Hard Talk on Value Chains

"It's easy to grow tomatoes, it's more difficult to get them to market," says Rolf Schinkel, Inclusive Agribusiness Advisor for the SNV Netherlands Development Organization. "We have to ask ourselves, why isn't this market working for small producers?"

The value chain is a mechanism that links producers, buyers and sellers, ultimately delivering a higher value and targeted product to the consumer. To use tomatoes as an example, the value chain might be to teach farmers to grow organic tomatoes, set up a canning factory, build a few roads, create a 'chic' brand and export the high-priced canned tomatoes to a supermarket chain in another country.

David Shearer, Research Program Manager, Australian Centre for International Agricultural Research (ACIAR) says, " 'value chain' is a trendy term that we are throwing around too much, it is basically the intersection of a consumer demand driven approach, global market demand and the socio-economic constraints of the producer."

To put the value chain approach into practice, agricultural development projects are working more and more to link small producers with the private sector in contractual agreements. "There is no other party that knows the market better than the private sector," says Rolf. He goes on to explain that this is often the most sustainable way to invest. "You can't constantly pump money into parallel structures. Once the tap is turned off, the parallel structure disappears," referring to the end of a project if private partnerships are not in place. "Fairtrade risks becoming one of these parallel structures."

"When you have to work with people you don't like working with, but you have to, that can get nasty," says Frank Hartwich, Industrial Development Officer, United Nations Industrial Development Organization. He goes on to specify that he is talking about "some filthy rich international global players."

During a chat show called "Hard talk on value chains", day two of the IFAD Asia and Pacific annual performance review event, the room heated up as panelists David, Rolf and Frank (from left) did not always agree to each others points of view. Host Ron Hartman (far right), Country Programme Manager, Nepal and the Pacific, tried to keep it light.

"It is important for the company itself to invest in the value chain," says Rolf, using the example of Mars Incorporated, the chocolate, confectionary and beverage conglomerate. Mars has invested a large amount of money in cocoa research and are 'committed to using sustainably grown cocoa' in Indonesia. The value chain concept is ultimately to build capacity in local economies, not to focus on any particular industry. "The idea is to make the chain work, not to support a particular company," Rolf adds.

Roy Ayariga, Coordinator, Northern Rural Growth Programme, Ghana, talks about his experience applying the value chain approach. "We start with the market, the market will dictate the quality and items in demand," though he goes on to explain risks, "world market prices can distort everything. If local prices are high, companies start importing and local producers are left stranded." This is why the value chain needs to be formalized with contractual arrangements between producers and the private sector.

"Farmers can get cheated on the markets unless you help them to organize for themselves," concludes Thomas Elhaut, Director, Asia and Pacific, IFAD.