Synthesis Documents

Under what conditions are value chains an effective tool for pro-poor development? (2011)

    Summary of results
    Analyses of projects connecting small-scale producers to formal markets show a wide diversity of experience and underline the importance of producer assets to both participation and benefits. Interestingly, formal chains tend to provide greater income security but not necessarily higher prices. When higher incomes do occur, it is often from higher yields, improved quality or value-added activities. Some formal chains can increase income (through better prices and better productivity) without improving food security, while some studies show that income diversification is crucial to improving food security.

    While formal value chains can reach the poor,different products have different potential for the poor because of challenges specific to each supply chain or the agro-ecological conditions of producers. Evidence clearly shows that producers with higher levels of assets are more likely to participate and benefit from participation in formal markets. Assets include access to roads or motorized transport, education and/or size of landholding. Clearly some of the challenges of increasing the reach and benefits of formal chains requires learning how to reach the less organized farmers and investing with farmers so that those with fewer assets also benefit. In addition, the poorest producers with low levels of natural capital (i.e. land and livestock) in particular tend to participate in value chains as laborer.

    It is important to recognize that formal markets,particularly global formal markets, are ultimately modest in size relative to domestic and regional staple markets. Therefore, formal value chains are not a silver bullet for pro-poor development. To have a significant and durable impact on poverty reduction, and to reach producers with fewer assets, value chain interventions must be integrated with upgrading and wider livelihood strategies. Despite the modest size of formal market opportunities for the poor, and the challenges of linking the worlds of small-scale producers and formal markets, these markets can provide opportunities for addressing rural poverty. This is particularly true where conditions are favorable and a comprehensive suite of development interventions is possible. Along with the potential to benefit farmers through commercial relationships as suppliers and laborers in ‘equitable trading models,’ engaging with formal markets also offers the longer term potential for:

    • preparing smallholders to engage with the growing domestic and regional formal markets and increasing large-scale staple production (although the growth rate of regional formal markets varies considerably)
    • supporting business and farming professionalism among family farmers to help
    ensure their continued participation in the global food system
    • developing partnerships with sophisticated private sector actors to build ‘systems’
    – quality, grading, information services, etc.
    – that can upgrade local markets
    • developing partnerships with the private sector to address policy issues that can bring more public investment and policy support for poorer producers.