Tools & Techniques for Analyzing Livelihoods & Making Intervention

Compiled byCompiled byCompiled byCompiled by S.Rengasamy

Madurai Institute of Social Sciences

S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

2

ContentContentContentContent

Part I:Tools & Techniques for Livelihood Analysis & Intervention The need & importance of tools in livelihood promotion 4 Box Why investigate livelihoods 4 Box DFID –Methods of livelihood analysis 5 Box Various participatory methods & its uses 5 Participatory methods & livelihood analysis 6 Importance of participatory methodologies 6 Box Classification of stages in community work / livelihood promotion 7 Box Meaning of instrument, tools …. 7 Meaning of a tool 7 Box Levels of livelihood profiles 7 Box Tools suggested by IMM in its SLED approach 8 Box Livelihood analysis. Strength & weaknesses of various research methods 8 Tools & techniques in designing livelihood promotion ISLP Model 9 Box Stages in livelihood analysis 9 Dia Stages Steps Tools 9 Step 1. Getting to know the people 10 Box Uses of livelihood information 10 Box Livelihood intervention Points for consideration 10 Step 1.Understanding the diversified livelihood portfolio in the area 10 Box Importance seasonal diagram 10 Getting to know the livelihood profile of the poor people 11 Box Checklist to understand the livelihood profile 11 Step 2. Assessing the factor condition 11 Box Assets description 11 Tab Additional information useful to understand factor condition 12 Talking to key informants 13 Box Suggested key informants 13 Step 3. Understanding the local demand conditions 13 Box Extractive & empowering methods 14 Step 3.1.Identifying enterprises in the area 14 At the village 14 At the market 14 Box Social metabolism 14 Box Looking at the market place 15 Step 3.2. Mapping all that go out and come in 15 Dia Functions of Trade 15 Tab What to look in to the local market - Local markets –What comes in Local markets –What goes

out 16

Box Market development & poverty reduction 17 Stage II. Selecting livelihood activities suitable for the area 18 Step 1. Triangulation 18 Tab 1.Activity Analysis 2.Finding the suitability of activity 18 Step 2. Understanding the demand conditions better 19 Box Why look at the demand condition: A lesson 20 What do we look for in the market 20 Size of the market, Growing market, Dynamism, Transparency, Low barriers, System etc… 20 Stage III. Getting to know the selected activity Step 1. Deciding an intervention 21 3 E Exercise (Exercise for Exploring External Environment) 21 1. Identify key informants 2. Develop questionnaire /check list for assessment 3.Scoring by key 22


3

informant 4. Aggregate scores 5. Compare scores of different activities 6.Identifying bottlenecks 7. Identifying interventions

Stage 2. Overlaying organizational competency 25 Step.2.1. identifying intervention that can help to overcome bottlenecks 26 Step 2.2. Assess organization’s competence 26 Tab Assessing organization’s competence 26 Box Listen to your heart as well 27 Tab Levels of livelihood profiles and how it helps 28 Tab Information to be collected, tools to be used in relation to livelihood themes 29

Part II Viability, Range of goods, Clustering, Internal & External Economies, Backward & Forward

Linkages. 30-34

Part III: Sub sector Analysis / Value Chain Analysis Box Footprints of commodities 35 Why sub sector analysis 35 Box 3 E Exercise 35 Dia Sub sector model 36 Dia Local Global value chain 36 What is a sub sector 37 Box Value chain /Sub sector analysis can help 37 Box Elements of sub sector analysis 37 What is sub sector analysis 37 Dia Steps in sub sector analysis 38 Step A: Preparing a preliminary sub sector map 38 Getting to know the sub sector 38 Dia Sub sector map : Green Beas for export 39 Dia Stages in enterprise value chain 39 Dia Green Beas for export –Constraints and business service identification 40 Box Value chain 41 Box What does value chain analysis entail 41 Step B:Interviewing key informants 41 Box Sectors, Clusters & Networks 42 Box Value chain governance 42 Box Charcoal value chain 43 Box Milk subsector value chain 44 Step C:Drawing a preliminary sub sector map 45 Refining the understanding of the sub sector 45 Box Social relationship in a charcoal value chain 45 Specifying the institutional context 45 Tab Regulation, Promotion, Credit, other institutional factors 46 Step B: Specify the environmental context 46 Box What does upgrading means 47 Step C: Refine the subsector map 47 Dia Rice chain in Thailand 47 Step D:Quantify overlays of particular interest 48 Step 3: Analyzing sub sector dynamics and leverage points 49 Analyzing the dynamics of the sub sector –i.e. Key demand, Technological change, Profitability,

Risk, Barriers to entry, Large firm behavior, Input supply, institutional support, Identify sources of leverage points

49-50

Choosing the right intervention point 51


4

ம�கள��ம�கள��ம�கள��ம�கள�� பைழ� பைழ� பைழ� பைழ� �ைறகைள�ைறகைள�ைறகைள�ைறகைள / / / / வா�வாதாரவா�வாதாரவா�வாதாரவா�வாதார �ைறகைள�ைறகைள�ைறகைள�ைறகைள அறி��ெகா�ளஅறி��ெகா�ளஅறி��ெகா�ளஅறி��ெகா�ள/ ைகயாளைகயாளைகயாளைகயாள உத��உத��உத��உத�� ஆ!�ஆ!�ஆ!�ஆ!� �ைறக"��ைறக"��ைறக"��ைறக"� உ#திக"�உ#திக"�உ#திக"�உ#திக"�

எ%எ%எ%எ%. . . . ெர'கசாமிெர'கசாமிெர'கசாமிெர'கசாமி ம�ைரம�ைரம�ைரம�ைர ச)கச)கச)கச)க அறிவய*அறிவய*அறிவய*அறிவய* க*+,க*+,க*+,க*+,

Tools and Techniques for analyzing livelihoods & intervention Tools and Techniques -A way to losing less and winning more

Tools and Techniques help us to understand Where are we? Where do we want to be? How best can we get there?

The need & importance of tools in livelihood intervention Tools and techniques are the means, using which we can understand a phenomena; using which we can make right decisions; using which we can improve our relationship with the community; using which we can improve our efficiency. Tools and techniques are neutral and its efficacy depends on our ability to use/ manipulate it. For example taking a survey to understand a social condition. If survey is a tool, then designing an interview schedule, interviewing the respondents and making observation during survey are all can be considered as techniques. The process not only helps us to understand a social phenomenon, but it also helps us to relate with the respondents, provides clarity about the reality and that clarity improves our efficiency. There are lot of tools and techniques available to design a livelihood programme. The first step in designing any livelihood intervention is to understand the livelihood pattern of the people with whom we have decided to work.

In the past development workers used socio economic surveys or baseline surveys to understand communities and people. There are lot of similarities in socio economic surveys of the past and our present attempt to understand the livelihood profile of the people. Though fixed line telephones and cell phones do the same function one can understand the differences also. Like that understanding people’s livelihood cannot be fully actualized if we solely

Why investigate livelihoods? The SL approach offers an opportunity to improve poverty reduction efforts by taking an all round view of the circumstances of the poor, as they themselves view them, rather than jumping to early conclusions and immediately proceeding to conduct isolated, in-depth analysis of particular attributes. • What appears to be the mainstay of household income – e.g. a cash crop such as chili or cotton? or a particular type of paid employment – may make a much smaller contribution to the family livelihood than is expected from initial impressions. • Asset constraints vary from place to place, group to group and across income levels; poorer groups typically have more limited access to assets and are more constrained in their choice of livelihood strategies than richer groups. • Different social groups within a community typically experience differing risk factors in their livelihoods; these need to be understood if vulnerability is to be reduced. • The capability of individuals and groups to exercise choices may be constrained by social and governance factors that are not immediately obvious. SL analysis provides a holistic framework for understanding the need for, and likely focus and objectives of, subsequent development activity. Such activity may itself be sectoral, though its objectives are most likely to be framed in terms of overall poverty reduction


5

depend on survey methodology only. We need to use variety of tools and techniques that are painstakingly developed by the development workers over the period of time.

DFID Suggested Methods for Livelihood Analysis Environmental checklists Gender analysis Governance assessment Institutional appraisal Macro-economic analysis Market analysis Participatory poverty assessment techniques Risk assessment Social analysis Stakeholder analysis Strategic conflict assessment (SCA) Strategic environmental assessment (SEA) Secondary data Key informants Individual and household case studies Participatory Methods

Various participatory methods and their uses PRA method Brief description Particularly useful for Timelines Historical profiles of longer-term events

or trends Vulnerability context, policy change

Seasonal calendars

Graphical depiction of seasonal events or trends

Vulnerability context, assets, strategies

Transect walks

Land-use maps based on walking through particular areas

Quality and quantity of natural capital

Resource maps

Maps identifying natural and other resources

Existence of shared natural capital

Social maps Maps locating key social features Access to services and infrastructure Preference ranking

Ordinal ranking based on pair wise comparisons, with reasons stated for the choices made

Livelihood strategies, assets, access to services

Matrix ranking Preference ranking based on defined criteria with scoring

Access to infrastructure, livelihood strategies, investment choices

Wealth ranking

Assigning households to well-being categories

Strategies and assets needed to exit from poverty, relations between social groups

Venn diagrams

Diagrammatic representation of key institutional interactions

Social capital, relations between social groups, institutional and policy environment


6

It is the experience of the livelihood promoters throughout the world that using participatory methodologies is the best means to understand the livelihood profile of the people.

Participatory Methods to Livelihood Analysis Livelihood concept itself is the result of our improved understanding and knowledge about the poverty and poor and the improvement itself as claimed by the development workers, is the result of the application of participatory tools and techniques. Hence understanding of livelihood and to make appropriate intervention also demands the application of participatory tools and techniques. Livelihood promoters used variety of tools ranging from social mapping to market mapping exercises. Practically any tool or methodology that has been proved to be effective, used in the right way and bearing in mind the principles that development workers have agreed upon, can be useful in putting the Sustainable Livelihoods Approach into action. A key feature (in line with being people-centered) is that the development workers should seek to use tools that not only help them to work effectively but also can be put in the hands of the people who are the subjects of the development process so that they can take a direct role in making their own decisions about their futures. The key point regarding the tools that are used as part of the Sustainable Livelihoods Approach is the way in which they are used and the attitude of those who deploy them. Even the best of tools, no matter how effective, efficient, participatory and empowering it is supposed to be, will contribute little to positive development outcomes if it used in the wrong way.

Importance of Participatory Methodologies For example, the various participatory field tools that are commonly used during “PRA” can be very effective if used properly – as a means of empowering local people to do their own analysis and planning. But very often they are used by development workers as a means of extracting information and merely confirming their own preconceptions and prejudices. Used in this way they can be very damaging. On the other hand, “old-fashioned” tools like formal, questionnaire surveys, if carefully planned tested and implemented, leaving time for interaction with local people can be extremely powerful tools both for learning about livelihoods and for empowering local people.

