JUCAVM

Department of Agricultural
Economics and Agribusiness
Management
Course : Value Chain Analysis and
Development
By
Abduselam Faris
01/31/2025
1
2

Chapter 1

Value Chain : Concepts,

Importance & Principles

01/31/2025
 Concepts in Value Chain
3

What makes something desirable?

 Desirability factors:
 Price: Cheap or high value
 Appearance: Looks
 Experience: Taste
 Ease of use: Fresh-cut and washed
 Availability: Year-round like Coca-Cola
 Value Chain:
 Coined by Michael Porter in 1985
 Refers to activities and services from conception to end
use in an industry
01/31/2025
 Concepts inValue Chain
4

•The value chain comprises interlinked value-adding

activities that convert inputs into outputs, which in
turn contribute to the bottom line and help create
competitive advantage.
• Business Involvement:
Handling and adding direct value
Consuming the product
•Indirect Service Network:
Quality control
ICT
Financial partners (banks, insurance)
Training and research
01/31/2025
 Concepts inValue Chain
5

“value chain” describes the full range of value-adding activities

required to bring a product or service through the different phases
of production, including procurement of raw materials and other
inputs, assembly, physical transformation, acquisition of required
services such as transport or cooling, and ultimately respond to
consumer demand(Kaplinsky and Morris 2002).
A value chain is a network of strategic alliances between independent
companies that together manage the flow of goods and services along
the entire value-added chain. 01/31/2025
 Concepts in Value Chain
6

•Value chains comprise vertically linked,

interdependent processes generating consumer value
and horizontal linkages to other chains providing
intermediate goods/services.
•"Value chain" denotes continual value addition as the
product moves through each chain actor.
•Focus on value creation via innovation in products,
processes, marketing, and allocation of incremental
value. 01/31/2025
 Concepts in Value Chain
7

Value and value addition

Michael Porter developed and popularized the Value
Chain concept in 1985.

Porter defined value as the amount buyers are willing

to pay for a firm's offerings.

The "value chain" consists of nine generic value-added

activities within a firm that collectively provide value to
customers.

01/31/2025
 Concepts inValue Chain
8

Porter’s Value Chain

01/31/2025
 Concepts in Value Chain
9

• Primary activities directly transform inputs into

outputs and provide delivery and after-sales support.
These include:
• Inbound Logistics: material handling and
warehousing
• Operations: transforming inputs into the final
product
• Outbound Logistics: order processing and
distribution
01/31/2025
• Marketing and Sales: communication, pricing, and
 Concepts in Value Chain
10

• Support activities bolster primary activities

and other support functions.

•Handled by the organization’s staff functions,
they include:
•Procurement: purchasing raw materials,
supplies, consumables, and assets.

01/31/2025
 Concepts inValue Chain
11

•Technology Development: Know-how, procedures, and

technological inputs required in every value chain
activity.
•Human Resource Management: Involves selection,
promotion, placement, appraisal, rewards,
management development, and labor/employee
relations.
•Firm Infrastructure/Set up: Includes general
management, planning, finance, accounting,
01/31/2025 legal,
 Concepts inValue Chain
12

Value Addition in Agriculture

•Value addition is the act of enhancing the
value of a product, regardless of whether it was
grown or produced initially.

•It involves elevating a product from one level

to the next (Fleming, 2005).
•Adding value is the process of transforming a
product from its original state to a more
valuable state.
01/31/2025
 Concepts inValue Chain
13

Value Addition in Agriculture…

•But, Raw Commodities and Value:
•Many raw commodities indeed possess value in their
original state.
•Raised by agricultural producers, they are often sold
for further processing.
•Corn, wheat, weaned calves, market lambs,
watermelons, etc., all inherently possess value and are
worth something from the outset.
01/31/2025
 Concepts inValue Chain
14

Value Addition in Agriculture…

Could producers get MORE $$$ for their products if

they---- ?
•Grew products differently

•Physically changed their products before selling

them
•Coordinated with an agribusiness to change the

way their product was marketed?

01/31/2025
 Concepts in Value chain
15

Value Addition in Agriculture

 Adding value to products can be accomplished in a number of

different ways, but generally falls into one of two main types:

 Creating Value

Innovation

Industrial Innovation

 Capturing Value
01/31/2025
 Concepts in Value Chain
16

Value Addition in Agriculture

 Creating Value – occurs with actual or perceived value to a customer

for a superior product or service:

 Innovative new products

 Enhance a product’s characteristics

 Enhance services

 Create brand names

01/31/2025
 Develop unique customer experiences
 Concepts in Value chain
17

Value Addition in Agriculture

 Capturing Value: Changing the distribution of value in the food/fiber

production chain. Meant to ‘capture’ more of the consumer dollar

through:

