Sub Sector / Value Chain Analysis For Livelihood Intervention

S.Rengasamy – Sub sector / Value Chain Analysis for Livelihood Intervention

Compiled by S.Rengasamy Madurai Institute of Social Sciences

1

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Content Sub sector Analysis / Value Chain Analysis for Livelihood Intervention Box Box Dia Dia Dia Box Dia Dia Box Box Dia

Dia Dia Dia Dia Dia Box Box Box Box Box Box Box Dia Box Tab Tab Box Dia

Footprints of commodities Why sub sector analysis 3 E Exercise Sub sector model Local Global value chain Four stages of Sub sector analysis – Basix’s Model Sub sector analysis for pro poor growth Value chain analysis Poultry Chain What is a sub sector Value chain /Sub sector analysis can help Elements of sub sector analysis What is sub sector analysis Steps in sub sector analysis Step A: Preparing a preliminary sub sector map Getting to know the sub sector Framework for analyzing rural non farm sector analysis Sub sector map : Green Beas for export Stages in enterprise value chain A Model –Ready made garment chain Green Beas for export –Constraints and business service identification Value chain What does value chain analysis entail Step B:Interviewing key informants Sectors, Clusters & Networks Value chain governance Charcoal value chain Milk subsector value chain Step C:Drawing a preliminary sub sector map Community based retail enterprise sub sector Community based retail enterprise sub sector Refining the understanding of the sub sector Social relationship in a charcoal value chain Specifying the institutional context Regulation, Promotion, Credit, other institutional factors Step B: Specify the environmental context Sub sector analysis What does upgrading means Step C: Refine the subsector map Rice chain in Thailand Step D:Quantify overlays of particular interest Step 3: Analyzing sub sector dynamics and leverage points Analyzing the dynamics of the sub sector –i.e. Key demand, Technological change, Profitability, Risk, Barriers to entry, Large firm behavior, Input supply, institutional support, Identify sources of leverage points Choosing the right intervention point

3 3 3 4 4 5 6 6 7 7 7 8 8 8 9 9 9 10 10 11 11 12 12 12 13 13 14 15 15 16 17 18 18 18 19 19 19 20 20 21 21 22 23

24

2

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Sub-sector Analysis / Value Chain Analysis for Livelihood Intervention Understanding economic system in which livelihoods operate "Once upon a time, we knew the origins of things: what piece of earth the rice on our dinner plate came from, which well our water was dipped from, who cobbled our foot wears, and whose cow provided the milk and leather. In many parts of the world, that information is still readily available. But in the present day society, even as technology makes certain kinds of information more accessible than ever, other connections are irrevocably lost."

Why Sub-sector Analysis? Micro and small-scale enterprises (MSEs) employ vast numbers of people throughout the third world. They provide a key source of income for the poor and for women. Yet MSEs struggle to survive in a highly competitive, fast changing business environment. Some operate in rapidly growing markets while others are squeezed by changes in demand, technology, labor costs, tariffs, input prices, government regulations and competition from large firms and imports. In spite of their resourcefulness and savvy, small firms often lack political influence as well as the vantage point from which to understand the overall competitive system in which they operate. Field agencies can help by serving as advocates, monitoring and influencing change for the benefit of micro and small-scale enterprises (MSEs). But to do so, field agencies need ways of identifying niches where MSEs have a competitive advantage so that these agencies can assist those MSEs with the greatest potential while avoiding investment in areas where they cannot effectively compete. Subsector analysis offers a tool that can facilitate small-firm moves to promising technologies and market niches. Normally, a subsector is delineated by a particular final product and includes all firms engaged in raw material supply, production and distribution of that product. In some cases, however, the defining characteristic is a key raw material, with the subsector describing alternative transformations and distribution systems emanating from it. The hides and skins, cotton, and citrus subsectors are examples of this second type. They are common in the literature on agricultural economics marketing, The 3-E Exercise (Exploring the External where they are known as commodity subsectors. Environment) helps us identify some of the Many of the analytical tools used in subsector ruling bottlenecks that need to be overcome to analysis come from these early subsector studies support livelihoods of many people in the area. Step. 1: Identify Key Informants on agricultural commodities. Step. 2: Develop Questionnaire/check list for Assessment Step .3: Scoring by Key Informants Step.4: Aggregate Scores Step .5: Compare Scores of Different Activities Step .6: Identifying Bottlenecks Step .7: Identifying Interventions

Promoting individual enterprises to enhance the livelihood among the poor people in an isolated and sporadic way may not be the most effective way to enhance their livelihoods.

