Tool 1 - Prioritising Value Chains for Analysis

 

Introduction Objectives Key Questions Participants in assessment of value chain priority Steps Step 1     Determine criteria and build understanding of priorities Step 2     Weighting of criteria Step 3     Identifying a list of potential products/activities Step 4     Ranking of products/activities What Should be Known after Analysis is Complete Useful Examples

 

Introduction

 

Prior to starting a value chain analysis it is necessary to decide which sub-sectors, products or commodities should be prioritised for analysis. As resources for undertaking analyses will invariably be limited, it is important to identify appropriate value chains for analysis and follow up activities. 

 

Objectives

 

To involve value chain actors in learning process and select a limited number of value chains to be analysed.  

 

Key Questions

 

1. What are the key criteria on which to base the selection of value chains to be analysed?

2. Which value chains are most appropriate to analyse? 

 

Participants in assessment of value chain priority

 

Participants involved in this exercise should have a common understanding of the value chain’s development in the region. It may be helpful to carry out a pre-evaluation by visiting sub-sectors, product or commodity partners to identify representatives, actors and/or key informants to ensure that the participants have (i) relevant knowledge and (ii) adequate representation on the value chains. It is advisable to keep participant numbers small. Likely participants are local policy and decision makers, farmers, private sector actors, service providers, development organisations and community representatives.

 

Steps

 

The prioritising process follows four steps that are common to processes of making allocation choices under a situation of scarce resources. The final priority can be determined on the basis of the ranking obtained. For each of the following steps, two methodologies will be proposed; a rigorous participatory methodology and a less rigorous methodology that could be adopted if time and resources are limited or participatory methods are not appropriate.  

 

Step 1     Determine criteria and build understanding of priorities

 

Value chain analysis starts with the selection of a value chain.  As the key entry point of the value chain analyses proposed in this toolbook is poverty alleviation and achieving pro-poor outcomes, the criteria selected would reflect this entry point. The first step is to make considerations of the priorities in the ranking of a potential value chain. These can include the following integrated criteria: 

 

(1)     Potential of the value chains to improve livelihoods of the poor people;

 

• Present integration of the poor in the market (what are they producing, selling, employment)
• Potential of the product/activity for poverty reduction
• Potential for Labour Intensive Technology
• Low barriers to entry for the poor (capital, knowledge)
• Low risk
• Poverty incidence and/or absolute poverty figures

 

(2)     Market potential

 

• Strong domestic and/or international demand for the product
• Growth potential of certain products/activities
• Possibility for scaling up
• Potential for leveraging public investment with private investment
• Involves a large number of people

 

(3) Other criteria, such as

 

• The value chain actors have entrepreneurial capacity to achieve improvement.
• Environmental sustainability
• Within framework of national and regional strategies
• Social inclusion and gender

 

Take Note

Step 2     Weighting of criteria

 

Some of the criteria will probably be considered to have a higher level of importance in the decision making process and so should have a greater influence on the ranking of value chains. 

 

Weightings are commonly assigned in two main ways: 

1.     Simple numeric– for example, 1, 2, 3 or 4 - where the relative importance of criteria is in direct proportion to the numeric weighting. This means that a criterion with a weighting of 4 is considered to be twice as important as a criterion with a weighting of 2, and 4 times as important as a weighting of 1.

2.       Proportional, where all of the criteria have a combined weighting of 100 %, and the relative importance of each criteria is reflected in the proportion of the total weighting that is assigned to that criteria. For example, if there are three criteria, then they could be weighted as Criteria 1 (50%); Criteria 2 (30%) and Criteria 3 (20%).

 

Take Note

If time and resources permit, deciding on the weighting of the various criteria should be undertaken in a participatory manner, with inclusion of all participants in the decision making process. As was the case with the selection of criteria, this is important in building ownership of the process and increasing understanding of the reason for value chain selection. However, if time and resources are limited then the weightings for various criteria can also be pre-determined prior to a participatory identification process.  

 

Step 3     Identifying a list of potential products/activities

 

Once the criteria for selecting the value chain to analyse have been chosen and weighted, the next step is to make a list of all the potential value chains/ products/commodities in the geographic area under consideration. This list could be developed in a participatory manner with actors, who may or may not be the same as the actors who developed the criteria in Step 1. The value chains identified are usually based on products that are already produced in the area, products which are technically feasible to produce in the area, products which have a pro-poor focus, or products that are judged to have a good market (local, regional, national or international market).

