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Levelling the playing field for the rural poor through inclusive agricultural value chains

Author : Annette O. Pelkmans-Balaoing

Program : Program on Escaping the Middle-Income Trap: Chains for Change

Abstract : Agricultural value chains are non-inclusive due to the breakdown of institutions and markets for goods and services, especially those most needed by the poor. The highest transaction costs are experienced by smallholders at the end of the value chain where the extent of market failures is typically most severe. Lead firms and other powerful players in the value chain have the capacity to influence the governance and the outcome of value chains for smallholders, potentially making them powerful forces for inclusion. Their decision to directly address market and institutional failures instead of merely ‘purchasing’ efficiency changes the whole dynamics of the value chain. The typical trickle-down growth mindset where efficiency is given priority over equity is reversed, thereby initiating the build-up of social investments for smallholders. This complementarity of private, public, and non-profit investments through sectoral partnerships is thus one of the basic pillars of inclusive value chains. This paper examines the transitions from non-inclusive to inclusive value chains and culls several lessons from three cases of inclusive business models in agricultural chains in the Philippines.

Keywords : Inclusive value chains, inclusive business models, agro-enterprise development, social investments, societal partnerships