Practical lessons for adapting the value chain approach to conflict situations

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The following practical lessons can assist practitioners as they assess the conflict and consider the best way to move forward in designing and implementing a value chain project.

1 Build value chain programs on the foundations of earlier reconstruction and recovery efforts
2 Start with multiple opportunities and engage directly with markets to identify a growing market segment
3 Value chain work should be part of larger, multi-sector efforts
4 Focus on building both horizontal and vertical linkages throughout the chain
5 Develop collaborative relationships with government agencies and learn about the business enabling environment (BEE)
6 Identify private sector actors willing to invest in upgrading the value chain
7 Acknowledge that donor resources may be needed to launch the value chain
8 Ensure that market information and incentives flow through the value chain as part of normal business
9 Use a progressive approach to value chain programming
10 Value chain work takes longer to show results in conflict-affected environments
11 Accept and adjust to the level of analysis possible
12 Footnotes
13 Navigation

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Build value chain programs on the foundations of earlier reconstruction and recovery efforts

Begin interventions as soon as opportunities arise and use a progressive approach so programs, markets and participants can learn and improve their skills and capabilities as the market grows without sacrificing early results and progress in local markets. When rebuilding opens new markets for construction labor, materials and asset replacement in the early weeks or months following conflict, value chain activities can strengthen relationships and trust built during these recovery efforts and lead to new opportunities. Program developers should work with multi-sector programs and relief efforts to build relationships with the private sector that can inform value chain selection and analysis.

In Afghanistan, value chain efforts grew out of an initial project to jump-start agriculture. Major project components included restarting seed and agricultural input markets and veterinary and market information services, as well as reconstructing irrigation systems. As project teams undertook these larger cross-cutting challenges, they kept an eye on market activities and were able to identify pockets of opportunity for getting people back into productive activities in specific markets. They then used knowledge gained in these early, opportunistic forays to craft a more sophisticated value chain project. At the end of the first project, roughly 75 percent of the economic impacts came from infrastructure and institutional enhancements, particularly from restarting irrigation and veterinary services, and only 25 percent from value chain efforts. However, the project had laid important groundwork in terms of both agricultural system enhancements and programmatic information for value chain work in a follow-on project. emailed Sarah for a link to this reference - she is out of office

In the case of Rwanda,^[1] value chain development followed reconstruction efforts that established important foundations on which to begin. Six years after the crisis, the OTF group conducted an analysis of the tourism value chain to identify and understand the major opportunities for upgrading the sector and the constraints to market growth that had either exacerbated, or were a result of, the conflict. They also looked at how stakeholders could be encouraged to adopt longer range “win-win” rather than short-term “win-lose” strategies. Original plans called for building a multi-product international tourism market, but after careful analysis of market requirements, the smaller international eco-tourism market, built around Rwanda’s primates, was selected as more achievable. Over a five-year intervention in this specific market, tourism receipts rose from zero in 2002 to $33 million in 2006, with a goal of $55 million in 2008. Moreover, investments in the tourism value chain rose from $7 million in 2003 to $20 million in 2006.

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Start with multiple opportunities and engage directly with markets to identify a growing market segment

Project designers and implementers should engage directly with the markets to examine both the potential and risks of each and they need to remain flexible as more information emerges. Just as important is for projects to share the information widely with other chain participants and to support them in using the information to make key decisions.

Conflict changes markets and can negatively affect the business operating environment (mobility, policies/regulations, border control and service delivery). Recognizing that there might not be a clear choice of sector or a winning market segment when starting the data collection process, field programs that explore multiple markets simultaneously and winnow options as information emerges, show the greatest economic impact on the markets in which they intervene. When certain private sector actors (such as?) are unwilling or unable to engage, prices can fluctuate, additional costs may be disclosed or unfavorable government regulations or policies discovered. This approach brings flexibility to the data collection and selection processes.

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Value chain work should be part of larger, multi-sector efforts

Post-conflict environments require a great many services as quickly as possible — shelter, healthcare, water, sanitation food and household and productive assets — and it can be both practical and effective to use a value chain approach to address the need. However, multi-sectoral projects often have numerous goals and there is a risk that value chain objectives can become diluted or misdirected. For example, when projects address health, economic and food security goals by subsidizing input supply chains for new and staple food crops, they should first assess demand and analyze the chain to understand the role of input suppliers and then support inputs with vouchers or other market-sensitive approaches. But if program designers and implementers are unaware of the tools available to help them assess markets, they risk distorting them by failing to involve local businesses or distributing free seeds and tools. Or, they may assume that educating consumers on the benefits of a varied diet can stimulate enough demand to provide farmers a profit. However, they do not calculate the cost of the new foods because they fail to take into account the price that farmers must charge to make a profit.^[2]

