Commercial And Inclusive Value Chains

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Commercial and Inclusive Value Chains

Praise for the book‘An excellent addition to the literature on the integration of the poor intomainstream value chains, illustrating that even vulnerable households cancontribute to economic growth and their own development.’Linda Jones, international consultant, Canada‘There is a growing recognition that the principles of value chain managementapply to all enterprises – not just major global corporations. The authors ofthis important new work demonstrate how these ideas can be utilized to createtruly “inclusive” supply chains resulting in beneficial outcomes to all parties.’Dr Martin Christopher, Emeritus Professor of Marketing and Logistics,Cranfield School of Management, Cranfield University, UK‘Importantly, the case studies in this book highlight not only the successesand benefits of “inclusive value chains” but also some of the challenges andpotential pitfalls. This book will provide a useful reference for individuals andorganizations involved in the planning and development of commerciallyviable, inclusive value chains in developing economies.’Dr David Taylor, value chain analysis and improvement specialist and advisor,formerly Co-Director of the Food Process Innovation Unit,Cardiff University Business School, UK

Commercial and InclusiveValue ChainsDoing good and doing wellEdited by Malcolm Harper, John Belt and Rajeev Roy

Practical Action Publishing LtdThe Schumacher CentreBourton on Dunsmore, Rugby,Warwickshire CV23 9QZ, UKwww.practicalactionpublishing.org Malcolm Harper, John Belt and Rajeev Roy and the individualcontributors, 2015ISBN 978-1-85339-867-4 HardbackISBN 978-1-85339-868-1 PaperbackISBN 978-1-78044-867-1 Library EbookISBN 978-1-78044-868-8 EbookAll rights reserved. No part of this publication may be reprinted or reproducedor utilized in any form or by any electronic, mechanical, or other means, nowknown or hereafter invented, including photocopying and recording, or inany information storage or retrieval system, without the written permissionof the publishers.A catalogue record for this book is available from the British Library.The author has asserted his rights under the Copyright Designs and PatentsAct 1988 to be identified as authors of this work.Harper, M., Belt, J., and Roy, R., (eds) (2015) Commercial and Inclusive ValueChains: doing good and doing well, Rugby, UK: Practical Action Publishing http://dx.doi.org/10.3362/9781780448671 Since 1974, Practical Action Publishing has published and disseminated booksand information in support of international development work throughoutthe world. Practical Action Publishing is a trading name of Practical ActionPublishing Ltd (Company Reg. No. 1159018), the wholly owned publishingcompany of Practical Action. Practical Action Publishing trades only in supportof its parent charity objectives and any profits are covenanted back to PracticalAction (Charity Reg. No. 247257, Group VAT Registration No. 880 9924 76).Cover photo: Sacks of rice stored at the Agricultural Business Centre, Kenema,Sierra Leone. These centres are supported by FAO. FAO/Caroline ThomasCover design by Mercer DesignIndexed by Elizabeth BallTypeset by Allzone Digital Services LimitedPrinted by Standartu Spaustive, http://www.stanadrd.lt,Vilnius, Lithuania

ContentsList of figures, tables and boxesAbout the editorsAcknowledgements1Introduction – what this book tells us aboutcommercial value chains that include the poorMalcolm Harper, John Belt and Rajeev RoyPart One Non-food value chainsviiixx1152 Khat from Ethiopia to Somaliland – a mild stimulant buta major income earnerAbdirazak Warsame173 Beer from bananas in Tanzania – a good drinkand many good jobsJimmy Ebong and Henri van der Land274 Seed cotton production in South Rajasthan – preventingchild labourKulranjan Kujur and Vickram Kumar375 Stove liners in Kenya – less pollution, less charcoaland more incomeHugh Allen476 Granite in Odisha – from Indian quarries to Europeankitchens, if government allowsMalcolm Harper597 Remittances – from the global diaspora to the poor in SomaliaAbdi Abokor YusufPart Two Commodity foods71798 Nyirefami millet – a traditional Tanzanian crop, marketedin a modern wayJimmy Ebong and Henri van der Land819 Rice – smallholder farmers in Malawi can be profitablyincludedRollins Chitika8910 Angkor Rice – 50,000 Cambodian farmers growing for exportRajeev Royhttp://dx.doi.org/10.3362/9781780448671.00097

