National Convergence Initiative for

Sustainable Rural Development

TABLE OF CONTENTS

CONTENTS Page

FOREWORD 8
PREFACE 9
Section 1: BACKGROUND AND RATIONALE 12
A. Climate change and the agri-fishery sector 12
B. Inclusive growth and agri-fishery value chains 15
C. Green and inclusive agri-fishery businesses 17
D. Building blocks for green and inclusive value chains 19
E. Benefits of pursuing green and inclusive businesses 26
Section 2: PRODUCT SELECTION 28
A. The selection process 28
B. Snapshot Assessment and Profiling of Area 29
C. Shortlisting of products/value chains 30
D. Definition of selection criteria 31
E. Criteria-specific profiling of shortlisted products/value chain 32
F. Ranking of products/value chains and final selection 33
Section 3: VALUE CHAIN MAPPING AND ANALYSIS 34
A. Value Chain Mapping 34
B Value chain analysis and competitiveness strategies 37
Section 4: MATERIALS AND PROCESS FLOW 41
A. Product life cycle 41
B. Analysis of process and material flow 42
Section 5: RELATIONSHIPS AND INTERFIRM COOPERATION 45
A. Relationships and performance of value chains 45
B. Value chain governance 46
C. Horizontal linkages 50
D. Promotion of win-win relationships 50
Section 6: COMPETITIVENESS VISIONING 53
A. Creation of a shared Vision 54
B. End Market Competitiveness 54
C. Supporting VC Actors to act on their Vision 55

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D. Marketing the Vision 56
Section 7: CHAIN UPGRADING AND GREENING STRATEGIES 57
A. Ways to compete in the Market 57
B. Types of Upgrading 60
C. Iintervention design 63
D. Prioritizing constraints 64
E Identifying Catalysts 65
Section 8: BUSINESS MODELS 67
A. The Business Model Canvas 67
B. Green And Inclusive Business Model 70
TEMPLATES 74
Template 1: PAIRWISE RANKING 75
Template 2: MATERIALS AND PROCESS FLOW ANALYSIS 76
Template 3: RELATIONSHIP MATRIX 78
Template 4: INTERVENTION DESIGN 80
A. Competitiveness Vision 79
B. Priority Constraints/Opportunities and Interventions 80
Section 9: CONCLUSIONS AND RECOMMENDATIONS 96
ANNEXES 98

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ACRONYMS

BAFPS Bureau of Agricultural and Fisheries Product Standards

BAS Bureau of Agricultural Statistics
BASF Badische Anilin- und Soda-Fabrik
BFAD Bureau of Food and Drugs
BSWM Bureau of Soils and Water Management
DA Department of Agriculture
DA-BAR Department of Agriculture - Bureau of Agriculture Research
DCED Donor Committee for Enterprise Development
DENR Department of Environment and Natural Resources
ECA Environmentally Critical Areas
ECC Environmental Compliance Certificates
ECP Environmentally Critical Projects
ERDB Ecosystems Research and Development Bureau
FAO Food and Agriculture Organization
FGD Focus Group Discussion
FPRDI Forest Products Research and Development Institute
GAP Good Agricultural Practices (Global GAP)
GDP Gross Domestic Product
GER The Green Economy Report
GHG Greenhouse Gas
GIZ The Deutsche Gesellschaft für Internationale
Zusammenarbeit
GMP Good Manufacturing Practices
GWPG Global Warming Potential Gases.
ha Hectare(s)
HEA Household Economy Analysis
HVCC High Value Commercial Crops
IEM Integrated Ecosystem Management
IPCC Intergovernmental Panel on Climate Change
IRRI International Rice Research Institute
KII Key Informant Interview
LGU Local Government Unit
MLGU Municipal Local Government Units
MSEs Micro and small Enterprises
MT Metric Tons
NGOs Non-Government Organization/s
NCI The National Convergence Initiative
OECD Organization for Economic Co-operation and Development
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PDP Philippine Development Plan
PLGUs Provincial Local Government Units
PSA Philippine Statistics Authority
SAFDZ Strategic Agriculture and Fisheries Development Zone
SEAFDEC Southeast Asian Fisheries Development Center
SAN Sustainable Agricultural Network
TWG Technical Working Group
UNEP United Nations Environment Programme
UNDP United Nations Development Programme
USAID United States Agency for International Development
VC / VCA Value Chain / Value Chain Analysis

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LIST OF TABLES

No. Title Page

1 Function/Participant Worksheet: Banana Chips 35

2 Diagnostic Framework for Identifying Constraints to and 38
Opportunities for Improving Competitiveness and
Environmental Performance
3 Assessing Degree of Impact for Prioritizing Constraints 64

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LIST OF FIGURES

Title Page
No.

1 Sources of GHG Emissions at Farm Level 13

Example of Exclusion of Smallholders from Bigger and More
2 15
Lucrative Markets
3 Figure 3. Pathways to Inclusive Agribusiness 18
4 Features of Green and Inclusive Agri-Fishery Businesses 21
5 Green and Inclusive Value Chains 19
6 Looking at end markets to identify opportunities and risks 20
Example of Coordination and Collaboration Between and Among
7 21
Actors
8 Example of Green Technology 22
9 Example of Green Technology 23
10 Examples of Embedded Services 24
Examples of Services made Available via Third Party Payment
11 25
and Sponsors
12 Access to Infrastructure 26
13 Product Selection Process 28
14 Value Chain Map 35
15 VCA Framework 37
16 VC Methodology 40
17 Product Life Cycle 41
18 Analysis of Process and Material Flow 42
Key aspects to consider when assessing VC relationships and
19 45
interfirm cooperation
20 Arm’s Length Transaction 20
21 Balanced Relationship 48
22 Example of a Directed Relationship 49
23 Horizontal Relationships 50
24 Creation of a Shared Vision 53
25 Key Questions When Looking at Markets 54
26 Supporting VC Players to Act on Their Vision 56
27 Marketing the Vision 56

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28 Examples of Process Upgrading that Contribute to Greening 60
29 Examples of Product Upgrading 61
30 Examples of Functional Upgrading 61
31 Channel Upgrading 62
32 Designing Interventions 63
33 Issue Priority Matrix 65
34 Identifying Catalysts 66
35 Business Model Canvas 67

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FOREWORD

Competitiveness and success of agri- and agro-businesses depends on the

prosperity of local communities and ecosystems and other vital components of
their value chains. The development of sustainable agri-fishery value chains
can offer important pathways out of poverty for marginalized communities.
The 2011 – 2016 Philippine Development Plan (PDP) identifies the urgent task
to devise and adopt measures that will improve the state of the environment
and natural resources, enhance the resilience of natural systems and improve
the ability of communities to cope with environmental hazards. Priorities
include the conservation, protection and rehabilitation of the country’s natural
resources, urban renewal, measures to reduce waste and pollution and
heightened capacities for disaster preparedness and response. The Resource
Book is one of NCI’s key initiatives aimed at demonstrating the opportunities
for improving financial, environmental, and social performance of agri-fishery
value chains.

We hope that this Resource Guide will encourage more development

practitioners to embark on the journey towards facilitating more sustainable
supply chains, thereby delivering tangible and lasting benefits to business, the
environment, and societies.

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PREFACE

The National Convergence Initiative (NCI) optimized Government’s efforts in

rural development through the synchronization of resources and
operationalization of a common framework for sustainable rural development
with the aim of providing continued support, faster and more effective services
for the benefit of small farmers, fisher folks, agrarian reform beneficiaries,
upland and indigenous people, and other rural folks The objectives of the
NCI include, among others, the following: i) up-scaling Local Convergence
Initiative through Local Agribusiness Convergence Zones; ii) enhanced National
Convergence Initiative Development Framework featuring the "Ridge to Reef"
Approach; and iii) up-scaling Agribusiness through High Value Commercial
Crops (HVCC) and Bio-fuels/Bio-mass Sector.

Among the lessons learned in the many years that NCI has been working with
agri-fishery communities is that growth and development come fastest and
with the least disruptions if economic opportunities were shared equitably
across all functions in the chains and industry players worked together to bring
products that consumers value at the most and effective and efficient way and
with the least ecological impact. This Resource Book aims to provide
development practitioners with tools, methodologies, and concepts on using
the value chain analysis as an approach for identifying upgrading and greening
strategies that are both inclusive and market driven with high potentials to
boost chain competitiveness.

The availability of guidelines and a menu of intervention concepts and

approaches is one of the ways in which the NCI and its partner organizations
can be efficiently and effectively responsive and flexible in promoting green
and inclusive growth. The guidelines are “living documents", which are
expected to change in the light of experience and evolving conditions in which
agri- and agro-businesses operate. These are intended only to be suggestive
and to be used as resources to provide information about possible
instruments, methodologies, and approaches. These do not provide "the
answers," which can emerge only as a result of analysis and dialogue at the
micro, meso, and macro levels.

This Resource Book provides guidance for development practitioners on how

best to engage agri- and agro-enterprises to develop inclusive and green
business models. It is organized into 8 sections:

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Section 1 elaborates on what is meant by “Green and Inclusive Businesses” in
relation to agri- and agro-enterprises and its significance and importance to
economic development.

Section 2 outlines the instruments, methodologies, and concepts on product

and value chain selections as a starting point for the development and
promotion of green and inclusive agri-businesses and agro-enterprises. It
builds on the NCI Operations Manual and Integrated Ecosystem Management
(IEM) Framework.

Section 3 presents an overview of the value chain analysis as a tool to

understanding the enterprises that operate within an industry --- from input
suppliers to end market buyers; the support markets that provide technical,
business, and financial services to the industry; and the business environment
in which the industry operates. Such a broad scope for industry analysis is
needed because key constraints to competitiveness, inclusive growth, and
greening may lie within any part of this market system or the environment in
which it operates.

Section 4 provides guidance on how to analyze resource use in the product life
cycle across the entire value chain.

Section 5 describes how to assess quality of vertical and horizontal linkages

and promote effective inter-firm relationships to facilitate: a) upgrading to
become competitive; b) greening to promote sustainability of supply chains;
and c) inclusive growth.

Section 6 presents creation of the competitiveness vision as one of the

interventions aimed at helping players transcend existing mind sets and break
away from the premise that the current system is a given and nothing can be
done about it.

Section 7 outlines how to support industry players in the development of

upgrading and greening strategies. This section also provides examples of
strategies aimed at reducing environmental impacts while improving chain
competitiveness and promoting inclusive growth.

Section 8 describes the key elements to consider in the development of

business models and key principles to be considered when developing green
and inclusive agri- and agro-enterprises.

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This Resource Book is a product of the dedication, commitment, and hard work
of the NCI Technical Working Group (NCI-TWG). Marian Boquiren and Ivan
Idrovo assisted and guided the process, and provided the inputs and tools
necessary for the NCI-TWG to do the work themselves. Inputs from industry
players also played a vital part in the development of this Resource Book. The
use of the Resource Book was piloted among the farmers’ cooperative and
people’s organizations during the conduct of a series of Regional Stakeholders’
Consultation in Regions III, V, VI, IX, XI and XII in 2013. During the consultation
workshops, participants shared their stories, analyses, and observations. Their
personal experiences and generous willingness to share their stories and
conclusions make this Resource Book a particularly rich source of ideas and
information.

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A. CLIMATE CHANGE AND THE AGRI-FISHERY SECTOR

According to the 2013 World Risk Report (WRR 2013) published by the Alliance
Development Works, the Philippines ranks as the third most vulnerable country in the world
to disaster and climate change. The manifestations of climate change in the form of rising
temperature, variability of precipitation, frequency and intensity of typhoons, sea level rise,
and the risks of more droughts, floods, heat waves, and forest and grassland fires have
profound impacts on agriculture, forestry, and fisheries. Each typhoon season costs the
Philippines an estimated 4% of its Gross Domestic Product (GDP).

The New Climate Economy Report 2014 warns that if nothing is done to stop the Earth’s
atmosphere from warming by more than 2 degrees Celsius, the world can expect more
disastrous weather events. The Intergovernmental Panel on Climate Change (IPCC)
highlighted that a two degree increase in the world’s temperature would be dangerous, four
degrees catastrophic. Earth's temperature depends on the balance between energy entering
and leaving the planet’s system. Most climate scientists agree the main cause of the current
global warming trend is human expansion of the "greenhouse effect.” Key greenhouse
gases (GHG) or gases that trap heat in the atmosphere include:

Carbon dioxide (CO2): Carbon dioxide enters the atmosphere through burning fossil fuels
(coal, natural gas and oil), solid waste, trees and wood products, and also as a result of
certain chemical reactions (e.g., manufacture of cement). Carbon dioxide is sequestered or
removed from the atmosphere when it is absorbed by plants as part of the biological carbon
cycle.

Methane (CH4): A hydrocarbon gas produced both through natural sources and human
activities. Methane is emitted during the production and transport of coal, natural gas, and
oil. Methane emissions also result from livestock and other agricultural practices and by the
decay of organic waste in municipal solid waste landfills.

Nitrous oxide (N2O): A powerful greenhouse gas produced by soil cultivation practices,
especially the use of fertilizers, fossil fuel combustion, nitric acid production, and biomass
burning.

Fluorinated gases: Hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen

trifluoride are synthetic, powerful greenhouse gases that are emitted from a variety of
industrial processes. Fluorinated gases are sometimes used as substitutes for stratospheric
ozone-depleting substances (e.g., chlorofluorocarbons, hydrochlorofluorocarbons, and
halons). These gases are typically emitted in smaller quantities, but because they are potent
greenhouse gases, they are sometimes referred to as High Global Warming Potential gases
("High GWP gases").

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Farms emitted 6 billion MT of greenhouse gas in 2011, or about 13% of total global
emissions. This makes the agricultural sector the world’s second-largest emitter, after the
energy sector (which includes emissions from power generation and transport). In the
Philippines, the agriculture sector contributed 33% of the country’s GHG emissions in 2011.
Livestock manure accounted for approximately 4% of methane emissions.

Most farm-related emissions come in the form of methane (CH4) and nitrous oxide (N2O).
Cattle belching (CH4) and the addition of natural or synthetic fertilizers and wastes to soils
(N2O) represent the largest sources, making up 65 percent of agricultural emissions globally.
Smaller sources include manure management, rice cultivation, field burning of crop
residues, and fuel use on farms.

