USING VALUE CHAIN APPROACHES IN AGRIBUSINESS AND AGRICULTURE

216 Pages·2008·2.78 MB·English

by  Gregory Connor

USING VALUE CHAIN APPROACHES IN
AGRIBUSINESS AND AGRICULTURE IN
SUB-SAHARAN AFRICA

A METHODOLOGICAL GUIDE

Tools That Make Value Chains Work:
Discussion and Cases

Prepared for the World Bank
J.E. Austin Associates, Inc.
Principal Author:
Martin Webber, J.E. Austin Associates, Inc.
Program Director:
Patrick Labaste, The World Bank

Acknowledgements

This Guide was prepared by J.E. Austin Associates for the Sustainable Agriculture Group of the
World Bank. The work was directed by Mr. Patrick Labaste of the World Bank. The Principal
Author and team leader was Mr. Martin Webber, Executive Vice President of J.E. Austin
Associates, Inc.

Principal contributors and coauthors from J.E. Austin Associates included Marcos Arocha,
Virginia Brandon, Lisa Carse, Grant Cavanaugh, Michael Ducker, David Feige, Michael
Gorman, Carlton Jones, Jennifer Lynch, Jane Shearer, Justin Stokes, and Gina Tumbarello.
Principal World Bank collaborators were Malick Antoine and Jean-Luc Bosio. Jean Michel
Voisard also served as reviewer.

The authors convened a roundtable of industry experts, who provided suggestions and
experiences that enhanced this Guide. The roundtable participants included : Graeme Dixie,
Richard Henry, Steve Jaffee, Svetlana Meades, Paul Siegel, Yolanda Strachan and Uma
Subramanian of the World Bank Group ; and Susan Bornstein (TechnoServe), Jeanne Downing
(USAID), Paul Guenette (ACDI-VOCA), Olaf Kula (ACDI-VOCA), John Lamb (Abt), Frank
Lusby (Action for Enterprise) and Lynn Salinger (AIRD).

Many, many people contributed their expertise and experience, particularly to the case studies.
They shared their own stories, and their analyses and observations. Their personal experiences
and generous willingness to share their stories and conclusions make this Guide a particularly
rich source of ideas and information. We sincerely apologize for any omissions, which, of
course, are inadvertent.

