Sustainable Food Value Chain Development Concepts, framework & principles
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Sustainable Food Value Chain Development Concepts, framework & principles. © FAO: http://www.fao.org
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Sustainable Food Value Chain Development Concepts, framework & principles
- 1. www.fao.org/ag/ags Sustainable Food Value Chain Development Concepts, framework & principles Derived from FAO (2014). Developing sustainable food value chains – Guiding principles. Rome
- 2. Sustainable Food Value Chains (SFVC) • The SFVC concept • Value-added defined • Sustainability defined • Analytical framework This module is based on: www.fao.org/3/a-i3953e.pdf
- 3. The SFVC concept What is a sustainable food value chain? A food value chain consists of a range of actors that participate in the coordinated production and value adding activities that are needed to make food products available to a consumer. A sustainable food value chain: • is profitable throughout (economic sustainability); • has broad-based benefits for society (social sustainability) and • shows a positive or neutral impact on the natural environment (environmental sustainability)
- 4. Supply chain Input suppliers Producers Assemblers, traders Processors Retailers Flow of services, goods, products and information
- 5. A simple value chain Design and product development Production Inward logistics Transforming inputs Packaging Marketing Consumption & recycling
- 6. The concept of value-added… Non-labour cost Value added to society Market price Consumer willingness to pay (=price) Salaries/ income Net profits Taxes Consumer surplus Value added to VC stakeholders Negativeexternalities Positiveexternalities
- 7. The concept of sustainability … ECONOMIC IMPACTS Profits Jobs/incomes Tax revenues Food supply SOCIAL IMPACTS Added value distribution Cultural traditions Nutrition and health Workers rights and safety Animal welfare Institutions ENVIRONMENTAL IMPACTS Carbon footprint Water footprint Soil conservation Animal & plant health Food loss and waste Biodiversity Toxicity Inclusive growth Green growth Eco- social progress SFVCD
- 8. International markets National markets Environmental Natural elements Sustainability Societal Socio-cultural elements Organizational elements Institutional elements Infrastructural elements Service provision Input provision Finance Distribution Processing Aggregation Production Economic Governance Core value chain Extended value chain National enabling environment Global enabling environment SFVC Analytical framework
- 9. Points to remember • Two key challenges in SFVC development… ▫ 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 ▫ SFVC development is guided by performance measures that reflect contribution to well-being – economic, environmental and social
- 10. 10 principles in SFVC development 1. Economically sustainable (profitable) 4. Dynamic systems based 5. Governance-centered 6. End-market driven 2. Socially sustainable (inclusive) 3 .Environmentally sustainable (green) 7. Vision/strategy driven 8. Upgrading Focused 9. Scalable 10. Multilateral
- 11. Conclusion • Sustainable food value chain development: ▫ Seek broad-based impacts on poverty reduction in agriculture in the context of globalization ▫ But requires a systematic approach to measuring, analyzing and improving performance in order to realize its potential • Value chain mapping and policy analysis can be powerful tools to facilitate gainful links to Global Value Chains. This module is based on: www.fao.org/3/a-i3953e.pdf
Editor's Notes
- Good morning everybody The SFVC framework integrates two concepts that have become very popular in development thinking and practice, these are the concept of sustainability and the VC concept. These concepts are not always well understood and may mean different things to different people. Sustainability may be interpreted as commercial viability by a business, while it may refer to a conservative use of natural resources to an agronomist. Value chains are often seen as identical to supply chains, which is however a different concept. A good understanding of the concepts and principles behind VC development gives a good foundation to identify policy needs to promote cross border trade as a pathway to pro-poor sustainable development in practice. The Objective of this Module is to review the basic concepts and highlight the key principles that forms the framework.
- What I will present this morning reflects the main points raised in the publication which is depicted in this slide. We have included a copy in a USB thumb drive, along with some other documents as useful reference material. Here, we will review key elements of SFVCs, define what is meant by value added, and sustainability. Then we will examine the analytical framework with a view to help us understand how to support SFV development.
