Mizan Teppi University

College of Agriculture and Natural Resource

Department of Agribusiness and Value chain Management

Value chain analysis and development

Course code = ABVM 222, Crd,hr = 5 , Beneficiary = 4th year AgEc & 2nd year ABVM
Academic year = 2016 E.C , Semister = I, Teacher = Abera.B (Msc)

Mizan teppi, Ethiopia

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620
 Introduction
For a large part of the world’s growing population and developing countries,
integration of the global economy and the globalization of manufacturing has
opened up new prospects of upgrading their industrial and service sectors
and provided them opportunity to achieve significant prosperity gains. More
over, it leads to

Higher incomes,
Differentiated final products and
Availability of quality goods.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Intro, cont…

Most notably, free trade agreements and other accords have created new
export opportunities – mainly for food products – as the demand for variety
continues to grow in developed countries.

Such market changes have encouraged governments and investors, including

farmers, to expand agro-industrial activities and linkages to export markets
as a means of increasing local food production, employment, business
development and international trade.

Due to such scenarios, competition among producers has increased to meet

export market demands in terms of cost, quality and delivery times

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Intro, cont…

Consequently, a wide range of companies have evolved to provide goods and

services to help agro-industries meet those demands.

At the same time, policies, regulations, support services, tax and trade
instruments and their associated actors and institutions have also developed to
become intrinsic parts of so called “value chains.”

Such a move (globalization) is changing the environment in

which poverty reduction strategies are being implemented.
Recently there is tremendous increase in the demand of
societies as well as the way of competition among business
firms acting both locally and globally.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Intro, cont…

 Therefore there is the need for knowledgeable and skilled

graduates who are able to understand and act according to
what external environment seeks

 Value chain concept is one of such strategic approach

developed with view of fitting the current and future
business situation of which agricultural sector is the focus
of our concern.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Intro, cont…

In such new context, two things w/c are poverty

alleviation & economic growth be go together.

Hence, a value chain approach which focuses on

industries employing large numbers of the poor and with
the potential to become and remain competitive in global
markets should be in place; b/c

“to succeed in global markets, entire industries (or value

chains) must be able to deliver a product to the consumer
in a more unique form than the value chains in competing
countries”.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Objectives of this learning task

Equip students with basic knowledge of value chain and value chain analysis
Making students familiar with value chain approaches and principles for the
improvement of the chain
Making chain governance or leadership clear to facilitate chain development

Explain the concept of value chain development and formation

Helping students apply different value chain development and improvement
strategies
Preparing students to develop value chain net working
Making learners know about value chain upgrading and it relation with
business environment

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Brain storming (Class Discussion)
All of you think back to your locality specifically about your families living standard
and once try to recall the way your families are producing agricultural
commodities and compare their style of farming with the current worlds situation
and discuss each other on the following questions;

i) Are your families producing using modern approach?

ii) If yes, to what extent do they modernized their agriculture and what are the
indicators/evidence for that?
iii) Is there any gap to be met? If so, what are those gaps and what would be the
soln?
iv) What you promised for your self? What you think to contribute after your
graduation?

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Historical Aspects
According to Raikes et al,2000, there are two concepts which
laid foundation for the development of value chain concept.
Such two concepts are;
i). Commodity chain concept and
ii) Fili’ere concepts also called French fili’ere approach(FFA)
Both concepts focuses on how commodities moves from one
stage of their production to the other stage and differs in
their approach.
 The commodity chain concept was more theoretical
approach focusing only on industrial commodities and
their different aspects of production and distributions.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 cont….

 Onthe other hand, Fili’ere concept refers o the technical

frameworks for practical researches on the different commodities.

The filiere concept was first developed by French national institute

for Agricultural research and French agricultural research center
for international development as analytical tool to study the way in
which agricultural production system were organized in the context
of developing countries.

The concept was first applied in contract farming and vertical

integration in French Agriculture and further expanded to enhance
linkage among French state and its former colonies through
traditional commodities such as Cocacola, coffee,rubber…etc.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 cont….
In 1982 consultants ‘Oliver and Webber’ developed the concept called
Supply chain management based on the concepts of commodity chain.

In 1986 Hopkins and Wallerstein further expanded the concepts of

commodity chain based on the dependency theory.
Such dependency theory refers to the general pattern of the world
economy of all necessary activities including
Conception,design,transformation, production, disposal after use.

In 1986, Michael porter who was an economist and consultant in

Harvard University wrote a book called Competitive advantage creating
and sustaining superior performance.
The book was written based on the 1980s concept of supply chain and
focuses on the concepts of (Logistics, marketing, design, production and
delivery) that is strategic for firms operating in different business
industry.
Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620
 cont….

