Attachment J.22 Assessment of Value Chains in Colombia.pdf

DISCLAIMER: The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government

USAID/COLOMBIA

ASSESSMENT OF VALUE CHAINS IN

COLOMBIA

FINAL REPORT

November 2022

Contract Title: USAID/Colombia Monitoring, Evaluation and Learning Activity

Contract Number: 72051419C00001

Submitted: November 30, 2022

Contractor: Panagora Group, Inc.

COR: Omar López

Authors: Carlos A. Rodríguez, Nidia Garavito, Carlos Castañeda, Mateo Echeverry, Ana Katherine Rivera, Bibiana Quiroga, Andrea Gómez, Nataly Caicedo, Carlos Ávila, Elkin Nieto, Gabriel Vega, Mario Indaburu, Julieth Forero, Javier Rodríguez, Andrés Zapata, Paola Hurtado, and Santiago Villa.

Panagora Group Contacts:

Ana María Rivera Chief of Party Carrera 7 No. 74B-36, Piso 6, Bogotá, Colombia Email: arivera@panagoracolombia.net

Leandro García Lead Research Expert Carrera 7 No. 74B-36, Piso 6, Bogotá, Colombia Email: lgarcia@panagoracolombia.net

Majella van der Werf Program Director 8601 Georgia Avenue, Suite 805, Silver Spring, MD, USA Email: majellavanderwerf@panagoragroup.net

CONTENTS

ACRONYMS I

ACKNOWLEDGEMENTS II

GLOSSARY III

ABSTRACT VI

EXECUTIVE SUMMARY 1

METHODOLOGY 5

RECOMMENDATIONS 5

ASSESSMENT PURPOSE, APPROACH, AND GUIDING QUESTIONS 8

PURPOSE 8

USAID APPROACH TO SUPPORTING VALUE CHAINS AND MARKETS 10

GUIDING QUESTIONS 11

ASSESSMENT STRUCTURE 12

METHODOLOGY 13

DATA COLLECTION 13

DATA ANALYSIS 14

LIMITATIONS OF THE STUDY 17

AGRICULTURAL AND LIVESTOCK VALUE CHAINS 18

SCALABLE VALUE CHAINS (EXAMPLE: COFFEE) 21

EXPORT VALUE CHAINS (EXAMPLE: TAHITI LIMES) 24

NATIONAL MARKET VALUE CHAINS (EXAMPLE: PAPAYA) 27

REGIONAL MARKET VALUE CHAINS (EXAMPLE: PLANTAIN) 29

LOCAL PRODUCTION VALUE CHAINS (EXAMPLE: FISH FARMING) 32

ENVIRONMENTAL RECONVERSION VALUE CHAINS (EXAMPLE:

SUSTAINABLE CATTLE REARING) 34

VALUE CHAINS WITH POTENTIAL FOR DIVERSIFICATION AND GREEN

BUSINESSES 37

SUSTAINABLE TOURISM VALUE CHAIN 37

CREATIVE ECONOMIES VALUE CHAIN 40

GREEN BUSINESSES 44

CONCLUSIONS 47

RECOMMENDATIONS 51

ANNEX A – SCOPE OF WORK 54

ANNEX B - FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS TABLES59

ANNEX C - STAKEHOLDERS 71

ANNEX D – REGIONAL CONTEXT (MAPS BY THEMES) 88

ANNEX E – REGIONAL CONTEXT (MAPS BY REGION) 90

ANNEX F - SUITABILITY OF SOILS 99

ANNEX G - VIABILITY OF AGRICULTURAL PRODUCTS 101

ANNEX H – PRODUCTION AND MARKET TRENDS 103

ANNEX I - VALUE CHAINS PER REGION 109

ANNEX J - VALUE CHAIN CROSS-CUTTING TOPICS 122

ANNEX K – BARRIERS TO OVERCOME 126

ANNEX L - BUSINESS AND LOCAL INITIATIVES INVENTORY 129

ANNEX M - EXTENDED METHODOLOGY 140

ANNEX N - GENERAL GUIDE FOR REGIONAL INTERVIEWS 146

ANNEX O - REGIONAL INTERVIEWEES 149

ANNEX P - QUALITATIVE METHODOLOGY CODEBOOK 159

ANNEX Q -REFERENCES 164

ANNEX R -WORK PLAN 172

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ACRONYMS

ANDI National Business Association of Colombia

ART Territory Renewal Agency

CBO Community-based organization

CDCS Country Development Cooperation Strategy

CDLO Community Development and Licit Opportunities

CLA Collaboration, Learning and Adoption

COP Colombian Peso

DNP National Planning Department

DPS Dual-purpose cattle system

FAO Food and Agriculture Organization of the United Nations

FINAGRO Financing Fund for the Agricultural Sector

ICA National Agriculture Institute

JAC Communal Action Board

KII Key Informant Interviews

MEL Activity Colombia Monitoring, Evaluation, and Learning Activity

PDET Development Programs with a Territorial Approach

PMA Producers to Markets Alliance

RFI Rural Finance Initiative

RUES Unified Commercial and Social Registry

SENA National Learning Service

SGR General Royalty System

USAID United States Agency for International Development

USD United States Dollar

VCPD Value chains with potential for diversification

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ACKNOWLEDGEMENTS

The authors of this report would like to thank USAID’s Program Office, Omar López, USAID’s Rural and Economic Development Office (RED), Edgar Prieto, and José Arias.

