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The BDS Market in Central Java

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					 Value Chain Analysis in the
Food & Construction Sectors



               SKIT7
              MCU1313




         Value Chain Analysis   Slide 1
       Value Chain Analysis in the
      Food & Construction Sectors
Rationale for Conducting Value Chain
   Analysis:
 1. Reveal links between producers, exporters
    an global markets
 2. Identify constraints all along the chain to
    competing in the marketplace
 3. Clarify the relationships in the chain from
    buyers to producers
 4. Highlight the distribution of benefits among
    buyers, exporters and producers in the
    chain.
                  Value Chain Analysis    Slide 2
         Value Chain Analysis:
         Presentation Overview
1. Analysis of Selected Value Chains
 Cereal Processing
 Building Construction
 Furniture & Metalworks
2. Key Issues
   Policy & Business Environment
   Company Reengineering
   Standards & Certification
   HRD / TVET
3. Outlook

                 Value Chain Analysis   Slide 3
    Cereal Processing Value Chain:
              Relevance
Dominating Processing Sector:
 • 53% of all Micro Enterprises
 • 87% of all Small Enterprises
 • 23% of all Medium & Large Enterprises
 • 53% of total manufacturing employment

Base for national food security
  • Population growth
  • Urbanisation -> Changing eating habits
Driver of rural growth
Regional export potential (medium-term)

                    Value Chain Analysis     Slide 4
        Cereal Processing Value Chain:
                   Structure
              Spices,
              Oilseeds,
 Seeds,
  Agro-       Pulses       Roasting
                                           Traditional Dry Food Retail
Chemicals
                                        Milling                     Supermar-
                          Cleaning                                  kets, Food




                                                                                    Consumers
                                        Service        Cookies      Retail
              Collec-     & Grading
 Cereal                                                 Pasta
Farming        tion                        Flour
                          Storage          Mills         Bakeries & Pastry
Threshing &                              Animal
Harvesting                                Feed           Beer         Bars &
 Services                                                Brewe-       Restau-
                                                         ries         rants
                                         Malting
                                                             Trad.Breweries
                                                                 (Tela)


                                 Packaging Materials
                                  Transport Services
                               Equipment & Spare Parts
                             Financial & Business Services


                                Value Chain Analysis                      Slide 5
     Cereal Processing Value Chain:
           Demand Trends ...
Driving Forces:
 • Population growth -> overall demand increase
 • Urbanisation -> Changing eating habits
 • (Urban) income growth
Urbanisation:
 • More cereal products – less unmilled cereals & wheat flour
 • Caterers (Army, Universities) switch from Injera to Wheat bread
Urban medium & upper class trends:
 • Home-produced Injera
 • Wheat bread & pasta replace traditional bread
 • Factory beer replaces traditional beer
 • More food & drinks consumed outside from home


                         Value Chain Analysis             Slide 6
       Cereal Processing Value Chain:
           Demand implications
Bakeries:
 • 3-5% annual output growth (Addis 8-10%)
 • 600 Bakeries in Addis, room for new market entrants
 • ~ 320.000 t wheat flour demand p.a., growing
Breweries:
 • Strong growth (20-25% p.a.)
 • Major capacity expansion projects under way
 • Local malt supply insufficient – 40-50% of malt imported
Pasta & Cookies:
 • Market growth, new domestic entrants, but imports still dominate -
   > additional market assessment required
Flour Mills:
 • Stagnating household market, several new entrants
    30% overcapacity, heavy competition, low margins
    Significant staff reductions, plant closures imminent
 ->Reorient on industrial customers; expand into baking/ pasta!

