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Value Chain Analysis Basic concepts

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Ethiopian Quickfeeds Project Value Chain Analysis Basic concepts Getachew Legese * * Presentation outlines Basic concepts in Value Chain Analysis Value and value ... – PowerPoint PPT presentation

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Title: Value Chain Analysis Basic concepts


1
Value Chain AnalysisBasic concepts
Ethiopian Quickfeeds Project
  • Getachew Legese

2
Presentation outlines
  • Basic concepts in Value Chain Analysis
  • Value and value addition
  • Value Chain
  • agricultural value chain
  • Stages of a value chain
  • Business development services
  • Value chain leader
  • Why the interest on value chain analysis (VCA)?
  • Potential objectives of VCA
  • How to conduct VCA
  • Data collection
  • Value chain mapping
  • Analysis of constraints and opportunities
  • Value Chain frame work
  • Validating findings of VCA

3
Basic concepts of Value Chain Analysis
  • Value and value addition
  • Value
  • Amount a good or service is worth of in the
    market
  • Three types of value
  • Form value associated with the change of the
    form of a raw material (production, processing)
  • Time value - related with availing at another
    period of time produce produced at a period of
    time (storage)
  • Space value - related with availing at another
    location product produced in one location
    (transport)

4
What is a Value Chain (1)
  • VC encompass the full range of activities and
    services required to bring a product or service
    from its conception to sale in its final markets.
  • VC includes input suppliers, producers,
    processors and buyers.
  • They are supported by a range of technical,
    business and financial service providers

5
What is a Value Chain (2)
  • A value chain entails the addition of value as
    the product progresses from input supply to
    production to consumption.
  • Value chains are also the conduits through which
  • finance (revenues, credit, and working capital)
    moves from consumers to producers
  • technologies are disseminated among producers,
    traders, processors and transporters
  • information on customer demand preferences are
    transmitted from consumers to producers and
    processors and other service providers.

6
What is an agricultural value chain?
  • An agricultural value chain is considered as an
    economic unit of analysis of a particular
    commodity (eg. milk) or group of related
    commodities (eg. dairy) that encompasses a
    meaningful grouping of economic activities that
    are linked vertically by market relationships.
  • The emphasis is on the relationship between
    networks of input suppliers, producers, traders,
    processors, and distributors.

7
Stages of a value chain
  • Any operating stage capable of producing a
    saleable product or service serving as an input
    to the next stage in the chain or for final
    consumption or use
  • A stage of production in a value chain performs a
    function that makes significant contribution to
    the effective operation of the value chain
  • Typical value chain linkages include input
    supply, production, assembly, transport, storage,
    processing, wholesaling, retailing, and
    utilization, with exportation included as a major
    stage for products destined for international
    markets.

8
Business development services
  • Services that play supporting role to enhance the
    operation of the different stages in the value
    chain and the chain as a whole
  • Infrastructural services (market place
    development, roads and transportation,
    communication, energy supply, water supply)
  • Production and storage services (input supply,
    genetic and production hardware from research,
    farm machinery services and supply, extension
    services, weather forecast, storage
    infrastructure)
  • Marketing and business skills (market
    information, market intelligence, technical and
    business training, facilitation of linkages of
    producers with buyers, organization and support
    for collective marketing)
  • Financial services (credit, saving, risk
    insurance)
  • Policy and regulatory services (property rights,
    market and trade regulations, investment
    incentives, legal services, taxation)

9
The Value Chain and Business support services
10
Value chain leader
  • An organization with major stake in the value
    chain and plays crucial role in the functioning,
    performance and development of the value chain.
  • Value chain leaders are especially critical in
    the development of new and emerging value chains
  • Value chain leader could be private business
    which intends to make profit or a public agency
    which intends to promote the development of the
    value chain.

11
Why the interest on value chain analysis (VCA)?
  • A comprehensive understanding of the operation of
    commodity markets requires an understanding of
    the operation of the different stages through
    which a product and its associated value
    additions pass on from production to consumption
    or end use
  • A comprehensive understanding of the coordination
    of the value chain requires a careful assessment
    of consumer demand characteristics and the
    organizational and institutional arrangements
    that are in place to meet these demands.

12
Potential objectives of VCA
  • Identification of leverage points to improve
    chain performance
  • Analysis of agriculture-industry linkages
  • Analysis of income distribution
  • Analysis of employment issues
  • Analysis of economic and social impacts of
    interventions
  • Analysis of environmental impact of interventions
  • Guide collective action for marketing
  • Guide research priority setting
  • Conduct policy inventory and analysis

13
How to conduct a VCA
  • Value chain analysis consists of a four step
    process
  • Data collection and analysis,
  • Chain mapping (actors, functions and
    relationships) and end market analysis
  • Analysis of opportunities and constraints, and
  • Validating the findings of the VCA through
    stakeholders forum

14
The process of VCA its components
15
Data collection (1)
  • Good value chain analysis begins with good data
    collection, from the initial desk research to the
    targeted interviews.
  • Both qualitative and quantitative data are
    required for the VCA.
  • The qualitative data are collected using PRA
    tools such as focused group discussions, Key
    Informant interview, personal observations, etc

16
Data collection (2)Tools to be used
  • Review of relevant literature reports,
    documents, databases, and websites relevant for
    the study will be reviewed.
  • The aim is to familiarize the team with the
    industry, its market and the business environment
    in which it operates, as well as to identify
    sources for additional information.
  • Secondary data will be collected from CSA, CRA,
    woreda and zonal offices, and other relevant
    sources
  • price and marketing data,
  • number of different market actors in the specific
    rural markets,
  • credit provided,
  • technology supply and distribution,
  • storage and transport facilities,
  • information on processing, packaging and grading
    will be collected.

