Value Chain Glossary: Catalytic Firms
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Catalytic Firms
Catalytic firms are those enterprises within a given industry that have the incentives, ability and willingness to address constraints and drive upgrading throughout the chain. Incentives for catalytic firms to upgrade generally relate to increasing profit, but could also be non-economic or not directly result in increased profits. For example, importers may want to manage the risk posed by global price fluctuation, and they might be able to do so by investing in upgrading local production to maintain a more consistent source of product. The ability to address constraints and drive upgrading entails financial resources as well as the capacity to change behavior or business models. A firms' willingness to catalyze changes in the value chain depends on their mindset and openness to change, as well as their commitment to participation in their industry.
Examples of Catalytic Firms:
- Two of the world's largest cocoa processing companies, Hershey's and Mars, source cocoa beans from small cocoa producers in recognition that some raw materials are best produced by small growers. The relationship between the catalytic firms (processors) and the small cocoa farmers has resulted in improved quality production standards and efficiencies in production.
- Wal-Mart relied on imports for supplying about 80 percent of produce for its Honduras stores. The remaining 20 percent came from large local farms in Honduras. Over time, the quality and quantity of produce was inconsistent and traceability became a concern. With USAID assistance, Wal-Mart assessed needs for the right product mix and volume and set delivery requirements and quality specifications. The company organized lead growers and out-growers for a calendarized production program for 10 different crops. Currently, about 100 small farmers supply Wal-Mart Honduras and other regional stores with more than 60% of their produce needs. [1]
- In Sri Lanka, collaboration with multinational Lever Brothers to identify and develop a source of vanilla led to the establishment of a new vanilla production industry. Over 1,000 small farmers organized to form three vanilla grower associations and although Lever Brothers is no longer sourcing from the associations, they continue to successfully produce high-value, organically certified vanilla.
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Footnotes
- ↑ [1]Best Practices in Implementation Paper Series: The Farmer to Market Value-Chain Approach: Linking Smallholders to Wal-Mart in Honduras. Painter,Elizabeth. January, 2009.
