4.2.2 Upgrading the informal activities within the value chain
A value chain “describes the full range of activities that are required to bring a product or service from conception, through the intermediary phases of production (involving a combination of physical transformation and the input of various producer services), to delivery to final consumers, and final disposal after use” (Kaplinsky and Morris, 2002).
Value Chain Analysis is “the assessment of a portion of an economic system where upstream agents in production and distribution processes are linked to downstream partners by technical, economic, territorial, institutional and social relationships. The effects of policies targeting specific production processes extend their primary impacts in the economic system according to the same path as the main inputs and outputs. Analysing impacts of policy options through value chains provides decision makers and other stakeholders with anticipated evidence on likely changes directly induced by policies. “ (Bellù, 2013).
For development projects and their implementing partners aiming to the enhancement of the livelihoods for people dependent on the informal economy, it has become common to conduct value chain analyses if only for ensuring that the income-generating activities or the informal activities they try to support among the populations of beneficiaries are not condemned to fade away due to the lack of commercial opportunities. How to be sure that the skills training provided to the youth fit to the markets’ needs? How to be confident that the production for which inputs are purchased will meet customers beyond the tight local markets? Preliminary value chain analyses are a preamble accompanying baseline surveys that capture the situation of the targeted populations at the beginning of the project implementation.
The conceptual framework of value chains for the informal economy is traditionally oriented towards home-based workers sub-contracted – through various intermediaries - by large outsourcing firms seeking cuts in their labour costs, maximisation of their profits and flexibility (see for example McCormick and Schmitz, 2008). The hard working conditions and low pay that prevail in a system with sub-contracting in cascade require actions in terms of obtaining decent work conditions through organisation, bargaining and social dialogue and on the other hand in terms of sensitization towards more efficient corporate social responsibility. In Asia and Latin America sub-contracting of informal workers is widespread. Although these forms of labour relationships also exist in Africa, especially in Northern, Southern and Eastern Africa, value chains are above all relating to agriculture and primary products, including exports crops where informal smallholders are equally concerned. And in such cases, the value chain is also a matter of contracting.
Similarities can indeed be found between outworkers at the bottom of industrial value chains and farmers at the bottom of agricultural or agri-food value chains. The outworker in the garment industry may own his/her sewing machine and be provided with raw materials by the contractor. In the same way dairy-processing companies may provide farmers with cows and various inputs. “The contract farmer is the most popular one (…). During the contract, the farmers receive the small cow, feed, medical treatment from the milk processor. They nurture cows in their own land and sell the raw milk to the same milk processor. The contract farmer plays an assembling role and gains the assembling profit, which is usually low. This type of farmer appears in Ho Chi Minh City” (Nguyen Viet Khoi and Tran Van Dung, 2014). It could be said more clearly: farmers become quasi wage–earners, exactly like the garment outworkers and they come to consider themselves as such, rather than working for their own-account.
The informal economy, in its informal sector segment, is by no means an isolated set of activities that would operate autonomously. Many informal activities operate in connection with the global markets, for example waste pickers, whose recycling work and recycled materials may find a second life on international markets. Informal workers are also diverse. In most part of the developing world, the informal self-employed predominate over the informal paid employees, but the home-based workers paid by the task are also likely to be part of value chains, as well as the very small producers or gatherers or collectors, such as the shea nuts producers in Ghana (see infra) or the milk and dairy products producers. In Ethiopia or Zambia for instance, or more generally in sub-Saharan Africa, the milk and dairy products value chain is a challenge (Abdulsamad and Gereffi, 2016) raising concerns about collection of milk from a huge number of breeders, about preservation and cold maintenance all along the chain, guarantee of hygiene and unfair competition with multinational firms that benefit from production subsidies in developed countries. But it also shows a very high potential: in the Borana pastoral area of Ethiopia a milk potential of 130,000 tons was estimated from cattle, camels and shoats, with cows’ milk representing 55% or 70,000 tons, of which 31% are used for household production, 14% for social gift and 11% processed at household level while the remaining 44% are supplied to the market fetching high returns to pastoralists compared to other markets, (YONAD Business Promotion and Consultancy PLC, 2010).
