Vous êtes sur la page 1sur 24

S.

Rengasamy – Sub sector / Value Chain Analysis for Livelihood Intervention

Compiled by
S.Rengasamy
Madurai Institute of Social Sciences

1
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Content
Sub sector Analysis / Value Chain Analysis for
Livelihood Intervention
Box Footprints of commodities 3
Why sub sector analysis 3
Box 3 E Exercise 3
Dia Sub sector model 4
Dia Local Global value chain 4
Dia Four stages of Sub sector analysis – Basix’s Model 5
Box Sub sector analysis for pro poor growth 6
Dia Value chain analysis 6
Dia Poultry Chain 7
What is a sub sector 7
Box Value chain /Sub sector analysis can help 7
Box Elements of sub sector analysis 8
What is sub sector analysis 8
Dia Steps in sub sector analysis 8
Step A: Preparing a preliminary sub sector map 9
Getting to know the sub sector 9
Dia Framework for analyzing rural non farm sector analysis 9
Dia Sub sector map : Green Beas for export 10
Dia Stages in enterprise value chain 10
Dia A Model –Ready made garment chain 11
Dia Green Beas for export –Constraints and business service identification 11
Box Value chain 12
Box What does value chain analysis entail 12
Step B:Interviewing key informants 12
Box Sectors, Clusters & Networks 13
Box Value chain governance 13
Box Charcoal value chain 14
Box Milk subsector value chain 15
Step C:Drawing a preliminary sub sector map 15
Box Community based retail enterprise sub sector 16
Dia Community based retail enterprise sub sector 17
Refining the understanding of the sub sector 18
Box Social relationship in a charcoal value chain 18
Specifying the institutional context 18
Tab Regulation, Promotion, Credit, other institutional factors 19
Step B: Specify the environmental context 19
Tab Sub sector analysis 19
Box What does upgrading means 20
Step C: Refine the subsector map 20
Dia Rice chain in Thailand 21
Step D:Quantify overlays of particular interest 21
Step 3: Analyzing sub sector dynamics and leverage points 22
Analyzing the dynamics of the sub sector –i.e. Key demand, Technological change, Profitability, 23
Risk, Barriers to entry, Large firm behavior, Input supply, institutional support, Identify sources of
leverage points
Choosing the right intervention point 24

2
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Sub-sector Analysis / Value Chain Analysis for


Livelihood Intervention
Understanding economic system in which livelihoods operate

"Once upon a time, we knew the origins of things: what piece of earth the rice on our
dinner plate came from, which well our water was dipped from, who cobbled our foot
wears, and whose cow provided the milk and leather. In many parts of the world, that
information is still readily available. But in the present day society, even as technology
makes certain kinds of information more accessible than ever, other connections are
irrevocably lost."

Why Sub-sector Analysis?


Micro and small-scale enterprises (MSEs) employ vast numbers of people throughout the
third world. They provide a key source of income for the poor and for women. Yet MSEs
struggle to survive in a highly competitive, fast changing business environment. Some
operate in rapidly growing markets while others are squeezed by changes in demand,
technology, labor costs, tariffs, input prices, government regulations and competition from
large firms and imports.

In spite of their resourcefulness and savvy, small firms often lack political influence as well
as the vantage point from which to understand the overall competitive system in which they
operate. Field agencies can help by serving as advocates, monitoring and influencing change
for the benefit of micro and small-scale enterprises (MSEs). But to do so, field agencies need
ways of identifying niches where MSEs have a competitive advantage so that these agencies
can assist those MSEs with the greatest potential while avoiding investment in areas where
they cannot effectively compete. Subsector analysis offers a tool that can facilitate small-firm
moves to promising technologies and market niches.

Normally, a subsector is delineated by a particular final product and includes all firms
engaged in raw material supply, production and distribution of that product. In some cases,
however, the defining characteristic is a key raw material, with the subsector describing
alternative transformations and distribution systems emanating from it. The hides and skins,
cotton, and citrus subsectors are examples of this second type. They are common in the
The 3-E Exercise (Exploring the External
literature on agricultural economics marketing,
Environment) helps us identify some of the where they are known as commodity subsectors.
ruling bottlenecks that need to be overcome to Many of the analytical tools used in subsector
support livelihoods of many people in the area. analysis come from these early subsector studies
Step. 1: Identify Key Informants on agricultural commodities.
Step. 2: Develop Questionnaire/check list for
Assessment Promoting individual enterprises to enhance
Step .3: Scoring by Key Informants
the livelihood among the poor people in an
Step.4: Aggregate Scores
Step .5: Compare Scores of Different Activities isolated and sporadic way may not be the
Step .6: Identifying Bottlenecks most effective way to enhance their
Step .7: Identifying Interventions livelihoods.