The following activities kindly shared their time and experience with us and participated actively in interviews: PMA (Producers to Markets Alliance - Javier Giraldo), and CDLO (Community Development and Licit Opportunities - Francisco Bautista, Orlando Meneses and Jorge Amezquita).

Finally, we are grateful to the MEL activity GIS and CLA component teams, for their support during the development of this research.

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GLOSSARY

Activity: A subcomponent of a USAID project that contributes to its purpose. It typically refers to an award (such as a contract or cooperative agreement) or a component of a project, such as a policy dialogue that may be undertaken directly by Mission staff.

Afro-Colombian Community Councils: Each council manages collective property in Colombia for Afro-descendent communities. The council can delimit and assign areas within collective lands, conserve and protect collective property rights, cultural identity, and natural resources. The council conciliates internal conflict and has a legal representative from the community.

Communal Action Board (JAC): A non-profit, civic, social, and community-based organization (CBO), with legal status and a budget, comprised of voluntary residents of a given area.

Costs: There are two kinds of generic costs in agricultural and livestock value chains: Input costs (for example, agrochemicals and fertilizers bought by producers) and labor costs (wages producers need to pay for labor). Value chains with potential for diversification have more varied costs, but the most significant cost of the tourism value chain, for example, is hotel infrastructure development, and the most significant costs of the creative economies value chain are production and marketing.

Diversification: A widening of rural productive activities, with the intention of reducing rural dependency on only agricultural and livestock production.

Dual-purpose Cattle System (DPS): Cattle production systems in which milk and meat are produced simultaneously.

End markets: Where final consumers buy or use a product. Value chains conclude in end markets.

Five Rs Framework: Identifies five key aspects of a local system that are important to understanding how the system functions and are important as leverage points for introducing change. The five Rs are:

roles, rules, resources, relations, and results.

Geographic Information system (GIS): A system of hardware, software, and procedures that facilitates the management, manipulation, analysis, modeling, representation, and display of georeferenced data to solve complex problems regarding planning and management of resources.

Green business: Entrepreneurial activities that support agricultural or livestock value chains with an environmental conservation approach. These are usually local businesses. These activities are not value chains themselves but are deeply dependent on value chains for the supply of their inputs and demand for their products. For example, green businesses can use waste from fish farming value chains to provide fertilizer for agricultural value chains.

Indigenous reservations: A legal and socio-political institution formed by one or several communities of indigenous populations. These have a collective or communal property title, own a territory, and are governed by a social organization that follows indigenous law, the cabildo, or its cultural guidelines and traditions.

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Leveraged Funds: Non-U.S. government resources, including cash and in-kind gifts and services, provided by a third party to a USAID project or activity, to make it more sustainable or effective.

Local actors: Stakeholders who have local reach or represent a local community. Local actors are needed to make value chains sustainable and scalable. For the purposes of this assessment, local actors can be a group of people such as primary producers, youth, or women, and may also be local organizations like producer associations.

Local business: Entrepreneurial activities carried out within a single municipality or region. These businesses are owned and managed by local stakeholders, such as individual entrepreneurs or producer associations. Several typologies of local businesses are described in Annex C of this assessment report.

Local system: An interconnected set of actors—governments, civil society, the private sector, universities, individual citizens, and others— that jointly produce a particular development outcome.

MONITOR: A centralized information management system, published on the internet, that provides key information regarding the state and progress of activities supported by USAID.

Private sector: The private sector refers to private companies with the capacity to invest in associated processes or with a consolidated role in value chains. It excludes other private, intergovernmental, and international development actors.

Producer associations: Autonomous and small producer organizations structured around productive activities or a geographic base. They are made up of primary producers and allow the grouping of sufficient commercial and financial leverage to make value chains sustainable and scalable.

Productivity: Agricultural and livestock value chain productivity is the yield of production (volume divided by hectares). The productivity equation was not applied to value chains with potential for diversification in this assessment; but if it were applied to, for example, the tourism value chain, the productivity equation would have as the denominator the number of people work in a tourism value chain, while the numerator would be the number of tourists.

Productive quality: The assessment of a product's quality by a market buyer. For example, papaya has an optimal quality, a medium quality, or – when there are defects or parasites in the fruit – a low quality.

Productive quality determines the price of a product and the markets a product can access (international markets demand higher quality than regional markets).

Productive projects: Agricultural or commercial businesses that USAID/Colombia supports.

Scalability: The ability of a value chain to be replicated easily without incurring high additional costs and obtaining similar or better results.

Soil suitability: The capacity of a specific rural area to be used for production, according to soil (physical, biological and environmental) conditions.

Stakeholders: Any actor that has an interest or a function within a value chain.

