The Value Chain Concept

In a situation of food shortages, farmers tend to focus on production. Farmers try to produce as much as they can. Production is important, but there are also other aspects to consider that affect their livelihoods.
The figure below illustrates the actors along the agricultural VC and how one stage in a VC influences the other stages. It also emphasises the key role of support services in provision of technical advice, credits and other services to VC actors. Furthermore, it points out the need for two-way information flow, both horizontally and vertically.

Figure . The interaction of stakeholders along and within a value chain.

The idea of VC thinking is that the success of an individual actor linked to agricultural production is conditioned by the success of other actors engaged in the same end product. For example;seed and fertilizer suppliers are dependent on farmers’ ability to buy inputs; farmers are dependent on retailers; and retailers are dependent of what consumers buy. When farmers are aware of what retailers, the food industry and consumers prefer, they can adjust their production to meet the market needs. Information must move from “seed to plate” and also from “plate to seed”.
In addition to actors participating directly in a chain by cultivation, trading or consumption, there are external actors providing services to the chain – e.g. extension agents, agriculture research and banks. The provision, access to and quality of these services has an impact on results of farming operations and on the overall profitability and efficiency of the value chain. Farmers must have a channel to inform service providers on their needs including capacity building, food industry needs to inform of suitable government regulations to boost their business, and banks need to know what kind of financial products are wanted by the customers. In other words, to create effective and efficient service sector to support production, information needs to flow from service providers to VC actors, and vice versa. 
Access to information has continuously improved in the ANRS. This forms a good starting point for Agro-BIG to further develop farmers' access to market information. When farmers have enough accurate information on markets and when price control of agricultural products is low, they have better means to get a good price on the market, instead of focusing on production quantity. Agro-BIG will operate with such VCs that are potentially attractive on the market and products that can fetch a good price. Both individuals and groups – in and along VCs - will benefit when the holistic value chain concept is understood and developed extensively. Attention will be paid to the whole chain in an integrated way, to include production, harvesting, storage, processing, transport, trade and market demand.

Efficient value chains allow for low transaction costs between producers and consumers which in turn requires profitable farm production so that good quality and attractive produce can be provided to the end consumer. Efficient value chains also result in sustainable jobs and increased wealth of producers and traders.
The implication of the above is that provision of adequate support services (including financial services like credit facilities) to the VC actors are prerequisites for making the VCs function better. All interventions need to be adjusted to the local working environment in order to achieve sustainable increase in people’s livelihoods.

Proposed criteria for the selection of the third VC

In order to reduce the long-list (result from a brainstorm without real limitations to the ideas brought forward) and draw up a short-list, filtering criteria will be used. The proposed key filtering criteria can be the same as for the two previous VC , namely:

  • Unmet market demand and growth potential. Strong domestic and/or international demand for the crop either processed or un-processed. Potential for substitution (e.g. potato can substitute rice as a staple, etc.) and potential for import substitution should also be taken into account. End markets will be the starting point for the analysis because the demand in the end market defines the opportunities that drive the value chain.
  • Inclusion of socially deprived smallholders, women and other vulnerable or marginalised groups. This means that e.g. the barriers to entry for the poor (capital, knowledge) are low; that the risk is relatively low. At the same time, the indirect beneficiaries, i.e. those who are not directly involved in the production of the selected crop, can and should be taken into account. One may think of e.g. the employees in the related processing industry.
  • Environmental considerations and implications for the nutritional status. The promotion of this crop should do no substantial harm to the environment, nor should it have a negative impact (in whatever way) on the nutritional status of the population.

Some additional criteria that may be considered as well are:

  • Production potential, i.e. the climate conditions, soil-type, etc. have to be suitable for the selected crop (or simply put do not promote maize, which is not very drought resistant, in a drought-prone area).
  • Presence of dynamic lead firms already engaged with producers in the targeted woredas.
  • Absence of competitive threats from other areas and also from imports. If threats are existing but not competitive or substantial they can be ignored.
  • Potential number of beneficiaries (micro-enterprises, employees, etc.), including vulnerable groups such as women and returnees, who would benefit economically.
  • Feasibility to achieve significant impacts in project period. In other words, interventions in the chosen VC should lead to visible changes in a period of 1.5 years. This automatically excludes the introduction of a new crop from scratch.
  • Existence of processing facilities. The facilities do not necessarily have to exist in the region, but at least within reasonable reach, i.e. it has to be feasible to transport the raw product to the facility within reasonable cost and time. Processing technology should preferably be low cost and labour intensive (otherwise it will almost automatically exclude small processors).