Essentially, a value or commodity chain depicts how to develop entrepreneurship and the support initiatives required for its successful implementation. It shows the services that governments must provide and the tasks that the private sector needs to undertake in developing a particular product for a market where improved access is granted under negotiated trade agreements.

Value Chain approach to Entrepreneurship Development in Agriculture and its Relevance to Business Opportunities provided in the Economic Partnership Agreement (EPA)

Dr. Claudius Preville

- - - it will no longer be sufficient to merely negotiate market access without addressing the issue of market presence

Agriculture has been neglected throughout CARICOM member states especially since the mid-1990s, and this is in no small measure part of the explanation for the observed escalation of food prices in CARICOM. If the region is to bring its food security under control, including reducing food prices, there is a need for developing agriculture in a manner that will promote such security and sustainability.

Past experiences indicate that CARICOM has not fared well during the era of non-reciprocal trade agreements, such as, Lomé and Cotonou. The region’s experience with non-reciprocal trade agreements has been that of very limited market presence in the EU despite these relatively open markets. Despite the number of free trade agreements (FTAs) that CARICOM has negotiated, the results in terms of an expected increase in entrepreneurship to take advantage of the market opportunities, leaves much to be desired. Further examination suggests that the completion of these FTAs focused almost exclusively on creating the trade framework to allow entrepreneurs, both existing and new, to trade more freely in a more transparent and secure environment. There was very little, if any emphasis on methods designed to stimulate entrepreneurship per sé.  

As a new generation of trade agreements based on reciprocity comes into effect, such as the Economic Partnership Agreement (EPA), the stakes will be even higher than before and it will no longer be sufficient to merely negotiate market access without addressing the issue of market presence. Hence a deeper problem needs to be addressed – that of entrepreneurship and the development of capacity to initiate, expand and sustain business from these FTAs, including the EPA, which does provide for business opportunities. Supply-side capacity constraints made it very difficult for Caribbean countries to take advantage of FTAs, even in sectors where they potentially had comparative advantage. In the context of the EPA, continued supply-side constraints could reduce the extent and depth of benefits expected to accrue to the business sector. 

In the EPA, a significant and diverse range of agricultural products, both primary and value-added, were negotiated for exclusion from tariff liberalization. These products are listed in Tables 1 and 2, above. This provides the opportunity for the development of agriculture industries, such as, poultry; bovine meat; fisheries; honey production; vegetable farming, among others. The list of primary (basic) agricultural products that have been excluded from EPA liberalization (Table 1), at first glance, appears to be relatively extensive. However, it is instructive to note that many of these tariff lines can be grouped and constitute a single sector or sub-sector. A farmer who typically produces fowls may find that his product coverage is more than six of these tariff lines covering both the live and the frozen variety. When the lists in the two Tables are combined, it is seen that the EPA agriculture schedule of commitments has been negotiated in a manner that affords the farmer the opportunity to shift his production upstream and hence extracting more value and profits in the process. 

For example, farmers can decide, rather than merely producing raw tomatoes (Table 1: HS 0702.00) for export to the EU, to also produce tomato ketchup and other tomato sauces (Table 2: HS 2103.20); or tomatoes prepared or preserved otherwise than by vinegar (Table 2: HS 2002.90); or tomato juice, unfermented, whether or not containing added sugar or other sweetening matter (Table 2: HS 2009.50). Or farmers can decide to produce raw oranges (HS 0805.10) for export to the EU. However, the EPA opens up the business opportunity to produce orange juice of various varieties along with combinations of orange juice with other juices. Similar industries could be developed for a number of other fresh fruits including pineapples; watermelons; other citrus; fresh vegetables; among others.

When the entrepreneur carefully identifies all the processes involved in value-addition at all stages of a commodity chain, s/he can then make an informed decision with respect to where in the chain s/he should specialize. It is important to note that the choice of specialization should depend on the ability to exploit natural advantages. While there is need for Caribbean countries to expand agriculture production capacities in sectors where there is comparative advantage production, expansion should not be at the expense of making linkages and providing services along commodity chains. In fact, it could be that much of the monopoly advantages of the region may not lie in the actual production of goods per sé, but instead in the services that connect different stages of the goods production and marketing processes.