Value chains policies or strategies are not per se policies or strategies fostering the transition to the formal economy: they can be instruments that aggravate the working conditions of the poor if they are not accompanied or implemented by institutions dedicated to this transition and the enhancement of the livelihoods of people dependent on the informal economy. The insertion of informal workers into value chains may be synonymous of long hours and hard conditions of work for low wages or low rewards, whereas the inclusion into international markets may also provide new opportunities for small own-account producers and more favourable environment for the development of new businesses, innovative processes, and better working conditions.
If it is in the agricultural and agri-food sectors that most value chains strategies can be observed, these are not the only sectors at stake. Many other value chains can be analysed, especially in Africa, from the most classical (garment and textiles industries, electronic assembling, etc.) to the most traditional (as waste picking and recycling, urban vegetable gardens, etc.), from traditional crafts (such as pottery) to the vast domain of services (such as transports).
In the case of pottery, the raw materials and the processing are in the hands of potters. This traditional craft needs to enter into a longer value chain, because the local markets are very tight and only forward linkages with the tourism industry or the international markets can sufficiently open the markets. This may require a transition from utility craft for local usual consumers to arts craft for hotels, tourists and exports. Support in the design of the products is necessary in order to be more appreciated by the potential clients.
Box 6 – Cooperative of potters of Katiola - Côte d’Ivoire
The cooperative of potters of Katiola (Côte d’Ivoire), involved in a a EU-funded project implemented by Fundazione AVSI (one of the 17 on-going projects that are partners of RNSF), represents a successful example of transition from utility craft to arts crafts. Aiming at empowering crafts, the Project has among others actions trained potters in design so that they have been able to produce necklaces, bracelets and earrings in clay. In the same vein and in the same project, weavers from Bonizambo provide embroidery patterns for shirt makers.
For more information: Volume 4.4, RNSF, ARS Progetti, 2016
And regarding services, it is well known that outside agriculture, the bulk of employment in the informal economy is comprised of services, including trade. For these informal workers the value chain is very short because generally these types of services cannot be exported. However they enter into the value chain of other products, for example transport, or intermediary traders are components of the value chain of shea nuts, and transporters including rickshaws may specialise in the value chain of tourism.
In what follows, several examples of value chains are described for the lessons that can be learnt from them as well as the good practices that can be repeated in different contexts (extracted from Charmes and Zegers, RNSF, ARS Progetti 2016; and Zegers RNSF, ARS Progetti, 2016b).
Good practices and lessons learned mentioned in the following chapters are mostly extracted from RNSF analysis of EC and other donors’ projects as presented in RNSF, ARS Progetti research Volume 4.
Value chain and sub-contracted outworkers
As regards the informal workers within the formal sector, they are sub-contracted directly by large companies, or indirectly through various intermediary enterprises on behalf of large companies, or more broadly speaking “outworkers” who are not generally working within the premises of large companies, but outside: in their own homes, or in unsecure premises or also in secure premises but under harsh working conditions. The challenge of policies addressing the situation of these sub-contracted outworkers in the value chain and their transition to the formal economy strive to make them benefit of more decent work conditions (see for instance: Lin Lean Lim, 2015 on the Ikea supply chain and the role of codes of conduct). Such situations are particularly vulnerable and likely to favour child labour as the home-based workers paid by the task will take advantage of being seconded by their children. Action is therefore oriented toward enforcement and reinforcement of corporate social responsibility, making large companies accountable for the working conditions of the workers they hire, even indirectly through sub-contracting, giving voice to consumers and their representative organisations.
Box 7 – Ethiopians Fighting Against Child Exploitative Labor (E-FACE), Ethiopia
An interesting example of actions aimed at enforcement of corporate social responsability is the Ethiopians Fighting Against Child Exploitative Labor (E-FACE) project and its Safe Threads program. In collaborationwith the government the Project strived to create a Child-Safe label for products, in order to increase their connectivity with international textile markets (Zegers, 2016a and 2016b). E-FACE found that simple weavers of textiles in Ethiopia would not be able to connect with designers supplying foreign buyers in Europe and America due to a reputation for dependence on exploitative child labour. Many textile companies and fashion designers did not want to source their materials from Ethiopia because buying from businesses employing child labour would hurt their reputation with consumers in the West.
In order to solve this conflict, E-FACE implemented the program that can be identified as a good practice: Safe Threads. In the program, domestic producers of textiles who are not using exploitative child labour can go to the government and, after proving that their means of production are Child-Safe, they can receive the Safe Threads certification. When these firms are certified as Child-Safe, international buyers should feel more comfortable buying from them, thus economically empowering the local weavers. Weavers continue to be monitored to ensure that they do not return to employing child labour. E-FACE had primarily created this initiative because part of the project’s goals is to get domestic producers of textiles to end their dependence on exploitative child labour.
