Abstract
This chapter presents an overview of how value chains evolve, emerging from simple village marketplaces to eventually, sophisticated supply chains that provide consumers with quality products and wide array of choices. It considers how they continue to develop as living standards improve in developing economies; how to build resilience into these value chains by understanding the operation of their constituent systems; and how interventions will impact the behaviour of the underlying systems and hence the value chain, through modelling. The chapter examines the interactions between the economic, natural and social systems that surround agricultural value chains. Further, it examines how interventions in the systems should be designed in order not to reduce economic efficiencies or produce unforeseen consequences, and how these interventions might impact the environmental and social systems. This is critically important because too often, human beings interfere in natural systems with too little understanding of how they work, which then results in consequences that may manifest as bigger problems than the initial problem which the intervention was designed to address. Also sometimes interventions are put in place and designed without reference to sustainable co-existence within a given societal framework, which can lead to system failures or socially undesirable outcomes. Modelling of agricultural value chains provides a means by which to assess the likely impact of human interventions in natural, economic and social systems to determine if the overall value chain will be more or less resilient, sustainable and productive. This chapter summarises the many ideas that have led to our understanding of the economic system which underpins value chains. It explains how these theories can be used to better understand the relationships and behaviours that occur along a functioning value chain. The economic system, like the natural system, is impervious to achieving human goals that do not align with the self-directed stasis achieved by mathematical equilibria. Hence to achieve human moral outcomes, interventions may need to be undertaken. In that regard the chapter discusses the importance and contribution of agricultural value chains to the achievement of the Sustainable Development Goals (SDGs) under the 2030 Agenda for Sustainable Development. More generally, the chapter highlights that the cost of interventions must be carefully calculated and compared with the benefits that the particular policy desires to achieve; hence the need for the cost–benefit analysis. In cost–benefit analysis, it is critical that all the costs are counted. Some costs, those economists refer to as ‘externalities’, can be difficult to calculate. ‘Externalities’ are costs that are external to the part of the economic system under study and are borne either by the natural/environmental system or the human social system, which can make them difficult to value. As well, these costs can be difficult to calculate because of the complexity of the systems they impact, such as the role carbon emissions play in anthropogenic climate change and its subsequent impact on the environment and agriculture in turn. The chapter also highlights the role of governments in enabling value chain development through setting rules that facilitate competitive markets and allow the strategic adaptation of firms to remain competitive. The need for modelling is therefore an exercise in attempting to understand complex relationships so as to better design and manage interventions in natural, economic and social systems. Modelling of agricultural value chains can be an important tool in ensuring food security. For developing and emerging economies, we have the experience of developed economies to inform our understanding of the complex processes taking place and of the transitions required in general terms. A new model has been provided that depicts the indicative similarities and differences between agricultural value chains for developing, emerging and developed economies.
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Notes
- 1.
This definition is mainly a variation on and expansion of the definition by Kaplinski and Morris (2000).
- 2.
To illustrate the complexity of these issues—the manufacture of artificial fertiliser involves the use of fossil fuels and hence adds to carbon pollution, but the use of fertiliser increases the per hectare productivity of agricultural crops leading to less demand for land, hence less clearing of forest, thus preserving important carbon sinks. As well increased plant production results in more carbon absorption through photosynthesis and potentially, with the right farming technology, can lead to increased soil carbon, another important carbon sink. So, artificial fertilisers can be both a contributor to carbon pollution and a carbon sink promoter.
- 3.
In economics, the term ‘externality’ refers to a cost which falls outside the system under study.
“An externality exists whenever the welfare of …. a firm or household, depends not only on his or her activities, but also on the activities under the control of some other agent” (Tietenberg, 2000). An externality is therefore a form of market failure. An example of a cost ‘externality’ is the pollution from mining activities of the Ok Tedi and Fly rivers in Papua-New Guinea, which caused large scale fish kills and threatened the food supply and health of villages living down-stream from the mine. While no doubt the compensation did not fully account for the cost of the disaster, $28.6 was paid in an out of court settlement and gives some idea of the cost of the ‘externality’. https://en.wikipedia.org/wiki/Ok_Tedi_environmental_disaster.
- 4.
Exposed by Rachel Carson, in her famous book titled Silent Spring. In the book Carson said; “chemicals sprayed on croplands or forests or gardens lie long in soil, entering living organisms, passing from one to another in a chain of poisoning and death. Since the ban on the use of D.D.T and other organo-chloride pesticides, the American Bald Eagle population has recovered to the point where it was taken off the endangered species extinction list in 1995.” Chapter 2 “The Obligation to Endure” Silent Spring Penguin Book 2268 1962 p. 23.
