An Introduction to Value Chain Analysis

Agenda

What is a value chain?

What is value chain analysis?

How Does VCA helps in understanding sectors?

How can we conduct value chain analysis?

How does the VC approach help in Greening?

Origins of value chain

Michael Porter,1990, Competitive Advantage of Nations

Gereffi, 2005, The Governance of Global Value Chains

Sector, Sub-sector and Value Chain

Sector Agriculture Tourism Sub Sector Vegetables

Staples Dairy Products Meat

Ecotourism Sea side tourism Adventure tourism

Value Chains Of vegetables Tomatoes Ginger Pineapple Staples Cereals

Of ecoturism: Natural park hiking Bird watching Camping

What is a Value Chain

What is a value chain

The full range of activities that are required to bring a product or service from its conception to its end use.

Goatery Value Chain

Processing

Inputs

Production

Wholesale

Retailing

Ginger Value Chain

Source: Linda Jones, VCA Presentation, Coady, 2012

A Value Chain System

An economic system that has a value chain and its transactions at its core

Places the value chain within a larger system

The system includes enabling environment, business environment, socio-cultural context, and support services including finance

In development, when people talk about ‘value chain development’ they are typically referring to the whole system

How does sub sector analysis help? Vertical perspective Cooperation Competition – Cost advantage

and product differentiation Leverage

Source: Haggblade and Gamser, 1991

Value Chain (VC)

A sequence of related business activities (functions) from the provision of specific inputs for a particular product to primary production, transformation, marketing, and up to the final sale of the particular product to consumers.This is the functional view of a value chain.

VC definitions adapted from the GTZ ValueLinks Manual, The Methodology of Value Chain Promotion, First Edition, Eschborn, 2007

Value Chain (VC)

The set of enterprises (operators) performing these functions i.e. producers, processors, traders and distributors of a particular product. Enterprises are linked by a series of business transactions in which the product is passed on from primary producers to end consumers. This is the operational view of a value chain.

According to the sequence of functions and operators, value chains consist of a series of chain links or stages.

VC definitions adapted from the GTZ ValueLinks Manual, The Methodology of Value Chain Promotion, First Edition, Eschborn, 2007

Typical Value Chain (Actors Only)

Farmers(Formal and informal groups)

Suppliers

Transporters

Processing Factories

(Value Addition)

RetailersConsumers at Formal MarketWholesalers

Input Suppliers

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Commercial (and social) interests

Wholesalers RetailersConsumers at Informal Market

Typical Value Chain (Actors & Supporters)

Farmers(Formal and informal groups)

Suppliers

Transporters

Processing Factories / Value Addition

RetailersConsumers at Formal MarketWholesalers

Input Suppliers

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Intra-chain / Inter-actor support, coordination, management. Improving efficiency and transparency of transactions

Commercial (and social) interests

Wholesalers Retailers Consumers at Informal Market

Interventions, business support

Support of development goals and public interests, payment

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Research Bodies NGOs BDS ProvidersExtension State Bodies Banks

Financial ServicesNon-financial Services

Microfinance Institutions

National / International Enabling Environment

Value Chain Approach: Key Principles

A system perspective A focus on end markets Understanding the role of value chain actors

and governance Recognition of the importance of

relationships Facilitating changes in enterprise behavior

and relationships Linkages and empowerment

How Does VCA helps in understanding sectors?

• The approach helps visualize the big picture and the environment under which the economic activity operates

• The value chain structure, processes and relationships

• It can shed light on how firms, regions and countries are linked to the global economy

• Identifies key stakeholders

• Identifies opportunities and constraints (in order to achieve desired outcome)

• Helps in assessing competitive potential

• It allows for the analysis of ‘leverage’ – small focused inputs that generate commensurately larger outputs

VCA Different Entry Points Primary area of interest

Entry point What to map Example

The global distribution of income

The final consumer in a sector

Backwards down the entire chain toretailers, buyers and producers

In food, begin withsupermarkets

Gender, ageand ethnicity

Role of women at production

Use of female labor throughoutvalue chain

In clothing, women incotton farms, factories,export agents, designhouses, advertisingagencies, retail stores

Informaleconomyproducers andtraders

Home based workers,street traders

Forwards to processors,assemblers or third partyorganizers/distributors, backwardsto retailers

Outsourcing in clothingand shoes, recyclingcardboard cartons tomills, street based touristhandicrafts

Low carbon

How does the VC approach help in Greening?

https://www.youtube.com/watch?v=cpYhgqPRivw The idea of value chain is associated with the concept

of governance which is of key importance from greening standpoint

By mapping a range of activities along the chain, and within a relatively complex system, it can help to identify where greening, climate science fits

It can help to identify where public incentives (regulations, subsidies etc. ), and private incentives fit and how these can be aligned

Both push and pull strategy (not just provide the technology but the economic incentive to do that).

Steps in value chain analysis

Sub Sector/ Value Chain Selection

Mapping and analysis Analysis of the

markets Analysis of

potentials/opportunties and constraints

Analysis of solutions, Design of

interventions