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2 Theory of Change and Value Chain Map

2.1 Theory of Change

Below the Theory of Change (ToC) as developed by the evaluation team for the ABD component.

Figure 1

Theory of Change, Ukraine

Going from the left (inputs) to the right (impacts):

  • Only one platform got off the ground, the AgroLviv Forum, facilitated by the Shuvar wholesale market, for the fruit and vegetable sector. No forum/platform/ dialogue for the dairy sector could be set up; the two large diaries were not interested and the small producers were not organised enough and too far away from each other. The platform continues to function, self-financed, but its activities are reduced after programme completion.
     
  • The European Bank for Reconstruction and Development (EBRD) did not implement the Financial Services component. The strengthening of lending capacities was replaced by a training of bank staff in agri-lending. This resulted in a better awareness of bank staff of family farming but did not lead to any better access to financial services. Due to the crisis in the country, access to finance might be considered worse than before.
     
  • A sufficient number of family farms were able and capable to develop towards market-oriented production. There was a sufficiently broad market demand for fruit, vegetables and dairy products to which producers could adapt despite different crises (like closing of the Russian market and the economic crisis in the country itself).
     
  • Initially, regulations, authorities and government institutions were not conducive to, or enabling a private sector with family farms and Micro, Small- and Medium-sized Enterprises (MSMEs) agri-businesses. That has only recently changed. Different sources stated that the Ministry of Agriculture and Food Policy learned a lot from visiting Lviv, studying the project, for formulating the 2015 rural development strategy. Regulations changed frequently, changes were made in the agriculture tax system almost every year.
     
  • The Facilitating Office was able to identify and engage good local experts to assist the producers and processors in planning and implementing their businesses, over a period of years. The office was also able to quickly set up a matching grant facility (40% grant, 60% own contribution) that was very simple and transparent and triggered a sufficient number of emerging agribusiness entrepreneurs to invest in storage facilities on their farms.
     
  • Modern technologies were introduced, not just hardware but also product quality management, which was critical as farmers with their storages supply directly to for example supermarkets and other buyers (e.g. Horeca). The work on quality was not sufficiently reflected in the programme design.
     
  • A fast increase in storage capacity and the ability to sell for much better prices during a longer season to retailers had a quick positive effect on primary production levels in the fruit and vegetable sector. It took longer to develop primary dairy production and its processing.
     
  • In both cases the market demand continues to be good and more producers could follow this route. They would need access to finance to do it.
     
  • The impact of the intervention on economic growth and employment in discussed in Section 3.1.
     
  • Throughout the intervention there was no macro-economic stability. The country was in financial and economic crises and only by the end of the programme period the economy started to stabilise. This influenced the interventions. It mainly hampered further expansion of the businesses and stopped followers to copy.

Figure 2

Value Chain map - Ukraine

2.2 Value Chain map analyses

The decision to focus on the dairy sub-sector was because of favourable market opportunities and the potential for income and employment generation for many small producers. The decision to focus on fruit and vegetables was because Ukraine has a comparative advantage; it is labour intensive and has low entry barriers.

Service providers were mapped and key drivers identified. The value analysis identified the lack of storage capacity in the fruit and vegetable value chain as the main bottleneck. Improving storage was a game-changer that changed farmers from being price takers at harvest to become value chain drivers. The dairy value chain had more bottlenecks, like economic volumes of production, milk quality, and lack of processing capacity. In both value chains, market demand was a driver.

Critical was the selection of the grantees. The Facilitating Office moved away from the original idea of forming cooperatives or dairy delivery units with micro farmers (two-three cows and 0.5 hectares) and focused on family farms that had a potential to grow to viable economic units (20-30 cows and larger acreages). Besides, it worked with not too large split-offs from former large-scale farms. Building producer organisations, cooperatives or collection points in the villages that meet quality requirements of the market would also take longer than a three-year intervention period (as originally planned).

The step from primary production to markets took place mainly through storage, with sorting and (retail) packing, not through processing. Processing is prone to excessive regulations, which could not be realised within a three-four year period.

The Facilitating Office had studies made on the bottlenecks. It participated in national round tables on regulatory reform.

25 years after the fall of the Soviet system, a free market agribusiness sector is still developing. The sector is moving from primitive capitalism to European style market based business management. While the young generation is studying this in school, the old generation has difficulty in adjusting itself to this new reality.

Most processing and storage capacity collapsed with the farms they were associated with. Most was in a bad state and energy demanding anyway. The energy situation is evolving from cheap gas to no gas to expensive gas. There is a need for alternative, rural energy production. This technology is absent. Rural roads are degrading, adding to the distance between production and markets in this huge country. Transport is a particular problem for the diary sector (with daily or when there is cooling on the village collection point every two days collection and deliveries).

The interventions included little in terms of service provision, which still needs to be built up. Training courses were developed and delivered to a variety of stakeholders. A mini-MBA programme was developed with Lviv Institute of Management for agrientrepreneurs. With the Kiev School of Economics a three month AgroLady training was organised. This has now become a national Agric MBA course. Continued capacity building is required for the sector to develop further. The AgroLviv Forum played a critical role. It still organises seminars and distributes an agricultural newspaper electronically but could do more with external funding. Two of the service providers are setting up AgroLviv Consultancy to assist farmers mainly with the financial part of the business. They have good contacts with the other service providers and will take over the Facilitating Office premises, so they will be easy to find for the farmers. There has been a good cooperation with the Canadian development cooperation is engaged in a long-term programme supporting the dairy sector, assisting cooperatives, veterinary services, quality control.

Financial markets were and continue to be almost absent. While the intervention provided a grant, a next phase could entertain a loan guarantee facility – when there are banks willing to provide loans.

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This page forms part of the publication "Evaluation of Danida Support to Value Chain Development – Ukraine Country Study" as chapter 2 of 8.
Version no. 1.0, 2016-07-05
Publication may be found at the address http://www.netpublikationer.dk/um/evaluation_value_chain_development_ukraine/index.html