Farming Systems Research was introduced and further developed by researchers to deal with the perceived inadequacies of previous approaches. Despite the broad range of insights and approaches to inquiry developed under the umbrella of Farming Systems Research, it is clear that earlier approaches (e.g. disciplinary approaches, focus on transfer of technology within the agricultural extension system) still dominate. Farming Systems Research and Extension (FSR/E) is an approach to improving the lot of rural households which attempts to identify important farmer problems, assist to increase Use efficiency of solving these problems, and finally, assist to disseminate solutions to groups of farmers via extension It is used to describe arrange of activities with varied objectives and approaches, although these usually have been associated with agricultural research. This diversity has caused confusion over the role of FSR in agricultural development.

1. Lesson objectives
At the end of this lesson, you will be able to:
Explain Triggers for value chain development
Identify Principles of empowering smallholders
List down Drive of The Value Chain Approach

2. Drive of The Value Chain Approach
There are a number of significant trends that are now driving the
need for operations oriented analysis from a value chain
perspective. These include
A. Increasing competition and the primacy of strategy
• The value chain is first and foremost a strategic concept,
arising from a strategic theory of firm competition.
• As companies struggle to compete in an environment of
globalization and intense competition, the focus shifts to
alternative means to remain competitive.
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3. This creates an increasing interest in Value Chains as a
tool to model the extended enterprise and formulate
strategies for how to remain competitive.

4. B. Evolving governance models for the extended
enterprise
 The information era spurred on by the recent focus of
capital investment on internet technologies and “dot-
com”
 business models has increased general business and
research interest in alternative value chain and
business models.
 This has been promoted in the research literature by
the focus on Core Competencies and the Resource
Based View (RBV) of the firm.

5. C. Globalization of supply and production
• With the growing division of labor and the global
dispersion of the production of components, system
competitiveness has become increasingly important.
• Value chain analysis plays a key role in understanding
the need and scope for systematic competitiveness.
• The growth in global sourcing and supply has begun a
long-term process of leveling the playing field for
adding value worldwide.

6. • This leads to the need to model global value chains
as the predominant mode of business in many
industries.

7. D. Many benefits already wrung out of manufacturing
and the supply chain
• Efficiency in production is only a necessary condition
for successful penetrating regional and global
markets.
• Improving the operational capability of other value
added activities in the enterprise, such as
 product development,
 requires shifting perspective from the supply chain to
the value chain.

8. E. Trends in management discourse
• Another reason is the nature of management fashion
trends in academic and management discourse.
• This is a lifecycle process revealing how management
knowledge entrepreneurs participate in the creation
of trends in discourse.

9. F. Dynamism of markets and innovations
• In addition, in many developing countries there is heavy
emphasis on the commercialization of smallholder
production system; production is increasingly becoming
market oriented.
• In order to reap the medium benefit, it is important to
understand the nature, structure and dynamics of value
chain related to the various enterprises produced by
smallholder farmers.
• Given the new agricultural innovation system
perspective, not only do we need to understand the
dynamic but should also focus on the enabling
environment, facilitating institutions as well as facilitating
services associated with a given value chain.

10. In addition to the above driving forces for the development of
value chain perspective for approaching the circumstance,
there are particular changes in the developing world for the
development of value chain perspectives.
• Rapid changes in the social and economic environment are
challenging smallholders
 to supply their products to the market and
 their ability to improve their families’ livelihoods.
• These changes include:
– •
Market liberalization and integration
– •
The rise of the retail sector and processors
– •
The decline of government support for and intervention in
agriculture and rural areas.

11. 1. Market liberalization and integration
• Over the past 20 years, new trading policies have liberalized
and integrated markets.
• Some farmers have benefited.
• But many farmers in developing countries have seen their
incomes fall.
• Their terms of trade (the price of what they sell compared
to what they buy) have declined steadily as prices of agricultural
commodities have fallen compared with manufactures.

12. • The integration of world markets, or “globalization”, has
formed closed supply networks.
Buyers and sellers sign contracts to produce and trade a
wide range of specialized products.
Why small holder farmers victims of globalization?
• For example, a buyer may want to purchase a specific variety
of tomato, grown to strict specifications and packaged in a
certain way.
• The buyer may negotiate a contract directly with a grower,
rather than buying through a trader.

