Value Chain Development for
Productive Inclusion in Lesotho –
Evidence, Gaps & Approach
By Nathan Emery
What is a Value Chain?
• Within the context of our efforts to incorporate value chain development
into social development and productive inclusion/work?
A Value Chain entails:
 Full life cycle (conception to end use) of a commodity
or product and the full range of activities by the actors
in a particular commodity chain towards efficiency.
 Value Chain in Context – Definition above plus
productive inclusion of our beneficiaries.
•
Examples relevant to Lesotho?
What is Value Chain Development VCD)?
• ILO Definition –
“Process of developing the market dynamics and relationships between the
different actors in the chain with the objective of strengthening the whole
market system - enterprises, business relationships, financial networks,
supporting functions, rules and norms, and the business environment – in a way
that ensures greater benefits for the poor from economic growth and
development. “
As defined by ILO, is VCD happening in Lesotho? Examples of success?
Value Chain Development Framework for
Productive Inclusion Projects
Assumptions for Standard VCD Project Beneficiaries:
1) Have, or are allocated, sufficient resources to effectively participate in value chain development
2) Do not face substantial trade-offs when using these resources (Risks)
3) Are able to assume higher risks when reinvesting capital and labour (Sustainability Issues)
These assumptions often do not reflect the realities and the needs of the poor (as in the CDM Initiative)
Value chain development (VCD) with vulnerable populations requires additional conceptual frameworks,
analyses, and interventions;
 Adopting an asset-based approach to the design, implementation, and assessment of
target value chains (The right fit)
 Identifying the non-market interventions needed for enabling disadvantaged groups
to meet the minimum asset thresholds for their successful participation in value chain
initiatives (Leverage)
How do We Undertake Value Chain Development
Within Productive Inclusion Projects?
• Facilitating Efficiency - Reducing poverty requires focusing not only on access
to markets, inputs, technology, but also on the performance of industries in
which large numbers of the poor participate as workers and entrepreneurs
and/or are serviced by.
• Facilitating a Mutually Beneficial Enterprise Development Model - The
structures, systems and relationships that define the value chain can be
influenced to enable SMMEs to improve (or upgrade) their products and
processes, and thereby contribute to and benefit from the chain’s
competitiveness.
EVIDENCE
and
GAPS
What Commodities are Relevant for VCD in
Lesotho with our Target Beneficiaries?
Agriculture
Trades & Services
Breadth of Possible Value Chains to Target
in Intervention Packages
• Agriculture Sector
 Poultry (Layers/Broilers, other)
 Piggery
Trades Sector
 Horticulture (Fruits/Vegetables)
 Wool & Mohair
 Beekeeping
 Dairy
 Cattle (inclusive of small & large livestock &
Hides/Skins)
 Mushroom
 Medicinal Plants
 Rosehip
 Crops (Potato, etc.)
 Other








Textile
Leather
Mechanics
Crafts
Construction
Engineering
Energy
Other (Tourism & Other Service Sectors)
Existing Value Chain Analysis Studies in Lesotho
- Agriculture
Commodity
Value Chain Studies
Strengths
Poultry (Layers &
Broilers)
CARE (2014)
SADP (2016)
LNDC (2017-18?)
(see below)
Piggery
CARE (2014)
SADP (2016)
LNDC (2017-18?)
Horticulture
(Vegetable and
Fruit)
CARE (2014) –
Vegetable
PSCEDP II (2017-18) –
Fruit (finance)
SADP (2016) – Veg.
LNDC (2017-18?)
Weaknesses
Opportunites
Constraints
Agriculture Sector – SWOT Poultry
External
Strengths
• Associations – Existent and Functioning
• Market – Demand High
• Entrepreneurs – Decentralized & Scalable – skilled Mentors available
• VC Programmatic Linkages between institutions available
• Scalable employment options (input supply, production, processing,
marketing)
• Existent VC
• Recent government policy action on imports (eggs)
• LNDC new policy???? (processing)
Opportunities
• Input Supply (genetics, feed, hardware)
• Marketing/Advertising - Local is Lekker!
