Costs and value added calculation in livestock value chains—A technically robust process

Costs and value added calculation in livestock value chains—A technically robust process

Jean-Joseph Cadilhon (ILRI)

REVALTER Project Seminar

Hanoi, 7 January 2015

Outline

• Oversimplification of comparing sales prices

• Value chain approach to identify market intermediaries and

their value addition

• Complexity of technical processes in livestock chains

• Production costs per stakeholder

• Comparable costs and value added per unit of final

consumer product across the value chain

• Conclusions2

Comparing sales prices

3

Sale prices (000 VND) Producer … … Retailer

Hybrid pig in Mai Son (Son La)

45 / kg 89 / kg

Exotic lean pig inThong Nhat(Dong Nai)

50 / kg 85 / kg

Milk in Ba Vi (Hanoi) 13 / L 35 / L

Evilmiddlemen!

Source: REVALTER field research

Unequitablevalue chain!

Comparing sales prices

4

Sale prices (000 VND) Producer … … Retailer

Hybrid pig in Mai Son (Son La)

45 / kg 89 / kg

Exotic lean pig inThong Nhat(Dong Nai)

50 / kg 85 / kg

Milk in Ba Vi (Hanoi) 13 / L 35 / L

Different productsso cannot compare

prices directly

Live pig Loin meat

Other stakeholders (includingwomen) add value to and

process primary produce intoconsumer product

Value chain approach

5

Identify stakeholders and the value they are addingto transform primary produce into consumer product

Source: Adapted from Lundy, M. and others. 2012. LINK Methodology. A Participatory Guide to Business Models that link Smallholders to Markets. Cali, Colombia: CIAT.

Process of dairy products production in Ba Vi (Hanoi)

6

UHT Milk

Pasteurizing

technology

Low temperature

pasteurizing

technology

Processing Transport

Collection systems

Materials

(milk, additional products)

Pasteurized fresh

milk products

Yoghurt

(Sugar/no sugar)

Milk fermenting

technology

UHT milk

products

Milk condensing

technology

Other

methods

Milk cakesCaramel,

Yoghurt

Source: Pham Van Dung and Nguyen Mai Huong, REVALTER Project

Identify the detailed production and processing stepsto calculate conversion factors between raw, intermediaryand final consumer products

Structure of production costs for chain actors

7

Raw materialsVariable costs

Fixed costs

Other inputs and services

Hired labour

Depreciation (capital)

Taxes and financial costs

Long-term loans

ProfitProfit*

Value Added

Gross revenue

Need to choose one common unit of product to comparecosts and value added across value chain actors

* Family labour involved in the enterprise is likely to be remunerated from profits rather than throughfixed costs

Value added along the chain

8

Varia.costs

Fixedcosts

Profit

Retailer

Varia.costs

Fixedcosts

Profit

Processor

Varia.costs

Fixedcosts

Profit

Collector

Variab. costs

Fixed costs

Profit

Producer

Rawmaterials

Addedvalue

Addedvalue

Addedvalue

Addedvalue

Rawmaterials

RawmaterialsRaw

materials

Retailprice

Wholesaleprice

Collectors price

Producersprice

Conclusions

• Only comparing sales prices is too simple to capture the complexity of

livestock value chains

• Using a value chain approach identifies the value added along the chain

• Detailed calculation of costs materializes the value added along the value

chain

• This complex exercise requires economic expertise and reliable

information from all stakeholders

• Results provide more robust evidence to qualify equity and effiency of the

value chain

• Results are useful to prompt discussions among industry partners and

policy makers on interventions to improve the value chain

9

Further reading

Philippe Boyer, Jean-Joseph Cadilhon, Jean-Noël Depeyrot, Myriam Ennifar, Louis-Georges Soler, 2013, Le suivi des prix et des marges pour l’analyse de la formation des prix au détail des produits alimentaires, NESE 37 (Janvier-Juin 2013): 87-125.

Philippe Boyer, Jo Cadilhon, Louis-Georges Soler,

The French Observatory on formation of food products’

prices and margins, a presentation given to the OECD

Food Chain Network on 13 September 2011,

FranceAgriMer, Paris.10

Thanks to Guillaume Duteurtre (CIRAD) for digitalizing the costs and

value addition charts and to other Malica consortium partners for

discussions to improve and adapt these charts to local context.

This research was undertaken as part of the REVALTER project on

future prospects for livestock in Vietnam and co-funded by Institut de

Recherche pour le Développement (IRD) and the CGIAR Research

Program on Livestock and Fish.

Acknowledgements

The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI.

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