Colloquium: Inclusive KBE: Methodology for Value Chain Analysis

Posted on August 19, 2010  /  0 Comments

The colloquium was led by Sriganesh Lokanthan. The objective of this colloquium was to develop an appropriate methodology for conducting value-chain analyses in the agricultural sector, in the context of mobilising ICTs, in particular, for developing an inclusive knowledge-based economy.

The objectives of the study are:

  • Achieve an in‐depth understanding of how innovations related to ICTs and related infrastructures are used (and may be used) to improve the efficiency and inclusiveness of studied agricultural value chains; the specific focus is on increasing the participation (inclusiveness) of small players (especially MSEs/SMEs) within the value chain through various forms of value addition and the reduction of various forms of transaction costs.

Harsha – When we do research, not all of our innovations will be implemented. Main reason is the transaction cost of disseminating knowledge. So we are trying to see how we can use ICTs to reduce the cost.

  • Efficiency and inclusiveness of agricultural value chains through the application of ICTs, but not limited to them; specifically, identify and differentiate between the roles that can be played by the private sector vs. the public sector in providing such services to MSEs and SMEs.
  • Based on the in‐depth understandings achieved above, contribute to improving indicators related to measuring progress toward inclusive knowledge‐based economies

What is LIRNEasia’s interest?

  • More value addition by the poor (including small businesses). i.e. less involved in producing commoditized products and able to get a higher share of the revenues (e.g. like Amulor MahaGrapesin, India). This means understanding how the poor (including small businesses) can
    • Reduce barriers to entry –i.e. make value chains more inclusive
    • Use more knowledge in their activities – i.e. make value chains more efficient
    • Reduce transaction costs’
    • What role can ICTs and related infrastructures play
    • What role can the private sector play in providing Access more services (including ICTs) targeting their needs – i.e. niches where private sector can play a role

Mr. Gunawardena – are we looking at how ICTs can be used for expanding markets?

Harsha – Yes. We have already done that through GGS-Dialog’s TradeNet service.

We can visualize this taking the case of MahaGrapes in India. MG is an exporter of grapes. The value chain actors consists of MG, grape cooperatives and grape farmers. MG and cooperatives charge only the cost doing the service. The majority of the revenues and profits goes down to the farmer. The government provided funding for this start-up. However, they have since been managing on their own.

Rohan – you find this model in South Africa such as KWD (wine industry). It was previously government-owned but now it is privatised. We need to see which type of model is better.

Erasha – are we looking at all SMEs or only a few sectors?

Sriganesh – Only tea and processed fruits and vegetables, but nothing is cast in stone yet.

Harsha – branding and certification costs money. The benefits of that need to be passed down to the smaller guys.

Rohan – we need to look at competition law when considering such ventures.

Rohan – you can have a situation where the cooperatives can begin to extract more money, farmers complain and  the system can disintegrate.

Harsha – rents are not distributed equitably due to the power structures.

Mr. Gunawardena – there can be situations where seeds can be in short supply, particularly in Monaragela, Sri Lanka.

Harsha – we asked farmers how much time and money goes on deciding a crop? Answer – whether seeds are available, how much it yields, etc. But networks are isolated. Info via mobile phones can solve this issue.

Mr. Gunawardena – some farmers are encouraged to diversify the crops they are producing, e.g. tea and horticulture

Timeline – analyse two value chains between sep – dec 2010. present findings in Jan 2011. Analyse value chains in India, Bangladesh and Thailand between Feb – May 2011. Develop SME questionnaire after that, drawing on findings from the value-chain work.

Value-chain approach

Multiple agencies have already done work in refining the value chain approach


Our approach:

No reinventing of the wheel: we utilize learnings from others

Pay closer attention to:

  • The poor and MSEs/ SMEs, i.e. making value chains more inclusive
  • Increasing use of knowledge, i.e. making value chains more efficient

    Reducing transaction costs for the poor and MSEs/ SMEs

  • Identifying how ICTs (and related infrastructures) can play a role
  • Identifying areas for private provision of needed services

Questions to keep in mind

  • What is “poor”?

    Our earlier studies on use and adoption of ICTs at the BOP deal with people from SEC D + E

  • Should we be concerned with MSEs, SMEs or both?

  • Given the objectives, are there any weaknesses to the methodology? If so how can we improve it?

  • What are the specific methods/ research tools to use?

