Value Chain Analysis

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1 FAO High-Level Policy Learning Programme for decision makers and policy analysts Value Chain Analysis FAO VCA Software Tool 3.1 By Lorenzo Giovanni Bellù, Policy Officer and Piera Tortora, Consultant Policy Assistance Support Service, Policy and Programme Development Support Division FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS The FAO High-Level Policy Learning Programme (HLPLP) is an event aimed at strengthening the capacities of influential stakeholders in policy processes to identify emerging development issues and translating innovative ideas into evidence based policy options. See: HLPLP material is hosted on the EASYPol website EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO. The site is maintained by FAO s Policy Support Team.

UNITED NATIONS The FAO High-Level Policy Learning Programme (HLPLP) is an event aimed at strengthening the capacities of influential stakeholders in policy processes to identify emerging development

2 What is the FAO VCA-tool? A software-based tool for value chain analysis The FAO VCA tool is a software for carrying out value-chain analyses for agricultural and rural development policies. By storing relevant data it calculates flows of physical outputs and inputs, flows of aggregated costs, valueadded and net benefits. It also allows users to directly compare different hypothetical scenarios. 2 of 20

value-chain analyses for agricultural and rural development policies.

3 Key questions Why use a dedicated software? What does the FAO VCA-tool software allow you to do? How do you structure data in the software? 3 of 20

4 Why use a dedicated software? 1/2 1. Provides support to value chain analysis in concrete situations 2. Suitable for training and learning events 4 of 20

5 Why use a dedicated software? 2/2 It allows you to store a large amount of data from different sources It allows you to check/ enhance data consistency It carries out calculations and saves your time SPECIFIC FUNCTIONS OF VCA 5 of 20

6 What does FAO VCA software tool allow you to do? Structure the accounting framework of a value chain Organize data for different agents Compute the inflows and outflows for each agent Compute indicators regarding the contribution of each agent Harmonize the flows of the different segments of the chain Compute shadow prices Compute competitiveness indicators and protection indicators All this for a base scenario and for other scenarios 6 of 20

outflows for each agent Compute indicators regarding the contribution of each agent Harmonize the flows of the

7 Software manual and methodological guidelines The FAO VCA software tool comes together with: Value Chain Analysis for Policy Making - Methodological Guidelines for a Quantitative Approach The conceptual and methodological framework for value chain analysis [EASYPol module 129] A Software for Value Chain Analysis. Manual for FAO VCA Software Tool 3.1 Detailed instructions on how to install the software, insert and manage data and carry out calculations of indicators for the different components and levels of a value chain analysis [EASYPol module 074] 7 of 20

129] A Software for Value Chain Analysis. Manual for FAO VCA Software Tool 3.

8 How do you structure data in VCA? Good A Good B Good C Good D Activity 1 Activity 2 Activity 3 Plan Alpha Plan Beta Plan Gamma (Plan of plans) Plan Delta (Plan of Plans) Good= Inputs and Outputs Activity = a phase in the production/ processing process Plan = Aggregate of activities and/or goods and/or other plans (e.g. an agent or a group of agents) 8 of 20

Gamma (Plan of plans) Plan Delta (Plan of Plans) Good= Inputs and Outputs Activity = a

9 What does the software look like? Left hand window: Main menu (File, Tools, Options, Help) Project name and related information Access to value chain elements (inputs/outputs, activities, etc) Modify name and delete item facilities List of items from the chosen element 9 of 20

and related information Access to value chain elements

10 What does the software look like? Right hand window (i.e. clicking on Activities) Chosen element Table to insert data Scenarios Access to computational facilities 10 of 20

11 Why carry out an economic analysis of value chain at market prices? Economic analysis at market prices* allows you to assess the profitability, and contribution in terms of value added creation, of each activity and of the chain as a whole, in a given period. It allows you to answer these questions: 1. Are agents earning profits? 2. Is the profit enough to ensure sustainability of the agents activities (e.g. maintenance and replacement of equipment, ability to cover financial charges)? 3. Is the profit a sufficient and acceptable return on investment? 4. How much value are they creating? 5. Is the whole chain profitable? 11 of 20

chain as a whole, in a given period. It allows you to answer these questions: 1. Are agents earning profits? 2.