An enterprise is not an isolated structure. It is organically connected horizontally and


vertically with other enterprises and activities. Our effort may go waste if there are fault lines
in the relationship. Enterprises can be established easily but to sustain it and upscale it, one
needs to understand the large picture. There are several tools and techniques are used to

3
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

understand this picture. 3E exercise is one such a tool. Sub sector analysis or Value chain
analysis is another important tool that helps us to understand more about the economic
system, the whole value addition chain and various players in it. It helps us to determine the
most cost-effective intervention to achieve the livelihood outcomes that we seek in our area.
Sub sector Model

End Consumer G
L
0
Large Scale Small Scale B
Trader
Multi outlet Retailer A
L
E
C
Specialized Buyers / Trans National O
Buyers Import Company N
O
M
y
Local Traders or
Markets Export National

N
A
Large Scale T
Small Scale Small Scale & or Multi I
Producer Producer Plant O Meta Level
Macro Level
N Meso Level
A Micro Level
L
Raw Preliminary S
Traders E
Material Producers
C
T
O

4
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

4 Steps of Sub-sector Analysis –Basix’s Model


Raw material from where?
Sell to whom? Where?
Immerse yourself in Use what technology? Why? Any alternative?
the sub-sector Main regulations that affect business?
Sources of funds?
1 Interview key Supporting agencies/actors? How?
informants Main problems faced?
Preparing a
preliminary
List all functions involved in converting raw material to final
sub-sector map product in left hand column
Identify final markets and list all final markets across the top
Draw a preliminary Map various participants who perform different functions in
sub-sector map respective rows
Draw arrows to describe product flows

Regulatory Institutions * Promotional Institutions


Specifying institutional context Credit Institutions
Other institutional factors: Producer organizations,
2 Trade Associations, Labor associations
Refining
understanding Specifying Check:
environmental context Do activities have environmental impacts?
of sub-sector
Are environmental conditions favorable?
Could more environment friendly practices be introduced?
Refining sub- Are investments required for processes to become more
sector map environment friendly

Quantifying Add information collected in these stage to refine sub-sector map


‘overlays’ of Add credit/ promotion institutions to the map
particular interest Add environment organizations to the map

Number of enterprises at each level *Employment and livelihoods generated at each level
Gender division of employment *Volume of product *Price margins at each level *Income
to different players * Returns to labor *Environmental impacts
3
Market Demand: Going up? Down? Stagnant?
Analyzing sub- Analyzing the
Technological Change: New Innovations?
sector dynamics of sub-sector
Profitability of different components
dynamics and Risk: Are there some new risks?
leverage points Barriers to entry: New policy? Trade condition?
Identifying
Input Supply: New raw material? New Supplier?
sources of
leverage
System Nodes
Geographical Clustering
Policy Constraints

4 List all possible interventions on different columns


Assess competencies/ resources needed on left hand side
Choosing Put a tick mark in boxes for competencies required
intervention point Put tick mark in boxes for the competencies/ resources that
the organization has access to

5
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Pro-poor growth requires a range of enterprise development strategies. These include


Microfinance and other support for micro-enterprises, stimulation of the private sector in
general and policies which protect the interests of employees and poor entrepreneurs through,
for example, enterprise regulation, codes of conduct and the promotion of ethical investment
and consumerism. Social policies in education, health and welfare to increase the skills of
employees and micro entrepreneurs and decrease their vulnerability also contribute to pro-
poor enterprise development as can such diverse approaches as infrastructure development
and changes in property legislation. Such a multi-faceted approach poses challenges for impact
assessment since impacts may be direct, indirect or unintended and goals may involve trade-
offs. Value chains analysis, used as part of a participatory assessment process, can contribute
to strategic learning for enterprise development.

Value Chain & Sub sector Analysis


Value chains analysis was initially used
to better understand why many of the
potential benefits of globalization fail
to reach the poor and why particular
countries and types of enterprises find
it difficult to enter certain sectors. It
has been widely used as a tool for
action research by fair trade
organizations and those involved in
the international Women in the
Informal Economy: Globalizing and
Organizing (WIEGO) including the Self
Employed Women’s Association. It has
also been used in some recent fair
trade impact assessments.
Value chains analysis can be a
participatory and empowering process.
Using maps and diagrams enables
even poor and disadvantaged
stakeholders to be involved in the
collection and analysis of information.
This promotes dialogue and
accountability between stakeholders
as they analyze and negotiate their
common interests in improving the
functioning of chains and identifying
those interventions likely to be most
useful. Participatory value chains
analysis (PVCA) can highlight the
constraints on those controlling the
chain and clarify the possibilities for
change lower down. It can help
overcome barriers and communicate
the perspective of those lower down
the chain to those nearer the top. It
can help make chains freer and fairer
and redistribute benefits to those
currently disadvantaged. Diagrams
and maps can be continually updated
Timber Value Chain and refined as part of an ongoing
learning process.

