Pro-poor value chain development, upgrading and inclusion: Drawing theoretical insights from the field

Roldan Muradian1*, Claire Chagwiza1,Worku Tessema2 and Ruerd Ruben1

1 Center for International Issues Nijmegen (CIDIN). Radboud University Nijmegen, The Netherlands 2 Department of Development Economics. Hawassa University, Ethiopia * Corresponding author. Centre for International Development Issues Nijmegen (CIDIN). Radboud University Nijmegen. P.O. Box 9104. 6500 HE. Nijmegen. The Netherlands. Email: r.muradian@maw.ru.nl. Phone: + 31 24 361 30 58.

Pro-poor value chain development, upgrading and inclusion: Drawing theoretical insights from the field

Abstract

The present paper aims to advance in the understanding of the mechanisms through which

value chain interventions can contribute to rural economic development. After developing an

integrated theoretical framework, we examine how development interventions affected (a) the

upgrading capacities and the economic performance of different actors along the value chain

system, and (b) the conditions of inclusion of small-scale farmers. The paper deals with the

changes induced in the economic performance of stakeholders through four mechanisms: value

chain governance; social structure (networks and social capital); the development of

entrepreneurial and managerial capacities; and value chain finance. Insights were derived from

the comparison of two pro-poor value chain interventions (honey and linseeds) in Ethiopia.

Key words: value chains, upgrading, rural-development; inclusion; pro-poor development interventions

1. Introduction

One of the noteworthy innovations in the field of development studies during the past decade

has been the emergence of the value chain thinking. This approach stresses that vulnerable

actors in developing countries (such as small-scale farmers) are both constrained and enabled

by the institutional setting of networks and economic relations in which they operate. It is

therefore necessary to understand such institutional setting in order to figure out the prospects

for enhancing the economic performance of these agents.

The body of literature on global value chain analysis has paid special attention to the political

economy of transactions along a value chain, and more particularly to the notion of

“governance”, as well as to the agency of actors and the interaction between them that enable

“upgrading” of the concerned economic processes (Raikes et al., 2000; Dolan and Humphrey,

2004; Gibbon et al., 2008; Ponte and Ewert, 2009). Governance basically refers to the

configuration of (power) relations underlying the process of setting the “rules of the game”.

That is, strategic decisions about who participates and under which conditions, including the

allocation of rent and risk among different nodes of the chain (Ponte and Gibbon, 2005).

Another two additional aspects that have received special attention by this academic stream is

the analysis of the so called “lead firms” in setting entry barriers and the condition of

participation of other agents of the chain and the mechanisms of “coordination” between them

(Ponte, 2002; Gereffi et at., 2005). Namely, how information is transmitted and activities

brought into line.

Interestingly, the evolution of the value chain thinking has not been only an academic

endeavor, since it has also been accompanied by changes in (development) practices. The

thrive of value chain analysis in academic circles has induced a paradigmatic shift in the

practice of development cooperation, particularly in the design of interventions targeting poor

rural dwellers. After decades of regular failures in the implementation of rural interventions

focused on the creation of local supply capacities among small-scale landholders, development

organizations have started to adopt value chain approaches. More specifically, emerging value

chain interventions in international development cooperation share the following features:

(a) A systemic approach that stresses constraints and opportunities derived from the

configuration of market and extra-market relations (networks)

(b) A larger emphasis on building partnerships between different sectors and stakeholders

(c) Openness towards the private sector, and more specifically willingness to strengthen

the action of lead firms (and their linkages with more vulnerable agents of the value

chain)

(d) A shift in the “center of gravity” from the creation of supply capacity to the creation of

demand and the establishment of linkages

The core proposition of the so-called “pro-poor value chain interventions” is that by means of

allocating efforts to (i) enhancing the demand and building up linkages in the “middle” of the

value chain; (ii) strengthening the supply capacity (ability to produce goods or services with

particular attributes) and (iii) ensuring that what is produced is aligned with the demand,

vulnerable upstream agents (such as small-scale farmers) can be “pulled” into specific markets,

and therefore successfully integrated into economic dynamics to which they were hitherto

excluded or participated under very unfavorable conditions. A key assumption of value chain

interventions is thus that major causes of poverty traps are inefficient or missing linkages

between producers and their actual or potential markets (Humphrey and Navas-Alemán, 2010).

The creation of linkages and the coordination between agents are hence at the core of the value

chain intervention logic. In practice, this approach implies working not only with vulnerable

social groups upstream in the value chain, but also (and maybe more importantly) with those

stakeholders downstream in the value chain with a greater leverage on setting the conditions of

participation of other actors. The willingness to work closely with the private sector, and more

specifically with transnational corporations or large national enterprises (lead firms), is a

particularity of this paradigmatic shift, since partnerships between civil society organizations

and powerful firms have been rather absent from the practices of the international development

cooperation in the past. Such inter-sector partnerships are part of the new forms of governance

– particularly private governance arrangements – that have thrived in agribusiness value

chains during the past decade (Muradian, and Pelupessy, 2005; Bitzer et al., 2008; Schouten

and Glasbergen, 2011), as an attempt to fill governance gaps at different scales (from local to

global).

A number of donor and multilateral agencies have developed recently guidelines for value

chain analysis and development. Some examples are the “Gender and Pro-poor Value Chain

Analysis” of USAID, the ValueLinks methodology of GTZ, The FAO’s “Guidelines for Value

Chain Analysis”, the ILO’s “Guide for Value Chain Analysis and Upgrading”, and “Moving

Toward Competitiveness: A Value Chain Approach” of the Foreign Investment Advisory

Service of the World bank (for reviews of value chain approaches in development cooperation

see Altenburg, 2007; Henriksen, et al., 2010; Humprey and Navas-Alemán, 2010). In addition

to the global value chain approach mentioned above, these practical guidelines for value chain

analysis and intervention design build on concepts from a number of academic streams of

literature, including the Global Production Network and the Systems of Innovation approaches

(Muradian et at., 2011). However, despite some recent attempts (Barrientos et al., 2010;

Bolwig et al., 2010; Riisgaard et al., 2010) to our knowledge there is not yet an explicit theory

of change for pro-poor value chain interventions. We aim to contribute to fill this gap by means

of drawing theoretical insights about the mechanisms through which value chain interventions

enhance the economic performance of different actors along the chain and induce changes in

the conditions of market participation of small farmers. We therefore expect to take steps

towards the construction of a theory of change of pro-poor value chain development, by means

of integrating different streams of literature as well as insights gained from development

practice. Such theoretical framework is meant to build a bridge between academicians and

practitioners in the field of value chain development in agriculture.