viCOMMERCIAL AND INCLUSIVE VALUE CHAINS11 Moksha Yug – Indian dairy farmers don’t haveto be in cooperativesChandrakanta Sahoo10512 Suguna Poultry – decentralized village productionis good businessMalcolm Harper, Rajeev Roy and Phanish Kumar115Part Three Non-commodity foods12513 Green beans – from small farmers in Senegal togourmets in EuropeMiet Maertens12714 Odisha cashew nuts to global markets – value addedall the wayKulranjan Kujur14315 Palm oil in Peru – small-scale farmers succeed whereplantations failedRafael Meza15116 Organic turmeric from eastern India – healthy spiceand healthy earningsNiraj Kumar16117 Conclusions – what can we learn?Malcolm Harper, John Belt and Rajeev Roy173

List of figures, tables and L’s main sources of banana and its main end marketsValue chain map for BILAverage sales price at different levels in the cotton seed value chainThe Kenya Ceramic JikoJiko liner value chain mapWater filter value chain mapMain features of the granite value chain, per tonne in Indian rupeesOverview of a Dahabshiil money transfer processMap of Tanzania showing Nyirefami’s main sources of milletand end markets of millet flourMHL and the rice value chainThe Angkor Rice value chainMoksha Yug Access value chainBusiness model of Suguna PoultryValue of fresh fruit and vegetable exports from Senegal,1995–2011 (US billion)Bean export region in Senegal and studied communitiesDiagram of the bean export supply chain from Senegal(situation in 2005)Participation of local households as contractedsuppliers and agro-industrial employees in the beanexport chain, 1996–2005Comparison of average farming household income fromdifferent sourcesCashew value chain in South OdishaSelling price of cashew at different levels of the chainOrganization of the palm oil value chain its main participantsOperational value chainThe economics of the turmeric value chainThe price build-up in the turmeric value 44147154166167170Tables3.14.1Banana beer value chainCash surplus from a typical farmer’s tenth of a hectareof cotton seed production (figures in US )3341

viiiCOMMERCIAL AND INCLUSIVE VALUE CHAINS5.15.25.37.1Estimated income of Chujio CeramicsImpact of Chuijo Jiko on household incomesImpact of Chuijo Jiko on the environmentValue added along the chain for 100 remittanceto SomalilandMillet value chain: costs, revenues and marginsat different levels in the chainResults from the survey of smallholders contractedto Angkor RiceEconomics of a household producing Neang Malisfor Angkor RiceDevelopment of milk production in IndiaProfit and loss account for a dairy cowValue addition in the Suguna Poultry value chainEconomics of a 2500 chick poultry farmsupplying to SugunaPPI score before joining Suguna Poultry and at current levelsCharacteristics of poultry farm employeesComparison of household characteristicsAverage cost of processing 100 kilos of cashewin a processing unit in ParlekhamundiProduction costs for 1 tonne of crude palm oilThe case study value chains in summarySmall poor players in value chains: ‘SWOT’ analysisfrom the point of view of value chain 48156174178Boxes3.18.110.111.112.116.1Testimonies of two banana producersTestimony of trader with Nyirefami MilletStories from two rice producers selling to Angkor RiceThree dairy farmers supplying milk to MYAPoultry farmer case studyMr Naresh’s story of turmeric and ginger cultivation3587103111123169

About the editorsMalcolm Harper is Emeritus Professor of Cranfield University in England,and has taught at the University of Nairobi and Cranfield University; hehas worked since 1970 in enterprise development, microfinance and otherapproaches to poverty alleviation, mainly in India.John Belt works for the Royal Tropical Institute (KIT) in Amsterdam. He is anagricultural economist with more than 20 years’ field experience in agriculturaldevelopment.Rajeev Roy was an entrepreneur and currently teaches entrepreneurship. Hehas been engaged in several entrepreneurship development initiatives acrossthe world. He is mentoring several start-ups in India.