13. • This new organization of supply chains is unfamiliar for many
African smallholders.
• It is very different from the conventional, arm’s-length trade in
undifferentiated commodities such as maize or wheat, which
may involve many intermediaries, and where the buyer may
not know who the producer is.
• It is accompanied by a market concentration, with a small
number of powerful transnational companies dominating
large parts of the agri-food system.
• Small-scale producers and processors have little market power
in comparison.

14. 2. The rise of processors and retailers
• The rise of the food processing and retail sectors has
compounded market concentration.
• Buying power is now concentrated in the hands of a small number
of food processing firms and supermarkets that have significant
power over producers and other actors in the supply chain.
• The supermarkets enforce exacting standards for the produce
they buy.
• They want their beans to be a uniform length and their mangoes
to ripen at exactly the right time
• They have developed new private standards and rules, and have
created certification and auditing systems to make sure they get
the product they want.

15. • These rules enable the supermarkets to sell what consumers
want – and to be left with as little unsaleable produce at the end
of the day.
• The supermarkets pay growers attractive prices to ensure they
get produce of the right quality.
• But the rules are hard for smallholder farmers to comply with:
they lack the right technology and management skills.
• So smallholders are being squeezed out of a lucrative market.

16. 3. Declining government involvement in agriculture and
rural areas
• Structural adjustment programs (SAP)have meant that developing
country governments have significantly reduced their support to
farming communities.
• Investments in rural infrastructure (roads, electricity,
telecommunications), input subsidies, marketing schemes, and
services such as extension and research have all declined.
• In the past, most African governments provided services to
farmers and rural areas through commodity marketing boards and
state-supported cooperative movements.

17. • The decline of these institutions has hampered economic
development as well as farmers’ access to local markets.
• As a result of these changes, the majority of smallholder farmers
in developing countries are now less organized than before.
• They are trying to increase their production in the face of
reduced inputs and declining prices.
• This increases the supply of low-quality goods onto the market,
which further suppresses prices.
• This situation is “Cochran’s treadmill” (Cochran 1979): more
farmers supply more products into a market where prices are
steadily falling, natural resources are being degraded and poorly
managed farming systems are spreading into increasingly
marginal areas.

18. The challenge for smallholder producers
• To address this situation, development agencies, donors and
NGOs are placing more emphasis on enabling farmers
• to increase their level of competitiveness,
• to produce for an identified market, rather than trying to sell
what they have already produced and also
• seeking new market opportunities that offer higher levels of
income.
• These goals can be achieved through better economic
coordination and institutions.
• Farmer organizations can play a key role of organizing economic
activities beyond local boundaries.
• What is the importance of FO in relation with value chain?

19. • They can build up relationships with various chain actors and
create commitments from various actors to cooperate on
mutually beneficial actions and investments and thus create
value chains .
• Market information- A group finds it easier than individual
farmers to obtain the information that members need to grow
for a particular market.
• At the same time, other chain actors find it more attractive to
deal with a group than with numerous small-scale producers.
• Capital and skills: The group can pool their resources, access
credit and services to develop the technology and skills needed
to produce more sophisticated products.
• A group is more able than an individual to take risks.

20. • Volume- The group can grow enough produce to meet a buyer’s
volume requirements. The buyer can deal with the group as a
whole rather than with individual farmers.
• Quality- A group can set rules specifying quality standards, and
can appoint members to enforce them. The group can access
extension and marketing advice that would be impractical to
provide to individual farmers.
• Consistency of supply: A group finds it easier than an
individual to ensure a consistent supply of produce in terms of
volume and quality. Group members can organize among
themselves to grow crops that mature at staggered times, so
ensuring a continuous supply for the buyer.

21. Principles of empowering smallholders
 Empowerment is vital for sustainability.
 Confronted by short project timeframes and limited funding,
 development organizations often make the mistake of trying
to intervene too much – for example,
 by taking over management of the chain, rather than enabling
the farmers’ organization (or other players) to do it
themselves.
 When the project finishes and the development organization
withdraws, the value chain is left without a key link, so it
collapses.
 So what do development organizations do?

