Value Chain
Final product does not just emerge as
a manner from the sky but a product from series of activities which has undergone
processes from its conception to the end user. A cocoa product like beverages
has received one or two touches from the actors within the value chain for
making it easy for consumption to the end user.
In the agriculture sector, I could
say that value chain start from the farm where the farmer start the plantation
of the goods through the period of harvests, trading the goods, processing to
the end user for final consumption. Value chain can be said to be the entire
and whole production of system of certain goods and services which comprises of
chain actor and supporters to ensure quality production of goods and services.
Value Chain Actors and Supporters
In the value chain, there are various
and categories of people, institutions, and organization involve in one or two
activities at some point or the others. These categories of people,
organization, and institutions are either chain actors or chain supporters.
Chain actors are the actors directly
involve in the production of the product to be consume by the end users who
actually own the good at some stage of the value chain. It could be individual
or organization directly in charge of producing, buying and selling of the
product while chain supporters are the individual, organization and institutions
that are not directly involve with the production of goods but provide certain
services to the chain actors. This could be inform of financial services from
bank, microfinance institutions, money lenders, credit suppliers, input loan
supplier, equity fund, dissemination of information to the chain actors on
either to increase or produce quality goods from the respective institutional
agency or extension worker, donor to support existing work or facilitating.
Value Chain Finance.
Since we have gain some knowledge
about value chain and it process, the actors and the supporter of value chain,
then we can proceed to understand how to finance the process or series of
activities involve in the value chain. The entire system of production need the
consumption of money before the good could be ready for end users consumption.
At some point of the production there will be need for cash to get things done
and do the necessary arrangement by the chain actors. Every chain actors
involve in value chain needs access to financial services to accelerate
expansion and productivity in order to meet the demand in the society and
alleviate poverty in the economy.
The demand or need of chain actors
varied from one actor to the other. According to Royal Tropical Institute on value
chain: beyond microfinance for rural entrepreneur pointed out the various need
of actors involved in value chain which ranges from input supplier, farmers,
farmers organization, Traders, and the processors.
There are three type of financial
services available to the actors in the value chain; chain liquidity simply
based on the loan coming within the value chain. It is characterized on short
term loan and this usually comes from the buyer or suppliers. Agricultural
finance is the type of finance that comes from chain supporters which is
usually from commercial bank, micro-finance institutions and other agency to
promoting agriculture production to one of the actor within the value chain
while value chain finance is a kind of financial service which linked different
actors within the value chain which build relationship and enabling cooperation
environment where access to financial services is very easy and erase the doubt
of financial services provider on repayment of the debt given out to the small
scale producers.
Importance of finance in value chain
It is very obvious that availability
of financial services is very crucial to the entire production system or value
chain if there would be production. Every aspect of production demand specific
amount of cash to get certain thing done. In the process of production, there
will be need for purchasing of material, processing, packaging, logistic, and marketing
and payment of manpower etc to ensure the final product is ready for
consumption. With this little point financial services is very mandatory in
entire system production.
Challenges towards securing financial services for the small scale
producers
It is very glaring and obvious what
small holder producers or small scale business faced in securing financial
service to better increase and enlarge their production. Financial institutions
were not helping at all due to the high standards set in getting loan by the
financial institutions which the low or
poor small scale producer do not have. The provision of collateral have
hindered many to remain in small production and producing low quality of
services. The lack of relevant information to the small holder producers to
access financial service contributes to the poor access to financial service.
Inadequate skills of the farmers to utilize the loan or credit received to
increase production also contribute. I could point out the fear of repayment by
the famers or small holder producers are one of the issues handicapping them venturing
to seek loan from the financial institutions.
Reference
Calving M. & Linda
J. Agricultural Value chain finance: Tools and lessons
Global value chains:
Concept and Tools. www.globalvaluechains.org/concepts.html
Value chain Finance:
Beyond Microfinance for rural entrepreneur. Royal Tropical Institute
Cheers!
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