________________________ ________________________

i
Table of Contents
Acknowledgements..............................................................................................................i
Overview...........................................................................................................................vii
Section 1: Introduction.......................................................................................................1
Agricultural Value Chains and Africa’s Development Agenda.....................................1
Opportunities and Threats of Trade and Market Globalization for African Economies 2
Comparison of Agricultural Productivity.......................................................................4
Objectives of the Guide..................................................................................................6
Organization of the Guide...............................................................................................8
Section 2: Concepts and Definitions of Value Chains/Supply Chains..............................9
Value Chains: Definition of Concepts............................................................................9
How Value-Chain Analysis Has Been Used.................................................................10
Analyzing and Evaluating Value Chains......................................................................11
Limitations of Value Chain Analysis............................................................................12
Implications of the Operating Environment: Beyond the Value Chain........................14
Section 3: Review of Existing Literature on Value/Supply Chains.................................15
Summary of General Themes and Structure from the Literature Review....................20
Creating Trust...........................................................................................................20
Governance: What Type of Power Relationship Exists and Is Information Shared?22
Market or Bargaining Power (Buyer vs. Producer)..................................................23
Innovation, Information, Information Sharing, and Knowledge..............................25
Intervention Entry Points and Initial Focus..............................................................26
Section 4: Discussion of Individual Tools.......................................................................28
Introduction and Overview...........................................................................................28
Theme One: Designing strategies and business plans—Obtaining and using information
.......................................................................................................................................28
Theme Two: Developing robust new businesses..........................................................28
Theme Three: Supplying the market—Aligning supply to match market opportunity 28
Theme Four: Reaching the market—Market positioning and market opportunities....29
Theme Five: Improving the business and policy environment.....................................29
Theme Six: Building partnerships................................................................................29
Theme Seven: Monitoring results in value chain development....................................29
Tool 1: Choosing Priority Sectors for Value Chain Interventions................................32
Initial List..................................................................................................................32
ii
Box 1: How to Choose Value Chains for Intervention: The Example of Senegal's
Project Croissance Economique...........................................................................34
Market Analysis........................................................................................................35
Domestic Capacity and Economic Impact................................................................35
Testing Commitment................................................................................................35
A Step-by-Step Summary of Tool 1: Choosing Priority Sectors for Value Chain
Interventions.............................................................................................................36
Case Study: Prioritizing Value Chains by Using Comparative Analysis—Value Chain Selection
in Mozambique.................................................................................................................37
Case Study: Geomar - Innovative Approaches to Assessing the Competitiveness of Value Chains
……………………………………………………………………………………………43
Tool 2: Designing Informed Strategies Across the Value Chain..................................43
Enhancing Value Chain Productivity........................................................................43
Assessing the Overall Status of the Value Chain......................................................44
Assessing Strategic Productivity...............................................................................48
Assessing Operational Productivity..........................................................................48
Assessing the Quality of Supply Chain Management...............................................49
Assessing Human Resources Across the Value Chain.............................................50
Assessing the Business Environment........................................................................51
Case Study: Understanding the Value Chain and Integrating Information Into Strategy: Nigerian
Domestic Catfish................................................................................................................52
Tool 3: Conducting Benchmarking and Gap Assessments of Value Chains................59
Benchmarking Background......................................................................................59
The Benchmarking Tool...........................................................................................59
Box 2: Uganda Benchmarking Constraints in the Coffee Industry..................61
Box 3: Tanzania Cotton—Benchmarking Costs................................................61
A Step-by-Step Summary of Tool 3: Conducting Benchmarking and Gap Assessments of
Value Chains.............................................................................................................66
Case Study: Uganda Floriculture: Benchmarking and Gap Analysis...............................68
Tool 4: Upgrading and Deepening the Value Chain.....................................................76
Deepening Through Adding Operations.......................................................................76
Box 4: Mongolian Meat Industry—Upgrading the Value Chain.....................77
Methods for Deepening the Value Chain......................................................................78
Box 5: Deepening the Value Chain: Glass Jar Production in Armenia............79
iii
Conclusion....................................................................................................................80
Case Study: Kenyan Green Beans and Other Fresh Vegetable Exports...........................81
Tool 5: Identifying Business Models for Replication...................................................85
Box 6: Replicable Business Models - Rwanda Coffee Washing Stations........85
Box 7: Dairy Pakistan—Identifying and Replicating Business Models within the Value
Chain ...............................................................................................................86
A Step-by-Step Summary of Tool 5: Identifying Business Models for Replication....87
Case Study: Identifying and Implementing Replicable Business Models-Mozambique Cashews
...........................................................................................................................88
Tool 6: Capturing Value Through Forward and Backward Integration........................92
Vertical Integration from the National Value Chain Perspective.................................92
Considerations for Integration......................................................................................95
Box 8: Benefits of Vertical Integration—ZEGA and Zambia’s Horticultural Value
Chain ...............................................................................................................96
Box 9: Bulgaria Wine—Integrating Operations to Secure Sourcing of Raw Material
...............................................................................................................98
Case Study: Capturing Value Through Integration—The Ghanaian Pineapple Industry and Blue
Skies Holdings................................................................................................................100
Tool 7: Horizontal Collaboration - Creating and Taking Advantage of Economies of Scale
.........................................................................................................................105
A Step-by-Step Summary for Tool 7: Horizontal Collaboration - Creating and Taking
Advantage of Economies of Scale..............................................................................106
Case Study: Creating and Taking Advantage of Economies of Scale—The Ghana and Côte
d’Ivoire Experiences.......................................................................................................107
Case Study: Creating and Taking Advantage of Economies of Scale Within the Mozambican
Cashew Value Chain.......................................................................................................111

