Making Markets More Inclusive

Lessons from CARE and the Future of Sustainability in Agricultural Value Chain Development

K. McKague, M. Siddiquee

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137382917
• eBook ISBN: 9781137373755
• Topic: Economics
• Subtopic: Business General
• Index: Economics

Most studies of doing business at the "bottom of the economic pyramid" focus on viewing the poor as consumers, as micro-entrepreneurs, or as potential employees of local companies. Almost no analysis focuses on the poor as primary producers of agricultural commodities a striking omission given that primary producers are by far the largest segment of the working-age population in developing economies.Making Markets More Inclusive bridges the management literature with original research on agricultural value chains in developing and emerging economies. This exciting work is the first to delve into the skills, capabilities, strategies and approaches needed for inclusive value chain development. McKague shows how NGOs and companies can connect poor producers in developing economies with the right markets to better create social and economic impact. He also analyzes one of the leading agricultural value chain initiatives in the world, which is being replicated by the Bill and Melinda Gates Foundation in several different value chains in Malawi, Tanzania, Ghana, India, and Mali.Want more? Check out these compelling videos, which provide a glimpse into the stories and examples used throughout the book. Video Trailer for Making Markets More Inclusive. Farmer Training. Kallani Rani increased the productivity of her cows, become a cattle feed seller in her village (Chapter 6), and opened a fresh milk canteen in her local market (Chapter 7). She now trains other women farmersand works to improve opportunities for women in her community (Chapter 5). Animal Health Care Services. Asma Husna trained to be an animal health worker with CARE to provide important animal health services and education to local farmers on a fee-for-service basis (Chapter 6). Cattle Feed Shops. Fulera Akter started a business as a cattle feed seller after demand for nutritional animal feed grew due to farmers' improved knowledge of nutrition (Chapter 6). Savings Groups. Coauthor Muhammad Siddiquee, the Coordinator of Agriculture and Value Chain Programs at CARE Bangladesh, discusses the value of farmer savings groups (Chapter 6). Milk Collection. Sarothi Rani became a milk collector to earn an improved income for her family and provide an important service to other dairy farmers in her community (Chapter 7). Digital Fat Testing. Introducing digital fat testing machines into the dairy value chain helped reward farmers for making investments in producing higher quality milk, as well as ensuring transparent and timely payments (Chapter 7). Microfranchising. Supporting agricultural input shop owners with training, relationships to suppliers, common branding, and standardized customer services improves the productivity of smallholder farmers and the profitability of shops (Chapter 12). Bangladesh Dairy Value Chain Learning. Reflections from some of the 40 CARE staff from 17 countries who came to Bangladesh to learn from the experience of the dairy value chain project (Chapter 15).

Part I

Making Value Chains More Inclusive

Chapter 1

Strengthening the Dairy Value Chain in Bangladesh

Many of us dream of a world free of poverty, but how can this be realistically achieved, especially for farmers who make up the majority of the world’s poor?¹ Traditional aid redistributes resources to many who are in need, but too often falls short of allowing poor producers to increase their productivity and reduce income poverty in a self-reliant and sustainable way.² CARE has pursued a route different from traditional aid approaches. Simultaneously working with smallholder farmers—mostly women—to improve their productivity and working with others within the entire market system to ensure that incomes are distributed as fairly as possible, CARE has put farmers, markets, and incentives at the center of its work. CARE has taken a value chain approach—one that focuses on working with farmers, companies, traders, and entrepreneurs end to end along a commodity’s chain—to remove obstacles and to improve the creation and distribution of value. A value chain approach (also known as value chain facilitation, inclusive market development, or pro-poor value chain development) works with market forces and commercial value chain actors to grow the economic pie and ensure that all parties, especially the most vulnerable, have as much information and market power as possible. The actors in a value chain include everyone who has a hand in the agricultural commodity in question—from the farmer through to the transporter and processor to the end consumer. Rather than focusing on particular isolated actors, CARE’s value chain approach looks at the whole chain in all its complexity in its local, national, and international contexts.

