Agricultural Value Chains in Developing Economies: A Theoretical Framework

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.