Because the Sustainable Livelihoods Approach encourages adaptability and needs to be “reinvented” every time it is applied, new tools are constantly be added to the list of those that can be used. Development workers who are being encouraged to adopt the Sustainable Livelihoods Approach should also be encouraged to think of new tools, or adapt tools that they are already using so that they reflect the principles of the Sustainable Livelihoods Approach and help to implement it more effectively. There are many tools and techniques that livelihood promoters can use to assist in moving the communities forward. Some of the tools are examined here and an attempt has been made to classify it so that livelihood promoters can find a tool or technique appropriate for their objectives


7

Levels of Livelihood Profiles Livelihood Zone Maps - Area Level A livelihood zone map delineates geographic areas within which people broadly share the same livelihood patterns, including access to food, income and markets. It facilitates monitoring and targeting of assistance geographically. Livelihood Profiles - Community level A livelihood profile is a description of household livelihood options--including food and income sources and market access--of different wealth groups in the livelihood zone and the hazards to which they are vulnerable. It facilitates design of seasonally specific monitoring systems, helps determine trends in monitoring information by season and household type, and provides context to understand the implications of a shock. Livelihood Baselines –Household Level A livelihood baseline is a more detailed, quantified breakdown of household livelihood options (food, income, and expenditure patterns) for different wealth groups in the livelihood zone, highlighting market links and constraints on and opportunities for economic growth. It is linked to analytical spreadsheets that are used to assess whether people will be able to meet basic survival requirements and/or protect their livelihoods in the short-, medium- and long-term.

Instrument refers especially to a relatively small precision tool used by trained professionals: Implement is the preferred term for tools used in agriculture and certain building trades: Utensil often refers to an implement used in a household, especially in the kitchen: Appliance most frequently denotes a power-driven device that performs a specific function:

Classification of stages in community work /livelihood promotion Stages in livelihood promotion

Tool or technique focuses on

Pre or Beginning conversing, discussing, researching, learning, sharing 1 Assess benchmarking, brainstorming, measuring, researching, analyzing, evaluating 2 Focus planning, prioritizing, deciding, focusing, resolving 3 Act doing, completing, moving, carrying out, implementing The Process – the flow Guiding, steering, leading, facilitating, presenting, communicating,

disseminating—these are techniques that can help steer or guide a community through a process. These “Processes” provide the necessary lubricant that allows things to happen and often link the Beginning-Assess-Focus-Act steps.

Tools and techniques that are used by the livelihood promoters are relatively simple to self- administer, easy to understand and relatively inexpensive. Their accessibility varies: some are self-administered; others could be conducted by a facilitator with a broad knowledge of community processes, while a few would require a facilitator with specialized training.

Meaning of a tool There is no universal definition for tools (Tool applies broadly to a device that facilitates work- any object, skill, etc., used for a particular task or in a particular job- Something that is used to assist with the modification of an object or situation. Something that is used to create or destroy) and techniques (The systematic procedure by which a task is accomplished- any

method or manner of accomplishing something). We believe tools and techniques to be interventions that assist a livelihood promoter to move forward or reach goals.


8

Tools suggested by IMM in its SLED approach In order to put the sustainable livelihood principles into practice and respond to the issues raised by the framework, obviously we need tools. Any tool that works can be used (provided they also allow us to work according to the principles). Examples of tools have been used in the course of interventions that follow the principles of the Sustainable Livelihoods Approach include: •participatory learning approaches, including participatory appraisal – PRA - and participatory learning and action – PLA •appreciative enquiry •formal survey methods •community planning and community-driven development approaches •trade-off analysis •logical framework planning •participatory monitoring and evaluation •stakeholder analysis •informing and influencing, and advocacy approaches •institutional analysis •policy analysis …….or practically any other tool or methodology which can help us, and the people who are the subjects of the development process, to develop an understanding about the objectives, scope and priorities for development. The key point regarding the tools that are used as part of the Sustainable Livelihoods Approach is the way in which they are used and the attitude of those who deploy them. Even the best of tools, no matter how effective, efficient, participatory and empowering it is supposed to be, will contribute little to positive development outcomes if it used in the wrong way. For example, the various participatory field tools that are commonly used during “PRAs” can be very effective if used properly – as a means of empowering local people to do their own analysis and planning. But very often they are used by development workers as a means of extracting information and merely confirming their own preconceptions and prejudices. Used in this way they can be very damaging. On the other hand, “old-fashioned” tools like formal, questionnaire surveys, if carefully planned, tested and implemented, leaving time for interaction with local people, can be extremely powerful tools both for learning about livelihoods and for empowering local people. Because the Sustainable Livelihoods Approach encourages adaptability and needs to be “reinvented” every time it is applied, new tools are constantly be added to the list of those that can be used. Development workers who are being encouraged to adopt the Sustainable Livelihoods Approach should also be encouraged to think of new tools, or adapt tools that they are already using so that they reflect the principles of the Sustainable Livelihoods Approach and help to implement it more effectively.

Livelihood Analysis: Strength & Weaknesses of various research methods Type of research

Strengths Weaknesses

Qualitative

Provides the initial basis for further quantitative work (may be sufficient on its own) More participatory Can be quick and low cost Good for social processes and context Can explain causes of quantitative findings

More prone to bias because of reliance on interpretation Difficult to infer population characteristics from a small sample Can be very time-consuming

Quantitative

Can be more concrete, systematic Can infer population characteristics from a small sample Can test the significance of quantitative findings

Concreteness can mislead Can be very extractive Tendency to collect too much data and to produce


9

Tools & Techniques in designing livelihood promotion-ISLP Model

Stage I: Observing and Understanding the Local Economy Step 1: Getting to Know the People: Understanding their diversified livelihood portfolio Step 2: Assessing Factor Conditions Step 3: Understanding Local Demand Condition: - Identify enterprises existing in the area… - Mapping all the products and services that go out and come in Stage II: Selecting Livelihood Activities Suitable for the Poor in the Area Step 1: Triangulation: Putting the information on people, the factor and demand conditions together Step 2: Understanding the Demand Condition of the short-listed activities better Stage III: Deciding on intervention Step 1: Exercise for 3-E Step 2: Overlaying Organizational Competence Additional Tool: Sub-sector Analysis

Stages Steps Tools

Stage I Observing & Understanding the

Local Economy

Stage II Selecting Livelihood Activities Suitable for the Poor in the

Area

Stage III Deciding on intervention

Getting to Know the People: Understanding their diversified livelihood portfolio

Assessing Factor Conditions

Understanding Local Demand Condition

Identify enterprises existing in the area

Mapping all the products & ser -vices that go out and come in

Triangulation: Putting the information on people, the factor and demand conditions together

Understanding the Demand Condition of the short-listed activities better

Exercise for 3-E

Overlaying Organizational Competence

Tools that are used in livelihood analysis are not discrete tools – they overlap internally (e.g. market analysis or institutional appraisal might both make use of stakeholder analysis, and gender analysis will feature as a component of most other types of analysis). • Some tools are relevant for all aspects of SL analysis. Others are more appropriate for particular framework components or particular levels of analysis (local, district, national, etc.). • Though some tools are ‘traditional’ tools, it is important to use them creatively. The SL approach demands more of existing tools while the SL principles and framework provide the basis for adapting tools to new uses. The focus should be on development outcomes not disciplinary orthodoxy


10

Livelihood intervention – points for consideration • How will the proposed livelihood opportunities meet the needs of the household? • How well does it match the resources and skills available to the household? • How will it fit into the daily and seasonal rhythms of the household? • Will it increase the household’s income or assets? • Will it reduce or enhance the risks faced by the household? • What assurances can be put in place to mitigate risk? • Will the activity require organizing poor households in groups? • How capable is the household to participate in such organization? • What inputs will it require from us?

Step 1: Getting to know the people Livelihood means life. Before any livelihood intervention is planned it is important to know present livelihood pattern of the people. Their culture, attitudes, skills and life-style shape the ultimate choice of livelihoods.

Let us remember that the poor people, even before our intervention, are deployed into different activities. Influencing any one of them, or introducing a new piece of action often happens at the cost of one of the existing activities. There are two processes that we need to follow

to get an understanding of the livelihood profile of the people. • Understanding the diversified livelihood portfolio in the area • Getting to know the livelihood profile of poor households

Understanding the diversified livelihood portfolio in the area The livelihood profile of a poor household composed of: the livelihood capacities, livelihood strategies and livelihood portfolio. The poor people are often engaged in more than one activity for their livelihood in order to maintain their cash-flow and also as a risk management strategy. To promote livelihoods for poor people, it is important to understand the livelihood profile of that people in the area, so that the proposed intervention fits into people’s daily and seasonal rhythm of life.

Uses of Livelihoods Information Early Warning and Monitoring Systems Assessing Emergency Food and Non-food Needs Answer Targeted Questions on a Range of Livelihoods-related issues

Importance of Seasonal Diagram to understand livelihoods 1. First, identify three groups of people from within the group of people we would like to work

with. These could be groups from three villages, or three communities or any other social segment we are working with.

2. Go to these poor families and do a seasonality mapping exercise to understand their livelihood pattern throughout the year.

3. Make a list of the various activities they are involved in at different points in time. Understanding the income from various sources may help us formulate the seasonality diagram. Often poor people find it difficult to assess their income. Therefore, we may try to understand their expenditure pattern to know their income pattern and draw the seasonality diagram.

4. Also try to understand the major bottlenecks in each activity. Make a note of these. 5. Make a note of the months in a year they are without work or migrate. 6. Consolidate the seasonality diagrams from different groups to develop a list of various

activities people in the area are involved in, with an indication of their magnitudes.


11

Getting to know the livelihood profile of poor households Understanding the livelihood profile/ pattern of any area will definitely result in better understanding of the livelihood capacities of the people in the area and livelihood strategies used by them. In addition to this one has to understand the livelihood profile of the poor people using the following check list

Step 2: Assessing Factor Conditions Factor Conditions play an important role in delimiting what livelihood opportunities can be taken up by people. Therefore, one need to know the factor conditions of the area in some detail. Livelihood choices are dependant upon availability and/or access to various resources. DFID Framework for Sustainable Livelihoods is a very useful way of looking at the conditions that influences livelihoods. Varieties of tools are used to understand the factor conditions. Natural and physical resources can be best understood by using resource maps. Social resources can be best studied by using venn diagrams and human resources with social maps.

Natural resources Land: terrain, quantum, quality, distribution and uses -Water: annual rainfall, groundwater levels, sources of irrigation -Humidity -Forests: quantum, tree species and usage Livestock -Mineral wealth-Energy sources Are there any environmental threats to these natural resources?

B. Physical resources Irrigation infrastructure: Tanks, Canals, Bore wells Markets: Shandies, Haats, Market yards -Warehouses – Electricity -Roads, Railway lines-Transport facilities Post Office, Banks-Health facilities D. Social resources Relationships of trust and reciprocity within and between communities -Gender relations Caste relations -Agrarian relationships E. Financial resources -Available sources of credit – formal and informal Interest rates and collateral requirements on different credit sources -Credit requirements of different income/occupational groups of people - savings mechanisms -Other financial services

C. Human resources Population -No. of households and family size -No. of earning members per family Labor availability and skill levels – manual, craft, service and knowledge base Entrepreneurial ability of various communities in the population -Education profile of population - Health profile of population -Gender division of all the above

The following check list may help to understand the livelihood profile of the poor people What are the major needs of the family?

(1) (2) (3) (4) (5)

Which is the most critical period of the year? Which is the most reliable and most often practiced copping mechanism of the family? What is the most critical input the family is missing to enhance its income/livelihoods? What is the most critical linkage the family is missing to enhance its income/livelihood? What is the relative importance of credit with respect to all other missing inputs for the selected/proposed venture to enhance income? What is the maximum volume the family can handle properly? What is the minimum amount of credit the family immediately need for what it has a well thought out viable plan? What should be the timing of credit?