CARE believes that agricultural value chain development is essential to poverty alleviation. This is consistent with the view of the International Fund for Agricultural Development, which notes that for most low-income countries, “agriculture still constitutes the most important economic sector, uses the most labor and contains the majority of the poor, who are also the majority of the hungry.”³ In least developed countries where agriculture typically is the largest contributor to gross domestic product (GDP), improving agricultural productivity and growth is better at reducing poverty than growth in nonagricultural sectors.⁴ In his book One Billion Hungry: Can We Feed the World, Sir Gordon Conway concurs, arguing that fair and efficient markets are an essential path to increasing food security and reducing hunger for low-income farmers around the world.⁵

It is CARE’s work in the dairy value chain in Bangladesh that is the focus of this book. The value chain approach is being increasingly adopted by nongovernmental organizations (NGOs), donors, and companies. Having become familiar with the broader theory and practice of value chain development over the five years of Kevin’s doctoral research while Siddiquee was leading the project in Bangladesh, we believe CARE’s work offers four unique contributions to the field: a simple yet clear and comprehensive framework of five objectives to make value chains work for the poor; a comprehensive set of practices for understanding and addressing gender issues in an agricultural value chain; an approach to private sector engagement that goes beyond working with large lead firms; and a deeper theory-in- practice of how to make markets work for the poor through addressing the key factors in the creation and distribution of value. In addition to these valuable contributions to pro-poor value chain development, CARE’s on-the-ground experience from 2007 to 2014 has generated many issue-specific lessons that can be valuable to any organization interested in value chain development. CARE’s willingness to experiment, discover, and adapt what works and what does not in this evolving field has helped them navigate in a complex and dynamic context. Their work also makes for an informative and important in-depth case study in this increasingly important field. Thus, this book focuses on agricultural value chains and, in particular, on how CARE worked to make the dairy value chain work more effectively for smallholder dairy farmers in Bangladesh.

Origins of an Approach

Traditionally, CARE focused its economic development efforts on directly engaging with the poor. As with many other international development NGOs, CARE believed this focus to make sense, as benefiting the poor was at the heart of CARE’s mission. However, over time, it became clear that focusing only on the poor was too narrow a goal, one that did not fully take their entire economic and social context into account. CARE began to investigate how it could achieve broad-based, sustainable impacts at scale that would enhance the effectiveness of the market. This shift in thinking led CARE to begin working with companies and other market-based organizations within value chains in the role of a value chain development facilitator.

Like many other international development NGOs, CARE began their organizational lives providing aid and relief. Founded in the United States in 1945 with a mandate to deliver care packages of food to families in Europe immediately following the devastation of World War II, CARE has gone through shifts in its approach over the years.⁶ CARE began by providing immediate relief to those in need—food, clothing, medication—beginning in Europe and later expanding to developing countries. CARE solicited charitable contributions from concerned individuals and bought and distributed goods and services. Beginning in the 1960s, CARE began to take on more long-term and larger-scale integrated development projects. Rather than simply providing goods, CARE began to look at activities, such as training teachers, digging wells, and educating people about health practices. These larger-scale initiatives moved CARE from seeking donations from individuals to accessing resources from national governments and from multilateral institutions, such as the US Agency for International Development (USAID). Increasingly, these projects focused on strengthening people’s rights to access economic and social services. Most recently, as part of an ongoing shift toward sustainable solutions, CARE is focusing on value chains, as well as on leveraging markets and the private sector, to increase incomes and economic opportunities for smallholder farmers and other disadvantaged individuals in low-income countries. They are also increasingly focused on gender issues and the empowerment of women. An important part of this shift is becoming more of a facilitator, with success increasingly dependent on successful collaborations with other market actors. This phase seeks to further increase the sustainability and the scale of interventions by helping make the production and trade of poor people part of functioning markets and, therefore, of commercial interest to companies, entrepreneurs, and traders in a value chain.