                             Value Chain Analysis             Slide 7
                     Cereal Processing Value Chain:
                       Urban Demand Trends (1)
                         Urban Cereal Consumption, by Expenditure Group
                    80
                                                                                         Teff milled
consumption (Kg)




                    70
Annual per capita




                    60
                    50
                    40
                    30                                      Injera
                    20
                    10
                    0
                         1400   2000    2600   3400    4200    5400 6600     9000 12600 16200 20000
                                    Total Household Expenditure (Birr p.a., 2000)
                          Cereals unmilled (excl.rice, ripe maize)         Teff milled
                          Wheat milled                                     Injera

                                  Trend to home-prepared Injera

                                                   Value Chain Analysis                         Slide 8
                         Cereal Processing Value Chain:
                           Urban Demand Trends (2)
                                Urban Cereal Product Consumption, by Expenditure
                    16
                    14                                                                 Wheat Bread
                                Traditional
consumption (Kg)
Annual per capita




                    12            Bread
                    10
                    8
                    6
                    4                                                                        Pasta
                    2
                    0
                         1400    2000    2600   3400    4200   5400   6600   9000 12600 16200 20000
                                        Total Household Expenditure (Birr p.a., 2000)
                                Wheat bread (traditional)             Wheat bread (bakery)        Pasta


                     Wheat bread & Pasta replace traditional bread

                                                    Value Chain Analysis                       Slide 9
                      Cereal Processing Value Chain:
                        Urban Demand Trends (3)
                         Urban Beverage Consumption, by Expenditure Group
                    25
Annual per capita
 consumption (l)




                    20

                    15      Traditional
                               Beer
                    10

                     5      ´Drinks away from
                                  home                                                   Factory Beer
                     0
                         1400   2000   2600    3400   4200   5400   6600   9000 12600 16200 20000
                                     Total Household Expenditure (Birr p.a., 2000)
                                Tela, Borde, Korefe          Beer           Alcoholic drinks aw ay from home


                    More outgoing, factory beer slowly replaces traditional beer

                                                  Value Chain Analysis                          Slide 10
     Cereal Processing Value Chain:
             Farming Issues
Production short of industrial demand:
 Undersupply of hard cereals (for baking, Pasta)
 Insufficient supply of cereals for malting (?)
Input trade:
 Develop & introduce high-productivity seed varieties
  (e.g. Triticale)
 Provide effective yet harmless agro-chemicals
Farmers:
 Ensure compliance with processor‘s standards

=> Cooperation across the whole value
chain (Input R&D -> Processors) required

                    Value Chain Analysis        Slide 11
     Cereal Processing Value Chain:
         Cereal Trade Structure
Absence of generally accepted, certified
standards & grades (Cereals, Flour):
Farmers:
   • Unable to incorporate margins for cleaning & grading (except large
     state farms)
Collectors / Wholesalers:
   • High costs for multiple sacking & inspection
   • Additional transport cost (10-12% impurities)
   • Insecurity inhibits inter-regional trade
Millers:
   • Additional cleaning costs (unreliable equipment)
   • Unable to guarantee flour quality
Bakers / Pasta makers:
   • Flour-related quality problems (additional costs)
General:
   • Lack of base for market information systems, warehouse receipts
     and cereal commodity exchange


                           Value Chain Analysis                Slide 12
    Building Construction Value Chain:
                Structure
Metal Hardware           Metalworks & Furniture




                                                                                  Private/ Public Construction
(Production/ Import                                         Consultants
   /Wholesale)
                      Sand, Earth & Gravel
                         Cement Industry                     General
   Mining
(Limestone,                    Concrete Pipes               Contractors
   Gravel                       Hollow Blocks
  stones,                      Concrete Tiles
  Marble)
                           Marble Production
                                                              Special
                                 Sanitary Ware              Contractors
                                  Electricals
                                Paints&Lacquer
                                                            Retail Trade


                              Packaging Materials
                       Transport Services, Energy & Water
                            Equipment & Spare Parts
                          Financial & Business Services


