GREENING OF AGRI-BUSINESSES AND AGRO-ENTERPRISES

PRODUCT (VALUE CHAIN) SELECTION GUIDE

PROJECT:

GREENING OF AGRI-BUSINESS AND AGRO-ENTREPRISES NATIONAL CONVERGENCE INITIATIVE FOR SUSTAINABLE RURAL DEVELOPMENT

29 APRIL 2013

INCLUSIVE GREEN AGRI-BUSINESS AND AGRO-ENTERPRISEDEFINITIONINCLUSIVEGREENING

Why is it crucial for agro-enterprises and agri-businesses to be green and inclusive?

Growth trajectory of economic systems ultimately depends on the sustainability of the environmental system. It is the greenness (sustainability) of the sector that provides a sustainable basis for food security and on which community livelihoods can rely.

Improved environmental management and sustainable production can improve competitiveness and profitability. It can create or enhance competitive advantage.

Social and economic impacts from green growth initiatives will be greater and broadbased if efforts at the outset are made to make the business model inclusive.

Poverty reduction requires inclusive growth. Growth requires social mobility. We want to use growth to drive a social welfare agenda.

Economic incentives are critical to promoting green outcomes because they change behaviour in a manner that typically leads to least cost solutions.

Poverty is one of the root causes of environmental degradation. What is needed, therefore, is growth that is both environmentally sustainable and meets the needs of the poorest and most vulnerable.

Working together for a bigger pie in a sustainable wayAll players in the chain work together to bring products that consumers value at the most effective and efficient way and with the least ecological impact.

PRODUCT/VALUE CHAIN SELECTIONGUIDELINESSITUATION ASSESSMENT

SHORTLISTING OF PRODUCTS/ VALUE CHAINS

DEFINITION OF SELECTION CRITERIA

PROFILING OF SHORTLISTED PRODUCTS/VALUE CHAINS (Criteria-specific Profiles)

RANKING OF PRODUCTS/ VALUE CHAINS AND FINAL SELECTION

Our objective is to develop agri-businesses and agro-enterprises that contribute to sustainable growth in the convergence area with the potential to be competitive in increasingly discerning markets and with significant livelihood generation and broadbased participation of marginal farmers, fisherfolks, and poor households in general. This Guide is intended to be used as a resource on possible instruments, methodologies, and concepts on product and value chain selections as a starting point for the development and promotion of green and inclusive agri-businesses and agro-enterprises. It builds on the NCI Operations Manual and IEM Framework.

Product and value chain selection involves the prioritization of products and value chains based on criteria related to growth and competitiveness, impact, and development objectives. Our goal is to minimize subjectivity in the selection process and to minimize risks of developing enterprises that are bound to fail in the market and/or in meeting development objectives due to poor product selection.

The traders in my neighbourhood are not interested in these. My neighbors have their own produce. The big city is too far away and I would lose more if I bring these. I am in worse situation than before. Ayayay, it would take years before I earn money. My family will be dead then. I better just continue with what I am doing now. This is only for the rich.COMMON PITFALLS IN PRODUCT/VALUE CHAIN SELECTION

Selecting a product/value chain with low growth potentials and integrating new entrants would either lead to displacement and/or spreading benefits thinly Influenced by peer pressure/ bandwagon effect Selecting a product/value chain with most poor in it but with no growth potential Selecting a product/value chain with high growth potential but difficult for poor to participate Building an entirely new industry --- may take a longer gestation period before target groups can benefit, entail more resources to build links and develop markets

A. INITIAL SITUATION ASSESSMENT

Prior to product and value chain selection, it is recommended to conduct an initial assessment of the selected area focusing on the following: Sources of income Seasonality of income Skills Risk tolerance Barriers to participation Resources/competitive advantage/comparative advantage Environmentally Critical Areas (ECA): areas ranging from national parks to areas frequently exposed to hazards or areas that are historically interesting. These areas are identified in Presidential Proclamation 2146. Environmentally Critical Projects (ECP): projects or industries that have critical environmental impacts and therefore need to undergo environmental impact assessments and need to acquire Environmental Compliance Certificates (ECC) prior to implementation.

