Step 4 – Value chain mapping and analysis

In this step we are concerned with the vertical aspects of the value chain. The analyses performed here have three main purposes: 1) to acquire a thorough understanding of the selected value

chain and its relevant strands as the basis for formulating a set of promising upgrading strategies for the target group (Step 5); 2) to focus the research by specifying which among the problems or issues identified in Step 3 that can realistically be addressed through these upgrading strategies; 3) to generate qualitative and quantitative indicators for monitoring and evaluating changes in the value chain occurring during (and maybe as a result of) the action research. Step 4 has the follow- ing components:

9 Analyse and map the value chain (and its relevant strands) 9 Identify the position of the target group within the chain

9 Identify the performance requirements, risks and rewards pertaining to the target group

9 Quantify key elements of the value chain in each relevant node – prices, costs, revenues, margins, weight

losses, volumes traded, number producers/traders involved, workers employed, etc.

9 Relate the problems identified in Step 3 to the detailed value chain analysis performed in the present

step (4). Then eliminate the problems that cannot be addressed through a value chain approach and prioritize the problems to address in the action research

; Value chain mapping and analysis (including target group position, perform-

ance requirements, and risk and rewards)

• Identification of the overall chain structure, including: different strands, key segments,

nodes and actors; flows of products, information and finance; and product transformations and value added. Typical nodes in natural resource-based value chains are: primary pro- duction (service provision), primary trading or processing (domestic agents for service pro- viders), exporting (wholesaling for domestic/regional chains), importing (foreign agents for service providers), retailing, and consumption. Selected issues are graphically illustrated.

• What is the role of private and public standards?

• What formal trade barriers exist? What major trade policies in importing countries (tariffs,

quotas, rules of origin) facilitate or constrain access and competitiveness for the product and producing country in question?

• What is the structure of rewards along the chain?

• Which are the ‘sites’ and sources of risk along the chain? (What are the major risks and

who bears them?)

• What is the functional division of labour and their changing dynamics?

• Who are the most powerful actors in the chain (lead firms and other major actors) and

what is their functional position? Through what means do they ‘drive’ the chain (i.e., set the conditions of participation and determine the functional division of labour along the chain)?

• What is the function and position of the target group within the chain (in relation to the

above elements)? What is the nature of their business/trading relationship (‘contract’) with their immediate buyers?

• How is the segment, within which the target group is located, coordinated (in respect of

major forms of coordination – market, vertical integration, ‘contracts’)?

o What contractual arrangements or other concrete commercial linkages exist between the target group and downstream actors? What is the content of these arrangements?

• What are the performance requirements within the node of the target group?

o What are the production and processing attributes (affecting technology, compatibility with other livelihood enterprises, environmental impact, and production risks)? o What requirements are there to auditing and documentation of production, processing

and handling practices? Are meeting these requirements within reach of small pro- ducers?

o What are the perishability attributes (affecting requirements to market nearness, hand- ling and transportation infrastructure, level of supply chain management, marketing risks)?

o What quality and sustainability standards are critical for shaping these product attri- butes?

• What are the risks and rewards within the node of the target group?

; Quantification of key elements of the value chain in each relevant node

A quantitative assessment of key elements in the value chain should be performed as part of the value chain analysis, at least for the node of the target group and for the next node downstream. This information will be used to assess the attractiveness of alternative upgrading strategies, to evaluate the competitiveness of the target group in the end market, and to generate qualitative and quantitative indicators for monitoring and evaluating changes in the value chain occurring during (and maybe as a result of) the action research.

The specific elements included in the quantitative value chain assessment will depend on the spe- cific characteristics of the value chain, but should typically include, for each node in chain: prices; cost of production/processing/trade (by major item); revenues and margins earned; volume produced/processed/traded; number producers/processors/traders involved, and; number of workers employed. For each activity type, the following elements could be included in the assess- ment:

• Production: prices received, volume sold (by grade); cost of production (costing family

labour if possible); labour inputs (by major activity); gross and net margins; farm gate price (and % of retail price); number of producers involved; number of workers employed; gender division of labour (more/less time spent by men/women).

• Processing: costs; buying and selling prices (and % of retail price); weight loss; quality

after processing; capacity utilisation; gross and net margins; number of processors involved; number of workers employed; wages earned; gender balance in ownership and employ- ment.

• Trading (several nodes may apply): purchase and selling prices (and % of retail price),

costs (storage, transportation, taxes and bribes, labour, losses), gross and net margins, number of operators in the market and their market shares; number of workers employed; wages earned; gender balance in ownership and employment.