Market Systems
and Value Chain
Development
Introduction to value chains and
market systems
Value chain development: process
and targeting the poor
Sharing experiences: good practices,
challenges and actions
Why are we interested in
value chain approaches?
The value chain approach can be a
powerful tool to create wealth
in poor communities and to
promote equitable economic
growth
Why are we interested in
market systems?
Value chains exist
within
market systems
VC
Value Chain
(VC)
Full range of activities required
to bring a
product or service from the
start, through different
phases of production,
delivery to final consumers,
and final disposal after use
Full range of activities required
to bring a
product or service from the
start, through different
phases of production,
delivery to final consumers,
and final disposal after use
Bag of chickpeas
Carton of milk
T-shirt
Education
Full range of activities required
to bring a
product or service from the
start, through
different
phases of production,
delivery to final consumers,
and final disposal after use
Narrow sense = activities
within a firm/business
Broad sense = activities
implemented by various
actors
Global Retailers
National Retailers
Exporters
Wholesalers
Processors/Traders
Producers
Input Suppliers
Group work: example of a
value chains
A value chain exists when
all the actors in the chain
operate in a way that
maximizes the generation of
value along the chain
Value is added to the
preliminary product
The value of the product
increases as it passes
through several stages of
the value chain
Value = combination of other resources e.g.
tools, manpower, knowledge and skills,
other raw materials or preliminary products
Source: Herr, M.L. and Muzira, T.J. (2009). Value chain development for decent work. ILO
Group work: identify costs and
add value to your value chain
Supply
Core
Demand
Function
R&D
Coordination
Infrastructure
Supply
SUPPORTING
FUNCTIONS
Information
Informing &
communicating
Skills & capacities
Related Services
Core
Demand
Function
R&D
SUPPORTING
FUNCTIONS
Coordination
Infrastructure
Supply
Informal rules
& norms
Information
Informing &
communicating
Skills & capacities
Related Services
Core
Demand
Function
Setting &
enforcing rules
Non-statutory
regulations
RULES
Laws
Sector-specific
regulations &
standards
The Market System
Government
R&D
SUPPORTING
FUNCTIONS
Coordination
Infrastructure
MARKET
ACTORS
Delivering &
resourcing
different
functions
Supply
Informal rules
& norms
Informal
networks
Information
Private sector
Skills & capacities
Informing &
communicating
Related Services
Business
member
organisations
Core
Demand
Function
Setting &
enforcing rules
Non-statutory
regulations
RULES
Laws
Sector-specific
regulations &
standards
Work/employee
member
organisations
Not-for-profit sector
Source: Springfield Centre
Group work: using your
example of a value chain, build
and example market system
around that chain
VCD
Value Chain Development
(VCD)
Making the consumer/
customer at the end of the
value chain happy
Stakeholders along a
particular value chain need
to cooperate and
coordinate their activities
VCD is a market-orientated
approach
5 key drivers of change that
could prompt VCD
1. System Efficiency
Reduce costs and increase efficiencies
2. Product Quality
Increase the quality of products
3. Product differentiation
Competitive advantage –
continuous innovation and learning
4. Social & Environmental
Standards
Improve social standards and
minimize environmental impact
5. Enabling Business
Environment
Working to support not hinder
value chain activities
1.
2.
3.
4.
5.
System Efficiency
Product Quality
Product differentiation
Social & environmental standards
Enabling business environment
How do we do VCD
programming?
1. Sector Selection
Sector?
Economic sectors:
agriculture, industry and
services
Narrower definition
(subsectors) = tea, dairy,
embroidery
Within a sector we often
find several value chains
How do we select a sector?
