Value Chain and Business Model Approaches

Improved Food Security through the Commercialization of Agriculture

FAO contribution to Value Chains Methodology

--------------------------Heiko Bammann, Enterprise Development Officer, AGS

FAO Romecheck: http://www.fao.org/ag/ags/index_en.html

Sequence of presentation: Value Chains – basic

introduction Inclusive Business Models FAO support to VC development Activities and tools supported Initial lessons learned

Value Chain Approach

A value chain is the full range of activities which are required to bring a product or service from conception, through the different phases of production, transformations, and delivery to final consumers and final disposal after use

It is made up of a series of actors from inputs suppliers to producers and processors to exporters and buyers

Aim: to elevate the value chain to ” higher level” Improve profits

Critical Dimensions of a Value Chain

Inputs Production Processing Retailing

Product Flow

Financial Flow

Information Flow

Incentives and Governance

Five Typical Action Areas/Steps

1. Selection of sector or product, key issues and entry point

2. Value chain mapping

3. Participatory value chain analysis

4. Value chain action planning (draft upgrading strategy)

5. Stakeholder validation and planning workshops

=> Develop a VC upgrading strategy!

Producer-Buyer linkages in VC

Buyer Processor

Financial and Information flows

Physical flows

Inputs

Institutional environment (laws, regulations, etc.)

Production Distribution Consumption

Supporting services

Inclusive Business Models Small farmers are increasingly tied to markets and

agro-industries through business linkages and alliances with each other and with other value chain stakeholders.

There are many models of business linkages, but three are relevant for small farmers:

producer organisation model buyer driven model intermediary model

Typical organisation of smallholder production

Type Driver Objective

Producer driven

Small-scale producers themselves, through FO’s: ECTAD, CPGC

new markets higher market prices stabilize market position

Large farmers extra supply volumes

Buyer drivenProcessors (Hot Mama, BEL)Exporters (GUY)Retailers (Super J, SLU)

assure supply

Intermediary driven

Traders, wholesalers and other traditional market actors

supply more discerning customers

NGO’s and other support agencies

‘make markets work for the poor’

National and local Governments i.e. NAMDEVCO, GMC, NWC

regional development

Must Be a Business Case for Working with Small Farmers

Smallholders’ comparative advantage (premium quality)

Securing supply Access subsidized inputs Corporate responsibility Community goodwill Politics

Product quantity, quality, consistency, safety

Traceability & compliance with standards

Loyalty and fulfilment of commitments

Negotiation, coordination and communication

Business Reasons Costs and Risks

Foundations of Sustainable Models

Organized & empowered

farmers

Partnershipfacilitator

Facilitatingpolicysector

Receptivebusiness

sector

Rationale for supporting Business Models

Reduce over reliance on multi-stakeholder participatory approaches

Focus first on key VC problems Enhance reliability of raw material supply Enhance competitiveness of agribusiness buyer

Empower real development drivers Business managers know their markets SMAEs create value, buy products, generate jobs

Mainstream business thinking

FAO – AGS* supported projects

EU All ACP Agricultural Commodities Programme (EU AAACP) – (E)check:www.euacpcommodities.eu/en http://www.fao.org/ag/ags/ivc/en/

The Phase II of the CARICOM/CARIFORUM Programme for Food Security - (I)check: http://www.rlc.fao.org/progesp/pesa/caricom2/

* FAO Rural Infrastructure and Agri-Industries Division

For the Caribbean

Focus on one product (group) and improved value creation

Activities to achieve improved business linkages, production, post-harvest handling, value addition and marketing to local, regional or international markets

Focus on farmers and agribusiness organizations

Countries, Value Chains, and ‘Businesses’ supported

BAR – Onion VC – BAS (I) BEL – Hot Pepper – Hot Mama + (I) DOM – Pineapples – NIPPA (I) GRN – Roots and Tubers – NEFO (E) GUY – Eddoes – GAPA (E) JAM – Ackee – PO’s (I) JAM – R&T – CPGC (E) SLU – Fruits – BVFO, etc. (I) SVG – R&T – ECTAD (E) CARICOM – Services - CaFAN (E/I)

Overview of the business model approach

What are differences?

Business models for improved producer-buyer linkages (steps)

Identification of the key driver Analysis/Characterisation of the current

business model Identification of the critical success factors for

buyers Preparation of an upgrading business model

and financing plan Identify sub-set of activities that project can

support without distorting viability, unduly subsidizing, undermining sustainability

Characterization of Business Model

1. Product: products sold, differentiation

2. Product flow and distribution

3. Clients: clients, numbers, why buy

4. Resources and capacities base

5. Activities: production, transformation, etc.

6. Key partners and collaboration

7. Costs and revenue

8. Expectations

Activities and tools supported

1 - Business to Business Coordination

Addressing sources of uncertainty Implementing contractual

arrangements (formal and informal)

Promoting trust, transparency and collaboration

1 - Business to Business Coordination

Possible tools: Information mechanisms to improve

transparency Workshops to identify bottlenecks and

better understand on each other’s role Strategic plans for management of the

chains operations Training in negotiating skills and

developing contracts

2 - Respond to Customer Needs

Ensuring processes and products respond to customers’ needs

Synchronize product delivery and logistics

Improve information on customer requirements

Implement quality and safety standards

2 - Respond to Customer Needs

Possible tools: Market appraisal and surveys Train in good agriculture practices and

post-harvest and handling Train in agro-processing and value

addition Train in standards and certification

processes Develop product quality and safety

grading systems

3 - Add Value by Managing Processes

Identify and address logistics constraints Appraising business to business processes Developing organizational innovations that

improve delivery times Reducing waste and protect the

environment from harmful production and processing

3 - Add Value by Managing Processes Possible tools: Mapping exercises and workshops to

understand the flows Appraise financial institutions and

support loan applications Train in bulk buying and collective

marketing Introduce switch to re-usable items Training in business, financial

management and marketing skills

Relevance of this approach for the Caribbean?1. Comparative advantage in

production2. Import substitution3. Ability to absorb external price

shocks4. Receptive value chain actors-> contribution to Food Security through

the Commercialization of Agriculture

Initial lessons learned Change of mindset for agricultural

development required (define roles) Good management practices are critical!!! Transparency, accountability and trust

private sector vs public sector Business development services

rather new in the agriculture sector expensive for small number of beneficiaries

Time dimension business success requires time learn from failures look for successes and learn from champions

Involve regional partners from the start (CARDI, CaFAN, CABA, etc)

Thank You !