Optimizing the Performance of Horticultural Value Chains

Peter J. Batt

Introduction• define supply/value chains• how to improve performance

– map the supply chain– identify customer/consumer needs– evaluate the performance of supply/value chain

• price margin• gap analysis• relationship marketing theory

Supply chains – a definitiona network of independent organisationsinvolved in upstream and downstream linkagesin different processes and activitiesto produce superior valuein the form of products or services

Map the chain• identify the actors

Farmers

Map the chain contd

• identify the activities that actors perform– plant and cultivate– harvest– grade, sort and pack– store and transport – procurement

• create assortment• accumulate bulk/break bulk

– process

Map the chain contd

• identify the resources that actors require to perform their activities– production inputs– technical information– market information– finance and capital – infrastructure

Socio-economic &political environment

Agro-climatic-ecologicalenvironment

Inputs &services

Productionsystem

Postharvest

Processingpackaging

Marketingsales Consumers

Agribusiness systemboundary

Information

Logistics

Management

Waste

Waste Waste Waste WasteWaste

Supply chain

Map the chain contd

• there are a variety of performance measures– timeliness– less cost– less wastage– maximising quality

• customers • consumers• society

– maximize value

To maximise value we need to know what our customers want– high quality products– reliable delivery– a competitive price– service

What is quality?• determination of a customers actual experience

with the product as measured against the customers requirements (Feigenbaum 1991)

• fitness for purpose/consumption (Peri 2006)

• overall superiority of the product with respect to its intended use, relative to the alternatives (Aaker 1991)

Quality is a multifaceted concept• consumers requirements• experience• credence

Consumers requirements• food safety requirements

– microbial contamination– chemical contamination– physical contamination

Food safety • more acute in fresh products

– consumed without washing or preparation– transported over long distances– multiple handling

• susceptible to contamination

Food safety • risk is accentuated by

– increasing international trade in both fresh and semi-processed food products

– increasing consumption of food away from home– consume foods without preservatives – more intensive production systems– desire to use organic inputs

• chemical contamination can occur from– nitrates– heavy metals– over-use of pesticides– non-prescribed use of pesticides – not observing withholding periods– the use of banned chemicals– re-use of packaging– illiterate farmers

• microbial contamination can occur from– the use of farmyard manure– water contaminated by sewage or fouled by wildlife– unclean or unhygienic workplaces– grading or sorting on the ground– poor personal hygiene

• physical contaminants include– soil– debri– food processing sector

• glass• metal fragments

Consumers requirements (contd)

• commodity requirements– conformity of a product to its definition– legal or voluntary regulations or customary practices– fraud

Consumers requirements (contd)

• nutritional requirements– health and nutrition– functional foods– probiotics

Nutritional requirements • health

– low fat/cholesterol, low sugar, low salt, low carb– natural

• organic/biodynamic• no food additives and preservatives

– avoid anything un-natural• GM and biotechnology• irradiation

Nutritional requirements contd

• functional foods– food additives

• probiotics• vitamins and minerals• Omega 3

Nutritional requirements contd

• convenience– more working women– pace of life/changing work habits– mobility– composition of the household

• smaller families

Experience• ascertained on the basis of actual experience

– taste– texture relates to the mechanical properties of the flesh,

mouth-feel and juiciness – flavour is related with aroma

Credence attributes• sustainable production• conservation and biodiversity• Fair trade and equity• worker welfare• animal welfare• organics

Reality is - very few producers sell direct to consumers– market intermediaries

• derived demand

Customers have more power • reject poor quality product• impose penalties• require suppliers to invest

– production capacity– infrastructure– information and communications technology– quality assurance systems

Customers have a legitimate right to command– most basic principle of marketing is the need to

satisfy customer wants– power is not always negative– power is the means by which supply chains are

coordinated– suppliers must make choices

Implications for producers• emergence of a dual marketing system

– “in” suppliers• comply

– “out” suppliers• do not comply• risk of becoming increasingly marginalised

Smallholder farmers serve two markets• dispose of product the fails to meet specifications• alternative markets

– joint demand– buyers sometimes default

• comparing returns builds trust and confidence• provides choice

Analyse performance • price margin analysis

– the market is said to be efficient if the price consumers pay adequately reflects storage costs, transport, differences in product form, risk and uncertainty

Farmer Trader Wholesaler Retailer

Sell Buy Sell Buy Sell Buy Sell

Hai Duong 1,385 1,470 1,770 1,795 2,150

Thai Binh 1,420 1,280 1,450 1,465 1,950

Bac Giang 1,170 1,370 1,680 1,535 1,920

Hanoi 1,785 2,180 2,305 2,920

Analyse performance• gap analysis

– what do customers want– what do customer get from the focal supplier– what do customers get from their best supplier