If they do so in order to get this certification, then these goals were accomplished.
This is a good practice because, instead of forcing the businesses to end their dependence on child labour, E-FACE is influencing them to choose to end the dependence themselves. Should these firms gain international market connections due to the Safe Threads program, it can be ensured to say that they will never return to using child labour again, as doing so would lose their certification, and thus their connections with foreign buyers. As far as the informal economy is concerned, this is also an effective formalization good practice because in receiving this certification from the government, businesses must become registered, and therefore become formal.
This practice motivates businesses to formalize themselves, as it provides large benefits for doing so. As a result, similar practices can be recommended in other situations where improving decent work conditions and economic empowerment are prime goals.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
The introduction of a certification of decent work produced items that are for example, “child labour free”, “forced labour free”, “produced in safe working conditions”, etc., can be monitored through public private partnerships and can go beyond fair trade certification as it can also be used within countries. Awareness raising around the certification program at national level can also be a means to raise general awareness of the need for decent work conditions.
Value chain and informal sector's micro-entrepreneurs and smallholders
Climbing up the value chain or expanding share in the value chain is a common strategy for enhancing the livelihoods of vulnerable populations dependent on the informal economy, especially when it is about agricultural or other primary products, or waste management.
Agriculture and agri-food sector
Whilst the urbanisation process is accelerating in Africa, rural areas may offer some real economic potentials if local value chains can be developed. Though the proportion of rural youth is decreasing in all sub-regions, the absolute number of rural youth has increased and will continue to increase in most of sub-Saharan Africa until 2030 or 2040. Lack of decent work opportunities in rural areas will continue to push rural youth to migrate to urban areas or foreign countries. Yet, the prospects for growth in demand for value-added food and agricultural products offer great potential for investing in agro-industries development (FAO and UNIDO, 2009). This is why the conceptual and empirical framework of value chain is particularly important for agricultural and more broadly rural development.
In addition to that, agriculture can become more productive through new technologies and methods of production. Rapid agricultural growth will require engaging small commercial farmers with the capacity to adopt new technologies. The perspective also needs to shift from food production to the broader agri-food sector, horticulture and non-farm activities to uncover other employment ‘opportunity spaces’ for rural youth. Empirical data is largely missing on youth participation in agriculture value chains, particularly in the informal economy.
Contract farming is therefore a determinant tool to include people with limited resources and who live in rural areas in economic processes. It can be seen as a broad umbrella term of inclusive business models where smallholders/value chain producers are engaged and supported by larger firms to produce outputs.A key debate of concern in value chain development on contract farming is about equity of participants and fairness in quality control of products.The recent literature on contract farming with smallholders focuses on several key issues (Sahin et al., 2014):
- The degree of smallholder participation in contracting schemes.
- The impact of participation on smallholders’ incomes/welfare (equity issues)
- Crops exhibiting high variation in quality, that perish easily, that are hard to grow, or that command a higher price per kilo are more likely to be grown through contract farming. Standard crops that have uniform quality and are not perishable are usually traded in spot markets since the transaction costs are low.
Several examples are illustrative of how these issues can be dealt with. Value chain development needs a preliminary assessment of:
- How beneficial it can be for local workers both in terms of production and income.
- If all the groups can be equally involved into the value chain (especially the most vulnerable ones).
- How developed is the last part of the value chain (marketing, transport facilities, supplies, consumers’ customs etc.).
Among the most striking experiences collected through the literature review on good practices, and besides dairy and milk products, we have selected several interesting sub-sectors in the agri-food sector: sunflower, fishery, soybean, shea nut, horticulture, sisal and honey.
Box 8 – Supporting value chains in Kassala, Sudan
The evaluation of a project in Kassala – Sudan - that had identified and supported two value chains (VCs), namely sunflower and fishery, allowed some interesting observations (Bangui, 2014).
With regard to sunflower value chains, fifty farmers were selected from 5 villages. The project provided seeds, and improved sorghum seeds as a staple food. Farmers benefitted from extension services from the Ministry of Agriculture seconded by an officer from the IFSP-Kassala team and were trained on the production of these crops. In order to foster market linkages, a visit of farmers’ representatives was organised to Medani Oil processors and to the Agriculture Research Station in Wad Medani.
