Integrating Innovation Systems Perspective and Value Chain

Analysis into Agricultural R4D: Issues and Challenges

Ponniah Anandajayasekeram Berhanu Gebremedhin

CaSt and IPMS, ILRI www.ipms-ethiopia.org

Outline of presentation

Introduction

Innovation, Innovation Systems (IS), and Innovation Systems Perspective (ISP)

Value Chains (VC) and Value Chain Analysis (VCA)

Integrating ISP and VCA into Agricultural R4D

Issues and Challenges

Introduction

Consensus that in the 21st century agriculture remains fundamental for poverty reduction, economic growth and environmental sustainability of agriculture-based countries (WDR, 2008).

Enhancing smallholder productivity and sustainable economic growth are pre-requisites to achieve this.

Agricultural R4D expected to play a significant role in the process

Introduction (2)

Currently, the knowledge generation, adaptation, dissemination and utilization process in the agricultural sector is guided by four complementary and mutually reinforcing concepts: Innovation systems perspective Value chains analysis framework Impact orientation R4D Impact orientation and R4D are implicit in the concept of

innovation

Integrating these concepts and principles in an operational model to guide impact oriented R4D is a challenge facing many actors in the business

The core of this paper is looking at these integration issues.

Part I: Innovation, Innovation System and Innovation Systems Perspective

System

A collection of related elements that must function in a coordinated manner to achieve a desired result (Bean and Radford, 2002)- Consists of interlinked sub-systems- The whole is greater than the sum- Inter-related parts drive the system- Feed back loops are central to the system behavior

and are circular rather than linear in nature System thinking is not new to agriculture

What is Innovation?

Successful application of “knowledge” to economic, social & environmental benefit.

- Knowledge creation, adaptation, dissemination and use of knowledge, not just knowledge creation

- Both new knowledge and novel combination of exiting knowledge

Different forms – codified and tacit- Different sources – Indigenous and scientific- Different type – technical, institutional,

organizational, managerial, service delivery - Note:

Knowledge is necessary but not sufficient for innovation

Knowledge: forms and sources

Network of organizations, enterprises, and individuals that focuses on bringing new products, new processes, and new forms of organizations into economic use, together with the institutions and policies that affect their behavior and performance (World Bank, 2008).

Innovation System

Components of the Innovation System are- Actors (individuals, organizations)- Actions, interactions- Rules governing interactions (institutions)- Framework conditions- Associated learning

Can be defined at different levels (national, sectoral, commodity, intervention based)

most relevant one is problem/intervention focused IS is a “soft system”, an organizing principle and

analytical construct

Components and levels of an innovation system

Evolution of ISP

Innovation System is a logical evolution- To address shortcoming of the existing R&D

system- To benefit from successful application in

industrial sector

Systems Thinking and Its Application in Agriculture

As one moves from NARI to AIS..

The goal of the system becomes broader

The number of organizations considered as “components” becomes larger and all inclusive

Issue of linkages, partnerships and interactions become central to organizational performance

Innovation Systems Perspective (ISP)

Using the innovation lens in analyzing critical constraints; identifying, implementing and assessing appropriate interventions, and the subsequent utilization of knowledge generated

Suggests as analysis of three elements- Components (organizations and actors)- Relationships and interactions (partnerships

and institutions)- Competencies, functions, results and outcomes

of such interactions

Key Features of ISP

Focus on innovation as its organizing principle Makes the distinction between “invention

system” and “innovation system” Makes the distinction between “organizations”

and “institutions” explicit Partnerships and networks are integral parts Learning and role of institutions are critical Is problem specific

Invention vs Innovation Systems

Invention system deals with knowledge generation

Innovation system = Invention system + adaptation, dissemination and utilization of knowledge generated

Organisations and Institutions

Organizations are entities created by individuals to support the collaborative pursuit of specified goals. Formal organization is that kind of cooperation that is conscious, deliberate, and purposeful.

Institutions are the “rules of the game” which prohibit, permit, or require certain actions. Whether formal or informal, they are recognized and generally followed by members of the community.

- Innovation ecology: Set of individuals usually working within organizations who are repositories and generators of existing and new knowledge. A generic concept, national in scope with sub-national degree variation, more permanent in nature.

Innovation systems are constructed to address specific problem, connects the relevant components of the ecology.

- Transient and transboundary in nature.- Are spatially unconstrained.

Innovation Ecology and Innovation system

Part II: Value Chains and Value Chain Analysis

Why worry about markets and market orientation?

Increased income through: The realization of specialization, and

comparative and competitive advantages Economies of scale Dynamic technological, organizational and

institutional change that arises due to information flows through increased exchange

Markets are essential to realize the benefits of specialization and exchange

Basic concepts in value chains

Value Chain An agricultural value chain is considered as an economic unit of

analysis of a particular commodity (eg. milk) or group of commodities (eg. dairy) that encompasses a meaningful grouping of economic activities that are linked vertically by market relationships.