Most of the FTAs that Caribbean countries engaged have hardly moved beyond the treaty stage to concrete implementation and genuine business development. The region has the opportunity now, with the EPA, to make more effective use of the market access trade framework and the development cooperation, to build agriculture through entrepreneurship and business. In this context, the importance of the commodity or value-chain approach to entrepreneurship and business cannot be overstated.

- - - there is a need to expand production
      capacities, make linkages and provide
          services along agriculture commodity chains

Dicken (1998:7) defined a commodity chain as a transactionally linked sequence of functions in which each stage adds value to the process of production of goods or services. In other words, it shows the various nodes in the chain of production and how each node connects to the other and influences each other. The basic stages of any commodity chain are as follows: materials, procurement, transformation, marketing and sales, distribution and service. Each basic stage is subjected to technology, research and/or development, as well as transport and communications processes (Figure 1). The entire system is subject to a financial system, as well as systems of regulation, co-ordination and control (Gereffi, 1994:96; Dicken 1998:6). Governments must be involved in the two outer bands – ensuring a sound financial system as well as a sound regulatory environment for security of business. Private firms are responsible for the direction and control of the activities that directly affect the production process including transport and communications processes; technology and research and development.

A commodity chain can be either buyer- or producer-driven, depending upon the governance structure that characterizes the processes of ownership, control and management along the chain.

• In a producer-driven commodity chain, trans-national corporations (TNCs) or other large integrated enterprises usually play the central role in controlling the entire production system, including its forward and backward linkages (Gereffi, 1994:97; Dicken, 1998:9). 
• A buyer-driven commodity chain refers to an industry in which large retailers, brand-name merchandisers, and trading companies play a central role in organizing decentralized production networks in several exporting countries (Gereffi, 1994:97). The networks of exporting countries include many of developing countries. Production is generally undertaken by independent factories in developing countries, which produce finished goods under original equipment manufacturer arrangements. This type of commodity chain is closely linked to export-oriented industrialization among the labour-intensive consumer-goods industries, that is, garments, footwear, toys and consumer electronics (Gereffi, 1994:97).

It is not always clear-cut whether a particular industry is producer- or buyer- driven. Increasingly, some industries comprise elements of both. In bananas for instance, the commodity chain organized by Chiquita Brands Inc. is largely producer driven – the firm controls all aspects of the chain including both its forward and backward linkages. In contrast, the banana commodity chain of the Eastern Caribbean is largely buyer driven as there is no central role of one firm controlling the entire process. Some aspects of the chain are controlled in the Caribbean while others are controlled in the UK.

Regardless of the governance structure that characterizes a commodity chain, the concept is useful for explaining and understanding the linkages between firms, industries, and countries (Gereffi, 1995:101).

There are two major strengths of the commodity chain concept.

• Firstly, it allows analysis to be undertaken at the level of specific products and industries, as opposed to broad zones of economic development which tend to characterize other methods. Thus, entrepreneurs can isolate specific products of interest and discern precise information of relevance to them.
• Secondly, its greater emphasis on contemporary patterns of international competition makes it useful for both cross-sectional and time series data analysis (Gereffi, 1996:65). This makes it possible for various statistical analyses to be performed on data at the level of individual sectors or products.

Figure 2 illustrates the stages of the commodity chain for the trade in bananas between a Caribbean country and an EU member state. Bananas are first cultivated on plantations or small farms, where the natural gestation period is nine months. After harvest, bananas are subjected to strict quality controls and firms label and brand the fruits on the basis of their overall quality before they are packaged into 18kg boxes. The bananas are then rapidly transported by rail or bus to shipping ports where they are loaded onto specialized refrigerated ships, known as reefers, which rapidly transport them across the Atlantic to various European ports. At their port of entry into Europe they are again subjected to quality controls before being rapidly transported in refrigerated containers to various ripening centres. Ripeners have some control over the pace at which the fruit ripens, with the process taking from three to seven days. Once the bananas are ripe (that is, they become yellow), they are sold to retail outlets where they have a shelf life of 2-3 days.

Figure 2: Example of the Value Chain: EU Banana Trade

Source: Preville (2002)

In the case of bananas, as the commodity moves along the value chain it is subjected to various value-adding activities that become embodied within the commodity, causing it to go from green to ripe. Thus the commodity chain is not one of creation of a new product per se, but of value addition that transforms an existing product. The banana experience suggests that a value chain does not necessarily have to involve product diversification – product transformation can constitute essential stages of the chain. However, in terms of business development, specialisation should take place not in the actual production of the commodity but in the supply of services that connects each stage to the next. That would be the preferred option. In that connection, the Fair Trade labelling efforts in the Caribbean should learn from these lessons since they are essentially doing the same thing but under different market regulations for the fruit.