- 5.
United Nations (2015).
- 6.
The FAO estimates farmers in the poorest parts of the world could see crop yields improved 40% by the adoption of technological improvements such as improved varieties, application of fertilizers and mechanisation (FAO, 2018).
- 7.
Porter et al. (2014).
- 8.
United Nations (2020).
- 9.
In 1965, Brazil enacted the first Forest Code. It required landowners in the Amazon to maintain native vegetation on 35–80% of their property. While rural farmers can buy land in the Amazon, they can only farm a portion of it. Of course, while that might be the law, demand for land from poor, landless ‘ruralista’s’ and corrupt politicians means it is often circumvented.
- 10.
According to the USDA beef production in Brazil increased by 3.2% in 2020, mainly due to increases in average carcass weight. https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Livestock%20and%20Products%20Semi-annual_Brasilia_Brazil_02-15-2020. Improved productivity, such as increased carcass weight, from the existing grazed land area, will help to take pressure off the demand for more land as productivity from newly cleared land is often very poor in comparison with existing pasture land.
- 11.
CP All Plc website “https://www.cpall.co.th/en/sustain/economic-dimension/supply-chain-management”, viewed August 2021.
- 12.
Smith (1776). This was a “Massive tome” because while originally published in five volumes, the 2012 Wordsworth Classic edition runs to some 957 pages!
- 13.
The reference to an “invisible hand” in the Wealth of Nations is in Book 4 Chap. 2, where Smith discusses issues of foreign trade.
- 14.
The key notion of Benthan’s Principle of Utility is “to approve or disapprove every action whatsoever, according to the tendency which appears to have to augment or diminish the happiness of the party whose interest is in question” (Garvey & Stangman, 2012).
- 15.
Das Capital, another enormous tome, eighteen years in the making. In fact, it was incomplete when Marx died in 1883 and Frederick Engels and others completed the final volumes.
- 16.
- 17.
The notion of maximising happiness had echoes of Epicurean hedonism so was sometimes referred to a “hedonistic calculus”. Rather interestingly this notion has returned to modern economic thinking with a focus on not just measuring GDP or other purely monetary statistics to measure progress, but measuring “well-being”. See Stiglitz et al. (2019).
- 18.
While ‘utility’ and ‘welfare’ are the terms used in economics, the term ‘consumer satisfaction’ as used in marketing might more aptly describe what Pigou and later economists in this field were striving to understand.
- 19.
Shepherd (1941).
- 20.
Earl O. Heady and John L. Dillon Agricultura; Production Functions Iowa State U.P. Ames, Iowa (1961).
- 21.
Ceteris paribus—Latin for “other thigs being equal”.
- 22.
The first Chapter in Book 1 of The Wealth of Nations is titled “Of the Division of Labour” where Smith propounds his key thesis that “The greatest improvements in the productive powers of labour, and the greater part of the skill, dexterity and judgement, with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.” That is, what is now termed the ‘specialisation of labour’.
- 23.
Because competition will trade away higher than market prices, economists refer to the profit that a small firm makes, when in competition with many other similar firms, as a ‘normal profit’. Because of competition a ‘normal profit’ in the long term will be equal to the cost of the capital employed in the business. This will be enough to encourage that business to stay operating and not deploy its capital elsewhere, but not enough to generate above market returns (or monopoly profits), because the business has little or no market power to charge higher prices. The result is maximum output of goods or services for the minimum capital required to produce that output.
- 24.
Shepherd op cit pp. 35–38. Another good illustration of an unstable divergent supply chain is the MITT, Sloan School of Management “beer game” simulation where after a few hot days and increased demand retailers order in more beer supplies than normal. Wholesalers stocks are then depleted and they place increased orders back to the brewery. By the time the beer is brewed and delivered, the hot weather has passed and the excess supply is no longer required. For a detailed description refer to Senge (1992) Chap. 3 “Prisoners of the System, or Prisoners of our own Thinking”, pp. 28–54.
- 25.
A relatively recent study of the US cattle cycle and its impact on international commodity beef prices and consequently supply in the Australian cattle industry was done by Griffith and Alford (2002).
- 26.
The collapse of the Australian Wool Reserve Price Scheme is an example of a market intervention that went horribly wrong causing years of low income for growers as the huge stockpile of wool acquired under the scheme was slowly sold off, depressing market prices for many years. Refer to Bardsley (1994).
- 27.
Paolo Zegna receives top Australia Award (2020).
- 28.
