Value Chain Info

Value Chain - Case Study : Bamboo and Handmade Paper in Nepal

The underlining objective of development cooperation is to alleviate poverty and contribute to the development of a country. Nepal has a predominantly rural population (85%) and a fast growing but small urban population (15%). Poverty is a rural phenomenon in Nepal. In order to uplift the economic situation of the rural poor, the Government of Nepal and many international organizations are supporting rural producers to make use of locally available resources to produce commodities for income generation. However, producing commodities alone will not help rural producers if they cannot sell their products and if there is little value added at their end of the value chain. It is equally important to link rural producers with markets and sustain and grow these links so that they form a perpetual growth cycle of production and consumption.

Connecting rural producers with markets on a sustainable basis is a very challenging task. Value chain promotion helps to build sustained links between rural producers and urban markets. Globalization has brought with it unique opportunities for developing countries in terms of access to markets for their products. However, in order to be able to benefit from these opportunities, these products must be competitive on global markets. Value chain promotion helps to develop systemic competitiveness by looking at the whole chain of production activities and strengthening the overall production chain.

GTZ has long been involved in economic promotion in Nepal. During the 1980s and early 1990s GTZ initiated the Small Business Promotion Programme, popularly known as the SBPP project. The focus of this project was the development of entrepreneurship in urban centres. The project selected potential entrepreneurs, trained them through entrepreneurship development training programmes and encouraged them to create enterprises.

Between 1998 and 2003, GTZ shifted its attention to the development of the enterprise service market using a business development services (BDS) approach. The main lessons learned in this phase were: (i) in very weak markets such as Nepal, the service market itself is highly dependent on the capacity of enterprises to pay for and benefit from, business development services; and (ii) some of the constraints in certain value chains were outside the scope of the BDS approach and could not be effectively addressed with service interventions alone.

To address these issues, the project refocused its priorities from services alone to commodities or value chains. Nepal became a full member of the World Trade Organization in 2003. Following this development, in June 2004 GTZ focused its attention on the value chain promotion of selected commodities. GTZ initially focused on two sectors, orthodox tea and hand knotted carpets, as part of GTZ’s Private Sector Promotion (PSP) programme. GTZ/PSP has now expanded this programme to include five other subsectors, namely bamboo, handmade paper, honey, mandarin oranges and medicinal and aromatic plants. (Source www.gtz.de | www.gtzpsp.org).

Value Chain - A Case Study of China's Commercial Pork Value Chain

The meat consumption basket in China is dominated by pork (see Tables 1 and 2). Although shares of beef and poultry have both doubled since the 1980s from 4% to 10% and 9% to 16%, respectively, the share of pork is still high at 72%. The per capita annual pork consumption level in mainland China, which is at 33.8 kilograms, is among the highest in the world; only Hong Kong, the European Union, and Taiwan, countries or regions with relatively higher per capita incomes, are higher.

With sustained economic growth in the last decade in the range of 7.11% to 14.24% and with limited land area for feed grain production, China was expected to become a major importer of pork when, with its accession to the World Trade Organization, it would drop its duties on pork from 20% to 12%, and when it would allow foreign participation in pork distribution in the domestic market. But so far China has remained a small net exporter, averaging 40,000 metric tons from 1999 to 2003. Market penetration by foreign suppliers is believed to be modest because a large portion of China’s pork supply is still produced by backyard producers, whereby surplus family labor is mostly used, investment in animal housing structure is very limited, and feeding practices utilize table scraps, vegetables, green fodder, and unprocessed grains and oilseeds, keeping production costs low.

In the last decade, the share of backyard producers has declined and growth in hog production has come mostly from specialized households with much larger operations compared with backyard producers, with 30 to 500 hogs in annual production. These farms still depend mostly on family labor and have minimal investment in animal facilities, but the animals used are from improved breeds and feeding practices utilize more commercially formulated feeds.

Large commercial hog operations have also emerged in China and have increasingly gained production share over time. As shown in Table 3, the share of pork production from households (including backyard and specialized households) decreased from 97.50% two decades ago to 89.29%, while the share of commercial production (those with more than 500 hogs) increased from 2.5% to 10.71%. The trend toward commercialization is expected to continue at a faster pace in the future, driven by the reported increasing pockets of labor shortages and rising wages, the high cost of using advanced technology (e.g., genetics and nutrition), and improved farm management practices, which increase productivity. Also, a contributing factor in the commercialization of the livestock sector may be the rise of supermarkets. The sector, which has been growing at 30% to 40% per year and reached US$71 billion in sales in 2003, is the main retail distribution channel in which volume and product quality and safety assurance are key, which only commercial operators can guarantee. Moreover, supermarkets increase procurement efficiency through centralized purchasing of large volumes (Gale 2004), so their interests are better served by dealing with commercial suppliers to reduce transaction costs.

If China’s hog sector becomes dominated by large commercial operations, the question of interest is whether this will result in a fundamental change in its competitive relation relative to foreign suppliers. The household hog production system in China is well studied and documented, but this is not true of the commercial sector. Moreover, the few studies that have been done have focused on production, and very little if any attention has been given to processing and distribution. The purpose of this study is to present a detailed picture of a particular case of a commercial pork value chain in China, focusing on its practices, products, prices, and cost structure. Specifically, production and marketing costs will be compared to those of the United States to help identify broad areas in which China may hold some advantage, on the one hand, and market opportunities that are open to foreign suppliers, on the other. (Source: Jacinto F. Fabiosa, Dinghuan Hu, and Cheng Fang, Midwest Agribusiness Trade Research and Information Center, Iowa State University, Ames, Iowa 50011-1070 - www.matric.iastate.edu).

Value Chain Development - as a tool againts poverty

The value chain describes the full range of activities that firms and workers do to bring a product from its conception to its end use and beyond. This includes activities such as design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can produce goods or services, and can be contained within a single geographical location or spread over wider areas.

The competitiveness of firms not only depends on the functioning of suppliers and buyers within a cluster, but also and often most importantly, on the entire chain at the national and global level. The value chain approach helps to identify all the enterprises that contribute to the production of a good or service within and beyond a cluster and shows which actions are needed to support these enterprises.

Businesses in developing countries have to take globalization into account. Nowadays, markets in rich countries are usually accessed via value chains. If a company wants to survive as a supplier, it has to be reliable, and its products must be of unvarying high quality. In terms of development policy, it makes sense to help enterprises in poor countries to reach that goal.
Global value chains are radically altering how goods and services are produced--parts made in one country, for instance, are increasingly assembled in another and sold in a third. The promotion of value chains provides an opportunity to identify bottlenecks in chains, to link up all important economic actors within a chain, to reach economies of scale and to enable local producers to meet certain standards. This contributes to the realization of higher incomes and higher employment of local producers.

Private Sector Development is increasingly acknowledged by governments, donors and development organizations as an important step towards alleviating poverty and creating viable economies. Value Chain Development is a multiple and participatory process that leads to coordinated interventions. It has the enormous advantage to bring together stakeholders from different production stages and sectors, to create a productive and innovative dialogue and to draw the attention to “Collective Competitiveness”.