Abstract This article reviews the use of the value chain concept in development practice, both as an analytical tool and a guideline for development assistance. The value chain approach delimits a specific area of action and provides a powerful conceptual framework. However, given the range of issue involved in chain upgrading, intervention stragies rely on various fields of development expertise. What they have in common is the systemic perspective on sectoral economic structures and a concern for the tasks of organizing collective action and facilitating linkages

Andreas Springer-Heinze

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Tropentag 2005 
Stuttgart-Hohenheim, October 11-13, 2005 
Conference on International Agricultural Research for 
Development 
 
 
 
Shaping Value Chains for Development – Experience in Development Assistance 
 
Andreas Springer-Heinze 
 
Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), Division Agriculture, Food and Fisheries (OE 45), 
Postfach 5180, 65726 Eschborn; email: Andreas.Springer-Heinze@gtz.de 
 
Abstract 
This article reviews the use of the value chain concept in development practice, both as an 
analytical tool and a guideline for development assistance. The value chain approach delimits a 
specific area of action and provides a powerful conceptual framework. However, given the range 
of issue involved in chain upgrading, intervention stragies rely on various fields of development 
expertise. What they have in common is the systemic perspective on sectoral economic structures 
and a concern for the tasks of organizing collective action and facilitating linkages.  
 
Introduction 
“Pro-poor growth” has become the leitmotif running through much of the recent development 
debate. In agriculture, pro-poor growth is increasingly associated with the diversification and 
development of those markets for high-value food and natural products that generate employment 
and allow a broad-based participation of farmers and small enterprises. Promoting these markets 
development policy increasingly refers to the value chain concept (KOHLMEYER, 2005, in this 
volume). In the following, value chains are defined as  
• the sequence of productive processes from the provision of specific inputs for a particular 
product to primary production, transformation, marketing and up to final consumption 
• the organisational arrangements linking and coordinating the producers, processors, 
merchants, and distributors who perform these functions. 
This definition is more generic than the narrower “supply chain” concept employed by private 
companies to optimize their sourcing and marketing functions. Here, the “value chain” defines a 
whole market or subsector as a unit of analysis and as field for development cooperation. (cf. 
Stamm, 2003). 
This article explores the application of the concept in development practice. Contrary to the 
academic study of value chains, development agencies use the value chain concept for pragmatic 
purposes, i.e. to analyze development constraints, and to identify areas of public investment and 
action. The text boxes present examples of GTZ experience promoting value chains. 
 
The Value Chain Concept as Analytical Tool 
Within the international development community there is widespread agreement that poverty 
alleviation will not be achieved without effectively functioning markets. The value chain concept 
 1 
is an instrument to analyze market relationships and issues of common concern for farmers and 
enterprises operating in a specific market.  
Two typical problem situations may be distinguished: First, in many countries, especially in 
Africa, domestic food markets are often poorly organized. Problems may be found all along the 
chain: At the upper end smallholder producers have difficulties accessing services, inputs and 
market information. Further downstream, trade is often underfunded and risky, and therefore 
largely personalized. Weak infrastructure, high taxes and corruptive practices keep transaction 
costs high. At the final sales point, product and quality differentiation is weak – and consumer 
prices high. Overall, domestic food chains are frequently characterized by low efficiency and a 
highly assymetric distribution of information and market power between buyers and sellers 
(DfID, 2005). As a consequence, market incentives are stifled preventing smallholder 
intensification and quality improvement. Hardly any growth of value added can be expected. The 
value chain concept can be used to systematize such constraints and identify points of 
intervention.  
Box 1 
Analyzing the potato chain in Kenya 
The potato subsector is potentially of great importance for pro-poor growth in Kenya, because it 
employs around 500.000 farmers – and potatoes are the second most important staple food in 
Kenya. Initiating its activities in support of potato production for domestic consumption, the 
PSDA programme conducted a value chain study. The analysis reveals serious disincentives to 
the product and process upgrading. The main bottlenecks are in the trade system: Traders use 
variable bag sizes ranging from 100 to 220 kg/bag that inducing considerable uncertainty over 
prices, a problem aggravated by the absence of grades and quality standards. is While local and 
market authorities charge high cesses and are prone to corruption, trader cartels take advantage of 
the market coordination failure. As farmers are forced to sell at low prices, there are little 
possibilities to invest in better inputs and improved on-farm storage.   
Source: PSDA programme (GTZ Kenya, Nairobi) 
An opposite scenario can be found in high-value export production sensitive to logistics, e.g. 
horticulture. In highly competitive global horticultural markets the coordination of production 
and marketing processes gets ever more important. Global value chains function as systems with 
their own rules, often controlled by the main buyers. Contrary to traditional food markets, the 
partners in global value chains collaborate intensively. From a pro-poor growth perspective the 
challenge is to link smallholders to these markets and to keep most of the value added in the 
country of origin. The value chain concept helps to understand the competitive position of 
producers, the conditions of market entry, and the distribution of gains between small-scale 
suppliers and buyers. An example is the market for organic products (see GUENTHER and BULEY, 
2005, in this volume). 
Both description point to the issue of chain governance. In the first case, a failing market 
coordination needs to be corrected, in the latter interventions are required making a “quasi-
hierarchical” form of governance (HUMPHREY and SCHMITZ, 2001) as pro-poor as possible. 
 