12

Additional information that may be useful to understand the factor conditions S.No Particulars Information Needed Sources

1

District Background

Location Rainfall Climate

District Economic Census: District Statistical Office/ Planning Office in some districts District Potential Link Plan (published by NABARD for every district) District Credit Plan (published by the lead bank of every district)

2 Population

Rural - male, female Urban - male, female Computed Annualized Growth Rate - Rural, Urban

District Census Data: District Statistical Office/Planning Office in some districts

3 Literacy Rate Rural - male, female Urban - male, female Computed Annualized Growth Rate - Rural, Urban


4

Workers Participation Rate

Rural - male, female Urban - male female Computed Annualized Growth Rate - Rural, Urban Workers Classification as per NIC


5

Land

Land Use Classification Cultivable Land Classification: small, marginal, medium, etc. both acre-wise and landholding-wise

Seasonal Crop Report: ICAR

6

Agriculture Cultivable Lands: Net, Gross & trend Reasons, for changes, if any

Seasonal Crop Report

(Compare data with adjacent district or state averages)

Major food crops: cultivable area, productivity & trends Major Non-food crops: cultivable area, productivity & trends Availability of Market Infrastructure Constraints in agriculture production & marketing

NABARD: District Potential Link Plan LEAD Bank: Annual Credit Plan APMAC Discussion with Stakeholders

7 Water Irrigated Land: Net, Gross, trend Sources of Irrigating Water

Seasonal Crop Report

8

Animal Husbandry

Major animals reared: Population, products production Infrastructure for value addition & marketing trends Marketing Trends and Constraints

Census of Animal Husbandry NABARD: District Potential Credit Link Plan Discussion with Stakeholders


13

Suggested Key informants who can provide valuable information in a very short time. Market traders or authorities, Bankers, Heads of villages, caste and other groups, members of SHG, water user associations, women’s groups, officials from promotional and regulatory bodies, NGOs, Researchers, Teachers

9

Forestry

Coverage, type & trend Forest Produce - kinds and in Rs and trends Participation of JFM Scope for income generation

Seasonal Crop Report NABARD: District Potential Link Plan Directorate of Economics & Statistics Discussion with Stakeholders

10 Mining and Quarrying

Major elements mined/quarried Production - kinds and in Rs Employment opportunities: Scope

Directorate of Economic and Statistics Discussion with Stakeholders

11

Manufacturing

Units as per NIC 2 digit classification, Persons employed Employment opportunities: Scope

DIC Discussion with Stakeholders

12

Services

Identify potential activities by assessing current employment, employment absorption capacity by calculating Computed Annualized Growth Rate, etc

Random survey in at least five market areas

13 Financial Services Scheduled commercial Banks: Loan outstanding sector-wise: accounts and amounts Portfolio Analysis

NABARD: District Potential Credit Link Plan Lead Bank: Annual Report; RBI: Banking Statistics Discussion with LEAD Bank

14 Government Schemes

Performance status: Various development schemes

Discussion with DRDA, Govt. departments

In addition to these secondary materials, participatory tools can also be used for validating the information and sift those relevant in our context. Participatory Tools are useful for us to understand the perspective of the community; differences among different groups within the community and on the resources and livelihood opportunities they see. Without this, one may likely to design initiatives that simply do not cater to their needs or interests. Designed well, participatory tools can also initiate a sense of understanding and ownership among the community one wish to help.

Talking to Key Informants: After doing a preliminary observation to understand the diversified livelihood pattern as well as the factor conditions of the area, one will be able to frame relevant questions that will fill the gaps in our information. Also, the background information gives us a complete knowledge and feel of the place and puts us in a better position to seek information. This understanding will be further sharpened by talking with the key informants

Step 3: Understanding Local Demand Condition: After having looked at the factor conditions in the area, we have to look at the demand conditions. The activities that people take up at the local level are shaped by the local demand conditions. Therefore, it may be useful for us to look at the activities people are involved in from the perspective of understanding the demand condition as well. Marketing and Research Team (MART), New Delhi, has developed a methodology, 3M


14

Social Metabolism… Like any living system, a community consumes material and energy inputs, processes them into usable forms, and eliminates the wastes from the process. This can be seen as "metabolism" of industry, commerce, municipal operations, and households. Understanding the pattern of these energy and material flows through a community's economy provides a systemic reading of the present situation for goal and objective setting and development of indicators for sustainability.

Extractive vs. empowering methods Adoption of an SL approach indicates acceptance of the fact that answers are not known, and that learning processes that involve poor people are required. In this context, tension often arises between extractive (extracting information for use by others) and empowering (seeking to empower those who participate) objectives of various field methods. It is becoming clear, however, that the objectives of the two are complementary rather than conflicting. This section of the Guidance Sheets is mainly concerned with finding out about livelihoods in order to inform project design, monitor the effects of development activity and evaluate outcomes. It therefore tends to emphasize more extractive methods. It is not about project implementation, nor about ways to ensure that projects involve and empower intended target groups. However, many projects whose goal and mode of implementation are empowering in character are preceded by quick and effective extractive exercises to discover pre-project conditions and interim project effects. For example, ranking methods used to reveal community priorities for primary healthcare (extractive) can lead to a healthcare delivery project that incorporates participation in establishing the operational guidelines for healthcare workers (empowering).

(micro-planning, micro-markets, micro-finance), which can be used for looking at the demand conditions in a local economy. A two-step process adapted in the 3M methodology can help us understand the demand conditions in the local economy.

- Identify enterprises existing in the area… - Mapping all the products and services that go out and come in

3.1 Identify enterprises existing in the area Identifying of enterprises (enterprise here means all economic activities that people take up in the area) existing in the area needs to be done at two levels: at the village level and at a market center that caters to the area.

At the Village Start with generating a list of all enterprises in the village. 1. This can be done by observing the economic activity going around the village. 2. Asking the villagers about the enterprises, especially home-based enterprises, that is not visible from outside. 3. Try to get an approximate number of the enterprises in each category. Remember that enterprises may be based on the farm (such as production and processing agro-products and animal husbandry), may involve manufacturing (such as weaving, carpentry and rolling bidis) or may provide services (such as repairs, retail, health and education). Milch animals and a private school are as much an enterprise as a black smithy. Please remember to count every enterprise. This enumeration of the types of enterprises will give us a fair idea of the goods and services made or provided within the village. It may also give us some new ideas.

At the Market Center There are some trade or market centers in every local area. These could be small towns where there are weekly markets; could be taluka/ mandal headquarters, or even district headquarters

or other larger townships. Most local people visit these markets periodically.


15

One needs to look at one such market center in details to understand some of the important features of the local economy.

3.2 Mapping all that go out and come in Local people buy some of the things they need, like food grain in the local market. This is produced at home or by from their neighbors. But some things are not produced locally. For example, the utensils they use. These come from outside and are sold in the local market. The local people also sell some of the things they produce in the local market. For example, in local markets one will find people selling vegetables produced locally. Sometimes people in the area, who do not produce them buy them, sometimes traders from outside come and buy. Therefore, one can see the Local Economy is a consumer (of utensils) as well as a producer (of vegetables). As a consumer, the economy creates opportunities (of buying utensils from outside and selling those to local people). As a producer, it generates some employment opportunities (working in the vegetable fields). We illustrate this with the following diagram.

Looking at a Market Place 1. Walk around the local market to get a general idea about its size and types of products and services sold. Fill up the table (What to look into the market) given below. Enumerate every enterprise. a. This gives us a complete list of activities being pursued in the area b. It also gives us a relative size of each of these activities

2. Organise products and services into categories for interviewing sellers. 3. Collect information from the market owner/contractor (in some cases it could be the

Panchayat/traders association itself) and for counting the number of stalls by product and service.

4. Others should start to approach sellers and buyers. 5. Select a minimum of one seller for one product category. 6. Conduct in-depth interview with the seller during his free time 7. Sellers often avoid giving the correct sales figures and invariably report low sales. To counter

this, at some point in the interview, quote an absurdly high sales figure to the seller and, to refute this, the seller will often react by revealing a realistic sales figure.

8. Pick buyers from three different economic strata (i.e. upper, middle, and lower) on the basis of their spending capacity. Interview buyers Observe how much they spend.

9. Remember to target an equal number of men and women. 10. Start interviews in a non-threatening way by talking about general topics. Questions regarding their name, age, land holding and income-level should be left to the end of the interview, by which time they will have opened up.

Functions of Trade

Local economy is a producer Local Economy is a Consumer

Generates surplus

Supply shortfall

Generates Wages Generate Revenue Generate Demand


16

What to look into the local Market Name of Village: Population (approx): S N Major Products/ Services

Space for Tally Mark (one for every shop)

Total No. of Shops

Comes in/ Goes out

1 Products Food Products

2 Beverages and tobacco 3 Textile fabrics only 4 Textile apparel 5 Wood and wood products 6 Paper and paper products 7 Leather and leather products 8 Rubber and plastic products 9 Chemical products/ paints 10 Pottery, chinaware, glass 11 Metal and metal products 12 Machinery and tools 13 Electrical goods 14 Transport equipment, parts 15 Miscellaneous products 16 Services

Repair of electrical items

17 Repair of motor vehicles 18 Hotels and restaurants 19 Freight/ passenger transport 20 Miscellaneous services

Local Markets: What comes in? SN Product/Services Used

but not produced Annual Consumption in the Area Local Production

Quantity Price/Unit Total Value e.g. 1

Marie Biscuits 1,000 kgs/ yr Rs 500/ kg Rs.5,00,000 One local bakery makes some similar products

2 Cycles 400 /year Rs. 1,600/ piece

Rs.6,40,000 Not manufactured

3 4 5

Local Markets: What can go out? S.No Product/Services

produced locally and are surplus

Annual Production in the Area Demanded where?

Quantity Price/Unit Total Value 1

2

3

4


17

1. Why market development as a route to poverty reduction? The international development community is becoming increasingly aware that poverty is caused by lack of access to income-earning opportunities and the capacity to respond to these. The nature of poverty is multi-dimensional but it is generally acknowledged that low incomes are a central feature of poverty. What are the right conditions to achieve improved incomes? Increasingly it is being understood that whilst economic growth and private sector development are important these approaches will only have positive pro-poor impacts if they are driven and owned by people at micro and meso levels i.e. the people on the ground and in the market system. Subsidized interventions have largely not worked, and there are many examples such as, including within our own organizational history. 2. Why don’t markets work for the Poor? Markets can be a powerful way to get services and products to consumers and to give producers and workers access to income earning opportunities but they are not totally efficient, equitable or inclusive, especially in contexts where poverty is acute. The causes of inefficiency, inequity and marginalization are many and not fully understood but some of them are widely accepted. For example: * Blockages in the flows of market information and other types of knowledge (e.g. illiteracy and lack of communications infrastructure) * Weakness of public institutions dedicated to the promotion of trade, rural development, agricultural research, education, law enforcement, etc * Policies, social norms, and legal frameworks that fail to promote investment, transparency, competition and sustainable use of natural resources * Excessive concentration of power and influence in the hands of a few actors Typically small-scale producers find their interactions with markets are characterized by: * A lack of resources to meet quality and quantity requirements, and to adapt to changing conditions * High transaction costs – increased costs that small (and often scattered or remote) businesses face in getting the inputs and services they need, negotiating deals and enforcing contracts * Risks (for small and large enterprises) – lack of control of terms and conditions of purchase; control of quantity and quality delivered * Lack of market orientation – small-scale producers tend to lack an understanding of what the market wants and future trends 3. What is needed to make markets work for the poor? Markets have the potential to connect marginalised producers to an extensive network and give them access to valuable commercial and social relations, technologies, experiences and assets that can help them escape poverty. A market that works for the poor involves: * Overcoming exclusion and/or improved access * Greater affordability (e.g. for poor consumers) * Greater earnings (e.g. for producers and workers) * Improved choice * Reduced risk * Greater influence (e.g. on policy issues)


18

Triangulation is a form of cross-checking the information data collected using several methods by several researchers several places and at several points of time.