• ICT innovations for learning, marketing, linkages/logistics
• Technology in the Value Chain (input supply, logistics, production, processing)
• Decentralization of VC (scale) (abattoir, cold chain, processing)
• Quality Control & Vet Service Expansion – Product Sales
Weakness
• Barriers to entry high for scalability
• Feed Price & Access
• Associations – Mission Issues
• Market Price Competition RSA/Imports
• Imported Input Supply – Value Chain Weakness
• Cold Chain non-existent/minimal
• Market size unknown (targeting and scaling)
• Quality Control (no official certification and phyto-sanitary weak)
• Investment & Government Policy
Threats
• Imports (finished product, price, supply chain)
• Government regulation and monitoring of industry non-existent
• Extension & Training Adequacy
• VC Linkages weak
• Scale (on-farm and macro- value chain) – compete with vert. integrated imports
• Financing & Risk
• Weak Veterinary Services & Private Support
Agriculture Sector – SWOT Pigs
External
Strengths
• Associations – Existent and partially functioning
• Market – Demand High
• Entrepreneurs – Decentralized & Scalable – skilled Mentors available
• VC Programmatic Linkages between institutions available
• Scalable employment options – input supply, production processing
and marketing)
• Existent but weak VC
• LNDC new policy???? (processing)
Opportunities
• Input Supply
• Marketing/Advertising - Local is Lekker!
• ICT innovations for learning, marketing, linkages/logistics
• Technology in the Value Chain (input supply, logistics, production, processing)
• Decentralization of VC (scale) (processing, abattoir , cold chain and value
added)
• Quality Control & Vet Service Expansion – Product Sales
Weakness
• Barriers to entry high for scalability
• Feed Price & Access
• Associations – Mission Issues & subsistence models
• Market Price Competition RSA/Imports
• Imported Input Supply – Value Chain Weakness (feed and genetics)
• Cold Chain non-existent/minimal
• Market size unknown (targeting and scaling)
• Quality Control (no official certification and phyto-sanitary weak, no
certified abattoirs)
• Investment & Government Policy
• Import licensing unenforced
Threats
• Imports (finished product, price, supply chain)
• Government regulation and monitoring of industry non-existent
• Extension & Training Adequacy
• VC Linkages weak
• Scale (on-farm and macro- value chain)
• Financing & Risk
• Weak Veterinary Services & Private Support
Agriculture Sector – SWOT Horticulture
External
Strengths
• Associations – Existent and partially functioning
• Market – Demand High
• Entrepreneurs – Decentralized & Scalable – skilled Mentors available
• VC Programmatic Linkages between institutions available
• Scalable employment options – input supply, production, processing
and marketing)
• Existent but weak VC
• LNDC new policy???? (processing, collection and marketing)
• Some quality control & certification
• Hardware capacity expanding with local entreprenuers
Opportunities
• Input Supply
• Marketing/Advertising - Local is Lekker!
• ICT innovations for learning, marketing, linkages/logistics
• Technology in the Value Chain (input supply, logistics, production, processing)
• Cold Chain
• Organic Certification
Weakness
• Barriers to entry low/high for scalability (seasonality and variety)
• Associations – Mission Issues
• Market Price Competition RSA/Imports
• Imported Input Supply – Value Chain Weakness (seed, stock, most
inputs) – static and undeveloped outside some nurseries
• Cold Chain non-existent/minimal
• Market size unknown (targeting and scaling)
• Quality Control (Global Gap exists but phyto-sanitary weak)
• Investment & Government Policy (weak certification – organic) –
uncertain investment policy
Threats
• Imports (finished product, price, supply chain)
• Government regulation and monitoring of industry non-existent
• Extension & Training Adequacy
• VC Linkages weak
• Scale (on-farm and macro- value chain)
• Financing & Risk
Existing Value Chain Analysis Studies in Lesotho Agriculture
Commodity
Value Chain
Studies
Wool & Mohair
DFID (2004)
CARE (2014)
IFAD WAMPP (?)
LNDC (2017-18?)
Beekeeping
N/A
Dairy
N/A (some old
analysis from the
late 1980s)
LNDC (2017-18?)
Cattle (Meat &
Hides & Skins)
AfDB (2017-18)
LNDC (2017-18?)
