Ethiopian Livestock Feed (ELF)
Project
Value Chain Analysis
Basic concepts
Getachew Legese
Presentation outlines
• Basic concepts in Value Chain Analysis
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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
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Data collection
Value chain mapping
Analysis of constraints and opportunities
Value Chain frame work
Validating findings of VCA
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)
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
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.
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.
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.
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)
The Value Chain and Business support services
Consumption
Retailing
Trading
Research
Processing
Transportation
Trading
Govt. policy regulation
Transport
Post-harvest
handling
Production
Input
Suply
Communications
Production input supply
Tech. & business training & assistance
Financial services
Market information and intelligence
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.
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.
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
How to conduct a VCA
Value chain analysis consists of a four step process:
1. Data collection and analysis,
2. Chain mapping (actors, functions and
relationships) and end market analysis
3. Analysis of opportunities and constraints, and
4. Validating the findings of the VCA through
stakeholders forum
The process of VCA & its components
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
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.
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.
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.
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.
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
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
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
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.
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)
Input
Supply
Production
Trading
Processing
Domestic
Consumption/
Export
Mapping actors along the value chain
Example: Actors along the core processes of the sheep value chain
Input
Supply
• Sheep
producers
• The
extension
system
Production
Small
holder
farmers
Trading
• Collectors
• Brokers
• Small traders
• Big traders
• Sheep
fatteners
Processing
• Export
abattoirs
• Shoat
butchers
• Super
markets
Consumption
• Meat exporters
• Live animal
exporters
• Individual
consumers in big
towns and Addis
• Hotels and
restaurants
• Farmers (for
fattening/rearing)
Mapping activities along the VC
Example: Core processes and activities in the sheep VC
Input
Supply
• Breeding
stock
• Veterinary
services
• Feed
• Water
• Housing
Production
• Rearing
• Fattening
Trading
• Collection
• Transportation
• Distribution to
consumers(retail
, wholesale)
Processing
• Slaughter
• Chilling
• Packing
Domestic
Consumption/
Export
• Domestic
consumption
• Export to
MENA
countries
Mapping product flows
Example: Sheep value chain functions, actors, and product flows
Consumption
Export
markets
Processing
Export
abattoirs
Live animal
Trading
Big
traders
Production
Input Supply
Hotels and
restaurants
Consumers in big
tows and Addis
Ababa
Live
animal
exporter
Small
traders
Shoat
butchers
Collectors
Small holder farmers
Business and Extension services
Local
consumers
Super
markets
Brokers
Farmers
(breeding/
fattening)
Mapping Volume of product flows
Example: Product Supply Pattern in the Shoat Value Chain (Borena)
Producers
23%
100%
Collectors
77%
46%
60%
54%
Small traders
12%
14%
6%
Big traders
23%
Purchasing agents
50%
22%
Cooperatives
50%
Live animal exporters
8%
63%
28%
61%
Export abattoirs
3%
Mapping the flow of values and benefits
Example: Costs and margins of actors involved in a market channel selling
shoats to supermarkets
Small
Producers Brokers Collectors traders
Selling price
Super
markets
750
810
820
870
1280
Marketing cost
-
0
16
39
95
Marketing margin
-
60
70
50
410
Net margin
Producer's share
of final price (%)
-
60
54
11
315
-
-
-
-
59
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.
Input supply Production
Activities
actors
Inputs
outputs
locations
challenges
Possible
solutions
trading
processing
consumption
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)