Developing sustainable food value chains - Food and

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Developing sustainable food value chains - Food and

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Developing sustainable food value chains
Guiding principles

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Developing sustainable food value chains
Guiding principles
David Neven

RECOMMENDED CITATION FAO. 2014. Developing sustainable food value chains – Guiding principles. Rome
Cover photos (from top) Women work the rice fields in Vietnam and most developing countries. Lothar Wedekind/IAEA A worker at the Valdafrique Processing Plant. ©FAO/Seyllou Diallo Employee canning artichoke hearts at the AgroMantaro processing plant in Junín, Peru. ©FAO/David Neven Women buying fish from the wholesaler. ©FAO/Antonello Proto A little girl eats a freshly-made roti. S. Mojumder/Drik/CIMMYT
The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned. The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO. ISBN 978-92-5-108481-6 (print) E-ISBN 978-92-5-108482-3 (PDF) © FAO, 2014 FAO encourages the use, reproduction and dissemination of material in this information product. Except where otherwise indicated, material may be copied, downloaded and printed for private study, research and teaching purposes, or for use in non-commercial products or services, provided that appropriate acknowledgement of FAO as the source and copyright holder is given and that FAO’s endorsement of users’ views, products or services is not implied in any way. All requests for translation and adaptation rights, and for resale and other commercial use rights should be made via or addressed to [email protected] FAO information products are available on the FAO website ( and can be purchased through [email protected]






Executive summary




About the author




Chapter 1



Chapter 2

Concept and framework


2.1 » Defining the concept


2.2 » Related concepts


2.3 » The sustainable food value chain framework


Chapter 3

The sustainable food value chain development paradigm


3.1 » Return on assets: farming as a business and development

of small and medium-sized agro-enterprises


3.2 » Salary income: creating decent work opportunities


3.3 » Taxes: ecosocial progress


3.4 » Food chain fallacies


3.5 » The sustainable food value chain development paradigm: conclusion


Chapter 4

Ten principles in sustainable food value chain development


4.1 » Measuring performance of food value chains –

sustainability principles


4.2 » Understanding food value chain performance –

analytical principles


4.3 » Improving food value chain performance –

design principles


Chapter 5

Potential and limitations


Chapter 6






Concepts related to the value-chain concept




1. A breakdown of the concept of value added


2. The sustainable food-value-chain framework


3. The sustainable food-value-chain development paradigm


4. Principles of sustainable food-value-chain development


5. Sustainability in food-value-chain development


6. Positive feedback loop driving sustained growth


7. Examples of constraints and leverage points in value chains



Illustration of Principle 1: The potato value chain in India


Illustration of Principle 2: The pineapple value chain in Ghana


Illustration of Principle 3: The beef value chain in Namibia


Illustration of Principle 4: The vegetables value chain in the Philippines


Illustration of Principle 5: The tea value chain in Kenya


Illustration of Principle 6: The rice value chain in Senegal


Illustration of Principle 7: The coffee value chain in Central America


Illustration of Principle 8: The ndagala value chain in Burundi


Illustration of Principle 9: The dairy value chain in Afghanistan


Illustration of Principle 10: The salmon value chain in Chile



The development of sustainable food value chains can offer important pathways out of poverty for the millions of poor households in developing countries. Food value chains are complex systems. The real causes for their observed underperformance may not always be obvious. Typically, multiple challenges have to be tackled simultaneously in order to truly break poverty cycles. This in turn implies the need for collaboration among the various stakeholders in a value chain, including farmers, agribusinesses, governments and civil society. Further compounding the challenge, improvements to the value chain must be economically, socially and environmentally sustainable: the so-called triple bottom line of profit, people and planet.
Around the world, development practitioners in public, private and non-governmental organizations are constantly designing and implementing innovative solutions to address these challenges. These practitioners facilitate the upgrading of products, technologies, business models, policy environments and so on. Some of these solutions fail to have a lasting impact, while others succeed in improving the system at scale and in a sustainable manner. Either way, valuable lessons are learned.
In its role as a global knowledge broker aiming to enable the development of inclusive and efficient agricultural and food systems, the Food and Agriculture Organization of the United Nations (FAO) has initiated a new set of handbooks to capture and disseminate the lessons learned from these experiences. This handbook is the first in the set and it contributes to the achievement of FAO’s Strategic Objective Four: Enable inclusive and efficient agricultural and food systems. It sets out the overall framework and a set of principles to guide sustainable food value chain development in practice. Subsequent handbooks on this core theme will focus on particular aspects of the approach, taking a systems perspective to present both the main challenges and some of the most promising ways to resolve them.
It is expected that this new handbook, and the ones which will follow, will facilitate the spread among practitioners of new ideas and knowledge related to the development of sustainable food value chains. If successful, it is hoped that this will lead to greater, faster and more lasting impacts in terms of growth in profitability of agribusiness and farming, creation of decent employment, generation of public revenue, strengthening of the food supply and improvement in the natural environment.
Eugenia Serova Director
Rural Infrastructure and Agro-Industries Division, FAO, Rome

