into one product (airplanes,
cars, ships), so their power comes from the

2.5 DOES THE ANALYSIS BUILD ON EXISTING DATA?
This question highlights the importance urban centres with good connection to
of using existing materials for value chain transport infrastructure) but such regions
analysis. usually have many linkages with input
suppliers, buyers, service providers and
WHY THIS MAY BE RELEVANT government agencies.
While value chain analysis must be based on • Sampling of chain actors: It can be
evidence from quantitative and qualitative useful to pick certain representative
data, often too much effort goes into drawing actors in the value chain rather than
new value chain maps and writing yet another attempting to collect information from
value chain analysis involving substantial them all. In the sampling one would
data collection, interviews, development of need to consider different categories
statistics and data analysis already available of actors, e.g. small, medium and large
elsewhere. In fact, most value chains around processors, and different localities where
the world by now have already been subjected they operate (see example in the box).
to some sort of analysis and it is important While statistically robust sampling may
to access this type of information. Even so, require visits to many actors, it is often
value chain analyses can be incomplete or possible to fall back on more practical
outdated and should be complemented with methods. For example, one could stop
additional data and analysis. interviewing a category of actors when an
additional interview is not likely to elicit
WHAT TO CONSIDER new information.
• Interviews: Conducting interviews and
FUNCTIONAL VALUE
Certain information already at hand (see
CHAIN ANALYSIS
section 1.3) can provide a starting point when using questionnaires for value chain
one is engaged in value chain selection. For analysis is no different than any other
both mapping and analysis analysts should type of research. Questionnaires can be
consider moving from desk study of existing helpful when many interviews of the same
statistics and studies, to targeted collection of type are to be made. For exploration and
primary data that helps verify and complement working with key informants, interview
existing information. Primary data collection guidelines and even unstructured
can be achieved through interviews with interviews may be useful. For the latter it
value chain actors and key informants, as is useful to maintain records. Qualitative
well as focus groups. Both quantitative and data should always be triangulated,
qualitative data are important to understand meaning if a reference is made to some
how the value chain functions, along with other party, its validity should be checked
development opportunities and constraints. through interviews with said party. In
Aspects to consider when collecting data addition to data on products and actors,
include: interviews can thus be used to explore
issues such as lack of interaction between
• Defining where the value chain ends: chain actors, existing capacities, use of
Generally it is more advantageous to technology, information sharing, new
determine the borders of the value chain market trends, and upcoming challenges
by defining an end-product (see section and opportunities. Focus group
2.1) than by choosing a geographical interviews can generate ideas, identify
region. There may be geographical potential conflicts and build consensus
boundaries to agricultural production among various groups of stakeholders.
and processing (for example, certain
• Working with key informants: These
crops may only grow in the highlands
individuals have special knowledge about
and processors may only operate close to
the value chain and can reveal a whole set

of information which would otherwise
need to be collected from many different
sources. Key informants can be found in
Sampling of actors in a study of the Sri Lankan
governments, leading private sector firms,
Rambutan Value chain
universities and consultancy firms and
In a diagnostic of the Rambutan sub-sector, development projects. Making them part
analysts at the International Centre for of the value chain analysis team is often an
Underutilized Crops applied a sampling effective way to access their knowledge.
framework across regions and segments of the
• Be creative, look for opportunities: Data
value chain. Segments with more actors featured
collection should go beyond the existing
more prominently in data collection.
situation of the value chain and open up
Location Kandy Colombo Malwana Waraka- opportunity for discussion and reflection
pola about future innovative ways to develop
the value chain. The identification of
Farmer - - 14 11
development champions, innovators and
Con- 50 50 - -
sumer
brokers, and understanding how they
operate, can provide revealing insights
Collector - . 1 2
for guiding the value chain development
Exporter - 3 - -
path.
Exten- - - 1 1
sion
STUMBLING BLOCKS
officers
Fertilizer - - 2 2 Value chains develop quickly and value chain
seller documents can rapidly become outdated.
Fruit re- 4 2 - - New players enter the market, others drop
searcher out and novel end-markets might arise. A
two-year-old value chain map may not be
Source: Barry, I.M. (2006). A Value-Chain
Analysis for Sri Lankan Rambutan Subsector. valid anymore. Rather than starting all over,
The International Centre for Underutilized the analyst needs to identify the changes and
Crops. Colombo, Sri Lanka. Available at www. collect data on the new situation. Former
icuc-iwmi.org studies may no longer be reliable and should
be critically evaluated and brought up-to-date.

To understand the social dimensions
in the value chain poverty and gender
issues need to be addressed.
3. SOCIAL VALUE CHAIN ANALYSIS
W hile functional value chain analysis

provides information regarding
technical and business issues, social value
Many tools and methods exist for this
purpose and can be applied according to
analysts’ requirements and experience. While
chain analysis looks at the way the value these tools will not be summarized here,
chain and its possible development will affect this section draws attention to important
value chain actors and society. issues that should be considered for a
comprehensive view of the social effects of
Value chain development is never neutral
value chain development: 3.1 Are rewards
in its effect on society; usually there are
and risks adequately captured? 3.2 Are
winners and losers depending on engagement
poverty issues adequately covered? 3.3 Are
in production and processing and positive
working conditions sufficiently examined?
and negative effects on other sectors and
3.4 Is youth being considered in value
on sustainability and natural resources.
chain development? 3.5 Are gender-based
SOCIAL VALUE CHAIN

Hence, focusing on economic growth and
constraints adequately understood?
competitiveness in value chain development
ANALYSIS
is not enough; one also needs to find out how
the various groups of the society are affected.
Evidence from global value chains analysis
has shown that global players increasingly
dominate their business partners upstream
and downstream in the value chain, imposing
specific rules and acting as gatekeepers
while firms in developing countries face
increased competition and pressure to
innovate, provide higher quality products
and respond to ever-rising and differentiating
consumer standards. Under these conditions,
participating in a value chain does not only
bring benefits to producers and processors
in developing countries, but may also come
at some cost. The aim of social value chain
analysis is to find out what these effects are.

Further Reading on Social Value Chain Analysis
• Baan, E. and N. Janssen (2006). Using the Value Chain Approach for Pro-Poor Development: Experiences
from SNV in Asia. SNV Netherlands Development Organization. The Hague, The Netherlands. Available
at: www.snvworld.org
• Bolwig, S.; S. Ponte, A. du Toit, L. Riisgaard and N. Halberg. (2008). Integrating Poverty, Gender and
Environmental Concerns into Value Chain Analysis: A Conceptual Framework and Lessons for Action
Research. DIIS Working Paper 2008:16. Available at: www.diis.dk
• Coles, C. and J. Mitchell (2011). Gender and agricultural value chains: A review of current knowledge
and practice and their policy implications. ESA Working Paper No. 11-05. Agricultural Development
Economics Division, Food and Agriculture Organization of the United Nations (FAO). Rome, Italy.
Available at: www.fao.org
• Gammage, S. (2009). Gender and Pro-Poor Value Chain Analysis: Insights from the Gate Project
Methodology and Case Studies. USAID. Washington D.C., U.S.A. Available at: www.usaid.org
• Mitchell, J.; J. Keane and C. Coles (2009). Trading up: How a Value Chain Approach Can Benefit the Rural
Poor. COPLA Global: Overseas Development Institute. London, U.K. Available at: www.odi.org
• Riisgaard, L., S. Bolwig, F. Matose, S. Ponte, A. du Toit & N. Halberg (2008). A Strategic Framework
and Toolbox for Action Research with Small Producers in Value Chains. DIIS Working Paper 2008:17.
Available at: www.diis.dk
• Riisgaard, L., Fibla, A.M., and Ponte, S.(2010): Evaluation Study: Gender and Value Chain Development.
The Evaluation Department of the Danish Foreign Ministry. Copenhagen, Denmark

3.1 ARE REWARDS AND RISKS ADEQUATELY CAPTURED?
This question asks if sufficient information

has been gathered concerning rewards and
What are rewards?
risks for the various people engaged in and
affected by development of the value chain. Rewards are what people gain from engaging in
a value chain. They include economic benefits
WHY THIS MAY BE RELEVANT as well as non-economic advantages such as
improved livelihoods. From an economic point
Little attention has been paid to how
of view, rewards can be considered as a positive
participation in value chains exposes
cost-benefit ratio (including monetary and non-
people to rewards and risks, an aspect often
monetary costs and benefits).
neglected by analysts who tend to focus on
technical issues of production and marketing. What rewards can result from value chains?
Rewards and risks define the benefits that
Rewards from participation in value chains
actors accrue from value chain development,
accrue from the income and employment of
not only those within the chain itself, but
value chain-related businesses and services. The
other groups in society. Often people only
outcome for each actor in the value chain that
consider the benefits with regard to income,
buys, sells or transforms products (some also
employment and poverty reduction of a few
transform) is a positive or negative margin.
actors, but not of all parties affected, and
Rewards also relate to education and skills levels
more particularly, there can be indirect effects
and resource accumulation
to consider. For example, people in another
value chain may be positively affected by the What risks exist in value chains?
availability of more services and technical Risks exist when there is a (higher) likelihood that
capacity or negatively affected by labour a benefit will not materialize or that risk occurs.
shortages, or there may be negative effects on This can relate to monetary and non-monetary
the environment, e.g., contamination from benefits, such as income or employment but also
increased industrial activities. to impacts on the natural resource base and on
people’s livelihoods.
WHAT TO CONSIDER
In general, all actors in the value chain should
SOCIAL VALUE CHAIN

receive rewards without too much risk;
otherwise the value chain may not function.
ANALYSIS
Developing a value chain only to the benefit
of one group may not work if other groups
with important functions in the chain lose
out.
When calculating rewards that businesses
accrue when engaging in value chains one
would examine sales, costs and profit.
However, to assess rewards for households
requires a different type of analysis taking
into account not only additional incomes but
improvements achieved in human, social and
natural capital.

6. Actors who have been able to firmly
engage in the value chain may be vulnerable
How to deal with risks? to market shocks and abrupt changes in buyer
• Review the potential risk scenarios policies, the appearance of strong competitors
• Identify the categories of risk that could and changing trade regulations. In cases
impact on actors in the value chain where they invested and tied up capital in
• Rate the likelihood of each scenario production and processing, they may not
be able to get out and suffer considerable
• Know the impact of each scenario
losses. The outcome can be indebtedness and
• Prioritize each scenario based on the drifting deeper into poverty.
impact on the poor and vulnerable
• Choose a path: eliminate, manage, 7. For certain groups, engaging in a particular
mitigate, or live with each potential risk productive activity can lead to changes in
• Establish cross-functional involvement to status and social ties. For example, a farmer
ensure all aspects are protected who becomes a cereal miller and trader may
lose backing from neighbouring farmers and
• Test risk scenarios regularly to ensure that
your plans remain effective be obliged to give people credit.
Another important point to consider is
risk aversion. Engaging in new fields of
production, processing and trade requires
Various common risk scenarios exist in value
taking risks. While this may be possible for
chain development:
certain actors in the value chain, others who
1. Value chain actors, particularly small depend on their resources for survival (for
farmers and resource-poor processors, may example, because they live on less than a
not be able to produce the quality and dollar per day) may be less inclined to invest
quantity of the products required by the their few resources in risky businesses and in
main (international) buyers of the chain due the end, remain excluded from new income
to such factors as lack of education, lack of opportunities.
innovative capacities or too little time for
learning and adjustment. STUMBLING BLOCKS
2. Value chain actors, particularly Policy makers may find it very difficult to
marginalised groups, may not have access balance the various rewards and risk scenarios.
to land, property, and financial resources to Rushing into value chain development having
enter into production. considered rewards to be obtained by only
one group of actors may be as erroneous as
3. Farmers who switch from growing a mix
refraining from any development effort at all,
of food staples to one particular cash crop
because poor and vulnerable groups may be
catered to the value chain may risk becoming
put at risk while a small group cashes in on
food insecure, especially if buyers stop
major benefits. At the end it may be a matter
purchasing from them or prices fall.
of careful balancing, for which the analyst
4. While less powerful and less developed can provide important information on the
actors may finally make it into the value rewards and risks that accrue for all the actors
chain, their rewards (profit margins and other to be engaged in the value chain.
benefits) are too low, tying up capital and
labour that could be used for other activities.
5. Certain vulnerable groups, such as
women, minorities and people from remote
areas may be unable to obtain rewards from
the chain due to limited capacities and access
to resources, as well as social discrimination.

3.2 ARE POVERTY ISSUES ADEQUATELY COVERED?
This question encourages a more in-depth step to a positive transformation of the

look at poverty issues in a value chain. rural sector. Artisanal transformation
of agricultural products can become an
WHY THIS MAY BE RELEVANT important source of income for rural
households. Setting up small and medium
Effects on poverty are often neglected
processing enterprises is often the starting
when planning value chain development
point of a growing diversification of
interventions. The analysis should contribute
the rural economy, providing jobs and
to understanding how the development of the
income to households.
value chain contributes to reducing poverty
among various groups of actors. In essence, analysis of the poverty reduction
dimension in a value chain requires
WHAT TO CONSIDER consideration of rewards and risks to not only
A number of assumptions are often made one group but all groups of actors that are
about the effects of value chain development and can become engaged in the value chain.
and it is important to verify if these also hold Particularly, the analyst should look at the
true with regard to poverty reduction. Such rewards and risks that accrue to poor people
assumptions include: at three different levels: primary agricultural
production, the various steps of processing
1. The engagement of small farmers and and the provision of inputs and transport,
resource-poor processors in value chains, marketing and other services (see Figure 5).
e.g. by becoming suppliers to national and
international processors and marketers, The development of a value chain is not a
automatically generates greater income fixed package providing benefits to only one
and benefits for them. Here the analyst or another group. In fact, through intelligent
may want to verify whether costs of design of contractual arrangements and value
production and risks of engagement chain support measures, certain vulnerable
are not too high for poor farmers and groups may be able to obtain rewards from
processors. participating in the value chain.
2. Small farmers are able to comply with STUMBLING BLOCKS

standards and regulations. Compliance
SOCIAL VALUE CHAIN

Again, policy makers may find it very
with standards and regulations may be too
difficult to balance the various rewards and
ANALYSIS
difficult for poor people to achieve. The
risk scenarios that exist for the poor groups in
investments to be made may ultimately
the value chain. Analysts can influence these
be too great and the acquisition of
decisions by providing solid information on
additional knowledge and technology too
where positive effects for the poor could arise
demanding.
and vice versa. If rewards accrue only for the
3. Poverty reduction potential lies only in the wealthier groups engaged in the value chain
primary production segment of the value while the poor remain at very low income
chain. Enable poor farmers to participate levels, there is evidence that value chain
in the production of primary agricultural development is not pro-poor. However,
products– this is the objective of many interventions can be designed to make value
value chain developers. The analyst, chain development pro-poor. A general rule
however, may also study if businesses is that at least one vulnerable group in the
and jobs created and sustained in the value chain needs to receive sufficient rewards
processing and transformation segments to alleviate their levels of poverty.
of the value chain can also be substantial.
In fact, creating rural economies outside
primary agricultural production is a first

Figure 5: Tool to Investigate How the Value Chain Affects Poor People in the Value Chain
Groups engaged in Groups engaged in

Groups engaged in
primary provision of
various steps of
agricultural inputs, transport
processing
production and other services
What are the attributes (race, gender, caste, ethnic group,

language, skills, assets, location, etc.) of the poor who currently
and potentially participate in the value chain? Are these
attributes decisive for their participation? Could other poor
groups also participate?
What roles do the poor play in the value chain? Are they
landless labourers, independent business operators or dependent
workers? Do they provide family labour, or engage in home
processing? Can these roles be changed?
How variable and insecure is the income and employment of the

poor? What further risks exist to losing income? What are the
common contractual arrangements? Could the stability of work
and income be improved?
What are the financial constraints and risks the poor are exposed
to? Do they have financial institutions that they can approach to
get loans? Are the conditions of the loans allowing them to
benefit?
What alternatives exist? Can the poor easily engage in other

profitable work? Can they easily exit from their engagement in
the value chain?
Who controls key productive resources e.g. land, water, access

to employment? Do they form a recognisable social group?
What is their composition?
Will land use changes associated with chain participation result

in displacement of local people?
Can food security, status, credibility etc. be negatively affected?
Source: Adapted from Bolwig et al. 2010

3.3 ARE WORKING CONDITIONS SUFFICIENTLY EXAMINED?
This question emphasizes that value chain

development should also aim at improving What are standards of decent work?
the working conditions of the people
employed in the value chain. • Social Protection: Is the physical and
psychological well-being of workers being
WHY THIS MAY BE RELEVANT maintained, e.g. through food security
programmes? Are health risks mitigated?
Agricultural value chains provide Is occupational safety and health at work
employment, be it to independent farmers promoted to prevent injury, disability,
or dependent labourers who work on farms, death and disease?
plantations, in processing and transformation
• Standards and rights at work: Are measures
plants and in the associated service sector. The
in place to prevent discrimination at work
creation of employment is a development
from superiors and colleagues? Is child
goal in itself, and one of the challenges of
labour ruled out? Do women and men work
value chain analysis is to get clarity on how
under the same conditions, e.g. equal pay,
many men and women are actually employed
access to jobs, access to sanitation etc? Is
in a value chain and how many could
social security coverage adequately applied
find additional employment with further
in compliance with national legislation?
development of the chain.
• Individual development: Does the
However, sometimes accompanying the employer provide opportunities for
drive for more employment is the challenge skills development, training, and career
that more people may become engaged in development in and outside the company?
unsafe, unhealthy and underpaid work.
This makes it necessary to look at prevailing Source: ILO, 2009.
working conditions in the various segments
of the chain and how accelerated value
chain development could affect these, both
positively and negatively.
There is more to improved working
WHAT TO CONSIDER conditions than extra costs; they can also
enhance companies’ ability to compete
SOCIAL VALUE CHAIN

Employment should come with certain
and respond to market requirements. Poor
qualities such as those specified in the
ANALYSIS
working conditions, on the other hand, can
standards of decent work of the International
hamper the performance of any business.
Labour Organization. In particular, analysts
should ask the following questions: STUMBLING BLOCKS
• What characterises local employer – Poor working conditions can result from lack
employee relationships? of information about measures to improve
• Who works for whom? them and the absence of regulatory agencies
• In what activities or sectors is labour most to enforce compliance with standards. While
commonly hired? passing on information about improvement
• What are the conditions of employment? measures is easily achieved in value chain
development projects, changing the
• Who is excluded from employment
performance of regulatory agencies and even
opportunities?
national legislation is more challenging.
• Which employers would have incentives
to improve working conditions?
• What is currently preventing them from
taking action?

3.4 IS YOUTH BEING CONSIDERED IN VALUE CHAIN DEVELOPMENT?
seminars, group discussion, advertising in
How can youth participate in value chain the media, and the organization of fairs
development? and demonstration days.
• Young people can become dynamic • Supporting educational institutions
entrepreneurs. (including schools, colleges and vocational
• They can find jobs in the value chain. centres) to develop curriculum and
actively teach agricultural and business-
• They can provide innovative solutions and
new ideas.
related subjects
• They can engage in hard and challenging • Developing on-the-job training
work. programmes in which skills and capacities
• Youth can bring about and flexibly adapt are gradually upgraded through courses
to change. and visits to farms and businesses to
monitor and showcase improvements
• Identifying capable young leaders and
helping them with start-up packages that
This question aims at making the engagement include access to equipment, training,
of youth an integral part of value chain linkages with buyers and business
development. administration support
• Negotiating with micro-finance
WHY THIS MAY BE RELEVANT institutions to develop service packages
Value chain development should allow young specific to young entrepreneurs
people to find income and employment
and build careers. The engagement of STUMBLING BLOCKS
unemployed youth can be a main objective The analyst should bear in mind that it may
driving the development of value chains. This not be easy to identify areas in the value chain
opens up prospects of integrating educational to engage youth. They may quickly jump on
and youth-targeted strategies and activities in opportunities, but if there is no immediate
order to include young people in value chain profit, lose interest and divert to other
development processes. businesses. The analyst also needs to consider
whether the risk profile of young people
WHAT TO CONSIDER may render them particularly vulnerable to
The analyst may examine the type of exploitative employment conditions, running
barriers to entry into the value chain that into debt and taking business risks they are
exist for young people, such as lack of skills, not able to assess properly.
motivation, and education or limited access
to land and credit. Also it is important to
find out whether there are already youth and
entrepreneurship development programmes
in place. Value chain interventions may
be developed to improve the situation of
young people and actively engage them in
crucial businesses in the value chain through
different means.
• Encouraging young girls and boys
to participate in businesses and take
leadership and management roles. This
can be achieved through motivational

3.5 ARE GENDER-BASED CONSTRAINTS ADEQUATELY UNDERSTOOD?
The question aims at making gender an

integral part of the value chain analysis. Why gendered value chain analysis is
important: the case of fisheries in Vietnam
A programme to develop the fisheries sector
Gender-based constraints are restrictions on
in Vietnam assumed that the provision of
men’s or women’s access to resources that are
loans and development of port facilities would
based on their gender roles or responsibilities.
automatically benefit local women – simply
They are often insufficiently understood
by providing a better working environment.
when designing value chain projects.
However, a genderized value chain analysis
revealed that the programme not only failed to
WHAT TO CONSIDER
impact positively on women, it even affected
To systematically examine gender-based them negatively because larger boat owners
constraints one can look at different with access to loans became more independent
dimensions3: from women traders and ice sellers. Further, the
modernization of the ports is likely to reduce
• Access to assets: In order to be
demand for the type of services and businesses
economically active and run a business
in which less-qualified women, in particular,
one needs access to assets such as land,
currently engage in the niches of fish marketing
capital, information and extension
and processing.
services and education. However, with its
social rules and institutions, society often Source: Asian Development Bank (2001). Special
denies women access to certain assets and Evaluation Study on Gender and Development.
in consequence they remain in the more ADB. Manila, Philippines.
marginal and less profitable business
activities.
• Social roles: Belief systems determine
responsibilities for men and women, • Risk profile: Women are often more risk
their mobility and the activities they adverse than men due to their household
engage in. Beliefs can refer to men and responsibilities and the fact that they have
women as economic actors, their role as fewer resources or alternative options to
SOCIAL VALUE CHAIN

association members, appropriate work count on, such as access to land or finance.
ANALYSIS
for them to engage in and their rights. The challenge for the analyst is to capture
Often such roles can be shaped so that the gender-based constraints for women to
women have less time available and fewer participate in the value chain adequately.
rights to participate in certain activities. Figure 6 provides some useful guiding
To illustrate, women may be limited to questions to be asked at the level of farmers
participating in education programmes and processors.
and are under-represented in mixed
gender producer associations and business
groups. 3
Adapted from Rubin, D., Manfre C., and Barret, K. N. (2009):
Handbook: Promoting Gender Equitable Opportunities in
• Laws, policies and regulatory Agricultural Value Chains. USAID, Washington.
institutions: As with social beliefs, laws,
policies, and institutions give people
certain roles. For example, gender affects
rights to legal documents, land ownership
and inheritance, representation in social
groups, employment, and access to credit.

