Mapping your value chain and choosing where to move up
A glass of juice goes on a long trip before it reaches a cup: picked, carried, washed, squeezed, bottled, trucked and sold. Every stop adds cost, and every stop keeps some of the money. If you only sell the fruit, you get only the first small slice. This lesson helps you see all the stops and pick a better one.
- Before this course: Agribusiness: Selling Farm Products, Co-ops & Markets (course 2.19), and before that Farm Selling Basics (course 2.19.1). You already know the farm-to-customer chain, cost per unit, margin, markets, co-op basics, safe food and the first written agreement. Here you go deeper: processing, brands, contracts, groups and export.
- A value chain is all the steps and actors that take a product from the farm to the final customer: inputs, farming, collecting, grading, storage, processing, packing, transport, wholesale, retail and exporting. In each step someone adds value, takes a cost, takes a risk and takes a margin.
- The four ways to move up (general business ideas): (1) grade and sort better, (2) process the product into something else, (3) sell closer to the customer with a brand or direct sales, (4) work as a group to get volume, equipment and bargaining power. Each one needs money, skills and rules, and each adds risk.
- Farm share of the final price = farmgate price ÷ final shop price × 100. Look at it for your product, but do not assume a bigger share is always better: a farmer who sells at the gate carries little of the later risk.
- Where does the margin sit? Find it by asking each actor in the chain what they pay and what they sell for. Write the gap and the cost. A fat gap with low cost is where margin sits; a fat gap with high cost may only be paying for losses, cold storage or transport.
- Loss points: harvest damage, heat, poor storage, rough transport, rejected grades, late deliveries and unsold stock. Reducing a loss at the start is often cheaper than finding a new buyer (see course 2.19.1, Lesson 5).
- Example (practice numbers in "your currency", not real prices): the same fruit goes: farmer 30, trader 40, wholesaler 55, retailer 100. The farm share is 30 ÷ 100 = 30 percent. The retailer's gap (100 - 55 = 45) includes rent, labour, waste and profit.
- FAO published "Developing sustainable food value chains: guiding principles" (2014), which says development programmes should target the value chains with the greatest gaps between actual and potential performance. Use FAO's free guides as a starting point.
- Choose one product and write its name at the top of a page.
- Draw the chain as boxes from left to right: inputs, farm, collector, processor, wholesaler, retailer, customer. Remove or add boxes to fit your product.
- Under each box, write who does it, what they pay, what they sell for, and one loss or risk.
- Ask a trader, a shop and a processor for their prices. Write the date next to each number.
- Work out the farm share of the final price.
- Mark the two biggest loss points and the two biggest gaps.
- Choose one of the four ways to move up. Write why, and what you would need (money, skills, permits, partners).
- Check: another farmer can read your page and tell you where the money and losses are.
Read the video script
[Host] "If you only sell raw produce, you only get the first slice."
[Text on screen: Farmer 30. Trader 40. Wholesaler 55. Retailer 100. Practice numbers.] "Practice example: the farmer gets thirty, the shop sells for one hundred. The farm share is thirty percent."
[Screen: four boxes: Grade, Process, Brand, Group] "Four ways to move up: grade better, process, brand and sell closer, or work as a group."
[Host] "Every step up brings money, and risk. Map the chain first. Then choose one step."
Draw the value chain for one product, add prices and losses for each step, work out the farm share and choose one step to move up, with a reason.