This handbook benefited greatly from the contributions of many people.
First and foremost, special thanks goes to the team who supported the development of the handbook throughout its entire process: Martin Hilmi (Rural Infrastructure and Agro-Industries Division [AGS], FAO), Giang Duong (AGS, FAO) and Victor Prada (AGS, FAO).
Thanks are extended to those who reviewed earlier drafts or contributed insights, illustrations, or definitions. They include: Heiko Bammann (AGS, FAO), Florence Tartanac (AGS, FAO), David Hitchcock (AGS, FAO), Siobhan Kelly (AGS, FAO), Pilar Santacoloma (AGS, FAO), Emilio Hernandez (AGS, FAO), Djibril Drame (AGS, FAO), Eugenia Serova (AGS, FAO), Guy Evers (Investment Centre Division, Africa Service [TCIA], FAO), Claudio Gregorio (Investment Centre Division, Near East, North Africa, Europe, Central and South Asia Service [TCIN], FAO), Gunther Feiler (Investment Centre Division, Technical Cooperation Department [TCID], FAO), Astrid Agostini (TCID, FAO), Luis Dias Pereira (Investment Centre Division, Latin America, the Caribbean, East Asia and the Pacific Service [TCIO], FAO), Lisa Paglietti (TCIA, FAO), Dino Francescutti (TCIO, FAO), Emmanuel Hidier (TCIN, FAO), Jeanne Downing (United States Agency for International Development), Andrew Shepherd (Technical Centre for Agricultural and Rural Cooperation), Bill Grant (DAI, Bethesda, MD, UNITED STATES), Mark Lundy (International Center for Tropical Agriculture [CIAT]), Jean-Marie Codron (French National Institute for Agricultural Research [INRA]), Paule Moustier (French Agricultural Research Centre for International Development [CIRAD]), Etienne Montaigne (INRA), Cornelia Dröge (Eli Broad College of Business, Michigan State University [MSU], MI, UNITED STATES), Bixby Cooper (Eli Broad College of Business, MSU), Gerhard Schiefer (University of Bonn, Germany), Eriko Ishikawa (International Finance Corporation [IFC]), Alexis Geaneotes (IFC), Andriy Yarmak (Investment Centre Division [TCI], FAO), Michael Marx (TCI, FAO), Kristin De Ridder (consultant). Special thanks go to Matty Demont (International Rice Research Institute), Jorge Fonseca (AGS, FAO) and Nuno Santos (Investment Centre Division, Europe, Central Asia, Near East, North Africa, Latin America and the Caribbean Service, FAO) for the peer-review of the final draft.
Finally, I wish to thank Larissa D’Aquilio for coordinating the publication production process, Simone Morini for the layout and cover design, Paul Neate for the copy editing and Lynette Chalk for the proofreading.

Executive summary
Over the last decade, the value chain (VC) has established itself as one of the main paradigms in development thinking and practice. This is why the Food and Agriculture Organization of the United Nations (FAO) has launched this new set of handbooks on sustainable food value chain development (SFVCD), and this is the first in the set. These handbooks aim to provide practical guidance on SFVCD by facilitating the spread of innovative solutions emerging from the field to a target audience of policy-makers, project designers and field practitioners.
This first handbook provides a solid conceptual foundation on which to build the subsequent handbooks. It (1) clearly defines the concept of a sustainable food value chain; (2) presents and discusses a development paradigm that integrates the multidimensional concepts of sustainability and value added; (3) presents, discusses and illustrates ten principles that underlie SFVCD; and (4) discusses the potential and limitations of using the VC concept in food systems development.
Defining a sustainable food value chain For the purposes of this publication, a sustainable food value chain (SFVC) is defined as:
the full range of farms and firms and their successive coordinated value-adding activities that produce particular raw agricultural materials and transform them into particular food products that are sold to final consumers and disposed of after use, in a manner that is profitable throughout, has broad-based benefits for society, and does not permanently deplete natural resources.
Unlike related concepts, such as the filière and the supply chain, the SFVC concept simultaneously stresses the importance of three elements. First, it recognizes that VCs are dynamic, market-driven systems in which vertical coordination (governance) is the central dimension. Second, the concept is applied in a broad way, typically covering a country’s entire product subsector (e.g. beef, maize or salmon). Third, value added and sustainability are explicit, multidimensional performance measures, assessed at the aggregated level.
The sustainable food value chain development paradigm The SFVCD paradigm starts from the premise that food insecurity is foremost a symptom of poverty. Households that have sufficient financial resources at all times create the effective demand that drives the supply of food. On the supply side, competitive improvements in the food system will reduce the costs of food products to consumers or increase their benefits.

