Module 1.

1: Introduction to agribusiness value

Better lives through livestock

chains

Authors: Karl Rich and Kanar Dizyee*

Position: *Scientist: Value chain impact assessment modeler
PIL/ILRI

Event/meeting name
City, date
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ILRI offices and

staff worldwide
ILRI is co-hosted by both the
governments of Ethiopia and Kenya,
with offices in 8 other countries in
Africa (Burking Faso, Burundi, Mali,
Nigeria, Senegal, Tanzania, Uganda
and Zimbabwe); 4 countries in Asia
(China, India, Nepal and Vietnam).

ILRI has approximately 600

permanent staff (with a gender
breakdown of 40% female and 60%
male).
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Outline

What are value chains?

What’s the big deal about value chains?

Value chains: developed vs. developing countries?

To which types of pressures do value chains respond?

How do we analyse value chains?

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Definitions

Porter (1985:36): “Each firm is a collection of activities that are performed

to design, produce, market, deliver, and support its product.”

The value chain is thus a representation of these value activities, based on

a firm’s cost structure, and highlights potential areas of competitive
advantage.
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The value chain

Source: Image from MIT OpenCourseWare, 2015, CC BY-NC-SA 4.0

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Definitions

Kaplinsky (2000:121): A value chain is “the full range of activities which are
required to bring a product or service from conception, through the
intermediary phases of production, delivery to final consumers, and final
disposal after use”

Differences compared to Porter?

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Value chains

Source: Image from Andreas Wieland, 2011 CC BY-SA 3.0

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Still more definitions

A supply chain represents the full range of activities involved in the

production of a commodity (production, procurement, finance, R&D,
logistics, and marketing) and processes that integrate chain participants
(extension, information services, certification, organization)

Modern supply chains involve the flows of material, services, and

information among chain participants.
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Some questions (1)

• Are value chains and supply chains different?

• Why?

• Does it matter if we are talking about a developing or developed

country?
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Some questions (2)

Why are value chains important?

Are these issues more pressing in developing vs. developed countries?

Why or why not?
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A few answers

Globalization – a key driver for agribusiness value chain development

Increased demands for quality assurance, food safety, consumer acceptance, increased
regulations, just-in-time delivery, etc.

Changes in trade and policy regimes (WTO, FTA’s, etc)

Changes in distribution channels and technology

New channels of distribution: short chains vs. long chains

Changes in industrial organization (consolidation/concentration) in part as a reaction to

these drivers.
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A few answers, and more questions …

Value chains can be an important mechanism for the implementation of

new methods and processes to add value across borders.

But how does the external environment shape the organization of value
chains and, in turn, how is this environment influenced by value chains
themselves?

But where do developing countries fit in? Can they become more
efficient? Can they too get access to new markets?
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Ways to assess value chains

Chain mapping Governance Upgrading Performance

This is the development practitioner approach to looking at value chains

(e.g. Kaplinsky and Morris (2001), or from different donor manuals such as
M4P or ValueLinks). However, it also gives us a structure for analysing
value chains more rigorously
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Ways to assess value chains

Chain mapping Governance Upgrading Performance

• What does the chain look like?

• Who are the actors?
• What are their functions and
roles?
• Where/what/how much do they
transact (volume/value)?
• Where is value added?
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Ways to assess value chains

Chain mapping Governance Upgrading Performance

• “Chain context”
• Who decides what is produced (buyer vs. producer chains)?
• How the rules of trade are determined?
• What is the nature of relationships between the
participants?
• Coordination mechanisms (contracts, market sales, etc.)
• The institutions and conventions behind such mechanisms
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Ways to assess value chains

Chain mapping Governance Upgrading Performance

• Strategies for adding value

• Ways to upgrade:
product/process/functional/new chain
• Role of governance structures in
determining strategic choices
• Role of external environment and drivers
• Sources of innovation
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Ways to assess value chains

Chain mapping Governance Upgrading Performance

• What are the impacts of upgrading strategies?

• Metrics for measurement (profitability,
efficiency, equity)
• Who gains/loses from value chain participation?
• Sustainability of performance – dynamic
considerations.
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Ways to assess value chains

Topic 5: Synthesis

Chain mapping Governance Upgrading Performance

Topic 1: Topic 2: Value Topics 3-4: Topic 6: Value

Introduction to chain Strategies, chain
agribusiness governance drivers, and performance
value chains innovation
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Porter’s competitive advantage

Let’s step back for a minute and address both where value chains come
from and why they are important

To do this, let’s discuss the origins of the value chain from Porter (1985).
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Porter’s competitive advantage

Focus: structural analysis of industries – what are the determinants of firm

profitability?

