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Agricultural value chain
An agricultural value chain is the integrated range of goods and services (value chain) necessary for an agricultural product to move from the producer to the final consumer. The concept has been used since the beginning of the millennium, primarily by those working in agricultural development in developing countries, although there is no universally accepted definition of the term.
The term value chain was first popularized in a book published in 1985 by Michael Porter, who used it to illustrate how companies could achieve what he called “competitive advantage” by adding value within their organization. Subsequently, the term was adopted for agricultural development purposes and has now become very much in vogue among those working in this field, with most bilateral and multilateral aid organisations using it to guide their development interventions.
At the heart of the agricultural value chain concept is the idea of actors connected along a chain producing and delivering goods to consumers through a sequence of activities. However, this “vertical” chain cannot function in isolation and an important aspect of the value chain approach is that it also considers “horizontal” impacts on the chain, such as input and finance provision, extension support and the general enabling environment. The approach has been found useful, particularly by donors, in that it has resulted in a consideration of all those factors impacting on the ability of farmers to access markets profitably, leading to a broader range of chain interventions. It is used both for upgrading existing chains and for donors to identify market opportunities for small farmers.
There is no commonly agreed definition of what is actually meant by agricultural value chains. Indeed, some agencies are using the term without having a workable definition or definitions and simply redefined ongoing activities as “value chain” work when the term came into vogue. Published definitions include the World Bank’s “the term ‘’value chain’’ describes the full range of value adding activities required to bring a product or service through the different phases of production, including procurement of raw materials and other inputs”, UNIDO’s “actors connected along a chain producing, transforming and bringing goods and services to end-consumers through a sequenced set of activities”, and CIAT’s “a strategic network among a number of business organizations”.
Without a universal definition, the term “value chain” is now being used to refer to a range of types of chain, including:
Donors and others supporting agricultural development, such as FAO, World Bank, GIZ, DFID, ILO, IIED and UNIDO, have produced a range of documents designed to assist their staff and others to evaluate value chains in order to decide on the most appropriate interventions to either update existing chains or promote new ones. However, the application of value chain analysis has been interpreted differently by different organisations, with possible repercussions for their development impact. The proliferation of guides has taken place in an environment where key conceptual and methodological elements of value chain analysis and development are still evolving. Many of these guides include not only detailed procedures that require experts to carry out the analysis but also use detailed quasi-academic methodologies. One such methodology is to compare the same value chain over time (a comparative or panel study) to assess changes in rents, governance, systemic efficiency and the institutional framework.
A major subset of value chain development work is concerned with ways of linking producers to companies, and hence into the value chains. While there are examples of fully integrated value chains that do not involve smallholders (e.g. Unilever operates tea estates and tea processing facilities in Kenya and then blends and packs the tea in Europe before selling it as Lipton, Brooke Bond or PG Tips brands), the great bulk of agricultural value chains involve sales to companies from independent farmers. Such arrangements frequently involve contract farming in which the farmer undertakes to supply agreed quantities of a crop or livestock product, based on the quality standards and delivery requirements of the purchaser, often at a price that is established in advance. Companies often also agree to support the farmer through input supply, land preparation, extension advice and transporting produce to their premises.
Work to promote market linkages in developing countries is often based on the concept of “inclusive value chains”, which usually places emphasis on identifying possible ways in which small-scale farmers can be incorporated into existing or new value chains or can extract greater value from the chain, either by increasing efficiency or by also carrying out activities further along the chain. In the various publications on the topic the definition of “inclusion” is often imprecise as it is often unclear whether the development aim is to include all farmers or only those best able to take advantage of the opportunities. Emerging literature in the last two decades increasingly references the value of responsible sourcing or what are called “sustainable supply chains”.
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Agricultural value chain
An agricultural value chain is the integrated range of goods and services (value chain) necessary for an agricultural product to move from the producer to the final consumer. The concept has been used since the beginning of the millennium, primarily by those working in agricultural development in developing countries, although there is no universally accepted definition of the term.
The term value chain was first popularized in a book published in 1985 by Michael Porter, who used it to illustrate how companies could achieve what he called “competitive advantage” by adding value within their organization. Subsequently, the term was adopted for agricultural development purposes and has now become very much in vogue among those working in this field, with most bilateral and multilateral aid organisations using it to guide their development interventions.
At the heart of the agricultural value chain concept is the idea of actors connected along a chain producing and delivering goods to consumers through a sequence of activities. However, this “vertical” chain cannot function in isolation and an important aspect of the value chain approach is that it also considers “horizontal” impacts on the chain, such as input and finance provision, extension support and the general enabling environment. The approach has been found useful, particularly by donors, in that it has resulted in a consideration of all those factors impacting on the ability of farmers to access markets profitably, leading to a broader range of chain interventions. It is used both for upgrading existing chains and for donors to identify market opportunities for small farmers.
There is no commonly agreed definition of what is actually meant by agricultural value chains. Indeed, some agencies are using the term without having a workable definition or definitions and simply redefined ongoing activities as “value chain” work when the term came into vogue. Published definitions include the World Bank’s “the term ‘’value chain’’ describes the full range of value adding activities required to bring a product or service through the different phases of production, including procurement of raw materials and other inputs”, UNIDO’s “actors connected along a chain producing, transforming and bringing goods and services to end-consumers through a sequenced set of activities”, and CIAT’s “a strategic network among a number of business organizations”.
Without a universal definition, the term “value chain” is now being used to refer to a range of types of chain, including:
Donors and others supporting agricultural development, such as FAO, World Bank, GIZ, DFID, ILO, IIED and UNIDO, have produced a range of documents designed to assist their staff and others to evaluate value chains in order to decide on the most appropriate interventions to either update existing chains or promote new ones. However, the application of value chain analysis has been interpreted differently by different organisations, with possible repercussions for their development impact. The proliferation of guides has taken place in an environment where key conceptual and methodological elements of value chain analysis and development are still evolving. Many of these guides include not only detailed procedures that require experts to carry out the analysis but also use detailed quasi-academic methodologies. One such methodology is to compare the same value chain over time (a comparative or panel study) to assess changes in rents, governance, systemic efficiency and the institutional framework.
A major subset of value chain development work is concerned with ways of linking producers to companies, and hence into the value chains. While there are examples of fully integrated value chains that do not involve smallholders (e.g. Unilever operates tea estates and tea processing facilities in Kenya and then blends and packs the tea in Europe before selling it as Lipton, Brooke Bond or PG Tips brands), the great bulk of agricultural value chains involve sales to companies from independent farmers. Such arrangements frequently involve contract farming in which the farmer undertakes to supply agreed quantities of a crop or livestock product, based on the quality standards and delivery requirements of the purchaser, often at a price that is established in advance. Companies often also agree to support the farmer through input supply, land preparation, extension advice and transporting produce to their premises.
Work to promote market linkages in developing countries is often based on the concept of “inclusive value chains”, which usually places emphasis on identifying possible ways in which small-scale farmers can be incorporated into existing or new value chains or can extract greater value from the chain, either by increasing efficiency or by also carrying out activities further along the chain. In the various publications on the topic the definition of “inclusion” is often imprecise as it is often unclear whether the development aim is to include all farmers or only those best able to take advantage of the opportunities. Emerging literature in the last two decades increasingly references the value of responsible sourcing or what are called “sustainable supply chains”.