Global value chains are ripe with partnership opportunities between governments, donors and businesses. While they often result in economic benefits, it’s time to take a look at how those gains are distributed — and whether they impact the poor.
Each global value chain has its own set of challenges, but what seems clear is that in most there are some actors who hold more power than others. Typically those at the producer end of the value chain — the smallholders development agencies are looking to reach and assist — have the least power.
Unequal power dynamics, misalignment of goals, or lack of incentives can leave existing partnerships lagging when it comes to benefiting the poor. Fostering a better understanding of all the actors and their objectives, organizing producers into cooperatives to provide bargaining power and working with industry platforms rather than individual companies are a few strong ideas to yield greater results for the smallholders and producers from the start.
“The core question that these partnerships are either avoiding or probably those who are negotiating these partnerships are not really aware of, is the dynamics in these global industries and the power asymmetries in the global value chains,” said Ajmal Abdulsamad, a research analyst at the Center on Globalization, Governance & Competitiveness at Duke University.
The key problems
There are a number of roadblocks in global value chain PPPs that prevent the poor from benefitting, even when the project itself leads to growth and increased outputs.
Abdulsamad, who co-authored the report Public-private Partnerships in Global Value Chains: Can They Actually Benefit the Poor?, produced through the U.S. Agency for International Development’s Leveraging Economic Opportunities program, examined partnerships in three global value chains — cocoa in India, coffee in Rwanda and horticulture in Kenya — which had varying degrees of success in reaching the poor.
While the three cases analyzed are not representative of the diverse range of partnership programs, there are some lessons that may provide insight for new and ongoing partnerships.
● Industry gains through PPPs — be they increased exports, investment or production — do not automatically translate to smallholder, producer or household level economic benefits.
● If the partnership isn’t designed properly, it may end up merely reinforcing existing power dynamics in the value chain, which could result in some actors profiting more than others.
● Certification costs often fall to the producer, which can increase a smallholder’s production costs. Certifications are often touted as a way for smallholders to gain access to greater markets or earn premiums on their product, but in reality, their costs can outweigh potential benefits.
● PPPs that subsidize certification costs can increase farmer income, but only when farmers are paid price premiums, which are often not guaranteed. As a result, such programs are not the most sustainable.
What can be done
Partnering more strategically, ensuring that someone represents the interests of the smallholder and sharing lessons may all help to create better PPPs in the future and ensure that the benefits are more equally distributed.
“For me, the key learning is that we do have to be very purposeful about what our intended outcome is,” said Kristin O’Planick, enterprise development specialist at USAID.
That may not seem surprising, but it’s not always easy, especially since the various partners all have their own interests in mind, she said.
It is USAID’s role to keep the poor in the forefront of its mind, she suggested, and that while these partnerships all promoted economic growth, the level of impact on the poor varied.
“That’s where if we’re being more thoughtful in putting these together and thinking about the ability for the target population — whomever they may be and whatever that kind of targeting is — for them to be engaged within that partnership, [that] is key,” O’Planick said.
The key question to ask is: “Have you constructed a value chain and you’re trying to trickle down or are you trying to grow the value chain up?,” said Susan Davis, president and CEO of BRAC USA. BRAC has been successful in building supply chains that start with the objective of poor or smallholder livelihoods. In Bangladesh, for example, the organization created BRAC Dairy, a company to buy milk at fair price from rural entrepreneurs.
When it comes to global value chains, it is particularly important to find ways to aggregate product and purchasing power of smallholders, which helps them develop capabilities and assert more influence on the way business is done, Davis said.
Choosing the appropriate partners, deciphering where values align and ensuring the donor agency understands the private sector company’s position — and how it relates to the goal of poverty reduction — is critical to a successful partnership.
“The poor can benefit from these partnerships under certain conditions and that depends if those negotiating partnerships are aware of governance dynamics in value chain and identify the right partners,” Abdulsamad said.
Donor agencies should carefully examine when they’re partnering and ensure that they’re not stepping in where the private sector might do the work on its own. The cocoa industry, where a shortage in supply has spurred significant investment increasing productivity, is a good example.
Perhaps donors don’t need to directly support training and yield-increasing programs but rather focus on working with companies to ensure that farmers and their communities are benefiting, he said.
Where a company falls in the value chain can also have a significant impact on willingness to partner. For example, public consumer-facing companies — such as Mondelez, Mars or Nestle in the cocoa industry — may be eager to partner, but they largely outsource trade and processing to other companies who likely have different commercial interests and partnership objectives, Abdulsamad said.
Partnering with industry platforms rather than individuals may mitigate some of those challenges and lead to better, more sustainable outcomes, he suggested.
If partnerships with industry platforms and a broad group of partners prove to be more effective than those with individual companies, USAID may focus its efforts in that direction, O’Planick said.
USAID is also working to share information through platforms like Microlinks, which hosted a seminar and webinar about the report, and through the Center for Transformational Partnerships in the U.S. Global Development Lab, which conducts training.
But, O’Planick said, making sure those lessons are widely distributed and available when staff need them is “the hardest thing for such a large, decentralized agency.”
Still, even though some existing partnerships have had mixed results, she believes that in some contexts “there could be aspects of these partnerships that could potentially reach the poorest … [but] I think that there is probably higher potential for indirect benefit to them rather than direct benefit.”
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