                            Value Chain Analysis                       Slide 13
  Building Construction Value Chain:
           Market Overview
Growing demand:
 Population growth -> Public & private housing projects
 Public construction: Universities, schools, hospitals etc.
 Industrial & warehousing investment, office construction
 New infrastructure: Dams, roads, bridges, water&electricity
Supply issues:
 Construction is slow, costly, and of varying quality:
     •   Limited availability of skilled manpower & specialised contractors
     •   Shortage of domestic inputs (cement, sand, gravel, marble etc.)
     •   Most finishing materials are imported
     •   World market price pressure (Steel, oil->bitumen, cement,
         transport)

Wholesale trade weakly developed:
  Limited product range, mostly lowest standard
  Low market transparency
  No „pulling“ of local suppliers



                             Value Chain Analysis                  Slide 14
   Building Construction Value Chain:
          Sector Environment
Public projects:
 ~20% of projects obtained through corruption (Contractor‘s
  association estimate)
 Partly run under youth employment creation objectives
=> Quality not always adequately supervised
Standards:
  Lack of standards & control for fittings & finishing (electricals,
   sanitary ware, windows, furniture etc.) :
  • Substantial entry risk for domestic investors
  • Discretionary decision power of consultants on non-standardised
    components -> risk of corruption & misappropriation
  • Public security risks & high maintenance costs thrugh inferior
    components
 Investment:
  Equipment supplier credit not allowed by Nat. Bank
  Difficult access to land for expansion / mining sites
  No VAT refund on imported equipment for construction
   materials

                           Value Chain Analysis                Slide 15
Metalworks & Furniture Value Chain:
            Structure




                                                                                     Households &
                                                                           Furni-




                                                                                      Institutions
           Bamboo & Rattan                                        Furni-    ture
                                                                   ture    Retail
Forestry     Logging    Sawmills         Wood          Chip-       Ma-
                                         Trade         board       king
                                                                   Upholstry
           Iron Hardware Import
                                            Paints
                       Nails, nuts          Fittings        Room Ceilings
            Steel




                                                                                             Contractors
                         & bolts                           Carpentry, Parquet
            Wire
                        Fencing              Metal             Doors & Windows
                       Profiles             Import
            Iron        Tubes               &Trade          Fences & Grills
           Sheet
                        Roofing                     Steel Structure Buildings
           Reinforcement bars

                          Transport Services, Energy & Water
                               Equipment & Spare Parts
                       Financial & Business Services, Designers


                               Value Chain Analysis                            Slide 16
 Metalworks & Furniture Value Chain:
          Market Overview
Increasing demand:
 Population increase and urbanisation
 Public investment in schools, universities and
  hospitals
 Increasing private investment (office furniture,
  restaurant furniture, etc.)
 Low-cost housing requires different furniture design
Supply issues:
 Decreasing availability of local wood
 Local chip wood manufacturing has reached
  capacity limit
 Worldwide increase of steel price ->Working capital
  shortage of metal processing
 Paints and lacquer well developed
 All fittings imported

                     Value Chain Analysis       Slide 17
 Metalworks & Furniture Value Chain:
      Challenges & Way Ahead
Challenges:
 Strong import competition for office and household
  furniture
 Imported metal hardware competes on lower quality
  and price
Way ahead:
 Replace wood by laminated chip wood, metal and
  bamboo
 Introduce & monitor minimum standards for metal
  hardware
 Enhance market research and design capabilities
 Strengthen efficiency of local metal processors



                    Value Chain Analysis      Slide 18
       Policy & Business Environment:
                 Key Issues
Review VAT System
      Integrate MSE into VAT system (not TOT)
      Expedite VAT refunding
      Simplify VAT invoices
      Check for inconsistencies (e.g. flour VATable, whereas bread
       VAT-exempt)
Liberalize foreign trade
    Remove obligatory shipping with Ethiopian Shipping Lines
    Allow for international supplier credit
    Allow for customs refund on imported products
Enhance investment and access to finance
    Re-vitalise privatisation efforts to supply additional
     investment capital
    Create infrastructure for share exchange market
    Review exclusion of foreign banks from Ethiopian market
    Conduct investment fairs to bring together business ideas
     and capital