6
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Chicks Arrive Brooding Stops Point of Sale


Intensive care period
Brooding & Controlled
Temperature Growth Phase Finisher Phase
Newcastle
Vaccination

House Cleaning &


Preparations for next
Phase
Starter Mash Food Grower Mash Food Finisher Mash Food

What is a Subsector?
• "The vertical set of activities in the production and distribution of a closely related set of
commodities." Shaffer, 1968.
• A sub-sector is a network of farms and/or firms that supply raw materials, transform them,
and distribute finished goods to a particular consumer market or markets.
• Any group of commodities, which share a common procurement, processing and
distribution channel, can be clubbed into a sub-sector.
• There is more to a sub-sector than just the core manufacturing process such as rice-milling.
The rice transportation system is as much a part of the paddy sub-sector as rice-milling or
trading is.
• A sub-sector is not within a geographical confine. If the groundnut for manufacture of the
Chiki (Kadalai Mittai - sweetmeat) sub-sector in Lonavala comes from Saurastra, then the
groundnut market in Rajkot (Saurastra) is very much a part of the Chiki sub-sector, that
needs to be studied.
• "An interdependent array of organizations, resources, laws, and institutions involved in
producing, processing and distributing an agricultural commodity." Marion et al., 1986.
• Thus , one can view the subsector as: Value Chain / Sub Sector Analysis can
• A set of activities and a related set of rules help to…
governing those activities. • Reveal links between producers, exporters
• A conceptual way view of a problem. and global markets
• Vertical view of industrial organization. • Identify constraints all along the chain to
competing in the marketplace
Nothing highly complicated about the
• Clarify the relationships in the chain from
approach. Just a vertical way of looking at. buyers to producers
Explanation: • Highlight the distribution of benefits
– range of activities required to bring a product among buyers, exporters and producers
or service to the final consumer
– includes producers, processors, input suppliers, exporters, retailers, etc.
– includes both vertical and horizontal linkages

7
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

– can be defined by a particular finished product or service


• e.g. wood furniture, green beans for export, etc.
** the same definition can be applied to Value Chains
What is sub-sector analysis?
Elements of Subsector Analysis Sub-sector analysis is a process of
1) Understanding Product Markets and Market Trends getting to understand different stages in
2) Relationships between Participants
– describes functions, participants, and relationships
the value addition chain in a sub-sector
among participants and understanding who does the value
3) Identification of Constraints and Opportunities addition, using what technology, at what
– including: technology, market access, organization, terms and with whose help.
policy, finance, input supply, etc. There are FOUR steps involved in
4) Subsector mapping undertaking sub-sector analysis.
– graphic presentation of inter-relationships; 1. Preparing a preliminary sub-sector
– can help to identify participants to interview
map,
2. Refining your understanding of the sub-sector,
3. Analyzing sub-sector dynamics and leverage points
4. Choosing your intervention point.

Steps in Sub Sector Analysis

By using subsector analysis one can put the potential livelihood opportunities identified to a
rigorous test. Subsector analysis clarify whether the activities identified are likely to grow and
significantly benefit a large number of poor people, or are they going to remain a stagnant
activity bringing only marginal benefits to the target group?

8
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Step 1: Preparing a preliminary sub-sector map


There are three action points that are required to prepare preliminary sub-sector map. These
are:
a. getting to know the sub-sector
b.interviewing key informants
c. drawing a preliminary sub-sector map

A: Getting to know the sub-sector


The first thing is to know about a sub-sector in order to identify the whole value-addition
process. So it is better to get as much information about that sector:
1. What are the basic raw materials?
2. Where do the people get them?
3. What is it that they produce?
4. What happens to it: who buys it? What does s/he do with it?
5. Is there some processing? Is there more than one way in which it is processes?
6. What are the one or more final markets for the product?