In 2000, Greffi developed the concept of Global value chain(GVC)

due to increased trends of globalization and industry linkage.

Therefore both Porter and Greffi believed that in the process of

product production and marketing/distribution there is change in
the value(internal/external) of that product and they called the link
among stakeholders of that product /commodity chain and
developed the phrase Value chain.

Therefore
Value chain is series of activities and people taking part in the
process of production and distribution of products from idea
generation through final consumption of that product where value is
expected to be added in between.
Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620
 UNIT 1. Basic concepts of Value chain and
Value chain Approach

In order to better Understand value chain, lets see what value is first. Because
value chain is derivatives of the two words value and chain.

Value is :
 A fair return or equivalent in goods, services, or money for
something exchanged.
 The monetary worth of something: market price.
 Relative worth, utility, or importance.
 A numerical quantity that is assigned or is determined by
calculation or measurement. Vlaue can be utility/satisfaction

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

In connection to the value chain concept Porter (1985) defined
the term ‘value’ as the amount buyers are willing to pay for
what a firm provides, and he conceived the “value chain” as the
combination of value added activities operating within a firm –
activities that work together to provide value to customers.

Value is subjective experience that depends on the context

Example: Value of a glass of water for thirsty boy and busy boy
cleaning a house

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

There are three forms of value that occur in B2B commercial
transactions:

 Technical (Resource Value);

 Organizational (Business Context); and
 Personal (Career and Idiosyncratic).

Technical value - Intrinsic to the resource being provided and occurs

in virtually all exchanges. For the thirsty man, the water has a
technical value regardless of the source or any other consideration.

The water will have technical value regardless of some aspects such
as: the type of cup used or even dirty or the man providing it is a
criminal

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

Organizational value- It is value built upon the context of the
exchange, and may derive from a range of factors such as ethical
standards, prestige, reliability, and association. Brand image may
build organizational value, as well as company reputation. Ex:
Graduate of A.A University and other university

Personal value: Is derived from the personal experiences and

relationships involved in the exchange of resources and the
benefits provided.
Manager motivation, preferences, feelings of comfort and trust
create value for individuals that engage in trading relationships
on behalf of firms, and can be extremely influential in the
determination of successful exchange. Example: Good purchased
from customers (suppliers)

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

1.1. Value chain defined
Porter (1985)
VC is a combination of value added activities operating within the firm that works
together to provide value to the customer.

Kaplinsky and Morris with Porter (2000)

VC is a full range of activities w/c are required to bring products/services from conception
through the d/t phases of production to delivery to the final consumers and disposal after
use.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Meaning of Vc;
Cont….

FAO (2005).
Value chain in agriculture is a set of actors and activities that brings agricultural products from
production to the final consumption where value is added to the product at each stage.
ILO(2006).
Vc is a sequences of target oriented combination of production factors that creates a
marketable products/services from conception to the final consumption.
World Bank (2010).
Vc is a full range of value adding activities required to bring products/services through the
different phases of production including procurement of raw materials and other inputs.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 1.2. Value chain actors and activities
Value chain actors

 Actor is a corporate person, a natural person or other entity, that is able to influence
its direct surroundings. i.e. a value chain is made up of a series of such actors (or
stakeholders) from input suppliers to its end use.

Category
 Based on the role they play in the chain, value chain actors are categorized into
three stage/groups as value chain main actors, supporters and influencers.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Vc actors; Cont…

1. Value chain main/core actors: Refers to the chain of actors who directly deal with
the products,

 Activities of such actors includes: Producing, processing,

distribution/marketing

Examples :
Producers, itinerant collectors (small and mobile traders who visit
villages and rural markets), assembly traders (also called
primary wholesalers who normally buy from farmers and other
itinerant collectors and sell to wholesalers),

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Vc actors; Cont…

Wholesalers: (who deal with larger volumes than collectors and assemblers and often
perform important storage functions), retailers (who distribute products to
consumers), & processors (firms and individuals involved in the transformation of a
product).

2. Value chain supporters: Refers to those service providers( BDSs) who never directly
deal with the product but whose services add value to the products.

 These are services that play supporting role to enhance the

operation of the different stages of the value chain as a whole.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Vc actors; Cont…

 Such business support services are either international, national or local.