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Suitability: The capacity of a specific rural area to be used for production, according to its physical, biological, environmental, economic, and social conditions.

Sustainability: The ability of a local system or value chain to produce desired outcomes over time without external support and to be both resilient and adaptive in the face of changing circumstances.

Value chain: A business model based on the full range of activities needed to create a product or service. This ranges from a productive process to a value generated for consumption.

Value chain diversification: Refers to the possibility of promoting, generating, or strengthening value chains different from those a given region normally produces. Given that this assessment's target regions are rural, the diversification value chains would be non-agricultural and livestock value chains.

Value chains with potential for diversification (VCPD): Legal economic activities that have business potential in the target regions and are not agricultural or livestock value chains (for example, sustainable tourism).

Village: A distinctly Colombian geographic subdivision of rural areas. It is the smallest rural subdivision and usually has between 50 and 1,200 inhabitants.

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ABSTRACT

Consolidating value chains promotes peace as well as legal activities in marginalized communities. This assessment identifies value chains that are most likely to achieve sustainability and establish strong links to regional, national, and international markets in Development Programs with Territorial Approach (PDET) regions: Bajo Cauca, Sur de Córdoba, Pacífico Medio, Pacífico y Frontera, Caquetá, Meta - Guaviare, Putumayo, Catatumbo, and Alto Patía y Norte del Cauca. USAID has targeted support to these regions because they are most affected by conflict and poverty.

The assessment applied seven categories of analysis to identify value chains most likely to be sustainable with the potential to connect to wider markets. These categories of analysis are: a) regional context, b) production capacity, c) market potential, d) financial viability, e) private sector participation, f) supportive public policies, and g) barriers to overcome.

Using a mixed methodology approach, the assessment identified six agricultural and livestock value chains that have potential for sustainability. These are categorized as scalable value chains, export market value chains, national market value chains, regional supply value chains, promising value chains, and environmental reconversion value chains. Furthermore, the assessment identified two value chains that allow for regional economic diversification and sustainable tourism and that promote the creative economies. Green businesses were also included for their potential to complement agricultural and livestock value chains with products that boost environmental sustainability.1

The assessment recommends that USAID promote value chain portfolios that are compatible with regional conditions for productivity as well as with the environmental conditions and cultural heritage of each region.

1 Colombia's Ministry of Environment defines green businesses as: "Economic activities that offer goods and services, that generate positive environmental impacts and incorporate environmental, social, and economic best practices with a life-cycle approach, contributing to environmental conservation as a natural capital that supports the territory's development". Source:

https://www.minambiente.gov.co/negocios-verdes/que-son-los-negocios-verdes/

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EXECUTIVE SUMMARY

Strengthening and creating value chains in marginalized regions supports the eradication of illegal activities and decreases levels of insecurity. In this sense, value chain strengthening is a peace promotion activity. This assessment identifies which value chains are more likely to be sustainable and could connect to wider markets in nine PDET regions: Bajo Cauca, Sur de Córdoba, Pacífico Medio, Pacífico y Frontera, Caquetá, Meta - Guaviare, Putumayo, Catatumbo, and Alto Patía y Norte del Cauca.

These regions were targeted for USAID's Rural and Economic Development (RED) strategy. USAID selected these regions for the RED strategy because they fulfill all of the criteria included in the Country Development Cooperation Strategy (CDCS).

Six agricultural and livestock value chains were identified in these regions and are more likely to be sustainable with the potential to connect to wider markets. Each agricultural and livestock value chain is reflected through a specific product: scalable value chains (coffee), export market value chains (Tahiti lime), national market value chains (papaya), regional supply value chains (plantain), promising value chains (fish farming), and environmental reconversion value chains (double-purpose cattle systems).

Two non-agricultural or livestock value chains were selected: sustainable tourism and creative economies. For the purposes of this assessment these are referred to as "value chains with potential for diversification," because they diversify products and value chains in the target regions that are centered around agricultural and livestock value chains. Diversified value chains are in an incipient stage of growth compared to agricultural and livestock value chains, yet they have specific growth characteristics.

Green businesses complement agricultural and livestock value chains through products directed to environmental sustainability in the target regions.2 These businesses have been included in the assessment because of their potential to generate sustainable income and strengthen local economies.

All potential green businesses in the target regions are local, small businesses that depend on one or more value chains reflected in this study and that create environmental sustainability synergies between value chains. Green businesses, nonetheless, are in an incipient stage of growth, or can be considered potential business opportunities that have not been executed.