However, the situation was not clear in terms of income increase. The meetings with sunflower farmers in Kassala inspectorate have shown that the income they gained from sorghum was more than five times the income they got from sunflower. They attributed that to associated problems in land preparation, sowing dates and sowing techniques. Farmers are still willing to continue sunflower production based on its potential of stable markets (contracts with oil processor companies) and ready market compared to unstable market prices for sorghum.
Marketing is still the weakest link with this production. So far sunflower producers are linked to oil plants in Gezira state. All farmers interviewed by the Evaluation Team have only mentioned one company which organized their visit before production to convince farmers to grow sunflower on the basis of the ready market. The farmers' bargaining power is weak and they have to accept the offered price. They do not have alternative markets to reduce the risk of dependence on one company.
The fish Value Chain started with consultation meetings with fishermen, boat makers, fish processing plants, fish restaurants and representatives from local governments and NGOs. Accordingly 18 fishermen groups were formed involving more than 425 fishermen in addition to one women's cooperative in Khashm el-Girba where 40 women benefitted from training in fish processing and net making. The fishermen benefitted from boats and proved fishing gear while women in the value chain benefitted from food and fish processing tools.
Regarding most vulnerable groups’ involvement, though women are involved in fish processing, they are not clearly linked to the value chain. It was also clear that involving women in net making is economically not viable mainly because it is a time consuming activity and also because the marketing process is not clearly defined and the women have to use their own network to sell their nets. With respect to youth, the skills-development training they received is not necessarily relevant to boat fixing or tractor repair apart from fixing flat tires.
As for marketing, fish is still traditional and localised. Expanding the market beyond the state requires sophisticated storage and transport facilities beyond the current capacity of the cooperatives or the project.
Overall, the evaluation found that the project focus was mainly on community-based organizations and service providers, less on agro-processing micro and small enterprises. There has also been almost total lack of the participatory approach and the implementation process has remained top-down in planning, implementation and monitoring and evaluation. The beneficiaries were not consulted on the results and processes and the approach has remained strongly focused on the targets of the project document.
Therefore, the designers of this project had not defined and combined Value Chain in a clear, comprehensive, and consistent pathway of activities, outputs and results to support this approach. No training of staff and partners on Value Chain and absence of training on community development approaches. No social simulation or awareness of youth preceded the selection of activities or areas of training.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
And as a matter of fact an important observation is that in agriculture projects there may be interest in and room for developing value-adding activities in food related projects: processing products and not only growing and selling them. Limiting value chain development to trading of raw products means opportunities are missed to increase incomes for vulnerable groups. Determining if farmer interest in food processing exists and then supporting development of processing of agricultural products may reveal to be decisive for the success of the project. This pleads in favour of including support for value chain analysis and development to accommodate these diversified products and also including training on economic managerial skills to run a business.
Box 9 – Soybean production in Malawi
The evaluation of a project implemented in Malawi and related to soybean production found that there was considerable enthusiasm in farming communities for developing micro and small enterprises in value addition. Farmers are eager to participate in value-adding activities for a profit, and they acknowledged the need for training in food processing and economic managerial skills to run a business (Rodríguez et al., 2015).
Analysis determined that some cooperative members realize that they have potential to aggregate 150-180 MTons of soybeans per year. With this volume to sell or store, a cooperative can command a good price when it decides to sell. However, cooperatives would like to learn how to use value addition to go beyond commodity exchange. Transforming soybean into soy milk, soy meat, or cooking oil on a commercial scale requires technical expertise and managerial economic skills that farmers lack. Although farmers realize that their villages need suitable infrastructure such as buildings, water, power, and good roads, they would like to know the feasibility of linking with processors to take their soy, process it, and then distribute and sell the final product. Farmers in villages with infrastructure that can support a processing plant would like to carry out feasibility studies to explore the processing options to assess market demand. But the implementers of the project were not mandated to go beyound their terms of reference, which would have required more time and more resources.
