Value Chain Analysis of the Chilli Sector in Ghana, Humboldt University 2006

Description
The objective of this study is to compare international and national value chains with regard to potential benefits for smallholders and existing entry barriers to their integration. The research was carried out in the chilli sector of Ghana. The first hypothesis of this study is that integration into international value chains offers additional benefits. Benefits are defined as higher income, diversification of income sources, more reliable income, better cash flow and upgrading possibilities. The second hypothesis is that in international value chains, entry barriers to an integration of smallholders are higher. Entry barriers are defined as initial supplier qualifications, product quality, product quantity, frequent supply, production costs and distance to the purchaser.

Methods for info gathering
literature review, value chain interviews, key informant interviews

Summary of results
Neither hypothesis can be confirmed without reservation. A direct comparison of the national and the export chain of fresh chilli shows that the export market offers additional benefits in the form of higher income, a more secure income source, diversified income and upgrading possibilities. It further demonstrates that entry barriers are higher in the export market with market distance being the foremost barrier, followed by personal relations, which are necessary to establish contact with buyers and become integrated. However, a comparison of all value chains in the national market with the one for the international market reveals different results. The non-traditional chain of chilli powder offers even more benefits than the export chain, in particular with regard to the level and security of income and upgrading possibilities. Furthermore, entry barriers are highest in this chain as well, primarily the higher qualification of smallholders and the even more important personal relationships necessary for integration.

It can be concluded from these results that the difference between export and national markets is not the decisive distinction for possible benefits and entry barriers; it is rather the final product that is supplied. The case study shows a tight correlation between the complexity of the final product and the governance structure on the one hand and between the governance structure and the benefits and entry barriers for smallholders on the other hand. The more complex and the higher the quality of the final product, the stronger the relationship between producers and traders become. And the stronger these relationships, the more benefits accrue to smallholders in the case of chilli chains in Ghana. These two findings confirm the general assumptions made in value chain research, that complexity of the final product plays an important role.

With regard to world trade in which developing countries are often still only raw material exporters, these results call into question how a better integration offering new benefits for developing countries can be realised. At the same time, they show that the national market holds potential for the national supply of more complex and higher valued products. The example of the value chain of chilli powder shows that national businesses have the chance to supply non-traditional markets and may even compete with imported products. In these markets, demand continues to rise so that supporting national value chains supplying these markets offers genuine opportunities to integrate a wide range of rural smallholders now producing under worse conditions for the traditional markets.