Figure 6: Guiding Questions to Identify Gender-based Constraints
Producers level Processors level

Access to assets  How do men and women obtain land?  How do men/women raise the initial funds to
purchase equipment and obtain businesses?
 How do they get information on new farming
practices?
 How do they get information on prices?

Social roles  Are there aspects of production that constitute  Are men or women better suited to particular
hardships for women? jobs?
 Are there aspects of production that  Are there differences in the supply or quality of
discourage women to engage? the product that one receives from men or
women?
 Who (man or woman) makes decisions about
the farm enterprise and crops to produce?  What kind of jobs do men and women engage
in at the plant/factory?
 Who (man or woman) negotiates sales and
receives the income?  Who (man or woman) negotiates sales and
receives the income?
Laws, policies, regulatory  Are there laws or policies that make it hard for  Are there laws or policies that prohibit men or
institutions women to run a farm as a business? women from performing particular jobs in the
business/ plant/factory?
Risk profile  Do women maintain food security by  Do women provide more stable income than
cultivating staple crops? men due to their engagement in processing?
Developing value chains with a gender-

Results from a gender-based analysis in the dairy value
indifferent approach runs the danger of
chain
contributing to further discrimination of
Condition(s) of inequality:
• Fewer women than men are members of the dairy
women in the value chain. The analyst should
producers association although women are the primary contribute to an improved understanding of
caretakers of the dairy cows. constraints to women’s engagement in value
• Fewer women have payment accounts with the local chains so that interventions of value chain
dairy processing plant because the accounts are based on support can be designed to address these
association membership. constraints, e.g. special women’s education
• Women do not always receive full payment for the milk programmes or others that enable them to
they sell. access land and credit and take their place in
• The dairy association requires titled ownership to land,
the business community.
but women are rarely included as property owners on
spousal property.
STUMBLING BLOCKS
Gender-based constraint:
Women are constrained from full membership in the dairy At first glance men and women may often
association and thus do not receive full payment for the milk seem to have equal opportunities to engage
they supply because they are not registered landowners. in the value chain. This is rarely the case.
Consequences for the project: For a nuanced understanding of gender-based
• If the purpose is equal terms of participation in the chain, constraints one needs to explore the social
the project should design strategies and activities to roles and the many activities that women
overcome the constraints of participation for women, e.g. are engaged in. This requires empathy and
either by aiming to change the criteria of membership or exploratory interviews at the household,
by offsetting shared land titling schemes. community, group and business level.
• In order to translate into effective economic advancement
for women, however, activities may be necessary to
facilitate women‘s equal participation or even leadership
in associations in order to gain the necessary bargaining
power that may lead to actual economic benefits.
Source: Rubin et al (2009: 90ff).

The design of a value chain development
support project should be based on solid
strategy development and planning and
stakeholder participation.
4. DESIGN OF VALUE CHAIN INTERVENTIONS
V alue chain analysis produces useful

information to design projects and
programmes supporting value chain
In the end, the design of a value chain
intervention should reflect best options
on how development constraints can
development. This is similar to any other be overcome. Some of the critical issues
project design except that it focuses on various planners should take into account include the
points and actors in the chain simultaneously. following: 4.1 Were value chain development
Strategies are usually developed through an strategies identified in a sufficiently rigorous
iterative process and refined in negotiation manner? 4.2 Have the identified strategies
between the beneficiaries and other been adequately evaluated? 4.3 Were practical
stakeholders. action points defined? 4.4 Are adequate
competences built into the project? 4.5 Have
Intervening at one point in a value chain can
stakeholders participated in project design?
have impacts for participants elsewhere since
all of the various parts of a value chain are
interconnected. For example, strengthening
value chain actors downstream, towards
the market, might be more effective than
supporting primary producers upstream.
Alternatively, to implement certain activities,
others may be required first. This means that
the sequencing of activities must be carefully
considered and alternatives at hand to replace
DESIGN OF VALUE CHAIN
strategic activities in case they fail.

INTERVENTIONS
Further Reading on Design of Value Chain Development Interventions

• IFAD (2009): Sharing and Documenting Good Practices in Value Chain Development. Writeshop
document, writeshop held November 2009, IFAD Asia and the Pacific Division
• Lusby, F., (2007): Value Chain Program Design: Promoting Market-Based Solutions for MSME and
Industry Competitiveness. USAID, Washington
• Springer-Heinze, A., (2007): ValueLinks Manual – The Methodology of Value Chain Promotion. GTZ
Eschborn. Available at www.valuelinks.org

4.1 WERE VALUE CHAIN DEVELOPMENT STRATEGIES IDENTIFIED IN A SUFFICIENTLY
RIGOROUS MANNER?
This question highlights the need for analysts
and developers to carefully craft value chain
How to conduct an efficient brainstorming
development strategies.
session on possible value chain development
options?
• Gather and group similar constraints (and/
opportunities) and brainstorm solutions Value chain development strategies define
for each group individually. what the value chain development project
• The constraints can be prioritized by should do, and are developed through
using a simple voting system before a rigorous screening of all available
brainstorming on solutions. development options. In reality, however,
• Use cards for this exercise. Distribute cards these strategies are often developed without
and ask each participant to write down much creativity and methodological rigor,
their ideas and suggestions on the cards. and at times are copied from projects in other
Collect these cards and pin them to a regions and other sectors.
board; group the cards and ask participants
to prioritize. WHAT TO CONSIDER
• Discuss the findings of the brainstorming There are many different approaches to design
session in order to clarify the proposals
value chain development interventions.
made and characterise each proposal
Generally the starting point is to identify
according to pertinent issues.
constraints and opportunities, but from
Source: Adapted from Herr, M. and M. Tapera there an additional step is needed to arrive at
(2008): Value Chain Development for Decent solutions. This requires more brainstorming
Work. A Guide for Development Practitioners. by the project team, key stakeholders and
International Labour Organization. Geneva, counterparts. The framework described
Switzerland. Available at www.ilo.org. below, illustrating three main strategies,
can facilitate the design of value chain
development interventions (see also Figure 7).
The three overlapping circles in Figure

8 show the possible types of value chain
development strategies. The strategies are
connected to different rewards and involve
various levels of risks. The arrows between
the circles illustrate possible interactions
between the strategies. Combining the three
can be mutually reinforcing: for example,
increasing volume may provide cash for
investing in equipment to raise quality. The
circles in Figure 8 overlap to illustrate that
a specific value chain development strategy
may encompass several of the strategies listed.
The large ‘disc’ underlying the three circles
represents the possible broader development
impacts of value chain development as well as
the baseline conditions referring to different
dimensions of poverty, gender, labour and
the environment.

Figure 7: Framework of Value Chain Development Strategies
Institutional
and economic
frameworks of
Improve the value chain
coordination
Improve
Product, Change/add
process & functions
volume
Development impacts
and baseline conditions
= interaction between strategies
Source: Riisgaard et al. (2008): A Strategic Framework and Toolbox for Action Research with Small Producers in Value
Chains. DIIS Working Paper 2008:17. Available at www.diis.dk.
DIMENSION 1. IMPROVE PROCESS, PRODUCT be a goal per se, but is useful if value
OR VOLUME addition is also generated and distributed
This type of strategy is about ‘doing things to a higher number of actors across
better or bigger’ through improvements in the chain (larger volumes can also be
technology and management. They include: achieved by aggregating orders, e.g. by
creating a common export desk serving
• Process improvement: Efficiency in farmer groups). Shifting production to
production processes can be increased bulk-commodity markets to gain from
and costs or negative externalities can economies of scale and reduce risks can
be reduced. This includes delivering on also be a strategy.
schedule, proper invoicing, improving
DIMENSION 2. CHANGE AND/OR ADD
client management, reducing wastage, etc.
FUNCTIONS
• Product improvement: Here the aim
is to move into more ‘sophisticated’ Value chain actors can take on board new
INTERVENTIONS
products, increasing unit value by functions, for example by performing

complying with buyer requirements for downstream activities such as grading,
physical quality, certification, food safety processing, bulking, transporting or
standards, traceability, packaging etc. advertising or by engaging in the provision of
services, inputs or finance. Value chain actors
• Volume extension: The object is to can also engage in functional ‘downgrading’,
increase the amount of product sold e.g. dropping processing activities to specialize
through increases in yield or area in in production. For producer organizations,
agricultural production, extension of engaging in processing and marketing may
processing capacities and expansion of increase their margins but often they are not
markets. Increasing volume must not

in relation to quality, volume, and
certification, which is often difficult and
Contracts between value chain actors
costly for poor farmers and resource-poor
‘Contract’ here is defined broadly as an processors.
agreement between two or more parties to
• Horizontal contracting between actors
perform, or refraining from performing,
from the same segment, between farmers,
some specified act(s). A contract in this sense
SMEs, co-ops, etc. These are agreements
is therefore not necessarily limited to legally
among value chain actors to co-operate
enforceable written agreements.
regarding input provision, marketing
(for example, bulking produce for sale,
identification of buyers), certification, and
sufficiently prepared for this. New functions crop insurance in order to reduce costs,
should only be entered into when these increase revenues or mitigate risks. For
organizations can perform existing functions producers, this is often a precondition to
efficiently and bear the additional risks. reach volume sizes requested by buyers;
it can strengthen producers’ bargaining
DIMENSION 3. IMPROVE VALUE CHAIN CO- power.
ORDINATION
Contracting can enhance overall vertical and
Small agricultural producers in developing horizontal chain performance in situations
countries are typically linked to agro- where continuous supply of primary and
processors and buyers through market processed materials in sufficient quality and
transactions. These transactions can adopt quantity is of concern to buyers. However,
characteristics that tend to reduce rewards value chain actors may also resist vertical and
and/or increase risks for producers, often horizontal contracting because it threatens
with negative ramifications along the entire their position in the chain; for example,
chain. Value chain development can work middlemen may want to prevent farmers
towards improved forms of co-ordination. from selling in bulk directly to wholesalers.
Vertical and horizontal contracting are
examples of such opportunities: STUMBLING BLOCKS
• Vertical contracting between actors Analysts may find that decision makers have
from different segments in the chain, preconceived opinions on how to develop the
e.g. between farmers and wholesalers or value chain, so it is particularly important to
processors and retailer, etc. This means go back to the drawing board and identify
‘getting a better deal’ through closer and and assess all possible strategies. Picturing the
longer-term business ties. It represents a synergies generated from a combination of
move away from informal transactions strategies is especially challenging.
to the use of contracts (oral or written).
Sellers can ‘learn from buyers’ (about
market requirements and compliance
with quality specifications) and buyers
can embed services in the contract with
regard to the extension, credit, and
equipment they provide (interlocking
contracts). The benefits of such contracts
include the reduction of price risks, access
to price premiums, improved access to
market information, inputs and finance
or reduced marketing costs. But contracts
also demand higher performance

4.2 HAVE THE IDENTIFIED STRATEGIES BEEN ADEQUATELY EVALUATED?
This question addresses the problem that the

value chain development strategies developed
are often not properly scrutinized against
criteria of feasibility and likelihood of success.
Brainstorming and developing ideas for

strategies does not mean that these will be
easy to implement. Strategies have to be
realistic. The best-bet solutions might not
actually be feasible given existing context-
related constraints, so second-best solutions
may end up being a better choice. Submitting
the strategies identified to a reality check is
therefore important.
WHAT TO CONSIDER
Proposed strategies can be evaluated using the

tool on the following page, which introduces
a set of criteria for determining feasibility.
Each criterion is accompanied by several
questions. The users of the tool would need to
summarize answers to the questions posed for
each criterion and give one overall qualitative
statement. Criteria can be ranked or scored
to arrive at an overall degree of compliance.
Such an evaluation exercise would most
advantageously draw from the opinions of
experts and stakeholders during interviews
and guided discussions.
STUMBLING BLOCKS
It is important to distinguish the processes of

(a) identifying constraints and opportunities,
(b) developing a strategy, and (c) evaluating
a strategy. The information base is basically
the same for all, but used in different ways: (a)

focus on creatively finding solutions, and (b)
INTERVENTIONS
look at feasibility and likelihood of success.

Figure 8: Tool to Evaluate the Feasibility and Success of Value Chain Development Strategies
Compliance with Criteria

Criteria Questions
Low Medium high
Ability to increase  What are the expected changes in forms of chain coordination?
rewards  What are the expected changes in forms of value chain
development (functional, process, product, volume, etc)?
 What are the expected changes in performance (quality,
volume, stability and timing of delivery, production costs, and
certification)?
 What are the expected changes in the economic/ business
incentives of key actors?
 What are the expected changes in rewards (e.g. prices,
incomes, salaries and their stability)?
Ability to address priority  What benefits are expected from the strategy and to what
issues (poverty, gender extent will these benefits help address poverty, environment
and environment) and/or gender issues?
 Who will benefit the most and who the least in terms of major
socio-economic groups (gender, household size, size of
production unit, ethnicity), geographical divisions (agro-
ecological zone, fishing area, distance to buyers), and
organizational systems (cooperative vs. farmer group vs.
individual farmers)?
Level of risks and  What is the stability of new or modified business relationships
potential negative effects (‘contracts’)? What would prevent either party from ending
the relationship or changing its terms?
 What financial, environmental, health and other risks will the
strategy expose the actors to, such as loss of income, assets or
jobs, health risks, personal security and resource degradation?
 What social groups will be most exposed to these risks (the
asset-poor, women, the landless, etc.)? Will the beneficiaries
generally be able to bear these risks? Who will be most
vulnerable to them?
 Are all members of the beneficiaries able to bear the (labour or
monetary) costs associated with the value chain development
strategy? Do they all possess the necessary assets?
 Will the strategy reduce incomes (or other livelihood
elements) for some of the actors engaged?
 Will the strategy lead to the marginalisation or exclusion of
certain groups (who and why)? Will it lead to the displacement
of non-participants from agricultural or communal land?
Feasibility  How long will it take to achieve the desired changes?
 How much will it cost?
 What are the major risks of failure?
 How do the expected costs and risks compare to the expected
benefits?
 Is it possible to mobilise the ‘political’ and financial resources
needed to implement the strategy within the time frame of the
research?
 Does the value chain development strategy go against the
interests of other chain actors? Is it realistic to expect that the
resistance anticipated as a result of such conflict of interests
can be overcome?
 Will the value chain development strategy oppose local
economic or political interests (of non-participants)? Is it
realistic to expect that the resistance arising from such conflict
of interests will be overcome?
 What individual and collective investments are required (land,
equipment, labour, training, etc.)?

4.3 WERE PRACTICAL ACTION POINTS DEFINED?

boiling down a strategy to concrete activities. What is an action point?
WHY THIS MAY BE RELEVANT A point of entry to the development of a value

chain. Identifying these points makes it possible
Strategies need to phase over into practical to define project activities clearly. Points can
action. While value chain projects are often include:
good at laying out development strategies,
• A specific chain actor (e.g., potential buyer)
coming up with a thoughtful implementation
plan may be difficult. A strategy that cannot be • An organisational form (cooperative,
implemented is of little use, so it’s important producer group, contract farming scheme,
to ensure that any strategy identified and knowledge exchange platform)
positively evaluated can be transferred into • A partner outside the value chain who can
practical action points. help put pressure on actors whose policies or
practices the project wants to change, such
WHAT TO CONSIDER as downstream chain actors, government
agencies (e.g. the Forestry Department) or
Identifying suitable action points involves
standard setting bodies
asking questions such as:
• A standard (that will be modified and/or
• Where inside or outside the chain are the certified) or a standard-setting body
most appropriate actors for the project to
• A regulatory framework (e.g. for the
work with?
management of common pool resources)
• How can the behaviour of actors most
• A market institution (system for group
likely be changed so that the value chain
bulking and storing, for product grading, or
improves?
for accessing price information; an auction;
• Which types of rules and regulations in an interlocking contract– e.g. providing
the value chain need to be changed, given seasonal credit against a crop buying
the choice of strategy and the resources agreement)
available? • A new market for the existing product
• How can markets be accessed in a better • Passage of a new policy or regulation
way?
Source: Bolwig, S.; S. Ponte, A. du Toit, L.
• How can sourcing of products be Riisgaard and N. Halberg. (2008). Integrating
improved? Poverty, Gender and Environmental Concerns
into Value Chain Analysis: A Conceptual
• How can finance of value chain actors be
Framework and Lessons for Action Research.
improved?
DIIS Working Paper 2008:16. Available at
• What needs to be done to improve the www.diis.dk.

quality of the products?
INTERVENTIONS
• What needs to be done to reduce costs in

production, processing and marketing?
• What needs to be done to comply
with quality and other standards and
regulations?
• How long will options for intervention
be available (e.g. policies can change)?

The action points will be reflected in
the implementation plan, which is a
representation of the project in a structured
format. Such a plan would typically include
the following information:
• Brief description of the activity, including
its objectives
• Responsibilities for implementation
• Planned start and completion dates
• Activity-specific expenses
STUMBLING BLOCKS
Governments and development agencies and

donors usually prescribe how a project should
be developed, using logical frameworks,
activity charts and other planning tools.
Project designers should not let these formal
tools get in the way of creative activity
planning based on the options and technical
and financial feasibility of the identified
strategy.

4.4 ARE ADEQUATE COMPETENCES BUILT INTO THE PROJECT?
This question refers to the need for value

chain projects to draw from interdisciplinary Key skills required in value chain
competences and human resources skilled development:
enough to deal with the multidisciplinary
• Primary agricultural production
tasks that value chain development requires.
• Processing technology
WHY THIS MAY BE RELEVANT • Enterprise and business development

• Contractual arrangements and business
Project managers and staff represent keys linkages
to success, so there must be assurance that
• Marketing and trade
qualified managerial and technical staff can
be hired, especially those with expertise and
experience in business development and the
commodities involved.
STUMBLING BLOCKS
WHAT TO CONSIDER Finding the right mix of people is a managerial

Skills drawing from experience in project task. However, the technical skills involved
design and implementation are already in overseeing functional aspects of the value
required during the process of deploying chain must not be underestimated, and a
strategies into action. It is important to manager without a broad view of the value
engage knowledgeable and creative minds chain may not be able to oversee the various
from various disciplines relevant to value skills required. It is therefore important that
chain development. These skills continue managers are sufficiently informed through
to be important during the implementation a broad value chain diagnostic. Generalists
phase. should be part of the team.
The problem often arises that the manager

and other staff hired for the project have
expertise in only certain aspects of value
chain development, so in other fields
implementation may be inappropriate or
substandard. For example, a project may
have hired skilled staff in the field of primary
production and marketing, but failed to
get some processing and organizational
development and finance specialists on
board. Special emphasis should be on hiring
multidisciplinary teams of experts whose
skills match the anticipated project activities.

INTERVENTIONS
Another consideration is ensuring an

adequate mix between professional staff
and consultants. Working exclusively with
consultants deters the development of project
competence. Vice versa, if all the work is done
by staff, important expertise from outside
cannot be built into the projects.