One way to ensure that a multi-sector project is well-designed is to have a multi-disciplined team versed in economic recovery principles work on the design process. This is cited as a key success factor in many recent publications, including the Minimum Standards for Economic Recovery after Crisis.^[3] When SPRING Uganda conducted a stabilization-driven value chain assessment, a conflict specialist, and full-time member of the project team, contributed to the design.^[4] It also is important for the value chain analysis to include a clear vision of who is to be reached and to focus on that target group. For example, had the Nike Foundation-funded Value Girls Project conducted a value chain analysis without a girls lens, the fish sector would have reflected multiple opportunities for upgrading and intervention. However, Nike engaged a girls expert who discovered an entirely different story, one in which there was very little potential for this population to be successfully incorporated into the fish value chain.^[5]

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Focus on building both horizontal and vertical linkages throughout the chain

Program activities that help develop trust between value chain actors and link them to service providers are crucial. Trust is built over years of successful business dealings and it is critically important for donors and practitioners alike to invest the necessary time and resources to build both horizontal and vertical linkages. This is especially urgent in conflict contexts where relationships have been severed or severely strained and parties have been at war or had no contact for decades. Promoting trust-building activities—establishing transparency and communications around business relationships—should be based on early (even small) joint successes that strengthen participants’ interest and willingness to collaborate with another. These types of activities require a great deal of staff planning, time and financial resources, all of which can be grossly underestimated during the program design and early implementation stages. For instance, a cotton value chain project working with an internally-displaced population (IDP) in Northern Uganda found that establishing communication and transparency took much more planning, staff time and formal design than was required in a non-conflict environment.^[6] Though less tangible than other milestones, trust-building should be an essential performance outcome for any program working in a conflict-affected context.

While it generally is unrealistic to expect a peace-building outcome from a business relationship, when program designers and implementers spend time and effort building trust between value chain players, positive results can follow. In the post-conflict region of Eastern Nepal, a Mercy Corps cardamom and ginger value chain support project ran up again the traditional Fawa system and conflict-driven mistrust of "outsiders" and traders. Under this system, farmers received the cash equivalent of 40 kilograms for every 41 kilograms sold to traders. The practice engendered a lack of trust and deep suspicion of collective action and farmers preferred to market low volumes individually, which further reduced their already limited bargaining power with local traders. "In the early days, farmers didn’t believe that forming a cooperative would make a difference," said Mohan Rai, a cooperative member. "Since cardamom is a high-value crop, people thought they were better off on their own. They suspected that the purpose of the cooperative was to take a percentage of the sales."^[7] To overcome these challenges, the project focused on generating stakeholder confidence and building trust between existing chain actors. Start-up activities had four goals:

facilitate trade association formation
introduce new disease management techniques
reinforce the market and policy-level credibility of producer group by jointly conducting market assessments
serve as an honest broker for contracts between producers and wholesalers.

A key activity was to organize stakeholder workshops that led to the formation of the Large Cardamom Entrepreneur’s Association of Nepal (LCEAN). These activities helped abolish the unjust Fawa system and resulted in increased household profits; the joint creation of a cardamom grading system (by farmers, wholesalers and exporters); and formal financial service providers moving into the cardamom and ginger producing areas. They also led to the elimination of the informal taxes on ginger traders that pressure groups had established. These improvements in organizational, business and technical practices led to profit increases of 60 percent for both cardamom and ginger farmers. A ten percent average increase in sales for both sectors also can be attributed to value chain improvements. Group formation is just one step in the process of making a business better or more profitable. Perhaps the greatest benefit for entrepreneurs who cooperate is the improvement of trust and collaboration.

Click here to read more about the importance of fostering healthy business relationships in conflict-affected contexts.

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Develop collaborative relationships with government agencies and learn about the business enabling environment (BEE)

Projects operating in conflict-affected contexts need to develop a comprehensive understanding of the existing enabling environment and to monitor it very closely throughout the implementation period. This knowledge can provide implementers with the insight they and their partners need to foresee potentially harmful or unsolvable issues, such as a ban on importing agricultural inputs or exporting certain crops or banking laws that would seriously hamper microfinance activities. This type of information would allow the project to discontinue work that has no prospect of success and redirect its resources to a more viable sector.