12 Economic analysis at market prices and key balances More specifically, the economic analysis builds on: the functional analysis with the identification and quantification of key elements of the chain, such as the economic agents playing a role in the chain and their activities the production account (sales, intermediate inputs and value added) and the income account allocation of value added among production factors of each activity, as defined by the System of National Accounts*. * See : the United Nations System of National Accounts, of 20

activities the production account (sales, intermediate inputs and value added) and the income account allocation of value added among

13 Computing Production and Income accounts 1 Select the plan for which you want to compute the two accounts from the main menu on the left 2 Press the Compute Costs and Benefits button on the right hand side menu 13 of 20

from the main menu on the left 2 Press the Compute

14 Computing Production and Income accounts 3 The software will display the quantities involved in the accounts 4 By pressing on the show values button on the top right, the computed accounts will be displayed The accounts values window: shows the accounts in a detailed or compact fashion (=only the balances) shows aggregates compares the accounts balances for different scenarios 14 of 20

will be displayed The accounts values window: shows the accounts in a detailed or compact

15 Value chain analysis and reference prices Another important function of the FAO VCA-Tool is the calculation of the reference prices In value chain analysis you may want to formulate (and explore the socioeconomic impacts of) policy options that are based on the opportunity costs to the whole society (= reference prices). Prices observed on markets often differ from social prices (because of policy and market failures). The gap between market prices and (estimated) reference prices is a measure of the extent of policy and market failures distortions ( PAM indicators). 15 of 20

whole society (= reference prices). Prices observed on markets often differ from social prices (because of policy and market failures).

16 Calculating reference prices: categories of goods You can also calculate the reference prices for the different kinds of goods present in the chain: IMPORT SUBSTITUTE IMPORTED EXPORTABLE OUTPUTS EXPORTABLE INPUTS AND PROD FACTORS NOT TRADED NOT TRADED NON- TRADABLE Land Labour 16 of 20

in the chain: IMPORT SUBSTITUTE IMPORTED EXPORTABLE OUTPUTS EXPORTABLE

17 Calculation of a reference prices 1. Select the good which is needed for the reference price calculation 2. Select the method (idepending on the type of goods 3. Upload the data needed for the computation 4. Reference prices shown 17 of 20

18 Policy analysis matrix and competitiveness indicators The FAO VCA-Tool allows you to build the Policy Analysis Matrix for an activity, for a plan or for a plan of plan(s). What is a Policy Analysis Matrix (PAM)? A PAM allows you to assess the competitiveness of a good of the chain through the relative indicators (e.g. the Domestic Cost Resources, the Nominal Protection Coefficient, Nominal protection coefficient on inputs, Effective Protection Coefficient). Structure of a PAM Sales Revenues, Costs of Production and Profits in the PAM are valued both at market prices (First Row) and at reference prices (Second Row) 18 of 20

A PAM allows you to assess the competitiveness of a go

19 Policy analysis matrix and competitiveness indicators By comparing the elements of a PAM and their values at market and social prices, you obtain a number of indicators that shed light on the efficiency and policy/market distortions in a given economic system. 1.Select the activity or the plan for which the computation of the PAM is needed 2.Select the scenario 3.After the computation indicators and the price analysis will appear 19 of 20

policy/market distortions in a given economic system. 1.

20 Links to related FAO VCA software tool resources Value Chain Analysis Software. FAO VCA Tool 3.1 [2013] EASYPol module 073 A Software for Value Chain Analysis. Manual for FAO VCA Software Tool 3:1 EASYPol Module 074 Value Chain Analysis for Policy Making: Methodological Guidelines for a Quantitative Approach EASYPol Module 129 To find all FAO VCA resources, see EASYPol resource package VCA Sofware and manuals 20 of 20

Manual for FAO VCA Software Tool 3:1 EASYPol Module 074 Value Chain Analysis for Policy Making:

FAO VCA-Tool: A Software for Value Chain Analysis

Resources for policy making EASYPol S eries 074 FAO VCA-Tool: A Software for Value Chain Analysis MANUAL FOR VERSION 3.1 by Lorenzo Giovanni Bellù, Policy Officer (Economist), FAO For the FOOD AND AGRICULTURE