• Direct Marketing

• Vertical Integration

• Producer Alliances

• Cooperative Efforts 01/31/2025

 Concepts in Value chain
18

Value Addition in Agriculture

Six Key Strategies for Adding Value

 Changing physical state of products

 Producing enhanced value products

 Differentiating products

 Bundling products

 Producing more products that improve efficiency up the supply

01/31/2025
 Concepts in Value chain
19

Value chain and Supply Chain

 Value chain: Encompasses all activities from input-
supply to final market destination.
Includes post-consumption waste disposal and recycling.
 Shift from Production Focus:
 Emphasizes value addition at every stage.
 Views production as just one aspect among multiple
value-adding components in the chain.
01/31/2025
 Concepts of Value Chain …

Concepts in Value chain

20

Source: - Kaplinsky, R., M. Morris, 2000 Figure 3- A generic value chain

01/31/2025
 Concepts in Value chain
21
 Supply Chain Definition:
 Integrated process involving various entities.
 Aims to acquire raw materials, convert them into
specified final products, and deliver to retailers.
 Also known as Production Chain:
 Comprises multiple chain links facilitating the flow of
goods and services from producer to consumer.

01/31/2025
 Concepts in Value chain
22

 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.

 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.
01/31/2025
 Concepts in Value chain
23

 Supply chain: It is taken to mean the physical

flow of goods that are required for raw materials

to be transformed into finished products.

 Supply chain management is about making the

chain as efficient as possible through better flow

scheduling and resource use (Dunne,2001).

01/31/2025
 Concepts in Value chain
24

The term value chain :

• Encompasses supply logistics, value addition,
transactions, and market linkages.
• Includes all factors of production (land, labor,
capital, technology, inputs) and economic
activities (input supply, production,
transformation, handling, transport, marketing,
01/31/2025
distribution).
 Concepts in Value chain
Factors Supply chain Value chain
25
Information Little or none Extensive
flow
Principal focus Cost/price Value/quality
Strategy Basic product (commodity) Differentiated
product
Orientation Led by supply Led by demand
Organizational Independent actors Interdependent
structure actors
Philosophy Competitive of the enterprise Competiveness of
the market chain
Adapted from: Toma & Bouma Management Consultants. November 1998. Value
Chains as a Strategy. Agriculture and Food Council. Edmonton, Alberta, Canada.

01/31/2025
 Concepts in Value chain

26

Complementary Concepts:
Supply chains and value chains deliver
improved business results when effectively
implemented.
 Supply Chains:

 Primarily involve downstream flow of goods

from source to customer.

 Value Chains: Value flows from customer to

supplier in the form of demand.

 We need to stop thinking of supply chains and

value chains as very distinct01/31/2025

and different
 Concepts in Value chain
27

Types of value chains

 There are different types of value chains based
on various classification criterion: These are:
1. Strength of role in the network/value
chain
 Value chains can be classified into two based
on the governance structures: buyer-driven
value chains, and producer-driven value chains
(Kaplinisky and Morris, 01/31/2025
2000).
28
Types of value chains….

Producer- driven value chains

 Large, usually transnational, manufacturers play the
central roles in coordinating production networks
(including their backward and forward linkages).
 This is typical of capital and technology intensive
industries such as the automotive, aircraft, computer &
etc. 01/31/2025
 v. Chain …

Concepts in Value chain

Types of value chains…
29

Buyer-driven value chains;-

 Buyer driven chains are usually labor intensive industries,
and so more important in international development and
agriculture.
 In such industries, buyers undertake the lead coordination
activities and influence product specifications.

01/31/2025
 Concepts in Value chain
30

Types of value chains…

2. Level of complexity of value chains

 The Simple Value Chain
 The Extended /Complex value chain

3. Number of value chains

One value chains

 In some cases, alternative value chains may absorb only a
01/31/2025
small share of their output; in other cases, there may be an
 Concepts in Value chain
31

Types of value chains…

3. Number of value chains…

Many value chains

 In addition to the manifold/diverse links in a value chain,
typically intermediary producers in a particular value chain
may feed into a number of different value chains.

01/31/2025
 Concepts in Value chain
32
Types of value chains…
4. Number of labels
 The various activities which were performed in
particular links in the chain.
 One label:- Focuses on a value chain analysis on
a single level of the chain
 Many labels: - Focuses on a value chain analysis
01/31/2025
on many levels of the chain.
 Concepts in Value chain

33
Types of value chains…
5. Center of analysis (product or corporate)
 Product value chain: -A product value chain
covers one product
 Corporate value chain: - A corporate value chain
covers the product portfolio of a whole company.

01/31/2025
 Concepts in Value chain

34

Value chain analysis is important both conceptually &
practically.
 There are three main sets of reasons why value chain
analysis is important in this era of rapid globalization.
 They are:
I) With the growing division of labor and the global
dispersion of the production of components, systemic
competitiveness has become increasingly important.
01/31/2025
 Concepts in Value chain
35
II) Efficiency in production is only a necessary condition
for successfully penetrating global markets.
III) Entry into global markets which allows for sustained
income growth that is, making the best of globalization
requires an understanding of dynamic factors within the
whole value chain.