Porter identifies five competitive forces:

• Entry of new competitors
• Threat of substitutes
• Bargaining power of buyers
• Bargaining power of suppliers
• Rivalry in existing competition
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Porter’s competitive advantage

Industry profitability assumed to be a product of industry structure (the

five forces in the figure)

These forces influence prices, costs, and required investment; their

relative influence will depend on the industry

Strategies taken by firms can influence these five forces, changing and
shaping the industry structure (and influence profitability)
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Porter’s competitive advantage

How does a firm position itself within a given industry to sustain

competitive advantage?

Two basic types of competitive advantage

• Low cost
• Differentiation

Within these types of competitive advantage lay three generic strategies:

cost leadership, differentiation, and focus.
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Porter’s competitive advantage

Main idea: if a company is serious about gaining competitive advantage, it

must make a choice about the type of competitive advantage it seeks and
the scope within it will achieve it.

“All-things-to-all people” not a good strategy

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Porter’s competitive advantage

Cost leadership: firm sets out to be the low-cost leader, finding and
exploiting all sources of cost advantage

Possible sources of cost advantage

• Economies of scale
• Proprietary technology
• Preferential access to raw materials
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Porter’s competitive advantage

Key to a differentiation strategy is obtaining a price premium that is

greater than the extra costs associated with differentiation.

Differentiation strategies aim at cost structures near its competitors along

non-differentiated dimensions
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Porter’s competitive advantage

A third strategy is focus: firm targets a particular segment and tailors

products towards them

Idea is to obtain competitive advantage in its target segment, not overall.

Such competitive advantage can be along cost or differentiation lines

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Porter’s competitive advantage

Can firms achieve both cost leadership and differentiation?

Generally not – great risks that firms will be “stuck in the middle”

Exceptions
• Competitors themselves are “stuck in the middle”
• Cost is heavily dependent on market share
• Technological innovation
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Porter’s competitive advantage

Sustainability of generic strategies can be influenced by:

• Industry evolution
• Organizational structure and culture (we’ll see this later when we
discuss Christensen)
• Strategic planning process
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Porter’s competitive advantage

Great, you think to yourself - so how does this relate to the value chain?

Well, the value chain concept was developed to understand the sources
within (and across) firm(s) to develop and sustain competitive advantage.
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Porter’s competitive advantage

The idea behind Porter’s value chain is to focus on the activities

undertaken by a firm (and their interaction) to create value as sources of
competitive advantage.

Notice that the focus here is at the level of the firm: Porter notes sector-
wise analysis may obscure sources of CA (p. 36)!

The broader system of activities from raw materials to consumption is

what Porter calls the value system
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Firm
business
unit

Supplier Firm Channel Buyer

value business value value
chains unit chains chains

Firm
business
unit
SUPPLIER’S
VALUE CHAIN FIRM’S VALUE CHANNEL BUYER’S
CHAIN VALUE CHAIN VALUE CHAIN
Source: Adapted by the author from Porter (1985), figure 2-1, page 35
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Porter’s competitive advantage

What types of activities involved in the stages of product creation,

distribution, management, and sale?
• Logistics (inbound for raw materials, outbound for sales)
• Operations
• Marketing and sales
• Service

These primary activities are complemented by support activities related to

infrastructure, HR, R&D, and procurement
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Source: Image from MIT OpenCourseWare, 2015,

CC BY-NC-SA 4.0
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Applications
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Applications
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Next modules

• Module 2: Foundation and central concepts of system

dynamics.
• Module 3: Common behaviors of dynamic complex systems.
• Module 4: Delays and nonlinearities.
• Module 5: Modeling process.
• Module 6: Model validation.
• Module 7: Model communication.
• Module 8: System dynamics applications.
• Module 9: Why modeling?
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Sources

Dizyee, K., Baker, D., Rich, K. M., Fleming, E., & Burrow, H. (2016). Applying system dynamics to value chain analysis.
Presentation to the Annual Conference of the Australian Agricultural and Resource Economics Society held in
Canberra, 2nd -5th Feb 2016.
Dizyee, K (2017). A system dynamics approach to chain/network analysis in the primary industry sector: Case
studies of beef, dairy, and amaranth in the developing world. PhD dissertation, University of New England, Armidale,
Australia. Accessible at https://hdl.handle.net/1959.11/22736
Dizyee, K., & Rich, K. M. (2020). A System Dynamics Approach to Chain/Network Analysis in the Primary Industry
Sector: Case Studies of Beef, Dairy, and Amaranth in the Developing World. Presentation to the 3rd Asia-Pacific
chapter of System Dynamics Society Feb 2020, Brisbane, Australia.
THANK YOU