Some concepts
• Markets– Local markets– Terminal markets
• Prices– Spot , futures , options
• Price discovery– Information –arrivals, prices at alternate markets– Analysis (fundamentals/Technical) and projections– dissemination- electronic, Value added
services(vas),Print
Value addition• In Agricultural value chains value addition can come from
– Business Processes• Aggregation , segregation ,logistics
– Productivity• Man , material ,money, input, output
– Warehousing • Space, costs ,logistics
– Processing • Own vs. toll crushing (out source)
– Products• Whole foods to processed foods to derivatives
– Prices – Risk mitigation – Administration and InstitutionalAll these result in cost reduction or revenue maximisation
Value chain mapping
Process- Identify markets, survey, interview, research, quantify value addition at each stage
Value Chain Finance as an approach
– Takes a look at the collective set of actors, processes and markets of the system as opposed to an individual lender –borrower within the system.
– Decisions about financing are based on the health of the entire system, including market demand and not just on the individual borrower.
– That means in order to offer Agriculture VCF, knowledge of the agricultural system must be known.
Key issues for consideration in VC financing
• Strength of the value chain- its opportunities and challenges
• Risks• Technical ,business and financial services and
support• Business Model for VCF (Mwangi 2007)
In essence process involves combination of VC assessment, financial assessment and securing agreements.
Value Chain Business Models• For value chains and value chain financing, a
business model refers to the drivers, processes and resources for the chain.
• Four types of business models:• Producer-driven • Buyer-driven • Facilitator-driven • Integrated
Using the Value Chain to Finance Agriculture
Product and Financial Flows within the Value Chain , Source: Adapted from Fries
(2007) and Miller( 2007a)
Key steps that can be employed by VC Financing Institutions
1. Understand VCa. Enabling Environmentb. Vertical and Horizontal Relationshipsc. Support Markets and Servicesd. End Market
2. Identify current value chain model that existsa. Lead Actorsb. Business Modelsc. Sustainability Strategy
3. Identify Transaction Processesa. Value added in various stages of the product up the value chain
4. Determine Actual and Critical Points of Finance5. Analyze and compare financing options ( for each level of participant in the chain)
a. Relative strengthsb. Risks c. Costs
6. Design Financing Options according to the best option(s) to fit chain a. Draw up agreements for financing between parties
Important to Note• The Value Chain Framework is useful for expanding rural
finance and for developing enterprises.• Value Chain Finance builds on business relationships and
transactions to screen & monitor borrowers, enforce contracts and manage risks & costs
• Value Chain Finance is rooted in buyers' and suppliers' desire to expand markets, and to secure or increase product quality and quantity.
• Value Chain Finance takes a variety of forms in addition to cash lending, such as advances and off-balance sheet.
• The success and limits of Value Chain Finance are tied to the quality of cooperation between actors
ReferencesMiller, C., & Jones, L. (2010). Agriculture Value Chain Finance, Tools and Lessons. Warwickshire, UK: Practical Action Publishing Ltd.