 

The participants then discuss to share their understanding of the potential value chains identified and agree to make the list.

 

Tool 1 - Box 1: List of potential value chains in Son La, Vietnam 

The range of value chains identified may be quite broad. A value chain exercise conducted by the SNV Market Access for the Poor Program in Son La Province, Viet Nam identified the following value chains as having potential:    Mushroom Longan Mong apple Local rice Pumpkin Village pig Bamboo shoots Medicinal plants Honey Handicrafts Maize

 Source:^[1]

Step 4     Ranking of products/activities

 

A set of criteria can be developed to differentiate between potential value chains depending on the purpose of the analysis. For example, Table 1 shows some criteria used by the International Finance Corporation Mekong Private Sector Development Facility (IFC/MPDF) in evaluating potential value chains, while Table 2 shows alternative criteria used by the National Economic and Social Development Board of Thailand in selecting value chains for further study and development.

 

Tool 1 - Table 1: MPDF sub-sector selection criteria for value chain identification

Positive

Negative

·         Multi-country potential ·         Reliable existing data available ·         Opportunities for cooperation with other development agencies and NGOs ·         Potential to attract additional funding ·         Links to strong private sector demand ·         IFC clients or interests ·         MPDF already has knowledge or expertise in the sub-sector ·         Impact potential: large workforce, low income, importance to the economy etc. ·         Presents expansion and replication opportunities

·         No clear MPDF role ·         “Overcrowded” ·         Previous negative experience ·         Risk, reputation ·         Impact time frame too long ·         Insufficient resources

Source:^[2]

 

Tool 1 - Table 2: NESDB sub-sector selection criteria for value chain identification. 

Criteria	Sub-Criteria
Poverty and Sustainability	Availability of natural resources; Sustainable development
	Within framework of national and regional strategies (Clusters, OTOP – one town one product)
	Potential for labour intensive technology
	Number of people involved in industry (Poor people)
	Future potential
Structure of Chain	Extent of value adding potential (Profitability, Stability)
	Number of different products produced
	Length of marketing chain; Number of intermediaries
	Maturity of industry in region
	Marketing potential
	Lack of previous research
	Data availability
	Potential for “Lessons Learned” / Replication of mechanisms

Source:^[3]

 

Once the criteria have been agreed upon, relative weightings of importance can be attached to each of them. For example, it may be decided that “Poverty and Sustainability” is more important than “Structure of Chain”, so that the sub-criteria under the first of these two categories are worth 70% of the total score.

 

Once the weightings have been determined, then a matrix for ranking the value chains can be constructed; see Table 3.   

 

Tool 1 - Table 3: Matrix ranking of products by scoring 

Criteria	Weighting (%)	Value Chain 1	Value Chain 2	Value Chain 3
Criteria 1	50 %
Criteria 2	15 %
Criteria 3	20 %
Criteria 4	15 %

 

Once the matrix is made, participants then rank each value chain on how well it matches the criteria. A common way of doing this is to have a numeric ranking of 1 to 5, where 5 can represent the maximum compliance with the criteria and 1 represents a minimum compliance; see Example 1. The assignment of the numeric scores can be done in a number of ways, including gathering numeric rankings from all participants in the actor group and then making a simple average.

 

Take Note 

If there are a large number of criteria, participants, or value chains, more data is generated by the ranking process. Allow enough time to calculate the final rankings.

What Should be Known after Analysis is Complete

 

After completing this step, one should have a thorough understanding of the potential value chain development in the region and which value chains have a high pro-poor potential and market demand.

 

From experience we can that, in general, value chains which call for:

 

are not pro-poor.

 

Useful Examples

 

Tool 1- Example 1: Value chain selection in Thailand.

 

Once the criteria were defined by the Steering Committee, the commodities were ranked against each criterion. Each commodity was ranked in relation to the other commodities. In this example there were six commodities and therefore a score of 6 meant that the particular commodity best met that criterion, and a score of 1 meant that the commodity did not meet that criterion.

 

Each criterion was evaluated through consensus of the Steering Committee. Once each criterion was evaluated, a simple average score was calculated, and the commodities ranked accordingly; see Table 4 below.

 

The results of the priority setting exercise indicated that silk and rice were the two commodities most appropriate for study under the pilot project.  

 

 

Links to Other Examples

 

Author	Title	Description of Tool	URL Link