Sub Sector / Value Chain Analysis For Livelihood Intervention
Sub Sector / Value Chain Analysis For Livelihood Intervention
Sub Sector / Value Chain Analysis For Livelihood Intervention
Compiled by
S.Rengasamy
Madurai Institute of Social Sciences
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Content
Sub sector Analysis / Value Chain Analysis for
Livelihood Intervention
Box Footprints of commodities 3
Why sub sector analysis 3
Box 3 E Exercise 3
Dia Sub sector model 4
Dia Local Global value chain 4
Dia Four stages of Sub sector analysis – Basix’s Model 5
Box Sub sector analysis for pro poor growth 6
Dia Value chain analysis 6
Dia Poultry Chain 7
What is a sub sector 7
Box Value chain /Sub sector analysis can help 7
Box Elements of sub sector analysis 8
What is sub sector analysis 8
Dia Steps in sub sector analysis 8
Step A: Preparing a preliminary sub sector map 9
Getting to know the sub sector 9
Dia Framework for analyzing rural non farm sector analysis 9
Dia Sub sector map : Green Beas for export 10
Dia Stages in enterprise value chain 10
Dia A Model –Ready made garment chain 11
Dia Green Beas for export –Constraints and business service identification 11
Box Value chain 12
Box What does value chain analysis entail 12
Step B:Interviewing key informants 12
Box Sectors, Clusters & Networks 13
Box Value chain governance 13
Box Charcoal value chain 14
Box Milk subsector value chain 15
Step C:Drawing a preliminary sub sector map 15
Box Community based retail enterprise sub sector 16
Dia Community based retail enterprise sub sector 17
Refining the understanding of the sub sector 18
Box Social relationship in a charcoal value chain 18
Specifying the institutional context 18
Tab Regulation, Promotion, Credit, other institutional factors 19
Step B: Specify the environmental context 19
Tab Sub sector analysis 19
Box What does upgrading means 20
Step C: Refine the subsector map 20
Dia Rice chain in Thailand 21
Step D:Quantify overlays of particular interest 21
Step 3: Analyzing sub sector dynamics and leverage points 22
Analyzing the dynamics of the sub sector –i.e. Key demand, Technological change, Profitability, 23
Risk, Barriers to entry, Large firm behavior, Input supply, institutional support, Identify sources of
leverage points
Choosing the right intervention point 24
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
"Once upon a time, we knew the origins of things: what piece of earth the rice on our
dinner plate came from, which well our water was dipped from, who cobbled our foot
wears, and whose cow provided the milk and leather. In many parts of the world, that
information is still readily available. But in the present day society, even as technology
makes certain kinds of information more accessible than ever, other connections are
irrevocably lost."
In spite of their resourcefulness and savvy, small firms often lack political influence as well
as the vantage point from which to understand the overall competitive system in which they
operate. Field agencies can help by serving as advocates, monitoring and influencing change
for the benefit of micro and small-scale enterprises (MSEs). But to do so, field agencies need
ways of identifying niches where MSEs have a competitive advantage so that these agencies
can assist those MSEs with the greatest potential while avoiding investment in areas where
they cannot effectively compete. Subsector analysis offers a tool that can facilitate small-firm
moves to promising technologies and market niches.
Normally, a subsector is delineated by a particular final product and includes all firms
engaged in raw material supply, production and distribution of that product. In some cases,
however, the defining characteristic is a key raw material, with the subsector describing
alternative transformations and distribution systems emanating from it. The hides and skins,
cotton, and citrus subsectors are examples of this second type. They are common in the
The 3-E Exercise (Exploring the External
literature on agricultural economics marketing,
Environment) helps us identify some of the where they are known as commodity subsectors.
ruling bottlenecks that need to be overcome to Many of the analytical tools used in subsector
support livelihoods of many people in the area. analysis come from these early subsector studies
Step. 1: Identify Key Informants on agricultural commodities.
Step. 2: Develop Questionnaire/check list for
Assessment Promoting individual enterprises to enhance
Step .3: Scoring by Key Informants
the livelihood among the poor people in an
Step.4: Aggregate Scores
Step .5: Compare Scores of Different Activities isolated and sporadic way may not be the
Step .6: Identifying Bottlenecks most effective way to enhance their
Step .7: Identifying Interventions livelihoods.
