Presented by Berhanu Gebremedhin at the CIDA Stakeholders’ Workshop, ILRI, Addis Ababa, 2 May 2012

1. Value chains and the value chain
development approach: Basic concepts
and principles
Berhanu Gebremedhin, Scientist-Agricultural Economist, ILRI
CIDA Stakeholder Workshop, ILRI, Addis Ababa, 2 May 2012

2. Presentation outline
 The value chain concept
 Value chains and marketing channels
 Business development services (BDS)
 Value chain upgrading

3. The value chain concept
 A typical value chain consists of all the firms and their activities involved in
input supply, production, assembly, processing, wholesaling, retailing, and
utilization (consumption), with export included as another stage for
commodities that are destined for export.
 A commodity value chain starts from input supply, since production is
unthinkable without inputs.
 A value chain consists of chain actors who are involved in direct ownership of
the product and value addition.
 It is important to distinguish between chain actors and value chain service
providers.
 It is also important to note that not all value chains may have all the stages
after production. For example, a value chain of a commodity that is not
processed will not have the processing stage.
 A value chain can be defined for a particular commodity or group of
commodities that are closely related.

4. The value chain concept (2)
 The value chain concept entails the addition of value
 Therefore, a value chain incorporates productive transformation and value addition at
each stage of the value chain.
 At each stage of the value chain, the product changes hands through chain
actors, transaction is effected and costs incurred, and some form of value is
created.
 Value addition results from diverse transformational and marketing functions
including production, bulking, cleaning, grading, packaging, transporting, storing and
processing.
 The transformative functions can either be done by the value chain actors
themselves as part of their business, or as service functions by service providers
at cost or for free. That is why the set of value chain actors does not include
service providers as separate categories.
 Transporting
 Processing

5. The value chain concept (3)
 Value chains are also the conduits through which:
 finance (revenues, credit, working capital) moves
from consumers to producers;
 technologies are disseminated among
producers, processors, and transporters; a
 information on customer demand preferences are
transmitted from consumers to producers and
processors and other service providers.

6. The value chain concept (4)
 Effective demand:
 Value chain approach to development views
effective demand as the force that pulls goods and
services through the vertical value chain system.
 Hence, value chain analyses need to understand the
dynamics of how demand is changing at both
domestic and international markets, and the
implications for value chain organization and
performance.

7. The Value Chain
& Business Development Services
Consumption
Retailing
Trading Research
Processing Transportation
Govt. policy
Trading
Communications
Post-harvest
handling Production input supply
Tech. & business training & assistance
- -
Production
Financial services
Market information and intelligence

8. Value chains and market channels
 A market channel is a particular path through which
commodity passes from producers to consumers.
 Other than defining the route through which a
commodity passes from producers to
consumers, nothing in the market channel concept
indicates value addition, although potentially value may
still be generated
 A typical value chain is composed of several market
channels i.e. several market channels can be used by
producers.

9. Business development services (BDS)
 Business development services are services that play supporting
role to enhance the operation of the different stages of the value
chain and the chain as a whole.
 Business support services are, therefore, essential for the
development and efficient performance of value chains and the
transformation of subsistence agriculture into market orientation.
 Business development services may provide services at cost or for
free.
 Business development services can be grouped into:
 infrastructural services;
 production and storage services;
 marketing and business services;
 financial services; and
 policies and regulations.

10. Business development services
• Basic infrastructural services includes market place development,
roads and transportation, communications, energy supply, and water
supply etc.
• Production and storage services include input supply, genetic and
production hardware from research, farm machinery services and
supply, extension services, weather forecast and storage
infrastructure etc.
• Marketing and business support services include market
information services, market intelligence, technical and business
training services, facilitation of linkages of producers with buyers,
organization and support for collective marketing etc.
• Financial services include credit and saving services, banking
services, risk insurance services, and futures markets etc.
• Policy and regulatory services include land tenure security, market
and trade regulations, investment incentives, legal services, and
taxation etc.

11. Value chain upgrading
 Value chain upgrading refers to improvements in the performance of chain
actors and/or the whole chain. Value chain upgrading may also require
improvements in service provision.
 Types of value chain upgrading:
 Process upgrading: process upgrading refers to the efficiency of production in terms
of cost reduction, increasing the speed of delivery, reduction of post-harvest
losses, etc..
 Product upgrading: product upgrading refers to the introduction of new products or
improving existing products.
 Functional upgrading: functional upgrading refers to the issue of which activities the
actors in the chain should concentrate on.
 In planning upgrading options of a value chain, it is also important to focus on
the more important market channels of the value chain.
 Moreover, value chain upgrading should target points of leverage that have a
multiplier effect of interventions in order to maximize impact and outreach.
 In order to identify sources of leverage, one has to look at four key indicators:
system nodes; geographic clustering; policy and institutions; and
infrastructure.

12. Value chain upgrading options
 Input supply
 Farm and firm level technical assistance and training needs
 Farm and firm level business training needs
 Market development
 Market options
 Improvements in the organization and coordination of market functions
 Improvements in market information and market intelligence
 Development of market institutions (grades and
standards, contracts, legal framework etc.)
 Establishment of market associations or producer groups/cooperatives
 Improvements in market infrastructure
(roads, transport, storage, processing, communication, electricity)
 Improvements in financial services
 Policy and regulatory issues (taxation, subsidy, laws, price
control, etc.)

13. Thank you!