4.5 HAVE STAKEHOLDERS PARTICIPATED IN PROJECT DESIGN?
WHAT TO CONSIDER
From value chain analysis to design: a
combination of expert-driven and participatory How and to what degree one employs
approaches participatory processes to design
There are considerable advantages to mixing expert-
interventions depends on the context of the
driven with participatory approaches. One would
project and the objectives to be achieved.
start by carrying out a desk review of existing
This manual suggests an approach based on
material and conducting interviews with key
consultations during workshops with a fairly
informants to develop a first solid understanding
broad participation of stakeholders to discuss
of the value chain (see chapter 2). The next step
results from the functional and social analysis
would be to engage with representatives from the
of the chain and validate recommendations
different value chain actors via interviews and/or
for value chain development. Some issues to
focus group discussions to refine the analysis and
consider:
develop an appropriate strategy (see chapter 3 and • Often value chain actors already receive
4). support from various government and
When a good understanding of the value chain has development agencies and they need to be
been gained, a workshop (or series of workshops) considered when holding any value chain
can be held with selected value chain actors and stakeholder meetings.
relevant organizations to:
• Holding a single stakeholder consultation
• refine the information; may only help influential actors in the
• reflect upon the identified opportunities and value chain to raise their voice. A series
constraints;
• define strategy options; and
of consultations that gradually take an
• develop implementation activities. increasingly local, regional and national
focus may be more efficient in getting the
This question focuses on the importance of feedback and buy-in of stakeholders at
engaging stakeholders at various points of the various levels.
design of the value chain project. • Most stakeholders feel project designers
and managers also have their own
WHY THIS MAY BE RELEVANT interests. It is always advisable to
Stakeholders may participate in the choice engage a skilled moderator who handles
of the value chain, and certainly they are an stakeholder contributions from a neutral
important source of information during value standpoint.
chain analysis. But it is during the design • One should pay considerable attention to
phase that participation really becomes how existing power structures in chains
crucial. Participation is essential to ensure might influence the design process.
buy-in from stakeholders and to capture
available competencies and capacities to STUMBLING BLOCKS
identify implementation options. Stakeholder
participation can also bring in capacities and Some stakeholders may hold back the process
knowledge which would otherwise need to and are not interested in crafting a successful
be collected and brought into the project project. In this respect one can argue that it
at higher costs. The interaction between is neither necessary nor possible to include
stakeholders and experts can moreover lead all stakeholders in the design process. It may
to creative identification of development be sufficient to cooperate with intended
opportunities. Participatory forums can also beneficiaries and a few key actors that possess
facilitate the development of new linkages, the necessary leverage to achieve the desired
and foster ownership of the strategies and impact.
activities to be implemented.

Implementing value chain projects
requires flexibility and stakeholder
engagement.
5. IMPLEMENTATION
I mplementing a value chain project is no

different from implementing any other
development project, albeit there may be
There are a number of critical issues analysts
and value chain development planners should
take into consideration when implementing
more actors to deal with and more entry a value chain development project: 5.1 Is
points to consider. Most importantly, there sufficient flexibility to reorient the
implementation needs to adapt to the project? 5.2 Is stakeholder engagement
rapidly changing context of the value chain maintained? 5.3 Is trust being built among
where new actors engage and others drop project partners and value chain actors? 5.4
out, governments and development agents Has a baseline been established to monitor
provide subsidies and support, new business chain development? 5.5 Does monitoring
opportunities arise and old ones become and evaluation focus on the most relevant
irrelevant, alliances are built and dissolved, impacts of chain development?
and profit margins change based on market
conditions and competition. In such a
context, while following a general strategy,
implementation needs to be reactive and
draw from the latest information.
Further Reading on the Implementation of Value Chain Development Support Projects

• Bernet, T., Thiele, G. and Zschocke, T., (Eds.) (2006): Participatory Market Chain Approach (PMCA) –
User Guide. International Potato Centre (CIP), Lima, Peru. Available at www.infoandina.org
• M4P. (undated): Making Value Chains Work Better for the Poor: A Tool Book for Practitioners of Value
Chain Analysis. Available at www.markets4poor.org
IMPLEMENTATION

5.1 IS THERE SUFFICIENT FLEXIBILITY TO REORIENT THE PROJECT?
that includes ongoing monitoring meetings

The challenge of flexible project with stakeholders and project staff to enable
implementation adjustment to important changes. Important
causes of change in the project environment
In the World Bank Horticulture and Livestock
include:
Program (HLP) in Afghanistan it was found
that an unexpectedly large crop of grapes drove • price shocks
prices down to a point where the merchants
• regulatory changes affecting the value
participating in the project were not able to
chain (either domestically or in importing
sell their products. Thanks to a creative search
countries)
the project was able to identify new marketing
opportunities through shipping grapes to India • new competitors
by air, benefiting from lower than expected • new markets
airfreight rates. The project had the flexibility
to divert resources towards testing markets Important causes of change related to internal
in India and was able to channel a substantial project conditions include the following:
amount of the Afghan crop to the Indian • strategic partners drop out;
market, to the benefit of Afghan producers and
merchants. • activities fail or are delayed and prevent
other project activities from succeeding;
Source: Roots of Peace (2010). Value Chain
or;
Operations Manual - Case Study: Improving
the Mir Bacha Kot Grape Value Chain. • attempts to introduce new technologies,
Available at: http://www.rootsofpeace.org business models or markets fail.
When much time has passed between
the initial analysis and the launching of
This question emphasizes that the success of implementation, one may want to start by
value chain development support projects validating the existing value chain analysis
can be hindered by bureaucratic planning and adjusting intervention strategies
frameworks that do not allow for changes in accordingly. Project managers should even
project activities and partners. have the flexibility to suggest pulling out
of a value chain completely and reorienting
resources towards others with more
The project implementation rules of promising prospects for achieving the desired
governments and development agencies are objectives. In the worst case scenario, it is
often not flexible enough to deal with the better to abandon a project than continue
dynamic nature of value chain development, implementing strategies that are no longer
so projects cannot react to changing market likely to lead to the desired impacts.
conditions and production contexts.
STUMBLING BLOCKS
WHAT TO CONSIDER
Failures in implementing initial project
Project implementers should adopt an designs are often due to partners who
adaptive planning mode which allows for a default on their commitments, for example,
continuous verification of basic assumptions in producers who do not deliver the required
the project strategy. If assumptions regarding product or buyers who do not buy it. Projects
project success do not hold true, then can sometimes be better off not entering into
implementation strategies must be adjusted. partnerships with a single buyer.
An adaptive planning mode is closely aligned
with a good monitoring and evaluation system

5.2 IS STAKEHOLDER ENGAGEMENT MAINTAINED?
This question makes a case for continued

engagement of stakeholders beyond their Means of communicating project advances to
involvement in the initial phases. stakeholders:
• Stakeholder meetings
WHY THIS MAY BE RELEVANT • Demonstration days
Commonly, value chain projects include • Newsletters

diverse actors such as primary producers, • Advertisements in the media
buyers, processors and service providers. • Project documentation
Maintaining and extending the dialogue with
such diverse partners is an important factor
in project success. However, projects often appreciate the project and stay engaged.
consider the initial engagement of partners
sufficient and underestimate the need for STUMBLING BLOCKS
continuously informing them about the Be they buyers, processors or primary
project’s progress and engaging them in its producers, if value chain actors do not find
implementation. the right conditions to engage in the value
chain businesses, they will not be interested in
WHAT TO CONSIDER participating in development interventions,
Usually the dialogue with stakeholders in the regardless of prior commitments. In these
private and public sector is initiated during situations the project may need to find new
the analysis and project design phases. Only partners or change the strategies, or discover
some of these stakeholders will become new means to incentivise existing partners.
actual project partners with specific roles and In any case, it would not make sense to force
commitments. Maintaining and extending the partners to comply with commitments they
dialogue and partners’ adaptation to new roles are not convinced will benefit them.
is frequently not easy. Project partners that
have been active in the initial consultations
may become less active when it comes to
implementation, particularly when they find
out that certain commitments may bring
benefits but also require substantial inputs on
their side.
Continuous efforts to inform and maintain
an ongoing dialogue with project partners
and other stakeholders are necessary if
stakeholders are to buy into the project, build
trust and stay engaged. Important messages to
be communicated, at times repeatedly, are:
• the progress that is made in the project;
• the benefits to be gained from their
engagement in the project; and
• the role of partners, leaving no doubt as to
what their duties are.
IMPLEMENTATION
Setting goals that are easy to achieve in the

initial phase is one way to help partners

5.3 IS TRUST BEING BUILT AMONG PROJECT PARTNERS AND VALUE CHAIN
ACTORS?
How to build trust among value chain actors promoting more stable business relationships
between actors in the value chain.
• Clear definition of roles and benefits
for each project partner (and clear
communication of those) at an initial stage WHY THIS MAY BE RELEVANT
is crucial to build trust and avoid raising The diversity of actors engaged in a value
unrealistic expectations. chain, each with different roles, rationales and
• Private sector partners must be allowed objectives, is often a source of distrust. Any
to slowly grow into their role of being project promoting value chain development
the drivers of change. They may most
also needs to deal with the challenge that
likely maintain their motivation through
partners, not only in the project but also in
incentives such as business opportunities,
the value chain, might not trust each other.
invested prestige, learning, or career
development they can directly associate
with the project. WHAT TO CONSIDER
• The wider stakeholder environment Lack of trust can affect both horizontal and
(government officials, community vertical relationships in the value chain.
organizations, associations and service Actors need to coordinate activities vertically
providers) needs to be provided with between the different parts of the chain, e.g.
updates on project progress.
related to purchases, sales or product quality,
• Value chain training courses for but they also fight one another for business
government and private sector margins.
representatives can be useful to create buy-
in and facilitate dialogue. Lack of trust between stakeholders with similar
activities can also be a key issue. Actors often
compete when selling or purchasing specific
products and services. For example, marketing
through farmers’ groups can be undermined
by side-selling or when some of the members
sell sub-standard products, jeopardizing
the quality of overall product delivery.
An effective way to minimize distrust is
by reducing information asymmetries and
uncertainty. For example, different partners
can be brought together during stakeholder
meetings where farmers meet processors,
supermarkets and lead buyers and learn
about each others’ interests, rationales and
behaviour. One can also organize reciprocal
visits between actors in the chain. Once
established, supplier-buyer relationships
should be carefully monitored by the project
or independent brokers.
Interaction is only constructive if the
actors engage actively and treat each other
with respect, and this frequently requires
facilitation. A good facilitator should be
capable of integrating and motivating

different actors to work towards a common
end based on shared interests, and create an
environment for interaction where:
• the style and content meets the
requirements of the participants;
• there is a culture of tolerance allowing
people to accept and learn from errors;
and
• marginalised actors receive special
attention.
Projects that promote value chain
development have a particular responsibility
to help build trust among various actors in the
value chain. Because members do not have a
commercial interest, the project team is in a
good position to lead participatory processes
and bring together actors who otherwise may
mistrust each other.
STUMBLING BLOCKS
The task of building trust and setting up

business links in a value chain is often
underestimated. Chain actors need training
in business planning, negotiation and
establishment of contractual relationships.
A special challenge occurs in situations where
trust has been lost in the past, due perhaps
to the interruption of business relationships,
government interference, the fraudulent
behaviour of some individuals, or price drops.
In some countries government involvement
in commodity trade may have contributed to
farmers’ distrust in commercial relationships.
IMPLEMENTATION

5.4 HAS A BASELINE BEEN ESTABLISHED TO MONITOR CHAIN DEVELOPMENT?
account for the changes they have induced in

List of useful outcome indicators in value the value chain, and this can only be achieved
chain development projects by knowing the initial situation. Nevertheless,
Outcome indicators value chain development projects sometimes
Indicators on functions and value addition:
start to operate without having established
a baseline to gauge their progress. Defining
• Which and how many functions are carried baseline indicators is an important task
out by the actors in the chain?
because they define how project success will
• What is the degree of backward or forward be measured.
integration?
• How much value is added by each of the WHAT TO CONSIDER
actors?
All projects must develop indicators in order
Indicators on commercial relationships:
to describe how it has affected each value
• Number and type of buyers chain development dimension, so a baseline
• Continuity of buyer-supplier relationships should be established immediately after the
• Average size of orders from buyers project strategy has been selected. Setting
up a baseline for later evaluation of project
• Use of written sales contracts (if relevant)
interventions involves both qualitative and
• Stability of the price received
quantitative indicators to assess impacts as
• Knowledge about quality demands and well as the project’s immediate outcomes.
other buyer requirements Since impacts will be much more difficult and
• Degree of compliance with buyer demands expensive to measure and be attributed to the
(volume, quality, timing etc) project, it is wise to select just a few impact
• Buyer ‘satisfaction’ with suppliers indicators and concentrate on a larger set of
Indicators on horizontal collaboration: outcome indicators.
• Number of well-functioning producer or A common mistake is that baseline data is
processor groups only collected for one type of beneficiary,
• Participation of poor actors in these groups e.g. farmers. However, in value chain
• Degree of stability of groups development there are usually more groups,
such as SMEs, workers in processing plants
• Volume of products handled by the groups
and additional service provision agents. All
Indicators on value chain development these need to be considered as well.
• Status of value chain development (quality,
Much of the information needed to establish a
process, standards compliance, volume,
baseline and develop the outcome and impact
timing of supply, inter-chain, etc)
indicators can emerge from the value chain
• Competences of main actors in the
analysis (see section 2. and 3.). For impact
value chain in relation to the degree
indicators also see section 5.5.
of development of the value chain
development
STUMBLING BLOCKS
This question is born out of the necessity for While impact indicators aim at the economic
projects to build on a solid baseline so as to be and social benefits that target groups may
able to monitor progress. acquire through the project, outcome
indicators must be adjusted to the selected
WHY THIS MAY BE RELEVANT value chain development strategy. It requires
a careful analysis of the strategy to come up
Value chain development is about promoting
with the right outcome indicators.
change in value chains. Projects need to

5.5 DOES MONITORING AND EVALUATION FOCUS ON THE MOST RELEVANT
IMPACTS OF VALUE CHAIN DEVELOPMENT?
This question aims at the importance of
applying monitoring and evaluation in a way List of useful impact indicators in value chain
that relates to the overall impacts on poverty development projects
and human development, beyond purely
Income and employment:
economic and sectoral considerations.
• Monetary income (household level, local
currency per year)
• Income ‘in kind’ (if relevant)
Information about the progress of the project • Number of participants in value chain
is useful for both a) justifying project activities
• Number of people employed in value chain
before donors and government and b)
activities (or in directly related activities)
providing information to orient the project on
Poverty:
how to do things better. However, since this
• Number of poor people participating in
information is often not collected adequately
value chain
and repeatedly, value chain projects may have
too little information to determine whether • Monetary income of the poor (household
level, local currency per year)
they are on the right track or need to adjust.
Also, they may fail to provide governments • Income ‘in kind’ (if relevant) of the poor
and donors with robust information about • Income stability for the poor (qualitative,
whether development goals are achieved. based on more detailed criteria)
• Food security for the poor (qualitative,
WHAT TO CONSIDER based on more detailed criteria)
Gender equity:
Monitoring and evaluation in value chain
development implies continuous monitoring • Number of female participants (absolute and
relative to male)
of changes relevant to businesses in the value
chain (through validation and adjustments of • Women’s control of monetary income from
chain
the existing value chain analysis) and constant
verification of whether basic assumptions • Gender division of labour in chain activities
(type of work done by women)
about value chain development strategies and
expected outcomes and impacts hold true. • Number of women employed in value chain
activities or in directly related activities
Any value chain monitoring and evaluation (absolute and relative to number of men
employed)
system should take on board the holistic view
Environment:
of the value chain emphasized throughout
this manual. If there are diverse groups of • Quantity of natural resources (e.g. through
direct and intended beneficiaries this can volume, hectare, etc.)
be particularly challenging. For example, a • Quantified level of pollution or waste
project may lead to increased income among • greenhouse gas emissions (if feasible)
small-scale farmers but at the same time,
improved incomes for a larger group of rural Source: adapted from Riisgaard et al. (2008). A
Strategic Framework and Toolbox for Action
women who now gain employment in a new
Research with Small Producers in Value Chains.
processing plant. The latter is also a project DIIS Working Paper 2008:17. Available at
success that needs to be reflected through an www.diis.dk.
indicator in the monitoring and evaluation
system.
IMPLEMENTATION

STUMBLING BLOCKS
Providing information on a broad set of

outcome and impact indicators is a labour-
intensive and costly exercise that project
budgets may not take into consideration,
making the challenge of performing
meaningful monitoring and evaluation
on a scarce budget commonplace. In this
situation, analysts may need to reduce the
amount of indicators but make sure to collect
the necessary data on this limited set of
fundamental indicators.

Printed in Austria - 2011
UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION

Vienna International Centre, P. O. Box 300, A-1400 Vienna, Austria
Telephone +43 1 26026-0, Fax +43 1 26926-69
E-mail: unido@unido.org, Internet: http://www.unido.org
Dealing with small
scale producers
Linking buyers and producers
Dealing with small
scale producers
linking buyers and producers
Authors
Ellen Mangnus
Bart de Steenhuijsen Piters
Graphic Design
Evelien De Mey
Illustrations
Hajo de Reijger
august 2010
Amsterdam
Foreword
Despite its limited geographic size, the Netherlands is one of world’ s biggest exporters of
agricultural produce. Very intensive farming development has produced a vibrant economic
sector that continues to a functions key contributor to national GDP. What is behind this
success? Strong farmers’ organisations that connect effectively to the private sector, thus
managing highly competitive value chains. The cooperative movement in the Netherlands
has a history reaching well into the 19th century of bringing smallholders together into
larger organisations that were able to advocate, negotiate and share knowledge. One may
therefore state that the success of Dutch agribusiness is due to its ability to organize, both
between producers as well between value chain players.
In the current debate about developing agribusiness in Africa, often references are made to
the success of the Dutch cooperative model. How to learn from the Dutch experience and
to apply its lessons in Africa? To answer this question, one has to understand the historical
context of the Dutch cooperative movement, as well as recent experiences with cooperatives
in Africa.
Without going into too much detail on the Dutch cooperative movement, it is worth to
mention one striking phenomenon. Coherent organisations are social constructions that
pursue a common goal, but often encompass more than only material interest. Dutch
cooperatives were, for example, organized along religious lines. In one region both Catholic
as well as Protestant cooperatives emerged, both with exactly the same commercial purpose
and goals. Their cohesion along religious lines helped them create strong organisations that
were based on common values and principles that, in turn, could further guide management
and operations. This particular aspect is often forgotten in current debates about farmer
organisation in Africa.
Agricultural cooperatives were abundantly promoted in post-colonial Africa, as part of

national socialistic policies aimed at organising the countryside. It was believed that
collectivity should be promoted in order to effectively provide public services and build
the nation. Again, cooperatives had to serve dualistic goals of organising smallholders into
larger, productive entities and facilitation the formation of the state. In many situations,
cooperatives were utilised as instruments of control by governments, through which national
interests had dominance over individuals. During the 1980s almost all state cooperatives
in Africa were dismantled, leaving behind a collective sense of antipathy towards this
organisational model.
Nowadays, the private sector is struggling to establish business collaborations with

smallholders in Africa. There are growing opportunities for African agriculture to market its
produce, be it to huge urban conglomerations or to a world market with constantly increasing
demand for agricultural inputs. But African agriculture cannot seize this opportunity as it is
still dominated by smallholders, which imposes constraints in terms of trade volume and
product quality. In order to benefit from the opportunities of consumer demands, African
smallholders need to become better organised. But what kind of organisation is most
4
appropriate? During the past decade Western NGOs have insisted on establishing formal
member-based producer organisations as key to rural development. There have been many
successes with this approach, but maybe even more failures. What is generally observed is
that formal organisation takes time and investment; the private sector does not have the
time. Newly established producer organisations are often not a product of genuine local
development. They are often based on monolithic interests and thus lack social cohesion.
As the Dutch cooperative movement shows, successful and strong organisations need to be
based on more than pure material common interest.
Africa is known for its strong social cohesion along lines of kinship, religion and tradition.
Why is this social capital, which is abundant, not mobilised to facilitate organisation of
smallholders and business collaborations?
This book will speak about smallholder organisation in developing countries. It presents
models, successes and limitations, while, at the same time, sharing personal insights of a
number of experts with extensive on-the-ground experience. The book will elaborate
on a range of potential forms of organisation that could be considered for agribusiness
development. The book provides a snapshot of approaches to organising smallholders and
leaves it up to you, the reader, to select which approach is most appealing and useful. I would
like to thank the author for her unbiased approach in providing us with a most interesting
display of current knowledge and personal views on smallholder organisation in developing
countries.
5
Acknowledgements
Recently we observed that development practitioners and private sector actors struggle
with linking farmers’ organisations to businesses. While the debate is in full swing and many
experiments are taking place world wide, we think that more knowledge on the topic is
needed in order to support evidence-based decision making. We publish this bulletin as a
response to this demand for sharing more knowledge on the topic. This publication was
made possible through financial assistance of the Dutch Ministry of Foreign Affairs and
resources contributed by the Royal Tropical Institute. We hope that this publication will
inspire those who work with farmers’ organisations or are on the verge of doing so.
Special thanks go to all experts that were willing to share their vision on themes related to
the topic of this bulletin. They provide the reader with a variety of valuable insights.
We would like to express our particular gratitude to Bertus Wennink, Remco Mur and Anna
Laven, Senior Advisors of the Royal Tropical Institute. This bulletin was peer reviewed by
them and greatly benefited from their comments at various stages of development.
And finally we thank the editor Nikola Stalevski for the language editing and text suggestions.
Ellen Mangnus
6
Dealing with small scale producers
Both the private sector and the small scale producer have a stake and reap benefits from
their collaboration in the value chain. This relationship can be coordinated and maintained
by a producer organisation. And a producer organisation can play a central role in enhancing
this cooperation. In many cases, however, this is not achieved; either the business actor
or the producer is not fully satisfied. There is great diversity in producer organisations and
also in their capacities; consequently, there is confusion about which form of organisation
is appropriate for a particular business aim. The underlying goal of this publication is to
contribute to the understanding of producer organisations and the potential benefit that
they can bring to enhance particular business relationships.
7
8
Content
1 Deal or No Deal
1.1 Value chains
1.2 Contracts
2 A journey through the world of producer organisations

