Page 234 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Value chain models

The Food and Agriculture Organization (FAO) of the United Nations defined four different value chain models,
all relevant to tight value chains. 3

1) Producer-driven
In this model, SHFs join associations or cooperatives that contract with larger buyers. Producer-driven models
help SHFs access new markets, obtain higher market prices, secure their market position, and access financing.

Aprocav, a cacao producer association in Peru: 3,500 SHFs are part of the Aprocav producer association.
Through Aprocav, SHFs sign a contract pledging to sell their entire cacao crop to a large customer who
processes the crop into cacao butter, cacao powder, and glazes. In return for this commitment, SHFs receive
bank financing, technical assistance, and above-market pricing. Aprocav enables financing by guaranteeing the
loans, identifying loan amounts appropriate for each SHF, repaying lenders from sales proceeds, and remitting
the remaining proceeds to the SHFs.

2) Buyer-driven
Buyers such as traders, processors, wholesalers, exporters, and retailers will contract directly with SHFs to
ensure a reliable supply of product.

Hortifruti, an institutional buyer in Costa Rica: Hortifruti purchases a variety of crops from SHFs before selling
them in bulk to supermarkets. The relationship with Hortifruti helps SHFs manage their cash flow. Since Hortifruti
provides a staggered planting and harvesting schedule, SHFs earn money throughout the year. Additionally,
farmers can borrow from banks based on their Hortifruti relationship. The banks are willing to lend because
they believe Hortifruti will only work with reliable suppliers.
3) Facilitated

SHFs are often unable to participate in tight value chains due to inadequate organizational and technical skills
– this creates too much risk for large-scale buyers. To address this challenge, non-governmental organizations
(NGOs) and governments intervene to make SHFs viable value chain members. These interventions include
organizing farmer groups, training farmers, facilitating financing, identifying market opportunities, or some
other gap-filling measure. United States Agency for International Development (USAID)/Peru Poverty Reduction
and Alleviation (PRA) artichoke market opportunity in Peru: In the past, SHFs could not participate in the
artichoke export market since exporters primarily worked with larger growers. With a grant from USAID, Peru
PRA identified artichokes as an attractive SHF opportunity and then brought together producers, processors,
and buyers to bring the vision to fruition. PRA first encouraged a local processor (Agromantaro) to begin
artichoke processing. Since the SHFs were unfamiliar with artichokes, PRA and Agromantaro enlisted producer
associations to convince the SHFs to grow artichokes. To sweeten the deal, the processor offered the SFHs a
contract, fixed price, seedlings, and technical assistance. Since farmers did not pay for seedlings until harvest,
this approach also generated a source of SHF financing.
4) Integrated

Supermarkets, multi-nationals, and other large downstream institutions create integrated value chains to
ensure low prices, rigid adherence to quality standards, and a lock on supply. Integrated value chain models
go beyond just connecting value chain actors. There is more information flow and control throughout the
value chain.
Supermarkets: Supermarkets’ purchasing agents will communicate strict product requirements to exporters
about variety, quality, volume, hygiene practices, traceability, and residue standards. Exporters and wholesalers
then provide this information to producers along with seed and fertilizer inputs, record keeping materials, and
technical training to ensure the standards are met.

3 Agricultural Value Chain Finance Tools and Lessons. Food and Agriculture Organization of the United Nations. 2010.

206