Value chain analysis

29 October 2010

SNV Ethiopia is using value chain analysis to understand how farmers are interlinked with other actors, and to identify capacities of key actors that require strengthening.

In order to identify the best entry points for its capacity development work, SNV Ethiopia has adopted the value chain approach. A value chain refers to the full range of activities that are required to transform a product or service from conception to markets and consumers. Whereas in the past most value chains were confined within local or national boundaries, the increasing globalisation of markets means that this is no longer the case.

The concept of the value chain was introduced by Michael Porter in the 1980s as a means to understand the links between producers and consumers, as well as the steps between them. The model is now used by many enterprises, whatever their position in a chain, as a strategic planning tool to improve their competitive advantage. This approach was the forerunner of what is now known as value chain analysis (VCA).

In recent years VCA has been adopted by capacity development practitioners engaged in supporting poor farmers and micro-entrepreneurs, to enable them to participate more effectively in value chains and thus obtain a bigger piece of the economic pie. Using VCA, it is possible to gain a comprehensive understanding of what are often complex systems with multiple interdependent links. Each link in the chain is analysed in terms of the value added and the costs incurred. The analysis can then be used to identify bottlenecks in the system and thus opportunities for intervention, such as providing access to finance, markets or technology, or improving institutional or policy frameworks or the business environment. Note that value chains are constantly shifting due to broader economic changes, so that VCA provides only a snapshot that can help identify possible points of intervention.

SNV Ethiopia has adopted VCA as a framework for its work in various production chains, including those for honey, milk, oilseed and fruit. For each chain, SNV brings together key actors to create a multi-stakeholder platform (MSP). The members may include representatives of the private sector (input suppliers and processors), producer associations, government agencies, NGOs, business service providers (such as microfinance institutions) and development programmes, as well as potential investors.

At regular meetings, the stakeholders engage in a participatory process to build consensus on the major bottlenecks in the value chain and possible areas of intervention. The VCA involves a combination of desk research, market analyses and field studies in which all actors in the chain, both direct and indirect, are interviewed, so that they are all able to contribute to the larger picture.

VCA for honey

In the case of honey, the VCA identified problems and suggested interventions in four areas: improving quality, investing in processing equipment, promoting non-honey products and developing organic product lines. The MSP validated the findings, and began to develop an operational plan under the guidance of SNV.

value-chain-graphic-ENG

Since the MSP was established in 2005, and as a result of changes in the sector and growing understanding of how it works, the members have suggested a variety of interventions to address problems related to the limited supplies and poor quality of honey. Initially, the MSP wanted to address too many bottlenecks at once, which led to a lack of focus. In 2008, the MSP accepted the advice of SNV and decided to address the four bottlenecks identified by the stakeholders, all of them related to the supply side of the chain.

Through the MSP, SNV has been able to target its capacity development support at a number of key points. As a result, thousands of Ethiopian farmers have taken up beekeeping as a new source of income. In the process, SNV has be able to improve its own outreach for the benefit of small beekeepers by mobilising research and development institutes to generate the technical knowledge needed by local service providers, and by employing local capacity building organisations to provide support during the implementation phase. SNV supported Ethiopia in the process of gaining EU ‘third country’ listing, and has assisted in market assessments to identify potential outlets for Ethiopian honey and other bee products across the European Union.

The creation of the multi-stakeholder platform has been a great success, prompting beekeepers to take the initiative to establish the Ethiopian Honey and Beeswax Producers and Exporters Association (EHBPEA) and, in early 2009, the Ethiopian Apiculture Board.

Agnes Luz, SNV Netherlands Development Organisation, Ethiopia
Carlo Kuepers, SNV Netherlands Development Organisation, Ethiopia
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