2.1 Cooperatives
2.2 Associations
2.3 Registered producer groups
2.4 Informal producer organisations
2.5 Network organisations
2.5.1 Outgrower schemes
2.5.2 Local trader
3 Conditions for organising

3.1 Enabling environment
3.2 Product and Market
4 Understanding producers organisations

4.1 Capacity of organisations
4.1.2 Components of Capacity
4.2 Becoming the ideal business partner
4.3 Supporting change
4.3.1 Who is responsible?
5 Pro-poor business
5.1 Impacts
5.1.1 Inclusion
5.1.2 Self-determination
5.1.3 Well-being
5.2 Communication
5.3 A closing reflection on sustainable impact for small scale producers
9
1.
Deal or No Deal??
Introduction
Deal or No Deal??
1 Introduction
Buyers and sellers in value chains are increasingly becoming interdependent. Changing
market conditions and consumer demands require them to closely align their activities.
Chain actors benefit by working together to coordinate their transactions.
The private sector and the small scale producer share a common interest: to bring a product
on the market. However, it is not easy to establish and maintain smooth working relations.
Both the private sector actor and the producer operate in a specific context and face
constraints that make it difficult for one to respond to the needs of the other.
Small scale producers generally do not have access to all factors that are needed for delivering
a product that responds to market demand. They often face strong economic, social and
physical disadvantages: in some areas the infrastructure is poor, while in other areas up-
to-date market information is not always available to everyone. Another challenge is the
difficulty in accessing technical advisory services, agricultural inputs and financial services.
Agriculture is a risky business and lack of post-harvest facilities makes it difficult to deliver
a consistent supply of good quality produce. Women are often in an even more difficult
situation. An example to illustrate this is the difficulty they face in accessing services based
on land titles. Often women lack formal land ownership.
Private sector actors operate in a different context. Regardless of the problems faced by
their suppliers, they have to respond to market requirements. Depending on the product and
the market these can be either strict or more flexible. The private sector looks for reliable
business partners who are able to deliver the required volumes of produce, at a good price,
on schedule, and in compliance with quality standards.
In order to benefit from each others capacities, the producer and the private sector should
overcome the obstacles that inhibit cooperation. A producer organisation can play a central
role in enhancing this cooperation, either as a full-fledged chain actor or as an external actor
that facilitates the link between chain actors.
What is a producer organisation? The large diversity in producer organisations makes this a
difficult question to answer. Producer organisations differ with regard to origin, legal status,
membership base, functions, purposes, services provided and scale and level of operations.
Each organisation is socially embedded and has a unique history of development (Coe et
al., 2008). Nevertheless, all producer organisation share some joint characteristics: they
are rooted in rural areas, they are member-based organisations and they have a democratic
structure that allows members to control the operation of their organisation (Bijman,
2007; Wennink et al., 2007). The producer organisations in supply chains have another
distinguishing feature: their economic function. Some organisations market produce, some
organisations buy farm inputs and sometimes an organisation also proceses the produce.
In other cases the producer organisation only coordinates the collection and sale of the
produce. While producer organisations in a supply chain may also pursue social or political
objectives, their primary objective is to support producers in accessing markets for their
produce.
12
What added value can a producer organisation provide to private sector actors and
producers?
Private sector actors place a high value on reducing transaction costs. A producer
organisation can provide them with a single contact point instead of many fragmented
producers. As a chain actor a producer organisation can collect the produce and fulfil key
responsibilities, such as grading, processing and transporting. As a chain-link facilitator a
producer organisation can disseminate information and assist in the provision of technical
advisory services and credit.
From the perspective of producers, membership in producer organisations offers many

opportunities for improving market access. Increasing economies of scale bring clear
advantages in cost reduction for the individual producer, e.g. bulk produce transport -- using
one truck to take the produce of several producers to the market. Organisation increases
bargaining power, stimulates solidarity and supports the producers in engaging in higher
risk actions. A producer organisation can also support activities that provide added value and
provide access to credit and technical assistance (KIT, 2007).
Clearly, a producer organisation can add value to cooperation between producers and
business actors and provide benefits for both parties. However, in practice this is not always
the case. What is going wrong?
First, market oriented producer organisations are not equally accessible to all producers.
Membership of an organisation involves costs, e.g. fees and time. Moreover, producers need
to produce a surplus of produce and should be able to comply with the quality and quantity
requirements. For many producers these are big challenges. Producers who cannot access a
producer organisation are often obliged to produce for inferior markets. The more stringent
the requirements of the private sector, the more exclusive is the organisation.
A second factor is connected to the perspective of the buyer. The private sector actor who
is seeking collaboration with organised producers is not always aware of the local dynamics.
The logical step is to look for an organisation that is legitimated by national legislation or
that is supported by a donor. Both cases, however, do not guarantee that the organisation
will have sufficient capacity to fulfil its obligations as a business partner. In many developing
countries formal producer organisations are linked to political actors and producers are
suspicious because of past negative experience. Many producers choose to avoid these
formal organisations. To only deal with formal organisations means to exclude many
efficient producers. As a result, the private sector actor might miss an opportunity to work
with efficient producers.
In one way or another, producers are most often already organised. Lack of awareness of
these local dynamics can lead to strategies that are not pro-poor: private sector actors may
opt for vertically coordinated arrangement, like estate farming. In some cases, the private
sector may take steps to organise producers or requests a donor organisation to undertake
this initiative. Organisations founded by external actors often engage in too ambitious
activities and unsustainable business practices (Berdegue, 2001; Hellin et al., 2007). A
new organisation may even be in conflict with existing local organisation structures. Some
societies have clear age hierarchies where decisions taken by the elders are automatically
accepted and put into practice. In this context, an organisational structure with democratic
voting could not function.
13
Deal or No Deal??
The private sector is interested in the output; the small scale producer is interested in
improved market access. Organising producers bridges these two symbiotic needs, but it
“The message of
is not a matter of simply being “organised” –- how
producers are organised is essential!
This booklet will highlight the role of producer this booklet is: open
organisations in value chains and the. increasing
need for cooperation within these value chains.
your business eyes to
What follows next, is a brief explanation of the
‘Value Chains’ and ‘Contracts’ concepts.
innovative producer-
1.1 Value chains
business linkages!”
Agricultural marketing systems have changed a lot since the 1980’s. Market liberalisation
and integration, together with changing consumer demands and flourishing information
technology, had a substantial impact on the structure of agricultural and food markets
all over the globe. As markets became more integrated also the structure and governance
of supply chains changed. Chain actors became part of closed supply chains. The concept
´value chain´ was introduced. A value chain is ‘the full range of activities required to bring
a product or service from conception through the intermediate phases of production to
deliverance to consumers and final disposal after use’ (Kaplinsky, 2000). A value chain is
a supply chain in which the different parties are vertically allied or form a network. Each
chain actor is independent but the different actors work together to reach common goals
and share risks and benefits (Hobbs et al., 2000).
A value chain is not a closed system; it is influenced by policies, social structures and
environment (Altenburg, 2007). Each economic actor in the value chain is located in its own
specific context, bound to this location by fixed production assets as well as by less tangible
assets, e.g. social relationships and cultural practices (Coe et al., 2004; 2008).
The producer organisations outlined here are part of pro-poor value chains. Value chains
are pro-poor only when the economic benefit for producers is higher than if they were
not participating in the chain. Higher profits can be obtained through vertical integration,
i.e. producers taking on additional activities in the value chain (like processing, grading
and packaging) and horizontal integration, i.e. producers becoming involved in chain
management (KIT, 2006).
1.2 Contracts
The more the activities of different actors within a chain are alienated the more coordination
is needed. Agreements between different chain actors are often sealed through a contract.
Contracts in agriculture are agreements between a producer and a buyer on the production
and supply of agricultural produce, often at predetermined prices (Shepherd & Eaton, 2001).
Contracts are used to solidify partnership on different levels: between a cooperative and its
producers, between a cooperative and a company but also directly between a company and
an individual producer. A contract is used to coordinate both parties and to enforce the
parties’ compliance to the terms of the agreement.
14
A contract stipulates the agreed upon quality and quantity, at what time and place it
should be delivered, and the reimbursements. Through a contract, the parties seek to
mitigate market weaknesses regarding credit, insurance, scarcity of production inputs and
information exchange (Key and Runsten, 1999). Some contracts only specify price, quality
and quantity; others also include agreements on input provisions or credit. In the strictest
type of contract, the buyer supplies all inputs and manages the production process, while the
producer primarily functions as an agricultural labourer.
Many contracts are informal and it is only worthwhile to invest in a contractual arrangement
if the benefits outweigh the costs. When is it best to utilise contracts?
As they are a form of legal enforcement, they are best suited when there is a need to
coordinate and enforce transactions. For example, when a buyer requires produce that
satifies a particular quality standard or when the produce is perishable and needs efficient
coordination with regard to harvest and delivery. The level of required coordination and
motivation is not only dictated by type of produce, it also depends on the market. Quality
sensitive markets often require more formal control (Bijman, 2008).
Although contracts aim to support transactions, they can be disadvantageous to one of the
contracting parties. Sometimes buyers manipulate quotas or quality specifications. Producers
who rely on buyer provided advances risk indebtedness. Yields of newly introduced crops can
be disappointing, or the new crop technology may be unsuitable in the local context. Also
the buyer can face misfortune, examples are land availability constraints, social and cultural
constraints, producer discontent, side selling and input diversion (Key and Runsten, 1999;
Shepherd and Eaton, 2001).
Contract farming does have primarily positive effects on the producers’ income (Bijman,
2008). Its impact on rural development, however, depends on the type of producers included
(Key and Runsten, 1999). Some buyers prefer to contract large-scale growers, as financial
constraints do not hamper them from making investments and in general they need less
technical assistance than small-scale producers. In other cases, working with small scale
producers can provide cost reducing advantages, for example with labour intensive crops.
Some buyers prefer to contract a mix of producers to prevent becoming dependent on a few
large suppliers (Swinnen and Maertens, 2007). In the and of this chapter Miet Maertens and
Jo Swinnen reflect on the world of contract farming in high value food chains. Jos Bijman will
tell us about the role of producer organisations in contract farming.
This publication is seeks to guide the reader through the diverse world of producer
organisation schemes and, in turn, to provide insights and stimulate reflection on the different
arrangements being used to connect the private sector and the small scale producer. Chapter
two describes the archetypical producer organisation and its (dis)advantages in business
arrangements. Chapter three reflects on chain characteristics and chain-context factors
that influence the organisation efforts of producers. Chapter four explains how to analyse
the business capacity of a producer organisation. Chapter five finalises with a discussion on
the trade-offs of different strategies aimed at achieving positive impact on the small scale
producer. Each chapter will also provide insight from experts who have extensive experience
in researching and working in the field, and are thus able to provide firsthand knowledge
regarding the different producer organisation models and their impact.
15
Miet Maertens - professor Agricultural- and Development economics
at the section Agricultural and food economics of the University of
Leuven.
Vertical coordination in high-value

food chains
What are the current developments regarding supply chains?
During the past decades the global food system changed dramatically: increased trade in high-
value food products, increased exports from developing countries, increased consolidation
and dominance of large multinational food companies, and increased proliferation of public
and private food standards. As a consequence, global food trade is increasingly organised
around vertically coordinated supply chains rather than around spot market transactions.
This is most apparent in contract-farming between agro-industrial firms and local primary
producers. In the most extreme case primary production is completely vertically integrated
in upstream processing and trading activities.
Are high-value export chains exclusive to small scale producers?

This has created concerns that smallholder agricultural producers, especially the poorest
ones, are excluded from high-value export supply chains. Often companies enter contracts
with large and capitalised producers who are better able to comply with stringent standards
and to make the necessary investments. Sometimes companies shift to complete ownership
integration and operate large-scale estates. An additional concern is that these smallholder
producers are exploited in contract-farming schemes with large, often multinational, food
trading and processing companies due to the disparity in bargaining power in the chains.
However, empirical evidence shows that in general more smallholder producers are involved
in contract-farming in these high-value export chains than would be expected based on
the arguments above. Food companies often have no choice but to source from small
producers because they constitute the majority of the supply base and due to the limited
availability of agricultural land that can be used for integrated estate production Food
companies may also choose to source from smallholders –- and to provide the necessary
inputs, credit, technical and managerial advise to the constrained smallholders as part of
contract-farming arrangements –- for various additional reasons: to reduce the dependency
on a small number of larger buyers, it is easier to enforce contracts with smallholders, or the
higher productivity on small farms. In addition, most empirical evidence shows that farmers
involved in high-value contract-farming schemes benefit in terms of improved productivity,
improved access to inputs and credit, improved access to technology, and ultimately higher
farm incomes.
What is the impact of increasing vertical coordination on small scale

producers?
Even if smallholders are not included in contract-farming schemes and high-value export
production is realised (partially) on large vertically integrated estate farms, there are
important benefits for rural households, mainly through labour markets. The employment
opportunities created in these agro-industries –- on the estate fields as well as in processing
plants –- are especially attractive for the poorest households and for women. It has been
shown that the wages earned in these industries can make an important direct contribution
to household income, increase the bargaining power of women in the household budget,
and can lead to investment spillover effects on household farm activities.
16
Jo Swinnen - professor of Development Economics and Director of
the LICOS-Centre for Institutions and Economic Performance at the
University of Leuven.
In summary, empirical evidence points to the important poverty-reducing effects of high-

value export development and high levels of vertical coordination. These effects come
in part through product markets but the effects of employment and labour markets are
important, particularly for the poorest rural households. This implies that strategies to
improve the welfare effects of high-value trade need to include strategies that create
inclusive food supply chains (ones that do not completely exclude smallholders) as well as
strategies for the development and improved performance of rural labour markets. Finally,
the separation is not always that strict. Agro-industrial and smallholder are not always
mutually exclusive; there are many cases where the two models are combined.
17
Jos Bijman - assistant professor in management and organisation at
Wageningen University.
Contract farming and producer

organisations: a natural
combination?
Contract farming arrangements are increasing in number and scope in developing countries.
The rise of supermarkets leads to higher demand for large quantities of uniform products.
As supermarkets often require quality assurance systems, their suppliers increasingly
source from producers who can deliver large quantities of uniform and guaranteed quality.
Contract farming arrangements are used to safeguard these supplies.
What products are often found in contract farming arrangements?

We can distinguish three groups of typical contract farming products: (1) high-value
products for which consumers (or companies) are willing to pay a premium, but in return
demand a guaranteed quality of the product; (2) highly perishable products, which require
farmers and companies to coordinate the timing of harvest and delivery; (3) products with
technically difficult production that need companies to provide technical assistance and
specialised inputs to the farmer. Typical products in contract farming schemes are fruits
and vegetables, organic products, spices, flowers, tea, tobacco, and seed crops. In animal
production contract farming is common for dairy, because of the high perishability of
milk, and for poultry, because of the specialised inputs and technical assistance required. A
growth in the consumption of these types of products also implies a growth in the use of
contract farming arrangements.
Can smallholders fit in contract farming schemes?

For the purchasing company, making contracts with smallholders entails high transaction
costs. Smallholders are geographically dispersed; they have different levels of competence
leading to differences in product quality; and they produce small quantities. Companies
prefer to do business with larger farmers, particularly when they are supplying supermarkets.
Also when the contract deals with specialty products, like organics, monitoring compliance
by a plethora of individual producers leads to high transaction costs. Still, smallholders can
be attractive for companies. First, crop failure of one or two farmers has a small effect on
the overall supply. Second, smallholders can more quickly respond to changes in consumer
preferences. Third, as smallholders mainly use family labour they can better ensure quality,
as demanded by the company. Fourth, smallholders have fewer alternatives, so they are
more likely to stick to the contract.
What is the role of producer organisations in contract farming

arrangements?
Producer organisations can play an important role in reducing transaction costs. By dealing
with a producer organisation, the company does not have to do business with a large
number of farmers. Producer organisations may support contract farming by arranging
or channelling the technical assistance needed to help producers increase product quality
and uniformity. Existing producer organisations can make use of existing social capital,
which supports low cost information exchanges and social mechanisms that prevent non-
compliance. Finally, producer organisations can improve the power balance between
producers and companies, thereby strengthening the incentives for both parties to continue
with bilateral contracts.
18
Does contract farming lead to inclusive or exclusive producer organisations?
Given the importance of quality assurance in contract farming schemes, not all small scale
producers will be able to participate. This poses a challenge for producer organisations, as
their membership is comprised of producers with varying abilities to comply with higher
quality requirements. Also the democratic decision-making structure may pose obstacles to
quality improvements. Two types of solutions can be found. The first is the establishment
of a new producer organisation by those producers who are able and willing to supply the
higher quality produce. The second is the development of different product pools within the
producer organisation that would target different markets.
19
NAAM
20
2.
A journey through
a world of producer
organisations
The Archetypes
A journey through the world

2 The Archetypes
All producer organisations have some shared characteristics: they are rooted in rural areas,
they are member-based organisations, they have a democratic structure that allows members
to control the operation of their organisation (Bijman, 2007; Wennink et al., 2007), and they
have an economic function (when functioning as a part of a value chain).
Producer organisations are based on the principle that acting collectively improves the
position of the individual producer. Conditions for successful and sustainable collective
action are multiple and complex, under the strong influence of socio-economic and politico-
cultural contexts (WDR, 2008).
Before studying the conditions that support successful collective action one needs to
explore the diversity in producer organisations. This journey will demonstrate how
business oriented collective action is expressed in different organisational forms. The
advantages and disadvantages of different types of organisations will become clear: we
will visit cooperatives, associations, registered groups, informal organisations and network
organisations (outgrower schemes and trader networks).
2.1 Cooperatives
One of the best known type of producer organisation is the cooperative, an ‘autonomous
association of persons united voluntarily to meet their common economic, social and cultural
needs and aspirations through a jointly owned and democratically-controlled enterprise’ (ICA
2010). Although modified to adjust to different legal and local circumstances all cooperatives
are built on generic principles (Williams, 2007).
The traditional cooperative

A cooperative is characterised by three principles: user benefit, user control and user
ownership (Barton, 1989). The purpose of a cooperative is to provide services to its members
with regard to inputs, outputs and marketing. Cooperatives have an open membership and
are democratic whereby each member has one vote. As members do pay contribution they
also own the cooperative (van Dijk and Klep, 2005). Economic benefits are distributed
according to the members’ level of economic activity in the cooperative not according to
his capital equity (IFAD, 2007). Traditional cooperatives are producer oriented and work on
securing outlets for the producers produce, without taking much stock of market demand.
Cooperatives have two or three levels. The primary level is the members who exercise
decision-making power on profits and major issues. The secondary level is composed of the
leaders who represent the members; they are the board of directors. The board of directors
establishes policy and oversees business affairs. In case a cooperative is very big or when the
board of directors lacks business and management skills, professional managers can be hired,
which adds a tertiary level. In this case, the board of directors is not involved in the day-to-
day operations, they only supervise the management. The risk of hiring external managers
is that the personal interests of the manager may diverge from the interests and needs of
the members.
22

of producer organisations
Many traditional cooperatives have difficulties in raising investment capital. As members

have equal ownership and voting rights, there is little motivation to invest in the cooperative.
Furthermore, cooperatives establish a lot of rules and regulations which can make them
inflexible (Oxfam, 2007).
Cooperative structures in change

To survive in this globalising world with changing consumer behaviour, technological
development and increasing chain integration cooperatives have to pursue competitive
strategies. Many cooperatives have shifted from working based on their produce supply
towards catering to market demand. To be able to respond to market demand, for example
by adding value to produce, a cooperative needs to be flexible. Often, the need for capital
exceeds the capacity of the members. Organisational innovations are applied to adapt to
the changing circumstances and attract more capital. In developed countries cooperatives
are evolving into new organisational models. There is great diversity in models due to
differences in market structure, policy and culture.
The crucial aspect of these new cooperative models is the increasing distance between
the cooperative management and its members. Management has become more complex
and thus confusing for members. Also, with the expansion of a cooperative it is impossible
for management to be in personal contact with all the members. There is a risk that
diverging interests may emerge. As size or complexity increase, the relationship between
the board of directors and the management changes. To be able to immediately respond to
changing market demand management might require more decision-making power. When
cooperatives become more complex, questions are raised whether the producers have the
capacity to function as members of the board of directors and to oversee the management.
Regarding ‘ownership rights’ the new cooperatives can be grouped in five models (Cook and
Chaddad, 2004). The first model is the proportional investment cooperative model members
contribute equity capital in proportion to their use of the cooperatives services (How often do
they use the storage facilities or the processing machines? How many kilograms do they sell
to the cooperative?). Ownership of the cooperative is restricted to the members. Members
cannot transfer their ownership and the share they own cannot increase or decrease in value.
The second cooperative model is the member-investor cooperative. In this model ownership
again is restricted to members only, but they receive returns, either dividends in proportion
of shares or appreciable shares. A very popular model in agriculture is the third model, the
new generation cooperative, where members have to purchase delivery rights. These rights
assure producers of an outlet and the cooperative of a stable supply of its primary input.
Delivery rights are tradable and can fluctuate in value. New cooperative members are only
allowed to join when members sell their rights or when the cooperative expands.
23

These are examples of models that maintain the user-ownership structure of the traditional
cooperative. There are also cooperatives that apply a more complex structure, that provide
ownership to non-members and attract external capital. These cooperatives, presented
below as the fourth and fifth model, combine features of traditional cooperatives and private
companies (Oxfam, 2007; Bijman and Bekkum, 2006).
The fourth cooperative model acquires outside equity capital by establishing a separate
legal entity. The external capital does not enter the cooperative directly; it flows into a legal
entity affiliated to the cooperative that later channels the capital into the cooperative. The
members keep ownership of the cooperative. The separate legal entities exist in the form
of subsidiaries, strategic alliances or trust companies. In the fifth model, the investor-share
cooperative, external capital does enter the cooperative. External investors have status of
direct owner, but the cooperative issues different classes of shares to different owner groups
and most often the producers hold the majority of the shares and therefore the ownership
of the cooperative. The risk of having outside investors is that they may have diverging
interests with the producers.
Some cooperatives convert from a cooperative into an investor owned company, thus
changing the ownership structure from a member owned/controlled organisation into a
proprietary organisation with shareholders.
Changing the structure of a cooperative is a difficult process, especially when the cooperative
has a very heterogeneous membership. The size of the individual firms and the attitude of
individual members towards taking risks differ, which brings different preferences regarding
the structure of the cooperative and its the market choices (Kalogeras et al., 2009).
Unlike the independent producer controlled and financed organisations in developed

countries, cooperatives in developing countries were mostly created by governments,
through state-led input distribution and output marketing systems (IFAD, 2007). Producers
were forced to become members and were required to sell their produce through the
cooperative marketing organisation (Ton and Bijman, 2008). Currently, because of negative
past experiences with these arrangements, many producers in these countries are suspicious
of cooperatives (Oxfam, 2007).
In the interview at the end of this chapter professor van Dijk will reflect on the preconditions
and development path of cooperatives.
24

25

2.2 Associations
An association is an organisation that joins individuals who have a shared interest, activity,
or purpose. Contrary to a cooperative, an association is a flexible form of organisation.
Members decide on the structure and the rules of the organisation.
Associations that engage in marketing are often referred to as bargaining associations.