To identify and prioritize value chains in the target regions, seven categories of analysis were applied: a) regional context, b) production capacity, c) market potential, d) financial viability, e) private sector participation, f) supportive public policies, and g) barriers to overcome. Regarding agricultural and livestock value chains, analysis drew heavily on statistics. For value chains with potential for diversification (VCPD), analysis leveraged desk research, specific cases of successful sustainable tourism or cultural sector businesses whose examples may be replicated, and key informant interviews. The seven categories of analysis which the assessment uses are defined as follows:

2 Colombia's Ministry of Environment defines green businesses as: "Economic activities that offer goods and services, that generate positive environmental impacts and incorporate environmental, social, and economic best practices with a life-cycle approach, contributing to environmental conservation as a natural capital that supports the territory's development". Source:

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a) Regional context: Several factors were analyzed, such as the territories’ community members (e.g., rural, youth, women, and ethnic communities), the level of economic development (e.g., added value), social conditions (e.g., poverty), and protected environmental areas.

b) Production capacity: Agricultural and livestock value chains were analyzed including for soil suitability, cultivation area, the volume of production and yield, and the available productive assets (e.g., collection centers). For the VCPD, cultural heritage (e.g., music) and natural attractions (e.g., national parks) were analyzed.

c) Market potential: Agricultural and livestock value chains were analyzed using trends in prices, imports, and exports. For the VCPD, for example, key marketing channels, tour operators, and musical events were considered.

d) Financial viability: Agricultural and livestock value chains were analyzed using the cycle of output, input, labor costs, and expected utility. This was not analyzed for VCPD because costs, cash flow, and risks depend on each specific project.

e) Private sector participation: Agricultural and livestock value chains were analyzed according to type of private sector organization involved in these value chains (see Annex C). This included local businesses, primary producers, producer organizations, local processors, and national wholesale buyers.

f) Supportive public policies: This analysis was focused on support programs aimed at small producers, such as contract farming and available lines of credit. For VCPD, tax incentives were included, which are very relevant in analyzing sustainable tourism, creative economies, and green businesses.

g) Barriers to overcome: Agricultural and livestock value chains were analyzed with regard to barriers faced for inputs (e.g., seeds), production, transformation, marketing, environment (e.g., land use), and regulation (e.g., certification of tour operators). For VCPD, barriers related to costs were analyzed.

Each agricultural and livestock value chain is explained through a specific product. These are, scalable value chains (coffee), export market value chains (Tahiti lime), national market value chains (papaya), regional supply value chains (plantain), promising value chains (fish farming), and environmental reconversion value chains (double-purpose cattle systems).

The VCPD included here are sustainable tourism and creative economies. Due to their incipient stage of development, diversified value chains can be caveated. Currently, sustainable tourism and creative economies are not strictly value chains, but economic activities that could develop into value chains. For example, a musician in Pacífico Medio who is a talented percussionist and plays at social gatherings for a small fee is conducting an economic activity. If he plays music in a larger group, and this group produces records that are sold nationally and internationally, employing sound and light engineers etc., the economic activity will have evolved into a value chain. Green businesses are businesses that support value chains and may create synergies between value chains. For example, a green business could process waste from fish farming to be used as fertilizer for other value chains. Green businesses have

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great economic potential for local businesses and stakeholders, and their existence is dependent on specific value chains mentioned in this assessment.

The assessment considered the following factors across value chains: a) stages of production and commercialization; b) connection to local stakeholders and markets; c) production process; d) the factors driving the value chain’s viability and market trends; e) relationship to local, private, and public stakeholders; and f) the barriers faced by the value chain.

The analysis of value chains in this assessment is driven by their dependence on local systems, which are "those interconnected sets of actors—governments, civil society the private sector, universities, individual citizens and others—that jointly produce a particular development outcome."3

The basic dynamics of a local system are captured by the Five Rs Framework (5Rs Framework),4 which focuses on five key dimensions of systems: results (what works best in the value chains and what can be improved), roles (what are the roles of stakeholders and where are there gaps in the function they play), relationships (how are stakeholders coordinated), rules (what are the policies and regulations that frame, incentivize, or hinder the value chain), and resources (what are the key supplies and skills needed for the value chain's success).

The local systems approach is complemented in this assessment by a market-based approach, which "uses business models and market forces to address development and humanitarian challenges more sustainably and at scale."5 USAID supports market-based approaches to achieving more sustainable impact over time, because they strengthen a system's capacity to produce valued results, generate and attract resources, and adapt to change.

The main findings of the assessment include:

Regional context: Each region requires value chains that meet the economic needs and fulfill the region’s inhabitants’ potential. This assessment's target regions can be categorized in three main groups (See Annex D – Regional Context Maps and Annex I - Value Chains by Region):

• In Alto-Patía y Norte del Cauca, Bajo Cauca, and Sur de Córdoba, agricultural and livestock value chains are predominant.

• In Macarena - Guaviare, Caquetá, Putumayo, and Catatumbo, agricultural and livestock value chains are predominant, and the regions also have environmental assets that are useful to build sustainable tourism value chains.

• In Pacífico Medio and Pacífico y Frontera, agricultural and livestock value chains are present in some areas. These regions also have environmental and cultural assets that are useful to build sustainable

3 USAID, Local Systems: A Framework for Supporting Sustained Development, 2014.

4 Ibid.

5 USAID, Market-based Approaches, consulted on June 23, 2022. https://www.usaid.gov/work-usaid/private-sector-engagement/market-based-approaches#:~:text=In%20pursuing%20market%2Dbased%20approaches,the%20face%20of%20changing%20circumstances

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tourism value chains and creative economies value chains. Pacífico Medio and Pacífico y Frontera have wider social gaps in comparison with the rest of the country.