The main goal of the present study is to understand the mechanisms through which value chain

interventions can contribute to rural economic development through the market integration of

small-scale landholders. More specifically, we will examine how this type of interventions

affect (a) the upgrading capacities and the economic performance of different actors along the

value chain system, and (b) the conditions of inclusion of small-scale farmers. These

conceptual contributions will be elaborated based on empirical evidence and lessons drawn

during the execution of the SNV’s pro-poor value chain development approach, during the

period 2006-2010 in Ethiopia. The paper will specifically deal with the changes induced in the

economic performance of stakeholders through four mechanisms: value chain governance;

social structure (networks and social capital); the development of entrepreneurial and

managerial capacities; and value chain finance. Insights will be derived from the comparison of

two types of interventions (two case studies) conducted by the implementing agency (SNV).

2. The two cases: Brief description of the interventions

In the following paragraphs we summarize the main pillars of the pro-poor value chain

development approach adopted by the implementing agency in Ethiopia, and the types of

interventions that were conducted in the two cases addressed by this study. The model of value

chain interventions adopted consists in a multi-level and multi-actor approach, which revolves

around the basic idea of creating business opportunities for chain actors (sector level) and

enabling the actors to transform these opportunities into actual business endeavors. This

approach is constituted by four pillars, which guide the interventions on the ground:

Sector development: A key component of the approach is the improvement of the

competitiveness of the whole targeted sector, through (a) the creation of the appropriate

organizational framework at the sector level. This involves the creation or strengthening of

associations of stakeholders in different nodes of the chain (growers; exporters) as well as the

establishment of multi-stakeholder platforms, in which agents not directly engaged in the value

chain (such as the government) also participate; (b) the creation of new market opportunities;

(c) raising the awareness of different stakeholders about quality standards and (d) the

promotion of effective public policies.

Business-to-business development: The approach aims to build win-win relationships between

the agents of the value chain, basically as a way to “pull” vulnerable rural social groups into

more favorable market dynamics. Business-to-business development does not only involve the

creation of linkages (flow of products), but also the promotion of appropriate technologies (to

align the supply with the demand), strengthening technical capacities and the establishment of

reliable business relations. The latter is definitively the most challenging process, since it

encompasses building trust among actors and inducing changes in the “business culture”. Thus,

this dimension has to do not only with the enhancement of linkages in a network of relations,

but also with inducing changes in the behavior of stakeholders, so the “quality” of these

relations also improves. As a way to realize this, the approach is focused on creating and

strengthening linkages in the “middle” of the value chain.

Knowledge management: The main goal of this component is to systematize the knowledge

generated during the execution of the interventions, in to order to facilitate the replication in

other sectors (value chains), upscale the scope of the intervention and in general ensure the

sustainability of results. The generation and transfer of knowledge is a key component of the

intervention strategy if local agents are expected to become empowered and ensure long-term

sustainability of results.

Service capacity development: Also as a way to ensure long-term sustainability, the approach

devotes special attention to create the capacity among local providers to deliver business

development services to the agents of the chain. This entails using as much as possible local

service providers during the execution of the interventions, setting up a pool of service

providers and a program for capacity development of these providers and promoting the

creation of markets for business development services.

The two selected cases are considered as “best practices” by the implementing agency. The

first case has to do with the combination of training on oilseeds agricultural practices and the

set-up of a linseeds multiplication system (with the support from several stakeholders, such as

the Ethiopian Institute of Agricultural Research, local extension workers and private service

providers) among members of Didaa Farmers’ Cooperative Union. In this case, the knowledge

brokering and networking by the implementing agency resulted in the design of the first

informal linseed multiplication system at farmers' level in Ethiopia. The second case deals with

inclusive business in the honey sector. Bezamar Agro-Industry Plc. is one of the pioneer

companies in the business of honey processing in Ethiopia and the first one to have exported

honey to the European Union. The firm relies on many small suppliers. By means of a

combination of quality training and technology transfer to suppliers (small-scale farmers) and

business development services to Bezamar, the implementing agency has promoted a mutually

beneficial relationship between the lead firms and suppliers.

2.1 Honey

In 2005, through a multi-stakeholder and participatory process, honey was identified as a

commodity with high potential for market expansion in Ethiopia. The sector was characterized

however by a number of problems, including high levels of adulteration, high moisture content,

low prices for producers, lack of long-term and reliable trading relations, and

commercialization restricted to the Ethiopian market, despite the export opportunities. Since

2007, the implementing agency has been involved in facilitating the participation of Ethiopian

traders and exporters in international fairs for the promotion of Ethiopian honey; the formation

or strengthening of professional associations (bee-keepers and traders/exporters), creation of

the honey multi-stakeholder platform (Apicultural Board) and the accomplishment of the

European Union accreditation for Ethiopia (a formal requirement to export honey to the EU).

The value chain intervention approach has emphasized the provision of training to bee-keepers

on honey production and quality management and the transfer or more productive technologies

(transitional beehives) to them. Bezamar, a honey processing, trading and exporting company,

has played a pivotal role in the implementation of the interventions, at different levels. The

owner of Bezamar has been one of the key entrepreneurs and leaders that have facilitated the

transformation of the honey sector in Ethiopia. As it might be seen in Figure 1, Bezamar

exported about 70 tons of honey in 2010 (from being fully devoted to the domestic market

before the intervention), the bulk of it coming from the Sheka zone (where the Masha district is

located). Through the grants provided by the implementing agency, the firm could train its pool

of suppliers on quality, and increase the productivity of these suppliers through the promotion

of transitional beehives (a hive technology that is between the conventional and the modern

one, both in terms of cost and productivity). Honey production can be doubled by the adoption

of transitional beehives. In addition, transitional beehives are kept at the backyard (instead of

hanging on forests’ trees as the traditional beehives do). Bezamar was in charge of

coordinating the training and technological transfer programs. The main quality problems that

were solved by the intervention were the high content of moisture content and impurities. In

Masha district (place where the fieldwork for this study was conducted), the main suppliers of

Bezamar are groups of bee-keepers organized in either primary cooperatives or private limited

companies (PLCs). The main difference between these two types of groups is the size of the

organization. While primary cooperatives might have several hundreds of members, PLCs are

allowed to have a maximum number of 50 members. 5 primary cooperatives and 3 PLCs

located in the Masha district have become long-term suppliers of Bezamar, and benefited from

the training and technological transfer programs.