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
understand this picture. 3E exercise is one such a tool. Sub sector analysis or Value chain
analysis is another important tool that helps us to understand more about the economic
system, the whole value addition chain and various players in it. It helps us to determine the
most cost-effective intervention to achieve the livelihood outcomes that we seek in our area.
Sub sector Model
End Consumer G
L
0
Large Scale Small Scale B
Trader
Multi outlet Retailer A
L
E
C
Specialized Buyers / Trans National O
Buyers Import Company N
O
M
y
Local Traders or
Markets Export National
N
A
Large Scale T
Small Scale Small Scale & or Multi I
Producer Producer Plant O Meta Level
Macro Level
N Meso Level
A Micro Level
L
Raw Preliminary S
Traders E
Material Producers
C
T
O
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Number of enterprises at each level *Employment and livelihoods generated at each level
Gender division of employment *Volume of product *Price margins at each level *Income
to different players * Returns to labor *Environmental impacts
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Market Demand: Going up? Down? Stagnant?
Analyzing sub- Analyzing the
Technological Change: New Innovations?
sector dynamics of sub-sector
Profitability of different components
dynamics and Risk: Are there some new risks?
leverage points Barriers to entry: New policy? Trade condition?
Identifying
Input Supply: New raw material? New Supplier?
sources of
leverage
System Nodes
Geographical Clustering
Policy Constraints
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
What is a Subsector?
• "The vertical set of activities in the production and distribution of a closely related set of
commodities." Shaffer, 1968.
• A sub-sector is a network of farms and/or firms that supply raw materials, transform them,
and distribute finished goods to a particular consumer market or markets.
• Any group of commodities, which share a common procurement, processing and
distribution channel, can be clubbed into a sub-sector.
• There is more to a sub-sector than just the core manufacturing process such as rice-milling.
The rice transportation system is as much a part of the paddy sub-sector as rice-milling or
trading is.
• A sub-sector is not within a geographical confine. If the groundnut for manufacture of the
Chiki (Kadalai Mittai - sweetmeat) sub-sector in Lonavala comes from Saurastra, then the
groundnut market in Rajkot (Saurastra) is very much a part of the Chiki sub-sector, that
needs to be studied.
• "An interdependent array of organizations, resources, laws, and institutions involved in
producing, processing and distributing an agricultural commodity." Marion et al., 1986.
• Thus , one can view the subsector as: Value Chain / Sub Sector Analysis can
• A set of activities and a related set of rules help to…
governing those activities. • Reveal links between producers, exporters
• A conceptual way view of a problem. and global markets
• Vertical view of industrial organization. • Identify constraints all along the chain to
competing in the marketplace
Nothing highly complicated about the
• Clarify the relationships in the chain from
approach. Just a vertical way of looking at. buyers to producers
Explanation: • Highlight the distribution of benefits
– range of activities required to bring a product among buyers, exporters and producers
or service to the final consumer
– includes producers, processors, input suppliers, exporters, retailers, etc.
– includes both vertical and horizontal linkages
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
By using subsector analysis one can put the potential livelihood opportunities identified to a
rigorous test. Subsector analysis clarify whether the activities identified are likely to grow and
significantly benefit a large number of poor people, or are they going to remain a stagnant
activity bringing only marginal benefits to the target group?
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
The Sub-sector
Issues to be analyzed
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Input
Stockists of fertilizer, Large distributors & Importers
Suppliers Chemicals & Seeds of Fertilizer, Chemicals & Seeds
The above questions can be applied to potential livelihood opportunities in services as well as
in manufacturing.
The answers for the checklist mentioned above can be collected by talking to people who are
involved in the business. They could be farmers or producers, traders who deal in the
commodity, product or service, bankers who finance the activity, a government officer
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Boutiques & Elite Lower Value Urban Handicraft Retail Outlets in Retail Outlets in
Upscale Retailers Exporters Local Outlets Markets Export Markets Local Markets
Exporters
Local Sales
Urban Sales Agent
Agent
Male relatives of
Product design Rural Embroiders
Consultants
Urban Micro Rural Self Employed
Garment Makers Embroiders
Dominant Traditional Low Value
Input Suppliers Chain
Input Suppliers
Potential High Value Chain
Weal at present
Urban Rural
Weak & Low potential
responsible for supporting or regulating the activity, or even a professor in the local college.