Agricultural and livestock value chains - production: The assessment identified the following agricultural and livestock products as having the greatest potential in the target regions (See Annex F - Suitability of Soils and Annex G - Viability of Agricultural Products):

• Scalable value chains (coffee, cocoa, and rubber)6

• Fruit (Tahiti lime, Hass avocado, papaya, pineapple, blackberry, mango, passion fruit, peach palm, and coconut)

• Basic nutritional products (plantain, corn, rice, sugar cane, and bulb onion)

• Livestock products, specifically fish farming and dual-purpose cattle systems (DPS)

Agricultural and livestock value chains - markets: The assessment identified the following markets as having the greatest potential for the agricultural and livestock value chains (See Annex H – Production and Market Trends):

• Domestic and international markets (coffee, cocoa, and rubber)

• International market (Tahiti lime and Hass avocado)

• Domestic market (fruits like papaya, mango, and blackberry)

• Regional markets (plantain, corn, rice, sugar cane, and bulb onion)

• Local markets (tilapia, cachama, and arapaima fish farming, and sustainable cattle farming)

VCPD and green businesses: VCPD and green businesses are promising in the target regions, given that these regions have environmental and cultural assets that are attractive to national and international markets. The VCPD and green businesses identified by this assessment are:

• Sustainable tourism (ecotourism packages and adventure tourism)

• Creative economies (music, multimedia contents, gastronomy, and handcrafts)

• Green businesses (organic fertilizers and animal concentrate). Green businesses are strictly a value chain with potential for diversification.7

Barriers: With regard to the agricultural and livestock value chains, actors interviewed in the target regions reported that the main barriers to value chain development include production (23 percent), 6 A value chain that can be replicated without incurring high additional costs and obtaining similar or better results.

7 Green business is not a term used by USAID/Colombia to characterize these businesses. This term is taken from Colombia's "National Plan for Green Business". See: https://www.minambiente.gov.co/negocios-verdes/plan-nacional-de-negocios-verdes/ https://www.minambiente.gov.co/negocios-verdes/plan-nacional-de-negocios-verdes/

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support services (15 percent), marketing (14 percent), and physical infrastructure (11 percent).8 Furthermore, climate change would be a threat to agricultural and livestock chains.

In the sustainable tourism value chain, the main barriers highlighted by the actors interviewed in the target regions include production (tourism supply) (23 percent), physical infrastructure (20 percent), and support services (15 percent).9

In the creative economies value chain, actors interviewed in the target regions reported the following main barriers: production (19 percent), marketing (22 percent), and support services (24 percent).10

METHODOLOGY

The assessment used a mixed qualitative and quantitative methodology to answer its guiding questions.

The team used both primary and secondary data sources for this purpose. Primary data included 143 key informant interviews (KII) with respondents representing the public, private, and community sectors in the target regions. Once data was collected, the team designed a workshop to organize and integrate the quantitative and qualitative data. Secondary data included desk research which leveraged key statistics, documents, and geographic information.

RECOMMENDATIONS

This assessment's 15 recommendations, which are further detailed in the "Recommendations" section of the report, are:

1. Agricultural and livestock value chains - production: Promote regional portfolios with value chains that have adequate productive suitability and that complement the environmental and cultural heritage of each region (see Annex I - Value Chains per Region).

2. Agricultural and livestock value chains - viability: Record and monitor value chain viability indicators, which include the production cycle, needed investment, labor participation in costs, performance, price for the producer, and utility (see Annex G - Viability of Agricultural Products).

3. Agricultural and livestock value chains - markets: Integrate short- and medium-term product portfolios to promote small producers' participation, access to improved income, and risk diversification.

4. VCPD: Promote economic diversification in the regions and integrate traditional value chains with VCPD whenever possible. USAID is interested in promoting value chain synergies. It is preferable for value chains to complement and support each other. For example, agricultural value chains, like coffee, can complement VCPD, like sustainable tourism, because tourists may be interested in visiting coffee plantations.

8 Source: KIIs.

9 Ibid.

10 Ibid.

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5. Local business:11 Support local businesses that are part of the agricultural and livestock value chains, VCPD, or are green businesses that provide services and input to agricultural and livestock value chains and to VCPD. These local businesses should be located in the target regions, add value to production, and include an environmental conservation component to their production and operations.

6. Private sector: Incorporate the private sector as an engine that promotes value chain sustainability. There is no one model to achieving private sector participation. This is heavily dependent on each businesses' interests. Nonetheless, the private sector could help overcome two recurring barriers for producers: aggregating value to primary production and broadening markets for small producers. Markets could be expanded with support for marketing and commercialization across value chains.

7. Public policies: Deepen relationships with government institutions, especially by linking to national policies related to goods and services provision, given that these institutions have considerable resources and have a cross-cutting impact on value chains.

8. Assets: Prioritize support for transportation infrastructure projects that are linked to value chains and include a logistics component.