Insert Figure 1 around here

2.2 Oilseeds

The initial problems identified in the oilseeds sector had to do with low productivity, lack of

technical skills at the agriculture and processing levels, and different sorts of market

imperfections along the value chain, related to lack of appropriate linkages and information

asymmetries. After the initial selection of the oil value chain as a priority sector (through a

multi-stakeholder process), in 2005 the multi-purpose cooperative union Didaa was identified

by the implementing agency as a potential strategic partner. This cooperative union is located

in Arsi Robe, Oromia region, and has about 19.000 members distributed in 27 primary

cooperatives. The union played a core role in the intervention, since it provided the appropriate

organizational setting for technological dissemination and commercialization. The overall

objectives of the intervention were to contribute to the market integration of small-scale

farmers through oil seeds production and commercialization (triggered by training on

agricultural practices and seed multiplication).

Since 2006, the implementing agency has been instrumental in various interventions at the

oilseeds sector level, including the activation of the Ethiopian Pulses, Oilseeds and Spices

Producers and Exporters Association; the establishment of a Public Private Partnership on

Oilseeds, the creation of a multi-stakeholder platform, the promotion of Ethiopian oilseeds in

European fairs, awareness raising among key stakeholders (including consumers) about oil

quality, and the development of a code of conduct for the Ethiopia oilseeds sector, among

others. As a response to the constraints faced by the sector in terms of productivity, the

implementing agency piloted, with the collaboration of Didaa union, a strategy to boost

production of linseeds by means of combining training on good agricultural practices with the

set up of a system for multiplication and dissemination of improved seeds, led and

implemented by local farmers. The training to farmers and local extension agents from the

government (conducted in 2007) consisted in agricultural techniques of oilseeds, land

preparation, quality management, post-harvest and marketing. A training of trainers approach

was followed, targeting first local extension workers, who in turn replicated the training and

provided technical advise to farmers. In Ethiopia, the Ministry of Agriculture allocates these

agents (agronomic technicians) to every kebele (lower territorial division) in order to provide

extension services to farmers. The intervention made use of these locally available human

resources. In total, about 2.500 farmers from 17 primary cooperatives were trained.

In a second phase, in 2009, 29 farmers were selected to participate in the seed multiplication

scheme. These farmers, jointly with 10 extension workers, received additional training on seed

multiplication and quality control. The union provided improved seeds to these groups of

farmers (acquired from the Ethiopia Seed Enterprise) and committed to buy all the production

from the 20 ha that were allocated to seed multiplication (with a price 35% above the market

place at the time of harvesting). Later, the union sold the about 50 quintals of improved seeds

that were produced through this process to its members. In addition, the union also distributed

150 quintals of improved linseeds that it bought from the Ethiopian Seed Enterprise (at a more

expensive price). However, according to the union, members preferred the improved seeds

produced by their peers, due to the perception that they were more homogeneous, and therefore

more reliable. The union estimates that about 3.500 ha have been planted with the provided

improved seeds. Through the participation in the multi-stakeholder platform for oilseeds, Didaa

union has expanded its portfolio of costumers. Due to the expansion in its network, the union

has also changed its marketing strategy. While in the past the union waited passively for local

traders to come and buy oilseeds, after the expansion of its network large buyers make deals

directly with the union, without intermediation, which was reported to contribute to enhance

the margins from oilseeds commercialization. The new buyers include oil processors, exporters

and traders at the national level.

3. Methodology

We conducted a rapid appraisal of the concerned value chain interventions, taking as case

studies the previously mentioned two commodities (linseeds and honey). The data was

gathered through secondary information (reports from the implementing agency) and primary

information derived from the fieldwork that was conducted in three localities: Addis Abeba,

Arsi Robe (oilseeds) and Masha district (honey), during April and May 2011. We conducted

in-depth interviews with key informants and administered surveys to farmers (producers of

linseeds in Arsi Robe and Honey in Masha district). In Arsi Robe, we selected a random

sample of 100 farmers from two primary cooperatives (Bulala and Chaffe) that belong to Didaa

cooperative union. These farmers participated in the training provided by the union, as part of

the value chain intervention. In addition, we selected also randomly 50 neighboring member

farmers that did not participate in the training (25 from each of the 2 primary coops). In Masha

district, we administered a survey to 59 randomly selected members of three honey-marketing

primary cooperatives (Akach, Debele and Genobay) and 43 members of three honey-marketing

private limited companies (PLCs): Gada, Chiefdale and Shatto. Key informants included

practitioners at the program and sector levels, board members of primary cooperatives,

government officials, managers of lead firms and cooperative unions, and farmers involved in

key tasks during the interventions. Given its theoretical focus, in the present paper we mainly

report the results of the qualitative analysis and provide only descriptive quantitative results.

4. Theoretical framework

Figure 2 depicts the main components of the theoretical framework we have adopted. A very

key assumption is that changes in the economic performance are to a large extent determined

by two processes: upgrading capacity and inclusion. The latter comprises participation (being

engaged in commercial transactions) and the conditions of participation. We consider these as

proximate causes of economic performance. Furthermore, we identify 4 main mechanisms

through which value chain interventions induce changes in the upgrading capacity and the

processes of inclusion: coordination; social structure; entrepreneurial/technical capacities and

finance. In the following paragraphs we define these different analytical categories and discuss

how they are related.

Insert Figure 2 about here

Upgrading and inclusion

Upgrading capacity: we consider upgrading capacity as the ability of agents to appropriate rent

in an economic transaction through their agency. The literature on global value chains has

identified basically four main types of upgrading processes (Greffi et al., 2001): (a) Product

upgrading refers to the capacity of agents (firms or individuals) to appropriate rent by means of

changing the attribute of a product; (b) Process upgrading can be achieved when the

transformation of inputs into outputs is carried out in a more efficient way; (c) Functional

upgrading refers to the capacity to generate and retain rent through the adoption of new

functions in the value chain (vertical integration for instance); (d) Network or “relational”

upgrading is the process of acquiring rent through changes in the relationships with suppliers

or costumers. In the present paper we introduce a new typology of upgrading: collective or

horizontal upgrading is the ability to add value through the concerted action of agents in the

same node of the value chain, through collective action (i.e. by means of a farmers’ group).