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I'm learning "Agribusiness Value Chains: processing, branding and contracts" on The Future Market. Lesson 1: "Mapping your value chain and choosing where to move up". What the lesson teaches: - Before this course: Agribusiness: Selling Farm Products, Co-ops & Markets (course 2.19), and before that Farm Selling Basics (course 2.19.1). You already know the farm-to-customer chain, cost per unit, margin, markets, co-op basics, safe food and the first written agreement. Here you go deeper: processing, brands, contracts, groups and export. - A value chain is all the steps and actors that take a product from the farm to the final customer: inputs, farming, collecting, grading, storage, processing, packing, transport, wholesale, retail and exporting. In each step someone adds value, takes a cost, takes a risk and takes a margin. - The four ways to move up (general business ideas): (1) grade and sort better, (2) process the product into something else, (3) sell closer to the customer with a brand or direct sales, (4) work as a group to get volume, equipment and bargaining power. Each one needs money, skills and rules, and each adds risk. - Farm share of the final price = farmgate price ÷ final shop price × 100. Look at it for your product, but do not assume a bigger share is always better: a farmer who sells at the gate carries little of the later risk. - Where does the margin sit? Find it by asking each actor in the chain what they pay and what they sell for. Write the gap and the cost. A fat gap with low cost is where margin sits; a fat gap with high cost may only be paying for losses, cold storage or transport. - Loss points: harvest damage, heat, poor storage, rough transport, rejected grades, late deliveries and unsold stock. Reducing a loss at the start is often cheaper than finding a new buyer (see course 2.19.1, Lesson 5). - Example (practice numbers in "your currency", not real prices): the same fruit goes: farmer 30, trader 40, wholesaler 55, retailer 100. The farm share is 30 ÷ 100 = 30 percent. The retailer's gap (100 - 55 = 45) includes rent, labour, waste and profit. The exercise I'm working on: Draw the value chain for one product, add prices and losses for each step, work out the farm share and choose one step to move up, with a reason. I'm stuck. Please: 1. Explain the main idea in plain, simple words with one everyday example. 2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step. 3. Don't just give me the final answer. Help me do it myself, and check my work when I share it.
I'm a parent helping my child (about 8 years old) with a lesson called "Mapping your value chain and choosing where to move up" from the course "Agribusiness Value Chains: processing, branding and contracts". Here's what the lesson says: A glass of juice goes on a long trip before it reaches a cup: picked, carried, washed, squeezed, bottled, trucked and sold. Every stop adds cost, and every stop keeps some of the money. If you only sell the fruit, you get only the first small slice. This lesson helps you see all the stops and pick a better one. The activity: Draw the value chain for one product, add prices and losses for each step, work out the farm share and choose one step to move up, with a reason. Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words. Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time.
Sources
- FAO, Developing sustainable food value chains: guiding principles (value-chain approach): www.fao.org/3/a-i3953e.pdf
- Course 2.19, Lessons 1 to 3, for the chain and cost basics.
Processing: yield, cost and capacity
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Quality, food-safety systems and traceability
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Branding, labels and protected names
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Supply contracts and contract farming
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Co-ops and producer groups at scale
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Export chains and long supply chains
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Final project
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Quiz
What does farm share of the final price mean?
The farmgate price divided by the final shop price, as a percentage.
Name two of the four ways to move up a value chain.
Any two of: grade better, process, brand and sell closer to the customer, work as a group.
Why measure yield and reject rate in a small trial first?
Processing loses weight and packs, so real cost per pack depends on them.
In the practice example, why did a small price drop matter so much?
Processing adds costs, so the extra margin is small and disappears quickly.
Name three HACCP principles.
Any three of: hazard analysis, critical control points, critical limits, monitoring, corrective actions, verification, records.
Who should give you the numbers for critical limits?
Your food-safety office, a food technologist or the buyer, not a guess.
What is the difference between a trademark and a geographical indication?
A trademark identifies one business; a GI names a place whose qualities or reputation the product has.
Why must label claims be provable?
False claims can mean fines, recalls and lost trust.
What is side-selling?
Selling produce you promised to a contract buyer to someone else.
Name four things to check in a supply contract.
Any four of: grade and test, price, rejection, payment date, inputs, exclusivity, weather events, ending the contract, disputes.
What do Incoterms do?
They set standard terms for who pays for what and where risk passes between seller and buyer.
What is a phytosanitary certificate?
An official document from the exporting country's plant-protection organisation saying plants or plant products meet the importing country's plant-health requirements.
Final exam
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Certificate
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