In the conduct of the initial assessment at the household level, one tool that you may use is the Household Economy Analysis toolkit (PEPFAR/USAID). HEA baseline tools include livelihood zoning (mapping of areas with similar livelihood strategies vis--vis geographic features), wealth breakdowns (distribution of poverty within a community with wealth classification based on local definitions), and analysis of livelihood strategies (how individuals generate their livelihoods). Other tools would be the Sustainable Livelihood Approach, Poverty Assessment Tools, Progress out of Poverty Index, etc.

Guidelines: Livelihood Profiling /Zoning (adapted from Household Economy Analysis toolkit)

1. Gather primary and secondary data on the selected watershed area. Use the secondary information as your starting point. But make sure to triangulate these with primary data collected from field interviews (info from the stakeholders and target group themselves).

Focus data gathering and analysis on the following:

Main resources, geographic and environmental features of the area/s selected including ECAs and ECPs. Brief historical background, particularly significant events in the past 5-10 years droughts, floods, conflict etc. Main sources of income by wealth groups (very poor, poor, etc.) Main food and cash crop grown --- by area, wealth group, etc. Yield per hectare (at least 5 consecutive years data) Crop Production Levels by season (at least 5 consecutive years data) Seed requirements Main livestock raised Lactation periods (wet and dry season, good and bad years) Yields (wet and dry season; good and bad years) Other relevant data Infrastructure and facilities available in area including utilization Added value processing activities Land ownership and access issues Main labor activities Other relevant livelihood or household economic activities Price data 5 to 10 years staple food, crops, livestock, labor, etc. Known migration data Seasonal calendars Main markets accessed (for food, livestock, labor, etc.) --- for selling produced/labor and for buying for own consumption Population data (as disaggregated as possible) Rainfall figures (time series data, if available) Local government unit and programs

Primary data gathering can be carried out via interviews of key informants and focus group discussions. 2. It is helpful to prepare a livelihood zone map which can be incrementally built as you gather data on the area. The livelihood zone map is an economic-geographical representation of the watershed area that shows the varied contexts in which livelihoods are pursued. Usually livelihood zones do not exactly align with administrative or political boundaries. Often, however, livelihood zone maps are superimposed upon administrative maps so that the populations within the zones can be easily identified. The livelihood zone map should also identify productive areas, non-negotiable areas, ECAs, and ECPs.

If area has been identified as an SAFDZ, a good starting point would be the SAFZD map. To convert the SAFDZ map into a livelihood zone map, you would need to identify the specific products being produced in area as well as write down conclusions gathered from the various data you have collected (see no. 3).

Example of a Livelihood Zone Map

3. Organize the data into the following suggested sections:

Description of Livelihood Zone

A livelihood zone is an area within which people share broadly the same patterns of livelihood --- broadly the same production system and patterns of trade and exchange. [footnoteRef:1] A watershed area can have several livelihood zones. [1: PEPFAR/USAID/CARE definition]

Key Aspects that should be covered

Geography: physical features (rivers, mountains, etc.), climate (rainfall and temperature by season, etc.), vegetation, natural resources, population density, etc.

Characterization of livelihood zone: livelihood pattern, main food and cash crops, main livestock, poverty level, other food and income options, etc.

Production system: production method, livestock rearing practices, etc.

Market access: flow of goods and services, trading patterns

Employment: types of employment available, labor migration

Key Questions that should be answered

How does the geography and agro-ecology of the zone influence the local production and livelihood options? Is this a productive zone? Or an unproductive zone from which people must migrate seasonally? Is market access good or bad?

Markets

Description and basic information on demand and marketing of local production as well as importation of staple food into the zone.

Key Aspects that should be covered

Brief description of patterns of food crop, cash crop, livestock and labour sale within and outside the livelihood zone. Information on any importation of staple food

Description of any factors affecting marketing for the livelihood zone (e.g. road conditions and transport costs, middle men buying cheaply, only a few traders, farmers paying off credit at disadvantageous rates, etc.).

Key Questions that should be answered

What are the main commodities sold out of the livelihood zone? And what are the main markets and market routes for these?