Trader wants N %

Tubers free from chemical residues 5.74a 0.45

Tubers free from pests and disease 5.70a 0.70

Desired size 5.52a 0.67

Long shelf life 5.52a 0.73

Required quantity 5.45a 0.96

Willing to meet immediate needs 5.39a 0.72

Reputation for good quality 5.39a 0.84

Competitively priced 5.35a 0.78

Deliver when required 5.30a 0.70

Tubers free from physical injury 5.27a 0.94

Desired variety 4.87a 1.87

Close to me 4.48a 1.59

Well graded 4.26a 1.86

Appropriately packed 3.48b 1.56

Offer wide range of fresh vegetables 3.39b 1.92

Want Get t SigTubers free from chemical residues 5.74 5.30 1.931 0.066Tubers free from pests and disease 5.70 4.87 2.265 0.034Desired size 5.52 4.74 3.116 0.005Long shelf life 5.52 4.70 2.702 0.013Required quantity 5.45 4.43 2.485 0.021Willing to meet immediate needs 5.39 4.91 1.852 0.077Reputation for good quality 5.39 4.91 1.441 0.164Competitively priced 5.35 5.04 1.159 0.259Deliver when required 5.30 4.91 2.396 0.025Tubers free from physical injury 5.27 4.13 3.144 0.005Desired variety 4.87 4.91 -0.253 0.803Close to me 4.48 5.04 -1.443 0.163Well graded 4.26 4.14 0.370 0.751Appropriately packed 3.48 2.17 3.891 0.001Offer wide range of fresh vegetables 3.39 3.43 -0.157 0.877

RRD China t SigRequired quantity 5.30 5.80 -1.627 0.138Desired size 4.80 5.10 -0.818 0.434Deliver when required 5.00 4.80 0.514 0.619Competitively priced 4.80 3.80 2.535 0.032Well graded 5.00 3.90 2.538 0.032Willing to meet immediate needs 4.70 4.80 -0.264 0.798Reputation for good quality 4.40 1.90 5.514 0.000Desired variety 3.80 3.20 1.964 0.081Tubers free from physical injury 4.40 4.20 0.612 0.555Tubers free from pests and disease 4.50 3.90 1.203 0.260Appropriately packed 3.80 4.40 -1.500 0.168Long shelf life 3.80 4.80 -2.535 0.032Tubers free from chemical residues 3.70 3.70 0.000 1.000Close to me 3.40 3.60 -0.688 0.509Offer wide range of fresh vegetables 2.60 1.80 2.058 0.070

Analyse performance • relationship marketing

– uncertainty is the key dimension affecting organisations and the costs of transacting

– uncertainty prompts firms to establish and maintain relationships

Analyse performance • relationship marketing

– creates value– provide access to markets/information– more reliable supply of inputs– improves product quality– higher repeat sales– buyers become less sensitive to price competition

Analyse performance• key dimensions of long-term relationships

– satisfaction– trust– commitment

• communication and information exchange• power• dependence• goal congruence

F > T T > W W > RSATISFACTIONTrading with preferred partner is less risky 5.82 5.83 4.20Good cooperation with preferred trading partner 5.64 5.70 3.70Preferred trading partner meets expectations 5.55 5.43 3.10Treats me fairly and equitably 5.49 5.77 4.10Adequately rewarded 5.44 5.57 4.30Quick to handle complaints 5.22 4.10 3.10Much conflict with preferred trading partner 2.09 2.47 2.90TRUSTConfidence in preferred trading partner 5.58 5.03 3.90Always keeps promises 5.54 5.20 4.00Always honest 5.53 5.37 4.00Good reputation 5.46 5.33 2.70Trust preferred trading partner 5.36 4.93 4.30Believe information provided 5.05 4.53 3.70Close personal friendship 5.03 4.77 3.80Trading partner always considers best interests 3.81 3.10 3.30POWERFree to choose another trading partner at any time 5.71 4.90 2.90Has best offer relative to alternatives (CLalt) 5.31 4.57 4.30Must adhere to partners demands 2.78 2.37 3.78Trading partner has all the power 2.28 2.83 4.30Trading partners controls all the information 2.21 2.40 3.00Trading partner often acts opportunistically 2.15 2.03 3.22

T > F T > C W > T R > WSATISFACTIONTrading with preferred partner is less risky 5.83 5.55 3.90 5.40Good cooperation with preferred trading partner 5.70 5.68 4.10 5.45Preferred trading partner meets expectations 5.48 5.32 4.60 5.60Treats me fairly and equitably 5.48 5.68 3.50 5.50Adequately rewarded 5.41 5.41 4.70 5.10Quick to handle complaints 4.26 4.77 2.70 4.90Much conflict with preferred trading partner 2.17 2.27 2.60 2.05TRUSTTrust preferred trading partner 5.35 5.00 4.40 5.16Always honest 5.17 5.29 4.00 4.90Good reputation 4.95 4.68 4.00 4.60Always keeps promises 4.91 5.23 4.10 5.35Confidence in preferred trading partner 4.87 5.27 4.20 5.10Close personal friendship 4.68 4.73 4.20 4.85Believe information provided 4.10 4.23 4.10 4.95Trading partner always considers best interests 3.04 3.18 3.50 2.70POWERFree to choose another trading partner at any time 4.77 5.10 4.40 5.80Has best offer relative to alternatives (CLalt) 4.05 4.14 4.60 5.25Trading partner has all the power 2.91 2.59 3.30 3.70Trading partners controls all the information 2.82 2.27 2.80 1.90Must adhere to partners demands 2.77 2.32 2.60 2.30Trading partner often acts opportunistically 2.36 2.00 2.33 2.20