Both of these (consumption & production) create livelihood opportunities. Therefore, one way of looking for livelihood opportunities is to start looking at the local markets and understand what opportunities it is creating. These opportunities are activities that essentially fill the gap between the producers and consumers in a local market. While surveying the local markets, observe the products and raw materials that are produced in plenty locally, for instance milk. A part of the milk may be consumed locally, but a large surplus may remain unconsumed. This surplus gives rise to an intervention opportunity where it can be value added and exported out. Similarly, some other products, which are not produced locally, are imported from outside, this gap or deficit is also an opportunity that provides intervention ideas. The best sources for this information are manufacturers, traders, retailers, local brokers, warehouses, government officials and of course the market itself. This will open up opportunities not only for trading in the products but also forward and backward processing of available raw materials.

Stage II: Selecting Livelihood Activities Suitable for the Area Livelihood profile of the people, understanding the factor conditions of the area and observing the market give a fair understanding of what activities may be appropriate for the people. In this stage one need to select from amongst these activities, those in which some interventions can be made. Step 1: Triangulation: Putting the information on people, the factor and demand conditions together

Step 2: Understanding the Demand Condition of the short listed activities better.

Step 1: Triangulation Triangulation of the data is nothing but evaluating all the data so far collected by us on people’s diversified livelihood portfolio, internal context of the organization, factor conditions, local demand condition, enterprises existing in the area, products and services that go out and come in for arriving at a list of an appropriate set of livelihood activities. Otherwise triangulation means making the information shorter and more precise by ignoring information that is not reliable. Triangulation means evaluating / overlaying information on suitability of activity The following table is an example to illustrate how the information collected can be triangulated Activity Suitability

for the poor in the area

Employment generation ability of the activity

Favorable demand conditions

Favorable factor conditions

Competence of the organization

Total

A b. c d e f g

• First, list out all possible livelihood opportunities observed by us in the Stage-I of our

study (Understanding people’s diversified livelihood portfolio) in Column 1 of this table.


19

• Next evaluate each livelihood activity on a scale of 1-5 (where 1 is highly unfavorable and 5 is highly favorable) on the parameters of: o Its ability to generate employment in the area o Its demand conditions: the nature of the market o Its factor conditions: availability of resources required for its production o Competence of the implementing agency to take up intervention in this area o Its suitability for the poor in the area.

Fill in the numbers in the table as given below. For example:

Triangulation: Overlaying Information on Suitability of Activity Activity Employment

generation ability of the activity

Suitability for the poor in the area

Favorable demand conditions

Favorable factor conditions

Competence of the organization

Total

a. b c d e f g Keeping dairy animals

5 4 4 2 4 19

Vegetable vending

3 4 3 1 2 13

Vegetable production

4 3 5 1 2 15

For example large number of people can be employed in the dairy activity, hence highly favorable (5). Vegetables can employ lesser number of people than dairy but relatively more number of people can be employed in vegetable cultivation than in vegetable vending, hence 4 and 3 respectively. And so on ….. • Remember that the score has to be given purely on the basis of how we generally feel

about the idea, based on whatever understanding of the area we have developed. No mathematical or economic tools are to be applied.

• After scoring each of the livelihood ideas on these five parameters, total up the score by adding the numbers in the last column. Then shortlist those scoring high and eliminate the others

Now we have a list of a few activities, which have favorable demand in the market, have the necessary resources (factor conditions) to produce them locally and are suitable for the poor in the area. Given these positive indicators, one can conclude to some extent that, these activities can be managed by the implementing agency.

Step 2: Understanding Demand Conditions Better Economic opportunities in the present-day world can be found in the market. Market means demand; First start with local demand conditions and slowly move to regional, national and global demand for these selected activities. While looking at the market and market trends, it is always good to scan the global or national markets and assess the characteristics of the market. For example, the market for fruits and vegetables is growing the world over, but not the markets for cereals. Therefore, even if the local markets for cereals are larger than fruits and vegetables, it may be easier to work with the later, than with cereals, if other conditions in our area permit.


20

Why Look at Demand Condition: a Lesson Way back in 1985, when PRADAN started its first livelihood project in Kesla, Madhya Pradesh, they observed the local tribals collect mushrooms that grew naturally and use them as a part of their diet. Taking a cue from them, they did a project, which apparently looked to be a huge success. In time, Knor Soups, the famous packaged food giant, became the biggest buyer of mushrooms from Kesla. Also, Kesla became the largest supplier of oyster mushrooms to Hyatt Regency chain of hotels, the second largest buyer in the country. The total turnover of the mushroom business reached Rs 4 crores per annum. Therefore, on the face of it, it was an excellent livelihood intervention story. But, when some of the initiators of the intervention went back to have a look at it after some time, they discovered some not so complementary details. They realized that after all the effort and fanfare, only 220 families were involved in the cultivation. So, what went wrong? The thing that went wrong was, at the outset the interventionists looked only at the factor conditions of the region, like, suitable climatic condition, naturally growing mushrooms, people’s familiarity with mushroom and so on. This focus limited their vision and led them to overlook other opportunities, which could have had bigger potential in terms of livelihood. If they had studied the demand conditions first instead, they would have realized that the total market size of mushrooms in India was only about Rs 7 crore. Had they paid attention to that detail, possibly they would not have taken it up in the first place as an area of intervention. Therefore, though both factor and demand conditions are equally important in the study of the intervention area, it makes better sense to start with demand conditions first because it throws up larger possibilities for intervention, and gives a better picture of the larger reality.

However, identifying future trend of a product or a service is a complex task. But it needs to be done. Variety of factors influences these trends: i. New technologies ii. Change in people’s lifestyle iii. Change in demography iv. Change in political balance v. Or a mix of all of them

What do we look for in the market? While scanning the markets, one should look for: • Size of the market - Big Size: Large

markets can support large number of livelihoods. For example, millions of households depend on wheat production, while only a few thousand people can produce psyllium (isabgol) that the whole world can consume, or a hundred thousand people can produce all the bamboo baskets that we need. Intervention where there is a fairly large demand makes good business sense

• Growing Market: A growing market throws up new potential for more people to join in at different parts. It offers better opportunities for supporting larger number of livelihoods. An existing large demand, which has no future growth or that which is likely to dwindle, cannot be called a growing market; therefore it does not offer a very good prospect

• Dynamism: Markets which are dynamic; absorb changing technologies; constantly witness entry and exit of players; offer scope for a wide range of activities, are dynamic markets and can support many livelihoods

• Transparency: Transparent markets are usually fair, giving all players a level playing field.

• Low Barriers: Markets with low exit and entry barriers are an ideal choice. Usually these markets become very competitive and are efficient.

• Systems: Look for markets which have well developed systems in place • Support: A well developed chain of related and support industry is usually helpful

Analyzing Market Trend We need to analyze the market trends carefully. We need to keep our eyes and ears open so that we can quickly pick up signals of change. We need to consciously keep ourselves open to such signals.


21

In a simple manner, we could plot the market size (either in terms of total production or in terms of total value) of some of the commodities/ products that are/ can be produced in the area, on a graph.

Stage III: Getting to know the selected activity:

Deciding on intervention Step 1: Exercise for Exploring External Environment (3-E) Step 2: Overlaying Organizational Mission and Competency Step 3: Sub-sector Analysis In the previous Stage of Identification Process, we short-listed a few potential livelihood activities in our area. We may have gathered some information about these livelihood opportunities at the local level by now. But now the question is, can we take up all of these activities? Do we have the resources? Remember, it is better to take up one or two activities and do them well, rather than spreading our limited resources too thin by taking up too many activities. Even within the selected activities, do we know what exactly to do? For example, if dairy looks like a potential activity in our area to be taken up, what exactly do we do in dairy? Do we work on providing veterinary services to producers? Or work on creating alternative marketing channels? Or undertake advocacy to create an enabling policy? Which is the most crucial bottleneck? Is it pro-poor? Does it have any health or other environmental hazard? In this section, we will learn how to chose one-or-two activities to be taken up in our area and identify the exact intervention to be made in the selected activity. This can be done in two ways: • Through an exercise to explore the elements of the external environment • Overlaying the Organizational Context by examining the mission and assessing

competencies of the organization • By doing a detailed sub-sector analysis, if required. Step 1: The 3-E Exercise We will now look at an exercise to Explore the External Environment, in short the 3-E Exercise. This is an exercise designed to collect and consolidate information about various elements of the external context (Demand Conditions, Factor Conditions, Industrial Conditions and the Institutional Conditions)

3 E Exercise (Explore the External Environment)

Step. 1: Identify Key Informants • Identify at least three key informants or players in every selected activity o It is useful to choose people from different interest groups because they will help us build

different perspectives on the chosen livelihood activity

Step. 2: Develop Questionnaire/check list for Assessment • Generate simple questions/check list which helps assess conditions of various factors,

which limit livelihood choices in the area. (A sample set of questions has been indicated in the table below).

o Take care to formulate the question in such a way, that you get answers to the same question from all the respondents


22

Steps in 3E Exercise (Explore the External Environment)

Identify Key Informants

Develop Questionnaire for Assessment

Scoring by Key Informants

Aggregate Scores

Compare Scores of Different Activities

Identifying Bottlenecks

Identifying Interventions

1

2

3

4

5

6

7

Overlaying Organizational Competency 8

o For example: If your question was, “Is the raw material available?” The dairy farmer may respond about the availability of fodder, while the dairy plant manager may respond about availability of liquid milk. To avoid such a mix up, formulate the question precisely: “Is adequate green fodder available?” or “Is adequate liquid milk available?’ depending upon what you want information on.

Step .3: Scoring by Key Informants • Ask different key informants to assess each of these parameters on a scale of 1-5, where 1

is highly unfavorable and 5 is highly favorable, individually o Only the respondent should give the score and we should not prompt him in any way. If

necessary we can use some PRA methods to help them score, but evaluation should come only from them.

o It is necessary to go to at least three Key Informants. If we have the time and the resources, we can definitely seek views of more.

o Score the responses of the Key Informants in the columns and find out the average score on each of the 25 parameters.