9. Local stakeholders - organizations: Orient support to producer organizations towards services for associated producers (for example, selling seeds and seedlings).

10. Local stakeholders - producers: Focus technical assistance on small producers in formation and certify and foster the application of best practices in agriculture and farming. Include producer certification indicators as a measure of value chain performance.

11. Local stakeholders - youth: Enable participation by youth in value chains by ensuring that they have access to relevant skills for agricultural and livestock value chains, by providing access to appropriate lines of credit, and by considering and mitigating other barriers to participation in value chains, including for example, teenage pregnancy.12

12. Local stakeholders - women: Promote inclusion of women in rural development and producer organizations and activities that address access to land and productive resources, building on recommendations noted in the USAID/Colombia "Gender Analysis and Assessment Final Report May 2019."13

13. Local stakeholders - ethnic communities: Coordinate and deepen relationships with Indigenous Reservations and Afro-Colombian Community Councils and their members to enhance their participation in regional value chains, applying USAID specific protocols for economic development in these communities.

11 In the context of this assessment's context, local businesses are entrepreneurial activities carried out within a single municipality or assessment target region. These businesses are owned and managed by local stakeholders, such as individual entrepreneurs or producer associations and have 10 or fewer employees.

12 Reference: USAID. 2021. Youth and Development Policy.

13 USAID/Colombia, "Gender Analysis and Assessment Final Report May 2019", USAID, 2019.

https://www.usaid.gov/sites/default/files/documents/Formatted_508_Draft_for_Public_Comment_USAID_Youth_Policy_Update_2021_1.pdf

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14. Barriers: Include environmental best practices in all value chains. In the agricultural and livestock value chains, priority should be given to avoiding soil erosion, optimizing water use, and reducing deforestation. In the sustainable tourism value chain, priority should be given to regulating the number of tourists in natural parks. Green businesses, such as recycled materials, represent an alternative option.

15. Monitoring and evaluation: Apply the economic indicators designed by USAID/Colombia to measure the outcomes and output of supporting value chain development, considering costs, productivity, sales, income, and jobs created. Compare value chain performance with others in PDET regions and in Colombia.

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ASSESSMENT PURPOSE, APPROACH, AND GUIDING QUESTIONS

PURPOSE

The purpose of this assessment is to identify the most relevant local businesses and value chains with growing market opportunities that could be supported by USAID to enhance the rural economic environment in targeted regions. In addition, the assessment provides analysis to help USAID prioritize identified businesses, based on feasibility, sustainability, and scalability criteria, and on the inclusiveness and participatory principles included under the USAID CDCS.

This assessment considers the main systematic barriers that businesses face from the regulatory, productive, operational, and other relevant perspectives. Based on the data from this assessment, growing market opportunities that could be supported by USAID to enhance the rural economic environment in targeted regions are value chains14 that:

1. Are responsive to each region's conditions and context.

2. Are strengthened through the engagement of key stakeholders.15

3. Are complemented by other activities that support value chains.

4. Leverage cultural, environmental, and economic assets.

5. Operate across a particular municipality or region, to reach a final consumer that is generally outside of the municipality or region where production takes place. (Markets may be found at the regional, national, or international level.)

6. Have end markets that drive their supply and demand.

7. Are strengthened by public policies and private investments.

8. May have barriers that need to be overcome for value chains to be sustainable and scalable.

Findings, conclusions, and recommendations regarding the eight value chain features above will improve targeting of activities implemented by USAID in the prioritized geographies.

The assessment analyzed six agricultural and livestock value chains as well as two non-agricultural and livestock value chains, which are referred to as value chains with potential for diversification (VCPD) for the purposes of this study. They are called VCPD, because they diversify products and value chains in the target regions that are centered around agricultural and livestock value chains. Agricultural and livestock value chains are described through a specific product: scalable value chains (coffee), export market value chains (Tahiti lime), national market value chains (papaya), regional supply value chains

14 This assessment's definition and approach to value chains are explained in the "USAID Approach to Interventions, Value Chains, and Markets" section of this chapter.

15 Value chain stakeholders include producers and private sector actors involved in the value chains, as well as public sector actors involved in the rules, incentives and regulations that frame value chains.

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(plantain), promising value chains (fish farming), and environmental reconversion value chains (double-purpose cattle systems, onwards, DPS).

The VCPD are sustainable tourism and creative economies. It is important to note that sustainable tourism and creative economies are not fully developed value chains in the target regions but are incipient value chains with potential to develop into scalable value chains.

Green businesses are not strictly a value chain. Green businesses can be defined as entrepreneurial activities that support agricultural or livestock value chains with an environmental conservation approach and are usually local businesses. They are not value chains in themselves but are deeply dependent on value chains for the supply of their inputs and demand of their products. Some green businesses, for example, convert waste from fish farming value chains to provide fertilizers for other agricultural value chains.