Selecting sectors
•
•
•
•
Define objectives and target groups
Decide on selection criteria
Rapid assessment of available sectors
Application of selection criteria in
consultative meeting with stakeholders
Application of selection criteria
Criteria
Proposed subsector
Rice
Dairy
Handicrafts
Unmet market demand
3
1
2
Potential to increase rural incomes
2
1
2
Potential for employment generation
2
2
1
Government or donor interest/existing support
for programs
3
2
1
10
6
6
Total weighted score
Rank 1 = low, 3 = high
Application of selection criteria
Criteria
Proposed subsector
Rice
Dairy
Handicrafts
Unmet market demand (x2)
3x2 = 6
1x2 = 2
2x2 = 4
Potential to increase rural incomes (x3)
2x3 = 6
1x3 = 3
2x3=6
Potential for employment generation (x3)
2x3=6
2x3=6
1x3=3
Government or donor interest/existing support
for programs (x1)
3x3=9
2x3=6
1x3=3
27
17
16
Total weighted score
Rank 1 = low, 3 = high
Not always necessary –
may be pre-defined
2. Research, Analysis and
Mapping
 Sector research
 Value chain analysis (VCA)
and research
 Value chain mapping
Primary research and
stakeholder analysis &
initial value chain map
Cross-cutting issues –
gender, environment
Value Chain Analysis (VCA)
or research
Refine the value chain map
Wholesalers &
Distributers
Large-scale processors
Medan retail/
restaurants
By-product
traders
Medan
high-end
consumers
Medan
Kiosks
Medan lowend
consumers
Biscuit &
animal feed
processors
Biscuit
consumers
& animals
N. Aceh
retail/
restaurants
N. Aceh
high-end
consumers
N. Aceh
Kiosks
N. Aceh
low-end
consumers
Large Traders
By-product
processors
By-product
traders
Village collectors
Sectorspecific
providers
Cross-cutting
providers
including
financial
Government
(BULOG)
Sml/med scale processors
(Local RMUs, storing,
drying, milling, finance)
HH consumption
BULOG
Irrigated rice
farmers
Rainfed rice
farmers
Input Suppliers
(seeds, tools, fertilisers etc)
Local enabling environment
Regional enabling environment
National enabling environment
Limited local soybean supply
Dependence on soybean imports
High price of cooking oil
preparati
on
food
Input
supply
Waste water management problem
Application of good
health practices
(street vendors)
Use of liquid waste for
biogas
Cleaner production
knowledge
Linkages with larger
input suppliers
Improving access to finance (links to MFIs, financial literacy )
Inefficient production
methods
Linking with formal
markets
Marketing information on healthy aspects of tofu
Consumpti
on
Retailing
Use of formaldehyde & borax
Processin
g
Use plastics in frying
tofu to add crunch –
health issues (street
vendors)
Opportunities
Used cooking oil stoves
(street vendors)
Tofu
Use of recycled oil in
frying
(street vendors)
Low shelf life
Lack of financial access
Limited advocacy for tofu producers associated with good
health practices
Constraints
3. Finding upgrading
solutions
Upgrading?
Acquiring technological
capabilities and market
linkages to increase
competiveness and move to highvalue activities
Types of possible
upgrading – with a focus on
the poor
1. Process upgrading:
efficiency of production
2. Product upgrading:
introduction of new products or
improving old products
3. Functional upgrading:
changing to a higher value-added
level in the value chain
Look at the effect of the
upgrade on the whole chain
Determine the most
effective level to upgrade
Questions to consider when
targeting the poor
Who are the local
innovators?
What are the mechanisms
present in the community to
share, maintain and
collectively develop skills and
knowledge?
Can the poor afford it?
Can the poor copy it?
What will be the impact of
the poor as….
Producers
Labourers
Consumers
VCD Project Cycle
Source: Herr, M.L. and Muzira, T.J. (2009). Value chain development for decent work. ILO
• The VC approach can be a powerful tool to
create wealth in poor communities and to
promote equitable economic growth
• Seeing producers as part of value chains,
and value chains as part of market systems,
offers the opportunity for systemic change
rather than traditional subsidization
approach
Promising practices, challenges
and ideas to improve those
challenges
(TOPS and others)
This presentation was made
possible by the generous support of
the American people through the
United States Agency for
International Development (USAID)
Office of Food for Peace. The
contents are the responsibility of
Save the Children and do not
necessarily reflect the views of
USAID or the United States
Government.
Today’s sessions
• What was great
• What was not so great
• Recommendations for
tomorrow or next time