An enterprise is not an isolated structure. It is organically connected horizontally and vertically with other enterprises and activities. Our effort may go waste if there are fault lines in the relationship. Enterprises can be established easily but to sustain it and upscale it, one needs to understand the large picture. There are several tools and techniques are used to 3

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention understand this picture. 3E exercise is one such a tool. Sub sector analysis or Value chain analysis is another important tool that helps us to understand more about the economic system, the whole value addition chain and various players in it. It helps us to determine the most cost-effective intervention to achieve the livelihood outcomes that we seek in our area. Sub sector Model End Consumer

Large Scale Multi outlet

Trader

Small Scale Retailer

Specialized Buyers

Buyers / Import

Trans National Company

Local Markets

Small Scale Producer

Raw Material

Traders or Export

Small Scale Producer

Traders

Large Scale & or Multi Plant

Preliminary Producers

G L 0 B A L E C O N O M y National N A T I O N A L S E C T O

Meta Level Macro Level Meso Level Micro Level

4

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

4 Steps of Sub-sector Analysis –Basix’s Model Raw material from where? Sell to whom? Where? Use what technology? Why? Any alternative? Main regulations that affect business? Sources of funds? Supporting agencies/actors? How? Main problems faced?

Immerse yourself in the sub-sector Interview key informants

1 Preparing a preliminary sub-sector map

Draw a preliminary sub-sector map

Specifying institutional context

2

Refining understanding of sub-sector

List all functions involved in converting raw material to final product in left hand column Identify final markets and list all final markets across the top Map various participants who perform different functions in respective rows Draw arrows to describe product flows

Regulatory Institutions * Promotional Institutions Credit Institutions Other institutional factors: Producer organizations, Trade Associations, Labor associations

Specifying environmental context

Refining subsector map

Check: Do activities have environmental impacts? Are environmental conditions favorable? Could more environment friendly practices be introduced? Are investments required for processes to become more environment friendly

Add information collected in these stage to refine sub-sector map Add credit/ promotion institutions to the map Add environment organizations to the map

Quantifying ‘overlays’ of particular interest

Number of enterprises at each level *Employment and livelihoods generated at each level Gender division of employment *Volume of product *Price margins at each level *Income to different players * Returns to labor *Environmental impacts

3 Analyzing subsector dynamics and leverage points

Analyzing the dynamics of sub-sector

Identifying sources of leverage

Market Demand: Going up? Down? Stagnant? Technological Change: New Innovations? Profitability of different components Risk: Are there some new risks? Barriers to entry: New policy? Trade condition? Input Supply: New raw material? New Supplier?

System Nodes Geographical Clustering Policy Constraints

4 Choosing intervention point

List all possible interventions on different columns Assess competencies/ resources needed on left hand side Put a tick mark in boxes for competencies required Put tick mark in boxes for the competencies/ resources that the organization has access to

5

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Pro-poor growth requires a range of enterprise development strategies. These include Microfinance and other support for micro-enterprises, stimulation of the private sector in general and policies which protect the interests of employees and poor entrepreneurs through, for example, enterprise regulation, codes of conduct and the promotion of ethical investment and consumerism. Social policies in education, health and welfare to increase the skills of employees and micro entrepreneurs and decrease their vulnerability also contribute to propoor enterprise development as can such diverse approaches as infrastructure development and changes in property legislation. Such a multi-faceted approach poses challenges for impact assessment since impacts may be direct, indirect or unintended and goals may involve tradeoffs. Value chains analysis, used as part of a participatory assessment process, can contribute to strategic learning for enterprise development.

Timber Value Chain

Value Chain & Sub sector Analysis Value chains analysis was initially used to better understand why many of the potential benefits of globalization fail to reach the poor and why particular countries and types of enterprises find it difficult to enter certain sectors. It has been widely used as a tool for action research by fair trade organizations and those involved in the international Women in the Informal Economy: Globalizing and Organizing (WIEGO) including the Self Employed Women’s Association. It has also been used in some recent fair trade impact assessments. Value chains analysis can be a participatory and empowering process. Using maps and diagrams enables even poor and disadvantaged stakeholders to be involved in the collection and analysis of information. This promotes dialogue and accountability between stakeholders as they analyze and negotiate their common interests in improving the functioning of chains and identifying those interventions likely to be most useful. Participatory value chains analysis (PVCA) can highlight the constraints on those controlling the chain and clarify the possibilities for change lower down. It can help overcome barriers and communicate the perspective of those lower down the chain to those nearer the top. It can help make chains freer and fairer and redistribute benefits to those currently disadvantaged. Diagrams and maps can be continually updated and refined as part of an ongoing learning process.

