Value or services for a market, by transforming

Value Chain Conceptual framework

The
term value chain describes a set of linked activities that work to add value to
a product. It consists of many actors and activities that improve a product
while linking commodity producers to processors and markets.  The activities may range from conception,
through the different phases of production (involving a combination of physical
transformation and the input of various producer services), delivery to final
consumers, and final disposal after use (Kaplinsky and Morris, 2001). Value
chains include input suppliers, producers, processors and buyers.

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The
main purpose of a value chain is to produce value added products or services
for a market, by transforming resources and by the use of infrastructures –
within the opportunities and constraints of its institutional environment
(Trienekens, 2011).

There
must be cooperation at the highest level for value chain to work best. This
will ultimately lead to generate more income for all the participants of the
chain as against the simplest kinds of value chains, in which producers and
buyers exchange only price information often in an adversarial mode (Norton,
2014).

The
outputs in a value chain are determined by the requirements of the market stake
holders that includes the quality, consistency, cost, variety, value-added,
food safety, and ethical credential; which are, in turn, responding to the
demands of their customers (Dolan and Humphrey 2000).

Value
chain analysis is very useful as an analytical tool in understanding the policy
environment, which provides for the efficient allocation of resources within
the domestic economy, notwithstanding its primary use thus as an analytic tool
for understanding the way in which firms and countries participate in the
global economy (Morris, 2001).

Agricultural Value Chain

An
agricultural value chain is defined as the people and the activities which are
involved directly or indirectly to bring an agricultural produce including
livestock, poultry and fisheries from obtaining inputs in the form of seed,
pesticide, fertilizer, credit labour, and production in the field to the ultimate
consumer, through various stages like processing, packaging, and distribution.

The
United States Agency for International Development defines a value chain as the
“full range of activities that are required to bring a product or service from
its conception to its end use, including all the market channels available to
all firms.” Even the subsistence farmers, who are not cultivating at a
commercial level are also a part of the value chains. These farmers are selling
the produce which may be of a very small quantity and is left surplus after
their own household consumption. In India, as majority of the farmers own a
small plot of land, the production as a whole may not be of the commercial
scale. Even though these farmers are connected to the market through the
village traders who lift the produce from their farm or the farmers visits the
market to sell the produce. The various stakeholders at different stages of the
chain actively support each other. When everyone in the value chain supports others,
and each one in the chain does one’s job efficiently, then everyone’s
livelihood is improved. Each person in the value chain shares the common goal
of satisfying consumers’ needs in order to increase their own profit. Each
player in the value chain adds value, and in return receives an economic return
and is usually called as “economic rent”.

The
agricultural value chain in particularly in developing countries is often
characterized by dual value chains which operate in parallel for the same
product. These are:

a)     
Informal or
traditional value chain- Small holders are frequently involved in informal
chains that deliver products to local middlemen and then to small local stores.
It is still the most common form of value chain in India. Reason cited for this
is the presence of large number of small and marginal farmers (more than 85
percent) spread across the boundaries of India.

b)    
Formal or modern value
chain- Formal value chains are believed to deliver the same product, usually in
better or more uniform quality, from larger farms or more organized groups of
small farmers to more commercial wholesalers and from there to supermarkets or
exporters. This form of value chain is increasing gradually with corporate
players realizing the demand of large section of urban population owing to
changing lifestyle and taste of the new generation.

The
agricultural value chain starts with farmers or the agricultural producers who
are at the one end. They grow crops or raise livestock. At the other end, where
the value chain culminates are the consumers who use the final product in
different forms. In the middle are many stakeholders in the form of small and
large traders, dealers and processors, and other service providers like
logistics and warehousing concerns as well as financing institution. Each stakeholder
and each business entity in the value chain performs certain actions and add
value along the way that could be in the form of growing, processing,
packaging, storing, transporting, buying and selling.

Government’s
role cannot be ignored in the value chain. Government establishes laws and
regulations and frame policies and the agricultural research organizations under
the Government suggests and develop ways for farmers to more successfully
participate in value chains.

There
are conflicts among the farmers and traders in the value chain. They often
fight over prices. Traders may deceive the farmers by using inaccurate weights
and measures, whereas the farmers usually trick by putting low-quality produce
at the bottom of lots. There is often a lack of trust between the two. This
results in the value chain not working for everyone’s benefit. The profit received
by each actor in the chain varies from product to product as well as among
different value chains. The price received by the farmer is only a small
fraction of the price paid by the consumer. This is usually measured in terms
of producer’s share in consumer’s rupee. The small producers are often at the
disadvantageous position as they have very less bargaining power and have
neither influence on the price traders pay them for the produce nor on the
price they pay for buying the inputs from the input suppliers. Small and
marginal farmers who are more remote from markets and who are not a part of any
farmer organizations may find it more challenging to benefit from a value
chain.

In
order to raise the smallholders’ income, it is very important to find ways to
improve the value chains. The value chain approach helps in identifying the
weak points in the chain and suggests actions to add more value in it.