Newsletter No. 43 – October, 2006

1.     Introduction

2.     The Benefits of Building a Value Chain

3.     Practical Examples of Value Chains

4.     Clothing Industry to use Chicken Feathers

5.     World’s Largest Ostrich Egg

6.     Contributions

1.     Introduction

Increasingly producers and buyers are encouraged to develop value chains in recognition of their contribution to increase value, efficiency and therefore profitability.  This month’s newsletter will focus on the principles of this approach; and how it works in practice. 

 

2.     The Benefits of Building a Value Chain

To answer this question, we first need to understand the differences in a Supply Chain, a Horizontal Chain and a Value Chain.

 

What is a Supply Chain?

A supply Chain is where each element of the process to the end consumer is defining their section of the process as the product. 

 

For example, the technology companies, such as machinery, chemicals and seed suppliers, supply the arable farmer.  The arable farmer buys for the best price and sells for the best price but his efficiency is dependent on those technology companies that supply him. 

 

The grain buyer might be a grain trader, it may be a livestock farmer, or it may be a commercial feed mill. They buy at the best price and sell at the best price.  They all work independently of each other.

 

The technology companies supporting the livestock producers are vets, pharmaceutical companies, premix companies, equipment manufacturers and so on.

 

Livestock producers can be specialist breeders, rearers, finishers or they may do the whole process.  They sell to the processor.

 

Each section is a supplier to the next, each taking their own profits but all operating totally independently of the other and with no communication and coordination or feedback.

 

What is a Horizontal Chain?

A Horizontal Chain is a group of Producers working together to consolidate supply. So why is this NOT a Value Chain?

 

The missing link is Quality Control.

 

What is a Value Chain?

A Value Chain is where there is collaboration between all processes in the supply chain to ensure that there is no leakage of value through poor performance of one link in that chain.

 
A Value Chain is an alliance of enterprises collaborating vertically to achieve a more rewarding position in the market. Collaboration builds value and reduces costs.  Customer needs drive the value chain, as each customer demands certain standards.

 

Companies in a value chain are legally independent operations, but become interdependent because they have common goals and work collaboratively to achieve them.  They work together over the long term, discussing issues and troubleshooting problems together.  It is more than just long-term contracting.

 

 

Each member of a value chain is a buyer from the previous step and a supplier to the next step. 

 

Each company can be independent of the other, but each company is interdependent on the other.  Each member adds value at the end of the chain by contributing to customer satisfaction.

 

Changes in agriculture over the past few decades have meant that Vertical Integration in agriculture is essential for economic success.  A further reason is the increasing requirement for full traceability. Building a "Value Chain" is a method of achieving a Vertically Integrated operation incorporating many separate businesses working together with a common goal through collaboration and interdependence whilst retaining independence.  That common goal optimises the value for all in the chain.

 

A Value Chain is full vertical integration that improves quality, increases efficiency, enables differentiated products and improves profitability.

 

3.      Practical Examples of Value Chains

The following are some practical examples of successful value chains. The first example could be likened to Ostrich.  They produce canola oil.  Canola oil entered a market that was already well established with more traditional oil seeds such as sunflower and soya.  They had to find a way to differentiate their product to penetrate the market.  Ostrich is attempting to penetrate a very competitive and highly efficient meat market, competing against specie that are long established and known to the consumer.

 

1. Dow AgroSciences' Nexera canola brought a value-added trait to market through an identity preserved (IP) value chain. Nexera canola was specifically designed to consistently deliver Natreon oil. This oil offers the stability and health profile desired by consumers. Greater stability removes the need for the oil to be hydrogenated, thereby improving frying performance and shelf life while eliminating trans-fats in foods. New legislation for trans-fat labelling in the United States and Canada has contributed to exponential growth in end-use demand for Natreon oil.

