Value Chain Analysis

The FAO High-Level Policy Learning Programme (HLPLP) is an event aimed at strengthening the capacities of influential stakeholders in policy processes to identify emerging development issues and translating innovative ideas into evidence based policy options. See: HLPLP material is hosted on the EASYPol website EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO.

The site is maintained by FAO’s

Value Chain Analysis

FAO VCA Software Tool 3.1

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

By

Lorenzo Giovanni Bellù, Policy Officer and

Piera Tortora, Consultant

Policy Assistance Support Service, Policy and Programme Development Support Division

FAO High-Level

Policy Learning Programme for decision makers and policy analysts

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What is the FAO VCA-tool?

• The FAO VCA tool is a software for

carrying out value-chain analyses for

agricultural and rural development

policies.

• By storing relevant data it calculates

flows of physical outputs and inputs,

flows of aggregated costs,

value-added and net benefits.

• It also allows users to directly

compare different hypothetical

scenarios.

Why use a dedicated software?

What does the FAO VCA-tool software

allow you to do?

How do you structure data in the

software?

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Why use a dedicated software? 1/2

1. Provides support to

value chain analysis in

concrete situations

2. Suitable for training

and learning events

Why use a dedicated software? 2/2

It allows you

to store a

large amount

of data from

different

sources

It allows you

to check/

enhance data

consistency

It carries out

calculations

and saves

your time

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Structure the accounting framework of a value chain

Organize data for different agents

Compute the inflows and outflows for each agent

Compute indicators regarding the contribution of each agent

Harmonize the flows of the different segments of the chain

Compute shadow prices

Compute competitiveness indicators and protection indicators

What does FAO VCA software tool allow you to do?

Software manual and methodological guidelines

The FAO VCA software tool comes together with:

The conceptual and methodological framework for value chain analysis [EASYPol module 129]

Detailed instructions on how to install the software, insert and manage data and

carry out calculations of indicators for the different components and levels of a value

chain analysis [EASYPol module 074]

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 Good= Inputs and Outputs

 Activity = a phase in the

production/ processing process

 Plan = Aggregate of activities and/or goods and/or other plans (e.g. an agent or a group of agents)

How do you structure data in VCA?

Good A Good B Good C Good D

Activity 1 Activity 2 Activity 3

Plan Beta Plan Alpha Plan Delta (Plan of Plans) Plan Gamma (Plan of plans)

Left hand window:

Main menu (File, Tools, Options,

Help)

Project name and related

information

Access to value chain elements

(inputs/outputs, activities, etc)

Modify name and delete item

facilities

List of items from the chosen

element

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Right hand window (i.e. clicking on Activities)

Chosen element

Table to insert data

Scenarios

Access to computational facilities

Why carry out an economic analysis of value chain at market prices?

1. Are agents earning profits?

2. Is the profit enough to ensure sustainability of the agents’ activities (e.g. maintenance and replacement of equipment, ability to cover financial charges)?

3. Is the profit a sufficient and acceptable return on investment?

4. How much value are they creating? 5. Is the whole chain profitable?

Economic analysis at market prices* allows you to assess the profitability, and

contribution in terms of value added creation, of each activity and of the chain

as a whole, in a given period.

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More specifically, the economic analysis builds on:

 the functional analysis with the identification and quantification of key elements of the chain, such as the economic agents playing a role in the chain and their activities

 the production account (sales, intermediate inputs and value

added) and the income account allocation of value added among production factors of each activity, as defined by the System of National Accounts*.

* See : the United Nations System of National Accounts, 2008

Computing Production and Income accounts

1 Select the plan for which you want to compute the two accounts from the main menu on the left

2 Press the “Compute Costs and Benefits” button on the right hand side menu

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Computing Production and Income accounts

3 The software will display the quantities involved in the accounts

4 By pressing on the “show values” button on the top right, the computed

accounts will be displayed

The accounts values window:

• shows the accounts in a detailed or compact fashion (=only the balances)

• shows aggregates

Value chain analysis and reference prices

Another important function of the FAO VCA-Tool is the calculation of

the reference prices

In value chain analysis you may want to formulate (and explore the socio-economic impacts of) policy options that are based on the opportunity costs to the whole society (= reference prices).

Prices observed on markets often differ from social prices (because of policy and market failures).

The gap between market prices and (estimated) reference prices is a measure of the extent of policy and market failures distortions (PAM indicators).

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Calculating reference prices:

categories of goods

You can also calculate the reference prices for the different kinds of

goods present in the chain:

Land Labour

OUTPUTS

Calculation of a reference prices

1. Select the good which is needed for the reference price calculation

2. Select the method (idepending on the type of goods

3. Upload the data needed for the

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Policy analysis matrix and competitiveness indicators

The FAO VCA-Tool allows you to build the Policy Analysis Matrix for an activity, for a plan or for a plan of plan(s).

What is a Policy Analysis Matrix (PAM)?

A PAM allows you to assess the competitiveness of a good of the chain through the relative indicators (e.g. the Domestic Cost Resources, the Nominal Protection

Coefficient, Nominal protection coefficient on inputs, Effective Protection Coefficient).

Structure of a PAM

Sales Revenues, Costs of Production and Profits in the PAM are valued both at market prices

(First Row) and at reference prices (Second Row)

By comparing the elements of a PAM and their values at market and social prices, you obtain a number of indicators that shed light on the efficiency and policy/market distortions in a given economic system.

Policy analysis matrix and competitiveness indicators

1.Select the activity or the plan for which the computation of the PAM is needed

2.Select the scenario

3.After the computation indicators and the price analysis will appear

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Links to related FAO VCA software tool resources

EASYPol module 073

EASYPol Module 129

EASYPol Module 074

To find all FAO VCA resources, see EASYPol resource package