Strengths
Weaknesses
Opportunites
Constraints
Agriculture Sector – SWOT Wool & Mohair
External
Strengths
• Associations – Existent and functioning
• Market – Demand High (GVC)
• Entrepreneurs – Decentralized & Scalable – skilled Mentors available
(production)
• VC Programmatic Linkages between institutions available
• Scalable employment options – input supply, processing and
marketing)
• Strong VC but in flux (
• LNDC new policy???? (value added processing)
Opportunities
• Input Supply (breeding stock, vet)
• ICT innovations for learning, marketing, linkages/logistics
• Technology in the Value Chain (input supply, logistics, production, marketing)
• Quality Control & Vet Service Expansion – Product Sales
• Expansion of GVC opportunities
Weakness
• Barriers to entry high for scalability
• Associations – Mission Issues (partnerships and strategy)
• Market Price Competition – quality and grading
• Imported Input Supply – Value Chain Weakness (genetics)
• Market access risk and conduit flux
• Quality Control – fragmented production, bailing forces attenuated
grading
• Investment & Government Policy
• Environmental (range degradation and control)
Threats
• GVC competition (value added) and marketing flux
• VC Linkages in flux
Existing Value Chain Analysis Studies in Lesotho Agriculture
Commodity
Value Chain
Studies
Mushroom
N/A
Medicinal Plants N/A
Rosehip
CARE (2014)
Other Field
Crops (Potato,
etc.)
N/A
LNDC (201718?)
Strengths
Weaknesses
Opportunites
Constraints
Agriculture Sector – SWOT Rosehip
External
Strengths
• Market – Demand High (GVCs and value added)
• Entrepreneurs – One strong firm and growing private aggregation
• Scalable employment options – collection, processing and
marketing)
• Decent aggregation model and collector education
• Good quality control & certification (GVC)
Opportunities
• Competition is weak and value addition scalable
• ICT innovations for learning, marketing, linkages/logistics
• Technology in the Value Chain (logistics, processing and marketing)
• Collection & aggregating
• Financeable due to competitive advantage
• Value adding at aggregation
Weakness
• Barriers to entry low for scalability (collection)
• Market size limited by finance at processor/exporter level
• Investment & Government Policy
• Some illegal border exports & competition issues
• Informal Aggregator competition issues
Threats
• Lack of finance to meet market demand & value addition
Existing Value Chain Analysis Studies in Lesotho Trades
Commodity
Value Chain
Studies
Textile
Several Studies
but none
outside Formal
Sector
LNDC (201718?)
Leather
AfDB (2017)
Crafts
N/A
Strengths
Weaknesses
Opportunites
Constraints
Recommendations – Regarding VC Studies
• Open Access to all recent VC studies for interested agencies & collection of any
outstanding studies
• Undertake Rapid Market Assessments (RMAs) for all commodities under
consideration inclusive of barriers to entry thresholds and relevant criteria for
target beneficiaries
• Undergo Value Chain Selection process based on existing studies and RMAs to
narrow focus for target beneficiaries
• Undertake full Value Chain Analyses for selected commodities in order to
better inform Value Chain Development programming
• Ensure Private Sector Development/Inclusion (as part of GoL Policy) forms a
major part of of Value Chain Development initiatives.
APPROACH
Relevance of Rapid Market Assessments
(RMAs) and Value Chain Analyses (VCAs) to
Productive Inclusion Project(s)
• RMAs are designed to provide a quick and basic first understanding of key
markets and their relevance for target beneficiaries.
• Where some data and research exists, yet gaps remain, we can conduct RMAs.
• It is important to conduct RMAs for all relevant targeted commodities in order
to lead into an objective VC selection process
• Once selection is undertaken, and where need be (due to lack of current or
applicable VCAs), in-depth and criteria targeted VCAs should be undertaken
• These VCA’s will lead communication with project beneficiaries on final
selection of VCs they would best be suited to participate as well as assist in
project design (training and other interventions).
What Criteria is Relevant for Productive Inclusion
Project in Regards to RMA’s?
Criteria of RMAs contain agreed upon snapshots of the following:
• A Market Channel Baseline Analysis - assesses how a market channel operates (value chain map). It
records all firms involved in a market channel from production to final consumer Value Chain Map
• Current Power Relationships in VC Governance & Bargaining of Actors
• Barriers to Entry (Geographic, Financial, other….)
• SWOT
• Number of Target Groups active in the sector & nature of participation
• Opportunities for Inclusive Growth
• Sector Growth Potential (Market segments, scope)
• Conduciveness of political economy
• Willingness of market players to change
• Climate Resilience
What Criteria is Relevant for Our Project in
Regards to Vale Chain Analyses (VCA’s)?
VCAs
• Once RMAs are undertaken and initial selection criteria is undertaken (see
next section on VC Selection), full VCAs should be undertaken for the chosen
VCs.
• What is the difference between RMA’s and VCA’s?  more regarding the depth of analysis. RMA’s are a snapshot of a
commodity chain while VCA’s are an in-depth analysis of commodity chains.
