Agricultural value chain

From Wikipedia, the free encyclopedia

An agricultural value chain is the integrated range of goods and services (value chain) necessary for an agricultural product to move from the producer to the final consumer. The concept has been used since the beginning of the millennium, primarily by those working in agricultural development in developing countries, although there is no universally accepted definition of the term.


Value chain representation

The term value chain was first popularized in a book published in 1985 by Michael Porter,[1] who used it to illustrate how companies could achieve what he called “competitive advantage” by adding value within their organization. Subsequently, the term was adopted for agricultural development purposes [2] and has now become very much in vogue among those working in this field, with an increasing number of bilateral and multilateral aid organisations using it to guide their development interventions.

At the heart of the agricultural value chain concept is the idea of actors connected along a chain producing and delivering goods to consumers through a sequence of activities.[3] However, this “vertical” chain cannot function in isolation and an important aspect of the value chain approach is that it also considers “horizontal” impacts on the chain, such as input and finance provision, extension support and the general enabling environment. The approach has been found useful, particularly by donors, in that it has resulted in a consideration of all those factors impacting on the ability of farmers to access markets profitably, leading to a broader range of chain interventions. It is used both for upgrading existing chains and for donors to identify market opportunities for small farmers.[4]


There is no commonly agreed definition of what is actually meant by agricultural value chains. Indeed, some agencies are using the term without having a workable definition or definitions and simply redefined ongoing activities as “value chain” work when the term came into vogue.[5] Published definitions include the World Bank’s “the term ‘’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”,[6] UNIDO’s “actors connected along a chain producing, transforming and bringing goods and services to end-consumers through a sequenced set of activities”,[7] and CIAT’s “a strategic network among a number of business organizations”.[8]

Without a universal definition, the term “value chain” is now being used to refer to a range of types of chain, including:

  • An international, or regional commodity market. Examples could include “the global cotton value chain”,[9] “the southern African maize value chain” or “the Brazilian coffee value chain”;
  • A national or local commodity market or marketing system such as “the Ghanaian tomato value chain” or “”the Accra tomato value chain”;
  • A supply chain, which can cover both of the above;
  • An extended supply chain or marketing channel, which embraces all activities needed to produce the product, including information/extension, planning, input supply and finance. It is probably the most common usage of the value chain term;
  • A dedicated chain designed to meet the needs of one or a limited number of buyers. This usage, which is arguably most faithful to Porter’s concept, stresses that a value chain is designed to capture value for all actors by carrying out activities to meet the demand of consumers or of a particular retailer, processor or food service company supplying those consumers. Emphasis is firmly placed on demand as the source of the value.

Value chain methodologies[edit]

Donors and others supporting agricultural development, such as FAO, World Bank, GIZ, DFID, ILO, IIED and UNIDO, have produced a range of documents designed to assist their staff and others to evaluate value chains in order to decide on the most appropriate interventions to either update existing chains or promote new ones.[7][8][10][11][12][13] However, the application of value chain analysis is being interpreted differently by different organisations, with possible repercussions for their development impact. The proliferation of guides has taken place in an environment where key conceptual and methodological elements of value chain analysis and development are still evolving.[14] Many of these guides include not only detailed procedures that require experts to carry out the analysis but also use detailed quasi-academic methodologies.[3] One such methodology is to compare the same value chain over time (a comparative or panel study) to assess changes in rents, governance, systemic efficiency and the institutional framework.[15]

Linking farmers to markets[edit]

A major subset of value chain development work is concerned with ways of linking producers to companies, and hence into the value chains.[16] While there are examples of fully integrated value chains that do not involve smallholders (e.g. Unilever operates tea estates and tea processing facilities in Kenya and then blends and packs the tea in Europe before selling it as Lipton, Brooke Bond or PG Tips brands), the great bulk of agricultural value chains involve sales to companies from independent farmers. Such arrangements frequently involve contract farming in which the farmer undertakes to supply agreed quantities of a crop or livestock product, based on the quality standards and delivery requirements of the purchaser, often at a price that is established in advance. Companies often also agree to support the farmer through input supply, land preparation, extension advice and transporting produce to their premises.[17]