Value Chain Promotion in Agricultural Development 
As an approach to development assistance, the value chain concept not only constitutes a 
framework for analysis, it also delimits a field of interventions – according to a development 
potential. Consumer markets amenable to smallholder participation and offering the most 
promising growth potential are selected for promotion. Subsectors typically chosen for promotion 
by development agencies include e.g. horticultural products, coffee and cocoa, freshwater fish, 
dairy, honey, spices and different niche products. 
 2 
The objective of value chain promotion is to facilitate the upgrading of products and processes 
increasing the value added. This is achieved by linking farmers, service providers, industry and 
buyers, investing in efficient market institutions, and correcting market failures that impede 
growth and discriminate against rural producers. In order to identify the appropriate interventions, 
three lead questions are useful: 
• What are the reasons for a value chain to stagnate? 
• Which gaps exist between the requirements on a value chain derived from market demand 
and its current structure and performance?  
• Which constraints reduce the competitiveness of the target group and prevent their integration 
into a value chain?  
Value chain promotion means addressing the constraints and working to improve the coordina-
tion of enterprises and public agencies along the value chain.  The focus is on economic structure, 
the “systemic competitiveness” (ESSER et al., 1994) of the chain as a whole and not just the 
individual producers. Therefore, a promotion strategy needs to coordinate interventions. By 
adopting a holistic perspective on the subsector and combining interventions at different stages, 
the value chain approach goes beyond the traditional field of agricultural market development.  
An important principle of value chain promotion is to foster a self-sustaining development 
process. Public and private services should be paid for with the income generated in the value 
chain. Any public support is limited to strengtening framework conditions and facilitating the 
own initiatives of farmers and enterprises.  
 
