Let
us now look at how a value chain actually works.
A
value chain is based on market demand.
It is based on market demand at each
level of the chain. Market demand is based on people willing to buy a product at a given
price. We may have a good product but it may be too expensive, or nobody is
willing to buy it because there is no need for it. Or there may be too many people already selling similar products or the same
product. Or it may not be the right time
of the year for that kind of product. All these factors influence market demand.
Let us take our
example of the peanut products value chain as outlined before:
- someone grows peanuts and sells for food
- someone buys some of the peanuts and makes cooking oil
- someone sells cooking oil locally
- someone sells cooking oil at the city market
- someone collects ash from fireplaces
- someone buys cooking oil and ash and sells soap
- someone buys the soap and runs a clothes washing business
Let
us take peanuts as they come out of the ground. There may be a market demand
for raw peanuts. And another market
demand for cooked peanuts or for roasted peanuts. People who buy raw or
roasted peanuts may be different people. And the demand may not be the same
every month.
A
value chain is formed by a sequence of activities.
In this case the activities are selling
and buying peanuts that provide revenue
to the producer. But the activity may be variable or temporary and in this case
the producer does not have a dependable
source of income.
In
large cities there may be a large demand for peanuts, but in a small community
the demand may be small and the producer may need to plant very few peanuts or
find buyers from other communities. Finding buyers requires knowing people.
And
so an important activity for the producer is to find and maintain reliable buyers.
Another
important activity is to produce good
quality peanuts and on time for
the market.
We
want value chains that are dependable.
We need to have a marketplace for
our product and we need to know the marketplace
for our product. And we want to create associations
with other producers or with buyers who can help us and on whom we
can depend.
In
a small community the producer may have to plant peanuts and other produce
because the local demand will be limited.
But this can be a good thing. The
farmer will then plant some peanuts, some potatoes, some corn, some other crop,
and with all these products provide,
on a regular basis, the community with the produce it needs.
In
small communities a farmer may not be able to produce just one crop. The farmer
may have to be good at many things.
