Elsevier

Food Policy

Volume 97, December 2020, 101916
Food Policy

Integrated Value Chain Development: Evidence from Bangladesh

https://doi.org/10.1016/j.foodpol.2020.101916Get rights and content

Highlights

  • This paper conceptualizes integrated VCD and illustrates it by the project SAFAL.

  • VCD entails reducing transaction costs and assisting value chain actors.

  • SAFAL assists agri-food value chains in Bangladesh such that they can meet demand.

  • Participation in SAFAL is estimated to increase farmer welfare and food security.

  • A cost-benefit analysis suggests that the SAFAL is also cost-effective.

Abstract

Agricultural productivity and farmer welfare in developing countries is constrained by a multitude of market imperfections. Value chain development (VCD) is receiving much attention as a market-based policy instrument that can potentially address multiple of these constraints simultaneously. This paper provides a conceptualization of VCD and discusses how VCD can be used as a policy instrument. As an illustration, the paper describes the VCD project “SAFAL,” which uses an integrated approach to directly intervene in aquaculture, horticulture, and dairy value chains in South-West Bangladesh. The strategy is to first identify a demand downstream in the value chain and then to identify and reduce the constraints experienced by value chain actors upstream to meet this demand. Using a matched difference-in-difference methodology, this paper estimates farm household participation in SAFAL increases farm income and shortens the hungry season.

Introduction

Agricultural productivity and farmer welfare in developing countries is constrained by a multitude of market imperfections. Farmers incur high costs and face uncertainty when buying improved plant and animal varieties, farm chemicals, equipment, finance, or information services (e.g., Bold et al., 2017, Croppenstedt et al., 2003, Shiferaw et al., 2015) and when selling their produce, particularly if buyers require them to comply with stringent standards regarding quality and food safety (e.g., Maertens et al., 2012, Pingali et al., 2005, Reardon et al., 2009, Svensson and Yanagizawa, 2009). These market constraints are often mutually reinforcing. Low access to one farm input can reduce the incentive to adopt other farm inputs as a result of complementarities (e.g., see Christiaensen and Vandercasteelen, 2019). In turn, low access to farm inputs can reduce access to output markets by constraining productivity and by hindering compliance with public and private standards (Barrett, 2008, Kuijpers and Swinnen, 2016).

Value chain development (VCD) is receiving much attention as a market-based policy instrument that can potentially address the multiple binding market constraints on agricultural productivity in an integrated way (Christiaensen and Vandercasteelen, 2019, Fuglie et al., 2019, De Janvry and Sadoulet, 2020). Despite this attention, there is limited evidence on the effectiveness of VCD as an integrated policy solution (Barrett et al., 2019, Christiaensen and Vandercasteelen, 2019, Devaux et al., 2016, Fuglie et al., 2019). Meanwhile, governments, donors, and international organizations are investing large sums of public funds in VCD.1

Given this gap, the purpose of this paper is to conceptualize integrated VCD and to provide evidence on its effectiveness. Based on transaction cost theory, the paper conceptualizes VCD as an intervention that aims to increase the functioning of a specific value chain by reducing transaction costs and by supporting specific value chain actors. The paper proceeds with a detailed illustration of an integrated VCD project called “SAFAL,” which directly intervenes in the aquaculture, horticulture, and dairy sectors in South-West Bangladesh. It uses a flexible approach that intends to identify and tackle all constraints in the value chain that are binding farmers in accessing technology and output markets. The general strategy is to first identify a demand downstream in the value chain and then to identify and reduce the constraints experienced by actors upstream to meet this demand by offering financial and technical support and by reducing the transaction costs in the chain. SAFAL is representative for a large group of donor-funded integrated VCD projects, but is considered particularly flexible, intensive, and integrated, also in comparison to other integrated VCD projects (IOB, 2017).

Finally, the paper assesses the effect of SAFAL on the farm income and food security of participating farmers. In the estimation, SAFAL is necessarily treated as a “black box. It is not possible to investigate the effects of different components of the project, because it is multi-faceted project that intervenes at different stages of the value chain and project implementation is customized to the needs of the value chain actors. To overcome program placement and self-selection bias, the methodology relies on a matched difference-in-differences (MDID) estimator. The key assumption underlying a difference-in-difference estimator is that in absence of the project the average outcomes for the control and treatment group would have moved in parallel direction. To improve the comparability through time, project participants are matched with control farmers based on observable pre-project characteristics. Using this methodology, it is estimated that the project has, on average, increased the net-farm income of farmers by USD 404 and reduced the length of the hungry season experienced by participating households by about 12 days.

This paper contributes to a growing literature on the effectiveness of development interventions in reducing or overcoming market constraints experienced by farmers. This is a diverse literature which looks at different approaches, including technical and financial support to farmers (e.g., Ebata and Huettel, 2017, Carter et al., 2019), certification (e.g., Kersting and Wollni, 2012, Ruben, 2017), and infrastructure (e.g., Negi et al., 2018). The majority of the interventions studied by these articles are, however, “singular focused” (Christiaensen and Vandercasteelen, 2019): the extent to which they represent an integrated solution to improve the functioning of a value chain is limited.

This paper also relates to a literature on contract farming, farmer cooperatives, and other value chain innovations, which suggests that re-organization of the value chain can help farmers to overcome market imperfections, improve their access to modern technologies and (high-value) market outlets, and increase their income (Bellemare and Bloem, 2018, Grashuis and Su, 2019, Swinnen and Kuijpers, 2019, Ton et al., 2018;). Many articles in this literature describe the role of NGOs in supporting contract farming schemes and farmer cooperatives. Fischer and Qaim, 2012, Kabunga et al., 2014, for example, describe how NGOs have supported farmer groups in the Kenyan banana sector by facilitating linkages with laboratories and nurseries for tissue culture and by linking farmers to urban wholesalers. Maertens and Velde (2017) describe how an NGO financed the start-up of a semi-commercial contract farming scheme in the rice sector of Benin. Some of these papers provide empirical evidence that NGOs indeed play a role in linking farmers to markets (e.g., Andersson et al., 2015, Michelson, 2013, Rao and Qaim, 2011), but the literature mostly focuses on the welfare effect of “being linked” rather than on the welfare effects of the NGO intervention (the linking process).