                          Value Chain Analysis            Slide 19
           Business Re-engineering:
                Support Needs
Marketing Strategies:
    Adapt to changing demand (e.g. Milling, dry food, injera, bakeries,
     furniture)
Increasing production efficiency:
    Workflow management, maintenance, quality management (e.g.
     metal industry & processing, construction inputs)
New technology:
    Using Triticale wheat in cereal processing
    Laminated chip board in furniture making
    Operating automated (computerised) machinery
    Waste management and treatment
Financial Management and Planning:
    Investment planning
    Working capital management (increased input prices of cereals, steel,
     wood, gravel, cement etc.)
Others, e.g.
    Change management and creativity
    Team building and multitasking,
    IT-based business management solutions


                           Value Chain Analysis                  Slide 20
Business Re-engineering:
  Proposed Approach


                         International Consultancy
   Large
                                   Facility
   Enter-
   prises                                  Twinning

                                   Commercial BDS
   Medium
                                      Provision
  Enterprises
                                           Linkage


    MSEs                           BDS Facilitation




            Value Chain Analysis                      Slide 21
         Standards & Certification:
                Key Issues
Lacking (enforcement of) standards:
 Cereal grades & quality, flour, bread
 Construction finishing components (electrical,
  fittings, sanitary wares, etc.)
 Furniture (minimum weight/load bearing, etc.)

Two functions of standards & certification:
1. Consumer protection (e.g. bread, furniture)
   => Cooperation with consumer associations in
   standard setting & supervision ?
2. Enhance market transparency & efficiency; lower
   investment risk,
   => Integrate industries in standard development,
   promote industry standards, orient on international
   standards

                     Value Chain Analysis          Slide 22
                     HRD & TVET:
                   Key Observations
TVET/HRD needs named by discussion partners:
 Project managers, claims & contract handling (contractor)
 Furniture designers
 Food quality control / laboratory staff
 Equipment maintenance
 Automated equipment operators
 Millers, bakers, brewers
 Wood processing
 Metal casting -> fittings, spare parts
 Heat treatment, galvanising, electroplating
Innovation:
  No R&D/Training/Information Centre for cereal processing and for
   furniture making
  Sector associations weak – how can they be strengthened?
  Chambers and EMIA as alternative platforms for innovation generation
   & exchange?
Training by Suppliers:
  Petram: Baking with imported yeast
  Kadisco: Wall painting training, adhesive application in shoe making
  Kaleb (Claas): Maintenance of agricultural machinery
=> How can such practices be supported???

                           Value Chain Analysis                 Slide 23
                         HRD & TVET:
Integrate TVET & Innovation Dissemination
TVET alone may not result in effective change
Decision makers need to be informed about new
 techniques as well !
         Building Construction Example
  Information               Consultants
    seminar
   (0.5 days)
                                     Contractor’s
                                     Head Office /
                                      Engineers

   Short Training (2-3                        Supervisors
         days)


  Extensive Training /TVET (2 weeks ++)              Craftsmen


                           Value Chain Analysis              Slide 24
        Value Chain Analysis:
               Outlook
Mission 2 (September 2005):
 Completing research
  Review MSE Pro experience
  Additional value chain research (e.g. bamboo,
   logging & sawing, linseed & linnen) ?
  Field research in other regions ?
  Analysis of potential implementation partners (e.g.
   sector associations) ?
  Assess activities of other donors & related
   ministries ?
 Strategy development
    Drafting implementation mechanisms & structures
    Defining performance indicators ?
    Validation workshop with main stakeholders
    Report preparation

                    Value Chain Analysis        Slide 25
Value Chain Analysis   Slide 26
Value Chain Analysis   Slide 27
Value Chain Analysis   Slide 28
Value Chain Analysis   Slide 29
Value Chain Analysis   Slide 30

				
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