Market Systems and Value Chain Development

Introduction to value chains and market systems

Value chain development: process and targeting the poor

Sharing experiences: good practices, challenges and actions

Why are we interested in value chain approaches?

The value chain approach can be a

powerful tool to create wealth in poor communities and to

promote equitable economic growth

Why are we interested in market systems?

Value chains exist within market systems

VC

Value Chain (VC)

Full range of activities required to bring a

product or service from the start, through different

phases of production,delivery to final consumers,

and final disposal after use

Full range of activities required to bring a

product or service from the start, through different phases of production,

delivery to final consumers, and final disposal after use

Bag of chickpeasCarton of milk

T-shirt Education

Full range of activities required to bring a

product or service from the

start, through different phases of production,

delivery to final consumers, and final disposal after use

Narrow sense = activities within a firm/business

Broad sense = activities implemented by various

actors

Input Suppliers

Producers

Processors/Traders

WholesalersExporters

National RetailersGlobal Retailers

Group work: example of a value chains

A value chain exists when all the actors in the chain

operate in a way that maximizes the generation of

value along the chain

Value is added to the preliminary product

The value of the product increases as it passes

through several stages of the value chain

Value = combination of other resources e.g. tools, manpower, knowledge and skills,

other raw materials or preliminary products

Source: Herr, M.L. and Muzira, T.J. (2009). Value chain development for decent work. ILO

Group work: identify costs and add value to your value chain

Core Function

Supply Demand

Core Function

Supply Demand

Infrastructure

Information

Related Services

SUPPORTING

FUNCTIONS

Informing & communicating

Coordination

R&DSkills & capacities

Core Function

Supply Demand

Infrastructure

Information

Related Services

SUPPORTING

FUNCTIONS

Informing & communicating

LawsInformal rules & norms Non-statutory

regulations

Sector-specific regulations & standards

RULES

Setting & enforcing rules

Coordination

R&DSkills & capacities

Core Function

Supply Demand

Infrastructure

Information

Related Services

SUPPORTING

FUNCTIONS

Informing & communicating

LawsInformal rules & norms Non-statutory

regulations

Sector-specific regulations & standards

RULES

Setting & enforcing rules

Private sectorGovernment

Informal networks

Not-for-profit sector

Business member organisations

MARKET ACTORSDelivering & resourcing different functions

Coordination

R&DSkills & capacities

Work/employee member organisations

Source: Springfield Centre

The Market System

Group work: using your example of a value chain, build

and example market system around that chain

VCD

Value Chain Development (VCD)

Making the consumer/ customer at the end of the

value chain happy

Stakeholders along a particular value chain need

to cooperate and coordinate their activities

VCD is a market-orientated approach

5 key drivers of change that could prompt VCD

1. System EfficiencyReduce costs and increase efficiencies

2. Product QualityIncrease the quality of products

3. Product differentiationCompetitive advantage –

continuous innovation and learning

4. Social & Environmental Standards

Improve social standards and minimize environmental impact

5. Enabling Business Environment

Working to support not hinder value chain activities

1. System Efficiency2. Product Quality3. Product differentiation4. Social & environmental standards5. Enabling business environment

How do we do VCD programming?

1. Sector Selection

Sector?

Economic sectors: agriculture, industry and

services

Narrower definition (subsectors) = tea, dairy,

embroidery

Within a sector we often find several value chains

How do we select a sector?

Selecting sectors• Define objectives and target groups• Decide on selection criteria• Rapid assessment of available sectors• Application of selection criteria in

consultative meeting with stakeholders

Criteria Proposed subsector

  Rice Dairy Handicrafts

Unmet market demand  3 1 2

Potential to increase rural incomes   2 1 2

Potential for employment generation   2 2 1

Government or donor interest/existing support for programs  3 2 1

Total weighted score 10 6 6

Application of selection criteria

Rank 1 = low, 3 = high

Criteria Proposed subsector

  Rice Dairy Handicrafts

Unmet market demand (x2) 3 x 2 = 6 1 x 2 = 2 2 x 2 = 4

Potential to increase rural incomes  (x3) 2 x 3 = 6 1 x 3 = 3 2 x 3 = 6

Potential for employment generation  (x3)  2 x 3 = 6 2 x 3 = 6 1 x 3 = 3

Government or donor interest/existing support for programs (x1) 3 x 3 = 9 2 x 3 = 6 1 x 3 = 3

Total weighted score 27 17 16

Application of selection criteria

Rank 1 = low, 3 = high

Not always necessary – may be pre-defined

2. Research, Analysis and Mapping

Sector research Value chain analysis (VCA)

and research Value chain mapping

Primary research and stakeholder analysis & initial value chain map

Cross-cutting issues – gender, environment

Value Chain Analysis (VCA) or research

Refine the value chain map

Input Suppliers (seeds, tools, fertilisers etc)