There are some important exceptions: some studies do rigorously estimate the farmer welfare effects of integrated VCD projects. Ashraf et al. (2009), for example, estimate the effects of a NGO-led outgrower scheme that trained Kenyan horticulture farmers and linked them to banks, providers of inputs, transportation services, and exporters. Using a randomized controlled trial they find that the project led to a 32% higher income for first-time exporters. Another example is by Biggeri et al. (2018) who study the impact of an integrated VCD project in the Ethiopian wheat value chain. The project provides farmers and cooperatives with technical training, access to better wheat varieties, and assets, and established contracts between cooperatives and pasta makers and between cooperatives and the farmers. Using cross-sectional observational data and an instrumental variable as identification strategy, they find that the project has led to 102% higher net-farm income among participating farmers.

This paper makes at least three contributions to this literature. First, it provides additional evidence on the effectiveness of integrated VCD as a policy instrument. SAFAL is a particularly interesting case as it intervenes at all stages of the value chain and thus uses a highly integrated approach. It does not only provide technical and financial support to farmers and farmer groups, but also to other actors in the chain and supports the emergence of new (micro-)business if there are missing links. Contextually the project is also interesting as it focuses on a diverse range of farm products (fish, dairy, fruits, and vegetables) in a highly dynamic region of Bangladesh. Secondly, the paper makes methodological contributions by using a credible matched difference-in-difference estimator (which is an improvement to studies based on cross-sectional observational data), by estimating the effects on food security, and by including a cost-benefit analysis. Finally, it makes a conceptual contribution by describing, in detail, the theory of change of SAFAL and by embedding this in a conceptualization of VCD based on transaction cost theory. This provides insight into what “linking” value chain actors or “improving linkages” in value chains entails.

The finding that SAFAL is effective suggests that high transaction costs constrain the transformation of value chains and that this can have implications for farmer welfare. It also suggests these transaction costs can be reduced or overcome through an integrated VCD approach. In this sense our findings contribute to the broader literature on the importance of well-functioning value chains for agricultural productivity, structural transformation, and poverty reduction (Barrett et al., 2019, Fuglie et al., 2019, Reardon et al., 2009, Swinnen, 2007, Swinnen and Kuijpers, 2020).

Section snippets

Value chain development in theory and practice

Traditionally, the exchange of farm inputs and farm produce in agri-food value chains has been based on spot-markets (Reardon et al., 2009, Barrett et al., 2019). Spot-markets might, however, involve high transaction costs; possibly to such extent that some actors effectively have no access to these markets (e.g., Alene et al., 2008, Janvry et al., 1991, Key et al., 2000, Winter-Nelson and Temu, 2005).2

Project description

The Sustainable Agriculture, Food Security and Linkages project (SAFAL) directly intervenes in key stages and linkages in the aquaculture, horticulture, and dairy value chain in the districts of Khulna and Jessore in South-West Bangladesh. It is financed by the Netherlands Ministry of Foreign Affairs and implemented by the NGO Solidaridad.4

Identification strategy

The goal is to estimate the average effect of SAFAL on participating farmers. This effect is defined as the average difference in the observed outcome for farmers participating in the project and the outcome that would have been observed if these farmers would not have participated (i.e., the counterfactual). Using the potential outcome framework (Roy, 1951, Rubin, 1974, Splawa-Neyman et al., 1990), this can be written more formally asγ=EY1D=1]-EY0|D=1,with γ, the average effect on project

Survey

The data used in this paper were collected in the project upazilla’s (sub-districts) of Manirampur, Abhaynagar, Dumuria, and Paikgacha in April − June 2014 and 2016. These upazilla’s were selected because implementation in these upazilla’s would start immediately after the baseline survey. The survey was commissioned and financed by the Policy and Operations Evaluation Department of the Netherlands Ministry of Foreign Affairs (as part of a review of the food security policy of the Netherlands)

Project participation and matching

Fig. 2 shows the distribution of the propensity scores of project participants and the control group.20 The two distributions are substantially different, with a much larger group of control farmers with low propensity scores. This further confirms the importance of matching prior to calculating the difference-in-difference estimator. Importantly, there is sufficient

Summary and concluding remarks

Using a transaction costs framework, this paper defined value chain development as an intervention that intends to improve the functioning of a specific value chain by reducing the transaction costs between different stages and by supporting specific value chain actors. The paper also discussed the different policy options available to develop value chains, including facilitating multi-stakeholder platforms, assisting lead firms with the introduction of value chain innovations, or direct public

CRediT authorship contribution statement

Rob Kuijpers: Conceptualization, Methodology, Formal analysis, Investigation.

Acknowledgements

I am grateful to a large team of researchers with whom I collaborated to conduct the impact evaluation of SAFAL: Jan-Joost Kessler, Philip de Jong, Ferdous Jahan, Maartje Gielen, Fahim Chowdury, Omar Faruque Siddiki, and Ferko Bodnár. The data collection conducted in Bangladesh was part of a country case study by Aidenvironment, APE, BRAC/DRI and IHE for the IOB Evaluation of the Dutch food security policy 2012–2016, and was funded by the Dutch Ministry of Foreign Affairs. I also want to thank

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