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I appreciate that this is a rather long post but please read through to the end.

Spores magazine released a special issue titled ‘The rise of the agricultural value chain’. I found this issue very interesting and eye-opening. It echoed some of my thoughts and I have chosen to share some of the contents with you. Please find time to read this issue. I truly believe that the most successful Agripreneurs will be the ones that are able to create strong value chains or work effectively within one.

A value chain is a sequence marked by value growth and coordination at each stage of production, processing and distribution, driven by consumer demand. It carries with it a range of support functions, such as input supply, financial services, transport, packaging, market research and advertising. The nodes in an agricultural value chain may consist of INPUT PROVIDER, FARMERS, PROCESSORS, PACKAGERS, DISTRIBUTORS & RETAILERS.

Agri value chain

Value may be conferred or increased by improving the quality of a product, through better seed input and post harvest management in the case of crops or higher quality forage for livestock. Value addition may also be achieved through greater efficiency, with better logistics, especially transport. Other ways of adding value include improving presentation and preparation and introducing grading.

Value chains come in all shapes and sizes. Successful value chains are driven by information about consumer requirement often through market research. The 3 main features of a value chain are:

  1. Co-ordination of all links in the value chain.
  2. Added value at each stage.
  3. A market-led approach, responding to local, national and international demand.

Value chains offer a strategy for income generation which has important repercussions for extending the reach of agriculture but also for attracting young people to the rural sectors or dissuading them from leaving it.

The farmers are the first link, but most often the chain is organised by the last link, the one selling the final product. Communication with other links in the value chain is essential since the whole chain will be affected if one link fails. Planning is the key, with careful attention to detail. If value chains are to be sustainable they must be profitable: decisions about who to work with must be based on commercial criteria.

Successful value chains involve collaboration between all stages of the chain. Farmers and produce buyers need to work together to ensure the right quantities at the right time, meet consumer needs and minimise cost.

When it comes to developing a value chain, it is important to have sound market knowledge so as to offer the right product, one for which there will be sufficient demand. To benefit from the value chain model, producers or their associates need to have good organisation and management skills, they must know how to calculate production cost, be able to guarantee quality and a regular supply and traceability. They must also be familiar with the markets and market prices.

If value chains are to work well, they must involve other actors who are not directly involved in the sequence. These include financial services and transport, packaging and distribution companies. A large degree of success of any value chain comes down to the farmers who supply the raw materials. Greatest risk here is the failure to respect commitment. If the value chain concept is to be applied successfully, everyone in the chain must benefit. More importantly, everyone in the chain must perceive that they are being treated fairly and equitably.

Understanding the opportunities and risks inherent in value chain participation is crucial. There is a range of markets to consider but it is important to select the right one. The type of people most likely to benefit from a value chain are those with an entrepreneurial spirit, a willingness to communicate and the financial and knowledge assets to invest in accessing these new markets.

Next post will look in detail at opportunities that exist for agripreneurs within the value chain.

Thank you for taking time out to read this post 🙂

http://spore.cta.int/en/

http://www.thisisafricaonline.com/Media-Library/Files/AGRICULTURE-Smallholder-value-chains-Special-report-English-version

http://www.mckinsey.com/insights/public_sector/four_lessons_for_transforming_african_agriculture

Spores

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10 thoughts on “Value Chains in Agriculture

  1. I think this is getting more and more interesting. There’s no way I’m not going to venture into an aspect of agriculture! You’ve spiked my interest. Keep it up girl! I hope the young folks out there are taking up the challenge to be the Next Gen AGRIPRENEURS! I’m not young but I’m definitely taking up the challenge.

  2. For the nextgen African farmers whom undoubtedly have to be entrepreneurs or ‘agripreneurs’ as you put it, have to come up with the entire value chain (pre consumer delivery)? The reason i think so lies with the general lack of developed infastructure which the agripreneur would have to develop on their own. Being as that is a huge barrier to entry what opportunities to overcome them either through govt subsidies, or premature partnerships …etc do you see available now or in the near future?

    • There are simple and complex value chains. For the simple value chain, it is possible for one agripreneur to come up with the entire value chain. This type of value chain will tend to focus on the domestic market. The key stakeholders will tend to be in close proximity to each other. For example an Agripreneur becomes aware of the need for fresh vegetables by a few Hotels in his or her area, he/she seeks to meet this demand by sourcing and working with some local farmers to grow these vegetables to meet the requirements of the hotel, if need be the agripreneur himself can provide the inputs (improved seeds, organic fertilizers etc) to the farmers to ensure that the requirements of Hotels are met. Post harvest he/she either uses local businesses to package and distribute or it is handled in house (vertical integration). The decision should be based on time and cost effectiveness. This is a simple demand driven value chain set up solely by one Agripreneur who sources the farmers and possibley handles storage, packaging and distribution.

      A more complex value chain requires the skills of a collection of Agripreneur who can co-ordinate every activity within the value chain. They tend to focus more on regional and international markets. They tend to include a large number of players supplying large quantities of output. To succeed the players must find a way to communicate and collaborate effectively to meet market demands. What we should understand is that a lot of value chains fail for many reasons, such as changes in the market conditions, breakdown in communication, defaulting on contract/agreements and lack of collaboration between key players in the chain. This type of complex value chains are usually managed by the end user who are usually large multinational companies (MNC) like Unilever. These type of MNCs are better able to manage the impact of the poor state infrastructure, partly die to their financial strength and expertise.

      Another opportunity is for the Agripreneur to key into an already existing value chain by helping to process raw material or logistics.

      You are right in pointing out the poor state of infrastructure in Africa, nevertheless we see governments across Africa trying to address this issues through the Comprehensive Africa Agriculture Development Programme (CAADP) more specifically within Pillar II. In Nigeria for example the minister of agriculture announced the creation of 14 high potential agricultural production areas where dedicated infrastructure support, including roads, power and water and other benefits will be provided to private sector investors who will help improve the local agricultural landscape for small and large-scale farmers. These staple crop processing zones will work to link production, processing and end markets to improve Nigeria’s contribution to the agricultural value chain.

      The task at hand for Agripreneurs is to work out a business model that enables them to succeed in an environment with these constraints. There are a number of grants, subsidies and facilities being offered by the government. This should be taken advantage of without the business being dependent on it to survive. What I would really like to point out is that we need to understand our key strengths and focus on that area in the value. The value chain is more likely to succeed if it is done in partnership with competent partners as opposed to individually. Together we are better!

      • Thanks for the feedback, i’ll be researching more of the grants available locally and internationally aimed specifically at under-developed areas with high potential. Possibly you could also feature some options in your blog series?
        Cheers

      • First of all, let me say the post was really helpful, thank you.

        And the comment above, very well thought out. You mentioned the poposed creation of 14 high potential agricultural production areas by the Minister of Agriculture. I;d like to know how these zones are distributed.

        Thank you in advance

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