On the other hand, agriculture is a key sector that, along with the forestry sector, if
managed effectively, can lead to biological carbon capture and storage in biomass and soil,
acting as “sinks”. Their management can play an essential role in managing climate change
(IPCC, 2007b), especially in the long term (GiZ, 2013).

Greening agriculture value chains can result in greater crop and livestock resilience to
negative climate impacts. The greening of agriculture, as set out in the Green Economy
Report (UNEP 2011), refers to the increasing use of farming practices and technologies that
simultaneously:

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 • Maintain and increase farm productivity
and profitability while ensuring the
provision of food and ecosystem services
on a sustainable basis
• Reduce negative externalities, such as
soil erosion, inorganic agro-chemical
pollution, and agricultural GHG
emissions
• Rebuild ecological resources, such as soil
fertility, water, air and biodiversity
including animal and plant-genetic
diversity.
Growth trajectory of economic systems
especially in the agri-fishery sector ultimately
depends on the sustainability of the
environmental system. It is the greenness
(sustainability) of the sector that provides a
sustainable basis for food security and on which
community livelihoods can rely. The
International Rice Research Institute (IRRI), for
example, estimates that it takes over 4,000
liters of water to produce one kilo of rice.
Because of the loss of forests, there is less water
available for farm production since most of the
freshwater comes from watersheds found in
forests. Therefore, loss of forests means loss of
food.
The “business case” for greening agriculture
includes improving a company’s brand image
and the possibility of securing price premiums
for sustainably produced products.
Furthermore, agriculture experts generally
accept that the more diversified the agricultural
land, the more resilient it is to climatic and
other disturbances, and the more it can produce
relative to energy, water and other inputs
(UNEP 2012b). Improved environmental
management and sustainable production can
improve competitiveness and profitability. It
can create or enhance competitive advantage.
When looking at challenges and opportunities
to reduce GHG emissions using agriculture, it is
KEY MESSAGES FROM THE GREEN
ECONOMY REPORT (GER)
Green agriculture is capable of
nourishing a growing and more
demanding world population at
higher nutritional levels up to
2050. It is possible to gain significant
nutritional improvements from
increased quantity and diversity of food
(especially non-cereal) products.
During the transition to greener
agriculture, although food production in
high-input industrial farming may
experience a modest decline,
significant positive responses may be
triggered in more traditional systems
run by small farmers in the developing
world and lead to increases in
production of the majority of stable
crops needed to feed the world
population.
Green agriculture will reduce
poverty. Environmental degradation
and poverty can be simultaneously
addressed by applying green
agricultural practices. Increasing farm
yields and return on labour while
improving ecosystem services, on
which the rural poor and small holder
farmers depend most directly for their
food and livelihoods, will be key to
achieving the environmental and
poverty goals. Evidence shows that the
application of green farming practices
can increase yields.
Green agriculture has the
potential to be a net creator of
jobs. Green agriculture can potentially
provide higher return on labor inputs
than conventional agriculture.
Additionally, facilities for ensuring food
safety and higher quality of food
processing in rural areas are projected
to create new and better quality jobs in
the food production chain
Source: UNEP 2011
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important to look not just at the farm level but also vertically into the whole food chain and
horizontally across impacted land and water bodies.

B. INCLUSIVE GROWTH AND AGRI-FISHERY VALUE CHAINS

Inclusive growth is a common challenge for many developing countries and Philippines is no
exception. The country faces increasing disparities amidst economic growth. Despite good
progress in tackling extreme poverty and good growth rates, persisting poverty remains a
pressing issue especially among rural communities. Many studies have shown that
smallholders and micro and small enterprises (MSEs) tend to operate in isolation —from
each other, from connections to value chains, from domestic and foreign markets and from
a lack of information and access to support services. Poverty reduction, to a significant
extent, depends on how much marginalized and vulnerable communities benefit from
economic growth.

Major changes in domestic and global markets such as the rapid economic progress,
urbanization, liberalized trade, increasing foreign investments, and advancing technology
are creating demand for high value primary and processed products. These developments
are expanding marketing opportunities for farmers and agribusinesses. These
developments are important sources of agricultural and nonfarm growth, and growth in
employment and rural incomes. Trade of high value and value added agri-fishery food
products, however, is governed by a growing array of product and process standards both at
the public and private levels. Markets are increasingly concerned with the specifications of

15
both products and processes further back along the value chain in a number of different
ways:

a) Quality and safety - based upon product and process controls

b) Conformance with social and environmental standards
c) Traceability and authenticity
d) Reliability and guaranteed supply in order to avoid stockouts;
e) Just-in-time delivery
f) Product differentiation and innovation as a means of adding value and margins

With globalization and trade/retail liberalization, there is almost a convergence in factors

driving purchases in international and domestic markets which almost always create
barriers to entry especially among smallholders and micro enterprises. In many cases,
smallholders are excluded from participation in these relatively bigger and more lucrative
chains or if they do participate, they have weak bargaining position and are generally price
takers. They are excluded mainly because they do not have access to skills and resources to
allow them to be included in the new globalized marketplace. In order to participate in
domestic and international value chains, actors need to be competitive. Smallholders and
MSEs, however, usually face competitiveness bottlenecks such as low productivity, poor
product quality, non-compliance with standards, high transaction costs, and lack of
networks that limit their potential chain involvement. When a high percentage of society is
under-mobilized or excluded from growing economies, this represents a lost opportunity for
development and for business.

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For small producers to realize their potential, greater market integration and more inclusive
and equitable value chains are needed. Inclusive growth is defined as growth that reduces
poverty. Inclusive growth incorporates low income communities into growing economies
and market systems. In agriculture, inclusive growth means developing the agricultural
sector in a way that generates broad-based benefits for rural populations while improving
economic productivity and food security at the local and national levels.

Determining how to effectively insert small- and medium-sized producers in high-value

agricultural markets requires a thorough understanding of how market system works.
Investments in inclusive agriculture-led growth encompass improving agricultural
productivity, expanding markets and trade, and increasing the economic resilience of
vulnerable rural communities. Key objective of inclusive value chain development initiatives
is to catalyze a process that results in a market system that is:

Competitive: Actors are able to effectively innovate, upgrade, and add value to their products and
services to match market demand and maintain and/or grow market share.

Inclusive: Delivering a sustainable flow of benefits to a range of actors including women and poor
communities as well as to society as a whole.

Resilient: Actors are able to address, absorb, and overcome shocks in the market, policy
environment, resource base, or other aspects of the system.

C. GREEN AND INCLUSIVE AGRI-FISHERY BUSINESSES

Inclusive business – the inclusion of the poor as consumers or producers – and green
business – reducing environmental impacts – are often highly interlinked. Inclusion without
greening can lead to pollution, ecosystem decay and depletion of natural resources – all of
which ultimately harm the poor. Focusing on greening to the exclusion of the poor can
create resistance and make environmental business models increasingly difficult to
implement. Economic incentives are critical to promoting green outcomes because they
change behavior in a manner that typically leads to least cost solutions. Poverty is one of the
root causes of environmental degradation. What is needed, therefore, is a business model
that is both environmentally sustainable and meets the needs of the poorest and most
vulnerable. Social and economic impacts from green growth initiatives will be greater and
broad-based if efforts at the outset are made to make the business model inclusive.
Promoting green inclusive business models is a particularly promising approach in shifting
towards more sustainable growth patterns that have a large impact on poverty reduction.
For agri-fishery enterprises, this translates into pursuing a triple bottom line: people, planet,
profit.

Inclusive business models include the poor on the demand side as customers and on the
supply side as employees, producers and business owners at various points in the value
chain. They build bridges between business and the poor for mutual benefit. (UNDP 2008:
Creating Value for All). The promotion of inclusive growth involves integrating large

17
numbers of poor households (MSEs, smallholders, laborers, etc.) into competitive markets
where they can contribute and benefit as producers and consumers.

Green agri-fishery businesses focus on rationalizing the natural inputs into its value chain
and controlling the outputs affecting the natural environment. Specifically, green agri-
fishery businesses:

- Makes sustainable use of natural resources

- Maximize economic benefits from use of renewable resources while minimizing
environmental harm
- Utilize energy efficiently
- Conscientiously and proactively reduce emissions at all stages of operations
- Practice recycling
- Proactively reduce the negative impacts of outputs at every stage of the value
chain.

Inclusion and greening are important for building stable business models. A green and
inclusive supply chain means that all actors work together to bring products that consumers
value at the most and effective and efficient way and with the least ecological impact. The
benefits to the poor will derive from greater integration into value chains resulting in higher
and more stable income, improved capabilities to get a higher share of the margin, and
diversification of options.

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D. BUILDING BLOCKS FOR GREEN AND INCLUSIVE VALUE CHAINS

The development of inclusive value chains is anchored on the participatory identification of

supply chain constraints and opportunities that have the greatest impact on improving
competitiveness and the creation of eco-friendly income-generation opportunities. It
involves providing the poor with the means and platform to build and judiciously utilize
available assets (human capital, financial, social, physical, and environment/natural) within
the context of sustainability in order for them to take on critical value chain or support
market functions. At the same time, it also entails strengthening the ability of value chains
to penetrate more lucrative or differentiated markets and thus enable them to provide
more opportunities for the gainful participation of the poor.

Specifically, the following are the key building blocks for green and inclusive value chains:

1. Growing markets and chain actors have capacity to respond to changes in market
trends

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Economic incentives are critical to promoting green outcomes because they change
behavior in a manner that typically leads to least cost solutions. Pursuit of bigger and more
lucrative markets as well as improved margins and transparent and equitable distribution of
benefits can potentially trigger chain wide upgrading and closer coordination. Consumer
interest or growing market demand can attract players to the change initiative.
Final consumers or end markets of the product determine the characteristics of the final
product which in turn should be translated to specific product features and characteristics.
The demands of the end market drive quality and standards and, consequently determine
how a value chain and its actors can achieve competitive advantage in terms of efficiency,
differentiation, and demand. It requires a shift in thinking from supply push to demand pull.
A better understanding of consumer behavior and attitudes is needed for supply chain
actors to identify opportunities.

A green and inclusive value chain focuses on understanding what it is that consumers value
and then delivering it as effectively and efficiently as possible. In other words, a business
must be effective in maximizing the opportunities for adding value in the eyes of the
consumer and efficient in adding value, producing, processing and distributing at the least
cost and ecological impact.

2. Organization/Coordination Among Value Chain Actors

Supply chains are generally highly segmented, with little organization or communication
between participants. Additionally, quality perceptions are different among players at

20
different levels of the chain. Farmers’ perceptions of quality are based on local norms, the
procurement practices of local intermediaries (who often sold to different channels and had
no consistent norms), and their own guesses as to what would bring higher prices.
Downstream actors based their understanding of quality on the requirements set by their
buyers. In many cases, there is no uniform understanding of standards which result to
higher costs of transactions (environment and financial). The value chain approach to agri
and agro-enterprise development seeks to do more than just link farmers to buyers: It
endeavors to facilitate changes in behavior and improve the quality of relationships
between and among players to increase the competitiveness of the chain, while ensuring a
broad distribution of benefits, skills and income at all levels of the industry and
environmental sustainability. Actors at all functions in the chain must have common or
strongly compatible objectives or interests, a strong focus on end market requirements, and
a good understanding of markets and the external environment (e.g., competitors). The
quality of relationships and degree of trust influence the ways that benefits (and risks) are
shared among actors. A high level of satisfaction and trust in a relationship has a positive
effect on the degree of cooperation and, consequently, motivation for upgrading.

Certification is one way to address issues of mistrust in a value chain because it moves the
trust relationship to an objective third party (the certifier). Strategies that focused on the
social aspect of relationships and improving in communication could also be used to
improve trust and build relationships.

21
Majority of smallholders and enterprises operate alone although quite a number are
members of collective groups. As a result, their bargaining power is weak and they are
always ‘price-takers’. Unless producers become more organized, joining together for
activities such as collective procurement of inputs and bulk marketing, individual
transaction costs will remain high for majority of the enterprises. There is a need for cost-
effective marketing channels and coordinated supply chains that reduce transaction costs
among different actors along the supply chain. Farmers are often in a weak bargaining
position in relation to upstream players and need to group together to strengthen their
position to ensure that they retain the bulk of the value added.

3. Access to Eco-Friendly Technologies

An ideal situation is a “closed-loop economy” where nearly all outputs either become inputs
to other manufacturing processes or are returned to natural systems as benign emissions
rather than as pollutants. For agro- and agri-enterprises to pursue green upgrading and
strive to achieve a closed loop economy, they must have access to technologies that are:

a) Compliant with improving efficiency and renewable capacity in terms of water and
energy use
b) Remove harmful chemicals from production processes
c) Reduce the waste footprint in the value chain

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Making these technologies accessible to marginalized and resource poor communities will
entail creation of new business models and innovative distribution channels. It may be
possible to engage lead firms in asset and technology transfer initiatives as well as provision
of safety nets to the poor by promoting these within the context of business gains/growth
rather than as a purely philanthropy driven initiative. Willingness and incentives of private
firms to contribute to asset building, technology transfer, and provision of safety nets
depend to a significant extent on the degree of competition that the firms are facing and the
end markets they are working with. Generally, firms working with higher end markets are
more inclined to support technology transfer initiatives than those dealing with low end or
commodity markets.

4. Access to Financial and Non-financial Services to Facilitate Greening and Upgrading

Upgrading requires a commitment of financial resources. As such, access to financial

services is very important. It is often advisable to start with easier, low-risk improvements
that will more quickly yield results. This strategy builds confidence and buy-in among value
chain participants, helping them use initial benefits to invest in the next stage of upgrading.

Greening also requires the development of “green” providers to support upgrading

initiatives. Parallel to this is the need to develop business models and systems to make
these services accessible and affordable to resource poor households. Service delivery and
payment schemes can be classified as follows:

23
Fee-based Services: These are offered as distinct services for which enterprises pay a fee or
via commission. Commission-based payment is particularly attractive to enterprises that are
unwilling to gamble money on the success or failure of a purchased service. Commission-
based services allow clients to pay for services after they have sold their products, thus
enabling poor entrepreneurs to access services without having to pay for them upfront.