Books, articles, websites can be of great help to clarify our self an\bout the activities we are
interested in.
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
The term Value Chain refers to the fact that value is added to preliminary products through
the combination with other resources (for example tools, manpower, knowledge and skills,
other raw materials or preliminary products).As the product passes through several stages of the
value chain, the value of the product increases. A value chain can be very short, like in the case of
milk, or very long and very complex in the case of passenger cars or houses.
For example wood furniture: Every wooden table starts as a tree; it is cut down in the forest and
processed to boards in sawmills. Traders then would sell these boards to furniture producers or
carpenters, who would use their skills to make a table from the boards. Some furniture producers
would sell the table to a local market, whereas others would sell it to traders or export agents.
Large retailers,
Every single enterprise has its own value chain. You could, however, think of a value chain
as consisting of levels with several enterprises at each level. For example the Central Java
(Indonesia) wood furniture industry: here you would find several small furniture producers selling
their products either to local markets, or to traders that would export them to large retailers. You
could even think of a whole national sector as including several levels of a global value chain. In
Central Java you would not only find furniture producers, but also raw material suppliers and
export agents. It is therefore important to distinguish between value chains that feed into
local markets (an end there) and global value chains.
The key informants for analyzing a sub-sector in greater depth may include:
• Smaller and larger producers
• Market traders or authorities
• Bankers
• Officials from promotional and regulatory bodies
• NGOs specializing in the sub-sector
• Researchers
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
3. What technology do you use, what alternatives exist, and why do you use this one?
4. What are the main regulations/ laws you have to follow?
5. What are your main sources of funds for working capital and fixed assets?
6. Which are the main agencies/ actors who help you? How?
7. What problems do you face, if any?
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
The following diagram illustrates sub-sector mapping conventions. Review these. The
conventions or format is important and ignoring it often produces unclear sub-sector maps
that may confuse the participants and others.
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Consumer
PDS godown
Local Hindolakhal
Wholeseller Jamnikhal Anjanisain at village level
Shoes
Rice & Pulses Sugar Kerosene Clothes FMCGs Oil
Inputs wheat
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
These action points can be undertaken in an iterative manner, i.e. meeting again with key
informants, such as producers, traders bankers, regulatory, promotional and other officials, as
well as drawing on secondary date. With the help of the key informants one can cross check
the accuracy of the information collected in the earlier stages.
Unofficial
Transporters
Cooperatives
Merchants Regional Forest Elected Regional
Patrons Service Council
Migrant
WoodCutters
Local Forest Local Rural
Forest Villages Service Council
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
A: 1 Regulation
a) Identify the main laws and rules (including taxes) that apply to different stages in the
sub-sector.
b) Identify the main agencies responsible for enforcing the above.
c) Check the actual application of the law vs. the rules as laid down.
d) Ask key informants about what are the most bothersome aspects of regulation.
A: 2 Promotion
a) Identify the main promotional policies of the government relevant to the sub-sector.
b) Identify the main agencies responsible for implementing those policies.
c) Check actual implementation against policies on paper.
d) Ask key informants about how useful or not these policies are, and what are their most
helpful aspects.
A: 3 Credit
a) Identify the credit available to the sub-sector: what for how much?
b) Identify the main sources of credit (banks – commercial, regional rural banks –money-
lenders, etc)
c) Which parts of the sub-sector are most constrained by the lack of appropriate credit?
A: 4. Other institutional factors
a) Are there any producer organizations?
b) Are there any other institutions that affect the sub-sector?
c) Is there a political economy that significantly influences the sub-sector?
Farm Level
Production
Farming System Research
Processing
Storage
Assembly
Transportation
Wholesaling
Retailing
Financing
Consumption
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
It is also important to view upgrading as a continuous process and to consider this in any
upgrading
1. Product Upgrading: Developing new products/services or introducing a new quality. New
products usually have a higher value than their predecessor models. Examples: Increasing the
quality of timber wood for furniture, sourcing from another supplier, or adopting the design of
clothing to the preferences of the final customer.
2. Process Upgrading: Improving the efficiency of internal processes, such that these are
significantly better than those of competitors. Examples: Cutting the cost of inventories, lowering
scrap, improving delivery time, producing more in less time to less cost.
