A value chain consists of a series of activities that add value to a final product, beginning with the production, continuing with the processing or elaborating of the final product, and ending with the marketing and sale to the consumer or end user. The inter-dependent linkages of the chain and the security of a market-driven demand for the final product, provide the producers and processors with an assured market for their products. This reduces risk thus making it easier to obtain financing and at lower cost from banks and other financiers. The linkages also allow financing to flow up and down the chain. For example, inputs can be provided to farmers and repaid directly from the sale of the product without having to go through a traditional loans process.
There is no universal model for a value chain, however and much needs to be learned and experiences share. Understanding the conditions under which value chain finance works or doesn't work is useful for governments and donors as well as for lenders, agribusinesses and producer organizations interested in improving the supply of and access to finance for rural producers. For this reason, FAO is organizing a series of regional conferences to learn about and share the different examples and models that currently exist and apply them to other situations.
The first workshop held in San José, Costa Rica, in May 2006 was organized by FAO, together with support from the Regional Unit for Technical Assistance (RUTA); Academia de Centroamérica, a private research centre in Costa Rica; and the Rural Financial Services Support Programme (SERFIRURAL). Participants agreed that integration into dynamic and efficient value chains is an important strategy for financing rural farming industries. In addition to improving farmers' access to market information, technical support and technology, value chain integration reduces risks and increases access to financial services. Promising models of value chain finance highlighted at the seminar include the use of structured finance, the financing of 'chain leaders' who lend to traders and suppliers, the financing of organized groups with secure access to markets and technical assistance, and the financing of informal intermediaries who work closely with farmers.
Other workshops are planned for Asia and Africa. |