Framework for Rural Non Farm Employment Sub-sector Analysis

The Sub-sector

Food Processing Other Primary Traditional Modern Services


Processing Manufacturing Manufacturing

Eg.Jaggery Eg. Mining & Eg.Carpentary Eg.Mechanical Eg. Retail Trade


/Pappad making Bidi rolling Reparing

Issues to be analyzed

Availability of Human Knowledge Capital Availability of Market Threats Suggestions


raw material Resources Availability Infrastructure
Base

9
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Sub sector Map –Green Beas for Export

Wholesale Markets Super Markets

Importers Wholesale Dedicated


Importers Distributors Distributors

Transport Airfreight (cargo & Passenger


planes, Freight forwarders
Large
Briefcase Exporters Small to vertically
Exporters
(50%) Less than 5% of medium integrated
total exports exporters (15-20 exporters (8-
Exporters) 10)
Brokers
Brokers 10-15 of exports
5-10% of total

Small to Medium Large Contract


Small Growers
Growers Contract Growers Growers

Input
Stockists of fertilizer, Large distributors & Importers
Suppliers Chemicals & Seeds of Fertilizer, Chemicals & Seeds

Channel 1 Channel 2 Channel 3

Broker Channel Small to Medium Integrated Large

The above questions can be applied to potential livelihood opportunities in services as well as
in manufacturing.

The answers for the checklist mentioned above can be collected by talking to people who are
involved in the business. They could be farmers or producers, traders who deal in the
commodity, product or service, bankers who finance the activity, a government officer

Three stages of an enterprise value chain

Supply of input factors Transformation to a product or Sale to a buyer


Raw materials, labour force, service To a local markets, global
machines ,capital, preliminary Combination of input factors buyers as finished, preliminary Consumer
products, services, Knowledge with production factors (labour, products or raw material
capital & land

10
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

A Model - Ready Made Garment Chain


Competitive Low
High Demand High Price Price Market High Demand High Price Low Price Market

Contemporary Traditional Urban Contemporary Traditional Local


Urban Consumers Consumers Export Consumers Consumers

Boutiques & Elite Lower Value Urban Handicraft Retail Outlets in Retail Outlets in
Upscale Retailers Exporters Local Outlets Markets Export Markets Local Markets

Exporters
Local Sales
Urban Sales Agent
Agent

Male relatives of
Product design Rural Embroiders
Consultants
Urban Micro Rural Self Employed
Garment Makers Embroiders
Dominant Traditional Low Value
Input Suppliers Chain
Input Suppliers
Potential High Value Chain
Weal at present
Urban Rural
Weak & Low potential

Weak & with high potential

responsible for supporting or regulating the activity, or even a professor in the local college.
Books, articles, websites can be of great help to clarify our self an\bout the activities we are
interested in.

It is better to familiarize with:


• Participants in the sub-sector: producers (both women and men), traders, regulators,
financiers, promotional agents
• Alternate technologies being used (e.g. in sugarcane: gur, khandsari, sugar mills, or in
cloth production: khadi handloom power looms) and the environmental impact of any
production processes.
• Factor conditions: The nature of the various factor conditions, as well as support
services, that the business will require to become an important livelihood activity in your
area.
• Product flows: Physical flows (places) and control of flows (traders, regulators)
• History: The ups and downs of the sub-sector and the causes of these.

11
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

A value chain is a sequence of target-oriented combinations of production factors that


create a marketable product or service from its conception to the final consumption. This
includes activities such as design, production, marketing, distribution and support services to the
final consumer. The activities that comprise a value chain can be contained within a single firm or
divided among different firms, as well as within a single geographical location or spread over wider
areas.

The term Value Chain refers to the fact that value is added to preliminary products through
the combination with other resources (for example tools, manpower, knowledge and skills,
other raw materials or preliminary products).As the product passes through several stages of the
value chain, the value of the product increases. A value chain can be very short, like in the case of
milk, or very long and very complex in the case of passenger cars or houses.

For example wood furniture: Every wooden table starts as a tree; it is cut down in the forest and
processed to boards in sawmills. Traders then would sell these boards to furniture producers or
carpenters, who would use their skills to make a table from the boards. Some furniture producers
would sell the table to a local market, whereas others would sell it to traders or export agents.
Large retailers,

Every single enterprise has its own value chain. You could, however, think of a value chain
as consisting of levels with several enterprises at each level. For example the Central Java
(Indonesia) wood furniture industry: here you would find several small furniture producers selling
their products either to local markets, or to traders that would export them to large retailers. You
could even think of a whole national sector as including several levels of a global value chain. In
Central Java you would not only find furniture producers, but also raw material suppliers and
export agents. It is therefore important to distinguish between value chains that feed into
local markets (an end there) and global value chains.

What Does Value Chain Analysis Entail?


In identifying opportunities for upgrading and the constraints to these opportunities, the analysis
should focus on answering the following questions:
• What and where are the market opportunities? (End market analysis)
• What upgrading is needed to exploit them? (End market and chain analysis)
• Who will benefit from this upgrading? (Chain analysis)
• Who has the resources, skills and incentives to drive upgrading? (Chain analysis)
• Why has it not happened already? (Chain analysis)
• What will it take to make it happen? (End market and chain analysis)

B: Interviewing key informants


After gaining an initial understanding of the sub-sector, one needs to approach key
informants, i.e. those who are knowledgeable in order to gain deeper understanding.