6

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Chicks Arrive

Brooding Stops

Intensive care period Brooding & Controlled Temperature

Growth Phase

Point of Sale Finisher Phase

Newcastle Vaccination

House Cleaning & Preparations for next Phase

Starter Mash Food

Grower Mash Food

Finisher Mash Food

What is a Subsector? • "The vertical set of activities in the production and distribution of a closely related set of commodities." Shaffer, 1968. • A sub-sector is a network of farms and/or firms that supply raw materials, transform them, and distribute finished goods to a particular consumer market or markets. • Any group of commodities, which share a common procurement, processing and distribution channel, can be clubbed into a sub-sector. • There is more to a sub-sector than just the core manufacturing process such as rice-milling. The rice transportation system is as much a part of the paddy sub-sector as rice-milling or trading is. • A sub-sector is not within a geographical confine. If the groundnut for manufacture of the Chiki (Kadalai Mittai - sweetmeat) sub-sector in Lonavala comes from Saurastra, then the groundnut market in Rajkot (Saurastra) is very much a part of the Chiki sub-sector, that needs to be studied. • "An interdependent array of organizations, resources, laws, and institutions involved in producing, processing and distributing an agricultural commodity." Marion et al., 1986. • Thus , one can view the subsector as: Value Chain / Sub Sector Analysis can • A set of activities and a related set of rules help to… governing those activities. • Reveal links between producers, exporters and global markets • A conceptual way view of a problem. • Identify constraints all along the chain to • Vertical view of industrial organization. competing in the marketplace Nothing highly complicated about the • Clarify the relationships in the chain from approach. Just a vertical way of looking at. buyers to producers Explanation: • Highlight the distribution of benefits – range of activities required to bring a product among buyers, exporters and producers or service to the final consumer – includes producers, processors, input suppliers, exporters, retailers, etc. – includes both vertical and horizontal linkages 7

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention – can be defined by a particular finished product or service • e.g. wood furniture, green beans for export, etc. ** the same definition can be applied to Value Chains Elements of Subsector Analysis 1) Understanding Product Markets and Market Trends 2) Relationships between Participants – describes functions, participants, and relationships among participants 3) Identification of Constraints and Opportunities – including: technology, market access, organization, policy, finance, input supply, etc. 4) Subsector mapping – graphic presentation of inter-relationships; – can help to identify participants to interview

What is sub-sector analysis? Sub-sector analysis is a process of getting to understand different stages in the value addition chain in a sub-sector and understanding who does the value addition, using what technology, at what terms and with whose help. There are FOUR steps involved in undertaking sub-sector analysis. 1. Preparing a preliminary sub-sector map,

2. Refining your understanding of the sub-sector, 3. Analyzing sub-sector dynamics and leverage points 4. Choosing your intervention point.

Steps in Sub Sector Analysis

By using subsector analysis one can put the potential livelihood opportunities identified to a rigorous test. Subsector analysis clarify whether the activities identified are likely to grow and significantly benefit a large number of poor people, or are they going to remain a stagnant activity bringing only marginal benefits to the target group?

8

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Step 1: Preparing a preliminary sub-sector map There are three action points that are required to prepare preliminary sub-sector map. These are: a. getting to know the sub-sector b.interviewing key informants c. drawing a preliminary sub-sector map A: Getting to know the sub-sector The first thing is to know about a sub-sector in order to identify the whole value-addition process. So it is better to get as much information about that sector: 1. What are the basic raw materials? 2. Where do the people get them? 3. What is it that they produce? 4. What happens to it: who buys it? What does s/he do with it? 5. Is there some processing? Is there more than one way in which it is processes? 6. What are the one or more final markets for the product?