Though these categories are defined as distinctive processes, the way most value chain players

appropriate rent is usually through a combination of different types of upgrading mechanisms,

which indeed might be very complementary. Upgrading is a dynamic concept, which allows

grasping the changing role of agents in value chains. Rents can be added or eroded, depending

on the competitive forces and the responses of actors to them (Kaplinsky and Morris, 2002).

The capacity to upgrade is a key aspect of entrepreneurship and it is expected to determine the

prospects to retain or add value to a particular economic transaction across time.

In addition, an important contribution of the value chain thinking is the notion that the

capacity of an agent to appropriate rent depends not only on its own agency, but also on the

upgrading strategies adopted by other players down- or upstream in the chain. The upgrading

opportunities of different actors in the chain are hence inter-connected. The appropriation of

rent by a particular agent may occur at the expense of others along the chain. However, it is

also possible that a number or all the actors involved in a value chain enhance simultaneously

their ability to generate and retain rent. This is only possible when the total income allocated to

the chain is enlarged. From this point of view, it would be possible to talk about “value chain

upgrading” when all the agents involved, or a particular set of them, upgrade their capacities to

retain rent in a concerted way (creating the possibility of win-win situations). In the present

paper we introduce two new concepts to understand the relationship between the upgrading of

different agents along the chain. By “concerted upgrading” we refer to the situation that arises

when upstream and downstream agents of the value chain reinforce each other upgrading

strategies, by means of concerted action. An example of this kind of situation is the

improvement of the quality of a particular product facilitated by the provision of training or

advisory services from buyers to suppliers. For instance, Ivarsson and Göran Alvstam (2010)

report a deliberate strategy of IKEA to engage in concerted upgrading with its suppliers, as a

move to reduce costs and ensure products specificities. Bolwig et al. (2009) show evidence of

concerted upgrading between coffee farmers and a lead firm. In the opposite process, which we

could call “divergent upgrading”, agents diverge in the capacity to appropriate rent. This

means that the upgrading of one is achieved at the expense of the other. That is, while the rent

of one agent is enhanced, the added value of the other is squeezed. Value chain interventions

are based on the assumption that buyers (lead firms for example) will engage in concerted

upgrading with “poor” suppliers, contributing through this “pulling effect” to poverty

alleviation. Below we explore the conditions that favor processes of concerted upgrading.

Among the agents of a value chain there is always a constant interplay between competition

and cooperation. To understand such interplay is essential for addressing the question of how

targeted social groups benefit from value chain interventions. The interplay is basically the

result of both the agency of actors and external factors, such as the general level of competition

in the sector and the relative scarcity of the concerned products. A global context of high

inflation in agricultural goods, for instance, may favor the bargaining capacity of agents of

upstream agents of the value chain, since downstream agents could be less able to transmit

higher prices into consumers.

By participation we refer to the degree of involvement of a particular social group or firm in

the economic transactions that take place along a value chain. The conditions under which

these stakeholders participate are definitively very important in determining their economic

performance. These conditions are related, for instance, to market requirements (standards); the

distribution of risks, coordination and transfer of know-how, access to external support and the

bargaining power vis-a-vis other agents of the value chain.

Value chain governance

Value chain governance has to do with the nature of the economic relationship between agents

of the chain, and more particularly about the configuration of power that determines basic

“rules of the game”, such as entry barriers, market conditions (standards), who participates,

how risk is distributed, the transfer of know-how and how activities are aligned (coordination).

The degree of coordination is a very important attribute of the governance of value chain

relations. Through coordination, extra-market information is transferred between agents, so the

attributes of a product or service, or the time and conditions of delivery, can be aligned. The

literature of new institutional economics and organizational theory has identified three main

categories of governance for economic transactions: (a) hierarchy (vertical integration); (b)

hybrid or networks and (c) markets. Vertically integrated firms are example of hierarchical

organizations, while spot markets where transactions between agents are exclusively driven by

price considerations are examples of market forms of governance (Williamson, 1991). Between

these two extremes, there is a broad spectrum of different types of “partnerships”, that has been

called as “hybrid” organizational structures (Menard, 2007).

A very relevant issue for the theory of value chain interventions is the understanding of the

conditions under which concerted upgrading is likely to occur. The literature on transaction

costs economics has elaborated a robust theoretical background to explain why vertical

integration (or hierarchical forms of governance) takes place. This conceptual framework has

been supported by abundant empirical evidence (Joskow, 1988). A transaction costs

perspective predicts that more hierarchical structures tend to arise in situations where the

chances of opportunistic behavior and the cost of monitoring imperfect contracts are high (in

summary, in situations where transaction costs are high). Opportunistic behavior is more likely

when asset specificity is high. Asset specificity refers to assets whose returns are more valuable

within the context of a particular exchange than outside it. Relationship-specific investments

allow the possibility that one of the parties obtains rent from the fact that it could threaten to

stop transacting with the other. This potential threat reduces the incentives to undertake

relationship-specific investments, which might lead to inefficient outcomes. In his seminal

contribution to the theory of organizations, Williamson (1983) has identified four types of asset

specificity: site specificity (highly immobile), physical asset (equipment specific to the

transaction), human asset (relationship-specific human capital) and dedicated assets (general

investments that would leave the supplier with significant excess capacity in case the

transaction does not take place). Masten et al. (1991) have added a fourth type: temporal

specificity, which has to do with relationship-specific temporal requirements. In addition to a

high degree of asset specificity, the theory of transaction costs economics predicts that more

hierarchical governance modes are likely to emerge when the transaction takes place at a high

frequency, there are a small number of potential trading partners, and when there is high

uncertainty and complexity in the transaction (Williamson, 1991).

We propose that concerted upgrading is more likely to emerge when there is a high degree of

dependency between suppliers and buyers. That is, when transactions are characterized by high

switching costs for buyers and low chances of opportunistic behavior by suppliers. This is

expected to occur in hybrid types of governance with a high degree of coordination between

the parties. In the continuum between markets and hierarchical structures, this situation

corresponds to governance modes close to vertical integration. We argue then that the factors

that induce the emergence of concerted upgrading are essentially the same that influence the

degree of hierarchy in governance structures (asset specificity; number of potential trading

partners; frequency of the interaction; degree of uncertainty and complexity). A high degree of

coordination is however not enough to ensure concerted upgrading. We propose that three

additional factors are necessary: (i) a relative low capacity of suppliers (in relation to the

complexity of the transaction); (ii) a high degree of bridging social capital (to reduce the

chances of opportunistic behavior by suppliers) and (iii) low possibilities of functional

upgrading by suppliers. The latter has to do with the fact that buyers will be less interested in

investing in concerted upgrading actions if they know that this process could facilitate that

suppliers become direct competitors in the future. In transactions that require a high level of

coordination, buyers might be interested in engaging in concerted upgrading but maintaining

information asymmetries, capacities (know-how) and other features that create entry barriers to

their particular functional node in the value chain.