23

Sample Checklist and Sample Score of 3-E Exercise Examining External Environment of an Activity supporting Livelihoods

Activity/ Industry Dairy Interviewer S.No Activity Key Informants Total Average

1 2 3 A Factor Conditions

1 Availability of raw materials 4 5 3 12 4.00 2 Availability of skilled human resources 3 2 3 8 2.67 3 Agro-climatic suitability 3 4 3 10 3.33 4 Availability of capital (credit/subsidy) 2 1 2 5 1.67 5 Availability of infrastructure

(power, water, roads, storage, etc.) 2 3 1 6 2.00

B Demand Conditions 6 Size of Domestic/Local Demand 3 4 3 10 3.33 7 Number of buyers (Large-5, Few-1) 4 4 5 13 4.33 8 Sophistication of Buying Process (with

transparent Quality/ Quantity Measurement) 4 4 3 11 3.67

9 Growth of Domestic Demand (Increasing-5 or Declining-1) 2 3 2 7 2.33

10 Presence of External Buyers (Many -5, None -1) 2 4 2 8 2.67 C Industry Conditions

11 Number of firms (Use Many-5, Monopoly-1) 3 4 3 10 3.33 12 Existence of competition among firms

(Healthy 5, Unhealthy -1) 4 4 5 13 4.33

13 Possibilities of setting up new firm (No Barriers -5, Barriers to Entry -1) 4 4 3 11 3.67

14 Presence of marketing agencies 2 3 2 7 2.33 15 The quality and reliability of input suppliers/

component and machinery suppliers 2 4 2 8 2.67

D Institutional Conditions 16 Presence of efficient promotional agencies

(Efficient -5, Inefficient/ Not Present -1) 2 2 3 7 2.33

17 Existence of functioning producer organizations 3 3 2 8 2.67 18 Availability of quality training institutions 4 4 3 11 3.67 19 Do people (can) have access to all physical/ legal

resources necessary for this activity? 4 5 4 13 4.33

20 Supporting/ favorable government policies 3 3 4 10 3.33 o Factors showing high scores, such as number of buyers, access to physical resources, are

favorable. o Factors with low scores, such as availability of credit, needs attention. o Factors where there are differences of opinion between the key informants (shown by high

variance), such as reliability of input supplier in the above case, need to be explored further. Possibly this represents a communication gap or break in information flow.


24

Step.4: Aggregate Scores o Add up the scores given by different Key Informants on each element and find the average

score. Examining External Environment of an Activity supporting Livelihoods

A Sample Sheet for 3-E Exercise used in Rajasthan

S.No Activity: Dairy Goat Rearing

Stone Cutting

Leather

Carpet

A Factor Conditions 1 Availability of raw materials 4.00 3.33 2.66 2.60 1.00 2 Availability of skilled human resources 2.67 3.33 3.66 3.00 2.00 3 Agro-climatic suitability 3.33 2.33 3.00 2.30 2.50 4 Availability of capital (credit/subsidy) 1.67 3.33 3.30 3.00 1.30 5 Availability of infrastructure

(power, water, roads, storage, etc.) 2.00 3.33 3.66 2.00 3.00

B Demand Conditions 6 Size of domestic/local demand 3.33 3.30 4.30 3.60 3.90 7 Number of buyers (Large-5, Few-1) 4.33 2.60 3.30 3.00 2.00 8 Sophistication of buying process (with

transparent quality/ quantity measurement) 3.67 3.00 4.00 3.30 4.00

9 Growth of domestic demand (Increasing-5 or Declining-1) 2.33 2.00 2.30 2.60 3.00

10 Presence of external buyers (Many -5, None -1) 2.67 3.00 3.00 3.00 1.75

C Industry Conditions 11 Number of firms (Use Many-5,

Monopoly-1) 3.33 2.67 4.30 2.30 3.00

12 Existence of competition among firms (Healthy 5, Unhealthy -1) 4.33 3.33 4.00 4.00 4.00

13 Possibilities of setting up new firm (No Barriers -5, Barriers to Entry -1) 3.67 3.30 3.66 3.00 4.00

14 Presence of marketing agencies 2.33 2.60 3.00 2.60 2.20 15 The quality and reliability of input

suppliers/ component and machinery suppliers

2.67 2.60 3.30 3.00 3.90

D Institutional Conditions 16 Presence of efficient promotional agencies

(Efficient -5, Inefficient/ Not Present -1) 2.33 2.30 2.66 2.30 2.30

17 Existence of functioning producer organizations 2.67 1.67 2.66 1.00 2.30

18 Availability of quality training institutions 3.67 1.33 3.00 1.30 1.30 19 Do people (can) have access to all

physical/ legal resources necessary for this activity?

4.33 1.00 2.66 1.00 1.00

20 Supporting/ favorable government policies 3.33 2.67 2.00 2.00 1.00 62.67 53.02 64.42 50.90 49.45


25

Step .5: Compare scores of different activities o Place the scores obtained by different activities in column totals at the end of each column,

and work out the averages of the score in the rows. o Examine the column totals. Compare and see which activities have got high scores. For

instance in the table above, stone cutting has got the highest score followed by dairy, goat rearing, leather and carpet making.

o The activities, which have scored high totals, are likely to have had favorable conditions for most of the elements. Poor people may find it easier to work in such a sector than the one where many conditions are unfavorable.

Step .6: Identifying bottlenecks • Now examine the row scores. The row that gets the lowest score indicates bottlenecks • For example: In the stone cutting industry absence of appropriate organization of the

producers and availability of credit in dairy seems to be the critical bottlenecks.

Step .7: Identifying interventions • Chose an intervention point which can help overcome a bottleneck in the activity, and

which suits your own internal context. • For example, given that credit is a ruling bottleneck in spread of the dairy activities, you

may chose to extend credit yourself, or One important element of the Internal Context; the people, we have already assessed in the 3E Exercise. We will now see how to assess the other important element of the Internal Context; the Organizational Competency. We will use a simple methodology to do this as mentioned below.

Stage 2: Overlaying organizational competency The 3-E Exercise gives us a fair amount of information about some of the potential activities in the area. Apart from the information, the dialogue with three key informants of these activities is also a very enriching process. By completing this exercise, we become quite familiar with: • Some of the activities that can be taken up by the people in the area for their livelihoods; • Factor and demand conditions for production of these activities present in the area; and The major bottlenecks in taking up this activity. • We now need to choose the exact intervention that we need to start with. We can also plan

for some interventions that we could take up later, and prioritize/ sequence them. This choice needs to be made on the basis of the capacity of the organization that will have to make the intervention.

• It is important for us to recognize that livelihood intervention is a complex task. Therefore, we need not have all competencies within the organization for us to say that the organization has the competency. There could be different stages of competency of the organization.

• It already has the competency • It can build the competency within the existing people in the organization. • It can choose to collaborate with some other organization, which has the competency. • It can hire in new people and build the competency. • Required competency may not be available at all. Similar analysis is also applicable for not only the human resources of the organization, but also on financial resources, infrastructure and so on. In these cases also we need to ask: • Do we have to resource (which in turn will make the organization capable) within the

organization?


26

• Is there some other organization we can collaborate with who can bring in the resource and so on …..

This process of analyzing organizational competency involves two steps. Step 2.1: Identifying intervention that can help overcome bottlenecks Step 2.2: Assess whether the organization has the competence required for the task or can acquire such competency in collaboration with some other agency.

Step 2.1: Identifying intervention that can help overcome bottlenecks Identifying the specific interventions that can help overcome a bottleneck identified through the 3-E Exercise is a creative task. For this we need to consult a variety of stakeholders, look at efforts done by other organizations. Many suggestions would have come during the interaction with the key informants during the 3-E Exercise. We need to consolidate these ideas. For example, in the dairy intervention in the above case, if credit is a major bottleneck identified, we could choose from the following: • Making credit available through our organization’s micro-finance activities • Making credit available by collaborating with one of the micro-finance agencies working

in the area • Making credit available by promoting a new people-owned micro-finance agency in the

area • Making finances available by linking the producers with banks in the area. The first step is to generate all these ideas. We could use any of the brainstorming processes for generating such a list.

Step 2.2: Assess Organization’s Competence Having generated the list of possible interventions, we need to check for ourselves, if the organization has the competence and the mandate to take up that intervention. The following Table-6 to facilitate this analysis. S.N Interventions Human

Resources Financial Resources

Infra-structure

Total

1 Through our organization’s micro-finance activities

2 In collaborating with one of the micro-finance agencies working in the area

3 Promoting a new people-owned micro-finance agency in the area

4 Linking the producers with banks in the area


27

Listen to your heart as well … In the workshop held on the campus of the NGO, Gram Vikas in Orissa state, the participants looked at the livelihood opportunities in marine fishery in the surrounding area. They realized that fish production in the nearby coast was exploited to the full, and could not support more livelihoods. With trawlers coming in from neighboring states and scraping the bottom of the continental shelf, catch for the local fisherman was dwindling. The total number of people who were involved in fisheries in the area of operation of Gram Vikas was about 10,000, which was too small a number to influence the policies of neighboring states. It was suggested that Gram Vikas keep away, as there was little it could do to change the situation. Also, the critical leverage point lay beyond the capacity of Gram Vikas to intervene. The challenge before Gram Vikas was: ‘what happens to those 10,000 people, who have never done anything other than fishing? As the ‘best’ point of intervention, as shown by this analysis, was not ‘feasible’, do they go hungry?’ Gram Vikas continued working with the fishermen

Let us remember that, the mission of the organization influences these choices. If the mission of the organization is to extend ‘any services necessary for supporting livelihoods’ we could explore all the choices above. But if the mission is ‘to extend any non-financial services necessary for supporting livelihoods’, the choice will be limited to options 2 and 4 above.

Use a scale of 1 to 5 to assess the competence of the organization, where 5 is competence available for use within the organization, 1 is where it will be extremely difficult to mobilize this even from the organizations known to us. This level of analysis is often good enough for us to start the livelihood intervention process. However, in case we are planning a large intervention, and would like to be much more accurate, we need to equip ourselves about the locational advantages of any activity, viability and threshold for a

particular activity, the backward and forward linkages and the external and internal economies of a particular activity. For large scale livelihood intervention it is suggested to carry out sub sector /value chain analysis.


28

Different levels of livelihood profiles and its uses Tool What it is How it helps

Livelihood Zone

Map

A map of areas within which people share broadly the same patterns of livelihood

• Understand how people in an area will be affected by different hazards (drought, market failure, floods, etc.)

• Design a livelihoods-based sampling frame for assessments

• Target assistance geographically • Customize indicators for livelihoods monitoring

systems

Livelihood

Profiles

A snap shot of the livelihood options (food and cash sources) of different households (poor, middle, rich) in the livelihood zone and the hazards to which households are vulnerable

All of the above plus... • Understand how different household types (poor,

middle, rich) will be affected by different hazards • Design a seasonally-specific monitoring system for

more precise and efficient results • Help interpret trends in monitoring information by

season and household type

Livelihood Baselines A detailed quantified breakdown of

household livelihood options (food, cash, and expenditure patterns) for different wealth groups in the livelihood zone, highlighting market linkages, and constraints on/opportunities for economic growth.

All of the above plus... • Predict whether people will be able to meet their

basic survival requirements and/or protect their livelihoods in the short, medium and longer term

• Provide essential information for guiding policy and program decisions in areas such as social protection, agricultural policy, service/needs provision, development planning, market program design, etc.

Local Livelihoods

Baseline Assessment A detailed analysis of local livelihoods to answer a specific set of decision-maker questions related to any number of areas, including but not limited to: • conflict and livelihoods; • local economic growth opportunities; • market-based livelihoods programming; • labor markets and livelihoods; • health and food security; • HIV/AIDS and livelihoods; etc.

