Transcript Slide 1
Analyzing and Financing Value Chains Richard L. Meyer Figure 1. Value Chain Concept End users/consumers Human resources Infrastructure Marketing Production Capital equipment Services Inputs Figure 2. Paprika Subsector in Zambia Exporter Market World Vol – 150,000 tons (Zambia = 5,000 Rest of SADC = 25,000 tons) Export Private Exporters N=7 Vol = 2,600 tons Grading Commercial Paprika Farmers Irrigated Assembly Farm production Rainfed smallholders Irrigated smallholders N = 1,500 N = 500 Vol = 1,100 tons Vol = 1,500 tons Y/ha = $700 Y/ha = $1,500 N=2 Vol = 2,220 tons Seed and fertilizer Channel 1a Rainfed Smallholders Source: Haggblade Channel 1b Irrigated Smallholders Channel 2 Commercial Production Figure 3. Zambia Cassava Supply Chain Exports Vol = 4,000 dry Purchases for human consumption Consumption Food Processors Vol = 10,000 Processing Trade Subsistence households Volume = 920,000 tons Traders Fresh Vol = 35,000 tons Livestock Vol = 500 dry Industrial users Vol = 500 dry Feed companies & livestock farmers Industrial processors Cassava traders, dried chips Vol = 45,000 tons (fresh equivalent) = 15,000 dry weight Soaking, drying Farmers Farm production Channel 1 Subsistence Production Source: Haggblade Channel 2 Marketed Fresh Cassava for Human Consumption Channel 3 Processed Cassava for Human Consumption Channel 4 Livestock Feed Channel 5 Industrial Uses Topics being analyzed 1. 2. 3. 4. 5. 6. Vertical coordination Competition Dynamics Governance Income distribution Interventions Financial analysis of value chains Types of value chain finance • Self-finance • Direct informal within chain finance • Indirect formal financial services from outside the chain Common problems of suppliers • Information asymmetries (can and will borrower repay) • High operating costs Common credit functions to be performed • Client screening • Client monitoring • Contract enforcement Five analytical components of a financial lens • Identify informal and formal financial relationships • Outline key features of contracts • Analyze how credit functions are performed • Analyze legal systems, infrastructure, and social norms • Identify possible interventions Three examples of a financial analysis of value chains Figure 4. Artichoke Value Chain, Peru Functions Retail Wholesale/ Export Processing Formal Financial Links Supermarkets US and Europe Local Supermarkets Banks, NBFIs General Mills, Green Giant, etc. Local Wholesalers Banks, NBFIs Viru, Agromantaro, TALSA, Procesadora Production Small Farmers Input distribution Independent Distributors Inputs Banks, NBFIs MFI’s; Rural Banks Large Farmers Misti – fertilizers; Bayer – pesticides Seed and Plant Sellers Plants Banks, NBFIs Extension Services Key: Source: USAID Financial links: who finances whom Participant in value chain Broken line indicates skipped function Table 1. Financial Patterns and Potential Demand for Finance, Artichoke Value Chain, Peru Within Chain Finance Finance from Financial Institutions Potential Demand Retail Receive supplier credit Bank loans, outside Peru None Wholesale/ Export Offer supplier credit to retailers Offer contracts to processors Bank loans, outside Peru None Processing Contracts and advances for wholesalers Offer supplier finance and technical services to producers Short-term bank loans, 12% interest, 100% collateral Medium and long-term investment finance for expansion Production Supplier finance and technical assistance from processor and input distributor Short-term NBFI loans, some facilitated by contracts, 2.5 to 3.5% per month Medium to long-term credit or leasing to acquire fixed assets Input Distribution Offer supplier finance and technical services to producers Receive supplier finance and volume discounts from suppliers None Short-term finance Input Supply Offer supplier finance to input distributors and large producers Short-term bank loans, 12% interest, 100% collateral None Extension Services Processors and input distributors offer technical services to producers None None Value Chain Level Source: Campion Figure 5. Sunflower Value Chain, Uganda Functions Retail External Sources of Finance Consumers Retailers Retailers Wholesale Mukwano Wholesaler Retailers Wholesalers Rural Consumers Household Use Mukwano Processing Plant Processing Mukwano Corporation finance to Mukwano buying and processing channel Rural RAM Press Mukwano Buying Center Small/Medium Mills Rural Traders Production UOSPA Credit Program (failed) Smallholder Farmers Key: Inputs Mukwano (hybrid seed) Stockists (non-hybrid seed, fertilizer) Finance flows Product flows Source: DAI/USAID Figure 6. Sugar Value Chain, Uganda External Sources of Finance Functions Retail Local Alcohol Retailers Local Sugar Retailers Wholesale/ Export Local Informal Alcohol Wholesalers Local Sugar Wholesalers Processing Jaggery Mills Production Extension Services Input Source: DAI/USAID UNAIDED Outgrowers Sugar Estates NonContract Farmers AIDED Outgrowers Household Loans from MFI’s • Rehabilitation loan from GOU, WB & ADB • Commercial Banks • Madhvani Corporation Sugar Estates Key: Input Suppliers Participant in value chain Finance flows Broken line indicates skipped function Product flows Issues Raised • • • • Enforcing contracts (warehouse receipts) Alternatives for aiding small farmers Partnerships, alliances and linkages Capacity to sustainably reach large numbers (estimate profitability, cash flow analysis) CONCLUSIONS • Value chain analysis focuses attention on priority interventions • Encourages financial systems analysis as the logical next step