The evaluation concluded that work in the project on the value chain stopped at the commodity exchange level. The addition of agricultural processing to the marketing chain could have provided an easy link to nutritious foods. As one Consortium staff stated, “No one can eat raw soybeans.” Processing was a missed opportunity.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
The shea nut oil and cream value chain
Shea nut is the fruit of a tree that grows in the bush of the Sudano-Sahelian region in sub-Saharan Africa. Shea nut gathering and processing is an exclusively female activity. At the top end of the value chain are very expensive cosmetics. Giving more space and value to the bottom end of the chain has been the objective of various projects in Western Africa. These projects build on a better dissemination of price information (through mobile phones), bulking of the quantities gathered and processed and improvement in quality. So the intervention on the value chain is, on one hand, a matter of organising, coordinating, skills trainingand upgrading and raising awareness. On the other hand, it's a matter of infrastructures, equipment and change in obsolete production processes, and access to credit.
Box 10 - Market Access through Cooperative Action, Ghana
An interesting good practice is the experience of EU-funded project “Market Access through Cooperative Action” implemented by Ghana-PlanetFinance. The shea nut and butter value chain is a dynamic niche of the cosmetics market. In Ghana, PlanetFinance supported poor rural women shea producers who take their margins from collecting shea nuts, removing pulp and drying them, to perform additional activities in the value chain. Such activities included trade, gathering the products in bulk and increasing efforts to meet the quality and the quantity demands of large buyers.
The objective was to capture a more important additional value in the chain through 1) an increase of the quantities produced (improved productivity, increased storage, sales at appropriate times when prices increase), 2) bundling volumes, and 3) an improvement in quality.
This type of strategy usually requires multi‐pronged actions such as 1) organising, 2) sensitisation, 3) education and training, 4) grant of small loans through micro‐credit, 5) use of ICTs to access market information and manage operations and transactions at the bottom of the value chain, and 6) building contractual relationships with international buyers or upper actors in the chain.
Production pre‐financing and warehousing services have an important impact on the quantities produced. Collective selling undermined the inability of producers to commit to future price levels.
This is why, in the course of the EC funded project, a creative approach to improving chain governance was implemented. A social private company (the Shea Star Ltd: SSL) was set up in which the women have shares (through Star Shea Network, SSN). SSL offers marketing services to the numerous member groups, searches international markets for nuts and butter buyers and takes charge of the commercialisation of the shea products that the women sell in bulk. This approach enables progress on increased savings and investments. SSL also managed to process refined shea butter through a tolling arrangement in Europe before sale to final clients. This significantly increased the volume of the unrefined shea butter that women were able to sell.
SSL plays a major role in supporting and assisting women to fulfil the protocols for fair trade, organic and traceable shea products, as well as in providing them with some key inputs such as packaging and pre‐financing. Transparency in the distribution of value added shares between SSL and women producers is ensured during the associations meetings.
The project and women producer groups established contractual relationships to sell to major international buyers. The SSL helped to increase their number during the course of the project.
Community association members participate in the negotiation and distribution within their network. They also supervise the quality of nuts and butter through a Quality Assurance System and participate in the aggregation of products at approved warehouses. Occasionally groups declined to process particular butter orders due to less motivating market prices. In other cases they bargained to receive higher prices thus proving their empowerment in analysing market prices.
Women producers can still sell their production to local markets or other buyers, but are committed to the arrangements with SSL. This is because bulk selling enables them to put their earnings to good use such as for the payment of school fees, the purchase of household assets, working and farming tools.
Despite its holistic approach, the women’s associations and the project missed making arrangements with some support services such as transporters, owners of donkey carts, tricycles, “loading boys” who could have strengthened their place in the value chain.
Regarding the question of whether the social enterprise model is working well, one could state that women producers are not always able to meet all orders from buyers. When this happens, they must buy nuts or butter from other women outside their community groups. This has resulted in interesting cascading effects because the required quality from the outside women pushed the beneficiaries to share with them their improved practices.
For more information: Volume 4.1, RNSF, ARS Progetti, 2016
The development of the whole value chain of production and selling is important to improve local conditions and support beneficiaries independently from development projects. Particular attention must be paid to those parts of the value chain involving people dependent on the informal economy and how these can be strengthened to improve their decent work and income conditions.
Box 11 – Horticulture in Kosovo
Interventions in horticulture in Kosovo were based on a justified logic: it was focused on restoring the productive potential of agribusinesses by promoting value chains, in particular horticultural and related agribusinesses, through labour intensive growth for agribusinesses. In particular, the components were explicitly focused on supporting the whole chain from improving the quality of the products, to establishing local collection centres and linking-up to large local buyers (e.g. supermarket chains). They appeared to be appropriate to sustainably increase production levels (Orbicon A/S et al., 2011).