Whereas cooperatives are vertically integrated in the value chain, for example by processing
or marketing produce, bargaining associations enhance the economic benefit for the small
scale producers by horizontal integration, i.e. collectively selling the members’ produce
(Bijman & Wollni, 2008). Some bargaining associations also engage in processing or retailing,
but in general a bargaining association does not take ownership of the final product (Bijman,
2002).
Bargaining associations are most often seen in situations where a number of producers grow
the same crop and sell their produce to the same buyer. Mostly these are crops for which
spot market activity is little compared to trading by contract (Hueth and Marcoul, 2006).
Bargaining associations play an important role by regulating the terms of the contract
between growers and handlers. They lobby on behalf of the producers regarding prices,
quantities, qualities and delivery conditions (Iskow and Sexton, 1992).
A disadvantage of associations is that in many countries they are not permitted to distribute
business profits to members or to generate profit at all. The members are personally liable
for the debts of their association. It is difficult for an association to access capital. Some
associations resolve this problem by setting up a separate trading company that can donate
its profits to the association. Generally speaking, an association is poorly suited to act as a
full-fledged producer organisation in business collaborations (IFAD, 2007).
2.3 Registered producer groups

Many developing countries apply legislation that facilitates small groups of producers in
registering and engaging in business activities. Sometimes these registered producer groups
are an intermediate form that can later develop into an association or cooperative. In other
cases they remain in operation as a group but are required to ally with apex organisations
that are able to support them gaining access to markets. Often the law specifies a maximum
size. Registered producer groups are able to access credit.
26

2.4 Informal producer organisations

Informal producer organisations are all producer organisations that are not formally
registered. Most producer organisations start informally and only register when the
perceived benefits of formal registration are higher than the associated costs (Oxfam, 2007).
Registration is often expensive and in some cases the forms legally permitted do not suit the
needs of the small scale producers.
What are the characteristics of an informal organisation? A grouping of individuals who

interact based on shared norms and values and who aim to achieve specific joint objectives
constitutes an informal organisation. The boundaries of the organisation are not formalised,
but members do share a sense of belonging which makes it possible to distinguish between
them and non-members. The more this sense of ‘belonging to an organisation’ intensified,
the the more the members interact with each other and collaborate. Sometimes informal
organisations can be very exclusive.
An informal organisation is more flexible than a formal organisation as it is not bound by

additional legally prescribed policies and rules. In an informal organisation, the members
themselves develop the internal structure. In practice, however, informal organisations
are not always that flexible and are often resistant to change because they are bound by
customs, conventions and culture (e.g. it can be difficult for youngsters to express their
talents, also traditional structures often include strong leadership).
An informal organisation has some shortcomings as a potential business partner. The

organisation cannot sign contacts; contracts have to be signed with individual members.
Also, it is difficult to access credit (Ton and Bijman, 2008). Informal organisations are suitable
in markets that do not require credit or contracts. An example is a group of bean growers
that transports and sells collectively to a local selling point. One of the members organises
the transport, all of them contribute to covering the costs and afterwards profits are divided.
A formal organisation is recognised and sanctioned under law. In a producer organisation

in the value chain, the formal status assures that the business the members share is legally
safeguarded. The organisation has access to credit and is allowed to trade. Membership in
an informal organisation is risky in the sense that the liability of the organisation and its
members is unclear, e.g. members are left unprotected in case of fraud.
There is an increasing tendency towards ‘formalisation’; groups are supported by private and
public actors to register and become legal. But formalising does not only mean ‘acquiring a
formal label’; it structurally alters the internal organisation, replacing or changing informal
relations and decision-making structures by establishing formal rules and regulations.
Formalisation often opens doors to public and private services. Nevertheless formalisation
has its trade-off, as some members drop out after the formalisation process. Either because
they do not comply with the requirements of the formal organisation or because they do
not perceive potential benefits. In the following interview Mark Lundy reflects on the
importance of informal organisations.
27

2.5 Network organisations

By ‘network organisation’ we refer to groups of organised producers that do not fit our
definition of producer organisation. They do not have membership and a democratic
structure, but the individual producers do share a common interest. Network organisations
have loose boundaries, even looser than informal organisations, and are not registered.
What exactly constitutes a network organisation? A network organisation is any type of
organisation of producers that improves their position within a value chain by supporting
their individual farms. Network organisations exist in a context in which producers have
individual contracts with the same buyer.
One example is an extension group. Extension groups are informal groups of producers that
produce the same crop in the same geographic area and that join to share labour, exchange
information or receive extension services. Some of these extension groups are linked with
contracts to a local trader, others to a company in an outgrower scheme.
2.5.1 Outgrower schemes

An outgrower scheme is an arrangement in which a company contracts an individual
producer to grow a crop. Sometimes companies initiate outgrower schemes in order to
obtain a supply of new crops that cannot be obtained on the spot market. Sometimes crops
are present but the company uses an outgrower scheme to be ensured of a reliable constant
supply or a certain level of quality.
Outgrower schemes provide numerous advantages to companies. An outgrower scheme

makes large scale production possible, without having to invest in land and infrastructure.
It ensures the supply of quality raw material and the traceability of produce. Instead of
focussing on production, the company can focus on processing and marketing. It enhances
the positive public image of the company by demonstrating producer engagement and
participation.
For producers an outgrower scheme provides the advantage of an ensured outlet for produce.
The payment procedures are in general more transparent compared to selling on the spot
market. Often companies provide inputs, assistance and knowledge. However, there are also
risks involved. The company may incorrectly assess the market, and, if it is unable to sell
the produce, it may also be unable to pay the producers. Another risk is that new crops can
disrupt traditional farming system (Eaton & Shepherd, 2001).
Certain contextual conditions are favourable to outgrower schemes, for example

geographically concentrated producers who are relatively far from a market, or buyers who
demand higher standards in a context were existing standards are inadequate.
28

An outgrower operation involves a start-up investment and requires a long-term vision to

achieve positive returns; it takes at least a few years to achieve economies of scale before
costs begin to decrease. As an outgrower operation does not reduce supply costs, this
should not be the starting point (Action in Enterprise, 2009). In some contexts, outgrower
operations face difficulties in accessing finance services.
One of the major risks of investing in an outgrowing operation is side selling. In a competitive
market producers might be inclined to sell their produce to other buyers. Also, the crop
yields can fall short of expectations if producers do not use the inputs or advice provided
by the company (Eaton & Shepherd, 2001). Applying an outgrower scheme to different
geographical regions helps spread out weather related risks.
A weakness of an outgrower scheme is its inflexibility; the relationship between the company
and the small scale producer is based on one single commodity (IFAD, 2007).
2.5.2 Local trader

Many companies do not trade directly with producers or producer organisations; instead
they work directly with intermediate traders or processors. These traders buy produce at
spot markets or directly from producers. In many cases traders have a strong network of
suppliers (KIT, 2008).
In general, traders and producers work with informal contracts that are self-enforcing. How
can contracts be self-enforcing? There is a mutual interdependency between both parties,
they rely on each other for their income. Also, expected benefits from future cooperative
behaviour keep promises in place. Contracting partners are careful to safeguard their
reputation as trustworthy reliable partners. Sometimes producers or traders do not break
contracts because of the existing values, norms and customs within their community. The
relationship intensifies with increased contact: the more the producer and the trader interact
the better they are able to assess each other’s strengths and weaknesses (Bijman and Wollni,
2008).
In some case, the trader can benefit from producer organisation, for example by enjoying
reduced transaction costs, secured through collective transport arrangements. Traders
support these organisation efforts by providing group credits or establishing a collection
infrastructure.
29
Gert van Dijk - professor of Entrepreneurship at Nyenrode
University and director of the Netherlands Institute of Cooperative
Entrepreneurship at the Business School of the University of
Tilburg. He holds a chair in theory and practice of cooperation at
Wageningen University.
The evolution of cooperatives
What are the preconditions for a prosperous cooperative?

The first requirement for a cooperative is that it should bring direct and notable advantage.
A cooperative should facilitate producers to compete with each other on quality instead
of price. For example, one strategy is to establish two different quality grades: producers
who supply high quality should be rewarded. When there is no performance incentive,
members will approach the cooperative as an entity giving them a right to sell instead of it
functioning as an enterprise that belongs to them and that they should manage in response
to market demand. Voluntary membership is another requirement; without it producers
can again fall victim to opportunism. Well known examples of organisations that impose
membership are the state cooperatives for export crops in Africa; these should not be called
cooperatives.
To be successful a cooperative should provide room for entrepreneurship. A cooperative

is not a public service and it requires entrepreneurs who can guarantee the survival of
the enterprise in a market context. Another prerequisite for success is good governance
and control. Members can outsource both functions, but it is important that governance
and control are always within their reach. A cooperative cannot survive without the
commitment of its members.
Shielding members from liability is a risk for the cooperative type of organisation: whenever
the cooperative faces into problems, its members are not liable. This problem can be
alleviated by requiring members to invest in the cooperative or by allowing the cooperative
to use its reserves. Why is some level of liability necessary? This is necessary in order to
attract external stakeholders, e.g. banks, and to stimulate member commitment.
Is there a blueprint for the cooperative

model? “During all my
No. Formats of organisations that are functioning
in the west are often implemented in completely
travels I have
different contexts. Staff is hired to run this western
type of organisation. Working within a cooperative
not seen two
should be seen as an opportunity to develop one’s
capacities; however, it is often the case that hired
cooperatives alike”
outside staff sees the job as a right to salary, not as an enterprise that is his/hers and that
offers opportunities. During all my travels I have not seen two cooperatives alike. The
cooperative format is always contextualised and the most creative solutions are used to
make a cooperative possible.
30
Do cooperatives develop according to a pattern?
There is no empirical evidence yet, but a general pattern of development can be sketched.
There are three aspects of cooperatives that determine development: commitment, relevance
and governance. In general, cooperatives start small as a response to opportunistic market
behaviour. In the first stage commitment is very high; the members believe that together
they can reach markets that they cannot reach alone. Relevance is high and members are
eager to control the management of organisation. In a second stage, when the cooperative
has existed for several years, the relevance is less visible; new members do not have such a
strong solidarity feeling, and the interest to exert control over the management decreases.
In a third stage member commitment further decreases. Control and management are
outsourced and professionalized. Successful cooperatives use a ‘voice-mechanism’ to ensure
commitment. Members are given member benefits and as a reciprocal act are asked not
to exit without giving notice and explaining the reasons for exiting to the cooperative.
Reciprocity between a cooperative and its members is key. When there is reciprocity the
members are committed and the cooperative has a clear view on its expected results.
Concerning membership, should it be homogenous or heterogeneous?

Regarding type of individual businesses of the members -- homogeneous. A cooperative with
livestock producers who look for low grain prices should not also have members who are
grain producers looking for high prices. Regarding the size of the individual businesses of
the members: heterogeneous. A strong organisation facilitates for a mix of small and big
producers to take advantage of the same cooperative. The big producers are necessary to
keep total cost costs low in order to access markets and exert countervailing power. The
challenge for cooperatives is to keep these bigger producers. Studies have shown that the
costs of membership are higher for bigger producers than they are for smaller producers.
In many cooperatives the principle of ‘the one who makes the costs bears the costs’ does
not work very well. This is the reason why many cooperatives in Latin America fail: big
producers prefer to work independently and therefore cooperatives mainly consist of small
scale producers who, even together, are not powerful enough.
So why is the Netherlands a country of cooperatives? My hypothesis is that this is a
consequence of the Dutch compartmentalisation in the past. A catholic big farmer felt a
stronger bond and solidarity with a catholic small scale producer than with a protestant big
farmer.
31
Mark Lundy - Researcher at the International Center for Tropical
Agriculture (CIAT) in Colombia.
Informal producer organisations
When is it suitable for small scale producers to organise?

Organising only makes sense when the costs are lower than the benefits. The benefits of
organising might include lower costs of inputs, access to more profitable markets or access
to donor or government support. Without a reasonable benefit, it makes little sense to
promote producer organisations. With regard to producer organisations, there is excessive
focus on formal organisations. The focus seems to be on organising farmers; however,
regarding market access farmers are already organised, either around a trader or another
type of leader.
How can a buyer procure from an informal network?

This is what currently happens: companies contact traders and these traders activate their
network or their lead farmers. There is a big gap in knowledge regarding informal networks.
We don’t know the costs and benefits of such informal type of organisations so it makes it
impossible to compare them with formal organisations. I argue that it is not necessary to
have a formal organisation to be able to get high-quality products. Informal networks often
cost less and are able to meet precise quality and food safety standards. Formal models
supported by donor funds tend to become much more complicated than necessary and can
lead to inefficient use of resources. Many formal organisations do not provide sustainability
or profitability. There should be a cost-benefit model to measure and decide how you want
to organise the procurement from small scale producers.
An example is Hortifruti, the fruit and vegetable branch of Wal-Mart in Honduras. Hortifruti
informed traders of its requirements and traders supplied it with quality products. By
increasing their demand Hortifruti provided incentives to build supplier networks around
these traders, and they responded by involving their neighbours as producers and teaching
them how to meet Hortifruti standards. No donor organisation was involved. Initial
assessments showed substantially lower costs for the incorporation of new farmers under
this model, versus NGO managed formal association models.
The limitation of this informal model is that the poorest might not be reached. Formal
organisations are likely to be more socially inclusive. There is a big gap of knowledge
regarding the differences between informal and formal organisations regarding impact.
How can a formal organisation be less expensive? And how can an informal organisation be
more transparent and socially inclusive?
“An organization is
Can an organisation be a temporary entity?
We should be more realistic. It is natural that an
organisation is born, maturates, and dies. The
organisation is not the objective, but rather a means not an objective but
to support the improvement of the livelihood of
small scale producers. The focus should not be on the rather a means “
survival of the organisation, but rather on enhancing the capacity of its members.
32
What model do you propose?
Currently we are working on ‘social intermediaries’. The idea of social intermediaries can
be visualised in a Venn diagram with three angles/inputs: (1) The capable farmer who is
able to comply with the requirements, (2) the buyer who is willing to buy from small scale
producers, and (3) a favourable donor and policy environment. The social intermediary
can be any arrangement: a cooperative as well as a corporation. The output of the social
intermediary is sustainable development impact for the community as well as a profitable
sustainable business that is able to reach the market. There is a lack of knowledge on how
to structure an organisation (social intermediary) so that both impacts are guaranteed.
How do you foresee working with small scale producers in the future?
The emerging issue is: how much of this social intermediary concept can be incorporated
“Besides preferred
into powerful businesses? What incentives does
a company like Cargill or Bungee need to include
suppliers the
social intermediaries in its business model? I argue
that social intermediaries will become more and
more important. Having a sustainable impact is
no longer only a Corporate Social Responsibility future will witness
marketing ploy. Instead, it will be necessary for
surviving as a business and for securing high preferred buyers“
quality products. No longer will we talk only of preferred suppliers; the future will also
witness the emergence of the preferred buyers.
33
Hans Overgoor - retired, experienced manager in the food industry.
He is a board member of DO-IT
Sustainable relations within

organic chains
DO-IT is a Dutch company. DO-IT has a leading position in importing and exporting organic
food ingredients and consumer goods. The company believes it can contribute to a sustainable
world through organic farming and trading in organic commodities and consumer brands.
DO-IT aims at quality certified organic products, premium quality for the farmer’s life and
preservation of the earth for future generations.
How does DO-IT identify its suppliers?

DO-IT first decides which product it wants to put on the market. Subsequently, the company
investigates where the produce is grown and which actors are active in the sector. The world
of organic production is small and connections are easily made. In some cases the producers
are the first contact, while the industry for further processing of the produce is selected at a
later time. Often, however, the first contact is established with a domestic company, trader
or processor who buys or is able to buy the produce directly from small scale producers. The
company identifies a district that can provide potential farmers or farmer groups, favourable
policies and good infrastructure. DO-IT and the domestic company always work in close
collaboration with local governments. First, the village is informed of the plans and the
village leaders play a role in organising the producers. DO-IT presents its ideas and shows
the producers examples of the final products derived from their produce (e.g. showing grain
producers a finished loaf of bread).
What relation does DO-IT have with the small scale farmers?
DO-IT tries to be as close to the small scale producer as possible. However, many products
require further processing and, consequently, the processor is the closest contact.
Contracts differ per crop and per situation. Most contracts last for one year, but organic
farming is a long-term commitment. It takes 3 years to become a full-fledged organic farmer
and therefore long term relationships are preferred. Because there is mutual dependency
DO-IT places high importance on securing trustworthy partners. DO-IT never requires
producers to grow more then 2 cash crops; this assures that producers don’t produce more
then 1/3 for export. DO-IT also supports the community through concrete projects (e.g.
donating sewing machines etc.)
There is little competition in the organic market and in general the conventional market pays
less, so there is little risk of side-selling.
34
Poppe Braam - owner of a leading trading company in organic food
ingredients and consumer goods.
How are producers selected and what about exclusion?

