Value chain selection and analysis 116

In a first step, a decision is taken on which (sub-)sector, industry or value chain to target through the value chain programme to be set up.

Donors have developed several approaches for the appropriate selection of value chains, either starting with the possibilities for local economic development (the so-called territorial approach) or focusing explicitly on the potential for enhancing competitiveness and poverty reduction of particular sub-sectors or value chains, with the difference being typically one of a multi- commodity or “diversification” approach compared to a single-commodity or “specialisation” approach (see Miehlbradt/McVay 2005: 29-30).

A disputed issue is whether the selection or the analysis of a value chain comes first. Meyer- Stamer/Wältring state that the “Analysis Before Action” approach assumes that all relevant information for a developmental activity can be gathered before a strategy is formulated and implemented (Meyer-Stamer/Wältring 2007: 27-28). The main dilemmas connected to this type of approach are: value chains are selected first, before representative information is available to understand them more deeply; substantial resources are needed to carry out thorough analysis, leading to preference for quick scans rather than solid research in case of budget limitations; research on value chains involves face-to-face interviews with the main stakeholders, focus group discussions and workshops, which might raise expectations in an embryonic phase of subsequent support (Meyer-Stamer/Wältring 2007: 28-29).

Value chain selection

- Initial value chain analysis and mapping

- Subsector analysis - Definition of selection criteria - Selection of target value chains

- Selection of partners and definition of intervention/activity packages

- Pilot activities and quick-win interventions - Replication of successful initiatives - Stimulate market uptake and scaling up - Exit

- Definition of programme goal and purpose

- Development of intervention strategy

- Sustainability - Definition of target group - Informed decision-making

- Learning from experience - Reposition oneself - Accountability

Monitoring Market/value chain analysis

Impact assessment

117 Experience shows that successful programmes are based on iterative processes and not simple sequences: analysis is needed before and during implementation (Kula/Goldmark 2006: 6; Meyer- Stamer/Wältring 2007: 29). Riisgaard et al. talk of action research being carried out alongside implementation, with both feeding into sharing results and being responsive to ongoing lessons, in such a way that it allows to respond flexibly to strategic changes (see Riisgaard et al. 2008: 52-55). However, a common challenge to be addressed in value chain programmes is not to get stuck in the analysis phase. Detailed studies are a necessary but insufficient condition for change: without a following process in which the private sector and all major stakeholders take ownership of the agenda for change needed to move a value chain to higher levels of competitiveness, impact in terms of MSME integration and job creation will be limited (Kula/Goldmark 2006: 7-8).

Connected approaches/instruments: subsector and industry analysis

Subsector analysis has been developed in the 1960s and is common in the literature on agricultural marketing as a field of agricultural economics, also known as commodity subsector analysis (Kula/Goldmark 2006). Since then it has been applied widely, especially in the analysis of agricultural commodity chains, for example by the World Bank, USAID, UNIDO and FAO. However, it has also been applied to SME development in non-commodity sectors (see Boomgard et al. 1986 and Haggblade/Gamser 1991 as examples). The definition of sub-sector is largely identical with that of a value chain: “a subsector is the network of firms that supply raw materials, transform

them, and distribute finished goods to a particular consumer market.”154 _{“This approach places}

heavy emphasis on how a commodity subsector is organised (structure), which can influence how participants in the subsector behave (conduct), and ultimately how the subsector performs in the

aggregate.”155 The subsector approach is a “systems” approach to the study of economic activity

(Boomgard et al. 1986: 1). Subsector analysis offers a framework for rapidly evaluating MSE dynamics and the prospects for cost-effective interventions (Haggblade/Gamser: 2). Subsector analysis largely overlaps with value chain analysis, although some of the work on subsectors might adopt a slightly broader systemic perspective (delving into issues that are not at the centre of value chain approach, such as the impact of changes in food consumption patterns and the links between food production and rural livelihood) on the one hand and value chain analysis puts more explicit emphasis on industry competitiveness and inter-firm linkages on the other hand (Kula/Goldmark 2006: 4; Altenburg 2007: 14). Kula/Goldmark point to the fact that subsector analysis viewed the overall performance of industry, and particularly that of the largest firms, as exogenous to any government- or donor-funded intervention, as opposed to the value chain approach which believes that these can be shaped (Kula/Goldmark 2006: 4).

Industry analysis is another related branch of research. Industry-level analyses do not primarily focus on the inter-firm linkages within a specific chain, but rather look at the impediments to growth which are external to the chain, such as industry-specific policy (enforcement) issues that

154 _{Haggblade/Gamser 1991: 1.}

118 might be constraints to its growth (Altenburg 2007: 14). In industry level analyses, the barriers to higher productivity and investment are analysed, covering the following main points: assessment of productivity performance, analysis of operational reasons for productivity gaps, assessing productivity performance by type of players benchmarking with local best practices, assessment of competitive pressure, assessment of external factors (macro-economic environment, policies, infrastructure, etc.).156

Approaches to mapping a value chain

The vast majority of literature available on the development or promotion of value chains deal with the stage of analysis and mapping. The result of a mapping exercise should be a better understanding of a specific value chain, with insights into who the main actors and stakeholders are with their specific characteristics, interests and roles, the growth and market potential, the costs and constraints/bottlenecks along the chain, potentials for upgrading along the chain, the institutional and political environment, etc. This snapshot of a value chain is often summarised in a figure/illustration of a chain. A challenge when analysing value chains is to understand

underlying trends, tendencies and dynamics within the chosen subsector or chain.157

Available tools for value chain analysis include: mapping tools (such as economic mapping, mapping of actors’ functions, mapping of performance and value added at each stage), trend analysis, competitiveness analysis, and Rapid Market Appraisals (see Roduner 2007:8-9, for list of links and literature on the various tools. Also Riisgaard et al 2008: 24-30, provide a comparison of of different methods for value chain analysis).

Altenburg classifies donor approaches into three main categories (although admitting that many government and donor agencies use hybrid models, i.e. combinations of these stylised categories): (1) comprehensive planning approach, based on detailed value chain mapping and market analysis

preceding interventions;158 (2) participatory, workshop-centered, tools with less academic rigour

and emphasis on stakeholder involvement; (3) private-sector-driven projects where the conception and implementation of initiatives is left to corporate value chain leaders (see Altenburg 2007: 32-38).159