Inclusive value chains[edit]

Work to promote market linkages in developing countries is often based on the concept of “inclusive value chains”, which usually places emphasis on identifying possible ways in which small-scale farmers can be incorporated into existing or new value chains or can extract greater value from the chain, either by increasing efficiency or by also carrying out activities further along the chain.[18] In the various publications on the topic the definition of “inclusion” is often imprecise as it is often unclear whether the development aim is to include all farmers or only those best able to take advantage of the opportunities.[19] Emerging literature in the last two decades increasingly references the value of responsible sourcing or what are called “sustainable supply chains”. [20][21]

Sustainability in agricultural value chains[edit]

The private sector’s role in achieving sustainability has increasingly been recognized since the publication of Our Common Future (Brundtland Report) in 1987 by the World Commission on Environment and Development. More recently, the role of value chains has become very prominent and businesses are emerging as the primary catalyst for sustainability. Kevin Dooley, Chief Scientist of the Sustainability Consortium, claims that such market-based mechanisms are the most efficient and effective way to induce the adoption of sustainable practices. Still, there are concerns about whether value chains are really driving sustainability[22] or merely green-washing.[23]

These concepts can also be expanded or understood as power dynamics. In the last decade or so, hybrid forms of governance have emerged where business, civil society and public actors interact, and these multi-stakeholder approaches claim new concepts of legitimacy and even more likely sustainability. [24] 

Scholars including Michael Schmidt (Dean and Department Chair, University Brandenburg and Daniele Giovannucci (President of the Committee on Sustainability Assessment) consider that evidence is emerging on what makes a value chain sustainable.[25]

There is evidence too that global value chains that have an impact on the environment and the societies they serve such as farmers and suppliers can be effectively measured. The World Bank also supports the perspective that GVCs can be valuable for sustainable development and provides an array of examples and data. [26]

Agricultural value chain finance[edit]

Agricultural value chain finance is concerned with the flows of funds to and within a value chain to meet the needs of chain actors for finance, to secure sales, to buy inputs or produce, or to improve efficiency. Examining the potential for value chain finance involves a holistic approach to analyze the chain, those working in it, and their inter-linkages. These linkages allow financing to flow through the chain. For example, inputs can be provided to farmers and the cost can be repaid directly when the product is delivered, without need for farmers taking a loan from a bank or similar institution.[27] This is common under contract farming arrangements. Types of value chain finance include product financing through trader and input supplier credit or credit supplied by a marketing company or a lead firm. Other trade finance instruments include receivables financing where the bank advances funds against an assignment of future receivables from the buyer, and factoring in which a business sells its accounts receivable at a discount. Also falling under value chain finance are asset collateralization, such as on the basis of warehouse receipts, and risk mitigation, such as forward contracting, futures and insurance.[28]

The use of ICTs in value chains[edit]

Information and Communication Technologies, or ICTs, have become an important tool in promoting agricultural value chain efficiency. There has been a rapid expansion in the use of mobile technologies, in particular. The price of ICT services is falling and the technologies are becoming more affordable to many in developing countries. Applications can support farmers directly through SMS messages. Examples include iCow,[29] developed in Kenya, which provides information on the gestation period, on artificial insemination of the cows, and on how to look after them. Applications such as M-Pesa[30] can support access to mobile payment services for a large percentage of those without banks, thereby facilitating transactions in the value chain. Other applications have been developed to promote provision of crop insurance through input dealers, for example.[31]