See Sheng et al. (2019) for a detailed appraisal of the deregulation of the Australian dairy industry. The deregulation involved removing quotas on the production of fresh milk and controls over the price of fresh milk. Deregulation resulted in market share moving from less productive farms to more productive farms, thus increasing the efficiency of the system, as well as significant price reductions for consumers and increased product choice.
- 29.
Maslow first put forward the idea in an article “A Theory of Human Motivation” published in the Psychological Review in 1943. While Maslow himself acknowledged that there was little scientific proof to support his contention it has proved to be a very useful tool in marketing, with a number other authors elaborating on Maslow’s initial work. Clayton Alderfer’s ERG (existence, relatedness and growth) model for example.
- 30.
As an illustration of the power of recipe’s and formulations, in 1985 Coca Cola, in an attempt to take market share from its rival Pepsi, introduced a new recipe, and marketed it as New Coke. Blind taste tests had revealed consumers preferred the sweeter taste of Pepsi to Coca Cola, so after 99 years on the market Coca Cola reformulated its recipe to make it sweeter. However, the New Coke was angrily rejected by Coca Cola’s existing consumers as “not being Coke”. With sales plummeting it was taken off the market a few months later.
- 31.
Sri Lankan tea producer Dilmah has successfully established itself in a number of developed economy markets in competition with well-established multi-national brands some dating back to colonial times, for example Lipton’s.
- 32.
Garth Hallberg, who worked for the advertising agency J. Walter Thompson, published a book in 1995 called All Consumers are Not Created Equal, where he observed that companies derived around 80% of their revenue from roughly 20% of their customers. This uncannily conformed to a long-recognised distribution first discovered by Italian economist Vilfredo Pareto and has become known as the Pareto principle. Pareto observed that 80% of the land in Italy was owned by 20% of the population. Hallberg discovered that the Pareto principle applied to customer spending on a particular product.
- 33.
The concept of positioning was first introduced to the marketing field by Ries and Trout (1981).
- 34.
In 1982, Colgate, the world famous toothpaste brand, tried to introduce a range of frozen ready to cook meals. It was a complete flop. As you would expect given a moment’s thought—Colgate was positioned in the mind of consumers as toothpaste—not a food brand. It goes to show even big international companies can make serious marketing mistakes (Rosenbaum, 2017).
- 35.
The bailout of Chrysler Motors in 2009 by the US Federal Government and the failure of American Airlines which filed for bankruptcy in 2011, are often cited as examples of business failures attributable to a ‘stuck in the middle’ business strategy (Symonds, 2014).
- 36.
Thirlwell largely subscribed to Rostow’s theory of the five stages of development; traditional (as the Tolai economy before the copra trade); transitional (as countries like Papua -New Guinea are today; take-off (Vietnam today); maturity (as much of China and many other east Asian countries are approaching today) and high mass consumption. Rostow (1960) for a figurative model of Rostow’s stages of growth see Drakakis-Smith (1990).
- 37.
- 38.
Exchange Rate 2nd August 2021 32.96 baht to 1 USD.
- 39.
- 40.
- 41.
“Revealed; “Asian slave labour producing prawns for supermarkets in U.S. and U.K.” The Guardian, 11th June 2014.
- 42.
- 43.
op. cit.
- 44.
- 45.
AQIS—Australian Quarantine Inspection Service.
- 46.
CAAB (Certified Australian Angus Beef) is a trade mark owned by the Angus Society of Australia and licensed to participants in the beef value chain that comply with a quality assurance program that has among one of its aims guaranteeing the eating quality of CAAB steaks.
- 47.
Penfolds Grange Hermitage is a South Australian premium wine brand owned by Treasury Wines Estates Ltd. A bottle of the current vintage sells for around $AUD750 in Australia. https://www.penfolds.com/en-au/wines/the-penfolds-collection-2020.
- 48.
The lead author was consultant to the Angus Society of Australia to develop a marketing plan for CAAB. He was also involved in developing export opportunities for the brand, specifically in Malaysia.
- 49.
Maslow (1943)—a more in-depth discussion of Maslow’s relevance to the development of marketing within value chains is covered later in the chapter.
- 50.
Chellel et al. (2021).
- 51.
The Guardian (2021).
- 52.
Grain Brokers Australia (2021).
- 53.
Suez Canal Authority (2021).
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Truelove, R.N., Lellyett, S.C., Issaka, A.I., Huda, S. (2023). Agricultural Value Chains in Developing Economies: A Theoretical Framework. In: Narula, S.A., Raj, S.P. (eds) Sustainable Food Value Chain Development. Springer, Singapore. https://doi.org/10.1007/978-981-19-6454-1_6
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