Using a Value Chain Approach to Aid for Trade – A Case Study of the Peru’s Perishable Agricultural Products Sector Grant D. Aldonas Split Rock International, Inc.

Development as Process of Connecting People to Markets Raising productivity key to economic growth, development, and rising standard of living Requires opportunity to specialize Specialization requires freedom to engage in exchange Freedom to engage in exchange requires a connection to markets – locally, nationally and globally

Role of Trade in Development Creating new market opportunities creates further opportunities for specialization, higher productivity Access to new markets encourages acquisition of new technologies and business processes; upgrading of skills Wider market access creates opportunities to take advantage of scale

Trade in a Global Context Globalization cuts cost of participating in world markets Permits organization of production on a global basis and allows global sourcing Operating a global supply chain has become a competitive necessity Global value chains account for rising percentage of trade

Goals of Trade Policy in a Globalized World Economy No longer purely a question of lowering barriers in principal export markets Must facilitate ability to participate in global supply chains Benefits those countries that create a web of free trade relationships Advantage to first-movers on a bilateral or regional basis

Applying the Tools of Global Business Rise of global supply chains presents challenge of meeting buyer’s standards Suggests need to adopt tools of global business for analyzing competitive strengths and weaknesses Basic tool involves mapping supply/value chain that links Peruvian producers to local, national and global markets

Mapping the Supply Chain Involves drawing a map of physical and institutional geography Mapping individual steps in producing goods for target market and obstacles encountered Mapping supply chain that provides inputs to local producers due to impact on costs Measuring obstacles in terms of time to market

From Supply Chain to Value Chain – Thinking in Terms of Investment Identifying which steps in supply chain add greatest value Highlights areas in which Peru might attract investment in higher value-added activities by improving efficiency of supply chain

Using Value Chain to Shape Aid for Trade Strategy Value chain map identifies barriers that prevent people from connecting to markets Highlights where internal reforms, improvements in physical infrastructure, and lower foreign trade barriers would improve market access Measuring obstacles in terms of common measure (e.g., time to market; impact on cost) helps identify priorities Creates a basis for integrating trade and development goals/identifying where “aid for trade” would have greatest impact

Measuring Peru’s Connection to Markets Notable achievements in lowering barriers to market access (e.g., U.S. and Chilean FTAs) But, also areas for improvement – –Time to import (25 days) and export (24 days) –Cost to import and export (over US$800 per container) Each additional day equates to a loss of 1% in export trade generally

Applying the Methodology in the Context of Peru’s Perishables Already a well-developed sector Success in products like asparagus offers helpful point of comparison Asparagus as a case study of how Peruvian producers overcame obstacles to market access Also a case study of how Peruvian government facilitated market access

Perishables Amplify Impact of Trade Delays Fiercely competitive sector of global market High trade barriers and heavy government subsidy in Peru’s target markets Peruvian producers must satisfy exacting commercial standards as well as overcome physical/institutional hurdles Each additional day of delay can mean a 3-6% loss in export trade

High Impact Interventions Eliminating barriers to exports (trade negotiations/cooperation on trade facilitation) Upgrading producer’s skills/adopting business models that allow producers to take advantage of scale Institutional improvements (i.e. reducing number of documents; steps in process) Physical infrastructure at ports for handling perishables

Steps in Process Currently working on mapping process Will apply methodology similar to World Bank Doing Business Report Preliminary results in early April Suggestions for further analysis, refining approach, expanding mapping process