Livelihood and business assets matter in pro-poor value chain development

Value chain interventions in Nicaragua led to the ‘taro boom’ of 2003–2008, which saw exports of the ancient root crop to the US quadruple from 3,300 to nearly 13,000 metric tons. The boom, however, did not benefit all smallholder farmers alike. The reasons for this disparity, and other eye-opening findings, are discussed in a new manual titled 5 Capitals: A Tool for Assessing the Poverty Impacts of Value Chain Development.  The manual brims with guidance and tips for businesses, development practitioners and project funders looking to design sustainable interventions for value chain development that work for the poor. It has been tested through 23 case studies in Africa, Asia, Latin America and North America.

The manual is focused on understanding changes in five assets: natural, social, human, physical, and financial capitals, which are intimately linked to the ability of rural households to participate in and benefit from value chain development. Its application in Africa, Asia and Latin America has shown that in order to succeed in achieving desired poverty-reduction outcomes, value chain development must take into account people’s endowment with these 'capitals' prior to starting a value chain initiative, as well as the ongoing changes as it is being implemented. The manual also guides users in assessment of outcomes of businesses that maintain direct links with rural households and in understanding the overall context in which value chain development takes place.  Guidance is provided on data collection and on establishing cause-effect relationships that help attribute measured or observed changes in assets. The ultimate goal of the manual is to stimulate institutional learning on the outcomes and impacts of pro-poor value chain development, as a prerequisite for designing more impactful value chain initiatives.

“We found that rural households require a minimum level of asset endowments to benefit from value chain developments,” says Jason Donovan, marketing specialist with the World Agroforestry Centre (ICRAF), who co-authored the 5 Capitals tool with Dietmar Stoian of Bioversity International. “Households above a certain ‘threshold’ of capitals benefited the most from value chain development, while those below it experienced minimal impacts. And value chain development has a greater impact on poverty reduction when there is a strong demand orientation and an enabling business climate. ”

Programmes to link small-scale famers to high value, non-traditional markets can be traced to the 1980s and 1990s in Latin America and Africa. These early interventions relied on large subsidies from governments and development agencies, but smallholder participation in these interventions soon dwindled , partly because of the stringent requirements for export-oriented agriculture and the dependence of smallholders on external inputs. Furthermore, once government and project subsidies were removed, smallholders found it nearly impossible to continue to maintain their livelihoods.

In the early 2000s, practitioners started to encourage the involvement of the private sector as investors, rather than providers of subsidies. This new approach, called value chain development, seeks to foster win-win relationships among two or more ‘chain actors,’ in order to improve rural livelihoods in a sustainable way. The ‘actors’ in a value chain include producers (farmers), distributors, processors, wholesalers, retailers, and providers of technical, business and financial services.

“We are witnessing a growth in the interest in value chain development, along with the upsurge in markets where small-scale farmers are considered to have an advantage over their larger-scale counterparties, for instance the markets for fresh fruits and vegetables and specialty coffee and cacao,” says Donovan. “Well-designed pro-poor value chain development can lead to rural poor smallholders uplifting their livelihoods through these markets.”

Donovan adds that using the methodological framework underlying 5 Capitals, it is possible to distinguish livelihood changes caused by the particular value chain interventions from those induced by the overall context. “Such knowledge allows the design of participatory interventions that work,” he states. The 5 Capitals framework has four main principles, elaborated in the tool: an asset based approach; impact pathways; multi-scale and multidimensional analysis; and organizational learning.

The methodology is able to reveal “deep underlying developmental issues” that prohibit farmers from reducing their livelihood vulnerability through building their asset base, say the authors. It can assess the effectiveness of various types of developmental assistance being extended to a rural farmer, and also recommend potential changes to that assistance so that it leads to better-off, more resilient livelihoods.

As more smallholder farmers engage in lucrative markets for agricultural produce and tree products, sound value chain development is the piece of the puzzle that will bring lasting livelihood benefits, particularly to the rural poor. In addition to bolstering financial capital, well designed and executed value chain development has been shown to improve social indicators like gender equity, access to basic services (education, health care), and even land tenure security.

“This growth in a combination of tangible and intangible capitals, in essence, is the desired outcome of any pro-poor development programme,” says Donovan.

Background

5 Capitals: A Tool for Assessing the Poverty Impacts of Value Chain Development, is an output of a Ford-Foundation-supported collaboration led by Costa Rica’s Tropical Agricultural Research and Higher Education Center (CATIE) that involved ICRAF, Bioversity International, International Potato Center (CIP), and a large group of NGO and consultant partners in Africa, Asia, Latin America and the United States.

Download the book in English and in Spanish

Reference

Asset Building in Response to Value Chain Development: Lessons from Taro Producers in Nicaragua. Donovan, J. & N. Poole. 2012. International Journal of Agricultural Sustainability. In press.

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Getting the right links for your value chain

Donovan, J & N. Poole. 2011. Asset building in response to value chain development: Evidence from smallholder coffee producers in Nicaragua. ICRAF Working Paper No 138. Nairobi: World Agroforestry Centre.

Donovan, J., D. Stoian & N. Poole. 2008. Global review of rural community enterprises: The long and winding road to creating viable businesses, and potential shortcuts. Technical Bulletin 29/Rural Enterprise Development Collection 2, CATIE, Turrialba, Costa Rica.

Nang’ole EM, Mithöfer D and Franzel S. 2011. Review of guidelines and manuals for value chain analysis for agricultural and forest products. ICRAF Occasional Paper No. 15. Nairobi: World Agroforestry Centre.