- It’s difficult to define the concept of a SFVC without getting wordy so please forgive for just reading this out: […] Some notes on this definition: - “Actors” refers to those who perform different functions along the value chain “Coordinated” here means that in VCs, the participants work together to create value through the use of standards and governance structures. Essentially sustainability is derived through this coordination. Value-addition [next slide] Sustainability [next slide]
- Traditional supply chains are more about material flows along a service chian. While the concept of supply chain reflects logistics and other aspects of material transfer related to a product, value chain tracks the value created
- The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use. Note the four links – these information flows are the feed-back mechanisms that inform managers of opportunities and constraints in meeting consumer needs Marketing means understanding the needs and wants of consumers and providing goods and services to meet these profitably. Marketing strategies can be prepared through an understanding of the 6 P's: analysis can help understand market dynamics - Product - Place - Promotion - Price - People - Participation
- When we talk about VCs, the chain part of the concept is pretty obvious: the producer is linked to the aggregator who is linked to the processor who is linked to the distributor who sells to the final consumer. The value part of the definition is perhaps less well understood and in the SFVC framework we want to be explicit about it. Value can be created or lost at each stage. Value can be added to an intermediate food product not only by processing it, but also by storing it (value increases over time) and transporting it (value increases over space). For the value chain stakeholders, value added is here more formally defined as the difference between the non-labour costs incurred to produce and deliver a food product and the maximum price the consumer is willing to pay for it. Non-labor costs are all costs other than salaries paid to casual or permanent employees. As such the value that is created in a value chain is captured in five ways: 1. salaries for employees; 2. net profits for asset owners; 3. tax revenues, including illegal forms of “taxation” associated with corruption and extortion; 4. consumer surplus, which is the difference between what the consumer is willing to pay for the product and the actual market price paid for it. 5. externalities, which represent a fifth dimension of value added. The activities taking place inside the value chain will unavoidably impact the wider environment, broadly defined. This refers to negative impacts (externalities, cost to society) such as air pollution caused but not paid for by an economic actor, and to positive impacts (externalities, value to society) that farms and agribusinesses have on the environment but are not getting paid for, such as increased biodiversity in farming areas or spill-over effects from inputs provisions in one VC to another VC. The value added to society takes these broader environmental impacts into account.
- Also for the sustainability concept, we want to be explicit so there is no misunderstanding. In SFVC development we take the holistic triple bottom line approach. The idea here is not to give some examples of what could fall under each of these three dimensions of sustainability, but rather to present an exhaustive checklist that covers each aspect. We may need to adapt it, for example, water health is not listed under environmental impacts. We will also aggregate some impacts, for examples added value distribution includes impacts related to gender, youth, the poor, vulnerable groups, and so on. The main point I want to make with this slide is that in SFVCD we look at sustainability holistically. For example, if we use the VC approach to look at say animal disease control, then any proposed measure to upgrade the VC to better deal with animal diseases will have to be assessed against all other dimensions of sustainability to assure there are no undesirable impacts. For example, how will the measures impact farm profitability? Or would these measures impact poor and rich farmers in different ways and perhaps increase the divide between?
- In SFVC we take a broad systems perspective, which is illustrated by the SFVC analytical framework. The SFVCD framework considers the VC as the core of a system consisting of complex economic, social and natural environments which determine the behavior and performance of farms and other agri-food enterprises. The core VC is composed of VC actors who produce or procure products from the upstream level, add value to the product and then sell it on to the next level. These VC actors, in turn, conduct four functions: production (farming, fishing, forest harvesting or agro-forestry), aggregation, processing and distribution (wholesale and retail). VC actors are linked to each other through a governance structure. There are horizontal linkages between actors at particular stages in the chain, for example farmers organizing themselves into cooperatives; and vertical linkages within the overall chains, for example farmers providing their produce to food companies through contracts. VC actors are supported by business development support providers. These support providers do not take ownership of the product, but play an essential role in facilitating the value-creation process. Services such as transport, laboratory testing, spraying, information, marketing studies, and so on. Together with VC actors, they represent the extended VC. End-markets are critical as this is where value is ultimately determined. This means that in SFVC we start from an opportunity in the market place and then work backwards through the chain to see how it needs to be improved to capture that opportunity. VC actors and support providers operate in a particular enabling environment in which economic, societal and natural environmental elements can be distinguished. Socio-cultural elements – religion, history, language, … Organizational elements – such as ministries, schools, R&D facilities, national commodity associations, … Institutional elements – such as policies, laws and regulations Infrastructural elements - such as roads, markets, ICT, electrical grids, backbone irrigation structures, …. Natural elements - such as water, soil, biodiversity, climate, … The sustainability of the VC plays out simultaneously along three dimensions: economic, social and environmental. On the economic dimension, a VC is considered sustainable if the activities required to be conducted by each VC actor or support provider are commercially viable (meaning profitable for commercial services) or fiscally viable (mainly for public services). On the social dimension, sustainability refers to socially and culturally acceptable outcomes in terms of the distribution of the benefits and costs associated with the increased value creation. On the environmental dimension, sustainability is determined by the ability of VC actors to show little or no negative impact on the natural environment from their activities; and where possible, they should show a positive impact. The main point I want to make with this slide, apart from the fact that end-markets are the drivers, is that when we do SFVCD we look at VCs as part of a broader system in which there are key leverage points where impact is maximized and in which the cause for a problem, and therefor the solution, may be located at some distance from the problem. For example to assist farmers it may be far more effective to change a service provision system or a regulation, than to work directly with the farmers.