What is a Value Chain?

The research team at REAPontario is interested in value chains and how immigrant value chains may differ from more familiar models.  Before we can begin to answer this, it is helpful to address a more basic question:  what is a value chain? Value Chain, also known as value chain analysis, is a concept from business management and was first described in the 1980s.  In this blog post, I draw on seminal work by Martin Gooch and the George Morris Centre to describe value chains, notably the paper Characterizing the Determinants of Successful Value Chains, by the Value Chain Management Centre of the George Morris Centre for the Canadian Agri-Food Policy Institute (February 2012). VCMC Value chains move beyond our traditional understanding of buyer-seller relationships.  In Value Chain Management, businesses develop closer strategic relationships with both customers and suppliers in order to learn and adapt more quickly and effectively than if they had been operating alone.   According to Gooch, principal author of the paper above, businesses seek “closer coordination and integration with suppliers and customers,” and this leads to continual improvements in system design and performance. Value chain management is thought of as “a strategic business approach” that can help businesses “increase their long-term competitiveness.” (p.5)  According to its proponents, achieving such competitiveness is nearly impossible within a more fragmented value chain. According to Gooch, effective value chain management requires a certain attitude of participants (the intention to form and sustain the chain), the motivation of members to learn and adapt together, and shared adherence to a certain set of principles.  The success of the value chain depends on these internal dynamics but also on the external environment. Value Chains are Valuable According to KPMG International in its  report, The agricultural and food value chain: Entering a new era of cooperation (2013), the global agribusiness value chain has a total value of around US$5 trillion, beginning with input companies through to the final consumer (p. 4). KPMG Value Chain DiagramSource: KPMG International, The agricultural and food value chain: Entering a new era of cooperation, 2013, p. 5   Local Food Fund   (NOTE:  Applications for this fund are due by January 16, 2015!) The Ontario government revealed its own interest in this topic when it named value chains as an area of funding under the Local Food Fund, an initiative under the Rural Economic Development Program of OMAFRA.  According to the Local Food Fund guidebook released in November, “The Local Food Fund is a three-year initiative with funding of up to $10 million per year to support innovative local food projects that reduce barriers to regional economic development; result in sustainable regional economic development; and have a positive impact on the Ontario economy.”  (page 4) The Local Food Fund will support projects on Regional and Local Food Networks, including:

  • Projects that build capacity along the value food chain to improve access and supply of local foods by information sharing and collaboration between value chain partners.
  • Projects that aim to strengthen the entire supply chain, but in particular to encourage value chains i.e. individual businesses collaborating and sharing information to take advantage of an opportunity.

Next blog post:  Types of value chains Discussion Questions:

    1. Can you identify any agri-food value chains in Ontario? How successful are they?
    2. What does the concept of value chain add to your understanding of business models?

Sarah V Wayland Sarah Wayland, Principal Investigator

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