Generally, the evaluation found that beneficiaries in the value chain became increasingly independent and built on the initial supported investments (e.g. green-houses, incubators, collection centres, etc.). Contracts were signed with local storage operators, food processors and supermarkets. Furthermore, the value-chain activities supported through the horticulture component resulted in a degree of import substitution and/or export. Some international firms demonstrated willingness to buy Kosovo farming products (fruits and vegetables) and the requirements of these firms in terms of the standard of the exported products are contributing to improving quality over time and other positive knock-on effects for the Kosovo horticultural value chains.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
Value chain enhancement also provides good opportunities to test various forms of public-private partnerships in food processing facilities in particular (Newkirk, 2013).
Strengthening exchanges among enterprises from developed and developing countries is key in order to accelerate knowhow transfer in both directions. Companies in developed countries may, for example, increase their understanding of other cultures and new markets.
Box 12 – Business to business Programme Evaluation, Mali, Benin, China, Vietnam, Uganda, Bangladesh
In an evaluation of its business to business programme covering several countries (Mali, Benin, China, Vietnam, Uganda, Bangladesh), the Evaluation Department of the Ministy of Foreign Affairs of Denmark (2014) focused on enterprises exchanges and knowhow transfer. The latter is often related to systems building, for example in creation of cold chain in the food industry and in general safety and hygiene in this sector, critical in developing country exports to industrial countries where food safety standards are generally very strict. Knowhow is also to a large extent related to market demands and quality issues in industrialised countries. In this respect, the Danish companies brought critical knowledge to local firms engaged in sub-contracting manufacturing in sectors such as information technology and food. The exchange of personnel between Denmark and the partner country was often a critical element, providing essential learning for the local company on how firms in the same business was organised in Denmark and the quality requirements on the Danish market. Financing such exchanges was an essential part of successful knowhow transfer and learning.
In general, collaboration between businesses from different cultures and markets means learning from both parties. It would therefore be wrong to see the knowhow transfer as a one-way street. It goes both ways: Danish companies interviewed express the overall learning they have made through the partnerships of understanding of cultures and of new markets. While technology transfers from the North often can be a valid concept, technology is today globalised in many sectors and transfer of knowhow goes both ways, besides the aspect of mutual cultural learning.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
Box 13 – Lead-Firm Model in Tanzania
In Tanzania Oxfam adopted the ‘Lead-Firm’ Model and partnered with Katani Ltd. to improve smallholder access to markets for sisal (Beck, G. and Davies, I., 2013). Katani agreed to improve the production and processing capacity of the smallholders, and committed to purchase all quality sisal fibre. Both Oxfam and Katani funded training for smallholders, while Oxfam supplied them with loans to purchase processing equipment. As a result of the project, more buyers were attracted by the new supply of fibres, farmers and processors gained significant increased income, and the local sisal value chain greatly improved with sustainable connections to high-value markets.
It is important to add, however, that though the Lead-Firm Model provides many advantages, the selected private-sector actor can monopolise supply and enforce less beneficial conditions of trade. This risk can be avoided by securing more buyers and less exclusive contracts, and providing loans directly to smallholders through an independent agent.
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
For all projects related to value chains, it is important to note that “cash for work” and the consecutive contruction of roads programmes have a strong impact by increasing the effective demand of beneficiaries for major food crops and livestock, and facilitating trade, which results in increased demand for products (Tessema et al., 2008).
Box 14 – Honey production in Cambodia
Among successful projects in agri-food activities, honey can be quoted for instance in Cambodia where the USAID MSME project trained and supported the communities to filter the honey and sell it at higher prices in Phnom Penh and the respective 5 provinces whereas it was formerly sold in raw and unprocessed state along the roadside in buckets (Mendez England and Associates, 2012).
For more information: Volume 4.2, RNSF, ARS Progetti, 2016
When supporting projects that include value chain enhancement, it is important to consider the impact of the development of the value chain on a wider range of the community members as opposed to primarily on business owners and to conduct studies to determine whether, if any new value added/value chain components are developed, they do not compete with existing traditional non-beneficiary local producers.
Especially it must be taken into account that interventions in parts of a particular value chain may negatively affect the level of employment in those parts of the value chain. This may especially occur when more modern technical equipment is used to increase production.
