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The Value Chain Approach – Linking producers to markets

Poor rural producers and their products are connected to markets within larger agricultural value chains. Every product that is traded ‒ locally, nationally or internationally ‒ is part of a value chain. And every link of the chain has the potential to add value to the product. From a development perspective, value chains are one of the instruments through which market forces can be used to benefit poor rural women and men.

Norges Vel believes that strong links to markets for rural farmers and producers is an important tool to increasing agricultural production, generating economic growth in rural areas and reducing hunger and poverty. Improving market links creates a positive circle by boosting productivity and quality, increasing incomes and strengthening food security. Better access by small producers to domestic, regional or international markets means that they can steadily sell more products at higher prices. This in turn encourages farmers to invest in their own businesses and increase the quantity, quality and diversity of the goods they produce.

There are of course numbers of challenges involved in order to approach the whole value chain. Safe storage facilities, all-weather roads and affordable transportation are basic needs. In addition to infrastructure the need for sufficient information about market prices and demand is vital for participation in modern value chains. Being an active member of an effective farmers’ organization also contributes to essential benefits. Belonging to an organized group allows smallholder farmers to bulk produce, reduce costs through economies of scale and, perhaps most importantly, to strengthen their bargaining power with middle-men and more powerful private-sector actors.

Membership can also bring access to financial, processing and business services, all of which are key to empowering farmers to deal with the private sector on a more level playing field. Intervening along the value chain often means enabling poor rural people to ‘move up’ the chain and capture margins previously caught by other players, including middle men, processors and exporters. It provides opportunities for organized farmers to take active part in value addition activities such as processing, packing and marketing activities. 

Agricultural and aquaculture product markets have changed significantly over the past decades. Modern value chains serving national and regional markets – particularly in urban areas ‒ have emerged rapidly in most developing countries. But traditional markets often continue to exist alongside the modern. Although the distinction between modern and traditional chains is not always clear-cut, there are some notable differences between the two. As value chains become more modern, they become better organized and more highly integrated and coordinated. Relationships among participants tend to become more formalized, institutionalized and predictable. 

Quality standards are typically higher in these chains, requiring robust quality and safety infrastructure and enforcement mechanisms. Traditional supply chains, on the other hand, are less coordinated or less formally so, and there tend to be more players or ‘links’ in the chain. Patterns of transaction are more erratic, and the actors involved change frequently. The underlying quality and safety infrastructure is often weaker, and the types of products bought and sold frequently cater to the needs of poorer consumers ‒ particularly in rural markets, but also in urban. Levels of product transformation and processing before marketing are often low, and traceability is not an issue as it is in modern value chains. 

Modern value chains can offer new opportunities for smallholders to play a part in fulfilling demand for higher value products, particularly in urban markets. However, there are typically higher initial costs and risks for them to engage in these markets. Traditional markets continue to provide an alternative for many small producers, and in most of Norges Vels programs the two options co-exists side by side. In our programs, the main strategy is to prepare organized farmers to participate in modern value chains. 

 

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Value Chain Development - Linking producers to markets