Farmers are selected based on the opinion of agronomists. These agronomists investigate
the farmers’ environment; producers who operate in areas with pollution or near GMO-crops
cannot be selected. There is no formal selection on grounds of socio-economic status, but
there is always a self-selection mechanism based on existing social relations, farmers who
invite neighbours or kin to join the group.
However, for most organic crops it is important to secure the commitment and participation
of an entire area in the project, it does not make sense to have neighbouring plots engaged in
conventional farming. DO-IT requires producers to be certified as organic. DO-IT prefers the
Eco-social certification, which is a contextualised certification system: it is adapted to local
circumstances and the label does not have a centralised office that would dispense certifying
agents to the field to conduct audits.
35
Deal or No Deal??
1 Introduction
Why would producers and private sector actors make use of a producer organization for
doing business? For the private sector reduced transaction costs are a good argument;
instead of buying from or selling to many individual producers it only has to deal with
one organization. From the perspective of the producers increased scale is an advantage:
joint marketing activities bring down the costs for individual producers. Cooperation also
increases bargaining power, stimulates solidarity and supports producers to take risk.
Both the private sector and the individual small scale producer can benefit from
coordinating marketing through a producer organization. Reality however shows many
sub-optimal arrangements. This leads to disappointment and the search for alternatives by
both parties. Examples are private sector actors that choose for more vertically coordinated
arrangements, like estate farming or outgrower schemes. Or small scale producers that
return to inferior markets because they cannot comply with the quality required by the
arrangement. What is the cause of failing arrangements between the private sector and
producer organisations?
The private sector looks for reliable business partners that are able to deliver products in
required volumes, at a good price, on schedule, and that meet quality standards. Private
sector actors define their expectations and performance indicators before cooperating with
producers. The private sector is not so much interested in how producers are organized, it
is interested in the final performance. When looking for business partners in developing
countries it tends to look for organisational forms that are known and functioning in the
west. An example is the cooperative. Often also producer organisations that are supported
by NGO’s are chosen. Both characteristics do not guarantee the capacity of such an
organisation as a business partner.
The belief that linking small scale producers to markets is a pro-poor strategy for
agricultural development has supported producer organisations to engage in marketing.
Some producer organisations are set up with a marketing purpose. Other producer
organisations were set up with different purposes and start to engage in marketing
in a later stage. Marketing entails some challenges. First there is a risk that producer
organizations engage in too ambitious activities or scale up too rapid (Hellin et al.
2006). Second, producer organisations starting in marketing often lack capacity in
management, lobbying and negotiation. Third, existing producer organizations often
have a heterogeneous membership which makes it difficult to govern business. And finally
although doing business through a producer organisation reduces transaction cost for the
private sector, it increases internal costs for the organisation (collecting produce, paying
members, distributing inputs, transferring knowledge and information).
36
3.
Conditions for organising
Factors of influence
3 Factors of influence
This short journey in the world of producer organisations clearly illustrated the great
variety and the unique business advantages and disadvantages of the different models of
organisation. None of the models is ideal, and it is heavily dependent on the context, product
and chain specifics of each unique case.
Let us start examining the issue in greater depth by focusing on the first factor: What
conditions in the environment of both the producer and buyer define and shape the
organisation of producers?
3.1 Enabling environment

An enabling environment is crucial for successful business collaboration. When selecting
the sourcing location, the private sector actor is guided by several selection criteria: natural
resources (Where is it best to grow sunflowers and where vanilla? What are the climate
risks?); infrastructure and technology (How are the roads? Is there consistent electricity
supply and good telecommunication links?); the stability of the financial system and the
political climate; the physical environment (How are the producers spatially distributed?
How easily is it to reach them?). Scattered producers are better suited for a network model
of organisation.
The environment consists of formal rules and informal rules that provide incentives or
constraints to organisations. Formal rules are embedded in constitutions, laws, charters,
statutes and codes. These formal rules define which types of organisation can be legalised
and which activities are allowed. By reducing registration costs, some countries stimulate
producer groups to form formal legal bonds and to access markets. But there are also
countries in which only certain types of organisations are allowed to engage in trade. The
coffee sector in Kenya is one example: the cooperative is the only type of organisation that
is permitted to sell coffee beans.
The informal rules refer to other societal aspects that regulate collaborations: the cultural
values, norms and taboos. In some places producers are very reluctant to engage in contract
farming. In the African context, contract farming was experienced by the smallholder
producers as disrupting power relations and increasing tensions within farm households
(Carney and Watts, 1990). In other contexts, collective business approaches have resulted in
negative experiences and producers embrace individual contracts and outgrower schemes.
To summarise, in some cases the preferred type of organisation is largely predetermined

by the producers’ political, social, physical and economic environment. Before supporting
organising schemes, it is necessary to carefully study the context and to be aware of potential
changes!
In addition to the producer’s environment, also the specific characteristics of the product and
the market for this product influence the organisation of producers.
38
3.2 Product and Market
How important is it to consider the type of produce? The answer is: very important! The
type of produce provides a lot of information about the type of organisation that is suitable
and the capacities required from a producer and producer organisation. Does the product
require a post harvest procedure and therefore an organisation with strong management,
e.g. palm oil needs to be refined before storage. Or can it be stored rather easily, e.g. cassava
can be harvested by the individual household and stored for a very long time?
The example of an international potato chip company can illustrate the point. The company
produces its own potato seeds and provides training to producers to guarantee high quality
potatoes. This requires traceable and large scale production, producers who are able to
produce a high quality product, and strong buyer-producer relations to prevent producers
from side-selling. Which type of organisation model does this imply? Regarding the
requirements for scale of production the company can work with a few large-scale producers
or with many small-scale producers. Let us assume that the company opts for many small-
scale producers. As the company provides seeds to the producers and also wants to be able
to trace back the potatoes it chooses for individual contracts, the company does not need
to work with a formal organisation that has a strong organisational structure. However, as
the company provides seeds and training some level of organisation is desirable; leaders are
needed to organise the seed distribution and potato collection and someone should manage
communication and planning with the individual producers. The network organisation
model is best suited for this type of production.
A general distinction can be made between the following crop types:
- Staple crops: Commodities that are a basic dietary item in a specific region, examples include
cassava, rice and cereals. Most small scale producers produce staple crops foremost for
subsistence. Staple - crops are bulk products that are relatively easy to store and transport.
- Perishable crops: This produce is vulnerable and perishes quickly, such as fruits and
vegetables. They need specific storage and transport.
- Cash crops: These crops require additional processing, such as coffee and cocoa. They can be
also perishable but the difference with so-called perishable crops is that they are not a basic
item in the local diet and often primarily associated with exports.
- Niche crops: They can come from any of the three categories above and are grown with
specific traits for a specialised market, for example organic or Fairtrade products.
39
Different types of crops demand different levels of cooperation and coordination between
producers. Although organising producers of staple crops, does offer some advantages with
bulking, quality control, or accessing storage facilities and inputs, the incremental benefits
from collective marketing are often not sufficient to offset the transactions costs associated
with organising (Berdegué, 2001). An informal network type of organisation might be better
suited. Perishable and potentially high-value products are more likely to offer sufficient
returns that will warrant establishing organisation models (Coulter, 2007; Hellin et al.,
2009).
The specifics of the market are as important as the product in determining the type of
organisation model, because the market sets quality and quantity requirements. Local
markets are the easiest to access but they also offer lower potential gains from organisation.
Markets with higher demands (such as developed country markets and local supermarkets)
offer higher returns but also involve higher transaction costs (Bijman, 2008; Kaganzi et al.,
2009). They are more stringent in terms of quality control, transport and market risks. They
require intensive information exchange and often rely on formal contracts (Narrod et al.,
2009).
The buyers of crops that are produced for a fair trade or organic market often demand of
producers to be organised. These crops require auditing and individual auditing of small scale
producers is too costly; thus, it requires an organisation structure that is able to coordinate
and execute a strict internal control system (Organic business guide, 2010).
Generally speaking, cash crops cater to export markets while niche crops cater to markets
with high demand. Staple and perishable crops can have local, national as well as international
markets and are differentiated according to degree of processing. Naturally, the product-
market relationship is not static. Improving post-harvest methods or storage facilities can
make products appropriate for higher quality demand markets. There are many examples of
producer groups that, often with assistance, shifted from cash crops to organic cash crops.
Clearly, before engaging in discussion on appropriate methods of organisation, the context,

the product type and market characteristics have to be carefully examined. This initial
investigation will most likely already provide several options for organising that would need
to be further scrutinised.
40
41
Paule Moustier - a food market specialist at CIRAD, a French research
centre specializing in tropical agriculture.
How producer organisations

help small farmers in reaching
supermarkets
What is the importance of producer organisations in chains supplying
supermarkets?
To answer this question I would like to refer to recent research in Vietnam. In parallel
with urban and economic development, Vietnamese consumers express growing concerns
regarding quality. Modern trade, including supermarkets and convenience stores, is
estimated to have grown by 20% per year between 2001 and 2006 (it represents less than
10% of total food supply). We have conducted case
studies to investigate whether farmer organisations “The importance of
farmer associations
are able to help small-scale farmers to obtain access
to supermarkets. Four food distribution chains that
is clearly visible in
supply Vietnamese cities were chosen: vegetables
to Hanoi, vegetables to Ho Chi Minh City, litchis
chains supplying
to Hanoi, and flavoured rice to Hanoi. We tracked
the origins of vegetables, litchis and flavoured
supermarkets”
rice retailed by supermarkets in Hanoi and Ho Chi
Minh City and compared them to the situation in
traditional retail markets. The importance of farmer
associations is clearly visible in chains supplying supermarkets. Collectors or wholesale
traders operating in wholesale markets -- the key actors in traditional retail markets -- play a
much more limited role in the supermarket chain. With regard to vegetables, we estimated
that Hanoi supermarkets receive 80 percent of their supplies from five cooperatives located
in two peri-urban districts of fewer than 450 farms and 50 hectares of land. Supermarkets
selling litchis obtain some of their supplies from the Thanh Ha Litchi Farmers’ Association.
Sixteen percent of the supermarket supply of flavoured rice is from a farmer association
that is selling through two companies.
Accessing high-value markets: why organise?

The first advantage of collective action for farmers is the centralisation of marketing
operations. It provides economies of scale in terms of quantities collected, contacts and
negotiations with purchasers, investment in a common operator with adequate skills, the
time devoted to marketing tasks, participation in flexible contracts with supermarkets,
shops and schools. The second advantage of belonging to a farmer organisation is that it
enables the farmer members to have access to training regarding quality improvement. A
third related advantage concerns joint investments by members of farmer organisations
in the areas of quality development, labelling and certification. These investments are
necessary to satisfy the quality requirements placed by supermarkets. For example, the
members of litchi and flavoured rice associations have developed a common production
protocol to ensure stable quality of their products, especially with regard to the appropriate
timing and quantities of fertilizers and pesticides and the choice of seed. Experienced
farmers act as internal inspectors.
42
What is the impact on producers and their organisations from their
participation in supermarket supply chains?
In the case of Vietnam, supplying supermarkets via farmer associations increases farmers’
profits per kilo compared to traditional chains. However, the quantities supplied to
supermarkets remain limited. Changes in farmer organisations are not primarily due to
supplying supermarkets, but rather to public and international support for improving food
quality, which has positively affected supermarkets. The supply of supermarkets by farmer
organisations is still constrained by a lack of rigor in the internal and external control of food
safety as well as a lack of diversity in the range of proposed products.
How exclusive are chain supplying supermarkets?

Supermarkets exclude poor consumers, at least in the first stages of their development,
when prices are higher than in traditional markets and the poor lack transportation to
buy in supermarkets. They also exclude in terms of employment as they use labour-saving
technologies (e.g. self-service). As for poor farmers, they lack direct access because of the
supermarkets’ strict requirements regarding safety, quantity, and invoicing records. For
instance, we did not find any poor farmers in the vegetables and litchi chains that supply
supermarkets in Vietnam, even though they represent more than twenty percent of the
suppliers of traditional chains. The only cases when poor farmers were included was through
farmers’ associations, e.g. in the case of flavoured rice, which implied the involvement of
public sector support.
43
Célia Coronel - advisor on value chain development at Institut
de Recherche et d’Application des Méthodes de Développement
(IRAM), France, since 2003.
producer organisations in business
What type of organisation among producers can provide better links with
markets?
Small-scale producers generally have an interest in organising themselves in order to obtain
access to markets and to obtain better selling conditions. In contexts characterised by
uncertainty and by price volatility, collective strategies are even more crucial and also more
difficult to implement than individual ones. In such contexts, opportunistic and ‘survival’
strategies develop instead.
Depending on the characteristics of the produce and the markets, different forms of collective
action usually work better for the producers. Those imply different degrees of coordination
and solidarity. The most common form of collective action is the joint marketing of products.
Being able to sell produce in bulk is often a minimal requirement for attracting buyers and
securing bargaining power. In addition, controlling the flow of produce is a way for the
organisation to control quality and, for perishable products, a way to process them and thus
improve marketability.
Many producers think that a cooperative that buys products from its members and finds
the right market for them will serve them better. Yet, this type of collective marketing
often does not produce the desired results as it requires good management capacities,
understanding the workings of the market, evaluating demand and buyers, the capacity to
take financial risks, etc. There are cases where producers cooperate to better integrate access
to markets without actually sharing the marketing operations. A producers’ organisation
can facilitate the grouping of produce and linkages with the market: collecting orders from
buyers and disseminating information to its members, negotiating minimum prices and
setting a delivery date. Every producer is then responsible for the selling of his/her products.
This works particularly well for perishable products or products in high demand, where
coordination between both vendors and buyers is crucial.
The breeders’ organisation Udoper in Benin managed to impose more transparent transaction
rules in livestock markets, to the benefit of all stakeholders. More breeders visit the market
as their price share has improved; intermediaries have smaller margins but volume of activity
has increased and trust has been restored.
What are the consequences for producers who are not included?
Joint marketing in theory only benefits producers who are members of the organisation.
Yet, if the cooperative is a key actor its marketing activity can influence the behaviour
of other buyers, to the advantage of non-organised producers. Where market demand is
low, competition can lead to the exclusion of the non-organised producers. In Fairtrade
cooperatives for example, only organised producers can access this market. In addition, in
this global market where demand remains a limiting factor, mostly better organised, larger
cooperatives are able to seize the opportunities.
44
How can individual producers access markets?
Some types of collective actions can have a spill over effect. For example, technical advice
or market information can be disseminated. Improved market infrastructures and rules will
“ Collective action
also have a greater outreach (the case of Udoper in
Benin potentially affects all producers in that region).
In contexts where producers organisations are not in
a position to influence the market structure and rules, can have pill over
individual producers might take advantage of other
forms of coordination, such as ’out grower schemes’, effects”
where, in order to complement their own production, large producers subcontract to small-
scale produces. Thus. small-scale producers gain access to markets they could not otherwise
reach and sometimes they are also provided with technical assistance. This generally works
well for high-value products, such as horticultural products.
45
Deal or No Deal??
1 Introduction
Why would producers and private sector actors make use of a producer organization for
doing business? For the private sector reduced transaction costs are a good argument;
instead of buying from or selling to many individual producers it only has to deal with
one organization. From the perspective of the producers increased scale is an advantage:
joint marketing activities bring down the costs for individual producers. Cooperation also
increases bargaining power, stimulates solidarity and supports producers to take risk.
Both the private sector and the individual small scale producer can benefit from
coordinating marketing through a producer organization. Reality however shows many
sub-optimal arrangements. This leads to disappointment and the search for alternatives by
both parties. Examples are private sector actors that choose for more vertically coordinated
arrangements, like estate farming or outgrower schemes. Or small scale producers that
return to inferior markets because they cannot comply with the quality required by the
arrangement. What is the cause of failing arrangements between the private sector and
producer organisations?
The private sector looks for reliable business partners that are able to deliver products in
required volumes, at a good price, on schedule, and that meet quality standards. Private
sector actors define their expectations and performance indicators before cooperating with
producers. The private sector is not so much interested in how producers are organized, it
is interested in the final performance. When looking for business partners in developing
countries it tends to look for organisational forms that are known and functioning in the
west. An example is the cooperative. Often also producer organisations that are supported
by NGO’s are chosen. Both characteristics do not guarantee the capacity of such an
organisation as a business partner.
The belief that linking small scale producers to markets is a pro-poor strategy for
agricultural development has supported producer organisations to engage in marketing.
Some producer organisations are set up with a marketing purpose. Other producer
organisations were set up with different purposes and start to engage in marketing
in a later stage. Marketing entails some challenges. First there is a risk that producer
organizations engage in too ambitious activities or scale up too rapid (Hellin et al.
2006). Second, producer organisations starting in marketing often lack capacity in
management, lobbying and negotiation. Third, existing producer organizations often
have a heterogeneous membership which makes it difficult to govern business. And finally
although doing business through a producer organisation reduces transaction cost for the
private sector, it increases internal costs for the organisation (collecting produce, paying
members, distributing inputs, transferring knowledge and information).
46
4.
Understanding
producer organisations
Assessing capacities
Understanding
4 Assessing capacities
As the sections above aptly convey, the world of producer organisations is very diverse
and context specific. The enabling environment, the type of product and the market exert
significant influences, thus shaping the choice of organisation type that is most appropriate.
There are no blue prints. Before engaging in business collaboration, the parties should
answer the following questions: What does the environment require/permit? How should
producers organise in light of the specific product and market? Does it make sense to
incur high organisation costs? What other models are applicable? What is expected of the
producer organisation to accomplish?
However, this is not a mathematic equation where enabling environments, product and
market characteristics need to be calculated and the correct result is computed. Organising
involves real life small scale producers who need to support and participate in the effort.
Organisations will not develop and function when producers do not share an interest.
What are the favourable conditions that support producer organisation and collective
action?
Incentives for producers’ collective actions include; more opportunities of obtaining support
for producing a marketable surplus through access to technology and extension services,
access to financial support, reduction of marketing costs, and assistance in bargaining for
better prices. Collective action can be defined as ‘voluntary action taken by a group to
achieve common interests’ (Olson, 1965).
The involvement of producers in collective action depends on their individual preferences

and interests and how they perceive the benefits of collective action. What characteristics
of groups of producers are conducive to supporting collective action?
There are numerous examples of group characteristics that support collective action. Small
group size provides for strong internal cohesion and makes it easier to know and monitor
other members (Coulter et al., 1999). Low levels of poverty are also conducive. Some believe
“ Social capital is
that homogeneity of socio-economic status and
values of group members is necessary, while others
the shared norms,

state that the necessary leadership only emerges
when membership is heterogeneous. Leaders are
important for collective action. Leaders should be
trusted, able to motivate the members and should values, rules and
possess business and network skills. Clear rules that
can be easily enforced are also a facilitating factor.
roles that promote
Organisations function best when they are built on
social cooperation
the base of existing social groups, which have already
generated solid social capital (Heemskerk and
Fukuyama, 2001 ”
Wennink, 2004). Social capital is crucial for all forms of collective action and is distinguished
by trust, reciprocity, exchanges and common rules and actions.
48
However, one should tread carefully, as imposing marketing activities on an organisation
originally established for other purposes, can erode social capital. It is difficult to balance the
original community inspired norms with the business norms that require professionalism and
competitiveness (Bernard et al., 2008). Newly established groups have the advantage that
their structure and norms can be shaped in line with the needs of the business collaboration.
It should be mentioned that social capital is not linked to social inclusion. Also community
based groups can be very exclusive. Sometimes the producers themselves chose to stay
outside of the group, while in other cases the organisation is reluctant to involve particular
producers (Bernard et al., 2008).
In the end of this chapter Bertus Wennink will share some of his experiences and insights on
collective action and access to markets, Bart de Steenhuijsen Piters reflects on social capital.
4.1 Capacity of organisations

For a buyer and a producer organisation to establish a fruitful cooperation, it is crucial to
establish trust between the two parties. Therefore, it is essential for the buyer to better
understand the capacity of the producer organisation, in order to initiate the process of
building trust.
Depending on the specifics of the collaboration, some capacities are more important than
others and therefore an analysis of the required capacities should precede each business
collaboration. From the buyer’s viewpoint this implies examining the expectations and
identifying what are the necessary capacities that the organisation has to meet. From the
producers it implies a self-assessment of the required capacities but also a thorough analysis
on what is required to improve the position of its members in the value chain. Different
tools have been developed for assessing organisations. These assessments assists in analysing
what capacities are present and performing well and which need to be further strengthened.
4.1.2 Components of Capacity

The capacity of an organisation can be assessed based on the overall result: its performance.
When is an organisation seen as performing well and how to measure this performance?
Performance of an organisation can be measured by its effectiveness, its efficiency, its
financial viability and its relevance. Effectiveness is the extent to which an organisation is
able to fulfil its goals. There are different indicators for effectiveness, depending on the type
of organisations. For a producer organisation that provides services to producers, indicators
can be the quality of the services or the number of producers served. Efficiency is the ratio
of the outputs vs. incurred costs in delivering these outputs (e.g. will the costs of hiring a
manager result in more profit for the organisation)?
That an organisation is effective and efficient today does not guarantee that it will continue
its good performance in the future. To survive an organisation has to be financially viable
and relevant. A financially viable organisation is able to raise funds for its functioning in
the short as well as in the long run. Relevance to its members is another prerequisite for
survival. An organisation can continue functioning as long as it has the support and meets
the requirements of its stakeholders. 49
Understanding
The organisation’s performance depends on effectiveness, efficiency, financial viability and

relevance. Different types of indicators are used to measure these parameters. Examples of
indicators include ‘do the members regard the services as improving their market access?’
and ’does the organisation deliver good quality produce?’
What are the necessary capabilities that distinguish an effective, efficient, financially viable
and relevant business oriented producer organisation? The following paragraphs highlight
the key capacities that enable producer organisations to function well as chain actors.
Leadership
The performance of an organisation greatly depends on the presence and the performance
of the leadership within the organisation. ’Leadership is the process through which leaders
“A leader is one
influence the attitudes, behaviors and values of others
towards organisational goals’ (Vecchio, 2007). Standard
who knows the way,

leadership activities include tracing the direction for
development, networking and ensuring output. A leader
should be able to determine where the organisation
should be in the future and how to guide it there. goes the way and
However, leadership is not a strictly formal function;
informal leaderships also plays an important part within
shows the way”
an organisation. Informal leaders are people who possess
an expertise or resource that is needed by others within
J. Maxwell
the organisation (Handy, 1997)
We conclude this chapter with an interview in wich Rajeev Roy demonstrates the importance
of entrepreneurship in producer organisations.
Organisational structure
Most producer organisations have two layers: a governance layer and an operating layer.
The governance structure represents the ownership of the organisation (the investors and
members). The governance structure sets the direction and is responsible for all associated
activities (policy setting, budget approval etc.). The operating structure is the real system
of working relations. It is the division of tasks, people and groups. An organisation usually
performs better when its members are involved in decision making, as they are often closest
to the information needed to make decisions. Also, by participating they will feel involved
and be motivated to take responsibility for their actions.
To survive as an organisation, the management should be able to simultaneously both

manage the internal organisation and guide the organisation to respond to the demands
of its stakeholders and the changing environment. An organisation that is market-oriented
should be able to cooperate and collaborate with actors outside of the organisation itself.
50
Process management
Many producer organisations function as multi-purpose organisations and consist of different
sub-groups or teams. To make sure that these different groups work together towards the
organisations’ goals, common systems are set in place, for example: planning systems,
communication procedures, problem solving mechanisms and decision-making structures.
The maintenance and adaptation of these systems is called process management, which
takes place throughout the entire organisation. Good process management is supported by
information exchanges and shared understanding among members, but also by planning
policies and procedures that give direction to the organisation. Good process management
supports the efficiency and effectiveness of the organisation. Decisions based on group
consensus usually produce better results than decisions that are taken by a sole leader
Financial management
The ability to manage its finances is critical to the performance of an organisation. It includes
planning, accountability and the use of financial systems. Financial planning is the ability to
forecast the organisations future monetary needs and to account for the use of resources.
The financial systems allows the governance structure to understand the current financial
status, and thus to take appropriate actions that will guarantee financial viability.
A group should be able to organise its relationship with external actors, networking with
other chain actors and actors outside the value chain, for example financial institutions and
agricultural services. Being able to exchange information with and establishing trust with
these external actors are prerequisites for success. Organisations that are too inward focused
run the risk of losing their innovative edge and their efficiency.
On the important role played by the context, the product and market characteristics now the
organisational capacity of producers is also added as a key variable. Thorough assessment of
multiple characteristics can assure good collaborations and prevent disappointment!
4.2 Becoming the ideal business partner

In many cases there is an existing producer organisatios that can market products or support
an emerging business collaboration However, before initiating support to this particular
organisation more organisation analysis is needed.
To recap, the components that determine the organisation’s performance are effectiveness,
efficiency, financial viability and relevance. These components are supported by capacities
like leadership, process and financial management, organisational structure and social
capital. All relate to the current performance of an organisation. However, in order to
improve performance it is necessary to dive deeper into the personality of the organisation
and analyse its motivation.
Why is it that in difficult contexts some organisations perform well while others that have all
possibilities within reach falter? Why are some organisations rapidly advancing, while others
keep failing and restarting again? It all depends on the organisations’ motivation!
51
Understanding
How to analyse the motivation of an organisation? This can be accomplished by studying

its history, its purpose and its culture.
The organisation’s history explains a lot about its performance today. What is the
organisation’s raison d’être? What changes has it made and what milestones has it reached?
It is believed that all organisations, although at different rhythms, go through a similar life
cycle. In the first stage members are euphoric and motivated to move forward, there is
room for entrepreneurial leadership. During adolescence organisations develop structure
and rules. At a mature age an organisation has completed its structure and rules and has
divided roles and responsibilities. If the organisation does not renew the last stage will be
decline. Knowing the ongoing state of development of the organisation provides insight
into the appropriate strategies that can steer the organisation into the desired direction.
The next step is analysing the organisation’s purpose.