Embedded Services: Services are provided within a buying or selling transaction, whereby
the costs of the service provision form part of the overall cost calculation of the supplier,
while the service user does not have to pay for service delivery. Embedded services are an
added feature to the main business transaction. To take a typical example: an agricultural
input supplier provides his clients, in addition to delivering fertilizer, free-of-charge training
on how to apply it correctly. In this case, the farmer obtains access to training, while the
input supplier benefits from repeat or increased sales. Embedded services are also
commonly provided by buyers.

Informal Services: Services are informally provided to farmers and other VC actors through
social relationships and traditional cultural mechanisms. This could include information and
advice on price, market and technologies. An example of this is the “informal “on-the-job”
training provided by parents to their sons and daughters. The weakness though is that
“elders” in the community are not generally aware of emerging good practices. On the
other hand, they are very much knowledgeable on indigenous practices which are generally
low-cost and environment friendly as well as suited to agronomic conditions in the area.

24
Strengthening the capacity of recognized ‘leaders/experts” in the area would enrich the
informal learning system.

Third-Party Payment/Commercial Sponsorship: An example of this would be the “school on

the air” radio and TV programs. Radio and TV stations derive their revenue from sponsors
such as feed companies, input suppliers, government agencies, development programs, etc.

5. An enabling environment that supports the development of green and inclusive

businesses

The development of green and inclusive value chains will heavily depend on the facilitating
role that government can play. To foster inclusive and green innovation, policy-makers,
with donor support, can make interventions in three policy domains (UNDP Global
Compact/DCED: Policy Measures to Support Inclusive and Green Business Models):

a) An appropriate infrastructure for markets, including physical infrastructure, and also

regulatory frameworks that are stable and secure, yet flexible enough to allow room for
experimentation. Regulatory stability starts with the general business environment: rule
of law, security and the protection of property rights provide the basis for business
models that take a long-term perspective on social and environmental change. Reducing
corruption and clientelism can directly help to strengthen ecosystem governance, and
empower disenfranchised groups, like ethnic minorities, traditional communities, or
disadvantaged groups like women. The implementation of regulation and quality

25
 standards for inclusive and green innovation, along with adequate competition policy,
can secure the prevalence of high-quality suppliers who seek to build business models
offering long-term stability. Such stability would provide a level playing field for
organizations seeking to implement genuinely inclusive and green business models that
are forced to compete with businesses simply seeking to exploit loopholes in
environmental or social governance.

b) Subsidy and incentive systems for green and inclusive innovations, helping mission-
driven pioneers to survive during the pioneering phase, and allowing all players to
realize market-wide strategies and economies of scale.

c) Facilitate cooperation and partnerships between actors, and provide them with the
appropriate learning environment to make achieving inclusion and greening a reality

E. BENEFITS OF PURSUING GREEN AND INCLUSIVE BUSINESSES

Green and inclusive enterprise respects the environment by minimizing energy and
materials use and by reducing waste generation. These practices reduce the firm's operating
costs and liability exposure. Green and inclusive practices can help businesses ensure a
reliable supply of raw materials, enhance relationships with stakeholders and communities,
platform for market differentiation, and open up new opportunities at the same time – such

26
as enhancing brands and meeting new market demands. Below are the key benefits of
adopting green and inclusive business models: (OECD Sustainable Manufacturing)

Financial Performance

- Increase sales by anticipating and meeting environmental and social expectations

better than your competitors

- Improve efficiency and productivity by reducing resource use and waste, and by
cutting regulatory burdens

- Reduce dependence on expensive or hazardous materials by exploring, innovating,

and introducing greener alternatives.

Business Excellence

- Stay ahead of regulations by being proactive and shaping best practice, rather than
reacting after changes are implemented

- Win access to capital by reducing risks in operations, strategy and the supply chain
and by developing innovative solutions and new products for market

- Gain strategic foresight by anticipating how your business can innovate solutions or
adaptations to new added value.

Relationships with Stakeholders

- Enhance reputation by demonstrating green know-how and setting a positive

example

- Improve suppliers’ and employees’ morale and retention by empowering them to

contribute to a better environment and more productive business

- Build better community relations by demonstrating a responsible and proactive

approach to the local environment and people

27
A. THE SELECTION PROCESS

Product selection is the process of prioritizing industries or value chains based on criteria
including their potential for inclusive growth, greening, competitiveness, impact, and
contribution to other development objectives such as conflict mitigation, women’s
empowerment, and food security. It primarily involves the following:

a) Comparison of a number of products/value chains based on growth potential and

greening advancement criteria
b) Reaching a consensus on the selection of chains for intervention

The selection process is inherently subjective, and there is always a danger of selecting a
value chain for the wrong reasons. In order to minimize subjectivity in the selection of value
chain/s for intervention, the following steps are followed:

28
- Step 1: Profiling of area and identification
of potential products/value chains
- Step 2: Shortlisting of products/value
chains
- Step 3: Definition of selection criteria
- Step 4: Preparation of criteria specific
profiles of shortlisted products/value
chains
- Step 5: Ranking and prioritization of
chains/products
- Step 6: Final selection of products
A participatory process is required to ensure
that the choice is made based on a balance of
the needs and interests of a variety of
stakeholders. A participatory process
ensures that opinions are collected from
different perspectives. The following are the
common pitfalls in product selection that
should be avoided:
- Selecting a subsector with low growth
potentials and integrating new
entrants would either lead to
displacement and/or spreading
benefits thinly
- Influenced by peer pressure/
bandwagon effect
- Selecting a subsector with most poor
in it but with no growth potential
- Selecting a subsector with high
growth potential but difficult for poor
to participate
- Building an entirely new industry ---
may take a longer gestation period
before target groups can benefit,
entail more resources to build links
and develop markets
B. SNAPSHOT ASSESSMENT AND
PROFILING OF AREA
Prior to product and value chain selection, it
is recommended to conduct a snapshot
assessment of the selected area with a view
of identifying potential products/value chains
KEY INFORMATION NEEDED FOR THE
SNAPSHOT ASSESSMENT
Description of Livelihood Zone
Geography: physical features, climate,
vegetation, natural resources, and population
density
Characterization of livelihood zone: livelihood
pattern, main food and cash crops, main
livestock, poverty level, other food and income
options, etc.
Production system: production method,
livestock rearing practices, etc.
Market access: flow of goods and services,
trading patterns
Employment: types of employment available,
labor migration
Markets
Patterns of food crop, cash crop, livestock and
labour sale within and outside the livelihood
zone.
Importation of staple food
Factors affecting marketing
Seasonal Calendar
Seasonal calendar should illustrate seasonal
patterns to food and income acquisition
strategies
Wealth Breakdown
Breakdown of households in zone by wealth
group and corresponding asset sizes and
production system
Main differences between wealth groups
constraints faced by the poorer groups
Sources of Food
Food access/pathways per wealth group
Sources of Cash/Income
Sources of income per wealth group
Hazards
Main chronic and periodic hazards and its
effects on production and exchange
Response/Coping Strategies
Sources of food and income can be expanded
in a crisis
Key coping strategies
29
for consideration. Primary and secondary data gathering at this step will generally focus on
the following:

- Sources of income
- Seasonality of income
- Skills
- Risk tolerance
- Barriers to participation
- Resources/competitive advantage/comparative advantage
- Environmentally Critical Areas (ECA): areas ranging from national parks to areas
frequently exposed to hazards or areas that are historically interesting. These areas
are identified in Presidential Proclamation 2146
- Environmentally Critical Projects (ECP): projects or industries that have critical
environmental impacts and therefore need to undergo environmental impact
assessments and need to acquire Environmental Compliance Certificates (ECC) prior
to implementation

In the conduct of the initial assessment at the household level, one tool that may be used is
the Household Economy Analysis (HEA) toolkit. HEA baseline tools include livelihood zoning
(mapping of areas with similar livelihood strategies vis-à-vis geographic features), wealth
breakdown (distribution of poverty within a community with wealth classification based on
local definitions), and analysis of livelihood strategies (how individuals generate their
livelihoods). Other tools would be the Sustainable Livelihood Approach, Poverty Assessment
Tools, and Progress out of Poverty Index.

It is helpful to prepare a livelihood zone map which can be incrementally built as more data
ion the area is gathered. A livelihood zone is an area within which people share broadly the
same patterns of livelihood --- broadly the same production system and patterns of trade
and exchange. A watershed area can have several livelihood zones. The livelihood zone
map is an economic-geographical representation of the watershed area that shows the
varied contexts in which livelihoods are pursued. Usually livelihood zones do not exactly
align with administrative or political boundaries. Often, however, livelihood zone maps are
superimposed upon administrative maps so that the populations within the zones can be
easily identified. The livelihood zone map should also identify productive areas, non-
negotiable areas, ECAs, and ECPs.

If area has been identified as a Strategic Agriculture and Fisheries Development Zone
(SAFDZ), a good starting point would be the SAFZD map. To convert the SAFDZ map into a
livelihood zone map, there is a need to identify and describe the specific products being
produced in an area.

C. SHORTLISTING OF PRODUCTS/VALUE CHAINS

Based on the snapshot assessment of the area, draw up a list of the dominant
products/value chains (Value Chains) in the area. It is advisable to come up with a ranking
based on potential to provide majority of the populace with better income opportunities.

30
Consideration should also be made on the environmental impact and whether mitigation of
negative impact to the environment is viable and feasible.

Tools that rely on the concept of comparative advantage can be used to further refine the
identification of potential products and value chains. The comparative advantage concept
focuses on the relative efficiency of producing different goods in the area vis-à-vis other
producing regions/provinces. Comparative advantages, however, need to be built into
competitive advantages to ensure that products are financially viable and competitive in the
market.

D. DEFINITION OF SELECTION CRITERIA

Determining criteria for product and value chain selection is a critical step. It is a task that
requires strategic thinking about overall objectives and how to maximize impact. In all cases,
selection criteria should reflect the goals of the project as well as incorporate ideas and
perspectives of the stakeholders. It is, therefore, important that selection criteria should be
defined by multi-stakeholders from the public and private sectors.

It is critical to select value chain criteria that will facilitate inclusion of vulnerable
populations. While the standard criteria are important to include (competitiveness
potential, impact potential, cross-cutting issues, and industry leadership), the selection
process also needs to consider the constraints faced by the target population. Otherwise
there is a risk of missing barriers to their participation, or value chains in which they are
indirectly involved. Additional lenses for value chain selection include: 1

- Opportunities for employment. Employment offers a lower risk path to benefiting

from growing value chains. The interest in self-employment is regularly over-
estimated; often the very vulnerable turn to the informal sector given the lack of
attractive alternatives.

- Minimal potential for harm. Value chains should be selected in which environmental,
social, and economic threats and risks are minimal or can be mitigated.

- Low barriers to entry. Value chains with onerous entry or upgrading requirements are
usually inappropriate given limited financial and human capacity.

At times, separate consultations with under-represented or less influential stakeholders offer a good
way to identify interests and come up with an inclusive choice of criteria.

Below are examples of selection criteria: 2

1. Criteria based on market/supply and demand

 Market demand exists for a given or improved product.

1
USAID Microlinks
2
Adapted from UNIDO’s Pro-Poor Value Chain Development Guide

31
  There are firms (traders/lead firms) with resources that can bring the products to the
market and play the role of catalysts.
 There is potential to apply/adopt available/improved knowledge and technology.
 Resources, capacities, infrastructure, and raw materials are available and can be
used (more efficiently).
 There are real or potential competitive advantages in the production/processing of a
certain good.

2. Goal-based criteria

 Gainful participation of majority especially the poor: Can poverty be reduced in

general and for selected vulnerable groups? What is the percentage of poor engaged
in the chain? What are the barriers to entry in the chain? What are the risks and its
implications to the populace especially the poor? Can majority of the populace (e.g.,
farmers/smallholders, fishers, micro enterprises, etc.) especially the poor participate
in the enterprise?

 Income and employment generation potential: Can additional employment and

income be generated? Who is benefiting? Can work conditions be improved?
 Pro-poor growth: Can economic growth be promoted by expanding value addition?
Who benefits from this?

 Ease of entry: Can productive MSEs develop and take part in local, national, and
global value chains? Who runs those enterprises and who do they employ?

 Gender equity: Can gender equity be promoted? Do women receive rewards and
reduce risks with respect to income, employment and food security through
engaging in the chain?

 Cross-cutting issues (Gender, Environment, and Social Inclusion): Can objectives for
specific local development be addressed, e.g. social inclusion of specific ethnic
groups or protection of local natural resources?

• Greening potential: Are cleaner production and compliance with environmental

safety standards possible? Can criteria of environmental sustainability be met?

Most likely, many of the enterprises in the area are not yet “green”. At this time,
assessment should focus on whether there is a possibility for “greening” the
enterprise and the value chain.

3. Strategic Criteria

 Alignment to government priorities

 Availability of funding/Alignment to donor’s mandates/investors’ interests
 Opportunity for partnerships and strategic alliances

32
E. CRITERIA-SPECIFIC PROFILING OF
SHORTLISTED PRODUCTS/VALUE CHAIN GUIDE QUESTIONS TO
TRIANGULATE THE
PRODUCT SELECTION/
This will involve the collection and analysis of criteria– VALUE CHAIN PROCESS
specific information for each of the shortlisted
products/value chains. The idea here is to collect only the Which products/value
chains employ the greatest
necessary information for the selection criteria to provide number of workers?
empirical evidence for any choice and validation. It is
suggested that primary research be conducted only to fill Which products/value
up data gaps from available literature and statistics chains pay the best to
including from the snapshot assessment. Information from workers?
secondary sources though should be validated and double- Which products/value
checked with information gathered during field visits, chains involve the greatest
focus group discussions (FGDs), and interviews. number of poor and micro
enterprises?
F. RANKING OF PRODUCTS/VALUE CHAINS AND Which products/value
FINAL SELECTION chains have potential to
provide the poor with better
income opportunities?
Ranking and prioritization of products are best conducted
through workshops with the various stakeholders to Which products/value
ensure objectiveness and promote ownership of results. chains have been growing
The workshops may consist of the following activities: a) the fastest --- in terms of
presentation and validation of information gathered; b) jobs, establishments, and
average wages?
additional information gathering from stakeholders; and c)
ranking and prioritization. Which products/value
chains offer the greatest
There are many tools that can be used to facilitate ranking opportunity to promote
and prioritization such as the Pairwise Ranking and the sound environmental
management and pro-poor
Analytic Hierarchy Process. In diverse group settings (wide conservation initiatives?
range of learning aptitude and literacy), it is recommended
to employ the Pairwise Ranking. In areas with very low In which of the
literacy, simple voting (show of hands) can be used --- after products/value chains does
the area now have the
profiles of products have been presented and discussed.
greatest comparative and
competitive advantage?
When a product/value chain has already been chosen,
stakeholder meetings can validate the choice. This can be a Which products/value
good opportunity to bring stakeholders together, identify chains seem to be building
stronger competitive
their interests, motivate them to participate in the advantage for the future?
venture, and find out what they can contribute. A
convincing presentation of the rationale for the choice of Which products/value
the product and value chain is crucial for such meetings. chains have been targeted
Opportunities should be explored for participants to guide by the local government for
future growth?
the design and implementation of the enterprise and
development interventions.