Framework for Rural Non Farm Employment Sub-sector Analysis The Sub-sector Food Processing

Other Primary Processing

Traditional Manufacturing

Modern Manufacturing

Eg.Jaggery /Pappad making

Eg. Mining & Bidi rolling

Eg.Carpentary

Eg.Mechanical Reparing

Services

Eg. Retail Trade

Issues to be analyzed Availability of raw material

Human Resources

Knowledge

Capital Availability

Availability of Infrastructure

Market Threats

Suggestions

Base

9

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Sub sector Map –Green Beas for Export

Wholesale Markets

Wholesale Importers

Importers

Briefcase Exporters (50%) Less than 5% of total exports Brokers

Brokers 5-10% of total Small Growers

Growers

Input Suppliers

Distributors

Dedicated Distributors

Airfreight (cargo & Passenger planes, Freight forwarders

Transport

Exporters

Super Markets

Stockists of fertilizer, Chemicals & Seeds

Small to medium exporters (15-20 Exporters)

Large vertically integrated exporters (810)

10-15 of exports Small to Medium Contract Growers

Large Contract Growers

Large distributors & Importers of Fertilizer, Chemicals & Seeds

Channel 1

Channel 2

Channel 3

Broker Channel

Small to Medium

Integrated Large

The above questions can be applied to potential livelihood opportunities in services as well as in manufacturing. The answers for the checklist mentioned above can be collected by talking to people who are involved in the business. They could be farmers or producers, traders who deal in the commodity, product or service, bankers who finance the activity, a government officer Three stages of an enterprise value chain Supply of input factors Raw materials, labour force, machines ,capital, preliminary products, services, Knowledge

Transformation to a product or Sale to a buyer service To a local markets, global Combination of input factors buyers as finished, preliminary Consumer with production factors (labour, products or raw material capital & land

10

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

A Model - Ready Made Garment Chain Competitive Low Price Market

High Demand High Price

Contemporary Urban Consumers Boutiques & Upscale Retailers

Elite Exporters

Traditional Urban Consumers Lower Value Local Outlets

Low Price Market

High Demand High Price

Contemporary Export Consumers

Traditional Local Consumers

Urban Handicraft Retail Outlets in Markets Export Markets

Exporters Urban Sales Agent

Retail Outlets in Local Markets

Local Sales Agent

Male relatives of Rural Embroiders

Product design Consultants Urban Micro Garment Makers Input Suppliers

Rural Self Employed Embroiders Dominant Traditional Low Value Chain

Input Suppliers

Potential High Value Chain Weal at present

Urban

Weak & Low potential

Rural

Weak & with high potential

responsible for supporting or regulating the activity, or even a professor in the local college. Books, articles, websites can be of great help to clarify our self an\bout the activities we are interested in. It is better to familiarize with: • Participants in the sub-sector: producers (both women and men), traders, regulators, financiers, promotional agents • Alternate technologies being used (e.g. in sugarcane: gur, khandsari, sugar mills, or in cloth production: khadi handloom power looms) and the environmental impact of any production processes. • Factor conditions: The nature of the various factor conditions, as well as support services, that the business will require to become an important livelihood activity in your area. • Product flows: Physical flows (places) and control of flows (traders, regulators) • History: The ups and downs of the sub-sector and the causes of these.

11

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

A value chain is a sequence of target-oriented combinations of production factors that create a marketable product or service from its conception to the final consumption. This includes activities such as design, production, marketing, distribution and support services to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms, as well as within a single geographical location or spread over wider areas. The term Value Chain refers to the fact that value is added to preliminary products through the combination with other resources (for example tools, manpower, knowledge and skills, other raw materials or preliminary products).As the product passes through several stages of the value chain, the value of the product increases. A value chain can be very short, like in the case of milk, or very long and very complex in the case of passenger cars or houses. For example wood furniture: Every wooden table starts as a tree; it is cut down in the forest and processed to boards in sawmills. Traders then would sell these boards to furniture producers or carpenters, who would use their skills to make a table from the boards. Some furniture producers would sell the table to a local market, whereas others would sell it to traders or export agents. Large retailers, Every single enterprise has its own value chain. You could, however, think of a value chain as consisting of levels with several enterprises at each level. For example the Central Java (Indonesia) wood furniture industry: here you would find several small furniture producers selling their products either to local markets, or to traders that would export them to large retailers. You could even think of a whole national sector as including several levels of a global value chain. In Central Java you would not only find furniture producers, but also raw material suppliers and export agents. It is therefore important to distinguish between value chains that feed into local markets (an end there) and global value chains.