Projects also should work with government to develop more favorable policies and with civil society or other groups to advocate for change. A review of recent literature on key policy needs for business in post-conflict contexts identified three areas that should be addressed as soon as possible to provide a strong foundation for value chain development. The first two have the potential to severely affect the recovery and distribution of productive assets if maintained into the post-conflict phase and may be likely targets of conditionality for foreign assistance. The third includes the establishment and enforcement of regulations ensuring property rights and enforcement of contractual commitments.

Policies having the potential to fuel or support renewed conflict
Policies introduced to meet the special needs of wartime
Policies to establish the minimum requirements for investment and basic business operations and for rebuilding inter-firm trust.

A recent, donor-produced manual on working in post-conflict environments recognizes that “donors traditionally have not focused immediately on the reform of economic policies and institutions; but rather on physical reconstruction; human capital recovery; and the social and economic reintegration of former combatants, refugees and displaced persons. All are important aspects of post-conflict recovery. However, economic policy reforms, small-scale privatizations, market liberalization and anti-corruption reforms also should be pursued vigorously and early in the post-conflict period, limited only by the host government’s capacity to implement them credibly and effectively.”^[8]

Go to Essential Issues to Consider for additional information and examples on the importance of understanding the policy environment when working in conflict-affected environments. And, Click here to read more about the business enabling environment (BEE) and the post-conflict context.

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Identify private sector actors willing to invest in upgrading the value chain

The twin focal points of post-conflict private sector development are to support a positive, pro-poor attitude in post-conflict private sector actors and to tackle the often negative and predatory tendencies that some may entertain. The willingness of private sector players to work with the project demonstrates that the identified market opportunity is feasible and the risks manageable. Beyond being the beneficiaries of a value chain program, private-sector participants are also the value chain’s ultimate “stakeholders,” and therefore can be the program’s strongest champions. Those programs that recognize private-sector actors as partners are best positioned to have faster local buy-in and participation in value chain efforts. Implementers should search creatively for private-sector actors throughout the chain (including the end market) who have the potential to link others—whether vertically or horizontally—to markets, technologies or information, or to serve as leaders in innovation.

In the Bosnia VegaFruit case^[9], project designers found a single domestic company that could reach a broad supplier network and had sufficient technical and managerial capacity to respond to changing markets, manage risks and manage buyer-supplier relations. They used this private-sector champion to rebuild domestic vegetable and fruit processing capabilities, through which much learning and experimentation could take place in the early post-conflict years. For example, VegaFruit had to respond flexibly and rapidly to new information about markets and various suppliers’ capacity to deliver (based on their skill, access to inputs and capital, etc.). In total, the project team pointed to the importance of three elements in the success of a private-sector champion: a combination of technical and managerial experience, a flexible business model and prioritization of risk management over returns in the early years.

Private-sector champions are most effective when there is a forum for them to link to other private-sector actors. The forum may be an association of similar businesses (such as a farmers’ association) or a value chain-wide network of businesses. In the best cases, champions’ interests coincide directly with the interests of value chain developers and no subsidy is required for them to serve in a leadership role. In other cases, champions may receive project support in the form of new equipment, training, access to outside markets, etc.

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Acknowledge that donor resources may be needed to launch the value chain

Subsidies should stimulate or redirect, but not replace, market activities and practitioners must ensure they are used primarily to facilitate relationships and to create direct market linkages to new technologies and service providers. Economic development programs can use subsidies to: (1 increase the incentives of participating in the value chain by illuminating market potential and facilitating access to the market, or (2) reduce the risks of participating in the chain by lowering either barriers or uncertainty surrounding the market. In-kind credit, cost sharing and other risk-mitigation mechanisms can encourage firms to invest in new production technologies or target new markets. Once the investment becomes profitable, subsidies can be withdrawn. Donor or government resources also can help increase the availability of market information to improve transparency and trust, level the playing field for small enterprises and assist with asset replacement. Programs may use subsidies to demonstrate the potential of an improved technology, to reduce the risk to enterprises investing in new technologies or techniques, or to accelerate their development. The SEEP Minimum Standards for Economic Recovery after Crisis^[10] state that, "since subsidies are, by definition, unsustainable and distort market incentives, implementers should plan to withdraw them from the outset and to communicate this clearly to recipients and other stakeholders at that time".

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Ensure that market information and incentives flow through the value chain as part of normal business

When value chain participants understand the importance of communicating with one another and are willing to share information the chain can continue to grow and prosper without direct donor or other financial support. The free flow of information throughout the chain and between chain participants, government agencies and other institutions that could impact the functioning of the chain can help to mitigate risks such as disruptions after public funds are withdrawn, significant market changes and setbacks in maintaining quality or consistency of products and services.