33
A. VALUE CHAIN MAPPING

The value chain describes the full range of activities which are required to bring a product or
service from its conception to final consumers and final disposal after use. The term ‘chain’
refers to the fact that agricultural commodities are subjected to a sequence of activities
prior to final consumption, such as post-harvest cleaning and sorting, grading, storing,
transporting, processing, packaging, transporting, wholesaling and retailing. ‘Value’ refers to
the value is added by these activities as the commodity and products derived from it move
down the chain.

Value chain mapping is the process of creating a visual representation of the basic structure
of the value chain. The value chain map illustrates the flow of commodities or products from
producer to consumer as well as the interrelationships between players in the chain. In its
simplest form, the map should illustrate the following components:

Markets: Markets are the final destination of the product. These can be defined by
segments (e.g. geographic, type of end-user, income, etc.).

Functions: This refers to the steps through which the product passes during the production
and distribution system. For example, in the case of the dried fish, the fish is caught,
processed, transported, stored and traded before it reaches the consumer.

Participants: Participants are the key actors and their roles within the subsector (e.g.,
fishers, processors, wholesalers, exporters, retailers, consumers). It is important to make an
inventory of all players and channels and not to focus only on target group. Because the
other players are influencing the micro and small producers, it is important to have a
complete picture to the extent possible.

Apart from businesses involved in core transactions, value chain maps can also illustrate
which other supporting organizations (government, providers of financial and non-financial
services etc.) are available, and which functions they concentrate their services on.

The development of value chain maps spans the research period of a value chain initiative
starting with an initial basic map during the product selection phase and ending with a more
detailed map in the analysis phase. The map provides the underlying analytical skeleton for
the investigation and gives a preliminary rapid visual overview of the value chain. The
following are the key uses of a value chain map:

a) Gain a basic overview of the value chain to guide the conduct of the full value chain
analysis
b) Identify the position and participation of target groups in the value chain
c) Provides an overview of relationships and linkages and the different channels

34
Steps in Constructing a Value Chain Map

2. Identify core functions and actors in the chain (who is doing what in the chain). Data
may be organized using the function/participant worksheet developed by the GEMINI
Project

Table 1. Function/Participant Worksheet: Banana Chips

Functions Actors

Consolidators
Cooeratives

Processor
Nurseries

Importer

Retailers
Exporter
Farmers
Agrivet

Agents

1st Fry

Micro
Distribution – Int’l
Distribution - Domestic
Processing
Intermediate Processing
Assembly/Consolidation
Broker/Wholesaling
Production/Farming
Input Supply

3. Draw the map. When value chain mapping is done during workshops with industry
players, the following are suggested presentation guidelines to facilitate information
sharing:

- List end markets across the top of the map.

- List functions down the left side of the map.
- Fill in participants/actors according to their functions and markets, presented as
block forms with inserted text in each entry. If participant/actors are involved in
more than one function or market, extend the block to reach the relevant
functions/markets. If their functions are not consecutive in the chain, the skipped
function block is presented with dotted lines. Actors should be grouped by
categories of firms rather than individual firms by name.
- Draw the linkages between participant blocks with arrows in the direction of the
product flow.
- Define clearly market channels in a vertical manner culminating at end markets
at the top of the map.

4. Add information and data overlays as these are collected. These may include
information on financial and non-financial services, number of players, and
relationships.

35
Figure 14. Example of a Value Chain Map: Banana Chips, Mindanao Regions

Export market
High volume, low profit margin
Domestic market
Weak effective demand

Cash advances
to suppliers

Pick up
service in high
volume areas

Price takers
Suki
Commission relationship
of PhP 0.50
to 1/kilo

36
B. VALUE CHAIN ANALYSIS AND COMPETITIVENESS STRATEGIES

Value chain analysis (VCA) is a process for understanding the systemic factors and
conditions under which a value chain and its enterprises can achieve higher levels of
performance and, consequently, competitiveness. When using value chains as a means for
fostering green and inclusive growth, the analysis focuses on identifying ways to contribute
to three objectives:

a) Improving the competitiveness of value chains with the gainful participation of large
numbers of smallholders and MSEs
b) Improving chain wide resource productivity and environmental performance
c) Expanding the depth and breadth of benefits generated across all functions in the chain

The analytical framework for a value chain analysis uses end-market analysis to identify
opportunities, moves into chain analysis to understand the constraints to these
opportunities, develops a strategy for creating competitive advantage, and finally
recommends interventions or investments that can generate systemic change. The process
though may not necessarily be linear and, oftentimes, will require iterative analysis. The
results of a value chain analysis form the basis for the formulation of a competitiveness
strategy and a plan for eliminating constraints to end market opportunities and advancing
sustainable competitiveness that would result to inclusive growth.

37
Diagnostic Framework for Assessing Constraints and Opportunities

Value chain studies assess the constraints to and opportunities for enhancing industry’s
competitiveness and promoting green and inclusive growth through a diagnostic framework
that includes both the structural and dynamic elements of the system. The structure of the
value chain influences the dynamics of enterprise behavior and these dynamics influence
how well the value chain performs.

Table 2. Diagnostic Framework for Identifying Constraints to and Opportunities for

Improving Competitiveness and Environmental Performance

End markets Analysis of end markets where the products are sold–whether local,
regional, or international–will facilitate the identification of
opportunities for greening and set the parameters for economic
growth. By understanding the opportunities in the end market,
constraints that are the most binding obstacles to exploiting these
opportunities can be prioritized. Analysis of end markets will feed into
the identification of investment needs that will drive chain upgrading
and greening.

This involves the analysis of current and potential market

opportunities, prices and market trends, competitors, and buyers’
requirements and preferences through interviews with buyers and
review of market researches. For trends in the export market, this can
be carried out primarily through secondary data and interviews with
exporters as they are the “nearest” to international buyers.
Business enabling The business enabling environment consists of all the formal and
environment informal norms and standards, policies, regulations, and public
infrastructure (such as farm-to-market roads, electricity, water supply,
etc.) that help define the context within which decision makers and the
industry operate. Focus of the analysis is on determining whether and
how the business enabling environment facilitates or hinders greening
and inclusion of MSEs and performance of the value chain in general,
and if it hinders, where/how it can it be improved.
Vertical linkages This involves an analysis of relationships between enterprises
performing different functions (e.g., farmer – trader, trader – rice mill,
etc.) in the market system that are critical for moving product(s) from
inception to the end market. It entails analysis of the nature/quality of
relationships, including the volume and quality of information and
services disseminated and how these influence greening and upgrading
trajectory of the industry in general. It also analyzes the distribution of
benefits and relative financial position of players across all key
functions in the value chain. The analysis also involves the identification
of weak or missing vertical linkages.
Horizontal This analyzes the degree and nature of cooperation and competition

38
Table 2. Diagnostic Framework for Identifying Constraints to and Opportunities for
Improving Competitiveness and Environmental Performance
linkages between enterprises operating at the same level in the value chain,
including an assessment (snapshot) of existing associations/
cooperatives. It also involves the identification of areas where
collaborative relationships could foster resource productivity and
reduce the cost or increase the benefits to small firms operating in the
chain.
Support markets This involves the analysis of the supply and demand for financial and
non-financial services including identification of key providers. Three
main aspects need to be covered: (i) identification of constraints and
opportunities faced by players in accessing financial and non-financial
services; (ii) assessment of transactions that facilitate access to services
and how these can further be optimized and improved; and (iii)
investigation of sustainable delivery strategies.

Value chain This refers to the power and the ability to exert control over the
governance behavior of other agents in the market system. Awareness and a good
understanding of the type of governance structure in the system will be
useful in identifying possible interventions and opening pathways for
the generation, transfer, and spread of knowledge leading to
innovation and greening. This also facilitates the identification of
potential catalysts to lead the upgrading process.
Inter-firm This primarily focuses on assessing the status and effectiveness of inter-
relationships firm relationships in: (i) moving the chain in the direction of greening
and greater competitiveness or in responding to changes in end
market requirements; (ii) increasing the number of smallholders and
microenterprises that contribute to and benefit from the chain’s
competitiveness; and (iii) promoting firm-level and chain-level
upgrading.
Upgrading This involves the (i) identification of opportunities and constraints to
firm- and industry-level greening and upgrading; and (ii) identification
of catalyst firms with the incentives, resources, and willingness to
promote and facilitate upgrading within the chain.

39
Approach to Conducting the VCA
TOOLS FOR VALUE
CHAIN RESEARCH

Participant Observation
Fundamental to qualitative
research

Leads the inquirer to a greater

understanding of the
characteristics of the situation
being researched

Interviews and Focus

Group Discussions
Guided conversations in which
topics are predetermined and
during which new questions
and insights arise as a result
of the discussion.

Conduct is more an art than a

set of fixed procedures and
the interview process is
dynamic and iterative.
Value chain analysis generally involves the following
One-to-one conversations and
interconnected steps: group meetings are needed
because a frequent bias in
a) Data collection and research development is to think in
terms of ‘the farmer’ (and
b) Value chain mapping other value chain actors)
c) Conduct of stakeholders consultations to vet findings despite the fact that decisions
and develop action plans about farming are not made
by the farmer in isolation and
decision making is influenced
The value chain analysis should be carried out using the by social pressures and
participatory process. The industry players and stakeholders beliefs.
should be active participants and partners in the process of Interviews with groups
assessing the situation and crafting of the competitiveness provide access to overlapping
strategies and investment plans. spread of knowledge, which
may cover a wider field than
any single person.

Questionnaire
Quantitative data permit a
more objective assessment
and facilitate an assessment
of larger-scale patterns.

Questionnaires focused on
what value chain actors are
doing, qualitative research
tools provide a means to
check the reliability of data
from questionnaires.

Source: Heilen, et. al, Guide to VCA

40
A. PRODUCT LIFE CYCLE

Agribusinesses use resources and services provided by the natural environment (metals,
materials, fossil fuels, soil, water, and biodiversity) and discharges “by-products” (waste,
emissions) into the environment. Every product has several stages in its life cycle:

 Extraction of natural resources

 Processing of resources
 Design of products and selection of inputs
 Production of goods or services
 Distribution
 Consumption
 Reuse of wastes from production or consumption
 Recycling of wastes from consumption or production
 Disposal of residual wastes

Most products have multiple environmental impacts throughout their life cycle and
throughout the value chain. It is therefore important to know what these impacts are. A
value chain can be made more sustainable if at each life cycle stage of the product, the
environmental and social drivers, impacts and benefits are considered and optimized at the
same level as the economic dimension. Looking at resource use in the product life cycle

41
across the entire value chain can support the following broader business objectives:
(Deloitte)

- Enhance brand value for competitive differentiation

- Improve product and process design decisions
- Inform procurement strategies and supplier engagement activities
- Identify cost-savings opportunities throughout the value chain
- Meet sustainability communications needs (e.g. product labeling, stakeholder
outreach)
- Achieve compliance companies can create even greater value by looking at resource
use in their product life cycle across the entire value chain.

B. ANALYSIS OF PROCESS AND MATERIAL FLOW

The design of products, processes, and systems in agribusinesses should not only seek
economic benefits for shareholders and value for customers, but also manage
environmental and societal impacts affecting stakeholders. As such, it is important to look
at how resources are allocated and activities are conducted to create value. This involves an
inventory of materials and processes in the supply chain and the identification of both
economic and environmental impacts. Depending on the materials and the processes and
systems employed by agribusinesses, each stage can create waste and environmental
residuals that can become chemical or organic pollutants and can contribute to climate
42
change and environmental anddeterioration.
Pollutants may include carbon monoxide, lead, Examples of Assessment of
nitrogen dioxide, particulate matter, sulphur Materials/Inputs
dioxide, carbon dioxide, hazardous chemicals, and BURNING OF RICE STRAW IN
many more. PREPARATION FOR NEXT
PLANTING SEASON
Conduct of materials and process flow analysis will Environmental Impact: Uncontrolled
assist a chain to make investments where their open burning, mainly burning of
commercial and ecological outcomes are greatest. agricultural wastes, is the highest source
of carcinogenic dioxin and furans, the
From a business continuity perspective, the known environmental contaminants that
analysis may uncover previously unknown are emitted during the combustion
‘hotspots’ that pose substantial business risks. Or, process.

in identifying high impact areas, such as significant Business Impact: Savings in labor and
greenhouse gas emissions in a particular portion of time; lost opportunity to use rice straw
the value chain, agribusinesses may be able to as fertilizer.

work with suppliers to rework product design or INTENSIVE USE OF INORGANIC

make process improvements to not only reduce NITROGENOUS FERTILIZER
emissions, but also lead to product innovations or Environmental Impact: Soil and water
reduce costs. pollution, pests, ground water
contamination
The materials and process flow analysis involves Business Impact: High cost of
the identification of core processes that raw production; can potentially result to high
materials go through before reaching the final yield but cost of production can also be
high
consumption stage, including the provision of
inputs to produce raw materials. It entails CONTINUOUS USE OF CHEMICAL
identifying the products or product formats at PESTICIDES
each stage of the process as they are transformed Environmental Impact: New pests,
from raw materials, to intermediate products, and resistance to pests, water pollution,
to final products. This gives both a picture of the human poisoning, chemical dependency
processes and the forms of products that are Business Impact: Reduced losses to
handled, transformed, and transported at each pests
process stage of the value chain.
CULTIVATION OF FRAGILE,
MARGINAL UPLAND AREAS
Assessment of Materials/Inputs
Environmental Impact: Deforestation,
accelerated soil erosion, sedimentation
Any materials and substances that go into making of river systems, biodiversity loss
of products will all have an environmental impact.
Business Impact: Expansion of
The following are the key aspects to look into
production area/potential increase in
when doing the materials flow analysis of a supply income
chain:

- Intensity of use of non-renewable

materials, restricted or harmful
substances, and recycled/re-used materials
- Missed opportunities for using by-products

43
 - Consistency of quality of materials and
effect of quality variances
- Efficiency of land use, effects on soil
fertility, erosion, and biodiversity
- Sources of energy being used and
efficiency of energy use at different levels
of the chain
- Waste production and management at
different levels of the chain
- Pollution potentials such as acidification,
eutrophication, and others
- Greenhouse gas emission
- Identification of materials that add value
to the product or service (and whether it is
functioning as envisioned), materials that
are necessary but non-value adding, and
materials that are not necessary and do
not add value to the product
Assessment of Processes/Technology
This involves the assessment of production and
distribution systems and processes in terms of the
following:
a) Energy and water use
b) Waste generation
c) Emissions into air and water
d) Production of noise and odor
e) Land use and impact to natural habitat
Examples of Assessment of
Processes and Technology in
Rice Farming
Plot-to-Plot Rice Irrigation – No
Field Channels (IRRI)
The amount of water flowing in and out
of a rice field cannot be controlled and
field-specific water management is not
possible. The water that continuously
flows through rice fields may remove
valuable fertilizer nutrients. Constructing
separate channels to convey water to and
from each field (or to a small group of
fields) greatly improves the individual
control of water and is the recommended
practice in any type of irrigation system.
REDUCING SOIL PERMEABILITY
(IRRI)
Rice fields just need a few rat holes or
leaky spots and they will rapidly lose
water by seepage and percolation. Large
amounts of water can be lost during
soaking prior to puddling when large and
deep cracks are present that favor rapid
“by-pass flow” to below the root zone.
Cabangon and Tuong (2000) showed the
beneficial effects of additional shallow soil
tillage before land soaking to close the
cracks: the amount of water used in wet
land preparation was reduced from about
350 mm to about 250 mm.
TURNAROUND TIME BETWEEN LAND
SOAKING AND TRANSPLANTING
Minimizing the turnaround time between
land soaking for wet land preparation and
transplanting reduces the period when no
crop is present and when outflows of
water from the field do not contribute to
production. Especially in large-scale
irrigation systems with plot-to-plot
irrigation, water losses during the
turnaround time can be very high.
PLANTING OF MUNG BEAN AFTER
RICE
Growing mungbean after rice does not
only provides economic returns to the
farmers, but also helps in improving the
soil fertility.
44
A. RELATIONSHIPS AND PERFORMANCE OF VALUE CHAINS

The product flow is the nervous system of the value chain. Products get from one actor to
another on the basis of contractual arrangements that can be random and informal or
formalized. The more formalized the contractual arrangements are, the more actors can
reduce risks and engage in forward planning. If the contractual arrangements are not
beneficial to both buyers and sellers, the flow of products and consequently the functioning
of the value chain are placed in jeopardy. A good understanding of the product flow and the
underlying contractual relationships is crucial in any value chain analysis.

Enterprises of a certain size and market share can influence the conditions under which
business partners in the value chain operate. For example, such lead firms can set product
specifications for suppliers, even detailed product blueprints prescribing the production
process and the application of certain technological, environmental or labour standards, and
how much is to be produced, including scheduling and logistics. The dominant actor could
be an end-buyer or retailer in which case one would talk about a buyer-driven value chain.
In other cases, a manufacturer or a supplier of primary materials “drives” the value chain,
making it a supplier-driven value chain. However, there are also value chains where many
firms operate in parallel and no dominant player exists.

45
Vertical coordination describes how different types of enterprises interact with their input
suppliers (one or more functional level below them in the value chain map) and with the
firms that purchase their output (one or more functional levels above them in the value
chain map). The nature of these interactions defines the governance structure, which
influences the distribution of benefits and, in turn, reflects the distribution of power and
control within the value chain. It is important to understand the types of linkages that could
exist and to determine what type of linkage would be most appropriate for a particular
producer or group of producers at a particular time. The most common types of vertical
linkages that producers might have are:

• Linkages between producers and input suppliers

• Linkages between producers and their buyers

The nature and quality of relationships especially the degree of trust influences the
upgrading trajectory of an industry and the way that benefits (and risks) are shared among
players. Trust does not necessarily entail the absence of conflict, but it reduces the threat of
conflict: The presence of trust lowers the probability that one partner will act
opportunistically even if he/she has the opportunity to do so. Similarly, a high level of
satisfaction and trust in a relationship has a positive effect on the degree of cooperation
and, consequently, motivation for upgrading.

B. VALUE CHAIN GOVERNANCE

Value chain governance refers to power and the ability to exert control over the behavior of
other agents in the system. Typically, a “lead firm” might set, monitor, and enforce the
parameters under which other firms operate. Awareness of the governance structure in the
system can be useful in identifying possible interventions and opening pathways for
greening and promotion of inclusive growth.

Arm’s Length Transaction

The most common type of governance is the arm’s length transaction. In arm’s length
transaction or spot transaction, product is bought for cash and delivered immediately.
Transactions are completely market-based. Contracts are verbal and often anonymous.
Information and agreement on prices are all that is required for successful consummation of
the transaction. Generally, there are many buyers and sellers.

In arm’s length transactions, it is difficult to push the greening agenda as commodities are
undifferentiated, interactions between firms are limited, and technical assistance is not
provided. Repeat transactions are possible but not necessary. Spot transactions stifle
innovation and do not provide incentives for upgrading.

46
Balanced Relationship

Under balanced relationships, the parties rely on bilaterally developed norms to govern
their joint efforts (Macneil, 1980). Under this form of governance, a mutual desire to
preserve the relationship induces contributions from supply chain partners and encourages
value creation through partner specific investments and implicit social norms (Macneil,
1980).

In terms of value creation, balanced governance is concerned with recurrent transactions

(rather than a single transaction) and incentives result from “commitment to the system”
(Heide, 1994). This implies that:

- The incentive systems in relational governance are long term

- The parties accept that individual transactions are not necessarily profitable in
isolation
- Involvement in a balanced relationship is a reward in its own right with a view to
mutually beneficial long term partnership

Extensive information flows in both directions, with buyer often defining the product
(design and technical specification). Likewise, both sides have capabilities that are hard to
substitute. The parties are committed to solving problems through negotiation rather than
threat or exit. In a balanced value chain, opportunities to identify alternative buyers or

47
sellers creates more symmetrical power between buyers and sellers, and provides
incentives to negotiate predictable shared standards for quantity, quality and price.

A balanced value chain has incentives for firms to cooperate to make their supply chains
sustainable and to ensure that benefits are equitable by sharing information, jointly
ensuring product targets are met, and respecting contracts that reflect interdependencies.

Directed Relationship

Smallholders in a directed relationship would usually have one main buyer taking at least
50% of their produce. The buyer defines the product standards and monitors the farmer’s
performance. Buyer provides technical assistance. The buyer usually would know more
about supplier’s costs and capabilities than supplier knows about buyers. The farmer’s exit
options are more restricted than buyer’s. Directed relationships are sometimes called
“sweet prisons”. A directed value chain provides the lead firm with more access to
information, control over supplier production, and power to enforce contracts.

In a directed value chain, buyers exert significant influence over the quantity, quality, and
price of goods traded in the market, and farmers have limited negotiating power. Regardless
of the “unequal” power structure, a directed value chain may be a lucrative opportunity for
both buyers and sellers. An agriculture value chain, in which one dominant buyer
guarantees a fixed price for specified quantities and qualities of product from smallholder
farmers may be an excellent opportunity for farmers to improve livelihoods and upgrade

48
their skills and knowledge of export market requirements. However, there may be concerns
about equity and the distribution of benefits to smallholders.

The greening and inclusive growth agenda have more chances to be successfully promoted
in directed relationships with buyers as key catalysts than under arm’s length and balanced
relationships.

Hierarchical Relationship

A hierarchical relationship involves the vertical integration of value-added functions within a

single firm. There is limited autonomy to make decisions at the local level. Under
hierarchical governance, formal decision-making authority is provided by a more detailed
contractual arrangement between the parties, which is typically augmented by a system of
incentives and penalties.

This also means that processes and systems are prescribed by an individual firm and which
the whole supply chain has to follow. Greening agenda can easily be implemented across
the whole supply chain provided the firm finds strong incentives to do so.

49
C. HORIZONTAL LINKAGES

Collective action is an important strategy for increasing smallholder opportunities and

participation in dynamic markets. In view of lower transaction costs and more effective
capacities, lead firms often prefer to work with organized farmers rather than individuals,
despite the increased bargaining power that groups enjoy. But many MSEs or smallholder
farmers are wary of engaging in collective initiatives because of bad experiences in the past
and the fear of missing an opportunity to sell at the best price available for their produce.
The absence of strong horizontal linkages significantly reduces the benefits that can be
gained from network relationships.

D. PROMOTION OF WIN-WIN RELATIONSHIPS

Experiences indicate that the formation of market linkages that does not permit close
collaboration between players contributes little to systemic upgrading of the chain and,
consequently, does not result in sustainable benefits to microenterprises and smallholders.
The value chain approach to enterprise development seeks to do more than just link
microenterprises to buyers: it endeavors to facilitate changes in behavior and improve the
quality of relationships between and among players to increase the competitiveness of the
chain, while ensuring a broad distribution of benefits, skills and income at all levels of the
industry. Effective inter-firm relationships can provide the platform to facilitate: a)

50
upgrading to become competitive; b) greening to promote sustainability of supply chains;
and c) inclusive growth.

Brokering change demands understanding of and working with the interests of all the
different parties concerned, and helping people to see that there may be different ways of
fulfilling their interests. The identification of win-win situations in which all firms can benefit
is a necessary first step in building effective inter-firm relationships.

The quality of relationships and the type of governance between actors play important roles
in facilitating the flow of information, learning, and incentives for upgrading. The power of
the different players involved and their interests will always play key roles in the greening
and process and in the promotion of inclusive growth.

Relationships are not built at “first sight,” but rather need goal-oriented actions to grow and
develop. Collective empowerment (i.e., collective capacity for action) comes about as
people learn that they share a responsibility for one another and by helping each other
create social capital, an essential resource in building win-win relationships. As such, while
value chain development interventions are geared toward supporting the empowerment of
individual players, the process design and subsequent implementation contribute to the
development of collaborative relationships across all functions in the chain.

Experiences of various value chain development projects indicate the following factors as
necessary to successful inter-firm collaboration:

 Trust
 Good supplier/buyer performance and credibility (i.e., players have the
competencies to meet basic market requirements and manage partnership)
 Openness and reliability
 Balanced power dynamics
 Good communication and transparency

In addition, commercial benefits derived from the relationships—such as reduced

transaction costs, enhanced business flexibility or improved risk management and safety
nets—must be evident to all players involved and must outweigh the cost of building and
maintaining relationships Over and above these, the players must have common or strongly
compatible objectives or interests, a strong focus on end market requirements, and a good
understanding of markets and the competitors.

Movement from market to network relationships increases opportunities for micro

enterprises and smallholders if:

• Relationships provide smallholders the opportunities to access skills and resources

that will enable them to scale up operations and extend their operations along the
chain

• Relationships can be used as platforms to build additional product lines or new

markets --- joint innovation initiatives

51
 • Prices are carefully calculated based on both historical and forecasted trends with a
provision of a regular review to ensure that both parties equitably benefit from the
established relationship.

• Relationships involve joint planning from which farmers and micro enterprises can
make projections and informed decisions on levels of investments and the
risks/benefits involved.

Network relationships can decrease opportunities of farmers and micro enterprises if:

• Lead firm collapses and the micro enterprises and smallholders are 100% dependent
on this firm. Selection of lead firms is also crucial as this can significantly shape the
development of micro enterprises and smallholders.
• No clear understanding standards between parties or among farmers and micro
enterprises resulting to high rate of rejection, discounted prices, etc.

• Relationships promote further indebtedness of farmers and micro enterprises

through excessive advances and which are then reflected back in the buying price.
Oftentimes, it is important for households to have an alternative market which can
subsidize their daily needs since working with lead firms usually involve fixed
schedules for pick-up/delivery and payment.

• Farmers and micro enterprises become complacent with “guaranteed markets”

losing drive to invest on innovation and upgrading and seek new opportunities

Key preconditions that entice lead firms to enter into strategic alliances with groups of MSEs
or smallholder farmers are the following:

• Demonstration of capability to meet basic quality requirements, which implies the

need for some upgrading and a good understanding of the required standards.

• Access to a significant volume, which calls for well-functioning horizontal

collaboration.

• Willingness to invest. Lead firms are more inclined to invest when they see that the
communities have invested their own money or assets. This provides a guarantee
that the communities will work towards making the venture a success.

52
A. CREATION OF A SHARED VISION

Value chain competitiveness is the ability of actors within an industry to: 3

 Anticipate and meet buyers’ demands

 Identify and take advantage of end-market opportunities
 Respond to changes in market demand or the competitive landscape

Greening and inclusive growth must be rooted in the supply chain competitiveness vision
and strategy. To do this, it is important to see environmental issues as providing an
opportunity to reduce costs in the supply chain and to open up new markets by developing
environment-friendly products and services.

The process of greening and improving industry competitiveness must be driven by industry
stakeholders. The challenges to developing a coherent greening and upgrading strategy —
one that stakeholders are willing to buy into — can be met by forging a shared vision of a
green, competitive, and inclusive industry and developing a plan that benefits everyone,
including smallholders.