Intervention areas 
There is a great choice of potential actions supporting value chain upgrading. While the main 
issues are given by an initial value chain analysis, the intensity of the effort will depend on the 
size of the subsector and the initiatives of private enterprises.  
A basic distinction can be made between actions at different levels of the economy. A promotion 
strategy may assist enterprises at the micro level, strengthen business associations and specialized 
agencies at meso level and/or cooperate with government institutions at the macro level. A micro-
level strategy typically operates through public-private partnerships (PPP), supports service 
providers, facilitates vertical integration (contract farming, outgrower schemes, sales contracts), 
assists farmer organizations and helps producers comply with the rules imposed by lead firms.   
Box 2 
Promoting high-value aromatic cocoa in Ecuador 
Ecuador produces high quality cocoa that receives a premium price on the world market. 
However, this special competitive position is at risk. The project brought together the economic 
actors in the cocoa business, at the national level and within the two major production regions 
(Esmeraldas and Amazonía). They decided to coordinate quality management and get access to 
the markets for specialty cocoa (aromatic, organic and with certificates of origin). Major project 
interventions include the organization of round table meetings on technological and research 
issues, production and marketing, and the development of producer associations. The first 
national cocoa forum initiated a competitiveness strategy for the Ecuadorian cocoa sector. This 
strategy includes actions to improve production technology, form a national federation of cocoa 
producers, position Ecuadorian cocoa on the world market and promote exports. National quality 
norms and the a standard for organic cocoa have been established. In addition, the project 
invested in the development of a website and production of information material. The strategy 
benefits most of the16.000 Ecuadorian smallholders engaged in cocoa production.  
Source: Proyecto GTZ-PAC (NAMARES programme, GTZ Ecuador, Quito) 
 3 
Actions at meso and macro levels address collective problems of all actors in the value chain. 
Important topics are the introduction of grades and standards and other interventions improving 
the regulatory framework (licensing, taxation, customs clearance etc.). Development programmes 
may also advocate policy change and infrastructure investment or assist with trade negotiations.  
The range of options makes it clear that value chain promotion is not a unified development 
approach. Each strategy is a combination of measures at different stages of the value chain and at 
different levels of aggregation. Support strategies have to utilize and adapt know-how from 
various fields of development expertise. The connecting theme is the intermediation between 
farmers, input suppliers, traders, companies and rural banks.  
Box 3 
Promoting spices in Sri Lanka 
Spices are a traditional export product of Sri Lanka providing income to a large number of 
smallholders. The project conducted a participatory study of the pepper and cloves value chains 
bringing together actors from the different stages. A “value chain core group” was formed to 
address the issues that have been identified, viz. quality improvement, training, improvement of 
export regulations, and export promotion through export incentives, branding and the 
establishment of joint ventures with European partners. Partners include the national spice 
council, important processing and export companies, representatives of growers, the Ministry of 
Agriculture and various NGOs. It is also envisaged to create national spice fora. 
Source: Capacity building for Competitiveness programme (Integration Consult/GTZ Sri Lanka) 
 
Assessment of the Experience: Prospects for Impact 
In general, chain upgrading is the result of private investment and the contributions of several 
public agencies engaged in promotion. Individual projects can seldom claim the ongoing 
structural change as their impact. The key issue is to select those markets for promotion providing 
opportunities for pro-poor growh. The growth-poverty reduction linkages can refer to the market 
integration of smallholders or to the creation of new jobs at the processing and marketing stages. 
In order to be effective, interventions of chain promotion projects need to provide answers to 
current value chain constraints.  
However, the tradeoff between growth and poverty alleviation remains, as more efficient markets 
drive out less competitive producers. So far, no conclusion can be drawn as to what extent the 
rural poor will eventually benefit: Value chain development is a necessary condition, but by itself 
not sufficient to respond to the problem of economic exclusion.  
 
References 
 
DfID (2005): „Making Marke Systems Work Better for the Poor (M4P): An Introduction to the 
Concept“. Discussion paper presented for the ADB-DfID ´learning event´. ADB Headquarters, 
Manila, Februar 2005 
 
Eßer, K., W. Hillebrand, D. Meissner and J. Meyer-Stamer (1994): „Systemische 
Wettbewerbsfähigkeit. Internationale Wettbewerbsfähigkeit der Unternehmen und 
Anforderungen an die Politik“, DIE, Berlin. 
 
Guenther, D. und M. Buley (2005):  this volume (please complement the title) 
 
 4 
 5 
Humphrey, J. and H. Schmitz (2001): “Governance in Global Value Chains”, in: 
Gereffi/Kaplinsky (eds): “The Value of Value Chains. Spreading the Gains from Globalization”. 
IDS bulletin Vol.32, No.3, Brighton, July 2001. 
 
Kohlmeyer, Chr. (2005):  this volume (please complement the title) 
 
Stamm, A. (2003): “Wertschöpfungsketten entwicklungspolitisch gestalten: Anforderungen an 
Handelspoilitk und Wirtschaftsförderung“. Mimeo. DIE, Bonn.  
 


Conference on International Agricultural Research for Development Shaping Value Chains for Development -Experience in Development Assistance

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