  • How do we ensure that we get some generalizable findings (to other sectors and other countries)

Value chain analysis – Steps

  1. Mapping  the core processes in the value chain
  2. Identification of the actors.
  3. Identification of the services that feed into the value chain
  4. Mapping  the relationships and linkages
  5. Mapping  the flow of products including the geographical flow
  6. Mapping  the changes in the value and form of the products
  7. Mapping  the information and knowledge flows
  8. Mapping  the number and volume of actors and jobs
  9. Identification of the transaction costs and ways to reduce them
  10. Identification of the constraints and ways to address them
  11. Identification of the barriers to market entry for the poor as well as for SME/MSEs and ways to address them

Harsha – traceability is very important. If we are to have our farmers competing with the EU, this is essential. but farmers may not be able to absorb costs. This is the primary “inclusive” issue we have explore.

Erasha – Having a proper certification system will contribute to this.

Erasha – understanding information flows and needs are a priority.

Rohan – the mobile phones aids bi-directionality of information flows

harsha – we need to narrow down on the innovation component

harsha –  it is going to be difficult in getting employment data. but we can sample farmers to get an idea of what their cost structures are.

Erasha – this can be done for tea. but not fruits and vegetables.

harsha – we need to focus on linking transaction costs with innovation. what are the dependent and independent variables?

sriganesh – our dependent variable is efficiency and inclusiveness.

harsha – no. i think it is not just those two, but those two due to innovations.

sriganesh – innovations will then be a component of other things. so mulit

harsha – dependent variables would be labour, capital, innovations. innovations is then a component of other things (research, communication links, etc)

sriganesh – there are two things: we are looking at how we can use ICTs to disseminate innovation and innovation of ICTs in itself.

sriganesh – we want to select value chains according to:

  • High export potential
  • Potential for value addition
  • Potential for involvement of  small stakeholders (MSEs/ SMEs)
  • Potential for increased productivity
Export data is available, and by sectors.

Rohan – we are not an agricultural shop; we are an economics and law firm. but harsha has been working on agriculture from 2000 onwards. LIRNEasia has been working on it from 2006. one of the reasons why we chose fruits and vegetables is because we have done work on this area before. I am increasingly becoming convinced that there is potential in the tea industry.
Erasha – tea is difficult because the system is established and difficult to change.
Rohan – fruits and vegetables is good because it is small holder-friendly.
Harsha – but there is a lot to learn from tea.
Gunawardena – studing is one part. implementation is another issue.
rohan – do we know what future tea can be? Prices of coffee went up drastically in the US between 80s and 2000s. but we don’t know whether the farmers are getting the money. Or take Whiskey – single over blended Whiskey brands are now available.
Erasha – what do you mean by value addition for tea?
Rohan – take the case of tea. how do we make sure that a higher % of the prices go to the farmers? or how we add value through distinguishing brands of tea through symbolic stories,etc. that’s what I am referring to as value.
Harsha – let’s take paddy. market is not distributed. is it possible to create efficiencies in the market using ICTs in other areas but tea.
Erasha – we can extend lessons of marketing, etc to other sectors. But with respect to  production efficiencies, can be generalize it to other sectors?

erasha – meryl fernanco recognizes demand of people,t marketing, packaging material. He tastes every blend. You can’t find another MF among SMEs.
harsha – innovation is costly. if innovations exists in places that can be shared, will it be possible for  farmers to link into those innovations. because we cannot find a meryl fernando among SMEs – he won’t remain in SMEs.
all we are trying to do is link farmers to innovations.
rohan – why can’t we have a cooperative of small farmers who can’t reduce the cost of certification.
rohan – erasha is saying that (1) tea farmer livlihoods can’t be improved and (2) you can’t generalise learnings to other sectors.
harsha – i agree with one but not two. for (2), while some markets within the tea value chain are working well, in other chains, it is not. so we can learn from tea. tea can be stored.
The way in which producers are linked with warehouses, the way in which money flows, etc, are important in understanding in how you can make the process seamless. They are generalizable.
Rohan – we are not an implementation shop. we are a research organization. so the former problem doesn’t come up.
Harsha – what about rubber? they have lots of small-scale holders.

Erasha – what about milk?
Rohan – i am vary about the export potential. it has more import substitution qualities.
Ayesha – if we take SME or MSE owners, they will not fall under SEC groups D and E.
Erasha – how do we measure the project’s success?
Rohan – since we are concerned with research and not implementation, our success indicators are dissemination and not implementation.
Helani – are we going to benchmark our findings against an ideal benchmark?
Sriganesh – No. we will only be able to say whether or not transaction costs have reduced, but not to what extent.

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