Value Chain Management In Agribusiness - Part 2 ZAB108 - WEEK 1

Remember….

Consumers create the value (money) that is shared up the chain…..so that value chains create and deliver value to consumers.

But….where does the extra money come from? Remember back to the story from Scottsdale. The local farmers wanted a price rise to make it more viable.

In other words, they wanted a bigger share of the pie. However, regardless of the price difference between a french fry and a raw potato, when someone wants more out of the same pile of cash, someone gets less. That’s a pretty hard sell. It’s an easier sell to say there is more money. So, finding value in Value chains is actually growing the pie.

Growing the pie is called Value Creation, whereby there are two groups of strategies. Those that reduce costs through greater efficiency and effectiveness, and those that increase income by delivering to more consumers, more sales per consumers and a higher price. Consumers will pay a higher price – if they perceive the value to be higher.

Sometimes we think that this all occurs in the developed economies of the world like the US, Europe and Australia, but ….

“…you will read about business terms such as ‘strategy’, ‘innovation’ and ‘culture management’. Your first reaction might be that these things don’t apply to poor, traditional smallholders; however, a young Cambodian farmer with just 160 square metres of land to support his extended family recently told visiting Australian researchers, ‘Just tell me how I can produce more from my land so that I can make enough money to buy more land’. Now that’s a strategy! Similarly, in Mt Hagen, a large town in the Papua New Guinea (PNG) Highlands region that can grow excellent cool-temperate vegetables, there are several examples of farmers’ wives who previously had only collected vegetables from relatives in their tribal villages but saw an opportunity to supply the produce to Port Moresby, the national capital. They quickly grew their collecting activities into regional wholesaling businesses, renting facilities, employing people, packing produce into special boxes and using freight aircraft to fly high-value produce one hour to Port Moresby. Each of these women also had a vision and strategy of how they could further develop their businesses.” - Taken from Collins, Dent and Bonney (2015) pp 5.

Then there’s the case of how the money is distributed and the proportion of each actor in the chain. How much ‘skin’ they have in the game will drive or not the motivation to innovate. In this example, the retailer gets 40% of the total cost of the box of fruit, whilst the producer receives 27.5%.

By going organic the producer increased the pie and their subsequent margin, without taking from the other stakeholders in the chain.

Value can be created through diversifying the supply. Please excuse the UK prices. If you walk into any supermarket in Tasmania, you will see a similar range. When next you go food shopping, have a look at the soft drink aisle and compare the ‘bulk’ 2 litre bottle cost with a 125 ml bottle. Same product but different packaging for different demand.

So just recapping.......

A supply chain is a chain linking the supplier to the consumer but pushed by the supplier – decisions of stakeholders are made independently of others in the chain.

A value chain, however, is a collaborative chain that functions on consumer demand pull – collaboration is the key, where decisions are made in consultation with others in the chain.

Why study Value Chain Management?

  • To learn how to create value along the chain
  • To learn how to grow the pie
  • To create consumer value
References

Bonney, L., Castles, A., Eversole, R., Miles, M. and Woods, M., 2015. Accounting for agriculture in place-based frameworks for regional development: A value assessment and development framework, and toolbox for building constructed advantage in agriculture based regions. Publication No. 15/002. Project No. PRJ-008839. Rural Industries Research and Development Corporation.

Collins R.C., Dent B. and Bonney L.B., 2015. A guide to value-chain analysis and development for Overseas Development Assistance projects. ACIAR Monograph No. 178. Australian Centre for International Agricultural Research: Canberra, ACT.

Council of Logistics Management. 1986. Proceedings Annual Conference, Anaheim, California.

Lambert, D.M. and Cooper, M.C., 2000: “Issues in Supply Chain Management”. Industrial Marketing Management 29, pp. 65-83.

Mentzer J.T., DeWitt W., Keebler J.S., Min S., Nix N.W., Smith C.D. and Zacharia Z.G., 2001. Defining supply chain management. Journal of Business Logistics 22(2), 1–25.

Acknowledgements

We wish to thank and acknowledge Dr Rajendra Adhikari and Associate Professor Laurie Bonney, Tasmanian Institute of Agriculture, University of Tasmania, for their assistance and provision of graphics for this presentation.

Credits:

Created with images by EvgeniT - "windmill texel netherlands" • Aravindan Ganesan - "Farming..." • jarmoluk - "old books book old"

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