AcknowledgementsThis book is a collection of case studies that have been written by manydifferent people, and each of the studies involved conversations with farlarger numbers, including company managers and staff at all levels, and, mostimportant, the small-scale producers and other members of the value chainson whose experiences the cases are based. We are grateful to all of them, andin particular to the poorer people who are benefitting from inclusion in thevalue chains but who are nevertheless still much poorer, and perhaps muchbusier, than any of those who will read the book. We often pester such peoplewith questions about their assets and incomes, which we ourselves would bevery reluctant to answer; we only hope that their forbearance will at leastbe indirectly rewarded by the improvement and increase in inclusive valuechains that the book will inspire.We must also thank the writers of the case studies. Their names and somebrief information about them are included at the end of each study, but wewere unable to include a number of other cases because the value chains theydescribed were actually dependent on subsidies, or for other reasons; we aregrateful to these writers as well.Andrew Shepherd from CTA, the Technical Centre for Agricultural andRural Cooperation, of Wageningen, supported the idea from the outset andprovided valuable assistance and suggestions. The staff of KIT, the RoyalTropical Institute in Amsterdam, also provided support, and Gerit Holtland ofConsultancy and Training for Rural Transformation, and Fair and SustainableEthiopia, gave us some useful ideas as to how development institutions shouldrespond to the messages in the case studies. Thank you, to all of them.Malcolm Harper, John Belt and Rajeev Roy

Chapter 1Introduction – what this book tells usabout commercial value chains that include the poorMalcolm Harper, John Belt and Rajeev RoyAbstractThis chapter discusses the theoretical foundations of the topic dealt with in the book:value chains in developing countries and whether they can be inclusive of poor peoplein ways that will materially benefit them. Value chains that have not received theattention of international development interventions are the focus of the study – tounderstand in what circumstances poor producers are seen as good business partners.Terms used frequently in the book are also defined to help the reader understandthe cases and their contexts a little better. The difficulties of measuring impact ofvalue chain involvement upon the producers are discussed, as well as the choiceof the Progress out of Poverty Index to measure economic status. The cases includecommodity products, non-commodity food products and other non-food items in avalue chain. This chapter provides a short introduction to each case in the book.Keywords: inclusive value chains; impact; Progress out of Poverty Index;small-scale producers; smallholder farmersWhat this book is aboutThis book is about value chains. Not all value chains, but a particular classof such chains – ‘inclusive’ value chains – which include and substantiallybenefit large numbers of poor people. These people are often smallholderfarmers, but they may also be artisans, or small-scale retailers or customers.The ‘development community’, including United Nations (UN) agencies,bilateral donors such as the British Department for International Development(DFID) and the United States Agency for International Development (USAID),non-government organizations (NGOs) and the governments of poorercountries themselves, have in recent years become involved in promoting andassisting value chains, as it becomes recognized that economic developmentand the alleviation of poverty are unlikely to be achieved by the public sectoralone; the private sector is seen as the main source of growth, and developmentassistance is increasingly a matter of partnership between public and 48671.001

2COMMERCIAL AND INCLUSIVE VALUE CHAINSFor-profit businesses, which depend almost everywhere on trading goodsand services with other businesses, also build value chains, not to alleviatepoverty but because such chains are vital for their businesses. Some largebusinesses whose value chains happen to include and benefit poor peoplemay present these value chains as part of their ‘corporate social responsibility’(CSR) activities, but the value chains that are described in this book have notbeen developed by companies in order to achieve social goals, or to promotea favourable ‘image’, but because they are good business. The poor peoplefrom whom they buy their raw materials, or through or to whom they markettheir products, are their best partners from a commercial point of view. Theycan perform whatever functions are necessary, to higher quality standards, ormore reliably, or less expensively, than any other suppliers, and it makes goodbusiness sense to work with them, and to pay them more than they could earnelsewhere, so that they will do their best to continue.Business relationships between large corporations and small-scale farmers,or other poor people, are sometimes believed to be necessarily exploitative. Itis argued that the main or onl