There are four category of business support services which are

a. Basic infrastructural services: Including market place development, roads and
transportation, communications, energy supply, and water supply.

b. Production and storage services: Like input supply, genetic and production material
from research, farm machinery services and supply, extension services, weather
forecast and storage infrastructure.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Vc actors; Cont…

c. Marketing and business support services: Includes

 market information services, market intelligence which tells a
company about its environment in the market, technical and
business training services, facilitation of linkages of producers
with buyers, organization and support for collective marketing.

d. Financial services : Including credit and saving services,

banking services, risk insurance services, and futures markets.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Vc actors; Cont…

3. Value chain influencers: refers to specific policy and

regulatory service elements influencing value chain
performance including
 Land tenure security,
 Market and trade regulations,
 Investment incentives,
 Legal services, and taxation.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Class activity/Group discussion

Importance of value chain actors and their linkage

Discuss in group about the importance of value chain actors

and how their coordination plays a significant role for
successful completion and achievement of the intended
objectives of certain value chain by using film production
and actors different role in the organization of one soundly
full film

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Value chain activities

Porter sought to define a company’s competitive advantage noting

that it stems from a company’s processes, such as marketing and
supporting activities.
Value chain Primary activities
Porter breaks value chain analysis into five primary activities and .
Then, he further breaks those down into four activities that help
support primary activities.
The primary activities of Michael Porter's value chain are Inbound
logistics, operations, outbound logistics, Marketing and sales, and
service provision
The goal of such five sets of activities is to create value that exceeds
the cost of conducting that activity, therefore generating a higher
profit.
Value chain Support activities
Companies can further improve the primary activities of
their value chain with secondary activities. There are 4
supporting activities in value chain
Value chain support activities do just that, they support the
primary activities. They are
1) Procurement,
2) Human resource management,
3) Infrastructure development and
4) Technology development
 1.3. Value chain Approach

What is value chain approach?

VA: Is the means by which the value chain principle/philosophy

is applied/excercised in different operational units. It is method
to apply value chain principles
 It helps to understand how micro and small enterprises can
contribute and benefit from competition through globalization.
 It is also used to understand trends in global and national
market
 VA can be applied at sector, sub sectors, product/s level

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Objectives of VA
 The grand or overall objective of VA is ensuring
sustainable competition of industries and the whole
system of value chain operating @ different levels.

More specifically, VA has the following objectives

 Improving the growth potential of VCs with large numbers of

small firms
 Enhancing such small firm contribute to VC growth
 Ensuring benefit of such small firms

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 What functions do VA involves?

In order to achieve its objectives, VC involves the ff functions

 Linking the theoretical understanding of how economies
works with practical approaches
 Informing donor funded economic growth activities and
private sector investment
 Allowing stake holders to drive the process of
development

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Uses/ importance's of VAC/general

Economic growth: by
 mobilization of industry participants
 increasing competitiveness of industry
 increasing sustainable donor intervention in economic
growth
Financial services: by
 identification of mechanisms for financial service delivery
 assisting lending institutions by expanding their definition
of creditworthiness
Natural resource mgt: by
 increasing competitiveness of natural resource based
industries
 developing competitiveness strategies important for
environmental and local business development

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Importance of VA…cont

Health: by
 mobilizing industry participants to identify and address
health related constraints

Conflict mgt: by
 Prioritizing industry constraints and opportunities in post
conflict situations
 bringing diverse stake holders to work together towards
common vision

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Actors specific importance of VA

For Producers and  Increase the quantity and quality of his/her

traders produce
 Produce at minimum cost and stay
competitive in the market
 Increase income and be sustainable
 Retain his/her customer and increase their
confidence
 Make him/her able to provide differentiated
good
For processors and  Reliable and quality supply of raw materials
consumers  Production of finished good at reasonable
cost
 Reliable supply of finished good
 Reliable employment
 All time availability of quality and
differentiated good
 Email:
Abera Birhanu@ MTU, [email protected],
ranges of good and healthy
Phone: life
0979775620
 Characteristics principles and assumptions of Value
chain Approach

Characteristics of VCA

 Production line consists of series of chains & each chain

consists of activities
Value added to an activity affects all other activities (link)
All the operator/actors benefit when value is added
Works when there is free and timely flow of information
among the operators/actors
Each of the operators of the activities monitors and
evaluates along the chain

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Charactericts of VA….cont

The quality of linkage among actors in the chain determines

the
success of vc
Value chain competitiveness depends on trust, cooperation
and communication among actors
The performance of every single partner in the chain
determines the strength of the entire value chain and the
reverse is also true
Operators act in their individual and collective interest and
assume responsibility from the start.
Timely availability of critical information.
All actors in the chain benefits from upgrading
Both positive and negative experiences are taken as a basis
for progress
Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620
 Principles of value chain approach

i. Work alignment with consumers/end users & demand

driven
ii. Provision of quality products as desired by consumers
iii. Pie/profit growing, coordination and innovation
iV. Continuous product improvement and feedback
V. All actors add and share value
Vi. Sustainability and co benefit

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 Underlying Assumptions of value chain approach