The key informants for analyzing a sub-sector in greater depth may include:
• Smaller and larger producers
• Market traders or authorities
• Bankers
• Officials from promotional and regulatory bodies
• NGOs specializing in the sub-sector
• Researchers

During the interviews, ask at least the following seven questions:


1. Where do you get your raw materials
2. To whom do you sell your output?

12
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

3. What technology do you use, what alternatives exist, and why do you use this one?
4. What are the main regulations/ laws you have to follow?
5. What are your main sources of funds for working capital and fixed assets?
6. Which are the main agencies/ actors who help you? How?
7. What problems do you face, if any?

Sectors, Clusters, Networks – Upgrade What?


Many upgrading activities will target groups of enterprises rather than individual enterprises. The
reason for this is to initiate overall economic and social development, instead of favoring individual
enterprises. Furthermore, development agencies and employer and worker organizations that are
engaged in upgrading, are obliged to consider the interests of all their stakeholders and members.
It is therefore important to consider the scale of upgrading activities.
Economic activities are often categorized into sectors. We often talk about the private
sector vs. public sector, service sector vs. manufacturing sector, primary sector/ secondary sector/
tertiary sector. Within and across these different divisions we find sectors such as the consumer
goods sector, the technology sector and the financial sector, etc.
Economic activities that share common characteristics in product, process and/or
function compose an economic sector. Sectors often contain several levels of a global value
chain and consist not only of one, but several national and international chains. This means that
furniture producers would not only sell to local markets but also export goods to large retailers in
Europe, South East Asia and the USA – thus, we would basically have to deal with four value
chains.
Sectors are seen as a concept that includes different forms of economic interaction
between enterprises: the economic activities may be geographically concentrated in so-called
clusters, dispersed within or across national boundaries or appear as more flexible business
networks. The type of sector determines the scale of upgrading activities.
National sectors can either occupy parts of a global value chain or constitute an own
full value chain, in which products are produced or services are provided from the very
beginning to the final consumption. In the latter case, the sector would be producing for local
markets. The guide however focuses on the integration of sectors into global value chains. It will
therefore distinguish between “value chains” and “global value chains”.

Value Chain Governance


Dealing with value chains requires an understanding of how the value chains are organized
(or coordinated) and in particular, who has the say in the chain (power relations). This
is what is meant when referring to value chain governance. Value chains display a variety of
different “governance structures”, and the recognition of different forms of governance in global
value chains has important implications for the question of upgrading, that is to say, how
enterprises can move into higher value added activities.

13
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

14
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

C. Draw a preliminary sub-sector map


Based on the interactions with the various informants, a preliminary map of the sub-sector
can be drawn. The sub-sector map summarizes the initial understanding of the sub-sector
structure. Although conceptually simple, the map is a powerful tool for describing about a set
of related business activities. It identifies the sub-sector’s principle functions, participants and
channels. In preparing the map, it is useful to review the elements in an orderly manner
starting with production to end consumption. The orderly arrangement of the functions
describes the transformations of the commodity, product or service that take place. The
participants indicate who performs them. And the channels describe how products flow
among participants, who buys from whom, and how the network hands together.

List the functions


List participants performing each function
For each function identify alternative technologies and quality differences
Identify final markets
On a blank piece of paper, list all functions one above the other on the left side starting with
the base raw material at the lowest corner
List all final markets across the top
Map various participants who perform these functions in the rows where the functions are
listed.
Draw arrows to describe product flows among participants
Define principal channels
Review sub-sector boundaries

15
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

The following diagram illustrates sub-sector mapping conventions. Review these. The
conventions or format is important and ignoring it often produces unclear sub-sector maps
that may confuse the participants and others.

Community Based Retail Enterprise Subsector (CBRE)


