Promoting Agricultural Value Chains:
In the OIC Member Countries
16
despite the increased recognition that financial services and investments are needed at all
levels of agricultural value chains. Yet, financial products and services for agricultural and
rural populations are frequently deficient, and especially small-scale farmers are still
underserved (Miller & Jones, 2010).
(4) Governance and value chain actors. Governance refers to the power relationships
between actors and the way that financial, material and human resources are allocated
along the chain (Gereffi et al., 1994). A chain is governed if certain firms set and/or enforce
the parameters under which other actors in the chain operate. These parameters include
decisions on what is to be produced (product and quality specifications), how (process and
post-harvest specifications), when (delivery and logistics), and how much (quantity
specifications) (Humphrey & Schmitz, 2001). Thus, power is exercised through setting
specific rules, processes and practices, and the actor or organisation that is in the position
to set these can be considered the ‘lead firm’.
A distinction is made between two types of governance structures in value chains:
‘producer-driven’ and ‘buyer-driven’ (Gereffi, 1994). In the former, large manufacturers of
capital and technology-intensive goods, such as cars and computers, play the central roles
in coordinating production networks. In the latter, the lead firms are retailers and branded
manufacturers which focus on high profit functions while externalising low profit
functions to a network of suppliers, typically located in developing countries. Particularly
in agricultural value chains, global buyers hold considerable power over international
chains despite lacking ownership over most parts of the chain. This can be attributed to
their ability to occupy strategic, highly specialised chain positions and effectively act as
gatekeepers to global consumer markets. The role played by lead firms is highlighted in
various forms of GVC governance. Between the two extremes of spot market transactions
and vertical integration (hierarchy), different forms of network governance exist, such as
modular, relational and captive transactions between chain actors (Gereffi et al., 2005).
Governance is of increasing importance in many agricultural value chains due to the
greater emphasis on product differentiation and the growing proliferation of various types
of quality, food safety and product standards required for lucrative market access. Such
issues impact heavily on the way that trade is conducted, chains are organised, and
growers and other suppliers can participate. In particular, it influences which marketing
channels are available to producers, as each channel may be subject to different forms of
governance – some of which may be easier and others more difficult to access for
producers.
(5) Trade . Trade is an integral part of agricultural value chain development, including
increased productivity, sales and incomes. Only if trade systems are in place will
producers, processors and other value chain actors be able to effectively meet consumer
demand (Global Harvest Initiative, 2013). Therefore, trade facilitation to ease the
movement of products and services is becoming increasingly important.
Already many agricultural value chains are spanning across borders forming complex
global networks constituted by a multitude of actors and processes. Much of agricultural
trade is based on Southern production and Northern consumption, but as world trade is
becoming more dynamic, traditional North-South patterns are becoming less important.