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Food Security through the Commercialization of Agriculture


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									     Value Chain and Business
     Model Approaches
Improved Food Security through the Commercialization of

         FAO contribution to Value Chains Methodology
          Heiko Bammann, Enterprise Development Officer, AGS
                              FAO Rome
         check: http://www.fao.org/ag/ags/index_en.html
Sequence of presentation:
   Value Chains – basic introduction
   Inclusive Business Models
   FAO support to VC development
   Activities and tools supported
   Initial lessons learned
           Value Chain Approach
   A value chain is the full range of activities which
    are required to bring a product or service from
    conception, through the different phases of
    production, transformations, and delivery to final
    consumers and final disposal after use
   It is made up of a series of actors from inputs
    suppliers to producers and processors to exporters
    and buyers
   Aim: to elevate the value chain to ” higher level”
   Improve profits
Critical Dimensions of a Value Chain

   Inputs   Production Processing   Retailing
                Product Flow

                Financial Flow

               Information Flow

               Incentives and
Five Typical Action Areas/Steps

             1. Selection of sector or product,
                key issues and entry point
             2. Value chain mapping
             3. Participatory value chain
             4. Value chain action planning
                (draft upgrading strategy)
             5. Stakeholder validation and
                planning workshops
             => Develop a VC upgrading
    Producer-Buyer linkages in VC

Institutional environment (laws, regulations, etc.)
           Financial and Information flows

Inputs   Production                    Distribution   Consumption

                      Physical flows

                 Supporting services
Inclusive Business Models
Small farmers are increasingly tied to markets
and agro-industries through business
linkages and alliances with each other and
with other value chain stakeholders.

There are many models of business linkages,
but three are relevant for small farmers:

    producer organisation model
    buyer driven model

    intermediary model
      Typical organisation of
      smallholder production
           Type                  Driver                       Objective
                      Small-scale producers             new markets
                        themselves, through             higher market prices
Producer driven         FO’s: ECTAD, CPGC               stabilize market position

                      Large farmers                     extra supply volumes

                      Processors (Hot Mama, BEL)
Buyer driven          Exporters (GUY)                   assure supply
                      Retailers (Super J, SLU)

                      Traders, wholesalers
                                                        supply more discerning
                         and other
                         traditional market actors
                      NGO’s and other support           ‘make markets work for
Intermediary driven
                        agencies                         the poor’
                      National and local
                         Governments i.e.               regional development
                         NAMDEVCO, GMC, NWC
      Must Be a Business Case for
      Working with Small Farmers
    Business Reasons               Costs and Risks
   Smallholders’                 Product quantity, quality,
    comparative advantage          consistency, safety
    (premium quality)             Traceability & compliance
   Securing supply                with standards
   Access subsidized inputs      Loyalty and fulfilment of
   Corporate responsibility       commitments
   Community goodwill            Negotiation, coordination
   Politics                       and communication
Foundations of Sustainable Models

             Organized &

 business                      policy

    Rationale for supporting Business
   Reduce over reliance on multi-stakeholder
    participatory approaches
   Focus first on key VC problems
       Enhance reliability of raw material supply
       Enhance competitiveness of agribusiness buyer
   Empower real development drivers
       Business managers know their markets
       SMAEs create value, buy products, generate jobs
   Mainstream business thinking
FAO – AGS* supported
   EU All ACP Agricultural Commodities Programme (EU AAACP)
    – (E)

   The Phase II of the CARICOM/CARIFORUM Programme for
    Food Security - (I)
    check: http://www.rlc.fao.org/progesp/pesa/caricom2/

* FAO Rural Infrastructure and Agri-Industries Division
        For the Caribbean
   Focus on one product (group) and improved
    value creation

   Activities to achieve improved business
    linkages, production, post-harvest handling,
    value addition and marketing to local, regional
    or international markets

   Focus on farmers and agribusiness
    Countries, Value Chains, and
    ‘Businesses’ supported
   BAR    – Onion VC      – BAS (I)
   BEL    – Hot Pepper    – Hot Mama + (I)
   DOM    – Pineapples    – NIPPA (I)
   GRN    – Roots and Tubers – NEFO (E)
   GUY    – Eddoes        – GAPA (E)
   JAM    – Ackee         – PO’s (I)
   JAM    – R&T           – CPGC (E)
   SLU    – Fruits        – BVFO, etc. (I)
   SVG     – R&T          – ECTAD (E)
   CARICOM – Services     - CaFAN (E/I)
Overview of the business
model approach

What are differences?
    Business models for improved
    producer-buyer linkages (steps)
   Identification of the key driver
   Analysis/Characterisation of the current
    business model
   Identification of the critical success factors for
   Preparation of an upgrading business model
    and financing plan
   Identify sub-set of activities that project can
    support without distorting viability, unduly
    subsidizing, undermining sustainability
Characterization of Business
1.   Product: products sold, differentiation
2.   Product flow and distribution
3.   Clients: clients, numbers, why buy
4.   Resources and capacities base
5.   Activities: production, transformation, etc.
6.   Key partners and collaboration
7.   Costs and revenue
8.   Expectations
Activities and tools
1 - Business to Business
   Addressing sources of uncertainty
   Implementing contractual arrangements
    (formal and informal)
   Promoting trust, transparency and
   1 - Business to Business
Possible tools:
 Information mechanisms to improve
 Workshops to identify bottlenecks and

  better understand on each other’s role
 Strategic plans for management of the
  chains operations
 Training in negotiating skills and developing

     2 - Respond to Customer

   Ensuring processes and products respond
    to customers’ needs
   Synchronize product delivery and logistics
   Improve information on customer
   Implement quality and safety standards
  2 - Respond to Customer
Possible tools:
 Market appraisal and surveys

 Train in good agriculture practices and post-

  harvest and handling
 Train in agro-processing and value addition

 Train in standards and certification processes

 Develop product quality and safety grading
     3 - Add Value by Managing

   Identify and address logistics constraints
   Appraising business to business processes
   Developing organizational innovations that
    improve delivery times
   Reducing waste and protect the
    environment from harmful production and
3 - Add Value by Managing
Possible tools:
 Mapping exercises and workshops to

  understand the flows
 Appraise financial institutions and support

  loan applications
 Train in bulk buying and collective

 Introduce switch to re-usable items

 Training in business, financial management

  and marketing skills
Relevance of this approach for
the Caribbean?
1.   Comparative advantage in production
2.   Import substitution
3.   Ability to absorb external price shocks
4.   Receptive value chain actors
-> contribution to Food Security through the
    Commercialization of Agriculture
           Initial lessons learned
   Change of mindset for agricultural development
    required (define roles)
   Good management practices are critical!!!
   Transparency, accountability and trust
       private sector vs public sector
   Business development services
       rather new in the agriculture sector
       expensive for small number of beneficiaries
   Time dimension
       business success requires time
       learn from failures
       look for successes and learn from champions
   Involve regional partners from the start (CARDI,
    CaFAN, CABA, etc)
Thank You !

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