Social capital and collective action

When farmers are organized in groups for jointly marketing their products, concerted

upgrading will be only possible if they also engage in horizontal upgrading. Again, from the

point of view of transaction costs economics, we can expect that smaller, more homogeneous

and groups with a higher degree of bonding social capital are more able to coordinate activities

efficiently at the horizontal (among members) level (Nee and Swedberg, 2005; Ray and

Bhattacharya, 2010). Therefore, it could be argued that buyers would prefer to engage in

concerted upgrading with groups that are smaller and hold a higher degree of internal social

cohesion. From the point of view of the buyers, an additional advantage of dealing with small

groups is that they tend to have lower bargaining power. Nonetheless, there is a trade-off

between the search for groups that are able to coordinate efficiently at the horizontal level and

the transaction costs involved in dealing with many groups as suppliers. The importance of

economies of scale for the transaction is therefore a key factor affecting concerted upgrading

decisions by buyers.

The academic literature dealing with social capital is wide and extensive. From this large body

of literature, we could nevertheless take two heuristic concepts that are relevant for our

discussion. Broadly speaking, we could define bonding social capital as social features

involved in relations within groups (i.e. among members of a farmers’ group), such a trust,

commitment, identity and participation. Bridging social capital refers to a similar set of social

features but involved in the linkages between different social groups, such as between suppliers

and buyers (O’Brien, 2005). These concepts are very context-dependent (Svensen, 2006;

Schuller, 2007). For our analysis, it is also useful to differentiate between the structural and

cognitive dimensions of social capital. The structural dimension has to do with the quantity,

intensity and frequency of ties and interactions. The cognitive dimension refers to the

behavioral framework (attitudes, values) in which these ties and interactions are embedded

(Lancee, 2010). The notion of social capital stresses the idea that a network is a social resource,

which might render economic returns. Since investment in structural social capital

(establishment of ties) is not sufficient to ensure long term relationships and concerted

upgrading, trust building becomes a critical process in value chain development. Cognitive

social capital is the mechanism through which buyers and suppliers can consider each other as

reliable business partners. The establishment of reliable partnerships is probably the most

critical success factor of value chain interventions.

Entrepreneurial and technical capacities

The transfer of technical capacities is often a key component of value chain coordination. It is

therefore expected that such transfer (aiming at the alignment of productive activities and to

ensure particular attributes of products) play a significant role in concerted upgrading. The

creation of productive capacities has been traditionally one of the main areas of action of

international cooperation. Nonetheless, the enhancement of entrepreneurial capacities has

become part of the agenda of global rural development interventions recently.

Entrepreneurship is basically the ability to create new business opportunities and to respond

effectively to them. Important components of the entrepreneurship capacity are the ability to

innovate, to extend the business network and to establish reliable business partnerships.

Concerted upgrading requires collective entrepreneurship capacity, since it involves the

cooperation among entrepreneurs, as well as processes of joint innovation (among farmers and

between suppliers and buyers), willingness to take risk and flexibility to adapt to new

situations. Collective entrepreneurship (Cook and Plunkket, 2006) is a subject that however has

not received yet the necessary academic attention. We propose the following features as key

determinants of collective entrepreneurship: the alignment of incentives; the possibilities of

coordination (organizational structure and value chain governance); attitudes towards risk;

psychological traits and social abilities of managers. Among these variables we think that the

incentive structure plays a particularly important role, especially in the context of rural

development. The reason is that often ill-designed incentives hamper the motivation of

entrepreneurial agents to joint collective endeavors (e.g. farmers’ groups), even though the

potential returns (for both the individuals and the group) might be significant.

Finance

Access to finance remains as a key limiting factor for business development in rural areas. In

the agricultural sector in Africa, the importance of access to finance is even more prominent,

given the structural financial constraints that characterize African rural areas. As part of the

emergence of value chain thinking, recently there has been a rise in the attention paid by

practitioners to ‘value chain finance” (KIT and IIRR, 2010; Miller and Jones, 2010), which is a

generic term used to indicate financial arrangements either between the agents of the chain or

between them and financial organizations, which are built on the established relationships

along the chain and the flow of products. Value chain finance is expected to contribute to fill

the gap left by the relative scarcity of financial services in agriculture, and to enable a more

efficient management of risk along the chain and within financial organizations. Value chain

finance is expected to take advantage of the investment in social capital (trust) and the

establishment of strong and long-term relationships along the chain. Value chain finance is

thus intimately related to and builds upon the interventions in the fields of value chain

governance and social capital.

5. Understanding the mechanisms of inclusion and upgrading

In this section we analyze how the value chain development interventions in the two selected

cases have contributed to an improvement of the upgrading capacity and the conditions of

inclusion of small farmers. In the following paragraphs we discuss the changes that the

interventions have induced along the four mechanisms previously described (value chain

governance, social structure, entrepreneurial and technical capacities and value chain finance)

and the consequences for the upgrading capacity and inclusion of stakeholders.

5.1 The honey sector

Value chain governance

One of the major changes induced by the different sorts of value chain interventions in the

honey sector was the shift in the governance of transactions between the lead firm (Bezamar)

and its suppliers from a spot market to long-term (oral) contracts with a high degree of

coordination. This shift was the result of an increase in the degree of asset specificity in the

transaction. Bezamar developed a specific brand for the honey coming from Masha district,

called “tropical forest”. This fact, jointly with the reported improvement in quality (lower

moisture level and lower levels of impurity), enabled product differentiation and increased

substantially the level of site specificity (this specific kind of honey can be supplied by a

limited number of bee-keepers). Such process, jointly with some interventions at the sector

level (creation of international linkages, accreditation, etc.) made possible the development of

an international market for Bezamar. This was a key outcome of the interventions since it

enabled the lead firm to “pull” bee-keepers into higher levels of market integration. The results

reported in Figures 3 and 4 support the proposition that farmers have enhanced their level of

market integration (though no attribution can be made to the intervention with the available

data). Figures 5 and 6 also show a general trend towards increasing sales by farmers’ groups,

which suggests an effective ‘pulling” effect. This effect however varies greatly between

cooperatives and PLCs. Figure 7 reveals that members of PLCs consistently market a

considerable higher proportion of their production of honey through the group. Therefore,

among PLCs the “pulling” effects are stronger.