There is a relative disadvantage for the community living at hills in accessing and delivering of
goods and services because of geographical reasons. The concept of multipurpose retail outlets
managed by people organization at the village level is naturally suits here. This is for an
alternative route of essential commodities coming in to the village and the village produces going
out to the market. The intention of CBRE is to pass on the margins to community, timely delivery
and quality benefits to the community.
Subsector Map
The existing picture of household provisional items was mapped with the help of collected data in
CBRE Subsector, which is shown as Figure: 4. The main highlighting character in this map is of
long supply chain, comprising of distribution and redistribution at multiple points.
Bottlenecks
The main hurdles in the present scenario came out form the map, as bottlenecks in
CBRE Subsector are listed below.
1. Excessive levels of middlemen exist in the distribution chain.
2. Village consumer are trapped in credit net of local traders due to cash crunch and forced to
accept the exploitative barter system of commodity exchange.
3. Transportation cost in hills is high as well as lack of transportation facility.
4. Lack of knowledge about market, like demand, price, timing etc.
5. There is lack of collective procurement system in village level and less experience of successful
community institutions in the region.
Opportunities
The opportunities present in this Subsector were analyzed and listed as following.
1. Prices of commodity in village market are higher than urban market.
2. The present expending market trend is helpful for such an intervention.
3. There are some successful models are running both in cooperative and private sector, which
can be explored for replication in the region.
4. The enhanced capacity of community through CBRE will extremely benefit in their other
livelihood options.
Leverage points
The possible solutions came out over discussion of bottlenecks and opportunities are described as
under.
1. Specialized Community institutions at village level (CBRE) to be promoted which will link the
village directly with the major wholesalers; thereby bypassing the multi level middlemen
network and margins to them and establishing uninterrupted and timely service.
2. The UPASaC may extend certain amount of loan/ revolving fund to the SHG(s) intending to
form CBRE to meet its establishment and operational costs.
3. Establishment of common collection point for village produces to be sold outside and Market
Information Centre for villagers will lead further level development.

16
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Community Based Retail Enterprises Subsector Map

Consumer

Village of Village of Tiuna PDS outlet


Pujargaon (NP) (NP) at village
Village level 18 villages 09 villages level
retailer

PDS godown
Local Hindolakhal
Wholeseller Jamnikhal Anjanisain at village level

Sub Chamba Tehri Devprayag Srinagar PDS


Wholeseller store/godown
at block level

Rishikesh Govt Dept


Saharanpur
Main
Wholeseller

Shoes
Rice & Pulses Sugar Kerosene Clothes FMCGs Oil
Inputs wheat

Source Punjab UP UP Haryana UP Agra/ Noida Punjab/


Ludhiyana /Delhi Haryana

17
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Step 2: Refining the understanding of the sub-sector


There are four action points that are involved in this step of the sub-sector analysis. These
are:
a. Specifying the institutional context
b. Specifying the environmental context
c. Refining the sub-sector map
d. Quantifying’ overlays’ of particular interest

These action points can be undertaken in an iterative manner, i.e. meeting again with key
informants, such as producers, traders bankers, regulatory, promotional and other officials, as
well as drawing on secondary date. With the help of the key informants one can cross check
the accuracy of the information collected in the earlier stages.

Map of Social Relations of Access in Senegal s Charcoal Market

Urban Population Other


Institutions Ministries
Unions
Retailers Wood & Charcoal
Religious
Brotherhood Loan
National Forest
Wholesalers Dept Market regulation

Unofficial
Transporters

Cooperatives
Merchants Regional Forest Elected Regional
Patrons Service Council

Migrant
WoodCutters
Local Forest Local Rural
Forest Villages Service Council

Specify the institutional context


The institutional factors that impact on the participants within the sub-sector into four broad
categories: regulation, promotion, credit and other institutional factors such as producer
organizations. Some of the issues that need to be covered is given below

18
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

A: 1 Regulation
a) Identify the main laws and rules (including taxes) that apply to different stages in the
sub-sector.
b) Identify the main agencies responsible for enforcing the above.
c) Check the actual application of the law vs. the rules as laid down.
d) Ask key informants about what are the most bothersome aspects of regulation.
A: 2 Promotion
a) Identify the main promotional policies of the government relevant to the sub-sector.
b) Identify the main agencies responsible for implementing those policies.
c) Check actual implementation against policies on paper.
d) Ask key informants about how useful or not these policies are, and what are their most
helpful aspects.
A: 3 Credit
a) Identify the credit available to the sub-sector: what for how much?
b) Identify the main sources of credit (banks – commercial, regional rural banks –money-
lenders, etc)
c) Which parts of the sub-sector are most constrained by the lack of appropriate credit?
A: 4. Other institutional factors
a) Are there any producer organizations?
b) Are there any other institutions that affect the sub-sector?
c) Is there a political economy that significantly influences the sub-sector?

B. Specify the environmental context


Examine the environmental context within which this sub-sector functions. Examine how the
activities that take place within the sub-sector influence and are influenced by their
environment. For example,
Do activities within the sub-sector have environmental impacts? What are these? Are they
positive or negative?
a) Are various conditions of the environment favorable for taking up the selected activities?
b) Could more environmentally friendly practices be introduced within the sub-sector? How
easy or difficult would this be in practice?
c) Are investments required for processes to become more environmentally friendly?
How much? Who will make those investments?

