SCALING UP IN AGRICULTURE, RURAL DEVELOPMENT, AND NUTRITION
Scaling Up Agricultural Value Chains for Pro-Poor Development ARNTRAUD HARTMANN
Focus 19 • brIeF 7 • June 2012 A
large number of agricultural development initiatives now support value chain approaches. They encompass most
stages of the chain, from inputs supply to production, processing, marketing, and financing. Given the complexity of integrated programs, scaling up value chains poses challenges. Chains operate with a multiplicity of actors and require numerous interfaces between the public and private sectors, which often have different objectives and respond to different incentive systems. A particular challenge is to ensure that scaled-up chains will benefit the poor, since chains typically favor better-off farmers, processors, and traders, while poorer actors in the chain, especially smallhold farmers, can get squeezed out. There are two concepts of scaling up in a chain: (i) the
development of an integrated chain is in itself a functional scaling up, as primary products are “scaled up” to higher-value-added goods and taken to market, and (ii) value chains are taken to larger scale by increasing the amount of goods produced, processed, and sold. Both scaling up processes rely on drivers and need to overcome
numerous constraints on the scaling-up pathway. Common impediments to scaling up are a lack of infrastructure, access to financing, access to markets, knowledge of appropriate technology, and the inability to deliver products at sufficient quantity and quality.
What is the optimal scale of an agricultural value chain?
Most scaling-up programs attempt to achieve scale by extending a model of service to a larger number of beneficiaries. But for scaling up value chains, “more” is not necessarily better. The scale is driven by the profit maximization objective of different actors along the chain. Most pro-poor value chains operate in restricted local markets, where strong supply responses lead to declines in prices. For example, in the Ghana Root and Tuber Improvement Program, output prices plummeted once root and tuber production increased significantly in response to improved production practices and the use of better seeds. Incomes of the farmers from sales actually declined. Scale objectives thus depend on access to markets and elasticity of demand. And value chains do not operate in a static environment. New processing and production technologies can be introduced, costs of labor and capital change, new markets can be accessed, and demand can fluctuate. These can lead to changes in scale objectives.
Pathways to scaling up
Commodity-specific strategic plans are useful for mapping a scaling-up pathway. They provide a market analysis, identify constraints on the different segments of the chain, and offer strategic guidance on where to invest scarce public capital and leadership resources to help remove key constraints. A challenge is that, while these plans need to be commodity specific, they
should not become too narrowly focused, as the management of a large number of commodity plans becomes difficult. Moreover, commodity plans need to be regularly adjusted as new actors enter into the chain, new technology is introduced, and new markets are developed.
Drivers for scaling up value chains
In market economies, the private sector drives the value chain. The public sector can support private sector action but cannot substitute for it. And though various types of private or public organizations can impact the process, most frequently it is buyer- driven organizations—processors, traders, and exporters—who pull the chain, as they establish the linkages to the consumer. For scaling up, attention thus has to be given to support systems that these drivers find attractive and to the introduction of incentives to which they respond. Financial return is ultimately the most important incentive
for private actors in scaling value chains. Weak rural infrastructure and insufficient access to finance typically are the most important impediments to private sector engagement and the realization of financial returns. Rural roads, irrigation facilities, and access to power help ensure an adequate and regular supply of products and allow the installation of processing facilities. Much public support for value chains thus focuses on access to finance and the provision of rural infrastructure investments.
Constraints to be addressed on the scaling-up pathway
• Political space: Policy issues typically pose major obstacles to chain development and are frequently not addressed well in value chain support programs. Price regulation; burdensome regulatory requirements; subsidies (input and credit) directed to selected market actors; market interference by public actors; and monopolistic processing, storage, and trading systems often are major obstacles. While no single value chain program can likely address all prevailing policy constraints, an analysis of the significant policy constraints and an assessment of whether, when, and how these constraints can be addressed is essential when defining scale objectives and assessing the feasibility of the scaling-up process.
• Institutional space: Pro-poor value chains consist of collaborative and competitive systems. For example, collaborative processes are required to strengthen the power of poor farmers in the chain, but farmer groups are also in competition with each other. Processors exchange information and receive training on new technology in common training centers, but they also compete with each other. Traders benefit from joint markets and price information systems but typically operate in fierce competition. Public sector support efforts typically focus on strengthening collaborative institutions,
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