• Determine how to best support and help expand people’s livelihoods

• Avoid unintended consequences of poorly designed policies or programs

• Identify synergies between local livelihood growth opportunities, government priorities, and decision-maker initiatives

Stages in livelihood promotion

Tool or technique focuses on

Pre or Beginning conversing, discussing, researching, learning, sharing 1 Assess benchmarking, brainstorming, measuring, researching, analyzing, evaluating 2 Focus planning, prioritizing, deciding, focusing, resolving 3 Act doing, completing, moving, carrying out, implementing The Process – the flow

Guiding, steering, leading, facilitating, presenting, communicating, disseminating—these are techniques that can help steer or guide a community through a process. These “Processes” provide the necessary lubricant that allows things to happen and often link the Beginning-Assess-Focus-Act steps.


29

Information to be collected, tools used in relation to livelihood themes

Livelihood strategies

(production, processing,

exchange & income

generating activities)

Type of activities undertaken by each household member, level of contribution to household economy; coping strategies; access to employment; income generating activities; access to credit; contribution of remittances to household livelihood H

ousehold interviews

Economy activity analysis; livelihood profile; key informant interviews

Distribution of poverty within households; remittances; pension; gender; food security and agriculture; economic activities; household economy; access to finance; time allocation

Livelihood Component

What we need to know

Principle

tool

Other tools (triangulation; cross-checking)

Consultation Group Theme

Livelihood context

Institutions Presence and importance of community

level institutions; interaction of population with external institutions; control of resources by institutions

Venn diagram Household

interviews; focus group discussions;

key informants

Institutions at the community or neighborhood level; attitude towards new institutions; participation

Natural

Resources Food economy zone; presence of

common property resources; availability and access to natural resources; access to land

Area Mapping

Secondary data; key informants

Land holding

Infrastructure

Availability of education, health, social services; water and sanitation infrastructure, roads and transport infrastructure

Area mapping Venn diagram

h.h. interviews; secondary

data

Water and sanitation facilities; education; health

Cultural

environment Ethnicity; religion and gender

Secondary

data;

Livelihood profile; h.h. interviews; FGD

Participation; social isolation; social capital; pension; gender

Political

environment Broader political context in Kosovo;

Political parties at community level; access to voting; feelings of insecurity/uncertainty at household and community level

Secondary

data

Venn diagram; household interview; key informants

Physical isolation; participation; attitude towards new institutions;

Resettlement

patterns

Number and dates of migration and resettlement; perceptions of security and risk; presence of landmines

Key inform

ant

interview

Mapping; h.h. interview

Processes (rules, regulations, etc.)

Impact of rules, regulations and policies on households and communities; potential impact of taxation; access to passports; impact of judicial processes

Venn

diagram Secondary

data; household interviews; key informants

Perception of new institutions; institutions at community level; participation


30

Vulnerability to

shocks & stresses

Pre-war condition of household; coping strategy of household during war; ability to recover from war; time of return; process of resettlement; current status of household; barriers to recovery; other stresses (e.g. illness);

Household interviews

Economic activity analysis; livelihood profile; key informant interviews

Shelter/housing; distribution of poverty within communities; institutions at the community level; remittances; social capital; economic activities; household economy; pension; gender; access to finances

Household Assets

(what they are and how they are used; in part determines

households’ ability to recover from stresses and shocks)

Social

Exchanges of goods and services; assistance to or from extended family networks; membership in community groups; nature of interactions with other households H

ousehold

interview

Livelihood

profile

Social capital; remittances; physical isolation; gender; distribution of poverty within communities; participation

Physical Housing; agricultural

implements; vehicles; machinery; shops; household level water and sanitation facilities H

ousehold

interview

Livelihood

profile

Household economy; shelter; distribution of poverty within communities; water and sanitation; food security and agriculture

Human Education level; ability to work;

dependency ratio

Household

interview

Livelihood

profile Education; health; gender;

household economy; time allocation; participation; food security and agriculture

Financial Livestock; savings; remittances;

access to credit

Household

interview

Livelihood

profile

Access to finance; household economy; remittances; distribution of poverty within communities; pension; food security and agriculture

Natural

Land; access to common property resources

Household

interview

Livelihood

profile

distribution of poverty within communities; land holding; household economy; food security and agriculture


31

Threshold -- the minimum market needed to bring a firm or city selling goods and services into existence and to keep it in business Range -- the average maximum distance people will travel to purchase goods and services

Viability, Range of Goods, Clustering, Internal & External Economies, Backward & Forward Linkages.

The importance of location in livelihood promotion / intervention Location of a place is important to make certain livelihood intervention. Livelihood diversification is easy if the location is a central place or nearest to a central place. The centrality of a settlement (urban centre) is defined as the ratio between the services provided and the local needs of its inhabitants. The increasing or decreasing centrality of a place depends on the extent to which it functions for the surrounding region. Christaller, who used this term in his central place theory give a simple mathematical explanation. If the settlement (town) has an aggregate importance of B, of which Bz represents the town’s population, then B – Bz = the surplus of importance for the surrounding region, and it is this, the magnitude of the surplus, that shows the degree to which the town is a central place. How is it possible to measure the centrally of a place and its importance as such? Christaller stated that centrality “is equal to the relative importance of the place in regard to a region belonging to it”. He suggested that the best method of determining the importance of a place as a centre is, not by the size of the population, but by the number of central functions performed by it. (More number of telephone connections is an indicator to measure the centrality of a place). Professor Edward Ullman suggested some, such as “the average number of customers required to support certain specialized functions in various regions,” and, “the excess of these functions over the normal requirement of the settlement (urban) population.’ Another suggestion is the number of automobiles entering a town excluding those from the suburbs. Viability & Threshold Viability means capable of normal growth and development; capable of become practical and useful; Capability of developing and surviving as a relatively independent social, economic or political unit. Threshold is the minimum sales volume needed to support a business or service; below this level it will not be profitable to supply a good or a service When a particular activity is selected for livelihood intervention on should ask the question whether the activity is viable i.e whether it has the capacity for normal growth & development. For an activity to be viable, there need to be a threshold of population to support it.

Range of a Central Good/Service Range of a central good/service delineates the market area of a central good/service. It is the maximum distance that consumers are willing to travel (Keeping in view the price of the good) to purchase the good. It we assume that travel is equally easy in all directions, the range of a central good will be a perfect circle round the central place.

Other indicators of a central place - business turnovers of the shops - number of central functions such as whole sale and retail stores - professional services located in a settlement


32

Leading propulsive industry and innovative firms are some of the concepts that the livelihood promoters are expected to be familiar with. These industries /firms generate certain advantages and economies. Our effort will be made easy if we are able to integrate our activities with it. Advantages of such industry/ firms Ø highly advanced level of technology and managerial expertise Ø high income elasticity of demand for its products Ø marked local multiplier effects and Ø strong inter-industry linkages with other sectors

Linkages are of two types. Backward linkage: An industry encourages investments in the earlier stages of production by expanding its demand for inputs (which are the outputs of industries in the earlier stages of production (e.g. Sugar Industry) Forward linkage: An industry encourages subsequent stages of production either by transmitting innovations or effects of innovations forward. (E.g. Automobile industry)

Sugar Industry

Backward Linkages

Cane Cultivation

Irrigation & Electricity

Irrigation & Electricity

Fertilizer & Pesticide

Credit to farmers

Transport

Ext Education

Quality seedlings

Labour

Tractor Forward linkages

Drivers

Diesel

Trailers Automobile spares

Mechanics


33

Clustering (Business) Clustering is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban study, the term agglomeration is used. The term economy of agglomeration is used in urban economics to describe the benefits that firms obtain when locating near each other. This concept relates to the idea of economies of scale and network effects. Simply put, as more firms in related industries cluster together, costs of production may decline significantly (firms have competing multiple suppliers, greater specialization and division of labor result). Even when multiple firms in the same sector (competitors) cluster, there may be advantages because that cluster attracts more suppliers and customers than a single firm could alone. Cities form and grow to exploit economies of agglomeration. There are of course also diseconomies of agglomeration. Additional competition drives down pricing power. Large cities attract problems of crowding and congestion. It is this tension between economies and diseconomies that allows cities to grow, but keeps them from becoming too large.

Perroux’s Growth Pole Hypothesis. Perroux based his theory on two cornerstones 1. Schumpeterian theory of development (I.e. Growth does not appear everywhere and all at once; it appears in points or development poles with variable intensities; it spread along diverse channels and with varying terminal effects to the whole of the economy) 2. Theory of inter-industry linkages and industrial interdependence. Based on this Perroux developed his idea of economic space as a field of forces consisting of centers (or poles or foci) from which centrifugal forces (spread effects) emanate and to which centripetal forces (backwash effects) are attracted. Perroux’s defined a ‘growth pole’ as a set of expanding industries located in an urban area and it includes further development of economic activity throughout its zone of influence. The place where these ‘expanding’ or ‘propulsive’ or ‘dominant industries’ are located in the region becomes the poles of the region and agglomeration tendencies are promoted. Such tendencies arise because of external economies and result in polarization of economic activities around that pole. The external economies that become available in the area constituting the growth pole of a region

How linkages are transmitted? As a result of innovations, costs of production in the industry / activities will decline. This could lead to a fall in the price of its output. If this happens, the demand for the industry’s product /activity /service will increase. In addition to this possibility, there are many other ways in which innovations or effects of innovations can be transmitted forward.

Some activities create strong backward linkages and some create strong forward linkages. Some linkages may trickle down to the area where we are planning to make intervention. Livelihood promoters should manipulate these linkages for the benefit of the target group External economies are basically of three types. 1. Economies internal to the firm: These are the lower average costs of production resulting from an increased rate of output. These are the economies, which any single firm by its organization and effort can enjoy. e.g. organizational efficiency and effectiveness 2. Economies external to the firm but internal to the industry. These are associated with localization of industry on account of close locational proximity of linked firms, as industry expands at a particular location, cost per unit of output to a firm


34

declines e.g., textile units at Coimbatore, match factories at Sivakasi 3. Economic external to the industry but internal to the urban area. These can be termed urbanization economies. They include development of urban labour market, access to a larger market, and provision of a wide range of services.


35

Sub-sector Analysis

Why Sub-sector Analysis? Micro and small-scale enterprises (MSEs) employ vast numbers of people throughout the Third World. They provide a key source of income for the poor and for women. Yet MSEs struggle to, survive in a highly competitive, fast changing business environment. Some operate in rapidly growing markets while others are squeezed by changes in demand, technology, labor costs, tariffs, input prices, government regulations, and competition from large firms and imports. In spite of their resourcefulness and savvy, small firms often lack political influence as well as the vantage point from which to understand the overall competitive system in which they operate. Field agencies can help by serving as advocates, monitoring and influencing change for the benefit of MSEs. But to do so, field agencies need ways of identifying niches where MSEs have a competitive advantage so that these agencies can assist those MSEs with the greatest potential while avoiding investment in areas where they cannot effectively compete. Subsector analysis offers a tool that can facilitate small-firm moves to promising technologies and market niches. Normally, a subsector is delineated by a particular final product and includes all firms engaged in raw material supply, production and distribution of that product. In some cases, however, the defining characteristic is a key raw material, with the subsector describing alternative transformations and distribution systems emanating from it. The hides and skins, cotton, and citrus subsectors are examples of this second type. They are common in the

literature on agricultural economics marketing, where they are known as commodity subsectors. Many of the analytical tools used in subsector analysis come from these early subsector studies on agricultural commodities. Promoting individual enterprises to enhance the livelihood among the poor people in an isolated and sporadic way may not be the most effective way to enhance their livelihoods. An enterprise is not an isolated structure. It is

organically connected horizontally and vertically with other enterprises and activities. Our effort may go waste if there are fault lines in the relationship. Enterprises can be established easily but to sustain it and upscale it, one need to understand the large picture. There are several tools and techniques are used to understand this picture. 3E exercise is one such a tool. Sub sector analysis or Value chain analysis is an another important tool that helps us to

The 3-E Exercise helps us identify some of the ruling bottlenecks that need to be overcome to support livelihoods of many people in the area. Step. 1: Identify Key Informants Step. 2: Develop Questionnaire/check list for Assessment Step .3: Scoring by Key Informants Step.4: Aggregate Scores

Step .5: Compare Scores of Different Activities Step .6: Identifying Bottlenecks Step .7: Identifying Interventions

"Once upon a time, we knew the origins of things: what piece of earth the rice on our dinner plate came from, which well our water was dipped from, who cobbled our foot wears, and whose cow provided the milk and leather. In many parts of the world, that information is still readily available. But in the present day society, even as technology makes certain kinds of information more accessible than ever, other connections are irrevocably lost."