22. • Intermediary organizations should aim instead to support
farmer organizations to strengthen their capacity to manage
chains or chain activities.
• They should embrace the following principles before engaging
smallholders in a value-chain development process.
• This may help ensure that interventions target development
objectives such as
 equity,
 gender,
 sustainable development, and
 poverty reduction.

23. The principles empowering smallholders are the following :
1. Sustainable businesses
2. Equity
3. Inclusion and exclusion
4. Gender responsiveness
5. Social responsibility

24. 1. Sustainable businesses
• Successful intervention in a chain involves promoting
sustainable business models.
• This means that the various actors in the chain must all be
able to make a sufficient profit.
• After an initial period of assistance, each of the actors in the
chain must be able to act on their own, without continuing
long-term outside subsidies or other forms of support.
• A business model that does not generate sufficient profit on a
sustainable basis for each of the actors, or that relies on
continuous outside support, is doomed to fail in the long term.

25. 2. Equity
• Equity means ensuring that the economic gains in value chains
are fairly distributed among the various actors.
• It is necessary to take into consideration aspects such as
return on investments and the bargaining power of the various
actors.
• Returns should be proportionate to the level of effort and risk
that the actors assume.
• Smallholder farmers should be treated as rational business
people who require empowerment to be able to negotiate a
higher economic return.

26. • 3. Inclusion and exclusion
• Value chain development should not be seen as a social policy to
include everyone.
• It is targeted at particular players – those who have the potential to
generate wealth by producing and processing specific products that
the market demands.
• Inclusion – and exclusion – are a necessary part of such a “game”.
Smallholders must be able to meet market conditions if they are to
become players in this game.
• Not everyone can grow a particular specialist crop (that would
merely flood the market).
• Not all farmers will have the right type of soils, own enough land,
have land near enough to a road, or possess the necessary skills to
grow a certain crop.
• Where is the limitation of our farmers cooperative/organization?

27. • They may not be able to organize themselves into groups, and
they may not be interested in doing so.
• That does not mean that development agencies should focus
on the more fortunate members of society, a “chosen few”,
and ignore the rest.
• That would reinforce the divisions in society rather than
helping create broad-based opportunities (see Pro-poor value
chain development below).
• Rather, it means that strategies to promote inclusion should
focus on building the farmers’ organizational and management
skills and supporting farmers to realize where and how they
can sustain a profitable business.

28. 4. Gender responsiveness
• Although women do the majority of farm work in
Africa, they are relatively poorly served by
development agencies.
• There is a danger that women and other vulnerable
groups are excluded by default from new, potentially
profitable opportunities.
• It is a challenge to overcome the inherent gender
biases in society, culture and organizations.

29. Gender responsiveness….
• Steps are needed to ensure that women and other
vulnerable groups (such as young people, elderly
people, and people living with HIV/AIDS) are given
the opportunity to participate in and contribute to
such initiatives.
• Ideally, interventions should provide opportunities
for various segments in society: men and women,
young and old, privileged and underprivileged.

30. • Specific interventions to support the needs of disadvantaged
groups are often appropriate.
• Such groups typically have limited access to and control over
resources, so are less likely to benefit from new opportunities.
• The intermediary organization should check which groups (in
terms of wealth, sex, age, etc.) control what resources.
• This will help them understand how decisions are made at
household level – for example, how are decisions made on
what crops to produce, when to sell, and what to grow for the
family’s own consumption?
• Understanding this will enable interventions to be designed
and targeted properly.

31. • 5. Social responsibility
• Promoting value chains often involves difficult issues of
social responsibility.
• For example, many farmers think that children are the best
pollinators of crops such as vanilla. During pollination
season, they may take their children out of school for weeks
or months so they can work on the farm.
• The family may earn more money, but at the price of poorer
education for the children.
• So should development agencies promote vanilla? This is
not just an issue for NGOs and government agencies, but
also for private firms engaged in value chains.
• Irrespective of the size of the enterprise, they should
pursue a socially responsible agenda.

32. Triggers for value chain development
 Value Chain Development means
 positive or desirable change in a value chain to extend or
improve productive operations and generate social benefits:
 poverty reduction,
 income and employment generation,
 economic growth,
 environmental performance,
 gender equity and other development goals.