Value chain approaches to development can trace their origins to work in the 1980s on market-based enterprise development (including microfinance, microenterprise development, and providing nonfinancial support services to entrepreneurs in developing countries)⁷ and Michael Porter’s work on the competitiveness of industries and how value is created and distributed at each step of a product’s transformation.⁸ This emerging value chain approach was about “understanding how poor people in rural areas of developing countries can engage, or improve their terms of engagement with, domestic, regional or international trade.”⁹ With its focus on impacts on the poor, sustainability through commercial incentives, and scalability through market forces, the value chain approach was embraced by a variety of organizations. NGOs—such as Technoserve, ACDI/VOCA, MEDA,¹⁰ Action for Enterprise,¹¹ SNV Netherlands Development Organization, and Practical Action—became increasingly involved. Major donors—such as the Gates Foundation, USAID,¹² the UK’s Department for International Development,¹³ the International Development Research Center,¹⁴ the Swiss Agency for Development and Cooperation, and Germany’s Aid Agency, GIZ¹⁵—became early supporters and investors. Multilateral organizations—such as the Food and Agriculture Organization, the International Labor Organization,¹⁶ the United Nations Industrial Development Organization,¹⁷ the World Bank,¹⁸ and the Donor Committee for Enterprise Development¹⁹—have been involved in generating and consolidating information. In addition, companies—such as Unilever,²⁰ Mondelez,²¹ SABMiller, Nestlé, Walmart,²² Cargill, and SC Johnson—have become increasingly interested in how they source agricultural inputs from smallholder farmers in developing countries.

While there was clear interest in this approach, early work revealed that working with poor producers in a value chain without holistically understanding the constraints and opportunities along the entire value chain was often ineffective. Recently, NGOs such as CARE, as well as donors, multilateral organizations, and companies, have begun to approach their value chain work with a greater understanding of the scope and complexity of the undertaking, as sustainability, scale, market forces, and comprehensive knowledge of the entire value chain must all be kept in mind. This is not to say that everything must be known about a value chain before beginning work. Current writing about value chain development typically places too much emphasis on planning ahead of time (although that is certainly important) and not enough emphasis on experimentation and learning by doing on the ground, recognizing the dynamism and complexity of markets.

Perhaps because of this complexity, and despite increased interest and activity in recent years, there are only a few large international NGOs that have fully embraced the value chain approach, and information is still limited on how NGOs can adapt and enhance their knowledge and capabilities to work as value chain development facilitators.²³ It is not an easy matter for a large NGO to transition from focusing on aid to focusing on value chain development, particularly when the field remains relatively new and untested. However, after much trial and error on the ground working with the dairy value chain and the commercial incentives of its farmers and its enterprises, CARE’s experience in Bangladesh can support the growing evidence base on the evolution of the aid industry and of market-based approaches to development.

While CARE’s experience draws on its work in the Bangladeshi dairy value chain and offers a case study for this book, these lessons can be adapted to value chain development in other sectors and other countries. Indeed, the lessons learned are useful for anyone—NGOs, companies sourcing from smallholder farmers, donors, multilateral organizations, or governments—moving into this field and seeking out ways to make markets and value chains work for the poor. In these least developed country contexts, it can be argued that NGOs have a particularly important role to play in incubating and experimenting with new approaches and business model arrangements that can then be taken up by companies and governments.²⁴ Funders, such as the Gates Foundation, have recognized the value of CARE’s dairy value chain work in Bangladesh and in 2013 have invested an additional $15 million for CARE to replicate its approach in different women-focused value chains in Ghana, India, Malawi, Mali, and Tanzania, and continue testing market-based models in dairy in Bangladesh.

Market Failures and the Role of Value Chain Development Organizations

Most of the one billion people living in wealthy countries and the five billion people living in middle-income countries have left absolute poverty behind.²⁵ In these countries, functioning markets, efficient value chains, fair competition, social services, and productive and innovative organizations have made it possible for individuals to work their way out of poverty. However, there remains significant work to be done to address what Paul Collier defines as “the bottom billion”—the world’s poorest people who are often living in rural areas where market failure and weak governments are common.²⁶ Most of the bottom billion are primary producers in Asia and sub-Saharan Africa, earning their income directly from natural resources, such as land and livestock.²⁷ Half a billion of these primary producers partly depend on livestock for their livelihoods.²⁸ In rural areas, these individuals are often disconnected from the benefits of markets and efficient value chains...

Table of contents

• Cover
• Title
• Part I   Making Value Chains More Inclusive
• Part II   Five Key Objectives of Value Chain Development
• Part III   Cross-Cutting Themes
• Part IV   The Future of Chain Development
• Appendix: Quantitative and Qualitative Data Sources and Analysis
• Notes
• References
• Index