What Does Value Chain Analysis Entail? In identifying opportunities for upgrading and the constraints to these opportunities, the analysis should focus on answering the following questions: • What and where are the market opportunities? (End market analysis) • What upgrading is needed to exploit them? (End market and chain analysis) • Who will benefit from this upgrading? (Chain analysis) • Who has the resources, skills and incentives to drive upgrading? (Chain analysis) • Why has it not happened already? (Chain analysis) • What will it take to make it happen? (End market and chain analysis)

B: Interviewing key informants After gaining an initial understanding of the sub-sector, one needs to approach key informants, i.e. those who are knowledgeable in order to gain deeper understanding. The key informants for analyzing a sub-sector in greater depth may include: • Smaller and larger producers • Market traders or authorities • Bankers • Officials from promotional and regulatory bodies • NGOs specializing in the sub-sector • Researchers During the interviews, ask at least the following seven questions: 1. Where do you get your raw materials 2. To whom do you sell your output? 12

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention 3. 4. 5. 6. 7.

What technology do you use, what alternatives exist, and why do you use this one? What are the main regulations/ laws you have to follow? What are your main sources of funds for working capital and fixed assets? Which are the main agencies/ actors who help you? How? What problems do you face, if any?

Sectors, Clusters, Networks – Upgrade What? Many upgrading activities will target groups of enterprises rather than individual enterprises. The reason for this is to initiate overall economic and social development, instead of favoring individual enterprises. Furthermore, development agencies and employer and worker organizations that are engaged in upgrading, are obliged to consider the interests of all their stakeholders and members. It is therefore important to consider the scale of upgrading activities. Economic activities are often categorized into sectors. We often talk about the private sector vs. public sector, service sector vs. manufacturing sector, primary sector/ secondary sector/ tertiary sector. Within and across these different divisions we find sectors such as the consumer goods sector, the technology sector and the financial sector, etc. Economic activities that share common characteristics in product, process and/or function compose an economic sector. Sectors often contain several levels of a global value chain and consist not only of one, but several national and international chains. This means that furniture producers would not only sell to local markets but also export goods to large retailers in Europe, South East Asia and the USA – thus, we would basically have to deal with four value chains. Sectors are seen as a concept that includes different forms of economic interaction between enterprises: the economic activities may be geographically concentrated in so-called clusters, dispersed within or across national boundaries or appear as more flexible business networks. The type of sector determines the scale of upgrading activities. National sectors can either occupy parts of a global value chain or constitute an own full value chain, in which products are produced or services are provided from the very beginning to the final consumption. In the latter case, the sector would be producing for local markets. The guide however focuses on the integration of sectors into global value chains. It will therefore distinguish between “value chains” and “global value chains”.

Value Chain Governance Dealing with value chains requires an understanding of how the value chains are organized (or coordinated) and in particular, who has the say in the chain (power relations). This is what is meant when referring to value chain governance. Value chains display a variety of different “governance structures”, and the recognition of different forms of governance in global value chains has important implications for the question of upgrading, that is to say, how enterprises can move into higher value added activities.

13

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

14

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

C. Draw a preliminary sub-sector map Based on the interactions with the various informants, a preliminary map of the sub-sector can be drawn. The sub-sector map summarizes the initial understanding of the sub-sector structure. Although conceptually simple, the map is a powerful tool for describing about a set of related business activities. It identifies the sub-sector’s principle functions, participants and channels. In preparing the map, it is useful to review the elements in an orderly manner starting with production to end consumption. The orderly arrangement of the functions describes the transformations of the commodity, product or service that take place. The participants indicate who performs them. And the channels describe how products flow among participants, who buys from whom, and how the network hands together. List the functions List participants performing each function For each function identify alternative technologies and quality differences Identify final markets On a blank piece of paper, list all functions one above the other on the left side starting with the base raw material at the lowest corner List all final markets across the top Map various participants who perform these functions in the rows where the functions are listed. Draw arrows to describe product flows among participants Define principal channels Review sub-sector boundaries