Why? Because the vision and mission of an organisation “In the realm of
informs about its personality and its ambitions! How
successful is the organisation in pursuing its purposes, ideas everything
and would it move closer to fulfilling its purpose
through the proposed business collaboration?
depends on
The motivation of an organisation is also supported
enthusiasm.
by its culture and its incentive system. The culture of In the real world
all rests on
an organisation is the assumptions, values and beliefs
shared by its members. Analysing organisational culture
perseverance”
is critical in trying to understand the motivational forces
that support or oppose change. Incentives are used to
J. Goethe
motivate the individuals within an organisation. What
are the incentives an organisation uses to motivate
its members? Can these incentives be altered and thus provide better motivation? Only a
motivated organisation can be a good business partner!
We can conclude that in order to cooperate with an existing organisation it is necessary

to understand this organisation. Only after a thorough analysis that has demonstrated
good collaboration potential it is beneficial to approach the organisation and support its
development into a good business partner.
52
4.3 Supporting change
There are many different strategies for improving the performance of producers and
organisations. Training is one valuable strategy, examples are training in financial
management or in strategic leadership.
And when the organisation is performing well, training can still be needed regarding the
specific product or market; examples of product related trainings are good agricultural
practices or integrated pest management. Market related trainings can address certification
and quality requirements. Together with the producers, it has to be analysed what type of
training is needed to deliver the desired product to the identified market. Credit can support
the performance of a producer organisation by providing investment opportunities.
4.3.1 Who is responsible?

The company and the producer organisation together decide that in order to foster their
business collaboration change is needed. They identify what needs to be changed and design
a strengthening process. Is the primary need concentrated around training? Or is it credit?
The following question to be answered is who is going to provide assistance? Agricultural
services can be outsourced, i.e. contracting out the services that are not the core business
of the company. Other stakeholders might provide the support more effectively, efficiently
or cheaply. One can think of specialised NGO’s or research institutions that provide
training. Different partnership constructions exist that can organise support to a producer
organisation. For example, in a company that is partly owned by its suppliers they can use
their shares-certificates as deposits to access loans.
53
Bertus Wennink - senior advisor on institutional and organizational
development for enhancing demand-driven services for pro-poor
development at the Royal Tropical Institute (KIT)
Collective action and access

to markets
Why is it important to examine initiatives for collective action?
Social capital is essential for collective access to markets. Collective action and social capital
are inseparable; collective action requires social capital and, at the same time, collective
action enhances existing social capital. There are many organisations that have a lot of social
capital and fulfill an economic function (in addition to other functions) but have not yet
gained access to markets, e.g. saving groups or funeral groups. The strength of these groups
is worth taking into account when working with groups of producers.
Should collective action initiatives be formalised in order to access markets?

Along the chain there is a mix of informal and formal organisations. Organisations on
the local level are mostly informal and they play an important role in the chain. These
organisations are characterised by strong social cohesion, well functioning control
mechanism, and smooth communication. More formalised organisations are found higher
up the chain. These organisations are in contact with external actors and have the capacity
to negotiate contracts. Both play a role and can support each other. In Mali and Burkina Faso
informal groups of producers bulk their produce. Without formalised procedures producers
seem to find each other and are able to supply their bulk, surplus produce to a formalised
cooperative. This cooperative has formal contracts and sells the produce. In practice the
cooperative outsources some of its tasks to the informal organisations that have traditional
roots. There is no need to formalise these organisations. Up till a certain level, there is no
need for formality and social capital is sufficient.
When soft and hard infrastructure develops you see all kind of local dynamics developing.
You cannot channel these in a blue print development model.
It is important to note that it is not always necessary to have a fixed organisation to secure
market access. Producers can organise for a certain activity and be out of contact for the
rest of the year. Reality also shows different mixes of different organization models. One
example is a contract farmer who works with individual farmers. After noticing that farmers
need to improve their production techniques he initiates farmer field schools.
What role NGO play in linking producer organisations to markets?

This is ambivalent. NGO’s is a term encompassing all institutions that are not governmental.
There are NGO’s that indeed do have the capacity to link producers to markets, that are able
to facilitate processes or to build capacity. In Rwanda there are for example centres that
are specialised in supporting cooperatives. The producers pay, as clients, for the services
provided by these centres.
However, there are many examples of NGO-interference that did not lead to a well-
functioning producer-market link. An NGO should know its role really well. There are two
rules. First, an NGO should never become part of the value chain; it should not start selling
the honey or the soap of a producer organisation. Second, an NGO should have from the
beginning a clear exit-strategy. Dependence on donor money often precludes this important
step.
54
Bart de Steenhuijsen Piters - Leader of the Sustainable Economic
Development group at the Royal Tropical Institute (KIT).
Social capital and collective action
How does social capital stimulate or limit the business capacity of a

producer organisation?
Social capital is a pre-condition for the functioning of producer organisations. Producer
organisations are based on more than solely on economic interest. The incentive for a
market-oriented producer organisation is to collectively supply volume and take part in
value chains. This supply should comply with the market’s quality demands. Pure economic
interest is not sufficiently binding or regulative. An organisation should stimulate its
individual members to control and correct each other. Social capital is a key promoter of
communication and compliance.
There is however also another side of the coin. As social capital is the shared norms
and values, it also includes traditions, stereotypes, and prejudices and in some cases
institutionalised inequalities. For example, communities in which the elders have final
decision-making power may leave little room to young innovators. Collective action only
arises when social capital is present; however, for successful collective action social capital
has to be combined with a shared interest.
What is the development with regard to informal -> formal organisations?

There is trend for organisations to formalise. Motivation is often access to…… this can be
access to certification schemes, access to services (like extension and credit) and access to
markets. The process of transforming into formal structures is rather complex, it involves
internal changes, costs and often excludes some of the members. Is it sufficiently beneficial
to warrant formalisation? The fact is that the economies of Africa are mainly informal and
services are not yet attractive enough to make formalisation worth while.
Is social capital equally important for each type organisation?

In informal organisations social capital is the enforcer of rules. In case organisations are
formalising, formal rules and regulations can partly substitute social capital. But formal
rules cannot completely replace social capital. Actions that are enforced by relations of
trust, reciprocity and reputation are always stronger than actions enforced solely by formal
rules.
Should the private sector consider working with informal producer

organisations?
A better understanding of informal organisations is necessary: How do these organisations
function? How do they make decisions? What is their business capacity and how can
private sector actors mobilise such organisations? An example of an informal organisation
is a funeral organisation, present in many West-African villages. These organisations are not
driven by economic rationale; they’re built on social capital and have some management
and bookkeeping skills. The private sector needs a consistent supply of good quality produce
and this seems: best guaranteed by the most often used method of formal contracts Could
a relationship based on trust also function?The members are most probably producers, the
question is: is it possible to trade with such a type of organisation? As this is difficult to
grasp for a private sector actor, local moderators who understand the prevailing norms and
values are necessary.
55
Rajeev Roy - teaches entrepreneurship at Xavier Institute of
Management Bhubaneswar, India and in several institutions in India,
USA and Thailand.
Entrepreneurship in Producer
Organisations
How important is entrepreneurship within a producer organisation?
Entrepreneurial individuals within a producer organisation (PO) have a very important
role to play. Some of the most effective POs were established when a few entrepreneurial
individuals saw the importance of creating the PO as a means of pursuing business objectives
effectively as a community.
Entrepreneurial individuals are an asset to the PO in every stage of its development. A

PO becomes strong and resilient when a number of its outreach activities are carried
out by members from within the community as
opposed to individuals recruited from outside. These
entrepreneurial individuals can provide business
“Entrepreneurial
development services, can coordinate with suppliers individuals are an
asset to the PO in
and can help in the marketing of the produce. But
they also have other important roles within the PO.
every stage of its

They are likely to be more productive, and can serve
as motivating examples for the PO to encourage other
development”
producers to join. They are more likely to try out
new technologies and methods, so they are also the
innovators who are essential to further the evolution
of the PO.
How is entrepreneurship within an organisation supported?

There are several ways in which a PO and its partners can support entrepreneurship:
Conducting management and technical training for members;
Arranging study tours and exposure visits for members; these tours can be to production
centres, markets and R&D locations, etc.;
Facilitating access to financial support; entrepreneurial ventures will need funding and the
PO can facilitate loan financing, rolling funds or group credit guarantees.
The presence of basic business infrastructure and business development services will
encourage entrepreneurs to try out new ways of doing business. PO can be instrumental
in developing both.
Encouraging younger producers to take an active role in managing the PO will directly
engage potential entrepreneurs.
Smaller POs have an advantage because they are less hierarchical and are more likely to
allow or encourage entrepreneurial activities; however, this does not mean that larger POs
are at a disadvantage.
Larger POs will see more entrepreneurs emerging because they can attract more financiers,
sophisticated suppliers and service providers, which are all essential for the development
of entrepreneurship. Larger POs are also more likely to provide management and technical
training arrangements for their members.
56
What is the importance of entrepreneurship in business relations?
POs often interact directly with large private sector buyers. This seems to be an ideal win-
win situation for both. POs cut out the middlemen and the buyers can access a large number
of producers by dealing with a single central organisation. Nonetheless, this is not always
successful. Enhancing the value for producers in the supply chain is crucial for building long-
term productive relationships. Adding simple activities like grading, sorting and storage can
already serve to create value.
Private sector buyers are wary of large POs and are worried that the influence that the
PO wields over the producers can be detrimental to them, in case influential members of
the PO would harbour bias against them. Therefore, buyers may be reluctant to invest
in the PO. It is only when the buyer is able to identify entrepreneurial individuals in the
producer community that he/she is willing to invest. The buyer offers to the entrepreneurs
an enhanced role (agent, franchisee, broker, etc.) and in turn the entrepreneurs act as
advocates for the buyer within the community. This forms the basis for a long-term, non-
exploitative, fruitful relationship.
57
Jur Schuurman - deputing managing director and head of the
monitoring and evaluation department fo the Dutch Agri-Agency
Agriterra.
Assessing Producer Organisations
Agriterra is a Dutch Agri-agency that supports producer organizations in developing

countries. Agriterra is convicted that small-scale producers can empower themselves
through organizing. Agriterra believes that strong representative producer organizations
are a requisite for promotion of democracy, a better income distribution and the economic
development of a country.
Why conduct an assessment of a producer organisation?

Agriterra’s core business is strengthening producer organisations. The success of Agriterra
can only be proven when the organisation is able to measure how much its assistance has
strengthened the partner organisation. In order to measure the level of improvement, two
activities need to be conducted:
1. Identifying critical capacities that indicate the strength of a producer organisation; and
2. Measuring through time -- by measuring at regular intervals it is possible to analyse
progress.
Agriterra defined 8 relevant organisational capacities. These were adapted from the Internal
Organisation Model and based on discussions with different producer organisations. A
questionnaire helps to measure the capacities.
How are the results used?

For Agriterra these results provide a valuable evaluation system that can reveal the success
rate of Agriterra’s support. At the same time, the results serve as input for an informed
dialogue with the producer organisation concerned, analysing together with the organisation
the reasons behind the weak results demonstrated by a particular indicator. The relevance
of strengthening the indicator is discussed, along with the strategies for accomplishing this
goal. If those indicators are considered relevant for fulfilling the organisation’s mission, all
subsequent projects have to contribute to strengthening these weak indicators.
What criteria are important for a market-oriented producer organisation?

Agriterra primarily works with advocacy type of producer organisations, which lobby on
behalf of their members. The profiling tool is most often used to assess organisations on a
national level. At the moment Agriterra is developing an assessment tool for measuring the
business capacity of a producer organisation. An important measure is the organisation’s
capacity to manage its finances. An example of such an indicator is the financial report, while
knowledge of a foreign language could serve as another indicator. A producer organisation
that wants to be an independent and internationally oriented business should not rely on
NGO’s or other brokers for its networking and external communication.
58
59
NAAM
60
5.
Pro-poor business
Organising for impact?
Pro-poor business
5 Organising for Impact?

This booklet showed that in order to build successful business collaboration between a
buyer and a producer it is necessary to conduct a thorough analysis of the type of producer
organisation and the capacities required for a successful partnership. The environment,
the product, the market and the business capability of the producer organisation are key
influencing factors.
Pro-poor collaboration is not pure business; it is

a partnership between a private sector actor and “A business that makes
a group of producers that is based on a shared
interest that transcends pure profit interests. nothing but money is a
Both the producer and the private sector actor
are interested in improving the position of
poor business.”
small-scale producers. This last chapter reflects
on the pro-poor impact of these business
H. Ford.
collaborations.
Increasingly, private companies are adjusting their business models -- i.e. the way they
organise their business and its relations -- to integrate sustainable development goals. No
longer is contribution to society by companies only expressed in philanthropic activities,
support is increasingly being incorporated in the company’s core business activities. A
sustainable business model means that a company aims to deliver economic, social and
environmental benefits to society as a whole and/or the suppliers in the value chain (Vorley
et al., 2009).
5.1 Impacts
Benefits to small scale producers are connected to their inclusion, their self-determination
and their wellbeing (Annona, 2010). Inclusion means that a business stimulates the
participation of no-dominant groups. Regarding self-determination, a company supports its
producers to have the capacity and authority to be self-reliant and independent. Wellbeing
refers to producers that are healthy, satisfied and prosperous.
Is it possible to target pro-poor impact through a producer organisation and what are the
trade-offs?
5.1.1 Inclusion
The level of direct impact through business collaboration depends on the number and
type of producers included. Only a small percentage of small scale producers is developing
countries are organised. Working with existing producer organisations means that a large
number of producers are left out.
A company should reflect on the connection between the scope of producers involved and
the sustainable development goals. Including big numbers of producers sounds impressive
62
but may not provide the best impact. Do producers improve their position within a value
chain by participating? Or is the impact stronger when a smaller number of producers
is involved and trained in activities that add value to their produce? These are difficult
questions that should be studied in the local context.
Often the goal is also to enhance the position of women by including them in the business
collaboration. It is understandable that companies are inclined to work with formal
organisations to achieve this goal as statutes can very concretely promise leadership
positions to women and set quotas for female membership. But do gender mainstreamed
formal structures ameliorate the position of women in practice? Imagine a cooperative that
promises 40% membership of female farmers but when it comes to real participation it
turns out that the women are never present in meetings! It is important to realise that
the wellbeing and self-determination of women is not automatically improved simply by
including women in the organisations. It pays to take a moment to analyse the specific
context and to assess the potential impact of strategies geared at improving the position
of women!
It should always be re-examined whether the wish for inclusion is in line with the produce
and market requirements. If the latter require strict coordination and therefore strong
leadership, the number of producers included should depend on the number of leaders
available. Sometimes produce and market specific requirements impose limits on the type
of producer included. No matter the aspirations, in most cases it is impossible to include the
poorest producers. It might be better to deliver benefits to this group through philanthropic
activities. Practitioners working with producer organisations should always keep in
mind that an organisation that is part of a value chain should be able to coordinate the
collaboration on its own, independent of any donor.
5.1.2 Self-determination
Self-determination can be supported by demanding that the producer organisation ensures
the participation of its producers. This involves participation in decision-making processes
but also ownership, for example by giving producers the opportunity to own shares. A
producer organisation can only provide shares when it is legally registered and has member
liability.
Self-determination also concerns the capacity to be self-reliant. How can this be targeted
through a producer organisation? Producer organisations can facilitate trainings or
workshops for members. Producer organisations could also integrate capacity development
into their structure by enabling staff to acquire knowledge and skills or by giving members
access to leadership positions.
63
Pro-poor business
5.1.3 Well-being
How to improve the wellbeing of small scale producers? Wellbeing means that producers
are healthy, prosperous and content. Wellbeing can be enhanced through the value chain
activities where the producers are directly involved. For example, a company can require
producers to apply Good Agricultural Practises to make sure that they work in healthy
circumstances. They can make sure that processing facilities are safe and that producers
receive a fair income.
Also a buyer can indirectly contribute to wellbeing. Long-term prospects stimulate producers
into making investments and improving their situation. This can be achieving by building
long-term relationships but also through providing producers with credit which gives them
the opportunity to invest and improve their business.
A concluding note: impact is only sustainable when the producers value the impact as an
improvement of their situation!
5.2 Communication
Communication is key to providing successful support and, ultimately, for the success of the
organisation. The producers and the company have to agree on the changes and support
needed. Also during the collaboration good, clear communication is key as it supports good
performance. For example, timely and transparent information on market development,
prices and profits allows an organisation to anticipate and handle effectively changes in
market conditions and deliver products that respond to the buyers’ requirements (Devaux
et al., 2009).
5.3 A closing reflection on sustainable impact for small scale producers

Aiming to improve the livelihood of producers through business models requires sound
reflection on What is human development? It is important to realise that not all producers
aim to remain a lifelong producer. An improvement of a producers’ position might support
him to invest and take on other income providing activities. For the long-term prospect
of business collaboration it is necessary to investigate the producer’s potential. A stable
environment and a promising market demand are necessary, but most important is the
produce and the producers. Ask the question: is producing also attractive for the younger
generations, what are their needs and interests? Seize upon the market opportunities that
arise from these answers and support the development of the producers towards their own
sustainable goals.
Good Agricultural Practices are a collection of principles for on-farm production and post-
production processes (to be applied through sustainable agricultural methods). They help
produce safe and healthy food and non-food agricultural produce, while taking into account
economic, social and environmental sustainability (FAO, 2004).
64
65
Jon Hellin - researcher at the International Maize and Wheat Improve-
ment Center (CIMMYT).
Organising Producers
Is it possible for an external actor to activate a producer organisation?

While there are many success stories of producer organisations leading into effective
participation in value chains, numerous attempts to foster these organisations have failed.
The process of establishing viable producer organisations is not simple. It is often a challenge
to establish collectively-agreed rules, to secure the members’ commitments to abide by the
rules, and to monitor and enforce compliance. In some cases, the establishment of producer
organisations incurs such transaction costs that producers may be better off not organised.
Often the establishment of producer organisations is instigated by outside agents such as
government and NGOs who seldom have a clear understanding of the costs and margins
along the value chain and seldom incorporate these into their cost structures. When the
producer organisation encounters financial difficulties, there may be a tendency to provide
further assistance, thus externalising some of the organisation’s costs. Both the private and
public sectors have key roles to play. Governments are of central importance in determining
how markets should function, especially in creating an enabling policy environment.
Development agencies are especially important in the early stages of producer organisations
but as these organisations evolve, it is critical for them to establish lings with private sector
actors.
We need to better understand when producer organisations make sense, when they do not,
and how to best establish and maintain them. Three critical factors need to be addressed:
(1) determining whether organization makes less or more sense in the case of different
products and markets; (2) analysing whether the public or private sector is best placed to
support farmer organisations; and (3) identifying the most appropriate type of organisation.
For which crops or markets does it make sense for producers to organise?
There is evidence that producer organisations make less sense in the case of market access
for undifferentiated commodities as opposed to higher value products (Berdegué, 2002).
In the case of the former, value chains are often characterised by low transactions, and the
benefits of producer organisation in reducing these do not outweigh the costs. Furthermore,
resource poor producers often lack essential assets for successful cooperation such as basic
education, management and entrepreneurial skills, and financial capacity (Pingali et al.,
2005).
How does an appropriate type of organisation look like?