3
USAID Briefing Paper: Using the Value Chain Approach in Designing a Competitiveness Strategy

53
A competitiveness vision guides the development of a roadmap on how to move the chain
or industry to sustained higher rates of growth. Without a common vision, it is difficult for
actors to overcome the tendency to see each other solely as competitors, which hinders
their ability to collaborate or take leadership to leverage resources, overcome common
barriers and meet marketplace demand.

Creation of the vision helps value chain actors transcend existing mind sets and break away
from fatalistic attitudes prevalent among stakeholders. It is important to encourage players
to come with a vision that reflects both self and industry or supply chain aspirations as this
provides the motivation for collaboration. Value chain actors will invest in greening and
upgrading initiatives only if the expected benefits will fulfil their individual interests and
outweigh the costs. Actors should clearly see what the end goals of initiatives will be and
how these will contribute to meeting their individual objectives. Understanding people’s
incentive for participation also facilitates conflict management.

From the vision, three to six month period action plans can be prepared. The rolling plans
should be designed in such a way that these will contribute to the incremental achievement
of medium term objectives parallel to providing players with tangible benefits at the shorter
term.

B. END MARKET COMPETITIVENESS

54
The heavy emphasis on common vision and its close link to real market opportunities are
also central to the success of upgrading and greening initiatives. The best trigger for closer
collaboration is the pursuit of lucrative markets as well as pride and social recognition. It is
important to possess a holistic view of the market system so as to understand the
interdependencies among its parts including the implications of changing one part on all
other parts, and the relationships between the system and the communities/poor. In the
formulation of the competitiveness vision, it is recommended to start with a very good
understanding of the end markets and its requirements and the market system with a view
of analyzing its implications on resource poor households and the greening potentials vis-à-
vis improving value chain competitiveness.

It is recommended to work with core set of value chain actors including the smallholders in
arriving at a consensus on the following:

- In what specific markets do you want your chain to be a major player?

- Who are/will be your target clientele and their needs/wants? Why will they buy
your products?
- Describe the attractiveness/relevance of the segments
- How will your supply chain access/reach the market?
- What kind of products do you want to offer to these markets?
- What changes in your operations and processes do you need to be competitive and
sustainable parallel to promoting the gainful participation of resource poor
households in the chain as suppliers and/or consumers?

C. SUPPORTING VC ACTORS TO ACT ON THEIR VISION

The writing of the vision during a stakeholder’s workshop is the easier process. The harder
part is nudging players and stakeholders to take or pursue this seriously and not just
another workshop output. One challenge is to help players to break out of their current
mindsets. Without this, they will never seriously consider a new vision. A second challenge is
to help players take ownership in a shared vision, and to reflect that their own individual
interest or wishes are very much part of it. A third challenge is to help them develop a
passion for their new vision.

To facilitate shifts in mindsets, one essential means is to help them see the need for a
systematically different approach to doing things. Another is to foster exposure to new
approaches.

To build a shared vision, facilitators can help actors to reach consensus on values and beliefs
on how things should be covering the three dimensions --- economic, environment, and
social. This requires an environment in which value chain actors feel safe in sharing their
beliefs —an environment where everyone suspends their judgments of others while sharing.
It also requires the development of group-process skills for dialogue, self-disclosure,
listening, and conflict resolution, which takes guidance, time, and patience.

To develop a passion for the new vision, the most important consideration is to foster a
sense of ownership.
55
D. MARKETING THE VISION

Greening and upgrading

require collaboration of all
actors in the chain. To keep
the vision alive and exciting, it
is recommended to
disseminate it to a wider
audience in formats that can
be appreciated by all those
involved in the industry
including consumers.

To obtain commitments, start

with small short-term
commitments and gradually
scale up to bigger and more
difficult decisions/tasks. To
the extent possible, pledges and commitments towards greening, inclusive growth, and
upgrading should be done publicly. When a person makes a commitment to others, most
likely they will want to keep that commitment to ensure that they are viewed as
“consistent”.
56
A. WAYS TO COMPETE IN THE MARKET

Agribusinesses and value chains can boost their competitiveness in the following ways:

a) Efficiency: getting a product or service to the end client at a basic quality level cost-
effectively over time.

Examples of environment friendly upgrades to achieve efficiency

Alternate bangus feeding protocol: Feeds comprised about 70% to 80% of bangus
production cost. Excessive feeding leaves a lot of nutrient residues in the waters, causing
pollution problems that contribute to periodic milkfish kills. To address the twin
objectives of reduced feed cost and lesser pollution, the Southeast Asian Fisheries
Development Center (SEAFDEC) Aquaculture Department introduced the alternate
bangus feeding protocol. The alternate feeding resulted to about 32.94% reduction of
feed cost which translates to about 25% savings in bangus production costs. Water
quality also improved which reduced risk of fish kill as well as stunted growth. No
significant decline in yield (vis-à-vis conventional practice) was observed with the
adoption of the alternate feeding protocol.

Direct rice seeding technology and machine: Pepsico’s promotion and development of
direct seeding technology and machine help rice growers in India avoid three water-
intensive steps: puddling, transplanting and standing water. In 2010, PepsiCo in
collaboration with farmer suppliers in India expanded direct seeding and applied it to
approximately 10,000 acres, saving more than 7 billion liters of water. And, because in
direct seeding there is no water at the base of the crop, there is also a 70 percent
reduction of greenhouse gas emissions.

b) Differentiation: Competing based on quality and functional characteristics, branding,

etc. To compete based on differentiation a value chain must market or add value to its
product or service such that it is considered unique amongst its competitors.

Example of environment friendly upgrades to achieve product differentiation

Reintroduction of omega 3-rich flaxseeds into cows’ diets (from Short Guide to
Sustainable Agriculture): In a bid to bring a new dimension to its agricultural sourcing
strategy, Danone Dairy Product business in France adopted an approach developed by
Bleu Blanc Coeur, which involves reintroducing omega 3-rich flaxseeds into cows’ diets,
supplemented by grass, hemp and alfalfa. Cows’ natural diet is grass, which is rich in
beneficial fatty acids. But in the second half of the 20th century, maize silage and
soybean cakes became the mainstays of cattle feed. The result has been a change in
cows’ milk composition and a shift in the ratio of omega 3 fatty acids to omega 6.
Moreover, the modern diet makes cows more prone to flatulence.

57
 Danone Europe embarked on the program in 2005. Of the twenty French farms taking
part in the pilot, greenhouse gas emissions were reduced by 20 to 30%, and milk yield
increased by 8 to 10%. Analysis showed the milk contained the same level of proteins as
before, but less fat overall.

In late 2007 Danone Europe began rolling out the program in its biggest milk collection
region around Rouen. Progress was rapid: within six months more than 500 farmers
were on board. The program ensured availability of more quality milk and new growth
opportunities through delivering healthier products to consumers. But beyond the
business angle, the program brought health, social and environmental benefits.

The naturally high omega 3 content of the milk gives it functional benefits and
contributes to a healthier diet for consumers. Cows are also healthier, and farmers see
improvements in production and in their revenues. At the same time, methane
emissions from the cows are reduced by around 20%.

c) Strategic Market Choices/Focus: assessing and shifting marketing, production or

distribution tactics to take advantage of opportunities arising from a value chain’s
structure or from market trends, such as:

Seasonality: scheduling production to obtain higher off-season or high-demand (e.g.,

during holidays) prices

Financial flows: targeting cash-rich periods (i.e., harvest time) or internal remittance
flows

Channel requirements: targeting market channels that better fit a firm or industry's
competitive capacities such as lower volume/higher margin or contracted production
channels

Market niches: organic markets, sustainability certification, gluten-free food, etc.

Examples of environmental friendly upgrades to capture niche/premium markets

Sustainable Copra/Coconut Oil: For more than three years, Deutsche Gesellschaft für
Internationale Zusammenarbeit (GIZ) GmbH, BASF and Cargill have worked together to
promote sustainable coconut oil and improve the living conditions of coconut farmers in
the Philippines. They have established the world’s first certified production of copra in
Saranggani Province.

Since the project started in September 2011, over 1,000 farmers have been trained in
Good Agricultural Practices (GAP). This education enables them to increase their yields
in the long term. Furthermore, the group received access to a newly-developed drying
technology for high-quality coconut flesh and training on the standards of the
Sustainable Agricultural Network (SAN). As a result, 300 small farmers from the province
now produce the world's first Rainforest Alliance certified copra meeting the standards
of the SAN. The recognized certification system helps them to improve social and

58
environmental standards and increases their revenues as BASF and Cargill pay a
premium for high quality and certified copra. The farmers were also supported in
forming legal producer entities. Their members can now access micro-credit facilities
instead of having to rely on pre-financing by middlemen. It allows them to improve their
profit margin by selling directly to the mill. Farmers who are participating in all of these
joint activities are able to increase their income by at least 15%.

Sustainable Coffee Production: Coffee is the second most consumed beverage in the
world next to water. In the Philippines alone, 9 out of 10 households consume coffee,
mostly from the robusta variety. As the biggest buyer of robusta in the country, Nestlé
has been helping farmers to improve their farming practices and move towards
sustainable production through the NESCAFE Plan. The NESCAFÉ Plan is Nestlé’s long-
term approach to Creating Shared Value for the coffee industry. It aims to guarantee a
long-term supply of quality coffee by making coffee farming more attractive to the next
generation and having a lower environmental impact.

The NESCAFÉ Plan advocates the principles and standards of the Common Code for the
Coffee Community (4C), an international association of major players in the coffee
industry, of which Nestlé is a founding member. As such, it promotes sustainable green
coffee production, processing, and trading practices among 150 coffee-producing groups
in the Philippines with the objective of reducing production cost and generating
sustainable income for the farmers. Another objective is to have all these groups
eventually earn a certification for sustainable coffee production from 4C.

As of end 2013, four coffee-producing towns have already been bestowed this much-
coveted certification from 4C— the towns of Sen. Ninoy Aquino, Kalamansig and Lebak
in Sultan Kudarat, and the town of Tagbina in Surigao del Norte. These towns are now
certified by 4C as being able to produce, process and trade 4C-compliant coffee.

Use of non-synthetic raw materials: From a chemical intensive consumer product

company, Clorox shifted to one that has sustainability as a core focus. Aside from the
company’s acquisition of Burt’s Bees, Brita and GreenWorks, the following trends
pointed Clorox towards the sustainability path: the ever-increasing attention to health
and wellness, consumer desire for sustainability, an increasing focus (likely fueled by
Wal-Mart) on affordable convenience, and a fast-growing demographic of the Latino
community.

Clorox invested three years and $20 million into its “Green Works” product line, which is
made with non-synthetic materials. By using more sustainable raw materials in its
product, the company was able to market the Green Works line to various retailers such
as Walmart. The results were very tangible, as Clorox was able to gain a 40% market
share of natural cleaners (Nidumolu, September, 2009).

59
B. TYPES OF UPGRADING
Examples of Process
Upgrading
Upgrading refers to the acquisition of technological
capabilities and market linkages that enable firms to REDUCING EMISSIONS
improve their competitiveness and move into higher-value FROM NITROGEN
activities (Kaplinksy and Morris 2001). The following are FERTILIZER USE
Managing the timing and
the types of upgrading that firms commonly undertake:
amount of irrigation for
maximum efficiency while
1. Process Upgrading minimizing runoff

Crop rotation with legumes

Process upgrading is usually driven by the need to cut costs such as mung bean and
and/or increase output in response to competition within peanuts to fix atmospheric
nitrogen in the soil - this will
the value chain or between value chains. Competition in reduce the need for inorganic
the form of low-cost alternatives both from inside the nitrogenous fertilizers and
value chain and from competing value chains may place help to break pest host cycles
pressure on MSEs/agribusinesses by reducing the demand Direct drilling techniques
for their products. This competition forces rather than conventional
MSEs/agribusinesses to respond by increasing their cultivation
production efficiency or, in other words, by upgrading their
REDUCING ENERGY
production processes.4 CONSUMPTION AND
THE RELIANCE ON
NONRENEWABLE
FUELS
Use of solar pumps and solar
dryer

Adoption of resource
efficiency and cleaner
production techniques

ENERGY SAVING
OPPORTUNITIES IN
FOOD PROCESSING
Economies of scale/optimum
utilization of capacity

Good maintenance and

housekeeping practices

MINIMIZING SOLID
WASTE
Improving inventory
management to minimize
disposal of expired materials
2. Product Upgrading
Proper storage and handling
Product upgrading is motivated by changes in end markets,
Improving procurement
usually stemming from changes in consumer preferences. management
To remain competitive in mercurial markets, MSE
producers must upgrade their products to meet consumer Reusing wastes on-site or use
as feed for another process
preferences.

4
USAID MicroReport: Lessons Learned on MSE Upgrading in Value Chains.

60
 Example of Product
Upgrading: Shift to
Production of Naturally
Farmed Pork Meat

The price of feed has the largest

effect of all inputs on the
profitability of hog growers. One of
the most consistent determinants of
relative profit efficiency, and thus,
of profitability over time, of
backyard hog production is the use
of good quality feeds. The use of
good feeds in conjunction with the
use of higher quality animal breeds
shows up in the taste of the meat,
the percentage of fat, and also in
better feed conversion ratios.
Likewise, a change in the price of
3. Functional Upgrading feed has a large impact on the
profitability of hog farmers.
Functional upgrading is the entry of a firm into a new,
Feed and slurry production are
higher value-added function or level in the value chain. It
important environmental hotspots
involves increasing value added by changing the mix of in the product chain of pork. The
activities conducted within the enterprise (e.g., taking feed digestibility is a key parameter
responsibility for or outsourcing intermediate processing, for achieving reductions in both the
logistics and quality functions) or moving the locus of feed consumption and slurry
excretion per pig produced.
activities to different links in the value chain (e.g., from Improved digestibility can also be
farming to trading). obtained with improved farm
management.
An example of a functional upgrading would be a cassava
To address above constraints,
farmer expanding his/her activities to chipping and progressive hog raisers are
consolidation. Dry chips have 3 advantages: i) adds value diversifying into the production of
for cassava farmers; ii) longer shelf life: and iii) dry chip is naturally farmed pork cuts. More
lighter and takes up less space than fresh tuber, which than just being antibiotic- and
hormone-free, the products are
reduces transport costs. naturally delicious and full of flavor.