01/31/2025
 Concepts in Value chain

 Value chain analysis plays a key role in understanding the

36
need and scope for systemic competitiveness.
 The analysis and identification of core competences will
lead the firm to outsource those functions where it has no
distinctive competences.
 Mapping the flow of inputs, goods and services in the
production chain .
 Allows each firm to determine who else’s behavior plays
an important role in its success. 01/31/2025
 Concepts in Value chain

37

Importance of value chain approach

 It helps to explain the distribution of benefits,
particularly income, to those par
ticipating in the global economy.
 Helps to identify the policies which can be
implemented to enable individual producers and
countries to increase their share of these gains.
 VCA is a useful analytical tool to identify change
agents and leverage points for policy01/31/2025
and technical
 Importance of value chain approach

 Value chains provide an analytical and diagnostic tool

38
for identifying viable, remunerative income-earning
opportunities for poor households in the rural
developing world.
 In highly competitive and increasingly global
agribusiness markets, poor households must find
niches in which they can compete effectively in the
rapidly growing urban, rural and export markets.

01/31/2025
 Importance of value chain approach

39
 Value chain analysis provides useful information on
structure linkages, actors, and dynamics, it helps to identify
where, how, why, and by whom value is added and created
along the chain, as well as how changes could result in
improved performance (Hawkes and Ruel 2011)

01/31/2025
 Importance of value chain approach

40

 VCA provides evidence on the flows of goods,

information & finance through the various stages of the
chain.

 Helps to identify opportunities to improve the contribution

of specific actors & the overall performance of the chain.

01/31/2025
 Principles of value chain approach

The rules of thumb in value chain approach:

41
 Find out what consumers want most and how well you are
equipped to satisfy those demands.
 Built on trust and team work to access markets and supply
competitive products. This implies that all actors have to:
 Apply appropriate production and handling
technologies.
 Become business oriented.
01/31/2025
 Principles of value chain approach

The rules of thumb in value chain approach…

42
 Trust and understand each other as partners in the value
chain
 The competitiveness of a value chain depends on trust,
cooperation and communication between all actors.
 The strength of the entire value chain depends on the
performance of every single partner in the value chain.
 The competitiveness of the final product corresponds to
the capacities of the weakest link in the value chain.
01/31/2025
 Principles of value chain approach

43

Quiz

1. Assume you are owner/manager of mango juice

processing company do you think that applying the
principles of value chain approach is imperative & why ?

01/31/2025
 Characteristics of value chain

44
Value chain has the following major characteristics:
 It is a business oriented model.
 It shows the full range of on farm and off farm activities
that create final product offered to the consumer.
 There are a number of actors (individuals or groups along
the value chain who undertake specific activities to create
the final product.

01/31/2025
 Characteristics of value chain

45 Value chain has the following major characteristics:

 Enterprises receive materials as input, add value to the

raw materials through production and support process,
and self-finished products to consumers.

 Value is added at every stage of the chain to offer better

products for the consumer, and higher revenue for the
enterprise.

01/31/2025
 Characteristics of Successful Value chain

46
Feature of an Effective/Successful Value Chain
 Differentiate products
 Continuously innovate (products, technologies,
management, marketing, distribution)
 Create higher value
 Use a variety of organizational mechanisms to achieve
efficiency
 Form alliances and achieve coordination
 Go beyond spot market transactions and include
contracts, vertical integration, networks, supply chains
 Introduce practices to meet environmental and social
responsibility concerns. 01/31/2025
 Dimensions of value chain

47
The value chain concept has several dimensions.
 The first is its flow, also called its input-output structure.
 A chain represents the entire input-output process that
brings a product or service from initial conception to the
consumer’s hands.
 In this sense, a chain is a set of products and services
linked together in a sequence of value-adding economic
activities. 01/31/2025
 Dimensions of value chain

48
 A product is first designed, then raw materials are
purchased and production takes place; the product is then
distributed through wholesalers and retailers.
 At each stage, services such as transport or finance may
be needed to keep the process going.
 A value chain has another, less visible structure. This is
made up of the flow of knowledge and expertise necessary
for the physical input-output structure to function.
01/31/2025
 Dimensions of value chain

49
 The second dimension of a value chain has to do with its
geographic spread. Some chains are truly global, with
activities taking place in many countries on different
continents.

01/31/2025
 Dimensions of value chain

50
 The third dimension of the value chain is the control that
different actors can exert over the activities making up the
chain. The actors in a chain directly control their own
activities and are directly or indirectly controlled by other
actors.
 The pattern of direct and indirect control in a value chain
is called its governance.

01/31/2025