- - - the value or commodity chain approach    helps to isolate real business opportunities                            in any trade agreement

The commodity chain concept can be applied in two ways for identification of business opportunities in the EPA and for informing entrepreneurship and business development agencies in how best to service the needs of such clients. While both approaches are useful for analysing the commodity chain there are differences in their application strengths.

The first approach is to examine an individual commodity and the services linked to its production, shipping and consumption as was done for bananas in the example above. We call this approach going beyond product to adding services. However, this approach reveals to the entrepreneur the possibility of identifying where in the commodity chain s/he may wish to specialise further in order to generate more value and or retain more profits from the commodity chain for that product. Here, apart from efficiencies that may already exist in actual production of the commodity (due to either comparative or natural advantages) the choice of the entrepreneur for increasing revenue and profits is limited to the services that connect the various stages of the product’s value chain.

The second approach is to analyse the commodity chain of a product moving from the basic agricultural stage to a value-added stage. We call this approach going beyond primary to adding value. When applying this approach, the entrepreneur takes advantage of the various tariff concessions secured in the EPA and uses that knowledge to strategically produce a value added product competitively and efficiently. As such, in addition to the options open to the entrepreneur in the first approach, this approach allows s/he to make appropriate adjustments to various raw materials that are used to producing the final commodity.

Example:
Going Beyond Primary to Adding Value - Orange Juice Value Chain

Table 3 shows some of the H.S. tariff numbers involved in the process of production of orange juice. It is for illustration purposes only to give entrepreneurs an idea of the various types of goods inputs that can go into the process. There are several stages in the value chain for orange juice, the first being the availability of the major raw material, oranges. Other stages include: crushing processor; can producers; can labellers; quality and standards; shipping and marketing; consumption.

It is seen that significantly more individual products are involved in the process of orange juice production that one might initially assume. Thus when the chain is analysed the entrepreneur may decide to invest in production of some of these products in addition to orange juice, if it proves to be economically viable.

- - -the value chain approach is
          critical for business development

It is already known that entrepreneurship and business development includes making investments and taking risks. However, one conclusion that can be drawn from this paper is that both risk and investment can be exacerbated by the trade agreements that the region negotiates, whether as CARICOM or CARIFORUM. As such these trade agreements provide a general framework for conducting business and trade transactions in a more open, transparent, and secure manner including conditions for enhanced market access to developed country markets. In that context, value chain approach provides a solid conceptual and analytical framework for identifying real business opportunities in any trade agreement. It isolates each stage in the production or value addition process and shows the entrepreneur where s/he would be most likely to make more revenue and profits from investment. It also locates such opportunities in the wider value chain through an understanding of the concept of value addition in product transformation.  Hence the focus is not only on individual products but on the processes that connects one stage of production or value addition to another. This can be used to guide Governments to develop of an integrated package of support measures aimed at building supply capacity and entrepreneurship, to take advantage of the market access provisions to ensure market presence.

The value chain approach is also critical for business development service providers who provide financial, technical and other services that must enable entrepreneurs to take advantage of opportunities. This is important whether they take the approach of ‘going beyond product to adding services’ or ‘going beyond primary to adding value’. In so doing the entrepreneur can refocus its efforts to the stage(s) of the chain where competitive advantage is highest or to realign production with the factor it wishes to reward the most – capital, if it seeks to maximize profits, or labour if employment is the principal concern.

Essentially, a value or commodity chain depicts how to develop entrepreneurship and the support initiatives required for its successful implementation. It shows the services that governments must provide and the tasks that the private sector needs to undertake in developing a particular product for a market where improved access is granted under negotiated trade agreements.v

Preville's emphasis was that one of the first elements of the EPA agreement that can be explored for business opportunities is the primary and value-added products excluded from EPA tariff reduction This information should hold special interest to existing and potential entrepreneurs in agriculture because for all of the listed items, some or all CARIFORUM countries have production capacity in several of these products, either individually or such capacity can be developed through cross-border investments. However, he hastened to add that the exclusions list should not be seen as a ‘protection blanket’ of indefinite duration to generate complacency, but instead, as a facility that enables entrepreneurs through the provision of opportunities to establish, grow and mature globally competitive business.