Hogs are raised in the same farm

or within the proximity of farms
where most of their feed is grown
under an organic or natural farming
system and where manure is
recycled efficiently and ecologically.
Livestock management is based
primarily on reducing and avoiding
stress as opposed to treating or
compensating for the symptoms of
stress. Hogs thrive on an all-
natural fermented diet aimed for
good nutrition, efficient feed
conversion ratio, and enhanced
meat flavor.

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4. Channel Upgrading
Channel upgrading is the entry of an enterprise into
one or more new end markets with the same basic
product. Participation in a range of markets
generally help farmers and MSEs cope with market
risks.
Some of the key lessons in channel upgrading based
on studies conducted by USAID include the
following:
a) Channel upgrading by MSE owners is motivated
by the desire to improve risk-adjusted returns.
Higher prices, higher sales volumes and more
effective risk management through
diversification all provide incentives for MSEs to
enter into new market channels. MSEs may also
enter into new market channels to seek an
outlet for lower quality products that do not
meet export or other high-value market
standards.
b) Channel upgrading is a dynamic response to
changing market conditions.
Enterprises respond to changing consumer
preferences and prices in a dynamic way, so
that channel upgrading is rarely a complete and
one-time-only shift from one market channel to
another. In some cases, MSEs shift to a new
Example of Product Upgrading:
From Wood Charcoal to
Charcoal Briquettes
Making charcoal requires minimal
financial and human capital, and is
therefore attractive to people with few
assets. In the past when trees were
still abundant, charcoal makers chose
specific types of wood for producing
charcoal. These preferred species
produce charcoal that is black, shiny,
heavy, and does not easily break. As
the scarcity of the preferred species
became more severe, many of the
marginal charcoal makers are forced to
make use of any wood that they can
gather out of necessity. End buyers
and traders though are very discerning
with the quality of charcoal and avoid
buying from those making inferior
quality charcoal.
To date, a growing number of charcoal
makers are shifting into the production
of green charcoal briquettes from
cellulosic wastes such as coconut
husks/shell, rice hull/straw, sawdust,
grasses, twigs, etc. as an alternative to
traditional wood-based cooking fuel.
The technology, which was jointly
developed by the Ecosystems Research
and Development Bureau (ERDB) and
the Forest Products Research and
Development Institute (FPRDI) and
promoted by the Department of
Environment and Natural Resources
(DENR), has been tested to be
economically and commercially viable.
Among the advantages that this
technology offers are the following:
For every ton of abandoned biomass
charcoal briquette, about 88 trees with
a diameter of about 10 cm are saved
from wood fuel cutting and charcoal
making.
It is a smokeless fuel and would help
mitigate carbon dioxide emission
It is more efficient than the traditional
charcoal. Households can save 40% to
50% on fuel cost.
Support the waste management
system of LGUs
62
 market channel to escape declining prices. In other cases, MSEs seek less volatile prices.

c) Selling exclusively to the highest-priced market channel may not maximize an MSE’s risk-
adjusted returns.
Markets are dynamic and the end market paying the highest prices today may not pay
the highest prices tomorrow. The risks associated with price and demand fluctuations
are an important motivation for MSEs to sell in multiple market channels, including
lower-value market channels.

C. INTERVENTION DESIGN

The vision provides the platform for prioritizing constraints and operations and,
consequently, interventions. Industry stakeholders must come to an agreement on:

• How to create a competitive advantage

• What is to be the focus of the greening and upgrading strategy
• What is needed to sustain competitiveness and green and inclusive growth

To reach scale, interventions should strengthen the whole market system or industry.
Below are some guidelines in designing interventions:

63
a) Prioritize constraints and opportunities identified during the VCA vis-à-vis
competitiveness vision together with industry stakeholders. Priority should be given to
systemic constraints.

b) Define strategies together with industry stakeholders. The process of establishing and
defining the strategic directions must be driven by industry stakeholders, principally but
not exclusively from the private sector.

c) A good strategy exploits the positive current situation, preserves and manages existing
resources, and focuses on efficiency and effectiveness.

d) Take into consideration the capacities and incentives of players in the industry when
designing strategies to ensure that the starting point is well within their reach.
Incentives and motivations are important considerations so as to ensure that
stakeholders do not lose interest in the change process and will take ownership of the
strategies.

e) For strategies that require subsidy or external funding support, it is important right from
the outset to think of the exit and sustainability strategy. To the extent possible,
strategies should be based on market-based or commercially grounded transactions

f) In designing strategies, it is important to focus on the underlying cause of the

constraints and not the problem itself.

g) Identify catalysts --- actors in the value chain with incentives, skills, and resources to
drive upgrading investments in the chain

D. PRIORITIZING CONSTRAINTS

It is advisable to focus on constraints that present opportunities for simultaneously creating

value for the business and tacking environmental management. One way to prioritize a
range of issues involves ranking them according to their relative environmental and business
impact using the Issue Priority Matrix (Figure 33) and Table 3.

Table 3. Assessing Degree of Impact for Prioritizing Constraints

Impact Level Environmental Impact Business Impact
High Results in significant damage to Significant ramifications for
the general environment and is business and reputation with
of great concern to stakeholders. potential for substantial losses or
gains.
Medium Causes some damage to some Moderate ramifications for
parts of the environment and business and reputation.
attracts some stakeholder
concern.

64
Table 3. Assessing Degree of Impact for Prioritizing Constraints
Impact Level Environmental Impact Business Impact
Low Results in minimal environmental Minimal ramifications for business
damage, with limited stakeholder and reputation
interest.
Source: OECD Sustainability Manufacturing Toolkit

E. IDENTIFYING CATALYSTS

There is a need for catalysts to exist at the different levels (functions) of the value chain for
change to reach upstream players. Greening may be initiated by either a processor-exporter
but there is a need for core people within the community itself who are receptive to the
change process and, in turn, catalyze growers and other players in the locality to adopt the
changes. Depending on local conditions, a catalyst at the community level may be a
cooperative or trader. In many project areas, community-level catalysts also need the
municipal government to act as a ‘co-catalyst.’ Involving the municipal government is often
important because the government legitimizes the initiative, draws in other participants and
provides resources that can accelerate the change initiative (e.g., farm-to-market roads,
land for common service facilities, etc.) Getting respected industry players and other
relevant stakeholders (e.g., service providers, government) involved at the earliest time
possible is a key way to build momentum in value chain development initiatives.

65
The first step in identifying potential catalysts is to get a clear picture of the following at all
levels of the chain:

• Who influences and controls access to markets (at the community level) and how
they do so

• Ways to improve capability and capacity so that influence and control can be used to
yield positive benefits for microenterprises and the improvement of the chain in
general without eroding their profit margins

• incentives and motivations to drive the upgrading and greening process

In filtering catalysts, an important aspect to take into consideration—aside from having

resources and skills—is the presence of a clear business purpose (e.g., needing a stable
supply base, seeking to increase cost efficiencies, etc.) rather than philanthropy-driven
initiatives to ensure a medium- to long-term commitment. It is equally important for
catalysts to have some sense of social responsibility and affiliation with the community.
Other important factors in the identification of catalysts are compatibility and similarities in
philosophy and approach with the other players in the chain.

66
A. THE BUSINESS MODEL CANVAS

A “business model” describes how an individual enterprise organizes itself and its
relationships in order to create and capture value. It describes how the building blocks of
production, marketing, costs and revenues come together to provide a value proposition in
the marketplace that differentiates the enterprise from its competitors. The business model
concept is linked to business strategy (the process of business model design) and business
operations (the implementation of a company's business model into organizational
structures and systems).

Building Blocks of a Business Model (LINK Methodology)

1. Customers

Customers are at the core of the business model because, without them, no business
can survive. It is important to understand the needs of the customers or customer
segments to determine how to best satisfy those needs.

 Who are your customers?

 For whom are you creating value?
 To whom do you sell your products or services to?
67
  Who are your most important customers or customer groups?

2. Value Proposition

The value proposition underpins the success of any business model. The value
proposition is the reason why customers choose your product or service over another.
To identify the value proposition for each customer or customer segment, consider the
problem or need that your product or service satisfies. In the context of small holder
inclusion, business models beyond a mere economic value are needed. The value
proposition should offer a solid combination of economic, social and environmental
value to both downstream (whom you sell to) and upstream (whom you buy from)
actors.

3. Customer Relationship

Describe the type of relationship you wants to establish with each customer segment in
order to deliver the product or value proposition. Consider the following aspects:

 The channel of communication

 The consistency of the communication
 The cost of maintaining the communication
 The potential to differentiate our company through a distinct customer
relationship or customer service.

4. Revenue Streams

Revenue streams are the source/s of income. A company’s revenue stream is made up
of the following elements: A VALUE PROPOSITION that reaches a CUSTOMER (segment)
through a certain CHANNEL supported by a distinct type of RELATIONSHIP.

5. Key Resources

An organization's key resources describe those physical, intellectual, financial or human

resources that are essential to create and sustain the value proposition, deliver it to the
market, establish customer relationships and generate income.

Types of Resources

Physical: infrastructure, machinery, equipment, technology, warehouse

Human and knowledge-based: skills, ability, know-how, employees, partners Intellectual
Property: brand patents, copyrights, data
Financial: Cash flow, access to credit, savings, insurance. Social: Relationships, unions,
community, cultural assets.

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6. Key Activities

An organization’s key activities are crucial for the business to successfully function. Like
key resources, they are required to create and sustain a Value Proposition, reach
markets, maintain customer relationships, and earn revenues.

Sample Categories of Activities

 Production
 Processing
 Marketing
 Logistics Management
 Producer Networks
 Quality assurance
 Problem Solving

7. Key Partners

Only very few business models can operate without a support network of KEY
PARTNERS. Partners can be divided into two groups:

 DIRECT PARTNERS with whom the company operates its core business model
(e.g. producers, transporters, input suppliers, etc.)
 INDIRECT PARTNERS who support or facilitate the development of the business
model (e.g. financial institutions, research centers, universities, NGOs, public
sector agencies, local governments, etc.)

8. Channels

Channels refer to how the business reaches and interfaces with its customers. In the
case of agricultural products, the sales channel often is equivalent to the logistics supply
chain, which transfers the product between the producer and the final customer.

Channel Phases

Awareness: How do we raise awareness about our products and services?

Evaluation: How do we help customers evaluate our value proposition?
Purchase: How do we help customers purchase specific products and services?
Delivery: How do we deliver our value proposition to customers?
After sales: How do we provide post-purchase customer support?

9. Cost Structure

The business model’s cost structure describes the costs incurred for the creation and
delivery of a value proposition, maintaining customer relationships and generating
income

69
B. GREEN AND INCLUSIVE BUSINESS MODEL

A major difference between conventional and green inclusive business models is the need
to capture value in different parts of the value network, most notably for smallholder
suppliers and primary producers. Any business model needs to be appropriate for the
geography and structure of the supply chain. The choice of business model will depend on
the nature of the partner networks, product (perishable, differentiated or bulk commodity)
and the nature of the end buyer. These same factors determine the nature of economic
dependency between chain actors. The business model is in a way a summary or the
consolidation of the analysis made on markets, relationships, and chain upgrading.

Below are the key principles to be considered when building the business model:

1. Chain wide collaboration on shared competitiveness vision/goals and identified

champions for those goals

This represents a shift from the traditional firm-based view of business models, to one of
chain-wide processes involving multiple actors. Chain wide collaboration ensures that all
chain actors are pulling in a similar direction guided by the competitiveness vision. Often,
value chain participants are not conscious of how their actions and behavior affect the
competitiveness of the whole chain and, ultimately, impact their livelihood. Many value
chain actors see the implications of their actions only from their own perspective and that of
their immediate links (e.g., input suppliers or intermediary buyers). It is, therefore,
necessary to help producers, intermediaries, and processors understand the entire value
chain, not only their specific role in it.

Close collaboration is vital for perishable commodities such as fresh vegetables, dairy and
meat, which require traceability and have higher food safety risk profiles. Collaboration is
also key to upgrading, in terms of quality or sustainability, in the commodity trade. This is
increasingly visible in the growing number of certified products, such as organics, Rainforest
Alliance, Fairtrade and other certification based systems.

In many cases, a greening and upgrading strategy requires several fields of actions that have
to be dealt with in parallel by different chain actors. Because each attribute of the finished
product originates from a particular point in the chain, the effectiveness of the entire supply
chain is essential to the final product’s success in the market.

Food safety and quality, for example, are principally assured through the combined efforts
of all the value chain participants. Communication along the supply chain is essential to
ensure that all relevant food safety hazards and quality defects are identified and
adequately controlled at each step within the supply chain. This implies recognition,
understanding, and interactive communication of process and product standards among
and between downstream and upstream players in the chain.

Reaching and implementing agreement often involves identifying a driver or a champion to

lead the process. This champion may be from the lead firm, from a dedicated wholesaler, a

70
motivated farmer, co-operative manager and might be a single individual or a group of
people.

Inclusive green business models designed to assist fair and equitable smallholder inclusion
in formal markets need to create win-win relationships which can be characterized as
follows:

- Durable: with long-term trading relationships

- Equitable: specifically increasing market access for smallholders with equitable
balance of risk, responsibilities, and benefits among the chain actors
- Efficient: improving financial sustainability
- Effective: assisting in guaranteeing purchaser access to consistent supplies of
agricultural products that meet or exceed market standards
- Adaptable: offering sufficiently flexible procurement standards that enable both
buyers and sellers to respond to changing markets and social and environmental
conditions
- Credible: recognized as offering real benefits and free of double standards.

2. Upgrading of Market Linkages

Market linkages are common weak points in the inclusion of small-scale farmers in modern
markets. There almost always needs to be another link in the supply chain between an
individual smallholder and buyer. This intermediary often aggregates production from small-
scale producers and provides support and associated services to meet the required
standards. Market linkages are key to reducing transaction costs. Therefore, to build
sustainable business models, attention needs to be paid to intermediary market agents and
how they can best perform this function with an eye on maximizing development benefits
for smallholders. For farmers and their organizations, these linkages should provide a stable
market with clear quality, volume and price signals as well as access to production support
and contribution to improved livelihoods. For buyers, these linkages must provide a
consistent supply of safe, quality products at a competitive price and with low transaction
costs. For the stability between supply and demand, direct communication must exist
between the producer, supplier and buyer.