Tool 8:.................................Positioning Products and Value Chains for Greater Value and
Competitiveness..............................................................................................................116
Box 10: Ecuadorian Cacao—Positioning the Value Chain for Greater Value and
Competitiveness..................................................................................................116
Box 11: Thailand GAP Cluster—Positioning Products (and the Value Chain) for
Greater Value and Competitiveness....................................................................118
Leveraging Other Value Chain Initiatives..................................................................117
iv
Product Positioning.....................................................................................................118
Summary.....................................................................................................................118
A Step-by-Step Summary for Tool 9: Positioning Products and Value Chains for Greater
Value and Competitiveness.........................................................................................120
Case Study: Value Chain Strategies for Market Repositioning—Rwandan Coffee.......121
Tool 9: Applying Standards and Certifications to Achieve Greater Quality...............127
Vocabulary..................................................................................................................127
Standards Are Part of Value Chain Strategy...............................................................128
Elements of Standards.................................................................................................129
Certification Bodies....................................................................................................129
Box 12: Thailand GAP Cluster—Use of Standards and Certifications to Upgrade Value
.............................................................................................................129
Importance of Implementing EurepGAP Through the Value Chain..........................130
Use of Certification and Branding for Local Markets................................................130
Information Channels..................................................................................................131
Management Oversight and Governance....................................................................131
Lead Firms..................................................................................................................131
Associations and Cooperatives...................................................................................132
Government Agencies.................................................................................................132
Box 13: Ecuador Cacao—Improving Quality at the Producer Level to Achieve Higher
Market Prices......................................................................................................132
In Summary.................................................................................................................135
Case Study: Uganda Nile Perch Quality Management and Certification.......................135
Tool 10: Identifying Needed Support Services for the Value Chain.............................141
Box 14: Uganda Cotton—Enterprise-Linked Extension Services Model........141
Box 15: Sri Lankan Cinnamon.........................................................................143
A Step-by-Step Summary for Tool 12: Identifying Needed Support Services for the Value
Chain...........................................................................................................................145
Case Study: Identifying Needed Support Services for the Value Chain—Zambia
Cotton .........................................................................................................................147
Tool 11: Improving the Operating Environment by Promoting Public/Private Dialogue152
Enabling Environment................................................................................................152
Public/Private Dialogue..............................................................................................152
Box 16: Tanzanian Coffee and KILICAFE: Productive Public/Private
Dialogue .............................................................................................................161
v
Case Study: Improving the Operating Environment Through Public/Private Dialogue—Botswana
Cattle Producers Association..........................................................................................158
Tool 12: Achieving Synergies Through Clustering.......................................................164
Background on Clusters..............................................................................................164
The Relationship Between Value Chains and Clusters...............................................165
Cluster Initiatives........................................................................................................165
Cluster Evaluation.......................................................................................................167
Case Study: Achieving Synergies Through Clustering—Kenya Avocados...................168
Tool 13: Monitoring Achievements in Value Chain Performance................................181
Purpose of Monitoring................................................................................................181
Implementing Monitoring in Value Chains................................................................182
Box 17: Standards for Ghanaian Pineapples....................................................183
Box 18: The PAID M&E Framework..............................................................185
Conclusion..................................................................................................................179
SUMMARY AND CONCLUDING THOUGHTS........................................................180
Bibliography...................................................................................................................182
Acronyms........................................................................................................................199
List of Text Boxes (in Order of Appearance).................................................................202
List of Cases (in Order of Appearance)..........................................................................203
List of Tables (in Order of Appearance).........................................................................204
List of Figures (in Order of Appearance).......................................................................205
vi
Overview