17
Data collection (3)PRA tools to be used
  • Focused group discussions (FGD) a useful way to
    explore concepts, generate ideas, determine
    differences in opinion between stakeholder groups
    and triangulate with other data collection
    methods
  • FGD can better capture the social interaction and
    spontaneous thought processes that inform
    decision making, which is often lost in
    structured interviews.
  • At least two FGDs of farmers (10-15 people) per
    district will be conducted
  • In depth Key Informant Interview (KII) interview
    with knowledgeable individuals experts of
    livestock extension, livestock marketing, forage
    production and marketing, cooperatives promotion,
    abattoir managers, traders, meat supermarket
    managers, butchers, feed and livestock
    researchers, transporters, veterinarians and NGOs
    will be held.

18
Data collection (4)PRA tools to be used
  • The KII should inform
  • value chain actors current capacity to learn
  • how information is exchanged among participants
  • from where they learn about new production
    techniques, new markets and market trends
  • the extent of trust that exists among actors and
  • identify where chain participants see
    opportunities for and constraints to upgrading.
  • Visits marketing and processing facilities and
    transactions in market places will be visited in
    all the sites. At least one feed and livestock
    market per woreda will be visited. Processing
    facilities such as dairy processing plants, feed
    processors and export abattoirs will be visited.

19
Data collection (5)
  • The qualitative data gathered by the above
    methods will reveal dynamic factors of the value
    chain such as trends, incentives and
    relationships.
  • To complement this, quantitative analysis of the
    chain is necessary to provide a picture of the
    current situation in terms of
  • the distribution of value-added,
  • profitability,
  • productivity,
  • production capacity and
  • benchmarking against competitors.
  • Analyzing these factors highlights inefficiencies
    and areas for reducing cost.

20
Value Chain Mapping (1)
  • Value chain mapping is the process of developing
    a visual depiction of the basic structure of the
    value chain.
  • A value chain map illustrates the way the product
    flows from raw material to end markets and
    presents how the industry functions.
  • It is a compressed visual diagram of the data
    collected at different stages of the value chain
    analysis and supports the narrative description
    of the chain

21
Value chain mapping(2)
  • Objectives
  • To gain basic overview of the value chain to
    guide the full VCA to be undertaken
  • Identify constraints and possible solutions at
    different levels in the VC
  • Visualize networks to get a better understanding
    of connections between actor and processes
  • Demonstrate interdependency between actors and
    processes in the VC
  • Create awareness of actor to look beyond their
    own involvement in the VC

22
Value Chain Mapping (3)
  • A two phased process for developing the value
    chain mapping is recommended
  • a) initial basic mapping based on the
    information derived from desk research and
    knowledge at the outset of the analysis, and
  • b) adjusted mapping that includes revisions based
    on interviews and feedback from firms and
    individuals brought into the analysis process

23
value chain mapping (3)
  • There is no such a thing as a comprehensive, all
    encompassing VC map
  • There are many potential dimensions of the VC
    that could be included in an initial mapping
    exercise
  • The core processes in the VC
  • The main actors in the process
  • The product flows,
  • Volume of product flow
  • Costs and margins at different levels
  • Constraints and opportunities at the different
    levels
  • Flow of information etc
  • Therefore it is crucial to choose which
    dimensions are to be mapped based on the
    available resources, the scope and objective of
    the VCA and mandate of the organization.

24
Mapping the core processes
  • The first question that must be asked in any
    value chain analysis is what the different
    processes in the value chain are.
  • Example Core processes in sheep VC (SNNP
    Oromia)

25
Mapping actors along the value chainExample
Actors along the core processes of the sheep
value chain
Input Supply
Production
Trading
Processing
Consumption
  • Sheep producers
  • The extension system

Small holder farmers
  • Export abattoirs
  • Shoat butchers
  • Super markets
  • Collectors
  • Brokers
  • Small traders
  • Big traders
  • Sheep fatteners
  • Meat exporters
  • Live animal exporters
  • Individual consumers in big towns and Addis
  • Hotels and restaurants
  • Farmers (for fattening/rearing)

26
Mapping activities along the VCExample Core
processes and activities in the sheep VC
27
Mapping product flows Example Sheep value chain
functions, actors, and product flows
Hotels and restaurants
Consumers in big tows and Addis Ababa
Export markets
Consumption
Local consumers
Super markets
Shoat butchers
Processing
Live animal exporter
Export abattoirs
Farmers (breeding/ fattening)
Live animal Trading
Brokers
Collectors
Small traders
Big traders
Production
Small holder farmers
Input Supply
Business and Extension services
28
Mapping Volume of product flows
Example Product Supply Pattern in the Shoat
Value Chain (Borena)
29
Example Costs and margins of actors involved in
a market channel selling shoats to supermarkets
Mapping the flow of values and benefits
  Producers Brokers Collectors Small traders Super markets
Selling price 750 810 820 870 1280
Marketing cost - 0 16 39 95
Marketing margin - 60 70 50 410
Net margin - 60 54 11 315
Producer's share of final price () - - - - 59
30
Making a value chain map matrix
  • A VC map matrix is the matrix which summarizes
    the key information from maps in one table.
  • The matrix can be used as the basis for designing
    questionnaires, determining which actor groups to
    interview and which geographical locations to
    concentrate field work in.
  • It can also serve as an easy to interpret sector
    summary from VC perspective.

31
Input supply Production trading processing consumption
Activities
actors
Inputs
outputs
locations
challenges
Possible solutions
32
Group Work
  • Map core processes, actors, activities, inputs,
    outputs, Challenges and possible solutions for
    the commodities for which VCA is conducted in
    your respective sites (Dairy, Beef and Sheep)
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