Agricultural value chain

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.

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.

[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”.

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.

[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.

[20][21] 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.

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.

The World Bank also supports the perspective that GVCs can be valuable for sustainable development and provides an array of examples and data.

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.

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.

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.