Is staple food imported into this zone? If so, what are the markets and market routes for this?

Is market access good or bad in this zone? What are the constraints to marketing in the livelihood zone, and how might marketing be improved?

Is there a high demand for the products and/or services? Is demand internal or both internal and external?

Underlying questions are: how are changes in supply and demand (within or outside the livelihood zone) likely to affect prices in this zone? How might a change in access to markets affect this LZ?

Seasonal CalendarAll aspects of a household economy are influenced by seasonality. Seasonal calendars are the basic tool for seasonal analysis.

The seasonal calendar should illustrate seasonal patterns to food and income acquisition strategies: Rainfall by month Main cropping activities Harvest month Labor/employment Hunger season Market prices Demand for products and/or services Other aspects relevant to the area

Key Questions that should be answered

What is the timing of the main agricultural and other seasonal activities during the year?

At which times of year do households have access to different sources of food and income?

How does the market price of staple food vary seasonally? How does the market price of local produce and services vary seasonally?

At which time(s) of year is access to food and income relatively low (hungry season)?

How will the timing of a hazard (e.g. flooding, insecurity) affect seasonal food access? Income generation?

Wealth BreakdownWealth breakdown focus on what causes differences in wealth (e.g., access to land, skills, capital, etc.). It is not sufficient to say that x percentage of residents fall below the poverty line. The wealth breakdown should be determined based on local socio-economic context and derived from key informants interviews and observations. Wealth should be defined in local and relative terms (assets, stability or regularity of income, etc.). A participatory definition of wealth criteria would be helpful. Sample categories would be: Very poor, Poor, Lower Middle, Middle, Upper Middle, Better Off.

After defining wealth criteria of each group, estimate the proportion of households falling into each of these groups. This can be done through participatory proportional piling using beans, seeds, stones, or shells.

Key aspects that should be covered

Breakdown of households in zone by wealth group and corresponding asset sizes, area planted, type of production system, etc. (adjust depending on dominant livelihood)

Description of the main differences between wealth groups (e.g. land ownership, crops grown, methods of crop production, livestock holding, capital and savings, education, skills, labour, etc.), with some explanation of the constraints faced by the poorer groups (i.e. why they remain poor).

Key Questions that should be answered

What are the main differences between different wealth groups and how does this affect potential access to food and income?

Why are the poor poor? E.g. Because they do not have access to land? Because they do not have enough labour to cultivate their land? Because they lack capital to invest in production? Because of attitude and behaviour? It is recommended to conduct a root cause analysis (ask why for every answer --- do it 3x to 5x until you get the root cause).What percentage of community households fall into each of the wealth groups?

Sources of FoodLine of questioning should be aimed at mapping out the links on how people get their food. This can help in deciding interventions and investment to improve food access and avoid measures that would put at risk their access to food.

Standard categories for organizing data on sources of food: Own crop/livestock production Purchase Barter Collection (hunting, fishing, etc.) OthersKey aspects to be covered

Description of food access/pathways for each of the wealth groups.

Differences between wealth groups in relation to food access.

Key Questions that should be answered

How does the pattern of food access vary between groups?

How do differences between the wealth groups (described in the wealth breakdown) affect access to food (e.g. low levels of crop production -> low access to food crops and high dependence on the market, etc.)?

Sources of Cash/IncomeGeneral sources of income are the following: Crops and livestock sales Labor and employment Small business and trade Etc.

A household would usually have multiple sources of income. As such, it is important to quantify each income source, according to volume of sales, number of people engaged in activity, frequency of sales/income, prices obtained, etc.

Key Questions that should be answered

How does the pattern of cash income vary between groups?

How do differences between the wealth groups (described in the wealth breakdown) affect cash income (e.g. low levels of crop production -> low levels of crops sales)?

HazardsHazards may either be natural (e.g., drought, flood, pest infestation, etc.) or man-made (conflict, market dislocation, etc.). This section should contain a brief description of a maximum of three main hazards, e.g. the main chronic hazard, the main periodic hazard, and one potential hazard that would have very serious consequences.

Key Aspects to be covered

Description of main chronic hazard (e.g. crop pests) and its effects on production and exchange (e.g. reduced production of specified crops).

