Value Chains in Global Industries

Understanding value chains in global industry development is a vital issue for economic development on an international level. Here is a summary of a fascinating report on this subject. Download the full report here: Shaping value chains for development: global value chains in agribusiness by the Institute of Development Studies in the UK. (This is a research study and therefore requires some work, but there are good ideas in it for clusters.)

One of the key challenges for development is to reduce rural poverty in developing countries through increasing production and export of agricultural products. However, changes in the nature of markets and trade for these products in recent years have created new challenges. Addressing these requires initiatives at multiple levels, in both developing and developed countries and within the system of international regulations governing trade. The new challenges arise in the areas of markets and competition and also from the increasing importance of public and private standards in regulating trade:

1. The increasing importance of large buyers in global food value chains. The requirements of large buyers (not only retailers but also processors) for quality, reliability of delivery and product differentiation have raised the level of competence required of producers and the level of coordination in value chains. In the case of many non-traditional agricultural exports, issues of product quality and freshness (and hence time to market), product differentiation and increased processing place great demands on production systems and may favor large-scale production.

2. Increasing concentration at various points in the value chain, including input suppliers (seeds, feedstocks, chemicals, input packages for GM products, etc.), processors and retailers. This concentration has implications for the questions of access to agribusiness value chains for small producers, and also the returns producers obtain from participating in these chains. It raises questions about market structures and market power, as well as strategies to offset this power: regional branding, geographical indicators, niche products and alternative marketing channels.

3. The increasing importance of both public and private standards in food industry. Public, mandatory standards relating primarily to human and animal safety (sanitary and phtyosanitary standards, SPS) have become more extensive and stringent. At the same time, private sector standards, and in particular standards and developed by coalitions of private companies and business associations, have become increasingly important factors in access to marketing channels. Such standards relate to food safety, social standards and environmental impact.

This study analyses these challenges from a global value chain perspective, examining their implications for policies at both the micro and meso levels (technical assistance, local institutional capabilities, producer organizations, etc.) and the broader, macro level of the framework of institutions and policies that regulate agricultural production and trade, including standards-setting, intellectual property rights and global competition policy, as well as trade capacity building and trade promotion initiatives.