Supply chains, with co-investment and knowledge-sharing between producers, suppliers,

processors and retailers, are usually built around a small number of large-scale preferred
suppliers. Inclusive business models must therefore build in market linkages that put small-
scale suppliers on par with, or above, the competitiveness of large scale suppliers.

Where direct collaboration is not feasible or scalable, adapted business models are called
for. From the producer side, group organization increases farmers’ incentives to cooperate
to compete as one single supplier, by restricting their opportunistic behavior and by mutual
control. This type of collective action saves costs for quality and quantity verification and
testing.

At the level of food manufacturers and retailers, this principle could include a commitment
to seek out these organizations of small-scale producers. Where there is distrust of producer

71
organizations, or where investments in producer organization will not result in a stable
procurement system, the ability to meet minimum volume requirements, homogeneity in
quality of the shipped produce, and meeting terms of payments, then specialized
intermediary enterprises or lead farmer models may be the solution.

At the level of trading, new models can comprise the upgrading of existing formal or
informal intermediaries, or the establishment of new trading organizations and even a
“franchisable” social trader model.

3. Transparent Chain Governance

Producers and small-scale processors are typically reliant on traders and larger processors to
dictate quality standards. These standards often seem like moving targets and with poor
communication throughout a value chain, can significantly increase market inefficiencies,
leading to high wastage and lower prices. Fair and transparent governance refers to the
establishment and enforcement of clear and consistent grades and standards, clear
commitments to buy and sell certain volumes of certain grade products at certain times, and
equitable processes of risk management. Producers need to have access to mechanisms
that allow their buyers to be held accountable, and vice versa. Some of the ways to improve
the fairness and transparency of supply chains include:

- A clear and accessible product standards enables the farmer to know what is
required to get the top quality prices or can facilitate productivity improvement.

- Standards that are developed with participatory voices of the producers rather than
unilaterally by buyers are more likely to avoid unintentional exclusion of some
producer groups. Bringing together value chain participants can be a good way to
developing consensus-based norms/interpretation of standards and ownership of
the standards, which would help remove a sense of outwardly imposed
requirements. Immediate benefits may include lower transaction costs, owing to less
reworks and rejects, as well as a significant reduction of conflicts caused by differing
understandings and interpretations of standards.

- Transparency of prices through the chain empowers more effective and grounded
negotiation even without needing transparency of margins.

- Transparency about the impact of changes in pricing and policy through the whole
value chain enables decisions makers to consider the sustainability of the whole
chain.

- Contracting with farmers is another way to bring about transparent chain

governance, in which smallholders know the prices they are going to receive for their
produce and the terms under which both parties should operate.

Inclusive and sustainable business models also seek to make incentives transparent and
assist in their accrual to actors responsible for positive change. Examples include
incentives for meeting or exceeding quality and quantity goals, contracts that leverage

72
 access to credit, access to reasonably priced inputs, etc. The key issue here is the need
to align incentives with outcomes. An inclusive and sustainable business model, for
example, would link incentives for upgrading to improved market conditions under a
profit sharing agreement (i.e. the farmers improve quality which allows the product to
be sold to more exacting consumers at a higher price, with part of that price premium
returned to farmers and the remaining covering marketing expenses). It is also
recommended to start with easier, low-risk improvements that will more quickly yield
results. This strategy builds confidence and buy-in among value chain participants,
helping them use initial benefits to invest in the next stage of upgrading.

4. Equitable Access to Services and Inputs

One of the special challenges faced by small-scale producers that often prevent
successful participation in more formal (and potentially profitable) markets is the lack of
access to financial and non-financial services and inputs. Access to services may be
facilitated through the following:

- Development of an indigenous community based capacity to develop and provide

services. The business development services system may be built on existing
trade/marketing structures to facilitate the flow of services and learning to all
players in the community supply chains.

- Promotion of embedded services (e.g., lead firms provide technical assistance to

farmers) within the context of improving own and supply chain’s operations. Careful
calculations have also to be made to ensure that service delivery did not undermine
profitability of business operations of both the value chain-based providers and the
micro enterprises. The challenge is to identify these progressive individuals at the
community level and how to motivate them to improve their capacities and
capabilities in order to provide sufficient support to their peers as a means of
improving both their incomes.

73
74
 Template 1: PAIRWISE RANKING

1. For each selection criterion, compare products by pairing (A vs B, A vs C, A vs D, and so

on).

INCOME PRODUCT/VALUE CHAIN

GENERATION
A B C D E

A
B
C
D
E

2. Count how many times each product won over the others

INCOME PRODUCT/VALUE CHAIN

GENERATION A B C D E
A A A A A
B B B B
C C E
D E
E
Frequency 4 3 1 0 2

3. Rank products based on frequency (highest frequency is ranked as 1)

INCOME PRODUCT/VALUE CHAIN

GENERATION A B C D E
A A A A A
B B B B
C C E
D E
E
Frequency 4 3 1 0 2
Rank 1 2 4 5 3

75
 Template 2: MATERIALS AND PROCESS FLOW ANALYSIS

Tasks

1. Using the VC map as your reference, map out the common key materials, practices, and
technology for each functions in the chain.
2. Assess corresponding environmental impact and implications to enterprise
performance.

Value Chain: Natural Rubber

Common Practices Environmental Impact Business Impact

Majority of rubber trees Inefficient land and resource Low return on investment
are still of low yielding utilization; low yield
clone compensated by increased
hectarage/ establishment of
plantation
Poor agroforestry Reduced capacity to improve soil Unfavorable soil and
management practices conditions. Rubber is an agro- environmental conditions
reforestation tree material. It and poor agronomic
promotes an environment- practices may result to low
friendly farming system latex yield and,
(including being a major carbon consequently, income.
sequestrator).
Prevalence of diseases ---
Rubber plantations adopting higher production costs; low
proper agroforestry management income
practices (including terracing; silt
pitting and bunding; and the
growth of leguminous cover
plants between the rows to assist
with nitrogen fixation) help in the
enrichment of organic matter,
which consequently improved
soil physical properties, such as
bulk density, soil porosity,
moisture retention and
infiltration.
Monocropping Inefficient land utilization Income generation problem
during the first six years/
Reduced protection against soil Long gestation period which
orientation limit participation of small
farmers

76
Value Chain: Natural Rubber
Common Practices Environmental Impact Business Impact
Reduced capacity for soil
regeneration/soil nutrient
enhancement

Poor tapping practices/ An estimated 10 years, i.e. Low yield production and
Highly intensive tapping approximately 50%, of the inferior quality. Proportion
productive life of the rubber tree, of raw latex is lower and
In the preparation of is lost due to harmful tapping quality is inferior due to
wet coagulate, some practices. In such instances the premature and
tappers add provision of good planting inappropriate harvesting
contaminants such as material becomes less significant methods and the practice of
sand and bark shavings and even counter-productive due mixing other substances
intentionally to to mismanaged latex exploitation
increase weight. Others as clonal planting material is Price reduction due to
use sulphuric acid (from more susceptible to tapping presence of impurities
batteries) as coagulant intensity.
which is much cheaper Higher processing costs. The
than the recommended Contamination of soil and water - processing of low quality raw
coagulant (formic acid). -- from waste thrown to ground latex entails a much longer
Others use coagulants (double) processing time,
known for their high Higher air emission. Higher thus longer use of
water retention energy and water use machinery, and higher
properties. In some expenses for electricity,
cases, tappers do not water, labour
use appropriate
rainguards or rainskirts
to protect the latex
while being harvested.

Inadequate storage, Environmental pollution Missed opportunities for

collection, and associated with the collection value added processing
processing technology and processing of condensed
and facilities latex. Smell pollution from High transaction costs
collection points and processing
plants persist even with the Inferior quality; low income
construction of underground
ditches for waste from
condensed latex processing.
Waste from condensed latex is
huge in volume

High energy and water use

77
 Template 3: RELATIONSHIP MATRIX

Tasks

1. Identify main relationships

2. For each relationship, identify key relationship components
3. Describe current practices for each component with greening and inclusive growth as
main considerations

Aspects Description
Farmers and Traders
Supplier and Buyer Spot selling and purchasing
Selection/Procurement
Process No prior commitment or orders but there was some informal
guarantee of business beyond today. Some degree of
recognition of past transactions/relationships.

Price and terms of payments were the main determinants on

whom to sell and from whom to buy. Info dissemination re:
trader with higher buying price spread fast within the
community.

Flexible and subjective pricing and payment terms

Implications: Greening and Inclusive Growth

It may be possible to promote a semblance of inclusive growth

by helping smallholders to improve price competitiveness.

It may also be possible to promote greening using trader’s

informal network of suppliers or Filipino’s concept of suki
system. However, experiences indicate that traders are
willing to impose additional standards if these come from
their buyers.

Main constraint is that under this system transactions are

usually based on who can give the lowest price for products of
acceptable quality based on local norms/ quality standards.
An opportunity is to build long-term partnerships/
relationships to mutually grow business anchored on the
“suki” relationship.
Information Sharing/ Some degree of information sharing on pricing and costing
Transparency and demand trends from traders --- but more for their benefit
or sometimes distorted to serve their interest

78
 Prices vis-à-vis standards are arbitrarily set and which micro
enterprise accepts in exchange for immediate cash.

Implications: Greening and Inclusive Growth

Farmers are typically reliant on traders and processors to

dictate quality standards. These standards often seem like
moving targets and with poor communication throughout a
value chain, can significantly increase market inefficiencies,
leading to high wastage/rejects and lower prices. To improve
the governance of quality along the chain, there is a need for
harmonization of standards particularly its interpretations. It
may be possible to explicitly factor social and environmental
criteria in the standards as a means of reducing operational
risks, maintain profitability, and meet the growing demand for
sustainably produced goods.
Quality Control and Visual inspection only which led to mistrust issues.
Inspection Automatic deduction to compensate for whatever quality
issues. This provided disincentives for upgrading.

Implications: Greening and Inclusive Growth

Objective and better quality control measures will improve

relationship between and among players. It will also
potentially reduce rejects and reworks and consequently
reduce use of energy and water as well as emissions.
Value added services/ Some learning and skills transfer but limited to local norms
Cooperation and and capability of traders
collaboration
Implications: Greening and Inclusive Growth

There is a need to promote Interdependence and partnership.

Both parties can mutually exploit cost, quality, technical, or
marketing advantages via their collaboration.
Basis of Competition/Offer Price
to the Market Basic Produce

Implications: Greening and Inclusive Growth

Greening can provide the pathway for parties to be able to
transact business under better conditions --- primarily through
specific differentiation factors other than price.

79
 Template 4: INTERVENTION DESIGN

ISSUE POTENTIAL SOLUTION APPROACH TO POTENTIAL

IMPLEMENTING PROPONENT/
SOLUTION CATALYST

Rice is more water Introduction of Additional service that Irrigators

consuming than Alternate Wetting and can be provided by Association
many other crops. Drying (AWD), a irrigators’ association
Water is a water-saving Rice Farmers
substantial economic technology that Association
cost to rice lowland (paddy) rice
producers and farmers can apply to
processors, as well reduce their water use
as an in irrigated fields
environmentally- Development of Community-
sustainable concern. Access to short-cycle indigenous capacity to based certified
The large amount of and high-yielding rice produce certified seeds seeds producers
irrigation water could successfully of varieties adapted to
needed for rice lower the amount of changing agro- Rice Farmers
production can irrigation water used ecologies, with high interested to go
eventually lead to in continuously tolerance to biotic and into seed
groundwater table flooded cultivation. A abiotic stress, and production
reduction or can more consistent suited to low input
place pressure on reduction of water systems. The certified
surface water consumption could be seed production units
supplies. The direct obtained by can be community-
benefits of water developing profitable based enterprises
conservation include varieties suitable to owned and operated by
reduced pumping discontinuous farmers and farm
costs, increased irrigation in all climate laborers. These
availability of surface conditions. community-based
water reserves, and enterprises can also be
reduced depletion of developed to provide
groundwater coaching to their peers
aquifers LGU
Rice Farmers
One-time technical Association
Promotion of assistance to develop
intercropping. core group of
Intercropping allows community-based
for further water trainers to support LGU
savings and more extension officers
efficient water usage,
and effectively

80
 ISSUE POTENTIAL SOLUTION APPROACH TO POTENTIAL
IMPLEMENTING PROPONENT/
SOLUTION CATALYST
provides growers with
two crops from the
one application of
water. Careful water
management of rice
farms is needed to
ensure both
environmental
sustainability and rice
productivity.
Reliance on Upgrading of Nutrient Community-based Farmers
inorganic inputs and Management processing and Association
poor farm Practices/ Promotion marketing of Input Dealers
management of Good Agricultural technological inputs
practices: The Practices (GAP) which will reduce
increased use of dependence on
chemical/ inorganic Promotion and expensive external
inputs during rice adoption of natural inputs and facilitate
production rice farming protocols. shift towards
represents not only This can facilitate the sustainable,
increased cost of gradual transition into regenerative production
production for organic rice systems. This will also
farmers, but also a production. contribute to
potential source of employment
pollution. Fertilizers Production and use of generation. Availability
account for 25% - natural inputs of cheap and quality
30% of total cost of fertilizer will augment
production. Methane mitigation the purchasing power
Suboptimal use of using reduced tillage of farmers which is
inputs results to technology and mulch tantamount to an
poor yields. (rice straw) increase in income.
Coaching on GAP and
natural farming
protocol can be
provided as an
embedded service.

The traditional Shift to white copra White copra processing Farmers

method of drying production/ Upgrading and trading facility association
copra is labor of facilities and operated by farmers’
intensive, technology groups under a Oil mill
increasingly marketing contract with

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 ISSUE POTENTIAL SOLUTION APPROACH TO POTENTIAL
IMPLEMENTING PROPONENT/
SOLUTION CATALYST
expensive, and an oil mill
results in the
presence of toxic
substances such as
aflatoxin, which is
unsafe for human
consumption. Poor
quality copra
translates to losses
for all players in the
coco oil chain. In
addition, copra
makers are exposed
to intense heat and
smoke especially so
that they do not use
any safety or
protective gears.

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