According to the evaluation carried out in Eastern Europe/neighbourhood countries (Volume 4.2, Zegers, RNSF, ARS Progetti, 2016), production increases obtained through the acquisition of new and more modern technical equipment at small family farm sites do not lead to significant employment effects (Orbicon et al., 2011).
Thus, it is recommended that design and formulation of future economic development interventions should take more explicitly into account the potential trade-off between the wish to increase production through investing in more effective agricultural production within family farms on the one hand and the intention to generate large rural employment effects on the other hand. By focusing on the entire value chain it could be anticipated that employment will decrease in some part of the value chain due to introduction of more efficient production methods but at the same time lead to increase in other parts of the value chain e.g. in the processing industry.
Still, value chain projects should not embrace too many dimensions of the Value chain at the same time and it should be verified whether projects are not over-extending themselves when working on different value chains and various interventions along the value chains. As there are many needs for value chain development with respect to people dependent on the informal economy, it may be tempting to wish to address all of them but quality of actions must be the priority as opposed to their quantity. The evaluation conducted by i-Tech (2011) found that the Livelihoods and Enterprises for Agricultural Development (LEAD) in Uganda was focusing on too many value chains and interventions along the value chains, some of which are already supported by other agencies.The evaluation thus recommended to identify a mix of key value chains and gaps along these value chains that will maximize quantitative and qualitative impact, provide effective lesson learning and build a larger degree of sustainability (Volume 4.2, Zegers, RNSF, ARS Progetti, 2016).
In conclusion, among the good practices identified and the lessons learned from past projects, especially in the agri-food sector, we have seen there seems to be a repeated interest by farmers as well as by cooperatives in developing the processing of products and not only growing and selling them. Limiting value chain development to trading of raw products means that opportunities are missed to increase incomes for vulnerable groups. Such a diversification pleads for conducting systematic value chain analysis because these activities require technical expertise and managerial economic skills that farmers lack. Suitable infrastructure such as buildings, water, electricity, roads are also lacking. All these infrastructures generally require public investment, but they are also the privileged domain for labour intensive public works that goverments can undertake under programmes such as “cash for work” that are often implemented as means of social assistance (see section on social protection infra). Coordination is therefore a prerequisite for all actions intending to enhance the role of farmers in value chains in the agri-food sector because the increase of production needs a facilitation of trade that will result in increased demand for products and a simultaneous increase of exchanges.
Coordination is also a prerequisite for value chain enhancement because the impact of the development of the value chain may occur on a wider range of the community members as opposed to primarily on business owners and may compete with existing traditional non-beneficiary local producers.In other words, interventions in parts of a particular value chain may negatively affect the level of employment in those parts of the value chain by creating competition between small producers. This may especially occur when more modern technical equipment is used to increase production. In such cases, it is wise to coordinate with other projects intervening within the same populations or regions in order to make the actions complementary and take into account the potential trade-off between the objective of an increased production by the beneficiary farms on the one hand and the broader objective to generate large rural employment effects on the other hand. It can be anticipated that a decrease in employment in one segment of the value chain due to more efficient methods can be compensated by increases in employment in other segments of the value chain for instance in the processing of goods. Besides the usual supporting functions of organisation and coordination, the value chains analyses also include related services such as financial institutions, supportive credit system, extension services or the implementation of infrastructures (roads, transport, etc.) as well as access to new technologies and innovation. But this must be planned and not simply expected from the functioning of the markets. At the same time, however value chain projects should not embrace too many dimensions that they could be unable to fulfil adequately in terms of quality.
Value chain interventions towards fostering vulnerable populations crystallize or mobilise several means and orientations of policies addressing the informal economy : they require organising these populations, and so doing facilitate social protection coverage : they also require their access to credit, to innovation and to skills’ enhancement facilities. Finally they are a powerful means for reinvigorating rural areas by building or reinforcing linkages between the informal and the formal economies through local development. In other words they constitute a path towards the transition from the informal to the formal economy.
- Abdulsamad Ajmal and Gereffi Gary (2016), East Africa dairy value chains: Firm capabilities to expand regional trade, Center on Globalization, Governance & Competitiveness, Duke University ;International Growth Centre, London School of Economic and Political Science, 51p.
- Bangui, Cécile, 2014, Mid-term Evaluation of the Integrated Food Security Project in Kassala: Sudan (IFSP-Kassala) – GCP /SUD/069/CAN, Midterm or interim evaluation, FAO, Rome.
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