Introduction – what this book tells us about commercial value chains that include the poor

Malcolm Harper, John Belt and Rajeev Roy

Abstract

This chapter discusses the theoretical foundations of the topic dealt with in the book: value chains in developing countries and whether they can be inclusive of poor people in ways that will materially benefit them. Value chains that have not received the attention of international development interventions are the focus of the study – to understand in what circumstances poor producers are seen as good business partners. Terms used frequently in the book are also defined to help the reader understand the cases and their contexts a little better. The difficulties of measuring impact of value chain involvement upon the producers are discussed, as well as the choice of the Progress out of Poverty Index to measure economic status. The cases include commodity products, non-commodity food products and other non-food items in a value chain. This chapter provides a short introduction to each case in the book.

Keywords: inclusive value chains; impact; Progress out of Poverty Index; small-scale producers; smallholder farmers

What this book is about

This book is about value chains. Not all value chains, but a particular class of such chains – 'inclusive' value chains – which include and substantially benefit large numbers of poor people. These people are often smallholder farmers, but they may also be artisans, or small-scale retailers or customers.

The 'development community', including United Nations (UN) agencies, bilateral donors such as the British Department for International Development (DFID) and the United States Agency for International Development (USAID), non-government organizations (NGOs) and the governments of poorer countries themselves, have in recent years become involved in promoting and assisting value chains, as it becomes recognized that economic development and the alleviation of poverty are unlikely to be achieved by the public sector alone; the private sector is seen as the main source of growth, and development assistance is increasingly a matter of partnership between public and private entities.

For-profit businesses, which depend almost everywhere on trading goods and services with other businesses, also build value chains, not to alleviate poverty but because such chains are vital for their businesses. Some large businesses whose value chains happen to include and benefit poor people may present these value chains as part of their 'corporate social responsibility' (CSR) activities, but the value chains that are described in this book have not been developed by companies in order to achieve social goals, or to promote a favourable 'image', but because they are good business. The poor people from whom they buy their raw materials, or through or to whom they market their products, are their best partners from a commercial point of view. They can perform whatever functions are necessary, to higher quality standards, or more reliably, or less expensively, than any other suppliers, and it makes good business sense to work with them, and to pay them more than they could earn elsewhere, so that they will do their best to continue.

Business relationships between large corporations and small-scale farmers, or other poor people, are sometimes believed to be necessarily exploitative. It is argued that the main or only reason the corporations have chosen to work with them is because they are cheap, and also because they are plentiful; they can easily be replaced if they become dissatisfied or worn out. This certainly happens in many value chains, but we have tried to find examples that are profitable and 'sustainable' for all their members; it is worthwhile to pay the small-scale farmers or others more than the going rate for undifferentiated crops, or other supplies or services, because they can in some way provide better value for money.

What this book is for

The book is not intended in any way to make a definitive statement about what we have chosen to label 'inclusive commercial value chains'. We aim merely to show by several examples that it is possible and profitable for businesses to build and maintain such value chains, without subsidy or other non-commercial assistance.

We use the term 'value chain' because it briefly describes the sequence or network of businesses, farms, artisans, retail shops and other intermediaries that are needed to get any product to its final users. Many business people who are more concerned with profits than definitions use the terms 'supply chain' or 'distribution channel', but the word 'value' makes the point that the members of a chain do more than 'logistics', the transport and storage or 'place' functions. They add value in many different ways, including production and promotion, so that the final product or service is actually a combination of each of the 'four Ps', as famously conceptualized by McCarthy (1960): Product, Place and Promotion, which can finally be offered to the customer at a Price that represents good value.

We have ourselves been engaged in business in the past, not in global or multinational companies but in medium-...