This Guide to value chain approaches provides the user with actionable methods and tools to
increase the productivity and performance of sub-Saharan African (SSA) agriculture.
The Guide is intended for use by a number of audiences. Most directly, it provides planners,
decision makers, and implementers with practical tools for creating effective value and supply
chain development programs. It also provides public and private stakeholders with a common
framework for prioritizing decisions on sector and sub-sector competitiveness. Policy makers,
business leaders, members of the development community, researchers, and practitioners can use
these methods and approaches to promote the development of traditional and non-traditional
value chains in sub-Saharan Africa.
Using concrete examples, mostly from African countries, this Guide presents, reviews, and
systematically illustrates a range of concepts, analytical tools, and methodologies which, in turn,
can be used to design, prepare, implement, assess, and evaluate agribusiness development
initiatives. It presents and comments on various conceptual, methodological, and practical
approaches to improving the competitiveness of agricultural supply and value chains. The Guide
stresses the importance of value chain-based approaches and analysis for agro-enterprise and
agro-food chain development in SSA.
Value chains are a key framework for understanding how a product moves from the producer to
the customer. The value chain perspective provides an important means to understand the
business-business relationships, mechanisms for increasing efficiency, and ways to enable
business to increase productivity and add value. It provides a reference point for improvements
in services and the business environment. It is a vehicle for pro-poor initiatives and for linking
small businesses with the market.
Value chains reside at the core of high-impact and sustainable initiatives focused on improving
productivity, competitiveness, entrepreneurship, and SME growth.
Africa's exports remain dominated by primary commodities, and the share of agriculture in
SSA’s total exports has declined sharply in the last 40 years. Only a few SSA countries have
achieved significant diversification of their exports. Despite those trends, agriculture remains the
main export-revenue source for many SSA countries and the largest income generator for their
populations. Much, even most, African agricultural production is of low unit value and the result
of low-productivity value chains. SSA’s agriculture productivity measure of USD 343 value
added per worker (2004) is the world’s lowest - world agricultural productivity per worker
averages three times that of SSA; Latin American productivity per worker averages nearly ten
times the sub-Saharan African average.
Despite the successes of many African exporters in selling to new markets, without further
improvements to their business environments and the competitiveness of their export
commodities, many SSA countries risk being trapped by producing low-skill, low-value products
and services, struggling to obtain a significant value-added share in global trade. The
productivity and efficiency of agricultural value chains are basic to the success of SSA rural
economies and to the incomes of SSA rural populations.
vii
The Guide first examines core concepts and issues relating to value chains. A brief literature
review then focuses on five themes, of particular relevance to African agricultural value chains,
which can contribute to effective implementation tools and approaches:
• Trust and cooperation
• Governance
• Market power
• Innovation and knowledge
• Focus/intervention points.

These topics pertain to conditions and challenges faced by value chain participants and
practitioners. They resonate throughout the many cases described in the Guide.

The bulk of the Guide presents methodological tools and approaches that incorporate important
value chain concepts with the themes discussed and with sound business principles. The
accompanying cases illustrate the application of the tools. The tools and case studies discussed
in this Guide have been selected for their usefulness in directing and supporting market-driven,
private-sector initiative and action.

This Guide offers 13 value chain implementation tools, presented within the implementation
cycle of a value chain program.
• Designing strategies and business plans—Obtaining and using information
• Developing robust new businesses
• Supplying the market—Aligning supply to match market opportunity
• Reaching the market—Market positioning and market opportunities
• Improving the business and policy environment
• Monitoring results in value-chain development

Each tool is followed by descriptions of one or more actual cases. These cases illustrate the
tool’s application, and are coupled with embedded mini-cases for additional illumination.
Roughly 60 percent of the examples are from Africa; others come from Europe, Latin America,
and Asia. The Guide frequently returns to the same cases when describing different tools, which
serves to highlight the multiple dimensions of a single value chain and the rich set of
opportunities value chain initiatives can offer.
viii