Production & Sub Sectors


Distribution Millet Sorghum Maize Cotton Rice Peanuts
Functions
Input Distributors
Research & Extension

Sub sector Approach

Farm Level
Production
Farming System Research
Processing
Storage
Assembly
Transportation
Wholesaling
Retailing
Financing
Consumption

19
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

What does “Upgrading” mean?


By upgrading we mean a multi-dimensional process that aims at increasing the
economic competitiveness of enterprises as well as having a positive impact on social
development. In the case of sectors, multi-dimension means not only to consider the enterprise
level (micro-level), but also the economic, social and political business environment in which
enterprises operate. Upgrading can also be seen as a broader concept than innovation. Innovation
mainly takes place on the enterprise level, and concerns upgrading in product, process and
function. The preconditions for innovation are however set by the business environment.

It is also important to view upgrading as a continuous process and to consider this in any
upgrading
1. Product Upgrading: Developing new products/services or introducing a new quality. New
products usually have a higher value than their predecessor models. Examples: Increasing the
quality of timber wood for furniture, sourcing from another supplier, or adopting the design of
clothing to the preferences of the final customer.
2. Process Upgrading: Improving the efficiency of internal processes, such that these are
significantly better than those of competitors. Examples: Cutting the cost of inventories, lowering
scrap, improving delivery time, producing more in less time to less cost.
3. Function Upgrading: Moving up the value chain towards carrying out higher level and greater
value adding activities. Examples: Developing own capabilities for manufacturing chocolate instead
of only exporting the raw material; building up own design capabilities instead of only assembling
products according to given designs and plans.
4. Market Upgrading: Covering new markets on which to sell a product or service, whether this
market has to be newly created or is already covered by competitors.
5. Supply Upgrading: Improving the quality/quantity of supply material and products or
changing the supplier. This is very related to process upgrading. However, supply could be a
distinct focus of a sector-upgrading project. Example: ensuring that timber for wood furniture is
sourced from sustainable and environment-friendly wood processing areas.
6. Inter-chain Upgrading: moving to a new and more profitable value chain, where higher
rents can be captured. Example: Taiwanese firms moved from the manufacture of transistor radios
to calculators, to TVs, to computer monitors and now to Wireless Application Protocol Phones
(WAP).
7. Intra-chain Upgrading: Increasing cooperation and the flow of information between partners
along the value chain. This is done to achieve collective gains through quality improvements,
increased system efficiency and the development of differentiated products. This would also imply
a change in the value chain governance: From market-based to increasingly regulated
relationships that are based on trust and mutual (formal) agreements.

C. Refine the sub-sector map


After doing all the above said exercises one will become familiar with many participants,
processes and channels within the sub-sector and also aware of the institutions that are
influencing the sub-sector, and of some factors that can help minimize adverse environmental
impacts. This is a good time to check:

What are the important processes missed so far within the sub-sector?
Is there any new channel that was not aware of earlier?
Is there any additional functions that need to be performed for the commodity, product or
service to reach its ultimate markets?
Is there any functions identified in the preliminary map have turned out to be no more than
side shows for the main channels within the sub-sector?
With all this additional information the sub-sector map may be refined. A major part of
refining the map is to add ‘overlays’(super imposing).

20
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Small Large
Farmers Farmers

Village Local Cooperative


Traders Traders Traders

Private Cooperative
Millers Millers

Animal Feed Noodle


Industry Industry

Wholesalers Wholesalers Wholesalers


White Rice Broken Rice Dry Noodles

Retailers Retailers Exporters Exporters Retailers


White Rice Broken Rice White Rice Broken Rice Dry Noodles

Human
Consumption

Rice Chain in Thailand

D. Quantify overlays of particular interest


It is important not only to have map of the sub-sector, but also some idea of the scale of
activity at each point of the sub-sector. It is called as overlays (super imposing). For example,
the sub-sector map prepared already can be superimposed with a clean transparency and add
figures for the livelihoods generated at each point represented in the map.

21
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

We need to identify the overlays that are of interest to us and then quantify them. These may
include:
• Number of enterprises at each level
• Employment and livelihoods generated at each level
• Gender division of employment
• Volume of product
• Sales value
• Price margins at each level
• Income to different layers
• Returns to labor
• Inventory holdings
• Environmental impacts

In the process of quantifying this range of overlays, using information from key informants
and secondary data, will significantly deepen our understanding of the sub-sector.