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Use a progressive approach to value chain programming

Introducing new ideas and skills over a period of time can help value chain programs take advantage of the most accessible opportunities and generate early momentum, even quick wins, while staying on a path toward more attractive markets over the long term. An excellent example is a value chain project in Sudan that took a progressive learning approach, selecting a non-commercialized product—shea butter—that was owned by communities and managed by women, and then building a value chain from scratch around this basic commodity.^[11] At the outset, project staff examined more than ten potential market segments, both to clarify ultimate market goals and to identify initial target markets. In the early years, they developed basic products for local consumers, complemented by a higher-end product to sell to near-at-hand international development agency staff with cash to spend and few goods to buy. They then developed a new brand for sale to the African consumer, requiring larger production capacity, greater consistency and a marketing office in Nairobi. Finally, they developed an international brand for the U.S. market and piloted it in collaboration with an interested U.S. business, Swahili Imports.

This incremental approach allowed the value chain participants to learn from experience, while retaining the flexibility to step out of markets that were either too difficult or did not bring expected results. The pace of change was driven largely by participants' ability to learn and adopt the skills required to enter into new markets, first by improving their techniques and technologies for harvesting and processing the shea butter. In subsequent years, they focused on market research and marketing skills, using intermediaries in distant markets (both Nairobi and the U.S.), and establishing standards and meeting international certification requirements for health care products.

Another example is the coffee program in Rwanda^[12] that spent six years seeking buyers in U.S. and European markets and investing in a value chain based on information from potential buyers in high-value markets. Chain participants attended trade fairs and buyer conferences in Africa, the U.S. and Europe, which helped them make contacts and provided a forum for learning about international competitors, finding improved technologies, tracking changing tastes. Their steady, long-term engagement in the process showed potential buyers a consistent presence and commitment that led to a major partnership with Starbucks.

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Value chain work takes longer to show results in conflict-affected environments

The post conflict context can put pressure on donors and implementers to make quick decisions and expect immediate results. Use of a progressive approach can help projects mitigate the effects of bad decisions, dispel unrealistic expectations and provide some early results. Donors and practitioners alike need to accept the fact that value chain programs in conflict-affected environments are likely to show only preliminary and often small changes in the first two to three years. However, they need to understand that these initial results are coupled with improved knowledge of the opportunities and challenges that can inform and improve programming in subsequent years.

A correlation is also needed between the life of the project and the time it takes to develop a value chain to the point where it can sustain itself. Donors and practitioners should not expect immediate sector growth when facilitating a value chain approach. Nor can efforts be dropped when funding cycles (usually designed primarily for short-term emergency relief efforts) end in six to twelve months. Both donors and designers must plan for longer, more focused investment if the value chain approach is to bear fruit in these environments. For example, the Sudan Lulu Livelihoods Program phased its operations over eight years to achieve sustainable results. In addition to developing production and marketing protocols and methodologies, the first three years focused on feasibility studies, training, strategy development and equipping two centers. Over the next five years, both the project and the enterprises it supported scaled up, expanding into other locations and increasing their returns.

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Accept and adjust to the level of analysis possible

There are many logistical constraints to conducting value chain analysis in conflict-affected contexts. Often staff and business people have limited mobility to conduct interviews. Secondary or desk research can be very difficult because current data is unavailable and public institutions often do not function, certainly not at capacity. This can require a value chain analysis to understand and establish a minimum level of information to map the chain and start initial decision-making. While it is important to address the Seven Basic Ingredients during the data collection and design phases, in practice there is some support for using the research methodologies of optimal ignorance and appropriate imprecision when gathering data and analyzing a value chain.

Optimal ignorance is knowing the difference between what is worth knowing and what is not, thus enabling the collection of information that is required and avoiding collection of too much irrelevant data.

Appropriate imprecision: In many surveys, much of the data has a higher degree of precision than is needed for decision-making. Sometimes, it is more useful to know the causes of problems and the trends and directions of change than it is to have accurate data about the number of those affected by the problem.

In using these methodologies, practitioners require experience and good analytical skills to gauge the usefulness of the information and focus on what is relevant. This can be difficult during interesting interviews and when respondents collaborate so well that team members become distracted and find themselves pushed beyond the bounds of relevance.

Practitioners should understand the risks of using these methodologies. If they do use them, follow-up data-gathering and clear monitoring feedback loops are necessary to ensure they are used to inform project decisions going forward and to redirect activities as necessary. The Emergency Market Mapping and Analysis tool is designed to provide a market map rapidly and then to complete any imprecise information gaps as projects move forward.^[13]

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