Clearly stated policy statement indicating the expected role of

the chain system
Understanding the gap between potential and actual potential
Assessment of Strength and weakness, opportunities and
threats (SWOT) analysis
Clear understanding of various value chain links and market
opportunities

All actors and facilitators are expected to understand and

assume their role with dedication and purposes
All actors and change agents are expected to be willing and
able to motivate others
Operators/actors act in their individual and collective interest
and assume responsibility from the start.
 Traditional Marketing Vs Value chain Marketing

In the traditional marketing system,

 Farmers produce commodities that are "pushed" into the
marketplace.
 Farmers are generally isolated from a majority of end-
consumer and have little control over input costs or process
received for their goods.
 In most traditional selling systems farmers/producers tend to
receive minimal profit.
 In such marketing system, “Push” approach is used.
 Products may often be sold into a crowded and competitive
market.

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

 The farmers are largely isolated from the consumer, and
from the demands and preferences of consumers
 Research and Development is focused on production and on
reducing costs of production, and may not take account of
other steps, links, or dependencies in the chain (e.g.
environmental or social costs).

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620

Value chain marketing system,
 In a Value Chain marketing system, farmers are linked to the
needs of consumers, working closely with suppliers and
processors to produce the specific goods required by
consumers.

 Using this approach, and through continuous innovation and

feedback between different stages along the value chain, the
farmer's market power and profitability can be enhanced.

 Here the system is market “Pull”. This is based on integrated

transactions and information. Consumers purchase products
that are produced according to their preferences
 Supply chain Vs Value chain

The concept of Supply Chain Management (SCM) emerged in the

1980s as a new, integrative philosophy to manage the total flow of
goods from suppliers to the ultimate user and evolved to consider a
broad integration of business processes along the chain of supply
(Martha et.al. 1997).

Supply chain is a term now commonly used internationally – to

encompass every effort involved in producing and delivering a final
product or service, from the supplier’s supplier to the customer’s
customer.

As the name implies, the primary focus in supply chains is on the costs
and efficiencies of supply, and the flow of materials from their various
sources to their final destinations.
To differentiate concept of supply chain from that value
chain, let’s see some of the drivers for the development of
the so called modern supply chains.

 Increasing trend in the number of consumers residing

in the cities due to rural-urban migration.
 The need for the reduction of import and to achieve a
higher level of self-sufficiency at a national level
 The growing middle class population with more money
to spend
 Growing population

Abera Birhanu@ MTU, Email: [email protected], Pho

ne: 0979775620
 The supply chain concepts are supply driven and are not
completely value/demand driven.

 In a supply driven approach every company looks to maximize

its capacity utilization and pass the products to the next
downstream player within the chain instead of focusing on
the main objective which is to maximize the satisfaction of
the end user.

 The core operational elements like forecasting, inventory,

production planning are designed with an objective to
maximize capacity utilization under supply chain approach

Abera Birhanu@ MTU, Email: [email protected], Pho

ne: 0979775620
 Such approach can lead to huge inventories along the entire
chain, higher risk of obsolescence (outdated products) and all
other challenges associated with inventories.
 The risk of post-harvest losses is also quite huge in this case.
 Mostly, the supply chain approach doesn’t take into
consideration all the businesses, processes, incentives of the
actors etc. from product origination to final destination.
 Hence, it is very likely that some/many players do not add
direct/real value to the product or core activities of the
product/service chain.
 Nevertheless, they may add costs and create non-transparency
for the chain actors.

Abera Birhanu@ MTU, Email: [email protected], Pho

ne: 0979775620
On the basis of the above justifications, the difference between
Supply chain and Value chain can be summarized as follow

 Supply chain approach is supply deriven but Vc approach is

value/customer/demand deriven
 Supply chain approach focuses on cost minimization but Vc
approach focuses on customer satisfaction
 The main objectives of SCM is to maximize capacity
utilization but the main objectives of VCM is superior
performance and customer satisfaction
 Focus under SC is on Pie-Sharing, Capacity and Profit
optimization, maintaining status-quo while the focus under VC
is pie growing, meeting customers need and harmonious
development

Abera Birhanu@ MTU, Email: [email protected], Pho

ne: 0979775620
 Levels of Value chain System

The value chain system consists of four levels i.e.

1)Micro (business),
2)Meso (institutional),
3)Macro levels (framework conditions) and
4)Meta level (building on encouraging attitudes), which
foster cooperation among all stakeholders.

Pls read the detail of such levels of Value chain system

and reflect your finding for the next section

Abera Birhanu@ MTU, Email: [email protected], Pho

ne: 0979775620
 End of Chapter 1

Abera Birhanu@ MTU, Email: [email protected], Phone: 0979775620