Caribbean economies are small. Hence, this presents a serious limitation to the continuous generation of opportunities and expanding business. The 'necessity' entrepreneur may not be so motivated to expand outside of community, or even national borders. However, for the 'opportunity' entrepreneur, the ability to expand beyond national and even regional borders is central to the growth process. An innovative entrepreneur needs innovative consumers, that is, those who are willing to try out new products and services. The domestic, even regional market is not sufficient for this. Hence the issue of trade negotiations become essential in creating the 'enabling trade environment' to allow such expansion.

As emphasised earlier by Price, of the CRNM, trade negotiations have gone beyond just negotiating for favourable market access for goods. Increasingly, they attempt to address, in a more direct manner, the genuine needs of developing countries. Some of such provisions include recognition and special treatment for 'special products' and 'special safeguards' which provide developing increased flexibility to 'protect' their agricultural sectors. Further, through the negotiations on services, developing countries will enhance their capacity to develop their services sector in a more integrated manner, nurturing stronger linkages to the good sector, including agriculture.

While these trade agreements provide the covering framework needed to enter and participate competitively in global markets, an equally important and complementary effort is that which seeks to develop national entrepreneurial capacity to take advantage of the opportunities from improved market access. This goes beyond the necessity entrepreneur, small business, self-employed and ordinary business persons. It is in this context that the statement by Lloyd Best that "...the issue is not therefore diversification … it is the breeding for the first time inshore of entrepreneurs, meaning autonomous producers and managers," becomes vividly clear in its meaning.

In the past, the main policy thrust of Caribbean countries to take advantage of improved market through trade agreements, was diversification. Largely, that involved expanding the basket of goods to take advantage of the diversity in market opportunities. However, almost all efforts at diversification in almost all Caribbean countries bore little fruit and any gains have not been sustained or built upon ini any substantial manner. This has severely impacted the region's capacity to establish a firm and lasting market presence in those countries with which CARICOM has both non-reciprocal and reciprocal trade agreements.

As emphasised by Preville, establishing, growing and maturing globally, competitive business in agriculture, while enabled by negotiating market access, depends greatly on efforts to ensure that business can establish and sustain market presence.  The issue of market presence was of great concern to all those present at the workshop. It was pointed out that the trade agreements are good, but it is like the proverbial chicken and egg situation; if there are not enough entrepreneurs to produce goods and services then the region would continue to import goods and services and trade will remain largely one way. In fact, this has been the experience of most if not all the trade agreements that CARICOM is party to.

The region must engage at the national level to breed the entrepreneurs. Lessons must be learnt from the situation with bananas and sugar cane industries, which were heavily influenced by the public sector. This essentially stymied the development of genuine entrepreneurship within the industries and the sector as a whole, affecting the ability to achieve and sustain competitiveness. Agricultural competitiveness was also adversely affected at the national level from labour scarcity and high costs associated, in part, with public sector job-creation/unemployment relief programmes. In such scenarios, it was felt that the trade agreements are of little real benefit to the national economies.  

The concern over capacity to establish and maintain market presence was a common issue during the discussion. There was the suggestion that a mechanism be found for more effective dialogue between the negotiators and policy makers and producers, particularly MSEs and potential entrepreneurs. This was deemed important to provide producers with the critical information and other elements necessary to enable them to benefit from market access provisions in the agreements.

Some other suggestions included more widespread consultations and dialogue at the national level, where the negotiators and policy makers discuss these issues directly with stakeholders. While such efforts have been undertaken in the past, there was still the view that the information provided on these trade agreements and negotiations was still too generic and did not address the specific concerns and allay fears of specific producer/interest groups. There was also a call for a more proactive and integrated involvement on the part of small producers, processors and marketers, themselves, to confront challenges of both export and import competition.

The following section provides a synopsis of the main issues during the discussion and recommendations from focus groups on three main themes of the workshop and particularly the need to make effective use of external resources that are available for business and entrepreneurship development.

“A common thread among all who use agricultural products in the sector is the inconsistency of supplies and very little collaboration between all the stakeholders. The commodity value chain attempts to bring everyone in the value chain together and involve the key players in the process.”