Livelihood and Business Assets Matter in Pro-poor Value Chain Development

This review of the Tropical Agricultural Research and Higher Education Center's new manual, "5 Capitals: A Tool for Assessing the Poverty Impacts of Value Chain Development," was written by Daisy Ouya of the World Agroforestry Center on October 4, 2012. 

Value chain interventions in Nicaragua led to the ‘taro boom’ of 2003–2008, which saw exports of the ancient root crop to the US quadruple from 3,300 to nearly 13,000 metric tons. The boom, however, did not benefit all smallholder farmers alike. The reasons for this disparity, and other eye-opening findings, are discussed in a new manual titled 5 Capitals: A Tool for Assessing the Poverty Impacts of Value Chain Development. The manual brims with guidance and tips for businesses, development practitioners and project funders looking to design sustainable interventions for value chain development that work for the poor. It has been tested through 23 case studies in Africa, Asia, Latin America and North America.

The manual is focused on understanding changes in five assets: natural, social, human, physical, and financial capitals, which are intimately linked to the ability of rural households to participate in and benefit from value chain development. Its application in Africa, Asia and Latin America has shown that in order to succeed in achieving desired poverty-reduction outcomes, value chain development must take into account people’s endowment with these 'capitals' prior to starting a value chain initiative, as well as the ongoing changes as it is being implemented. The manual also guides users in assessment of outcomes of businesses that maintain direct links with rural households and in understanding the overall context in which value chain development takes place.  Guidance is provided on data collection and on establishing cause-effect relationships that help attribute measured or observed changes in assets. The ultimate goal of the manual is to stimulate institutional learning on the outcomes and impacts of pro-poor value chain development, as a prerequisite for designing more impactful value chain initiatives.

“We found that rural households require a minimum level of asset endowments to benefit from value chain developments,” says Jason Donovan, marketing specialist with the World Agroforestry Centre (ICRAF), who co-authored the 5 Capitals tool with Dietmar Stoian of Bioversity International. “Households above a certain ‘threshold’ of capitals benefited the most from value chain development, while those below it experienced minimal impacts. And value chain development has a greater impact on poverty reduction when there is a strong demand orientation and an enabling business climate.”

Programmes to link small-scale famers to high value, non-traditional markets can be traced to the 1980s and 1990s in Latin America and Africa. These early interventions relied on large subsidies from governments and development agencies, but smallholder participation in these interventions soon dwindled , partly because of the stringent requirements for export-oriented agriculture and the dependence of smallholders on external inputs. Furthermore, once government and project subsidies were removed, smallholders found it nearly impossible to continue to maintain their livelihoods.

In the early 2000s, practitioners started to encourage the involvement of the private sector as investors, rather than providers of subsidies. This new approach, called value chain development, seeks to foster win-win relationships among two or more ‘chain actors,’ in order to improve rural livelihoods in a sustainable way. The ‘actors’ in a value chain include producers (farmers), distributors, processors, wholesalers, retailers, and providers of technical, business and financial services.

“We are witnessing a growth in the interest in value chain development, along with the upsurge in markets where small-scale farmers are considered to have an advantage over their larger-scale counterparties, for instance the markets for fresh fruits and vegetables and specialty coffee and cacao,” says Donovan. “Well-designed pro-poor value chain development can lead to rural poor smallholders uplifting their livelihoods through these markets.”