15

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention The following diagram illustrates sub-sector mapping conventions. Review these. The conventions or format is important and ignoring it often produces unclear sub-sector maps that may confuse the participants and others. Community Based Retail Enterprise Subsector (CBRE) There is a relative disadvantage for the community living at hills in accessing and delivering of goods and services because of geographical reasons. The concept of multipurpose retail outlets managed by people organization at the village level is naturally suits here. This is for an alternative route of essential commodities coming in to the village and the village produces going out to the market. The intention of CBRE is to pass on the margins to community, timely delivery and quality benefits to the community. Subsector Map The existing picture of household provisional items was mapped with the help of collected data in CBRE Subsector, which is shown as Figure: 4. The main highlighting character in this map is of long supply chain, comprising of distribution and redistribution at multiple points. Bottlenecks The main hurdles in the present scenario came out form the map, as bottlenecks in CBRE Subsector are listed below. 1. Excessive levels of middlemen exist in the distribution chain. 2. Village consumer are trapped in credit net of local traders due to cash crunch and forced to accept the exploitative barter system of commodity exchange. 3. Transportation cost in hills is high as well as lack of transportation facility. 4. Lack of knowledge about market, like demand, price, timing etc. 5. There is lack of collective procurement system in village level and less experience of successful community institutions in the region. Opportunities The opportunities present in this Subsector were analyzed and listed as following. 1. Prices of commodity in village market are higher than urban market. 2. The present expending market trend is helpful for such an intervention. 3. There are some successful models are running both in cooperative and private sector, which can be explored for replication in the region. 4. The enhanced capacity of community through CBRE will extremely benefit in their other livelihood options. Leverage points The possible solutions came out over discussion of bottlenecks and opportunities are described as under. 1. Specialized Community institutions at village level (CBRE) to be promoted which will link the village directly with the major wholesalers; thereby bypassing the multi level middlemen network and margins to them and establishing uninterrupted and timely service. 2. The UPASaC may extend certain amount of loan/ revolving fund to the SHG(s) intending to form CBRE to meet its establishment and operational costs. 3. Establishment of common collection point for village produces to be sold outside and Market Information Centre for villagers will lead further level development.

16

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Community Based Retail Enterprises Subsector Map

Consumer

Village level retailer

Local Wholeseller

Sub Wholeseller

Village of Pujargaon (NP) 18 villages

Village of Tiuna (NP) 09 villages

Chamba

Tehri

PDS godown at village level

Hindolakhal

Anjanisain

Jamnikhal

PDS outlet at village level

Devprayag

PDS store/godown at block level

Srinagar

Rishikesh

Saharanpur

Govt Dept

Main Wholeseller

Inputs

Source

Rice & wheat

Punjab UP

Pulses

UP Haryana

Sugar

UP

Kerosene

Agra/ Ludhiyana

Shoes Clothes

FMCGs

Noida /Delhi

Oil

Punjab/ Haryana

17

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Step 2: Refining the understanding of the sub-sector There are four action points that are involved in this step of the sub-sector analysis. These are: a. Specifying the institutional context b. Specifying the environmental context c. Refining the sub-sector map d. Quantifying’ overlays’ of particular interest These action points can be undertaken in an iterative manner, i.e. meeting again with key informants, such as producers, traders bankers, regulatory, promotional and other officials, as well as drawing on secondary date. With the help of the key informants one can cross check the accuracy of the information collected in the earlier stages. Map of Social Relations of Access in Senegal s Charcoal Market Urban Population Retailers

Wholesalers

Other Institutions Unions Religious Brotherhood

Ministries Wood & Charcoal National Forest Dept

Market regulation Unofficial

Transporters

Cooperatives Merchants Patrons

Loan

Regional Forest Service

Elected Regional Council

Migrant WoodCutters Forest Villages

Local Forest Service

Local Rural Council

Specify the institutional context The institutional factors that impact on the participants within the sub-sector into four broad categories: regulation, promotion, credit and other institutional factors such as producer organizations. Some of the issues that need to be covered is given below

18

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention A: 1 Regulation a) Identify the main laws and rules (including taxes) that apply to different stages in the sub-sector. b) Identify the main agencies responsible for enforcing the above. c) Check the actual application of the law vs. the rules as laid down. d) Ask key informants about what are the most bothersome aspects of regulation. A: 2 Promotion a) Identify the main promotional policies of the government relevant to the sub-sector. b) Identify the main agencies responsible for implementing those policies. c) Check actual implementation against policies on paper. d) Ask key informants about how useful or not these policies are, and what are their most helpful aspects. A: 3 Credit a) Identify the credit available to the sub-sector: what for how much? b) Identify the main sources of credit (banks – commercial, regional rural banks –moneylenders, etc) c) Which parts of the sub-sector are most constrained by the lack of appropriate credit? A: 4. Other institutional factors a) Are there any producer organizations? b) Are there any other institutions that affect the sub-sector? c) Is there a political economy that significantly influences the sub-sector?

Production & Distribution Functions Input Distributors Farm Level Production Processing Storage Assembly Transportation Wholesaling Retailing Financing Consumption

Millet

Sub sector Approach

Research & Extension

B. Specify the environmental context Examine the environmental context within which this sub-sector functions. Examine how the activities that take place within the sub-sector influence and are influenced by their environment. For example, Do activities within the sub-sector have environmental impacts? What are these? Are they positive or negative? a) Are various conditions of the environment favorable for taking up the selected activities? b) Could more environmentally friendly practices be introduced within the sub-sector? How easy or difficult would this be in practice? c) Are investments required for processes to become more environmentally friendly? How much? Who will make those investments?