3. Function Upgrading: Moving up the value chain towards carrying out higher level and greater
value adding activities. Examples: Developing own capabilities for manufacturing chocolate instead
of only exporting the raw material; building up own design capabilities instead of only assembling
products according to given designs and plans.
4. Market Upgrading: Covering new markets on which to sell a product or service, whether this
market has to be newly created or is already covered by competitors.
5. Supply Upgrading: Improving the quality/quantity of supply material and products or
changing the supplier. This is very related to process upgrading. However, supply could be a
distinct focus of a sector-upgrading project. Example: ensuring that timber for wood furniture is
sourced from sustainable and environment-friendly wood processing areas.
6. Inter-chain Upgrading: moving to a new and more profitable value chain, where higher
rents can be captured. Example: Taiwanese firms moved from the manufacture of transistor radios
to calculators, to TVs, to computer monitors and now to Wireless Application Protocol Phones
(WAP).
7. Intra-chain Upgrading: Increasing cooperation and the flow of information between partners
along the value chain. This is done to achieve collective gains through quality improvements,
increased system efficiency and the development of differentiated products. This would also imply
a change in the value chain governance: From market-based to increasingly regulated
relationships that are based on trust and mutual (formal) agreements.
What are the important processes missed so far within the sub-sector?
Is there any new channel that was not aware of earlier?
Is there any additional functions that need to be performed for the commodity, product or
service to reach its ultimate markets?
Is there any functions identified in the preliminary map have turned out to be no more than
side shows for the main channels within the sub-sector?
With all this additional information the sub-sector map may be refined. A major part of
refining the map is to add ‘overlays’(super imposing).
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
Small Large
Farmers Farmers
Private Cooperative
Millers Millers
Human
Consumption
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
We need to identify the overlays that are of interest to us and then quantify them. These may
include:
• Number of enterprises at each level
• Employment and livelihoods generated at each level
• Gender division of employment
• Volume of product
• Sales value
• Price margins at each level
• Income to different layers
• Returns to labor
• Inventory holdings
• Environmental impacts
In the process of quantifying this range of overlays, using information from key informants
and secondary data, will significantly deepen our understanding of the sub-sector.
In analyzing sub-sector dynamics the following questions will arise and which need to be
answered:
a) Which channels enjoy the most secure prospects for growth?
b) Do these channels face any emerging threats?
c) What role can micro and small enterprises play in these channels?
d) How can you enhance their ability to participate in the growing niches?
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
These questions can be answered by understanding how the sub-sector is changing and why.
The following driving forces and constraints are important in affecting changes:
Key demand
Estimate the demand and trends over the last few years, locally, nationally and even globally.
Population growth and changes in the larger economic environment (prices, wages,
monsoons, booms, recessions and so on) can cause consumption patterns to change rapidly.
Technological change
New machinery or know-how can greatly change production costs, making small firms more
competitive or driving them out of business. What impact will such changes have on poor
producers, on women producers, on the environment?
Profitability of different niches
Individual niches within the production system yield differing returns, providing incentives to
change to the more profitable technologies, supply relationships, and level of specialization.
Risk
Changes in demand, inputs, technology, labor and environmental conditions, and profitability
bring both opportunities and risks. The micro-entrepreneur and the collective enterprise alike
must balance rewards and risks in choosing which channels to operate in.
Barriers to entry
Regulations (such as licensing and zoning), banking practices, lack of information, and
collusion can restrict growth opportunities for micro and small enterprises.
Large firm behavior
Changes in the level or range of activities of a few large firms may dramatically affect the
opportunities open to micro and small enterprises.
Input supply
Poor quality raw materials, unreliable supply sources and environmental damage can severely
restrict the growth potential of enterprises.
Institutional Support
Changes in regulation, promotional and credit policies can have a major impact on functions
within the sub-sector, including raw material supplies, technologies and marketing. Are
changes happening or expected? What impact will they have on the functions and channels
represented on your map?
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S.Rengasamy- Sub sector / Value Chain Analysis for Livelihood Intervention
The above process will result in a fair idea about some of the interventions that you could
take up for promoting or supporting many livelihoods. Every intervention requires some
basic competencies and resources. Examine whether the organization has these.
From this analysis you have to make a choice of the intervention strategy that your
organization can take up for promoting or supporting a large number of livelihoods.
The material for this class notes are mainly taken from
ISLP’s “A Resource Book for Livelihood Promotion”
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