Dear Kathiriya,

Value chain analysis  is a concept which introduces value additions aspects at each stage of the supply chain. Peter Hines improved the understanding of value chains by introduction of value stream mapping tools that facilitate elimination of wastes in the value chain and consumer demand drive value chains. At the moment value chain concept therefore relates to the improvement in value addition processes of a given product or service while eliminating wastes while satisfying customer needs. In a agriculture this concept is rich especially after post harvest where value addition to farm produce are facilitated through processing, logistics and packaging among others. Critical readings on value chains include:

Kaplinsky, R. (2000) Globalisation and Unequalisation: What can be learned from value chain Analysis? Journal of Development studies, Vol. 37, No. 2, pp. 183-200

Hines P. Rich N (1997b). “The seven value stream mapping tools”. International Journal of Operations & Production Management Vol.16, Nos.1-2, pp. 46-65.

Zokaei, K. and Hines, P., (2007). “Achieving Consumer Focus in Supply Chains”, International Journal of physical Distribution and Logistics Management”, Vol. 37, No. 2, pp. 223-247.

Regards,

Dear Nirmal,

The value chain approach was created by Michael Porter and is based on the "series of economic activities that create value for the consumer" at a firm level. When you extend the concept to the whole system or along the technological and institutional continuum, he calls it "the value system".

Many authors, in both agrifood and industrial industries make reference to the "value chain", but do not use the conceptual elements of this theory or approach.

In my understanding (not an expert on the supply chain approach) the SCA is based on the optimization of a certain  chain "set up" or configuration, an approach based on systems engineering.

The value chain approach is more a "nano economic" analysis, where the analyst focus on the set of activities perform by the firm. This is why I call it a "nano economic" approach. Studying the different activities, you can ideally estimate the amount of value created and the amount of value destroyed (costs) for the consumers or buyers.

Porter talks of "value creation", which is completely different to "value adding". What are the differences? You can add value by digging a hole and then filling it. This is a national accounting registration. It means nothing to the buyer or consumer. On the contrary,  you "create value" when the consumer or buyer increases its satisfaction with a good or service. This value creation is according to Porter, what keeps firms competitive.

Regarding developing countries, the most adequate approach would be the "institutional agrifood value chain" approach, which takes into consideration not only the series of activities in the firms, but also the series of activities in the "transaction units". Transaction units create and destroy value, especially in agrifood systems. These TU accrued the "infamous transaction costs", as identified by Coase, North and Williamson, being the cost of "social or human interaction".

Why these "transaction costs" are important? Because they impact on the "final delivery costs" of agrifood systems or chains.

The main goal of an agrifood chain is to keep transaction costs as low as possible. Production costs are minimized by the firms, but transaction costs cannot be minimized, at least consciously, because the "transaction unit" has at least three (3) owners: the seller, the buyer and the government. This common property represents a serious problem to designing the "economic incentives" for an efficient performance.

Why the institutional analysis is important in developing countries? Because governments impose heavy transaction costs in the form of TAXES, FEES or unnecessary regulation. The command, execution and control is what Williamson calls the "governance" of a sector or system, which must be optimized in accordance to the "attributes" of the different transactions.

In my opinion, and it is just my humble opinion, the "agrifood value chain" approach is superior for the "set up" of the chain when an institutional analysis is included.

Pros and cons, vis a vis, Value Chains and Supply Chains require a thorough analysis, but conceptually I would say that VC focus at the level of activities, while SC at the level of system.

The Institutional Agrifood Value Chain focus on the value creation activities, at both the "Production Units" and "Transaction Units", what determines the "competitiveness" of the chain, via the Final Delivery Costs.

Hope this helps in your analysis.

PS: in order to understand these concepts, Porter's trilogy works well, plus some of the text books by Oliver Williamson, Ronald Coase and Douglass North.

The issue is one of motivation.  If something improves the conditions, then it receives support.  When work or resources have to be expended to accomplish the objective, then there is less motivation to make it happen.  Simply put, look for the lowest energy (money or effort) to make something happen.  If in the end, more money or better results are being achieved with less or only incrementally more resources.  It is the least resource (money or effort) that will dictate the path with the higher chance of success.

To me the agricultural supply chains is the sub-set of agricultural value chains. In other words, agricultural value chains contain the element of agricultural supply chains. This implies that there is a need to segregate the component of value addition or value creation in a commodity which might have changed its form from its previous stage during its travel from producer to final consumer - who want to consume it directly as such or use it by making it part of food preparation recipe. The second stage of analysis needed is pertained to the returns to investments during value creation at different stage of value chains. Then a comparison of investments in value creation and supply chains shall help us in evaluating which stage is more productively and profitably contributing in the value addition of different agricultural products. Such analysis shall also guide the policy makers in developing countries where the regulatory frameworks and policy interventions and other measures should be incorporated for more smooth functioning of the value chains under consideration.

A very important point to note when shifting from supply chain thinking to value chain thinking is the scope of the study. It is possible to examine supply chains from a macro perspective of an industry or sector, but to truly understand value creation in chains, specific contexts have to be explored, i.e. how an individual business works. In my experience true value chain analysis can only be achieved if you look at specific business value chains and how individual businesses within that chain work (or don't work) together to create the value that you are investigating.