ICTs are also being used to strengthen the capacity of agricultural extension officers and NGO field staff to reach farmers with timely and accurate information and, at the same time, help capture data from the field. The Grameen Foundation’s Community Knowledge Worker (CKW) programme is a small-scale example.[32] Farmer representatives are trained to use ICT applications on a smartphone to provide agricultural information and extension support. Other efforts include Lutheran World Relief’s Mobile Farmer and diverse efforts funded by the Bill and Melinda Gates Foundation in Africa. Most market price information is now delivered to farmers via SMS. Further along the chain, technologies offer considerable possibilities to enhance traceability, which is particularly relevant as certification grows in importance. Where necessary many exporters can now trace consignments back to individual farmers and take necessary measures to address problems.[33] Finally, systems such as eRails, promoted by the Forum for Agricultural Research in Africa, are also supporting agricultural researchers through data collection and analysis and access to up-to-date research publications.[34]

Enabling environments[edit]

As with all agricultural growth, two things appear essential for successful value chain development: creating the right environment for agriculture and investing in rural public goods. An enabling environment implies peace and public order, macro-economic stability, inflation under control, exchange rates based on market fundamentals rather than government allocation of foreign currency, predictable taxation that is reinvested in public goods and property rights. There is a positive correlation of agricultural growth with investment in irrigation, transport infrastructure and other technologies.[35] Governments have a responsibility to provide essential goods and services, infrastructure, such as rural roads, and agricultural research and extension. Value chain development is often constrained by corruption, both at a high level and at the ubiquitous road blocks found in many countries, particularly in Africa. Many measures to improve value chains require collaboration between a wide range of different ministries, and this can be difficult to achieve.[36]

See also[edit]