VCs, as engines of growth, create added value that has five components:
1 ] salaries for workers; 2 ] a return on assets (profits) to entrepreneurs and asset owners; 3 ] tax revenues to the government; 4 ] a better food supply to consumers; and 5 ] a net impact on the environment, positive or negative.
This value added sets in motion three growth loops that relate to economic, social and environmental sustainability, and directly impacts poverty and hunger. The three growth loops are: (1) an investment loop, driven by reinvested profits and savings; (2) a multiplier loop, driven by the spending of increased worker income; and (3) a progress loop, driven by public expenditure on the societal and natural environments.
Beyond commercial and fiscal viability, the sustainability element of SFVCD involves a shift to institutional mechanisms that lead to a more equitable distribution of the increased value added and to a reduced use of and impact on non-renewable resources. The three sustainability dimensions are closely related: social and environmental sustainability increasingly become issues that determine market access and competitiveness.
Initially, SFVCD focuses mostly on efficiency improvements that reduce food prices and increase food availability and thus allow households to buy more food. However, as their incomes increase, households tend to spend more money on higher-value food (i.e. food with improved nutritional value, greater convenience, health benefits or better image) rather than increase the amount of food they consume. In turn, this evolution of consumer demand becomes a core driver for innovation and value creation at each level of the food chain, leading to continuous improvement in the food supply and increasing benefits to consumers.
This paradigm exposes a number of fallacies relating to food chain development, such as: smallholder farming should be preserved; “value chain development can only help a small minority of farmers; and the problem of food insecurity can be solved within the food system.
Principles of sustainable food value chain development SFVCD calls for a particular approach to analysing the situation, to developing support strategies and plans, and to assessing developmental impact. This is captured in this publication by ten interrelated principles.
The approach is not about simply developing long lists of often well-known constraints and then recommending that they be tackled one by one. Rather, SFVCD takes a holistic approach that identifies the interlinked root causes of why value-chain actors do not take advantage of existing end-market opportunities.
The ten principles are grouped in three phases of a continuous development cycle.

In the first phase, measuring performance, the VC is assessed in terms of the economic, social and environmental outcomes it delivers today relative to a vision of what it could deliver in the future (Principles 1, 2, and 3). SFVCD programmes should target VCs with the greatest gap between actual and potential performance. In the second phase, understanding performance, the core drivers of performance (or the root causes of underperformance) are exposed by taking three key aspects into account: how VC stakeholders and their activities are linked to each other and to their economic, social and natural environments (Principle 4); what drives the behaviour of individual stakeholders in their business interactions (Principle 5); and how value is determined in end markets (Principle 6). The third phase, improving performance, follows a logical sequence of actions: developing based on the analysis conducted in phase 2, a specific and realistic vision and an associated core VC development strategy that stakeholders have agreed upon (Principle 7), and selecting the upgrading activities and multilateral partnerships that support the strategy and that can realistically achieve the scale of impact envisioned (Principle 8, 9, and 10).
Conclusions SFVCD provides a flexible framework to effectively address many challenges facing food-system development. In practice, a misunderstanding of its fundamental nature can easily result in limited or non-sustainable impact. Even if practitioners understand and rigorously apply the principles of SFVCD, this approach cannot solve all problems in the food system. Food VCs cannot provide incomes for everyone, cannot incorporate trade-offs at the food-system level and cannot entirely avoid negative environmental impacts. Public programmes and national development strategies are needed to address these limitations. However, such programmes and strategies are largely financed through tax revenues generated in value chains, thus placing VC development in general, and SFVCD in particular, at the heart of any strategy aimed at reducing poverty and hunger in the long run.