 

Key benefits of this value chain include unique marketing opportunities, guaranteed markets, opportunity to extract greater value from a generic, commodity market, defence against competing global crops (soybean), and ability to manage risk.  You can read the full details of the success their approach at http://www.agfoodcouncil.com/serve/chainstory7.html

 

2. Warburtons is a UK based bakery that purchases their wheat through just 2 grain elevators in Canada and they operate as a value chain with the participating producers.  Constant communication happens in this value chain, to continue the value they have created through coordination and to ensure the grain is identity preserved. For Warburtons the value chain has enabled them to continue to produce consistent, high-quality bakery products.  The full details of this chain can be viewed at:  http://www.agfoodcouncil.com/serve/chainstory8.html

 

3. The Red Meat Forum, set up by the Meat and Livestock Commission, based in the UK, to improve efficiencies in the supply chain has been focusing on development of Value Chains.  They have recently published studies of 4 value chain initiatives.  Three of these studies are with the supermarket chain ASDA, owned by Walmart, and the other is with the retailer, Marks and Spencer, that focuses on the top end of the food market.    All studies can be viewed from
   http://www.redmeatindustryforum.org.uk

 

The following is taken from one of those studies as a summary of the objectives:

 

·         Matching rewards for farmers to improved lamb quality using new quality based pricing techniques that build on the current Lamb Link supply base

·         Using different haulage arrangements that both improve the supply of animals to the abattoir and deliver efficiency gains

·         Applying efficiency improvements in the cutting and packing lines with better visual management and the roll-out of a programme of "total preventative maintenance".

·         Working to reduce the discrepancies between actual sales and orders placed on Welsh Country Foods

·         Establishing a Supplier Association to develop a new way of working that embeds the ethos of collaboration and continuous improvement

 

Further good material on this subject can be accessed from the following links:

 

Smart Marketing, Cornell University:  http://hortmgt.aem.cornell.edu/pdf/smart_marketing/gloy9-05.pdf#search=%22Agriculture%20Value%20Chain%22

 

Value Chain Partnerships for Sustainable Agriculture (VCPSA):  http://www.valuechains.org/

 

Alberta Value Chain:  http://www.agfoodcouncil.com/serve/chainindex.html

 

It is regrettable that the meeting in Vietnam lacked sufficient support that our hosts felt the need to cancel as it provided us all with an excellent opportunity to discuss how we could implement this approach.  It is hoped this opportunity will be reintroduced at either the same or a different venue in the near future.

 

4.     Clothing Industry to use Chicken Feathers

An interesting report published this week discusses the use of the development of new technology and the motivation for that technology and long term is something that could benefit our industry. 

 

World consumption of natural and synthetic fibres amounts to 67 million tons annually, used not just in clothing, but in carpets, vehicles, construction materials and a host of other everyday applications. Satisfying the increasing global demand for fibres could prove challenging in the near future because of the limited availability of cultivable land, as well as the increasing price and decreasing availability of petroleum. 

 

Developing technology to produce these fibres from renewable and biodegradable resources also satisfies the increasing recognition for environmental awareness.  You can view the full report of this initiative, driven by the University of Nebraska, at http://www.livescience.com/othernews/060911_rice_chickens.html.

 

5.      World's largest egg laid in Sweden

The following article was published on 22^nd September 2006 and can be viewed on line at:  http://www.thelocal.se/article.php?ID=4993

 

The small town central Swedish town of Borlänge is ready to go into the record books. The world’s largest egg — just over 2.5 kilograms — is now the prized possession of Gunnar and Kerstin Sahlin.

 

The record-size ostrich egg was rushed to the post office to be officially weighed after it was laid on Wednesday at the Sahlin’s ostrich farm in Stora Tuna.

 

“It is fantastic,” said Kerstin Sahlin, according to Dagens Nyheter. “We are still a bit wound up over this. We didn’t think we would get such a big egg this year. When it is bad weather the ostriches pause and wait to lay their eggs. But it has been such a long, warm fall.”

 

The pair once held Europe’s record for the largest egg with an egg weighing 2.3 kilograms. The previous world record was an ostrich egg from the Netherlands that weighed 2.484 kilograms.  Ostriches are the world’s largest birds and routinely lay eggs weighing 1.5 kilos.

 

The Sahlins are not sure what they will do with the egg.  “We are thinking about baking a giant cake,” Kerstin Sahlin said, adding that they might make ice cream with it.

 

5.    Contributions

Any comments or suggestions, please post either to the members list [email protected] or Craig at [email protected]

Ask not only what the WOA can do for you but also what you can do for the WOA.