Insert Figures 3, 4,5, 6 and 7 about here

Though in this case the frequency of interactions is not high (Bezamar buys once of twice a

year from suppliers), a high degree of asset specificity (forest and high quality honey can be

obtained only from few locations), and a relative high degree of uncertainty (variations in

quality and availability) and complexity (quality management) induced a higher level of

coordination in the transaction between the lead firm and suppliers. In addition, a relative low

capacity of suppliers (who did not have appropriate bee-keeping technologies or quality

management systems for the requirements of international markets), created the conditions for

mutual dependency, inducing the emergence of incentives for concerted upgrading.

For the time being, producers’ organizations are the largest suppliers of honey to the lead firm.

In the long run however, cooperatives could eventually engage in functional upgrading

(starting to process and export honey directly). For that reason, the owner of the lead firm

stated that the firm envisions to set up a supply system based on its own pool of out-growers

(independent bee-keepers), which will allow a higher level of coordination. Such prospects are

very compatible with the predictions of the theoretical framework drawn above. When the

possibilities of functional upgrading are high, there are fewer incentives for concerted

upgrading and the creation of conditions for mutual dependency.

Social structure

The transfer of technical skills to suppliers (organized by the lead firm) was reported to work

not only as a mechanism for concerted upgrading, but also as way to build inter-firm trust. Two

facts indicate a relative high level of trust between suppliers and the lead firm after the

intervention: (a) the transactions are based on oral contracts and (b) value chain finance is

taking place between the parties (as explained below). The lead firm was able to build trust not

only with its pool of suppliers, but also with costumers abroad. A higher degree of bridging

social capital along the chain enabled the lead firm to engage in concerted upgrading with

suppliers and relational upgrading with costumers (to expand its international network). A

higher capacity of the coops and PLCs to commercialize honey and to deliver training services

increased their reputation among members and made possible the process of collective

upgrading. This case constitutes a good example of the combination of horizontal and vertical

coordination for value chain upgrading. As stated above, this process relies very much on

bridging and bonding social capital. In this case, higher levels of social capital reduced the cost

of opportunistic behavior in the transactions, both within the groups of bee-keepers and

between the suppliers and the lead firm.

Entrepreneurial and technical capacities

Technological transfer and the strengthening of technical capacities among bee-keepers

(particularly for quality management) were at the core of this value chain intervention.

Through the acquisition of transitional beehives and the improvement of bee-keeping practices,

bee-keepers enhanced efficiency and therefore engaged in “process upgrading”. By means of

buying higher quality honey (lower moisture and impurity levels), the lead firm reported that it

incurred in lower processing costs, thus also gaining efficiency. Concerted upgrading was

possible due to this win-win situation. The improvement of quality through training and the

creation of a specific export brand for forest honey also led to quality and regional product

differentiation, which generated considerable rent gains to the lead firm (product upgrading)

and a higher bargaining power for suppliers. As a consequence of the opening up of the export

market and the improvements in productivity, the amount of honey commercialized through

this channel experienced a boost.

While the transfer of technology and skills seems to have rendered considerable efficiency

gains, no major transformation in the managerial and entrepreneurial capacities of the

cooperatives seems to have occurred. Primary cooperatives suffer from lack of an appropriate

incentive scheme for managers. The interviewed board members reported that the economic

gains from participating in the board were minimal (basically per diems received sporadically).

On the contrary, PLCs have a much clearer incentive structure, since a share of the net benefits

is distributed among the members of the management board (according to their contribution to

running the business). Due to their smaller size (See Table 1) and clearer incentive structure, it

can be expected that PLCs will be more able to achieve higher levels of coordination with the

lead firm and to engage in concerted upgrading. In fact, members of PLCs consistently

reported higher sales of honey per household compared to members of cooperatives (see

Figures 3 and 4). In addition, despite having considerably less members, PLCs reported to

deliver similar sales of honey to the lead firm (see Figures 5 and 6). The latter is the result of a

higher level of “loyalty” among members of PLCs (see Figure 7) and their higher productivity.

We can conclude that PLCs are more efficient in the use of resources, able to transfer know-

how and to engage in collective and relational upgrading (they have achieved a higher level of

“collective entrepreneurship”). As mentioned in the theoretical section above, this could be

explained by a series of factors: more homogenous and smaller groups tend to have lower

coordination costs; the incentive scheme for board members among PLCs is clearer and

market-oriented. Attitudinal differences were reflected in the interviews we conducted. While

board members of PLCs stated that their motivation to engage in managerial activities were the

expectations of economic profits, board members of cooperatives justified their managerial

tasks rather as a contribution to the common good and a social duty. Board members of PLCs

consider cooperatives as inefficient organizations, and mentioned this as one of the initial

motivations to form PLCs (even though cooperatives already existed before their creation). In

addition, they mention as additional advantages of PLCs that they are less controlled by the

government (they say for example that cooperatives cannot decide about sales without the

approval from the local cooperative office) and the fact that a small scale facilitates

communication between members.

Insert Table 1 about here

Based on the theoretical framework elaborated above, we can argue that relations between the

lead firm and PLCs should tend to be more stable than relations between the lead firm and

cooperatives. This hypothesis could be tested empirically.

Value chain finance

Interestingly, two types of value chain finance emerged in this case. The firm provides

advanced payments to the PLCs, so the latter could finance the purchase of honey from their

members. However, the opposite occurred with the cooperatives. These organizations sold the

honey on credit basis to the lead firm, which paid back (with interest) after the honey was sold

in international markets. Board members of the cooperatives reported to have obtained loans

from the Tepi cooperative union and the governmental credit line for rural development.

However, they also stated that delays in the payment by the lead firm have created reputation

problems with their providers of finance, since the cooperatives were not able to pay back their

debts on time. In addition, they argued that these sources of finance were uncertain and that

probably they will not be available in the future. The lack of access to finance in the middle of

the value chain makes the supply system very vulnerable to changes in access to finance in the

upstream nodes (by groups of bee-keepers). The particular value chain arrangements that

emerged in this case made possible the concerted upgrading and a distribution of financial risk

that favored the lead firm and PLCs, though at the expense of the reputation of cooperatives

with their financiers.

A summary of the mechanisms discussed above for the honey value chain can be found in

Table 2.