Value Chain Selection – Multi-Criteria Analysis
(MCA)
What is Multi-Criteria Analysis ?
• Structured approach for comparing alternatives for overall preference (various commodity chains) outside of denoting
monetary values (like Cost-Benefit Analysis).
Example – Analytical Hierarchy Process (AHP)
• This methodology compares alternatives with respect to a criterion (through scoring, ranking and weighting), in a natural,
pairwise matrix.
• The AHP uses a fundamental scale that captures individual preferences with respect to quantitative and qualitative data
provided. It converts individual preferences into ratio scale weights that can be combined into a linear additive weight for
each alternative. The resultants can be used to compare and rank the alternatives and assist the decision makers in making
a more objective choice.
Criteria for Selection – The RMAs should help with informing value chain selection in an objective way.
• Possibilities of Engagement of Beneficiaries
• Possibilities for Sustained Increases in Beneficiaries Incomes (as well as all stakeholders in a particular value chain)
• Unmet Market demand
• Access to a responsive and dynamic market
• Access to finance to engage in commodity chain
• Availability of existing and potential Technologies/ICTs
• Government and other stakeholders' priority & alignment with government policy and priorities
• Cost of entry into markets for beneficiaries,
Example of MCA – Ranking alternatives based on criteria
Access to a
Poultry Pigs
responsive and
dynamic
market
Horticulture Wool &
Mohair
Honey
Rosehip
Dairy
Mushroom
Cattle
Poultry
1
2
1
1
3
9
3
8
1
2
1
1
3
8
4
7
1
6
2
5
9
5
6
1
4
5
9
7
5
1
1
9
6
7
1
5
2
8
1
1
2
1
5
Pigs
Horticulture
Wool & Mohair
Honey
Rosehip
Dairy
Mushroom
1
Cattle
1
Pairwise Comparison Scale: 1 – equally preferred 2 – equally to moderately preferred 3 – moderately preferred 4 –
moderately to strongly preferred 5 – strongly preferred 6 – strongly to very strongly preferred 7 – very strongly preferred 8
- very to extremely strongly preferred 9 – extremely preferred
Value Chain Development
• Once we have selected, against criteria, the main value chains we are
concentrating, we need a strategy to affect a value chain approach
What is Value Chain Development?
 Increase productivity
 Facilitate access to inputs
 Improve access to markets
 Strengthen VC relationships and governance
 Improve enabling environment
Value Chain Development – Current State of Affairs
• What is currently being done regarding value chain development in Lesotho?
Example – Horticulture
 Increasing productivity – Who is overwhelmingly responsible for this? What avenues
are they using? What is their incentive to assist farmers in increasing productivity?
 Facilitate access to Inputs – (seed, chemicals, fertilizer, equipment) – Who is
overwhelmingly responsible for this? What avenues are they using? What is the
incentive to help farmers access inputs and is this assistance sustainable?
 Improve access to markets – who are the main market intermediaries? What
information do they have for market penetration and what market segments are
being serviced? What are the incentives for these intermediaries to assist farmers
with accessing the market?
 Strengthen VC relationships and governance – Which intermediaries are ensuring
equitable transactions and transparent information exists along the value chain?
 Improve enabling environment – What organizations are working with and/or
lobbying government to ensure fair competition and growth in the market?
Value Chain Development – Apex or Lead Firm
Approach
What is the Lead Firm Approach?
 Dynamic firms that play a critical role in moving their industry and other value
chain participants forward.
 Lead firms can be defined as small, medium, or large firms that have forward
or backward commercial linkages with a significant number of SMMEs.
Examples of lead firms include buyers, traders, input suppliers, veterinarians,
exporters and processors.
 Lead firms often provide important products or support to the SMMEs they
buy from or sell to, as part of their commercial relationships with them.
Examples include training, technical assistance and inputs. They are often
engaged in aggregating the production of SMMEs, adding value to raw
materials, and selling finished products in domestic and international markets.
Value Chain Development – Apex or Lead Firm Approach
RATIONALE/ IMPORTANCE OF COLLABORATING WITH LEAD FIRMS
 Possibility of achieving sustainability of impact - If a lead firm has a commercial interest in
buying from, or selling to, a large number of SMMEs (and can do this in a commercially viable
manner) then it will continue to do so after a development program ends.
 Scale of impact - Lead firms can be considered “points of leverage” in a value chain because
by working with a few lead firms, many SMMEs can be impacted. Leveraged impact can take
place when lead firms provide the SMMEs they source from with improved production
methodologies, designs and technical support. It can also occur when a development
organization works with an input supply company to improve the quality, price or availability
of products sold to SMMEs.