Sorghum

Sub Sectors Maize Cotton

Rice

Peanuts

Farming System Research

19

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention What does “Upgrading” mean? By upgrading we mean a multi-dimensional process that aims at increasing the economic competitiveness of enterprises as well as having a positive impact on social development. In the case of sectors, multi-dimension means not only to consider the enterprise level (micro-level), but also the economic, social and political business environment in which enterprises operate. Upgrading can also be seen as a broader concept than innovation. Innovation mainly takes place on the enterprise level, and concerns upgrading in product, process and function. The preconditions for innovation are however set by the business environment. It is also important to view upgrading as a continuous process and to consider this in any upgrading 1. Product Upgrading: Developing new products/services or introducing a new quality. New products usually have a higher value than their predecessor models. Examples: Increasing the quality of timber wood for furniture, sourcing from another supplier, or adopting the design of clothing to the preferences of the final customer. 2. Process Upgrading: Improving the efficiency of internal processes, such that these are significantly better than those of competitors. Examples: Cutting the cost of inventories, lowering scrap, improving delivery time, producing more in less time to less cost. 3. Function Upgrading: Moving up the value chain towards carrying out higher level and greater value adding activities. Examples: Developing own capabilities for manufacturing chocolate instead of only exporting the raw material; building up own design capabilities instead of only assembling products according to given designs and plans. 4. Market Upgrading: Covering new markets on which to sell a product or service, whether this market has to be newly created or is already covered by competitors. 5. Supply Upgrading: Improving the quality/quantity of supply material and products or changing the supplier. This is very related to process upgrading. However, supply could be a distinct focus of a sector-upgrading project. Example: ensuring that timber for wood furniture is sourced from sustainable and environment-friendly wood processing areas. 6. Inter-chain Upgrading: moving to a new and more profitable value chain, where higher rents can be captured. Example: Taiwanese firms moved from the manufacture of transistor radios to calculators, to TVs, to computer monitors and now to Wireless Application Protocol Phones (WAP). 7. Intra-chain Upgrading: Increasing cooperation and the flow of information between partners along the value chain. This is done to achieve collective gains through quality improvements, increased system efficiency and the development of differentiated products. This would also imply a change in the value chain governance: From market-based to increasingly regulated relationships that are based on trust and mutual (formal) agreements.

C. Refine the sub-sector map After doing all the above said exercises one will become familiar with many participants, processes and channels within the sub-sector and also aware of the institutions that are influencing the sub-sector, and of some factors that can help minimize adverse environmental impacts. This is a good time to check: What are the important processes missed so far within the sub-sector? Is there any new channel that was not aware of earlier? Is there any additional functions that need to be performed for the commodity, product or service to reach its ultimate markets? Is there any functions identified in the preliminary map have turned out to be no more than side shows for the main channels within the sub-sector? With all this additional information the sub-sector map may be refined. A major part of refining the map is to add ‘overlays’(super imposing). 20

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Small Farmers

Village Traders

Large Farmers

Local Traders

Private Millers

Cooperative Traders

Cooperative Millers

Animal Feed Industry

Noodle Industry

Wholesalers White Rice

Retailers White Rice

Wholesalers Broken Rice

Retailers Broken Rice

Exporters White Rice

Wholesalers Dry Noodles

Exporters Broken Rice

Retailers Dry Noodles

Human Consumption

Rice Chain in Thailand

D. Quantify overlays of particular interest It is important not only to have map of the sub-sector, but also some idea of the scale of activity at each point of the sub-sector. It is called as overlays (super imposing). For example, the sub-sector map prepared already can be superimposed with a clean transparency and add figures for the livelihoods generated at each point represented in the map. 21

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention We need to identify the overlays that are of interest to us and then quantify them. These may include: • Number of enterprises at each level • Employment and livelihoods generated at each level • Gender division of employment • Volume of product • Sales value • Price margins at each level • Income to different layers • Returns to labor • Inventory holdings • Environmental impacts In the process of quantifying this range of overlays, using information from key informants and secondary data, will significantly deepen our understanding of the sub-sector. Step 3: Analyzing sub-sector dynamics and leverage points A sub-sector is not a static phenomenon. Demand patterns in the markets are changing. New technologies are being developed. New players are If a particular plant disease is common in an area, two entering the field. Some are types of interventions may be possible: getting out. It is important for § Identify the right control measures and train farmers in their use you to understand these § Work with plant breeders and introduce a diseasedynamics before you make an resistant variety. intervention. With the second intervention you may be able to benefit a larger number of people, and perhaps