Insert Table 2 about here

5.2 The oilseeds sector

Value chain governance

A major difference between the two selected case studies is that in the oilseeds sector the

intervention did not lead to remarkable changes in the governance of transactions. The

participation of Didaa cooperative union in the multi-stakeholder platform expanded

considerably its network of buyers, but the union did not engage in a long-term relationship

with a buyer or a pool of them due to the intervention. The main reason for this outcome was

that activities were focused on enhancing productivity among linseed growers, which did not

create enough asset specificity to promote a higher level of coordination or concerted

upgrading among upstream and downstream value chain players. The consequence was that the

“pulling” effect in this case was considerably less strong than in the previous one. Furthermore,

two additional factors contributed to a weaker pulling effect. First, the manager of the union

reported that lack of access to finance for the provision of the necessary working capital to

purchase linseeds from members prevented the cooperative from buying a higher amount of

linseeds. The high level of inflation in the price of agricultural products in general increased

the need for financial resources (to enable the coop to buy from members). Indeed, according

to the data reported in Table 3, the union bought less linseeds from members in 2009 (the year

when the effects of the training on productivity were expected to be realized). Secondly, the

cooperative is a multipurpose union (contrary to the specialized honey groups of the previous

case). The commercialization of linseeds is not the core business of this organization, and

therefore expertise on and time allocated to marketing were not conducive to maximize its

trading potential. Due to the combination of these factors, the union was not able to maximize

the rent that could have been obtained from the commercialization of linseeds.

Insert Table 3 about here

Social structure

One of the important changes induced by the intervention was in the domain of “structural”

social capital. The manager of the union stated that due to the participation of the cooperative

in the oilseeds multi-stakeholder platform, the number of linkages and potential trading

partners was expanded considerably, which is probably reflected in higher sales of linseeds by

the union in 2010 (see Table 3). Furthermore, due to the delivery of training services to

members the reputation of the union is reported to have improved among the members. It could

be argued that this constitutes an enhancement of bonding social capital (among members),

which is expected to facilitate collective upgrading and future entrepreneurial endeavors taken

by the union. This can be an important contribution of the intervention, particularly in a

country characterized by low levels of social trust, as Ethiopia.

Entrepreneurial and technical capacities

The transfer of technical capacities to farmers and extension workers was at the core of this

intervention. Training was assumed as a major transformative power. Since the technological

transfer and the enhancement of members’ skills were facilitated by the cooperative union, this

can be considered as an attempt of “collective upgrading”. Through their own collective action,

farmers aimed to set up “horizontal” coordination mechanisms. In this case, such collective

endeavor was directed to achieve a higher level of productivity. The results presented in

Figures 8, 9 and 10 nonetheless do not support the claim that the intervention produced an

increase in productivity, or even production. Figures 8 and 9 report average productivity of the

households that actually harvested linseeds (Figure 11 presents the proportion of farmers who

reported not to have harvested this crop). According to these results, the effect of training

rather seems to be a slow down in the rate of decline of productivity across time.

Insert Figures 8,9, 10 and 11 about here

The gap in productivity between farmers that participated in the training and those who did not

may be the result of selection bias (if more productive farmers were more likely to participate

in the training) or actually some efficiency gains (“process upgrading”) due to the acquired

skills. However, the results suggest that local conditions are not generating enough incentives

for productivity increase. In fact, on the contrary, farmers (trained and non-trained in both

primary cooperatives) report a steady decline in productivity of linseeds across time. During

the interviews, farmers mentioned the risks associated with oilseeds production. This type of

crop was reported to be very sensitive to weather variations. Some of the interviewed farmers

stated that they have incurred into loses in 2010 (for linseed production) due to excess of rain.

In fact, Figure 11 shows that a relative high proportion of farmers did not harvest linseeds all

along the period considered, either because they did not plant them or because they lost the

crop. Risk considerations might impose constraints on the amount of land that farmers are

willing to allocate to linseeds, and the time they assign to linseeds production vis-à-vis less

risky and staple crops, such as teff. This is an issue that requires further investigation. The

implications in terms of risk exposure and management of a higher level of market integration

by small-scale farmers is a subject that deserves special attention when designing value chain

interventions. The long-term sustainability of the intervention might be jeopardized if the

production at a larger scale of the concerned commodities implies a significant higher exposure

to risk by farmers.

Value chain finance

Since no long-term relationship was established between the union and buyers, the possibility

of value chain finance was lower in this case (compared to the honey value chain). As stated

above, the manager of the union stated that lack of finance (working capital) was the main

reason why the union could not buy the bulk of the additional linseeds that were expected a

result of the intervention. Lack of access to finance thus prevented the union and the farmers

from maximizing the economic benefits that it could have derived from the intervention.

While the previous case shows how a shortage of finance in the middle of the value chain

might become a burden for farmers (in terms of risk and costs), the present case exemplifies

how a shortage of financial services in the middle of the value chain may result in lost

opportunities for farmers’ organizations, a less intense ‘pulling’ effect of value chain

interventions and the lack of incentive at the local level to engage the farmers in higher levels

of production. Both cases therefore point to the critical importance of finance in value chain

interventions.

A summary of the mechanisms discussed above for the oilseeds value chain can be found in

Table 4.

Insert Table 4 about here

6. Concluding remarks

In the current paper we have elaborated a theoretical framework to understand the mechanisms

through which value chain interventions influence upgrading and inclusion processes all along

the chain, but more particularly among small-scale farmers. Such framework is built on

insights from transaction cost economics and global value chain analysis. The proposed four

main mechanisms for achieving upgrading and inclusion of farmers (value chain governance,

social structure; entrepreneurial and technical capacity and value chain finance) can be used

not only as analytical tools to assess the performance of value chain interventions but also as

categories to facilitate the design of this type of interventions and the identification of

indicators for monitoring and impact assessment. Integrated interventions are especially

demanding in terms of proper design, since their different components have to be consistently

articulated in order to render the intended results.

We have applied the theoretical framework to analyze two case studies. We argue that the

difference in the level of effectiveness between the two cases can be explained by the lack of

concerted upgrading in the oilseeds value chain, which was reflected in much weaker “pulling

effects” of the intervention. The latter was the result of the fact that a higher level of asset

specificity in the transactions was not achieved. Therefore, one of the main recommendations

of the present study is that practitioners have to be particularly attentive to ensure that the

“puling effects” of efforts devoted to strengthening the middle of the value chain can be

actually realized. Investments to enhance productivity at the farm level are not enough if they

are not accompanied by clear market incentives to farmers.