Step 3: Analyzing sub-sector dynamics and leverage points


A sub-sector is not a static phenomenon. Demand patterns in the markets are changing. New
technologies are being
developed. New players are If a particular plant disease is common in an area, two
entering the field. Some are types of interventions may be possible:
getting out. It is important for § Identify the right control measures and train farmers in
you to understand these their use
§ Work with plant breeders and introduce a disease-
dynamics before you make an
resistant variety.
intervention. With the second intervention you may be able to
benefit a larger number of people, and perhaps
It is also important to be cost with less effort.
effective in an intervention. By
looking at the sub-sector map, it is possible to identify the various points at which
interventions can be made. But there are some points of intervention which can benefit a
larger number of people with the same amount of effort. It is always useful to identify such
points of intervention, which give high leverage.

This step further involves two action points:


a) analyzing the dynamics of the sub-sectors and,
b) identifying sources of leverage

A. Analyze the dynamics of the sub-sector


This step is vital for moving from analysis to action. By understanding how the sub-sector is
changing, one can understand where the opportunities and pitfalls lie. Further understanding
of the forces driving this change often reveals the key opportunities for growth in enterprise
and livelihoods.

In analyzing sub-sector dynamics the following questions will arise and which need to be
answered:
a) Which channels enjoy the most secure prospects for growth?
b) Do these channels face any emerging threats?
c) What role can micro and small enterprises play in these channels?
d) How can you enhance their ability to participate in the growing niches?

22
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

These questions can be answered by understanding how the sub-sector is changing and why.
The following driving forces and constraints are important in affecting changes:
Key demand
Estimate the demand and trends over the last few years, locally, nationally and even globally.
Population growth and changes in the larger economic environment (prices, wages,
monsoons, booms, recessions and so on) can cause consumption patterns to change rapidly.
Technological change
New machinery or know-how can greatly change production costs, making small firms more
competitive or driving them out of business. What impact will such changes have on poor
producers, on women producers, on the environment?
Profitability of different niches
Individual niches within the production system yield differing returns, providing incentives to
change to the more profitable technologies, supply relationships, and level of specialization.
Risk
Changes in demand, inputs, technology, labor and environmental conditions, and profitability
bring both opportunities and risks. The micro-entrepreneur and the collective enterprise alike
must balance rewards and risks in choosing which channels to operate in.
Barriers to entry
Regulations (such as licensing and zoning), banking practices, lack of information, and
collusion can restrict growth opportunities for micro and small enterprises.
Large firm behavior
Changes in the level or range of activities of a few large firms may dramatically affect the
opportunities open to micro and small enterprises.
Input supply
Poor quality raw materials, unreliable supply sources and environmental damage can severely
restrict the growth potential of enterprises.
Institutional Support
Changes in regulation, promotional and credit policies can have a major impact on functions
within the sub-sector, including raw material supplies, technologies and marketing. Are
changes happening or expected? What impact will they have on the functions and channels
represented on your map?

B. Identify sources of leverage


Leveraged interventions are those that influence large numbers of enterprises at a single
stroke. They are likely to be more cost-effective than one-to-one assistance delivered to
individuals’ enterprises. Because they affect many firms at once, leveraged interventions can
significantly enhance impact and reduce contact costs per enterprise.

To identify sources of leverage look for one of three key ingredients:


System nodes: These are points where large volumes of product pass through the hands of
only a few actors.
Geographical clustering: Physical locations where many producers are located.
Policy Constraints: These affect almost all/ most producers, e.g. taxes, subsidies, import/
export quotas.

23
S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention

Step 4: Choosing intervention point.


Now we are familiar with:
§ How the specific commodity you have selected is produced
§ The various raw materials and support services that are required to produce it
§ The channels it passes through to reach its final markets
§ The different players
§ The technologies being used
§ The environmental issues
§ The institutional framework within which the sub-sector operates
§ The critical numbers, of production, sales, employment, etc.
§ The dynamics of the sub-sector as it changes over time
§ The key leverage points

The above process will result in a fair idea about some of the interventions that you could
take up for promoting or supporting many livelihoods. Every intervention requires some
basic competencies and resources. Examine whether the organization has these.

You can draw up an intervention-competency matrix.


§ List all the possible interventions on the heads of different columns
§ Assess what competencies/ resources you need to take up these interventions and list these
on the left hand side of your table.
§ Put a tick mark (ü) in the boxes for competencies required for a particular intervention
and a cross (X) for those not required.
§ Fill up the various boxes in the table, either with your own organization, if you have the
particular competencies under review, or of other organizations on whom you could draw
for such expertise in a livelihood intervention strategy. Consider carefully whether you
will be able to collaborate with these organizations.

From this analysis you have to make a choice of the intervention strategy that your
organization can take up for promoting or supporting a large number of livelihoods.

The material for this class notes are mainly taken from
ISLP’s “A Resource Book for Livelihood Promotion”

24