33. Triggers for value chain development
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Source: ILO, 2007
•The five triggers are the
means by which to
achieve value chain
development.
•Using them as a
methodological
framework helps to
identify opportunities and
constraints to making the
local target sector more
competitive and integrate
it more effectively into
value chains and markets

34. I. System efficiency
• Opportunities exist to lower costs and increase
efficiencies in the market if value chain stakeholders
work together.
• Buyers want to buy products at the lowest possible
price at the highest possible quality; they want quick
and flexible responses to their orders and short
delivery times.
– In order to achieve these market requirements, all
opportunities for increasing system efficiency need to be
explored – and this requires cooperation and coordination
of activities amongst value chain stakeholders.
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35. • Smallholder producers mostly face difficulties in
applying efficiency criteria to their activities:
– usually they are part of very extensive value chains
with many intermediaries adding high costs and
resulting in economic waste;
– they cannot achieve economies of scale, because
they are not organised properly and production is on
a small-scale and often scattered throughout a
larger area;
– they are too small to appear on the map of large
buyers;
– they have no access to information about market
requirements or knowledge about new technologies
and production methods. 35

36. • We therefore need to look at:
– how stakeholders communicate with each other;
– their relationship to each other;
– where in the chain it comes to unnecessary delays and
costs;
– how information and knowledge is passed down the
chain;
– what kind of services are provided within the chain;
– the role of every value chain stakeholder;
– how reliable and flexible stakeholders react to orders etc.
•
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37. • The following questions can be asked to smallholders to assess market and system efficiency.
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38. 38

39. II. Product quality and specifications
• Markets today are changing fast and competition is
becoming increasingly fierce.
• If smallholders want to participate and stay in the
market, they need to make sure that their products and
services meet continuously changing market
requirements and demand conditions.
• What counts, is the end product that the consumer
receives, and the level of satisfaction that it creates.
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40. • There are a number of questions that we need to look at when it
comes to product quality and specifications.
– Are there any international standards that we need to observe, when we
enter into export markets with a particular product (e.g. ISO norms,
Health standards such as HACCP, Good Agricultural Practices (GAP) or
Good Manufacturing Practices (GMP))?
– Does the product comply with these standards?
– What are the demand conditions with regard to product quality, design
and price?
– Does our product fulfill the buyers’ demand?
– How do we present our product?
– What kind of packaging do we use?
– Do we provide sufficient customer service along with a product that we
sell?
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41. III. Product differentiation (competition)
• Consumers are always demanding new products that
require value chain partners to share information and
systems.
• These products often require consistently high quality,
proof of adherence to protocols and legislated
standards throughout the production, processing and
marketing channels.
– The better stakeholders cooperate along the value chain and
coordinate their activities, the harder it will get for
competitors to copy the product and the production process –
because it is not just the product they need to copy, but the
entire system.
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42. • It is therefore crucial to know who your competitors
are, what they are doing and how they are doing it.
• What is the price of their product on the market?
• How are they perceived by the buyers compared to
your local target sector?
• What is your local competitive advantage?
• And how can you use this competitive advantage to
increase the market share of your local sector?
– Public Private Partnership is essential to help
producers/producer groups develop differentiated
products that are able to compete with others on the
market.
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43. The following are some of the questions to be asked for producers to assess
product differentiation
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44. IV. Improve social and environmental standards
• Consumers are increasingly becoming more
conscious of social and environmental standards
and are increasingly demanding products that
fulfill these requirements.
• The “green revolution” sees consumers
increasingly demanding organic products and
consumer goods that ensure high environmental
standards.
– If they ignore this demand, they will simply loose the
market to those competitors who do comply with social
and environmental standards.
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45. V. Business environment
• Every value chain and every enterprise operates in a business
environment that consists of mainly two dimensions - Immediate
environment and wider environment.
– The immediate environment - market conditions, existing
regulations and administrative procedures and interventions
carried out by public service providers or development
agencies – directly interact with the enterprise and affect its
performance.
– The wider environment- monetary and fiscal policies
determine stability of prices and the availability of low-interest
credits; school education and vocational training lay the
foundation for a national economy to develop itself and
compete with other countries; infrastructure greatly influences
the availability of production factors, delivery times and costs.
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