The theoretical framework elaborated above predicts that value chain interventions tend to be

more effective when a higher level of coordination between agents is likely. This is expected to

occur when asset specificity is high; there is a relative small number of potential trading

partners; trading interactions take place at a high frequency; and the relative degree of

uncertainty and complexity is high. The impacts on poverty alleviation are expected to be

larger when agents upstream and downstream in the value chain engage in concerted

upgrading. In addition to a high degree of vertical coordination, we argue that three other

factors are key in order to enable concerted upgrading: (i) a relative low capacity of suppliers

(in relation to the complexity of the transaction); (ii) a high degree of bridging social capital (to

reduce the chances of opportunistic behavior by suppliers) and (iii) low possibilities of

functional upgrading by suppliers. Some of the important practical corollaries of the conceptual

insights we have elaborated are that (1) practitioners should pay attention not only to the

creation of new linkages (structural dimension of social capital) but also to trust and other

relationship-enabling social features (cognitive dimension of social capital), including its

vertical (bridging) and horizontal (bonding) components; (2) the incidence of value chain

interventions might be seriously jeopardized if due attention is not devoted to finance as an

enabling element; (3) the interaction between complementary types of upgrading processes is

an issue that deserves special consideration by practitioners; (4) attention should be also

devoted to ensure that the intervention increases the level of asset specificity of the transaction

between upstream and downstream value chain players, and the other conditions for concerted

upgrading are met; (5) it is very important to consider local perceptions about risk related to

the production of the promoted cash crop and (6) the expected impacts of interventions cannot

be taken as granted.

More generally, we think that by means of paying more attention to the conceptual insights we

have drawn above and to the theory of change of value chain interventions practitioners can

gain a big deal of effectiveness. This creates great opportunities for cross-fertilization between

the academia and development practice.

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Figure 1. Lead Firm Puchases of Raw Honey and Exports From Sheka Zone (tons)

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009 2010

Non-exportedExported (tons)

Figure 2. Mechanisms explaining the relationship between value chain

interventions and economic performance

Sector/B2B/Knowledge/Service capacity

Val

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gov

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nce

and

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tion

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Net

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and

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apita

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Fina

nce

Ent

repr

eneu

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man

ager

ial a

nd

tech

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Inte

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tions

Cha

nnel

s

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Upgrading and inclusion

Economic performance

Figure 3. Honey Sales Reported by Farmers (Ethiopian Birr), Sorted by Primary Cooperative

0

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400

600

800

1000

1200

1400

1600

1800

2000

2008 2009 2010

AkachDegeleGenoby

Figure 4. Honey Sales Reported by Farmers (Ethiopian Birr), sorted by PLC

0

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2000

3000

4000

5000

6000

7000

2008 2009 2010

GadaChiefdaleShatto

Figure 5. Reported Honey Sales by PLCs

0

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120

140

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Chaffe Shatto Gada

Ethi

opia

n Bi

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2007200820092010

Figure 6. Reported Honey Sales by Primary Cooperative

0

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80

100

120

140

Genobay Akach Degele

Ethi

opia

n Bi

rr (1

000)

2007200820092010

Figure 7. Proportion of honey production farmers sold to the farmers' group

0,00

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0,70

0,80

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1,00

2007 2008 2009 2010

CoopsPLCs

Figure 8. Linseed productivity reported by farmers (kg/ha). Bulala primary cooperative

0100200300400500600700800900

1000

2007 2008 2009 2010

kg/ha

TrainingNo training

Figure 9. Linseed productivity reported by farmers (kg/ha). Chaffe primary cooperative

0

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300

400

500

600

700

800

900

2007 2008 2009 2010

TrainingNo training

Figure 10. Reported linseeds production by farmers (kg)

0

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Chaffe training Chaffe no-training Bulala training Bulala no-training

2007200820092010

Figure 11. Percentage of surveyed farmers that did not harvest linseeds

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60

70

Chaffe training Chaffe no-training Bulala training Bulala no-training

2007200820092010

Table 1. Number of members in the farmer’s groups that participated in the study # Members Gada PLC 14 Chiefdale 17 Shatto 19 Akach primary coop 445 Degele primary coop 270 Genobay 451 Didaa cooperative union 21.000 aprox. Chaffe primary coop 1948 Bulala primary coop 1665

Table 2. Effects of value chain interventions in the honey sector (Masha district)

Mechanism Value chain governance

Social structure Entrepreneurial and technical

capacities

Value chain finance

Changes induced

From spot-market interactions to long-term contracts (from market to hybrid governance): higher level of coordination

Higher level of bridging and bonding trust Enables long term relations and value chain finance

Productivity increase and quality improvement

Lead firm filled the gap of working capital among PLCs The cooperatives filled the trader’s shortage of working capital

Effects on upgrading

Higher degree of asset specificity; create incentives for concerted upgrading;

Enables concerted upgrading Relational upgrading (vertical) for buyer and suppliers Collective upgrading (horizontal)

Product upgrading specially for the lead firm: quality and regional differentiation Process upgrading: higher productivity among farmers, lower processing costs by the processor Higher bargaining power for suppliers (more reliable and higher quality supply)

Value chain finance enabled different types of upgrading However, lack of long-term source of finance in the middle of the VC makes the supply chain more vulnerable

Effects on inclusion

Expansion in the number of bee-keepers involved in long-term relations with the lead firm

Lower risk for buyer and suppliers

Expansion in the amount of honey traded

Higher risk for cooperatives Lower risks for PLCs: Among PLCs, finance contributes to inclusion

Table 3. Linseed trade at Didaa cooperative union Year Quantity

(quintals) Buying price (Birr/quintal)

Selling price (Birr/quintal)

Net income per quintal

2008 5063 750 800 50 2009 4500 980 1000 20 2010 8110 640 710 70

Table 4. Effects of value chain interventions in the oilseeds sector (Arsi Robe)

Mechanism Value chain governance

Social structure Entrepreneurial and technical capacities

Value chain finance

Changes induced

No change: remained as spot market transactions

More linkages between potential buyers and the cooperative union Reputation of the union improved (higher level of trust on the capacity of the union to deliver services)

Slow down in the rate of productivity decline

Lack of value chain finance

Effects on upgrading

Absence of incentives for concerted upgrading

Relational upgrading: new linkages. Higher bargaining power of the union vis-à-vis buyers Facilitates collective upgrading

No sizable effects No sizable effect

Effects on inclusion

No sizable “pulling” effect

Dynamic effects: higher possibilities of collective action in the future

Probably higher production risks

No sizable effect