Description of main periodic hazard (e.g. drought, epidemic livestock disease), its frequency and its effects on production and exchange (e.g. reduced milk production, reduced livestock sales).

Key Questions that should be answered

What are the main chronic and periodic hazards affecting each of the zones, and how do these hazards affect access to food and income for different wealth groups?

Are there any potential or new hazards that threaten each of the zones, and that could have serious consequences for food security? How?

What are the main indicators of a developing crisis? Of impending hazard?

Response/Coping StrategiesThis section focuses on how households cope with periodic and chronic hazards and constraints. Response and coping strategies should be identified per wealth group.

Key Aspects to be covered

Descriptive analysis of which sources of food and income can be expanded in a crisis, with a judgement of the likely effectiveness of these strategies.

Further information on key response strategies, e.g. systems of remittance, systems of credit.

Assessment of capacity of households to respond to possible crisis in the future.

Assessment of continued viability of strategies employed in the past.Analysis of potential negative effects of strategies likely to be adopted

Key Questions that should be answered

For the main periodic hazard, what are the main response strategies for the different wealth groups?

How viable are strategies that have been employed in the past?

Do any of the strategies have potential negative effects (e.g. threaten future livelihoods, have negative environmental effects, etc.)

B. SHORTLISTING OF PRODUCTS

Based on the situation assessment (livelihood profiling and zoning), draw up a list of the dominant products (Value Chains) in the area. It is advisable to come up with a ranking based on potential to provide majority of the populace with better income opportunities. Consideration should also be made on the environmental impact and whether mitigation of negative impact to the environment is viable and feasible.

Subsector: network of firms and enterprises (different value chains) involve in the production and distribution of a specific product or service

Value Chain: a single chain of vertical and horizontal relations and players with common objectives to produce and market products and services in an effective and efficient manner

C. DEFINITION OF SELECTION CRITERIA

Determining criteria for product and value chain selection is a critical step. It is a task that requires strategic thinking about overall objectives and how to maximize impact. In all cases, selection criteria should reflect the goals of the project as well as incorporate ideas and perspectives of the stakeholders. It is, therefore, important that selection criteria should be defined by multi-stakeholders from the public and private sectors.

It is critical to select value chain criteria that will facilitate inclusion of vulnerable populations. While the standard criteria are important to include (competitiveness potential, impact potential, cross-cutting issues, and industry leadership), the selection process also needs to consider the constraints faced by the target population. Otherwise there is a risk of missing barriers to their participation, or value chains in which they are indirectly involved. Additional lenses for value chain selection include: [footnoteRef:2] [2: USAID Microlinks]

1. Opportunities for employment. Employment offers a lower risk path to benefiting from growing value chains. The interest in self-employment is regularly over-estimated; often the very vulnerable turn to the informal sector given the lack of attractive alternatives.

2. Minimal potential for harm. Value chains should be selected in which environmental, social, and economic threats and risks are minimal or can be mitigated.

3. Low barriers to entry. Value chains with onerous entry or upgrading requirements are usually inappropriate given limited financial and human capacity.

At times, separate consultations with under-represented or less influential stakeholders offer a good way to identify interests and come up with an inclusive choice of criteria.

Below are examples of selection criteria: [footnoteRef:3] [3: Adapted from UNIDOs Pro-Poor Value Chain Development Guide]

1. Criteria based on market/supply and demand

Market demand exists for a given or improved product. There are firms (traders/lead firms) with resources that can bring the products to the market and play the role of catalysts. There is potential to apply/adopt available/improved knowledge and technology. Resources, capacities, infrastructure, and raw materials are available and can be used (more efficiently). There are real or potential competitive advantages in the production/processing of a certain good.

2. Goal-based criteria

Gainful participation of majority especially the poor: Can poverty be reduced in general and for selected vulnerable groups? What is the percentage of poor engaged in the chain? What are the barriers to entry in the chain? What are the risks and its implications to the populace especially the poor? Can majority of the populace (e.g., farmers/smallholders, fisherfolks, micro enterprises, etc. ) especially the poor participate in the enterprise?