36

understand more about the economic system, the whole value addition chain and various players in it. It helps us to determine the most cost-effective intervention to achieve the livelihood outcomes that we seek in our area.

Sub sector Model

N A T I O N A L S E C T O

Meta Level Macro Level Meso Level Micro Level

Raw Material

Traders Preliminary Producers

Small Scale Producer

Large Scale & or Multi

Plant

Small Scale Producer

Traders or Export

Local Markets

Specialized Buyers

Buyers / Import

Trans National Company

Large Scale Multi outlet

Trader

End Consumer G L 0 B A L E C O N O M y

National

Small Scale Retailer


37

Elements of Subsector Analysis 1) Understanding Product Markets and Market Trends 2) Relationships between Participants – describes functions, participants, and relationships among participants 3) Identification of Constraints and Opportunities – including: technology, market access, organization, policy, finance, input supply, etc. 4) Subsector mapping – graphic presentation of inter-relationships; – can help to identify participants to interview

What is a Subsector? • "The vertical set of activities in the production and distribution of a closely related set of

commodities." Shaffer, 1968. • A sub-sector is a network of farms and/or firms that supply raw materials, transform them,

and distribute finished goods to a particular consumer market or markets. • Any group of commodities, which share a common procurement, processing and

distribution channel, can be clubbed into a sub-sector. • There is more to a sub-sector than just the core manufacturing process such as rice-milling.

The rice transportation system is as much a part of the paddy sub-sector as rice-milling or trading is.

• A sub-sector is not within a geographical confine. If the groundnut for manufacture of the Chiki (Kadalai Mittai - sweetmeat) sub-sector in Lonavala comes from Saurastra, then the groundnut market in Rajkot (Saurastra) is very much a part of the Chiki sub-sector, that needs to be studied.

• "An interdependent array of organizations, resources, laws, and institutions involved in producing, processing and distributing an agricultural commodity." Marion et al., 1986.

• Thus , one can view the subsector as: • A set of activities and a related set of rules

governing those activities. • A conceptual way view of a problem. • Vertical view of industrial organization.

Nothing highly complicated about the approach. Just a vertical way of looking at.

Explanation: – range of activities required to bring a product or service to the final consumer – includes producers, processors, input suppliers, exporters, retailers, etc. – includes both vertical and horizontal linkages – can be defined by a particular finished product or service • e.g. wood furniture, green beans for export, etc. ** the same definition can be applied to Value Chains

What is sub-sector analysis? Sub-sector analysis is a process of getting to understand different stages in the value addition chain in a sub-sector and understanding who does the value addition, using what technology, at what terms and with whose help. There are FOUR steps involved in undertaking sub-sector analysis. 1. Preparing a preliminary sub-sector map,

2. Refining your understanding of the sub-sector, 3. Analyzing sub-sector dynamics and leverage points 4. Choosing your intervention point.

Value Chain / Sub Sector Analysis can help to… • Reveal links between producers, exporters and global markets

• Identify constraints all along the chain to competing in the marketplace

• Clarify the relationships in the chain from buyers to producers

• Highlight the distribution of benefits among buyers, exporters and producers


38

Steps in Sub Sector Analysis

By using subsector analysis one can put the potential livelihood opportunities identified to a rigorous test. Subsector analysis clarify whether the activities identified are likely to grow and significantly benefit a large number of poor people, or are they going to remain a stagnant activity bringing only marginal benefits to the target group?

Step 1: Preparing a preliminary sub-sector map There are three action points that are required to prepare preliminary sub-sector map. These are: a. getting to know the sub-sector b.interviewing key informants c. drawing a preliminary sub-sector map

A: Getting to know the sub-sector The first thing is to know about a sub-sector in order to identify the whole value-addition process. So it is better to get as much information about that sector: 1. What are the basic raw materials? 2. Where do the people get them? 3. What is it that they produce? 4. What happens to it: who buys it? What does s/he do with it? 5. Is there some processing? Is there more than one way in which it is processes? 6. What are the one or more final markets for the product?


39

SUBSECTOR MAP - GREEN BEANS FOR EXPORT

The above questions can be applied to potential livelihood opportunities in services as well as in manufacturing. The answers for the checklist mentioned above can be collected by talking to people who are involved in the business. They could be farmers or producers, traders who deal in the commodity, product or service, bankers who finance the activity, a government officer

Supply of input factors Raw materials, labour force,

machines ,capital, preliminary products, services, Knowledge

Transformation to a product or service

Combination of input factors with production factors (labour,

capital & land

Sale to a buyer To a local markets, global

buyers as finished, preliminary products or raw material

Consumer

Three stages of an enterprise value chain


40

responsible for supporting or regulating the activity, or even a professor in the local college. Books, articles, websites can be of great help to clarify our self an\bout the activities we are interested in. It is better to familiarize with: • Participants in the sub-sector: producers (both women and men), traders, regulators,

financiers, promotional agents • Alternate technologies being used (e.g. in sugarcane: gur, khandsari, sugar mills, or in

cloth production: khadi handloom power looms) and the environmental impact of any production processes.

• Factor conditions: The nature of the various factor conditions, as well as support services, that the business will require to become an important livelihood activity in your area.

• Product flows: Physical flows (places) and control of flows (traders, regulators) • History: The ups and downs of the sub-sector and the causes of these.

GREEN BEANS FOR EXPORT: CONSTRAINT AND BUSINESS SERVICE IDENTIFICATION


41

A value chain is a sequence of target-oriented combinations of production factors that create a marketable product or service from its conception to the final consumption. This includes activities such as design, production, marketing, distribution and support services to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms, as well as within a single geographical location or spread over wider areas. The term Value Chain refers to the fact that value is added to preliminary products through the combination with other resources (for example tools, manpower, knowledge and skills, other raw materials or preliminary products).As the product passes through several stages of the value chain, the value of the product increases. A value chain can be very short, like in the case of milk, or very long and very complex in the case of passenger cars or houses. For example wood furniture: Every wooden table starts as a tree; it is cut down in the forest and processed to boards in sawmills. Traders then would sell these boards to furniture producers or carpenters, who would use their skills to make a table from the boards. Some furniture producers would sell the table to a local market, whereas others would sell it to traders or export agents. Large retailers, Every single enterprise has its own value chain. You could, however, think of a value chain as consisting of levels with several enterprises at each level. For example the Central Java (Indonesia) wood furniture industry: here you would find several small furniture producers selling their products either to local markets, or to traders that would export them to large retailers. You could even think of a whole national sector as including several levels of a global value chain. In Central Java you would not only find furniture producers, but also raw material suppliers and export agents. It is therefore important to distinguish between value chains that feed into local markets (an end there) and global value chains.

What Does Value Chain Analysis Entail? In identifying opportunities for upgrading and the constraints to these opportunities, the analysis should focus on answering the following questions: • What and where are the market opportunities? (End market analysis) • What upgrading is needed to exploit them? (End market and chain analysis) • Who will benefit from this upgrading? (Chain analysis) • Who has the resources, skills and incentives to drive upgrading? (Chain analysis) • Why has it not happened already? (Chain analysis) • What will it take to make it happen? (End market and chain analysis)

B: Interviewing key informants After gaining an initial understanding of the sub-sector, one needs to approach key informants, i.e. those who are knowledgeable in order to gain deeper understanding. The key informants for analyzing a sub-sector in greater depth may include: • Smaller and larger producers • Market traders or authorities • Bankers • Officials from promotional and regulatory bodies • NGOs specializing in the sub-sector • Researchers During the interviews, ask at least the following seven questions: 1. Where do you get your raw materials 2. To whom do you sell your output?


42

Sectors, Clusters, Networks – Upgrade What? Many upgrading activities will target groups of enterprises rather than individual enterprises. The reason for this is to initiate overall economic and social development, instead of favoring individual enterprises. Furthermore, development agencies and employer and worker organizations that are engaged in upgrading, are obliged to consider the interests of all their stakeholders and members. It is therefore important to consider the scale of upgrading activities. Economic activities are often categorized into sectors. We often talk about the private sector vs. public sector, service sector vs. manufacturing sector, primary sector/ secondary sector/ tertiary sector. Within and across these different divisions we find sectors such as the consumer goods sector, the technology sector and the financial sector, etc. Economic activities that share common characteristics in product, process and/or function compose an economic sector. Sectors often contain several levels of a global value chain and consist not only of one, but several national and international chains. This means thatfurniture producers would not only sell to local markets but also export goods to large retailers in Europe, South East Asia and the USA – thus, we would basically have to deal with four value chains. Sectors are seen as a concept that includes different forms of economic interaction between enterprises: the economic activities may be geographically concentrated in so-called clusters, dispersed within or across national boundaries or appear as more flexible business networks. The type of sector determines the scale of upgrading activities. National sectors can either occupy parts of a global value chain or constitute an own full value chain, in which products are produced or services are provided from the very beginning to the final consumption. In the latter case, the sector would be producing for local markets. The guide however focuses on the integration of sectors into global value chains. It will therefore distinguish between “value chains” and “global value chains”.

Value Chain Governance Dealing with value chains requires an understanding of how the value chains are organized (or coordinated) and in particular, who has the say in the chain (power relations). This is what is meant when referring to value chain governance. Value chains display a variety of different “governance structures”, and the recognition of different forms of governance in global value chains has important implications for the question of upgrading, that is to say, how enterprises can move into higher value added activities.

3. What technology do you use, what alternatives exist, and why do you use this one? 4. What are the main regulations/ laws you have to follow? 5. What are your main sources of funds for working capital and fixed assets? 6. Which are the main agencies/ actors who help you? How? 7. What problems do you face, if any?


43


44

C. Draw a preliminary sub-sector map Based on the interactions with the various informants, a preliminary map of the sub-sector can be drawn. The sub-sector map summarizes the initial understanding of the sub-sector structure. Although conceptually simple, the map is a powerful tool for describing about a set of related business activities. It identifies the sub-sector’s principle functions, participants and channels. In preparing the map, it is useful to review the elements in an orderly manner starting with production to end consumption. The orderly arrangement of the functions describes the transformations of the commodity, product or service that take place. The participants indicate who performs them. And the channels describe how products flow among participants, who buys from whom, and how the network hands together. List the functions List participants performing each function For each function identify alternative technologies and quality differences Identify final markets On a blank piece of paper, list all functions one above the other on the left side starting with the base raw material at the lowest corner List all final markets across the top Map various participants who perform these functions in the rows where the functions are listed. Draw arrows to describe product flows among participants Define principal channels Review sub-sector boundaries The following diagram illustrates sub-sector mapping conventions. Review these. The


45

conventions or format is important and ignoring it often produces unclear sub-sector maps that may confuse the participants and others.