  1. ^ Porter, Michael E. (1998). Competitive advantage: creating and sustaining superior performance; with a new introduction (1st Free Press ed.). New York: Free Press. ISBN 978-0684841465.
  2. ^ Kaplinsky, R.; Morris, M. "A Handbook for Value Chain Analysis" (PDF). IDRC. Archived from the original (PDF) on 1 March 2014. Retrieved 24 February 2014.
  3. ^ a b Henriksen, L.; L. Riisgaard; S. Ponte; F. Hartwich; P. Kormawa. "Agro-Food Value Chain Interventions in Asia: A review and analysis of case studies. Working Paper" (PDF). UNIDO. Archived from the original (PDF) on 1 March 2014. Retrieved 24 February 2014.
  4. ^ "Editorial: Adding Value, by Michael Hailu, Spore No 157". Archived from the original on 2021-02-26. Retrieved 2014-02-25.
  5. ^ Andreas Stamm and Christian von Drachenfels “Value Chain Development: Approaches and activities by seven UN agencies and opportunities for interagency cooperation” ILO
  6. ^ Webber, C. M.; P. Labaste. "Building competitiveness in Africa's agriculture: A guide to value chain concepts and applications" (PDF). World Bank. Retrieved 25 February 2014.
  7. ^ a b Riisgaard, L; S. Ponte. "Pro-poor value chain development: 25 guiding questions for designing and implementing agroindustry projects" (PDF). UNIDO. Archived from the original (PDF) on 31 October 2014. Retrieved 25 February 2014.
  8. ^ a b Lundy, M.; M. V. Gottret; C. Ostertag; R. Best; S. Ferris. "Participatory market chain analysis for smallholder producers". CIAT. Archived from the original on 2009-12-25.
  9. ^ European Parliament, Global cotton value chain: European Parliament resolution of 14 March 2013 on sustainability in the global cotton value chain (2012/2841(RSP)), accessed 24 April 2021
  10. ^ Springer-Heinze, A. "Valuelinks: The methodology of value chain promotion". GIZ. Archived from the original on 1 March 2014. Retrieved 24 February 2014.
  11. ^ DFID. "The operational guide for the making markets work for the poor (M4P)". DFID. Archived from the original on 2018-11-16. Retrieved 2014-02-25.
  12. ^ Vermeulen, S.; J. Woodhill; F. Proctor; R. Delnoye. "Chain-wide learning for inclusive agrifood market development". IIED. Archived from the original on 6 October 2008. Retrieved 25 February 2014.
  13. ^ Herr, M. L.; T. J. Muzira. "Value chain development for decent work". ILO. Archived from the original on 13 May 2013. Retrieved 25 February 2014.
  14. ^ J. Donovan; M. Cunha; S. Franzel; A. Gyau; D. Mithöfer. "Guides for value chain development: A comparative review" (PDF). CTA and ICRAF. Retrieved 24 February 2014.
  15. ^ Prowse, M. and J. Moyer-Lee (2014) ‘A Comparative Value Chain Analysis of Smallholder Burley Tobacco Production in Malawi, 2003/4 and 2009/10’ Journal of Agrarian Change 14:3
  16. ^ Shepherd, Andrew. "Approaches to linking producers to markets" (PDF). FAO. Retrieved 25 February 2014.[permanent dead link]
  17. ^ Eaton, C; Shepherd, A. "Contract farming: Partnerships for Growth" (PDF). FAO. Retrieved 25 February 2014.
  18. ^ Haggblade, S.; Theriault, V.; Staatz,J.; Dembele, N.; Diallo, B. "A conceptual framework for promoting inclusive agricultural value chains" (PDF). Michigan State University and IFAD. Archived from the original (PDF) on 10 August 2013. Retrieved 25 February 2014.
  19. ^ Shepherd, A. (5 November 2016). Including small-scale farmers in profitable value chains (PDF). Wageningen, The Netherlands: CTA Publishing. ISBN 978-92-9081-607-2. Retrieved 18 April 2017.
  20. ^ Kaplinsky, Raphael (2000). "Globalisation and unequalisation: what can be learned from value chain analysis?". Journal of Development Studies. 37 (2): 117–146. doi:10.1080/713600071. S2CID 154941945.
  21. ^ Gereffi; Kaplinsky, Raphael; Gary (2001). "Introduction: Globalisation, value chains and development" (PDF). IDS Bulletin. 32 (3): 1–8. doi:10.1111/j.1759-5436.2001.mp32003001.x.{{cite journal}}: CS1 maint: multiple names: authors list (link)
  22. ^ Lyon, Thomas P.; Maxwell, John W. (2011). "Greenwash: Corporate environmental disclosure under threat of audit". Journal of Economics & Management Strategy. 20 (1): 3–41. doi:10.1111/j.1530-9134.2010.00282.x. S2CID 2593420.
  23. ^ Greenwash: Big brands and carbon scams. 2012.
  24. ^ Business, Power and Sustainability in a World of Global Value Chains: A History of Power, Politics and Profit.
  25. ^ Sustainable Global Value Chains. Natural Resource Management in Transition, Vol. 2. Springer-Verlag, Berlin Heidelberg.
  26. ^ "Trading for Development in the Age of Global Value Chains" (PDF). Open Knowledge Repository.
  27. ^ FAO. "Value chain finance". Archived from the original on 8 November 2013. Retrieved 25 February 2014.
  28. ^ Miller, C.; Jones, L. "Agricultural Value Chain Finance: Tools and Lessons" (PDF). FAO and Practical Action. Retrieved 25 February 2014.
  29. ^ "What is iCOW?". Retrieved 11 March 2014.
  30. ^ "M-PESA: Kenya's Mobile Wallet Revolution". BBC News. 22 November 2010. Retrieved 11 March 2014.
  31. ^ "Innovative insurance by mobile". New Internationalist. Retrieved 11 March 2014.
  32. ^ "Community knowledge worker". Grameen Foundation. Archived from the original on 11 March 2014. Retrieved 11 March 2014.
  33. ^ Moyer-Lee, J. and M. Prowse (2015) ‘How Traceability is Restructuring Malawi’s Tobacco Industry’ Development Policy Review 33:2 Archived 2017-08-09 at the Wayback Machine
  34. ^ "The African Portal on Agriculture". Archived from the original on 13 March 2014. Retrieved 11 March 2014.
  35. ^ Wiggins, Steve. "African agriculture in a changing global context: lessons learned" (PDF). CTA. Retrieved 16 March 2014.
  36. ^ Pye-Smith, Charlie. Policy Pointer: Value Chains for transforming smallholder agriculture (PDF). Wageningen, Netherlands: CTA. pp. 15–19.

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