USAID/Colombia has focused its work with the logic that improving the profitability, sustainability, and competitiveness of alternative legal economic opportunities for marginalized communities in targeted regions helps eradicate illegal activities and improve security. USAID's commitment to enable licit alternatives under a comprehensive approach is reaffirmed in the current CDCS (2020-2025), specifically under the Intermediate Result 3.1: Expand Licit Livelihood Opportunities and Intermediate Result 3.2: More Competitive Licit Economies.

This assessment focuses on nine PDET regions of particular interest to USAID, as defined in the scope of work: Bajo Cauca, Sur de Córdoba, Pacífico Medio, Pacífico y Frontera, Caquetá, Meta - Guaviare, Putumayo, Catatumbo, and Alto Patía y Norte del Cauca (see exhibit 1).16 These regions were chosen because these were the regions targeted for USAID's RED strategy. USAID in turn chose these regions for the RED strategy because they fulfill all of the criteria of the CDCS. The regions have 51 municipalities in nine departments: Nariño, Cauca, Putumayo, Caquetá, Meta, Guaviare, Norte de Santander, Antioquia, and Córdoba.

Exhibit 1: PDET regions studied

SOURCE: MEL ACTIVITY, 2022.

16 PDET regions have been economically and socially affected by the armed conflict, and therefore are prioritized by the Colombian state to promote development. They are regulated by the Decree Law 893 of 2017.

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USAID APPROACH TO SUPPORTING VALUE CHAINS AND MARKETS

USAID sees its role as a catalyst that encourages local actors' commitment and leadership in development processes. USAID's approach to supporting value chains and markets prioritizes interconnectivity and local systems, which are "those interconnected sets of actors—governments, civil society the private sector, universities, individual citizens and others—that jointly produce a particular development outcome."17 According to this approach, the positive results of a system depend on the quantity and quality of stakeholders' relationships and the functions they fulfill within the system. In the case of value chains, the relationship of stakeholders with each other and with markets is a key feature.

The value chain approach considers a broad market system and the development of products/services from input suppliers to end market buyers. Essentially, the value chain focuses on the flow of a development process.18 Nonetheless, USAID's perspective on value chains underscores their interconnectivity, the relationships between stakeholders, and the role of the market in strengthening and sustaining value chains. From this perspective, mutual interest is a powerful driver in boosting value chain development and sustainability.

Value chains depend on local systems. The basic dynamics of a local system are captured by the Five Rs Framework (5Rs Framework), which "provides focus to each of the four phases of [local] systems practice. The Framework identifies key aspects of a system that are important for understanding how the [local] system functions and are important as leverage points for introducing change."19

The 5Rs that together capture the basic dynamics of a system are resources, roles, relations, rules, and results. The questions that should guide each "R" are:

• Resources: What are the key supplies and skills?

• Roles: In which functions are there gaps?

• Relations: How are the actors coordinated?

• Rules: What are the incentives and controls?

• Results: What works best? What can be improved?

Exhibit 2 depicts a system through the 5Rs lens. At its center are interactions which occur between human actors (organizations and individuals). Actors assume roles, which are the colored circles, within a network of relationships. These interactions have an input, which are the resources flowing into the system, and an output, which are the results. The frame of the system are the rules that determine incentives and controls, and the local system is surrounded by an environment that can affect or determine its development.20

17 USAID, USAID, Local Systems: A Framework for Supporting Sustained Development, 2014. p. 4.

18 USAID. 2008. Value chains and clusters approach) 19 USAID, "The 5Rs Framework in the Program Cycle", October 2016, p. 3.

20 Ibid.

https://pdf.usaid.gov/pdf_docs/PNADP044.pdf

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This systemic approach, in which USAID acts as a catalyst to promote the development and sustainability of value chains in strong local systems, with market-driven win-win relationships, is favored by the RED strategy.

Exhibit 2: The 5Rs: Key Elements of a Local System. Source: USAID

SOURCE: USAID "THE 5RS FRAMEWORK IN THE PROGRAM CYCLE", OCTOBER, 2016.

In this assessment, the local systems approach is complemented by a market-based approach, which "uses business models and market forces to address development and humanitarian challenges more sustainably and at scale."21 USAID supports market-based approaches to achieve more sustainable impact over time, because this approach strengthens a system's capacity to produce valued results, generate and attract resources, and adapt to change. Development in marginalized areas could become sustainable over time through financial incentives, decreasing the need for donor-led initiatives, and by channeling USAID's role as a catalyst to bring together markets, producers, private stakeholders, and public stakeholders.

GUIDING QUESTIONS

Table 1 includes the guiding questions of this assessment:

TABLE 1. GUIDING QUESTIONS

QUESTION

NUMBER

QUESTION

Q1 What are the public policies and private investments related to the value chains and businesses identified?

Q2 Which are the most relevant existing or potential value chains and businesses?

Q3 What are the favorable cultural, environmental, and economic assets for value chains and businesses?

Q4 How do they operate across the particular territory and reach the final consumer?

21 USAID, Market-based Approaches, consulted on June 23, 2022. https://www.usaid.gov/work-usaid/private-sector-engagement/market-based-approaches#:~:text=In%20pursuing%20market%2Dbased%20approaches,the%20face%20of%20changing%20circumstances

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TABLE 1. GUIDING QUESTIONS

QUESTION

NUMBER

QUESTION

Q5 Are there any activities that could complement/support the value chains and that could be a business?