It is also important to be cost with less effort. effective in an intervention. By looking at the sub-sector map, it is possible to identify the various points at which interventions can be made. But there are some points of intervention which can benefit a larger number of people with the same amount of effort. It is always useful to identify such points of intervention, which give high leverage. This step further involves two action points: a) analyzing the dynamics of the sub-sectors and, b) identifying sources of leverage A. Analyze the dynamics of the sub-sector This step is vital for moving from analysis to action. By understanding how the sub-sector is changing, one can understand where the opportunities and pitfalls lie. Further understanding of the forces driving this change often reveals the key opportunities for growth in enterprise and livelihoods. In analyzing sub-sector dynamics the following questions will arise and which need to be answered: a) Which channels enjoy the most secure prospects for growth? b) Do these channels face any emerging threats? c) What role can micro and small enterprises play in these channels? d) How can you enhance their ability to participate in the growing niches? 22

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

These questions can be answered by understanding how the sub-sector is changing and why. The following driving forces and constraints are important in affecting changes: Key demand Estimate the demand and trends over the last few years, locally, nationally and even globally. Population growth and changes in the larger economic environment (prices, wages, monsoons, booms, recessions and so on) can cause consumption patterns to change rapidly. Technological change New machinery or know-how can greatly change production costs, making small firms more competitive or driving them out of business. What impact will such changes have on poor producers, on women producers, on the environment? Profitability of different niches Individual niches within the production system yield differing returns, providing incentives to change to the more profitable technologies, supply relationships, and level of specialization. Risk Changes in demand, inputs, technology, labor and environmental conditions, and profitability bring both opportunities and risks. The micro-entrepreneur and the collective enterprise alike must balance rewards and risks in choosing which channels to operate in. Barriers to entry Regulations (such as licensing and zoning), banking practices, lack of information, and collusion can restrict growth opportunities for micro and small enterprises. Large firm behavior Changes in the level or range of activities of a few large firms may dramatically affect the opportunities open to micro and small enterprises. Input supply Poor quality raw materials, unreliable supply sources and environmental damage can severely restrict the growth potential of enterprises. Institutional Support Changes in regulation, promotional and credit policies can have a major impact on functions within the sub-sector, including raw material supplies, technologies and marketing. Are changes happening or expected? What impact will they have on the functions and channels represented on your map? B. Identify sources of leverage Leveraged interventions are those that influence large numbers of enterprises at a single stroke. They are likely to be more cost-effective than one-to-one assistance delivered to individuals’ enterprises. Because they affect many firms at once, leveraged interventions can significantly enhance impact and reduce contact costs per enterprise. To identify sources of leverage look for one of three key ingredients: System nodes: These are points where large volumes of product pass through the hands of only a few actors. Geographical clustering: Physical locations where many producers are located. Policy Constraints: These affect almost all/ most producers, e.g. taxes, subsidies, import/ export quotas.

23

S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention Step 4: Choosing intervention point. Now we are familiar with: § How the specific commodity you have selected is produced § The various raw materials and support services that are required to produce it § The channels it passes through to reach its final markets § The different players § The technologies being used § The environmental issues § The institutional framework within which the sub-sector operates § The critical numbers, of production, sales, employment, etc. § The dynamics of the sub-sector as it changes over time § The key leverage points The above process will result in a fair idea about some of the interventions that you could take up for promoting or supporting many livelihoods. Every intervention requires some basic competencies and resources. Examine whether the organization has these. You can draw up an intervention-competency matrix. § List all the possible interventions on the heads of different columns § Assess what competencies/ resources you need to take up these interventions and list these on the left hand side of your table. § Put a tick mark (ü) in the boxes for competencies required for a particular intervention and a cross (X) for those not required. § Fill up the various boxes in the table, either with your own organization, if you have the particular competencies under review, or of other organizations on whom you could draw for such expertise in a livelihood intervention strategy. Consider carefully whether you will be able to collaborate with these organizations. From this analysis you have to make a choice of the intervention strategy that your organization can take up for promoting or supporting a large number of livelihoods. The material for this class notes are mainly taken from

ISLP’s “A Resource Book for Livelihood Promotion”

24