A value chain encompasses a set of interdependent organizations, and associated institutions, resources, actors, and activities involved in input supply, production, processing, and distribution of a commodity.

The emphasis is on the relationship between networks of input suppliers, producers, traders, processors, and distributors.

A value chain entails the addition of value as the product progresses from input supply to production to consumption.

Value chains are also the conduits through which finance (revenues, credit, and working capital) move from consumers to producers; technologies are disseminated among producers, traders, processors and transporters; and information on customer demand preferences are transmitted from consumers to producers and processors and other service providers.

Basic concepts in VC (2)

Stages of value chain Any operating stage capable of producing a saleable product or

service serving as an input to the next stage in the chain or for final consumption or use

A stage of production in a value chain performs a function that makes significant contribution to the effective operation of the value chain

Vertical coordination The key issue addressed in value chain analysis is vertical

coordination: the way of coordinating and harmonizing the vertical stages of production, transformation and marketing

Verticality implies that conditions at one stage in the value chain are likely to be strongly influenced by conditions in other stages in the vertical chain, in direct and indirect ways, and in expected and unexpected ways.

Intra-chain linkages are mostly of two-way nature

Basic concepts in VC (3)Business development services Services that play supporting role to enhance the operation of the

different stages in the value chain and the chain as a whole Infrastructural services (market place development, roads and

transportation, communication, energy supply, water supply) Production and storage services (input supply, genetic and production

hardware from research, farm machinery services and supply, extension services, weather forecast, storage infrastructure)

Marketing and business development services (market information, market intelligence, technical and business training, facilitation of linkages of producers with buyers, organization and support for collective marketing)

Financial services (credit, saving, risk insurance) Policy and regulatory services (property rights, market and trade

regulations, investment incentives, legal services, taxation)

Production

Post-harvesthandling

Processing

Retailing

Consumption

Trading

Trading

- -

Market information and intelligenceMarket information and intelligence

Financial servicesFinancial services

TransportationTransportation

CommunicationsCommunications

Govt. policy regulationGovt. policy regulation

Tech. & business training & assistanceTech. & business training & assistance

Production input supplyProduction input supply

& Business Support Services

ResearchResearch

The Value Chain

Transport

Input Supply

What is value chain analysis (VCA)?

Value chain analysis is a heuristic or analytical tool designed to provide operational guidelines to improve efficiency of vertical coordination of chains. The research can be descriptive (positive) or prescriptive (normative).

VCA is a dynamic approach that examines how markets and industries respond to changes in the domestic and international demand and supply for a commodity; technological change in production and marketing; and developments in organizational models, institutional arrangements, or management techniques

VCA looks at the chain as a set of institutions and rules; as a set of activities in producing, processing and distributing commodities; and as a set of actors involved in the value addition and distribution process.

What is value chain analysis (VCA)? (2)

VCA focuses on chain governance and power relationships which determine how value is distributed at different levels.

Through the analysis of systems and power relations at different levels, value chain analysis enables a more comprehensive modeling of the effect of interventions at different levels.

VCA aims at identifying how the productivity of chain activities can be improved, either through improved technologies, organizations, institutions to better coordinate the various stages of production and distribution, and meet consumer demand.

Why the interest on VCA?

A comprehensive understanding of the operation of commodity markets requires an understanding of the operation of the different stages through which a product and its associated value additions pass on from production to consumption or end use

A comprehensive understanding of the coordination of the value chain requires a careful assessment of consumer demand characteristics and the organizational and institutional arrangements that are in place to meet these demands.

Concepts underpinning VCA

Effective demand Effective demand as the force that pulls goods

and services through the vertical system

Hence the need to understand how demand is changing both at the domestic and international markets, and the implications for value chain organization and performance

Concepts underpinning VCA (2)

Verticality and vertical coordination Verticality implies that conditions in one stage in the

chain are likely to be strongly affected by conditions in the other stages in the chain, in direct and indirect ways and in expected and unexpected ways

Hence, primary focus of VCA is on the vertical dimension and the interest is how productive, efficient and effective value chain are in the production, transformation and distribution of the commodity

VCA needs to unravel this

Concepts underpinning VCA (3)

Value chain governance The roles of coordination and associated roles of identifying

dynamic profitable opportunities and apportioning roles to key players

Implies interactions between firms reflect organization, rather than randomness

Three types of power in chain governance Setting basic rules for participation in the chain Monitoring the performance of chain actors in complying

with the basic rules Helping chain actors adhere to basic rules

Some value chain may exhibit very little governance There may be multiple sources of governance Power of governance may be vested with the chains, in local

communities, or in business associations

Concepts underpinning VCA (4)

Leverage Interventions that could have the most

significant impact on the value chain With a large number of firms, interventions

aimed at each individual firm may be infeasible

Hence, VCA helps identify leverage points: System nodes Geographic clustering Policy constraints

