Value chain approaches: reaching the very poor

Value chains
©IFAD

Value chain approaches: reaching the very poor

A value chain is the full range of activities – including design, production and distribution – required to bring a product or service from conception to its final market destination.

The subject is steadily gaining prominence in the development context, as traditional food systems are being replaced by organized value chains. In fact, many governments and international organizations already support value chain development to improve the income and welfare of small producers in rural areas, and the numbers are set to rise. In line with this trend, the portfolio of the International Fund for Agricultural Development (IFAD) has seen a remarkable increase in value chain-relevant projects in the past decade, from 41% in 2007-2009, to 72% in 2016-2018.

Smallholder producers play a crucial part in agricultural value chains, as they are responsible for a large proportion of food production. However, they receive a disproportionately low share of the market value. A question that frequently arises, therefore, is whether the abovementioned re-orientation of development activities can support outreach to very poor people and disadvantaged groups, or whether it leads, rather, to focusing on parties that are easier to reach, namely “middle farmers” with good linkages to the market and small- and medium-sized entrepreneurs that are already well-established.

This was one of the questions explored by the Independent Office of Evaluation of IFAD (IOE) in its latest corporate-level evaluation, on IFAD’s engagement in pro-poor value chain development (2019). The evaluation reviewed 77 projects conducted in 29 countries over the last ten years.

Three ways to reach the very poor through value chains

1. Implement appropriate targeting strategies

The projects considered frequently used geographical targeting strategies, typically focusing on poorer, less-developed or food-insecure regions or districts, or on areas with a high concentration of indigenous peoples. However, this approach was sometimes problematic for value chain development, as value chains are not bound by administrative borders.

From a social targeting perspective, a number of factors were found to contribute to good outreach to poor and very poor households and groups:

  • selecting products requiring little land or capital investment and involving intensive, unskilled labour (such as the ornamental plants initiative in Viet Nam, which involved virtually landless people; or the projects conducted in El Salvador and Honduras assisting traditional weavers and other artisans, typically women, as well as people with disabilities).
  • establishing pro-poor requirements for agribusinesses as a condition to obtain IFAD project support, and verification that these requirements were met;
  • conducting community-based groundwork and mobilization of producer groups; and
  • the existence of previous work in the same area, which enabled establishment of the productive base and local knowledge, as well as a participatory approach to design and implementation.

2. Properly validate assumptions on trickle-down effects

In some cases, assumptions were made on the trickle-down effects, to poorer groups, of providing support to larger farmers and agribusinesses; however, these assumptions had not been adequately validated at design stage, nor verified at implementation. Trickle-down-type effects could only occur when there was: (i) a sizeable increase in the demand for the products of tens or hundreds of small producers (not just a few) and a significant increase in farm-gate prices; and/or (ii) important effects on the demand for unskilled or semi-skilled labour, so that a lower level of formal education would not act as a discriminating factor.

3. Promote pro-poor change in value chain governance

Many of the value chains supported by IFAD projects were buyer-driven value chains: suppliers work to parameters set by market demand, which include strict requirements on quality, quantity and delivery timeline, as well as compliance with sanitary and phytosanitary standards. While these arrangements brought benefits to small-scale producers in terms of access to knowledge and resources, more secure markets and income, value chain governance remained substantially the same, because producers continued to have a weak bargaining position relative to agribusinesses.

More far-reaching results in terms of changes in governance were found in projects where multi-stakeholder platforms had been established and worked well (e.g. Nepal, Niger, Senegal and, in part, Ghana and Uganda). The platforms opened up space for dialogue and coordination around issues such as input supply, market infrastructure, price level, market information and dispute resolution.

Evidence on the distribution of value within value chains was fragmented. Still, it was possible to conclude that the distribution appeared to be more stable and equitable when efforts were invested in developing dialogue and trust between stakeholders and when producer organizations were empowered to negotiate exchange conditions. Additional contributing factors were high competition between buyers, a focus on niche markets, and buyers being committed to fair terms of trade.

The way forward

Although, inevitably, the contexts considered in the evaluation were diverse and the findings varied within and between countries, it was possible to conclude that in many instances, value chain approaches do enable outreach to poor and very poor households and groups. However, this requires specific attention at design and implementation, and cannot be expected to result automatically. Referring to the good practices identified in the evaluation, projects should promote outreach to poor, very poor and disadvantaged groups already in the design stage, as well as during implementation, and they should foster inclusivity in value chain governance and in policy and regulatory environment.