 Development of embedded support among market actors and greater industry
competitiveness - lead firm buyers who offer pre-financing, technical advice and/or inputs to
their SMME producers in order to ensure a quality product that meets market standards; and
lead firm input suppliers who provide training, information, and/or technical advice to the
SMMEs they sell to in order to ensure successful usage of their product.
Value Chain Development – Apex or Lead Firm
Approach - Incentives
 Access to Quality Products - Lead firms that source from primary producers frequently have
incentives to upgrade these producers in order to obtain quality product that they can then
sell, finish or use in their processing/market channels. Lead Firms have incentives to invest in
the upgrading of their producers so that their own finished product will be of high quality and
acceptable to their end markets.
 Lean Production Systems - Managers of outgrowing schemes need to increase the
productivity of their farmers in order to make their operations viable. If farmers are more
productive, the company that is buying from them can get the quality production they need
from a smaller number of producers, thereby keeping their operational costs in check
 Input Promotion and Marketing - A provider of crop inputs has an incentive to train producers
in the advantages of using those inputs and also of how to use them. A provider of animal feed
has an incentive to train producers in the optimal formulation of feed for their animals. These
investments by suppliers often make good business sense as they create loyalty with the
SMMEs who purchase the goods or services and encourage them to continue buying from the
supplier. It can also help ensure the success of the supplier’s product and result in increased
sales.
Value Chain Development – Apex or Lead Firm
Approach - Challenges
 Lead firms that have only sourced their products from intermediaries or in open
markets often lack the understanding or capacity to work directly with producers.
 Buyers and their staff lack the technical skills needed to train or advise producers in
new production techniques, designs, and more cost effective operations.
Sometimes the lead firm’s constraints are due to low margins on their sales (leaving
only a small margin that can be used for investing in producers) or to low sales in
general.
 Lead firms may be too busy with the daily operations of their business to focus
effectively on developing support services for producers or subcontractors.
Lead firms may also lack understanding of the benefits, risks, economic feasibility and
long-term advantages of investing in their SMME suppliers and buyers.
 They might also hesitate to invest in producer upgrading fearing that producers might
then sell or buy from their competitors.
Value Chain Development – Apex or Lead Firm
Approach – Governance
Conducting due diligence of the lead firms and understanding their incentives can help
identify lead firms that are most likely to enter into mutually beneficial relationships
with SMMEs.
The development of memoranda of understanding (MOU) between the development
partner and lead firm is another opportunity to help clarify the firm’s work plan,
planned investments and initiatives for upgrading SMMEs in their value chain.
Once memoranda are established, the development organization can monitor the
commitment of lead firms in carrying out agreed-upon activities and cost-share
agreements.
Development partners must recognize that both parties in the relationship (lead firms
and SMMEs) must benefit for it to be successful. It is also interesting to note that
mutual dependency among market actors helps to ensure that both parties respect
agreements and work fairly together.
Value Chain Development – Apex or Lead Firm
Approach – Working with Lead Firms
Establish a workable model - Dynamic lead firms often set a model for other
firms to follow.
Critical mass for Impact - Working with most or all of these firms increases the
likelihood of a systemic impact on the industry. Even working with a smaller
number of lead firms can create a critical mass of firms that are demonstrating
improved operations, products, access to markets and support services to the
SMMEs they buy from or sell to.
Promoting individual LF initiatives - Initiatives such as developing new products,
establishing relations with new buyers, introducing new equipment and
technologies, or developing improved relationships with their SMME suppliers
must be done by individual firms on their own.
Value Chain Development – Apex or Lead Firm
Approach – Facilitators Role
Choosing lead Firms - Development organizations can employ a variety of methods in assessing lead
firms against these criteria. These include conducting due diligence during value chain analysis,
organizing stakeholder meetings and requesting “applications” from lead firms to propose cost share
activities that respect parameters and guidelines established by the organization.
 It is preferable to work with lead firms that have:
1) commercial linkages with large number of MSMEs;
2) sufficient financial strength and long-term perspective;
3) strong demand for their products and ability to compete in end markets;
4) potential to influence their industry; and
5) an acceptable reputation.
Respect the experience and knowledge of lead firms
Stay out of commercial, intermediary, or negotiation roles in the value chain
Build lead firm capacity to provide products/services to SMMEs
Create appropriate incentives
Monitor agreements