Potential objectives of VCA

Identification of leverage points to improve chain performance

Analysis of agriculture-industry linkages Analysis of income distribution Analysis of employment issues Analysis of economic and social impacts of

interventions Analysis of environmental impact of interventions Guide collective action for marketing Guide research priority setting Conduct policy inventory and analysis

Innovation possibilities in VC

Input supply Production and post harvest Marketing options Technical assistance and training Organization and coordination of marketing functions Market information and intelligence Market institutions Market infrastructure Financial services Policy and regulatory issues

Part III: Integrating ISP and VCA in AR4D

Integrating ISP and VCA

Enterprises and value chains are embedded in the AIS

Market process and IS are mutually embedded and cannot have one without the other

Innovation can occur any where along the value chain

An Innovation is a continuous learning process in which individuals/group of individuals/organizations/firms master and implement the design, production, and marketing of goods and services that are new to them, although not necessarily new to their competitors domestic or foreign (Metcalfe, 2008).

Embraces:

- Continuous improvement in product design and quality - Change in organization and management routines- Creativity in marketing- Modification to production processes

Within the value chain context

Linkages to other economic sectors

Linkages to general science & technology

Linkages to international

actors

Linkages to political system

Agricultural value chain actors & organizations

Input suppliers

Agricultural producers* Different categories

Trade processing, wholesale, retail,

Consumers

Agricultural research system

* Public sector * Private sector * Third sector

Agricultural education system

* Primary / secondary* Post-secondary* Vocational training

Agricultural advisory services* Public sector* Private sector* Third sector

Bridging institutions

Agricultural research and education systems

Informal institutions, practices and attitudesExamples: Learning orientation; trust; communications; practices; routines

Integration in value chains

Political channels

Stakeholder platforms

Agricultural policies and investmentsGeneral agricultural policies and specific agricultural innovation policies

Agricultural Innovation System

Source: (Birner & Spielman, 2007)

Facilitating InstitutionsPolicies, legal framework, market, information, quality control Research, extension, training, credit, etc.)

Facilitating ServicesTransport, storage, packaging, facilitating, equipment, import and export, communication, promotion, etc.

AIS in an Agri-value chain

Agro-industry (Input supply)

Agricultural production (Farm production)

Agro industry (Product marketing)

Processing Value adding

Marketing

Enabling environmentPolitical stability, law and order, infrastructure, Governance favorable micro-macro and sectoral policies, etc.

Framework Conditions

INSTITUTIONS

Knowledge Generation

Knowledge Adaptation

Knowledge Dissemination

Knowledge Application + Use

INNOVATION CAN OCCURE ANYWHERE IN THE VALUE CHAIN

Agro-industry inputs and services Agricultural

Production

Agro industryProcessingMarketingRetailing

LEARNING

ACTORS+ACTIONS+INTERACTION

Value additionValue addition

Integration of Value Chain and Innovation

Integration of Value chain and Innovation system perspective in Research for Development

Target Group Identification

Broad understanding of the Livelihood of the Target Groups (Unit of analysis is the HH)

Prioritizing enterprises within the Target Group

Identifying and describing the Value chain of priority enterprises

National Innovation System- Generic (dealing with science and technology at National Level)

Intervention Based Innovation System (Based on the priority problem)

Agricultural Innovation System-Generic (dealing with Agricultural S & T)

Commodity based Innovation System (dealing with the entire value chain of an enterprise)

Prioritizing the key component of the Value chain-1st level priority setting

Prioritizing problems within the priority key component identified

Analysis of the priority problems identified

Identifying potential Intervention

Identifying feasible Intervention

Planning, Implementation and Evaluation

Screening (Ex-ante assessment)

Dissemination, Utilization by end users, and scaling out

This implies

Much more flexible arrangements in which dense networks of entrepreneurs, farmers, research, training and policy organizations interact and respond to new circumstances is required

New skills and attitudes are required to work with partners in multi-stakeholder process and networks and platforms.

Key Issues and Challenges

Limited awareness of theconcept, application and implications

Lack of empirical evidence in the application, utility and value addition (agricultural sector)

Outstanding methodological issues assessing successful partnerships, networks and

innovations reducing transaction costs

Key Issues and Challenges (2)

Institutionalization and effective Integration into the agricultural R&D process requires

Changing the mindset and attitude of various stakeholders Building the culture of innovation Building capacity

- To apply the concept

- To continue to build capacity

Sustainable governance mechanisms for AIS Incentive and reward system Developing coherent set of policies Internally driven organizational strategy

How do we scale up the capacity to innovate?Absorptive capacity: acquisition, assimilation, transformation and exploitation of knowledge

How to promote pro-poor innovation?

How to identify/generate commercially relevant innovation and how to achieve it consistently

How to ensure socio-economic equity and

environmental sustainability?

Key Issues and Challenges (3)

Note

Effective integration is an evolutionary process which requires long-term commitment by all key stakeholders within the AIS

We appreciate your comments and

suggestionsThank You!