There are many different types of producer organisation, co-operatives are but one model.
Contract farming is, perhaps, the most common form of private sector-led producer
organisation. Other models also exist, for example the lead farmer model that has been
promoted by specialised wholesalers in Central America (Hellin et al., 2009). In this case,
wholesalers encourage lead farmers to organise and to support their neighbours in meeting
quality and quantity demands. There is little investment beyond the incentive provided by
market opportunities. Lead farmers provide various services that may include production
planning, technical assistance, access to inputs, market intelligence, sorting and packing,
transportation to markets and financial administration. The lead farmer model requires
significantly lower external support but much higher investment from the farmers
themselves. When deciding on the best type of producer organisation, the key question is
how to structure producer organisations so that they are (1) effective in terms of linking
66 producers to markets; (2) profitable both for producers and other value chain actors; and
(3) scaleable and generating results for a large number of producer families.
Ruerd Ruben - professor of Development Economics and director of
the Centre for International Development Issues Nijmegen (CIDIN).
Impact of FairTrade
The producer organisation: a permanent entity or a temporary arrangement

to support individuals who will become strong and independent?
There are two types of producer organisations: commercial producer organisations and
advocacy producer organisations. In the first type, producers organise to collectively sell
or to arrange services that contribute to enhancing their production and market access.
Members enter and leave according to the relevance of the organisation to their individual
household. The second type of producer organisation lobbies to improve the position of
producers in the political sphere. Also this type of organisation experiences fluctuating
membership. Organisations should continue as long as they are relevant to a minimum
number of stakeholders.
Is there a risk of dependency on Fairtrade?
“Fair Trade should

Fairtrade is a label that supports the organisation
of producers through trade for better prices and
premiums. Research proved that Fairtrade is an
excellent method for strengthening producer be a temporary label
organisations. However, Fairtrade should be a
temporary label that after a certain period is that after a certain
replaced by a private label. The Fairtrade market
cannot absorb all Fairtrade certified products;
period is replaced by a
only 10% is sold under the Fairtrade label, all the rest is sold as conventional. One of the
biggest cocoa cooperatives (Kuapa Kokoo from Ghana) only sells 3% of its certified beans as
Fairtrade. There is a risk that producers over specialise by concentrating on certified products.
Research has shown that the label switch should be made after 5 years; cooperatives that
are 20 years in Fairtrade do not perform better than new cooperatives.
Fairtrade supports small scale producers; does this mean organisations

with homogeneous membership?
No, Fairtrade approaches the organisation as a whole; bigger producers can also participate.
Actually heterogeneity is a must for a strong cooperative. Collective action is stimulated by
unequal individuals; a coalition of poor does not have much to offer.
Fairtrade requires a cooperative type of organisation, does this exclude

other types of organisations?
The Fairtrade label is becoming more flexible. In many countries the cooperative is politicised
and the term cooperative has a negative connotation. Independent producer initiatives are
often registered under different names; for example association or producer group (they do
however apply the same principles as cooperatives). Fairtrade does take these cooperative-
like groups into account.
The difficulty comes with estates. UTZ and Rainforest alliance are labels that also certify
estates. The label in those cases focuses more securing better wage and labour conditions
than on securing better prices and premiums for produce. The reason to work with estates is
the market: sometimes markets demand volumes that are impossible to supply with groups
of small scale producers.
67
Bill Vorley - head of the Sustainable Markets Group at the Internation-
al Institute for Environment and Development (IIED) in London
The Impact of sustainable business

models on producers organisations
What does a sustainable business model imply?
It means that a company not only contributes to sustainability (economic, social and
environmental) within its company but extends this aim towards its suppliers and other
business relations within a value chain. In general, a company trades with intermediary
suppliers and does not deal directly with small scale producers. However there are
sustainability goals that embrace all actors within a chain, e.g. collaboration, transparency,
shared investments and shared risk. A company should aim to deliver a positive impact on
these shared themes.
What sustainable development impacts can be achieved through a producer

organisation?
Generally the desired impact revolves around inclusiveness: the aim is to link the dispersed
and resource poor producers with large companies. It is often thought that sustainability
goals are best reached through either contract farming or through niche chains like Fairtrade.
However there are other models of working with small scale producers that deliver impact.
In many value chains the producer organisations’ interfaace is critical. Some examples of
activities include aggregation of produce, supporting quality, improving production and
processing techniques, providing credit, liaising with buyers etc. A producer organisation can
transform a supply base from high risk into low risk.
Currently we are in a complex situation in which buyers demand continuity, homogeneity,

consistent quality and at the same time want products that are procured from small scale
producers. There is a need to better investigate how the intermediary trader works, how
we can develop business models that ensure risk sharing with small scale producers. There
are successful alternatives to formalised organisations like cooperatives: in some cases
intermediary traders organise farmers with similar positive outcomes. We should not
focus on the formal organisation as such. It is more important to secure that the desired
sustainable impacts are reached, through principles of fairness, co-innovation, transparency
and long-term relationship. Knowledge institutions and NGOs have a role in developing a
context specific analysis for each case. NGO’s and Institutions should assist in the design of
business models in order make sure that such models are based on sustainability principles.
How to deal with producers who are excluded by a certain business model?
Many business models –- including certification for sustainability -- seek out organised
producers. This is what you currently see in the cocoa sector. But producer organisations
are in many cases viewed by farmers with suspicion because of their close links with politics
or reputation for poor management. Business people end up supporting producers who are
relatively well organised and have sufficient capital(financial, physical and social), and who
already do have access to different kinds of services. The 90% of unorganised producers
could be relegated into bulk commodity trade.
68
How does the context influence the desired sustainability impacts?
The big mistake of the development sector is to move into a country and work with
small scale producers to improve their position in selected value chains, while losing
sight of a country’s overall reputation in global markets. Achieving sustainability with a
“You must not achieve

few producers must not come at the expense of
the majority of commodity producers who are
marginalised. The reputation that a country has is
very important. Compare Ivory Coast with Ghana: sustainability with a
Ghana’s reputation for quality cocoa stems from
the national government’s policy of guaranteeing
few and loose out of
quality. Most of commodity production relies on
the reputation of the country; you cannot leave
sight the majority”
this to individual private initiatives. To organise producers in order to upgrade selected
value chains without involving the state is to ask for failure.
69
Experts
Bart de Steenhuijsen Piters, Ph.D., is an expert in the field of institutional development,
innovation dynamics and sustainable business development. He has over twenty one years
of experience, gained through long-term positions in Mali, Cameroon and Tanzania and
numerous short-term assignments in Africa and Asia. In his current function, Bart is leading
KIT’s innovation programmes on local governance and natural resource management, rural
service and innovation systems and sustainable markets and value chains.
Bertus Wennink is a senior advisor on institutional and organizational development for

enhancing demand-driven services for pro-poor development at the Royal Tropical Institute
(KIT). He joined KIT in 1994 and has over 18 years of experience, mainly through long-term
assignments in Mali and Benin and short-term expert missions in West and Central Africa for
donors, government organizations and NGOs.
Bill Vorley is head of the Sustainable Markets Group at the International Institute for
Environment and Development (IIED) in London. His research interests are market structure
and governance, the position of small scale producers, the role of business in sustainable
development and the means to decouple food production and trade from the degradation
of livelihoods and environment. Prior to joining IIED (1999) Bill worked at the Institute for
Agriculture and Trade Policy in Minneapolis, the Leopold Center for Sustainable Agriculture
at Iowa State University and spent many years in agribusiness after post-doctoral field
research in Malaysia.
Celia Coronel is an advisor on value chain development at Institut de Recherche et

d’Application des Méthodes de Développement (IRAM), France, since 2003.
Gert van Dijk was appointed as Professor of Cooperative Business Administration

and Management at the University of Wageningen and became Director General of the
National Council of Cooperatives in 1990. He was President of the European Federation of
Agricultural Cooperatives in Brussels and a member of the Board of Directors of Rabobank
until 2003. Gert currently is professor of Entrepreneurship at Nyenrode University and
director of the Netherlands Institute of Cooperative Entrepreneurship at the Business School
of the University of Tilburg. He worked for OECD and the EU Commission and is presently
Chairman of the Commission for Economic Policy of the Ministry of Economic Affairs.
Hans Overgoor. After completing his degree in Economics at Tilburg University, Hans
joined Unilever as a management trainee; he has held many different positions, initially in
marketing/sales and later in senior executive positions in Netherlands, Nigeria, Romania
and Poland. Since his retirement he has been non executive member of boards of different
companies in the Netherlands and abroad. Over the past years he has been actively involved
in companies operating in the field of organic food. Hans is board member of DO-IT
70
Experts
Jo Swinnen is professor of Development Economics and Director of the LICOS-Centre for
Institutions and Economic Performance, a Centre of Excellence at the University of Leuven.
He holds a PhD from Cornell University. He is Senior Research Fellow at the Centre for
European Policy Studies (CEPS), Brussels. Previously he was Lead Economist at the World
Bank and Economic Advisor at the European Commission. He further acts as coordinator of
several international research networks and projects on food policy, institutional reforms,
transition, political economy, globalization and agricultural trade.
Jon Hellin is a researcher at the International Maize and Wheat Improvement Center
(CIMMYT) based in Mexico. He has nineteen years’ agricultural research and rural
development experience from Latin America, South Asia and East Africa. After completing a
cross-disciplinary PhD on smallholder land management in Central America, his research has
focused on farmers’ access to markets.
Jos Bijman conducted a PhD thesis on ‘Agricultural Co-operatives, Governance Structure

in Fruit and Vegetable Chains’. From 1991 to 2003 he worked as a senior researcher at the
Agricultural economics Research Institute. In 2003 he joined Wageningen University as
assistant professor in management and organisation. He is teaching courses on management
and economic organization theory. His research deals with organization and quality in
international value chains. More particularly, his research focuses on the interaction
between horizontal collaboration among producers and vertical collaboration in value or
supply chains, both in developed and developing countries
Jur Schuurman studied Human Geography in Groningen and Utrecht, the Netherlands
and worked at the National University of Costa Rica. In 1991 he joined Agriterra. Jur is
deputing managing director and head of the monitoring and evaluation department.
Mark Lundy is a Researcher at the International Center for Tropical Agriculture (CIAT)
in Colombia. His work focuses on rural enterprise development with smallholder farmers
and includes topics such as the establishment of learning networks to increase NGO and
farmer capacities for enterprise development, partnerships between private companies
and smallholder farmers, the role of public and donor agencies in supporting better market
linkages. Mark is lead author of a series of guides on participatory rural enterprise development
and an active participant in the Sustainable Food Lab and other multi-stakeholder forums
focused on sustainability and smallholder inclusion in Latin America and Africa.
Miet Maertens is professor Agricultural- and Development economics at the section

Agricultural and food economics of the University of Leuven. After completing a PhD on
Economic modelling of Agricultural-Land Use Patterns in Forest-Frontier Areas at the
Georg-August University Goettingen (Germany), her research has focused on sustainable
food chains, trade and food standards, gender and food security with a geographical focus
on Africa and Latin America
71
Experts
Poppe Braam studied sociology but decided to engage in organic farming. He started
an organic farm (1980) and a shop (1982). Growing demand stimulated Poppe to set up a
distribution system for organic products. In 1990 he established the import company DO-IT
b.v. Poppe also became founding board member of SKAL certification.
Rajeev Roy teaches entrepreneurship at Xavier Institute of Management Bhubaneswar,

India and in several institutions in India, USA and Thailand.
Before joining academics, he was an entrepreneur. His entrepreneurial ventures include
aquaculture, food processing, dairy, microfinance and business process outsourcing. His
current research interests include value chains led by the private sector and entrepreneurship
development policies. He has written a book, Entrepreneurship, Oxford University Press.
Paule Moustier is a food market specialist at CIRAD, a French research centre specializing
in tropical agriculture. She was based in Vietnam between 2002 and 2009, where she has
been in charge of a project concerning small farmers’ access to supermarkets and other
value chains. In her fifteen years of experience in Africa and Asia, she has been involved in
research and training in the areas of food marketing, peri-urban agriculture and institutional
economics applied to commodity chain analysis.
Ruerd Ruben is professor of Development Economics and director of the Centre for
International Development Issues Nijmegen (CIDIN). He is particularly associated with
processes of poverty control, producer organizations and rural development. He conducts
field research with respect to the role of entrepreneurship of small and medium-sized
businesses in developing countries and he investigates the possibilities of participation of
producer organizations in international and national trade networks. His current research is
oriented towards labour markets (migration), land (permanent land use) and capital (micro
credits and insurances). Ruerd Ruben lived and worked for a long period in Central America
and in addition to this he conducts research in sub Sahara Africa and in China.
72
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coordination in food value chains in developing and transition countries. Agricultural
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and Vegetable Chains. ERIM Ph.D serie research in management 15. Erasmus University,
Rotterdam
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cooperatives, for-profit firms and the cost of procurement. Journal of Economic Behavior
and Organization 72, 322-343
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ownership-control rights typology. Applied Economic Perspectives and Policy 26, 348.
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development: a global production networks perspective. Transactions of the Institute of
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- Dijk,G. and Klep,L. (2006). Als de markt faalt: inleiding tot coöperatie. Sdu Uitgevers, Den
Haag
- Gereffi, G., Humphrey, J., Sturgeon, T.(2005) The governance of global value chains. Review
of international political economy 12, 78-104
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markets. Center for Agricultural and Rural Development. Working Paper 02-WP 316. Center
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- Hueth,B. and Marcoul,P. (2006). Information Sharing and Oligopoly in Agricultural
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- Kalogeras,N., Pennings,J.M.E., van der Lans,I.A., Garcia,P., and van Dijk,G. (2009).
Understanding heterogeneous preferences of cooperative members. Agribusiness 25, 90-111.
- Koning de, M. and Steenhuijsen Piters de, B. (2009). Farmers as Shareholders, a close look
at recent experience. KIT bulletin 390
- Mercoiret,M.R., Pesche,D., and Bosc,P.M. (2006). Rural Producer Organizations (RPOs) for
pro-poor sustainable development. World Bank. Washington, DC.
- OXFAM-NOVIB. Penrose-Buckley, C. (2007) Producer Organizations: A Practical Guide to
Developing Collective Rural Enterprises.
- Shepherd,A.W., Cadilhon,J.J., and Galvez,E. (2009) Commodity associations: a tool for
supply chain development? Agricultural Management, Marketing and Finance Occasional
Paper, FAO.
Market Access
- Bijman, J., Ton,G., and Meijerink,G. (2007). Empowering Small holder Farmers in Markets.
Wageningen Acadamic Publishers
- Bernard,T. and Spielman,D.J. (2009). Reaching the rural poor through rural producer
organizations? A study of agricultural marketing cooperatives in Ethiopia. Food Policy 34,
60-69.
- Chirwa,E.,Dorward, A., Kachule, R., Kumwenda, I., Kydd, J., Poole, N., Poulton, C.,
Stockbridge, M. (2004). Walking Tightropes: supporting farmer organizations for market
access. ODI natural resource perspectives 99
- Hellin,J., Lundy,M., and Meijer,M. (2009). Farmer organization, collective action and
market access in Meso-America. Food Policy 34, 16-22.
- Markelova,H., Meinzen-Dick,R., Hellin,J., and Dohrn,S. (2009). Collective action for
smallholder market access. Food Policy 34, 1-7.
- Umali-Deininger,D. (2008). Linking Small Farmers to the Market. Development Outreach
10, 31-44.
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enhancing rural innovation in Sub-Saharan Africa. KIT bulletin 380
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farmers. Agro-industries for Development; 186
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Business models for sustainable development, IIED Briefing
77
78
Authors
Ellen Mangnus
Junior advisor Sustainable Economic Development at the Royal Tropical institute. She has
a special interest in farmer organisations and access to markets. Ellen pays importance to
transferring knowledge into practice and the other way around, different field experiences
resulted in the writing of this booklet.

Area leader of Sustainable Economic Development at the Royal Tropical Institute. He holds
a PhD in agro-system theory and is a known advocate for diversity thinking. His current
activities concentrate on value chain development and sustainable equity investments in
developing countries.
Ellen Mangnus Bart de Steenhuijsen Piters
79
COLOPHON
KIT Development Policy & Practice
KIT Development Policy & Practice is the Royal Tropical Institute’s main department for
international development. Our aim is to contribute to reducing poverty and inequality
in the world and to support sustainable development. We carry out research and provide
advisory services and training in order to build and share knowledge on a wide range
of development issues. We work in partnership with higher education, knowledge and
research institutes, non-governmental and civil society organizations, and responsible
private enterprises in countries around the world.
Contact information
Royal Tropical Institute (KIT)
KIT Development Policy & Practice
PO Box 95001
1090 HA Amsterdam
The Netherlands
Telephone: +31 (0)20 568 8458
Fax: +31 (0)20 568 8444
Email: development@kit.nl
Website: www.kit.nl/development
Authors
Ellen Mangnus
Graphic Design
Evelien De Mey
Illustrations
Hajo de Reijger
© 2007 KIT, Amsterdam, The Netherlands
This is an open access publication distributed under the terms of the Creative Commons
Attribution Licence which permits unrestricted use, distribution and reproduction in any
medium, provided the original author and source are credited.
ISBN 978-9460221262
Dealing with small scale producers
Both the private sector and the small scale producer have a stake and reap benefits from
their collaboration in the value chain. This relationship can be coordinated and maintained
by a producer organisation. And a producer organisation can play a central role in enhancing
this cooperation. In many cases, however, this is not achieved; either the business actor
or the producer is not fully satisfied. There is great diversity in producer organisations and
also in their capacities; consequently, there is confusion about which form of organisation
is appropriate for a particular business aim. The underlying goal of this publication is to
contribute to the understanding of producer organisations and the potential benefit that
they can bring to enhance particular business relationships.
ISBN 978-9460221262
9 789460 221262

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AGRI BUSINESS ENTERPRISE DYNAMICS

MODULE II: CASES

Prof KV Raju & Prof EN Reddy

CASE 01. Amul-Cooperative – Design and Operational Efficiency

CASE 02. AGROCEL

CASE 03. MEADOW

CASE 04. Women in Agri Value Chain

CASE 05. LIJJAT

CASE 06 Rural Enterprises

Agribusiness Subsector Assessments

A Subsector is defined as a vertical grouping of enterprises involved in the production and

II. Key Principles and Issues

• Competition: In agriculture, competition exists across every level. Small-scale farmers

• Stakeholder commitment: A critical condition for a successful project design, as well as

IIIa. The Roadmap

• Channels: Channels are made up of participants, differentiated by technologies, functions and

IIIb. How to do a Subsector Assessment.

Step 1. Define Subsector for study.

Step 2. Familiarization with the subsector.

- What are the main functions in the subsector?

Step 3. Draw preliminary subsector map.

Figure 1. Generic Subsector Map

Channel 1 Channel 2 Channel 3

= Skipped or implicit function

Step 4. Specify Environment.

REFINE YOUR UNDERSTANDING

Step 5. Refine subsector map.

Figure 2. Morrocan Strawberry Subsector Map

FRESH AND FROZEN STRAWBERRY

CHANNEL I CHANNEL II CHANNEL III

Step 6. Quantify "overlays" of particular interest.

IDENTIFY LEVERAGED INTERVENTIONS

Step 7. Analyze dynamics.

In the strawberry subsector three key driving forces were identified:

Step 8. Identify sources of leverage.

Step 9. Explore opportunities for leveraged intervention.

Sample Subsector Report Outline

Related Learning Tools on this site

ACDI/VOCA Agricultural Cooperative Development International/Volunteers in Overseas

GEMINI Publications Series available from PACT Publications:

The Subsector Methodology: A Field Orientation for CARE/Egypt, January 20-February 7,

Kumar, Krishna. 1990. Conducting Mini-Surveys in Developing Countries. A.I.D. Program

Wilcock, David C. "The Subsector Approach to Agribusiness Projects." Developing Alternatives 1,

Name of the FPO:

Proposed commodity and

Physical Resources &

Business Idea and Business

Gap Analysis (Product, Price, Weight,

Cost Benefit Analysis

Projected Income and Expenditure

Projected Profit and Loss

Projected Balance Sheet

a. Copy of micro plan in local language

Charts with pens

1.1 Why Do You Need a Business Plan? ..................................................................................................... 4

1.2 What can a Business Plan do for you? ................................................................................................. 4

1.3 How will this handbook help you? ........................................................................................................ 4

1.4 The Business Plan belongs to you ........................................................................................................ 4

2 The Malta Enterprise Business Planning Philosophy ................................................................................. 5

2.1 What a Business Plan is not.................................................................................................................. 5

2.2 What a Business Plan is ........................................................................................................................ 5

2.3 Identifying your needs ........................................................................................................................... 5

2.4 The thinking process ............................................................................................................................. 5