Income and employment generation potential: Can additional employment and income be generated? Who is benefiting? Can work conditions be improved?

Pro-poor growth: Can economic growth be promoted by expanding value addition? Who benefits from this?

Ease of entry: Can productive micro and small enterprises develop and take part in local, national, and global value chains? Who runs those enterprises, and who do they employ?

Gender equity: Can gender equity be promoted? Do women receive rewards and reduce risks with respect to income, employment and food security through engaging in the chain?

Cross-cutting issues (Gender, Environment, Social Inclusion): Can objectives for specific local development be addressed, e.g. social inclusion of specific ethnic groups or protection of local natural resources?

Greening potential: Are cleaner production and compliance with environmental safety standards possible? Can criteria of environmental sustainability be met?

Most likely, many of the enterprises in the area are not yet green. At this time, assessment should focus on whether there is a possibility for greening the enterprise and the value chain. A more in-depth discussion on greening will be covered in the Value Chain Analysis and Intervention/Business Models notes. Here are examples of how traditional livelihoods are being transformed to green and inclusive business models.

3. Strategic Criteria

Alignment to government priorities Availability of funding/Alignment to donors mandates/investors interests Opportunity for partnerships and strategic alliances

D. CRITERIA-SPECIFIC PROFILING OF SHORTLISTED PRODUCTS/VALUE CHAIN

This will involve the collection and analysis of criteriaspecific information for each of the shortlisted products/value chains. The idea here is to collect only the necessary information for the selection criteria to provide empirical evidence for any choice and validation. It is suggested that primary research be conducted only to fill up data gaps from available literature and statistics including situation assessment. Information from secondary sources though should be validated and double-checked with information gathered during field visits, FGDs, and interviews.

E. RANKING OF PRODUCTS/VALUE CHAINS AND FINAL SELECTION

Ranking and prioritization of products are best conducted through workshops with the various stakeholders to ensure objectiveness and promote ownership of results. The workshops may consist of the following activities: a) presentation and validation of information gathered (see #2); b) additional information gathering from stakeholders; and c) ranking and prioritization.

There are many tools (Pairwise Ranking, Analytic Hierarchy Process, etc.) that can be used to facilitate ranking and prioritization. In diverse group settings (wide range of learning aptitude and literacy), it is recommended to employ the Pairwise Ranking. In areas with very low literacy, simple voting (show of hands) can be used --- after profiles of products have been presented and discussed.

Pairwise Ranking

1. For each selection criterion, compare products by pairing (A vs B, A vs C, A vs D, and so on).

INCOME GENERATIONPRODUCT/VALUE CHAIN

ABCDE

A

B

C

D

E

2. Count how many times each product won over the others

INCOME GENERATIONPRODUCT/VALUE CHAIN

ABCDE

AAAAA

BBBB

CCE

DE

E

Frequency43102

3. Rank products based on frequency (highest frequency is ranked as 1)

INCOME GENERATIONPRODUCT/VALUE CHAIN

ABCDE

AAAAA

BBBB

CCE

DE

E

Frequency43102

Rank12453

Use the following guide questions to triangulate the product selection process:

Which products/value chains employ the greatest number of workers? Which products/value chains pay the best to workers? Which products/value chains involve the greatest number of poors and micro enterprises? Which products/value chains have potential to provide the poor with better income opportunities? Which products/value chains have been growing the fastest, in jobs? In numbers of establishments? In average wages? Which products/value chains offer the greatest opportunity to promote sound environmental management and pro-poor conservation initiatives? In which of the products/value chains does the area now have the greatest comparative and competitive advantage? Which products/value chains seem to be building stronger competitive advantage for the future? Which products/value chains have been targeted by the local government for future growth?

When a product/value chain has already been chosen, stakeholder meetings can validate the choice. This can be a good opportunity to bring stakeholders together, identify their interests, motivate them to participate in the venture, and find out what they can contribute. A convincing presentation of the rationale for the choice of the product and value chain is crucial for such meetings. Opportunities should be explored for participants to guide the design and implementation of the enterprise and development interventions.

II/MB-LATINASIA/PRODUCT SELECTION GUIDELINES1