www.fao.org/ag/ags

GVC analysis

Resource material prepared for an Advanced Training of Trainers Advanced Workshop to enhance Pro-poor Policy Formulation and Implementation at Country Level (GCP/RAS/276 & TCP/RAS/3405 )30th May - 3rd June 2016, Hanoi, Vietnam.

elements of successful Global Value Chain (GVC) engagement

Supply chain

Input supplier

sProduce

rsAssembl

ers, tradersProcess

orsRetailer

s

Flow of services, goods, products and information

A simple value chain

Design and product

development

Production

Inward logisticsTransforming

inputsPackaging

Marketing Consumption&

recycling

Value Chain Mapping•Mapping the flow of inputs – goods and

services – in the value chain can determine the influence of behaviour and the important roles of other actors in its success.

•The focus is usually on:▫Functions ▫Actors ▫Relationships ▫Enablers

Distribution of rewards• A value chain perspective analyses how firms,

regions and countries are linked to the global economy.

• This will determine the distributional outcomes of global production systems

• Informs about the needs to upgrade capacity to benefit from global integration.

• By focusing on the institutions that drive international specialisation, value chain analysis identifies policy levers which can be used to alter these distributional patterns.

Sources of Rent – rewards for entrepreneurial activity•Distributional outcome

▫Capital -- for its entrepreneurship, risk-taking and ownership of technology),

▫labour (for its effort), and ▫to the owners of natural resources (land

ownership and stewardship).•Sustainable incomes needs to be

measured as▫Value-added (that is output value minus

input costs) at each step of the value chain

Examining the determinants of income distribution•Identifying the nature and extent of

barriers to entry along the chain•Sources of comparative advantage

▫core competences and dynamic capabilities▫inter-firm relationships▫locational advantages/disadvantages

•Government policies▫Incentives, disincentives, access rights, etc

Value Chain Map of off-season vegetable production in Nepal

Source: USAID 2011

Common Flow of Vegetables in Nepal

Inter-provincial wholesalers

Hotels, Restaurants

Service Provision

Financial Services• Loans• Saving• Insurance

Non-financial service• Extension

services• Plant health• Market

information• Soil testing

Physical input• Seeds• Fertilizers• Pesticides• Equipment• Irrigation

Governance

Importers

CHANNEL 2

Imported channel (0.51 million tons)

Production

Aggregation

Wholesaling

Retailing

Domestic Consumers (0.93 million tons)Consumption

CHANNEL 1

Domestic channel ( 0.42 million tons)

Retailers

Wholesalers

Producers

Collectors

Vegetable Value Chain in CambodiaSource: Duong and Khin (2016, Draft)

Inter-provincial wholesalers

Hotels, Restaurants

Service Provision

Financial Services• Loans• Saving• Insurance

Non-financial service• Extension

services• Plant health• Market

information• Soil testing

Physical input• Seeds• Fertilizers• Pesticides• Equipment• Irrigation

Governance

Importers

CHANNEL 2

Imported channel (0.51 million tons)

Production

Aggregation

Wholesaling

Retailing

Domestic Consumers (0.93 million tons)Consumption

CHANNEL 1

Domestic channel ( 0.42 million tons)

Retailers

Wholesalers

Producers

Collectors

56%

44%

3% 37%16%

Relationships within a VC•The value creation is relied upon effective

relationships▫Vertical and Horizontal Linkages

•Vertical Linkages▫attained through cooperation between the

different players or firms▫benefits in transferring skills and share

knowledge to reduce transactions costs

Vegetable Value Chain in Cambodia• Production system

▫ Seasonal production▫ Led by smallholders with limited land▫ Mainly traditional production methods▫ Issues re handling of agrochemicals etc▫ Limited knowledge on harvesting and handling▫ High spoilage

• Post-harvest handling system▫ Traditional methods▫ Lack of knowledge/facilities▫ No processors or exporters

• Weak supporting infrastructure▫ Certification and quality control inadequate

Horizontal Linkages•Relationships among different players

operating at the same level of a value chain▫Benefits from planning and coordination▫Farmer associations,

Avoiding gluts, managing pest and disease risks

▫Traders unions, etc. Supply coordination Price setting

Points to remember•Two key aspects of VCA …

▫Understand the sources, key leverage points and approaches that will maximize value impact

▫How to facilitate VC activities by bringing together the capacities of the public sector, the private sector, and civil society into an effective partnership

▫Identify performance measures that reflect contribution to well-being – economic, environmental and social

Conclusion• Value chain mapping help understand how current

activities in a production system links to local capacity in meeting consumer demand for particular goods and services

▫ By enumerating and quantifying input-output relations, it can assesse broad-based impacts on poverty reduction in agriculture in the context of globalization

▫ Informs how economic integration into global product markets can enhance local benefits

▫ Identifies ways to improving performance in order to realize full potential of domestic resources

• Value chain mapping thus informs policy analysis that seeks to facilitate gainful links and address risks in Global Value Chain engagement.