Input Suppliers (seeds, tools, fertilisers etc)

Sml/med scale processors (Local RMUs, storing,

drying, milling, finance)

Sml/med scale processors (Local RMUs, storing,

drying, milling, finance)

By-product traders

By-product traders

By-product processors

By-product processors

Village collectorsVillage collectors

Irrigated rice farmers

Irrigated rice farmers

Large-scale processorsLarge-scale processors

Sector-specific

providersCross-cutting

providers including financial

Government (BULOG)

Sector-specific

providersCross-cutting

providers including financial

Government (BULOG)

Rainfed ricefarmers

Rainfed ricefarmers

By-product traders

By-product traders

Large TradersLarge Traders

Wholesalers & Distributers

Wholesalers & Distributers

N. Aceh Kiosks

N. Aceh Kiosks

Medan retail/restaurants

Medan retail/restaurants

Medan Kiosks

Medan Kiosks

Biscuit & animal feed processors

Biscuit & animal feed processors

N. Aceh retail/

restaurants

N. Aceh retail/

restaurants

N. Aceh low-end

consumers

N. Aceh low-end

consumers

Medan high-end

consumers

Medan high-end

consumers

Medan low-end

consumers

Medan low-end

consumers

Biscuit consumers & animals

Biscuit consumers & animals

N. Aceh high-end

consumers

N. Aceh high-end

consumers

Local enabling environmentRegional enabling environment

National enabling environment

BULOGBULOG

HH consumption

Use of recycled oil in frying

(street vendors)

Use of recycled oil in frying

(street vendors)

Opportunities

P

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T

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fo

od

p

rep

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R

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C

on

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In

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ly

Use plastics in frying tofu to add crunch –health issues (street

vendors)

Use plastics in frying tofu to add crunch –health issues (street

vendors)

Use of formaldehyde & boraxUse of formaldehyde & borax

Inefficient production methods

Inefficient production methods

Waste water management problemWaste water management problem

Limited local soybean supplyLimited local soybean supply

Dependence on soybean importsDependence on soybean imports

Lo

w s

hel

f lif

eL

ow

sh

elf

life

Lac

k o

f fi

nan

cial

acc

ess

Lac

k o

f fi

nan

cial

acc

ess

Lim

ited

ad

voca

cy f

or

tofu

pro

du

cers

ass

oci

ated

wit

h

go

od

hea

lth

pra

ctic

es

Lim

ited

ad

voca

cy f

or

tofu

pro

du

cers

ass

oci

ated

wit

h

go

od

hea

lth

pra

ctic

es

Used cooking oil stoves(street vendors)

Used cooking oil stoves(street vendors)

Application of good health practices(street vendors)

Application of good health practices(street vendors)

Linking with formal markets

Linking with formal markets

Cleaner production knowledge

Cleaner production knowledge

Use of liquid waste for biogas

Use of liquid waste for biogas

Mar

keti

ng

info

rmat

ion

on

hea

lth

y as

pec

ts o

f to

fuM

arke

tin

g in

form

atio

n o

n h

ealt

hy

asp

ects

of

tofu

Imp

rovi

ng

acc

ess

to f

inan

ce (

links

to

MF

Is, f

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cial

lit

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y )

Imp

rovi

ng

acc

ess

to f

inan

ce (

links

to

MF

Is, f

inan

cial

lit

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y )

Constraints

High price of cooking oilHigh price of cooking oil

Linkages with larger input suppliers

Linkages with larger input suppliers

3. Finding upgrading solutions

Upgrading?

Acquiring technological capabilities and market

linkages to increase competiveness and move to high-

value activities

Types of possible upgrading – with a focus on

the poor

1. Process upgrading: efficiency of production

2. Product upgrading: introduction of new products or

improving old products

3. Functional upgrading: changing to a higher value-added

level in the value chain

Look at the effect of the upgrade on the whole chain

Determine the most effective level to upgrade

Questions to consider when targeting the poor

Who are the local innovators?

What are the mechanisms present in the community to

share, maintain and collectively develop skills and

knowledge?

Can the poor afford it?

Can the poor copy it?

What will be the impact of the poor as….

Producers

Labourers

Consumers

VCD Project Cycle

Source: Herr, M.L. and Muzira, T.J. (2009). Value chain development for decent work. ILO

• The VC approach can be a powerful tool to create wealth in poor communities and to promote equitable economic growth

• Seeing producers as part of value chains, and value chains as part of market systems, offers the opportunity for systemic change rather than traditional subsidization approach

Promising practices, challenges and ideas to improve those challenges

(TOPS and others)

This presentation was made possible by the generous support of the American people through the United States Agency for International Development (USAID) Office of Food for Peace. The contents are the responsibility of Save the Children and do not necessarily reflect the views of USAID or the United States Government.

Today’s sessions

• What was great

• What was not so great

• Recommendations for tomorrow or next time