Step 2: Refining the understanding of the sub-sector There are four action points that are involved in this step of the sub-sector analysis. These are: a. Specifying the institutional context b. Specifying the environmental context c. Refining the sub-sector map d. Quantifying’ overlays’ of particular interest These action points can be undertaken in an iterative manner, i.e. meeting again with key informants, such as producers, traders bankers, regulatory, promotional and other officials, as well as drawing on secondary date. With the help of the key informants one can cross check the accuracy of the information collected in the earlier stages.

Specify the institutional context The institutional factors that impact on the participants within the sub-sector into four broad categories: regulation, promotion, credit and other institutional factors such as producer organizations. Some of the issues that need to be covered is given below

Other Institutions Unions Religious Brotherhood

Ministries

National Forest Dept

Forest Villages

Regional Forest Service

Elected Regional Council

Local Forest Service

Local Rural Council

Cooperatives Merchants Patrons

Migrant WoodCutters

Transporters

Wholesalers

Retailers

Urban Population

Wood & Charcoal

Loan

Market regulation

Unofficial

Map of Social Relations of Access in Senegal�s Charcoal Market


46

A: 1 Regulation a) Identify the main laws and rules (including taxes) that apply to different stages in the sub-sector. b) Identify the main agencies responsible for enforcing the above. c) Check the actual application of the law vs. the rules as laid down. d) Ask key informants about what are the most bothersome aspects of regulation. A: 2 Promotion a) Identify the main promotional policies of the government relevant to the sub-sector. b) Identify the main agencies responsible for implementing those policies. c) Check actual implementation against policies on paper. d) Ask key informants about how useful or not these policies are, and what are their most

helpful aspects. A: 3 Credit a) Identify the credit available to the sub-sector: what for how much? b) Identify the main sources of credit (banks – commercial, regional rural banks –money-

lenders, etc) c) Which parts of the sub-sector are most constrained by the lack of appropriate credit? A: 4. Other institutional factors a) Are there any producer organizations? b) Are there any other institutions that affect the sub-sector? c) Is there a political economy that significantly influences the sub-sector?

B. Specify the environmental context Examine the environmental context within which this sub-sector functions. Examine how the activities that take place within the sub-sector influence and are influenced by their environment. For example, Do activities within the sub-sector have environmental impacts? What are these? Are they positive or negative? a) Are various conditions of the environment favorable for taking up the selected activities? b) Could more environmentally friendly practices be introduced within the sub-sector? How

easy or difficult would this be in practice? c) Are investments required for processes to become more environmentally friendly? How much? Who will make those investments?


47

What does “Upgrading” mean? By upgrading we mean a multi-dimensional process that aims at increasing the economic competitiveness of enterprises as well as having a positive impact on social development. In the case of sectors, multi-dimension means not only to consider the enterprise level (micro-level), but also the economic, social and political business environment in which enterprises operate. Upgrading can also be seen as a broader concept than innovation. Innovation mainly takes place on the enterprise level, and concerns upgrading in product, process and function. The preconditions for innovation are however set by the business environment. It is also important to view upgrading as a continuous process and to consider this in any upgrading 1. Product Upgrading: Developing new products/services or introducing a new quality. New products usually have a higher value than their predecessor models. Examples: Increasing the quality of timber wood for furniture, sourcing from another supplier, or adopting the design of clothing to the preferences of the final customer. 2. Process Upgrading: Improving the efficiency of internal processes, such that these are significantly better than those of competitors. Examples: Cutting the cost of inventories, lowering scrap, improving delivery time, producing more in less time to less cost. 3. Function Upgrading: Moving up the value chain towards carrying out higher level and greater value adding activities. Examples: Developing own capabilities for manufacturing chocolate instead of only exporting the raw material; building up own design capabilities instead of only assembling products according to given designs and plans. 4. Market Upgrading: Covering new markets on which to sell a product or service, whether this market has to be newly created or is already covered by competitors. 5. Supply Upgrading: Improving the quality/quantity of supply material and products or changing the supplier. This is very related to process upgrading. However, supply could be a distinct focus of a sector-upgrading project. Example: ensuring that timber for wood furniture is sourced from sustainable and environment-friendly wood processing areas. 6. Inter-chain Upgrading: moving to a new and more profitable value chain, where higher rents can be captured. Example: Taiwanese firms moved from the manufacture of transistor radios to calculators, to TVs, to computer monitors and now to Wireless Application Protocol Phones (WAP). 7. Intra-chain Upgrading: Increasing cooperation and the flow of information between partners along the value chain. This is done to achieve collective gains through quality improvements, increased system efficiency and the development of differentiated products. This would also imply a change in the value chain governance: From market-based to increasingly regulated relationships that are based on trust and mutual (formal) agreements.

C. Refine the sub-sector map After doing all the above said exercises one will become familiar with many participants, processes and channels within the sub-sector and also aware of the institutions that are influencing the sub-sector, and of some factors that can help minimize adverse environmental impacts. This is a good time to check: What are the important processes missed so far within the sub-sector? Is there any new channel that was not aware of earlier? Is there any additional functions that need to be performed for the commodity, product or service to reach its ultimate markets? Is there any functions identified in the preliminary map have turned out to be no more than side shows for the main channels within the sub-sector? With all this additional information the sub-sector map may be refined. A major part of refining the map is to add ‘overlays’(super imposing).


48

D. Quantify overlays of particular interest It is important not only to have map of the sub-sector, but also some idea of the scale of activity at each point of the sub-sector. It is called as overlays (super imposing). For example, the sub-sector map prepared already can be superimposed with a clean transparency and add figures for the livelihoods generated at each point represented in the map.

Small Farmers

Large Farmers

Village Traders

Local Traders

Cooperative Traders

Private Millers

Cooperative Millers

Animal Feed Industry

Noodle Industry

Wholesalers White Rice

Wholesalers Broken Rice

Wholesalers Dry Noodles

Retailers White Rice

Retailers Broken Rice

Exporters White Rice

Exporters Broken Rice

Retailers Dry Noodles

Human Consumption

Rice Chain in Thailand


49

If a particular plant disease is common in an area, two types of interventions may be possible: § Identify the right control measures and train farmers in their use

§ Work with plant breeders and introduce a disease-resistant variety.

With the second intervention you may be able to benefit a larger number of people, and perhaps with less effort.

We need to identify the overlays that are of interest to us and then quantify them. These may include: • Number of enterprises at each level • Employment and livelihoods generated at each level • Gender division of employment • Volume of product • Sales value • Price margins at each level • Income to different layers • Returns to labor • Inventory holdings • Environmental impacts In the process of quantifying this range of overlays, using information from key informants and secondary data, will significantly deepen our understanding of the sub-sector.

Step 3: Analyzing sub-sector dynamics and leverage points A sub-sector is not a static phenomenon. Demand patterns in the markets are changing. New technologies are being developed. New players are entering the field. Some are getting out. It is important for you to understand these dynamics before you make an intervention. It is also important to be cost effective in an intervention. By looking at the sub-sector map, it is possible to identify the various points at which interventions can be made. But there are some points of intervention which can benefit a larger number of people with the same amount of effort. It is always useful to identify such points of intervention, which give high leverage. This step further involves two action points: a) analyzing the dynamics of the sub-sectors and, b) identifying sources of leverage

A. Analyze the dynamics of the sub-sector This step is vital for moving from analysis to action. By understanding how the sub-sector is changing, one can understand where the opportunities and pitfalls lie. Further understanding of the forces driving this change often reveals the key opportunities for growth in enterprise and livelihoods. In analyzing sub-sector dynamics the following questions will arise and which need to be answered: a) Which channels enjoy the most secure prospects for growth? b) Do these channels face any emerging threats? c) What role can micro and small enterprises play in these channels?


50

d) How can you enhance their ability to participate in the growing niches? These questions can be answered by understanding how the sub-sector is changing and why. The following driving forces and constraints are important in affecting changes:

Key demand Estimate the demand and trends over the last few years, locally, nationally and even globally. Population growth and changes in the larger economic environment (prices, wages, monsoons, booms, recessions and so on) can cause consumption patterns to change rapidly. Technological change New machinery or know-how can greatly change production costs, making small firms more competitive or driving them out of business. What impact will such changes have on poor producers, on women producers, on the environment?

Profitability of different niches Individual niches within the production system yield differing returns, providing incentives to change to the more profitable technologies, supply relationships, and level of specialization.

Risk Changes in demand, inputs, technology, labor and environmental conditions, and profitability bring both opportunities and risks. The micro-entrepreneur and the collective enterprise alike must balance rewards and risks in choosing which channels to operate in.

Barriers to entry Regulations (such as licensing and zoning), banking practices, lack of information, and collusion can restrict growth opportunities for micro and small enterprises.

Large firm behavior Changes in the level or range of activities of a few large firms may dramatically affect the opportunities open to micro and small enterprises.

Input supply Poor quality raw materials, unreliable supply sources and environmental damage can severely restrict the growth potential of enterprises.

Institutional Support Changes in regulation, promotional and credit policies can have a major impact on functions within the sub-sector, including raw material supplies, technologies and marketing. Are changes happening or expected? What impact will they have on the functions and channels represented on your map?

B. Identify sources of leverage Leveraged interventions are those that influence large numbers of enterprises at a single stroke. They are likely to be more cost-effective than one-to-one assistance delivered to individuals’ enterprises. Because they affect many firms at once, leveraged interventions can significantly enhance impact and reduce contact costs per enterprise. To identify sources of leverage look for one of three key ingredients: System nodes: These are points where large volumes of product pass through the hands of only a few actors. Geographical clustering: Physical locations where many producers are located. Policy Constraints: These affect almost all/ most producers, e.g. taxes, subsidies, import/ export quotas.


51

Step 4: Choosing intervention point. Now we are familiar with: § How the specific commodity you have selected is produced § The various raw materials and support services that are required to produce it § The channels it passes through to reach its final markets § The different players § The technologies being used § The environmental issues § The institutional framework within which the sub-sector operates § The critical numbers, of production, sales, employment, etc. § The dynamics of the sub-sector as it changes over time § The key leverage points The above process will result in a fair idea about some of the interventions that you could take up for promoting or supporting many livelihoods. Every intervention requires some basic competencies and resources. Examine whether the organization has these. You can draw up an intervention-competency matrix. § List all the possible interventions on the heads of different columns § Assess what competencies/ resources you need to take up these interventions and list these

on the left hand side of your table. § Put a tick mark (ü) in the boxes for competencies required for a particular intervention

and a cross (X) for those not required. § Fill up the various boxes in the table, either with your own organization, if you have the

particular competencies under review, or of other organizations on whom you could draw for such expertise in a livelihood intervention strategy. Consider carefully whether you will be able to collaborate with these organizations.

From this analysis you have to make a choice of the intervention strategy that your organization can take up for promoting or supporting a large number of livelihoods.

The material for this class notes are mainly taken from

ISLP’s “A Resource Book for Livelihood Promotion”

Tools & Techniques for Analyzing Livelihoods & Making Intervention

Documents