There is more value to the value chain than adding value to products

I am supporting value chain practitioners in various programmes where I am coaching, teaching, supporting, pushing and pulling experts. This is one of the perks of my job as I get to look over the shoulders of practitioners working all around the world on commodity, agricultural, manufacturing and service value chains.

While marking some assignments for a course I am tutoring for the ILO I realized that many practitioners are trapped in a particular chain, just like the actors that they are trying to empower. With trapped, I mean that they are working with the actors and the chain for the benefit of the chain. They completely miss the broader impact of their work. (I know that this is often more the fault of the people who design programmes, more about this elsewhere in my blogs).

Let me explain.

For me a value chain is something we construct so that we can understand a part of a sub-system. If you are diagnosing a tomato value chain then it is true that you are getting a deeper understanding of the tomato system. But you are also gaining an insight into an agricultural system, a regional system of stakeholders and communities, but also an insight into the national or maybe even global economy. While some value chains exists in a very formal way, with contracts linking the different actors, most value chains can rather be described as temporary social phenomena. Temporary because they tend to change over time.

Back to my main argument. While it is true that value chains are known by their end products or markets, there is more to a value chain than just the conversion stages of a product/service. Value chains show us how an economic system works. It show us how responsive institutions and supporting organizations and indeed a whole society is towards economic activities of a certain kind. Value chains also tell us some fluffy yet important things about the society it is framed by. It tell us something about the social relations, the search costs (finding people to do business with), the social capital (how well we trust each other, how easily we collaborate), the enabling environment, and the returns on investment and effort in different parts of the system.

So if we find that tomato farmers are not very sophisticated, that they have poor market relations, that entry barriers are very low hence nobody has an incentive to invest, that suppliers are dishonest, that there are some new market niches developing but that nobody knows, that intermediaries have disproportionate power; I am not surprised at all. In fact, your findings are rather typical, even predictable in some sectors. What I am surprised by is if you treat this like it is a unique finding contained only to the tomato farming sector. The chance that these characteristics are contained only to those involved in the tomato chain is rather slim. This is the real risk of having a too narrow product focus.

Yes. Value chains are known by their end markets or products. But no, we are not locked into a product. We want to understand the system better so that we can support the emergence of institutions, market systems and interventions that make the whole system work better. Those issues that I outlined before in my tomato example can be verified in the sectors or crops around it. In my experience, many crops or business sectors sometimes have similar challenges. Therefore instead of trying to work at a low scale with some tomato farmers, you could possible be working with 10 crop types in a region, involving 1000s of farmers, and maybe a dozen supporting institutions. Few extension services for instance focus on one crop, they often handle a variety of crops, animals and markets. So you have to try and understand what each kind of economy activity (like farming with tomatoes) have in common with other business types or farms, and then what is unique. When you do this you often find that the actors in the chain have far more in common than the product or crop. They could all be equally unskilled, equally under-capitalised, equally vulnerable to market fluctuations, equally exposed to poor contract enforcement, or monopolies. This is how we get to real systemic interventions.

But the idea should never be to promote some products. This is the job of business people and entrepreneurs, not development practitioners. No, development practitioners should try to understand and strengthen the system. We make the features of the system that is overlooked or not visible to stakeholders more apparent. I also dislike it when practitioners start with an hypothesis that profit is unfairly distributed, or many of the other typical biases that exists in this field. The simple truth is that investments in economies flows to where there are (visible) returns. If it becomes more profitable to invest in retail than in manufacturing or farming, then this tells us something about the system. It is an important finding in itself which then allows us to ask the next question “how to make farming more profitable for investors (farmers and the poor are also investors)?”.

Your value chain has more value in it than the value added at each stage of the chain. What is valuable is the insight you are gaining about how a part of the economy works. Don’t become a product promoter. Be a system builder.