Q6 Who are the main stakeholders engaged and what are their roles?

Q7 What are the main end markets and their main trends (local, national, and international) in terms of demand and supply?

Q8 What are the barriers that value chains and businesses must overcome to be sustainable and scalable?

Q9 What other information is available related to the viability, sustainability, and scalability of the value chains?

SOURCE: MEL ACTIVITY, 2022.

ASSESSMENT STRUCTURE

The "Methodology" section of the assessment outlines the tools used to determine this assessment's findings, conclusions, and recommendations. Following this, an "Agricultural and Livestock Value Chains" section of the report considers six dynamic types of value chains and products identified during the research: an example of a scalable value chain, an export market value chain, a national market value chain, a regional supply value chain, a promising value chain, and finally, an environmental reconversion value chain.22

Next, a "Value Chains with Potential for Diversification and Green Businesses" section of assessment reflects two value chains and green businesses that utilize diversified economic activities in the PDET target regions.

Finally, based on our data, "Conclusions" and "Recommendations" sections provide summary findings and the assessment team's suggestions regarding future USAID/Colombia activities to strengthen value chains in the PDET regions.

22 Annex C describes the public and private stakeholders who have roles in the value chains, use the resources that are fed into the value chains, and operate within the frame of public policies (rules and incentives).

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METHODOLOGY

The MEL Activity research team designed a methodological approach to fulfill this assessment’s purpose:

To identify local businesses and value chains with growing market opportunities that USAID could support to enhance the rural economic environment in selected regions. The methodology was designed to provide analysis to support USAID in prioritizing businesses based on inclusiveness and participatory principles as well as using feasibility, sustainability, and scalability criteria.

The mixed methodology seeks to address two thematic areas: agricultural value chains and diversification potential. More statistical data is available at the local level in the agricultural and livestock value chains than with regards to VCPD and green businesses. The assessment collected both qualitative and quantitative data and used primary and secondary data sources.

DATA COLLECTION

Table 2 describes the data collected, the type, and the collection method.

TABLE 2. DATA COLLECTION AND SOURCES

SOURCE TYPE DATA GATHERED DATA TYPE METHOD OF COLLECTION

Primary Sources

Key informants from public, private, and community sectors

Their experiences, preferences, and perceptions of different value chains in the territories and potential for diversification.

Qualitative Semi-structured interviews applied to 143 KII between April 4 - May 25, 2022.

Field research team23

Expert judgment of the information

Qualitative Collaboration, Learning, and Adaptation Workshops (CLA) as a kind of technique24 adapted from the expert judgment method.

Secondary Sources

Literature and previous documentation

Documentary review of experiences, diagnoses, evaluations, and previous proposals related to territories, value chains, and diversification potentials.

Qualitative with quantitative baseline findings

Structured literature review, Desk review

Official and unofficial statistical data

Statistical information on prices, production, cost, production areas, and labor force, among others.

Quantitative data

Compilation of microdata, aggregated data from official sources and agencies of the United Nations System in Colombia, such as FAO

Official and unofficial geospatial data

Geospatial information on production, routes, infrastructure, equipment, and production areas.

Quantitative

- Geospatial

SOURCE: MEL ACTIVITY OWN DESIGN

23 The field research team is highly qualified, with expertise in territorial economic dynamics, the role of cooperation agencies in the municipalities and regions, and the institutional and private actors that interact in these scenarios.

24 CLA Workshops are not strictly a research technique. However, they are an innovation strategy used as a part of this study to gather insights from the research team.

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DATA COLLECTION - ETHICAL CONSIDERATIONS

The assessment used findings of the Master Structuring Plan of the Territory Renewal Agency (ART, in Spanish), the Food and Agriculture Organization of the United Nations (FAO), and key documents from the USAID Community Development and Licit Opportunities (CDLO) and Producers to Markets Alliance (PMA) activities.

The primary data collection process did not include sensitive aspects. Teams collecting data through KIIs in person and online received comprehensive training and ensured informed consent was adequately communicated and obtained, and that human subjects were protected throughout the interview process. Data was anonymized and did not allow for the identification or individual statements but rather emphasized aggregate findings.

DATA ANALYSIS

The research team processed qualitative data from KII's utilizing NVIVO Release through analytical categories defined for the study (regional context, production capacity, market potential, financial viability, private sector participation, public policies, and barriers to overcome - See Annex P). Of the 143 interviews conducted, 63 percent were with private sector actors, 33 percent were with public sector actors, and four percent of interviews were held with other stakeholders (See Annex O).

The research team processed statistical data using R and STATA. Official and unofficial statistical sources used in the assessment were obtained from the ART, the National Statistics Department (DANE, in Spanish), the National Planning Department (DNP, in Spanish), the Agricultural Planning Unit, the Ministry of Agriculture, the Ministry of Commerce, Industry, and Tourism, the Ministry of Environment, the Ministry of…