MASTER THESIS
Emerging Value Chains in The Northern
Netherlands
A Governance Perspective
By
Lauren Johannes Holtslag
University of Groningen
Faculty Economics & Business
Strategic Innovation Management
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Abstract.
The purpose of this thesis is two-fold: 1) it aims to create a better understanding about how value chain governance in emerging value chains of developed countries is constituted and 2) it develops practical implications to upgrade the saline agricultural value chain in the Northern Netherlands. To serve these purposes the saline agricultural potato value chain was examined in a case study. This thesis is built upon four value chain governance concepts: 1) Mapping value chains, 2) Continuum of coordination types, 3) Dominant actor and 4) Value chain types. Overall the concepts provide a useful framework for uncovering governance characteristics of the saline agricultural value chain. The findings argue that the inclusion of horizontal relations is essential in discovering governance structures in an emerging value chain. Furthermore, multiple coordination types can coexist in an emerging value chain and a dominant actor in an emerging value chain must be present at each level of the value chain to get sustainable. Last, this thesis identifies two new contextual factors that influence the governance structures in emerging value chains of developed countries. With these insights this thesis contributes the value chain literature by providing a useful value chain analysis framework to create understanding of governance relations in emerging value chains of developed countries.
3 Table of content 1. Introduction ... 4 1.1 Societal Relevance ... 4 1.2 Academic Relevance ... 5 2. Theoretical Framework ... 6 2.1 - Value chains... 6
2.1.1 - Value chain analysis ... 6
2.1.2 - Value chain development... 7
2.3 - Value Chain Governance ... 8
2.4 – How to assess value chain governance in an emerging value chain? ... 8
2.4.1 - Mapping value chains to identify governance relations ... 9
2.4.2 - Continuum of Coordination types ... 10
2.4.3 - Dominant actor ... 11
2.4.4 - Value chain types ... 11
3. Case Description ... 12
4. Methodology ... 13
4.1 - Research Design and Setting ... 13
4.2 - Data Collection and Analysis ... 15
5. Results ... 16
5.1 - Two routes in the saline agriculture value chain ... 16
5.2 - Mapping the value chain from a governance perspective ... 19
5.3 - Potential of the new saline value chain ... 20
5.4 - Identifying the type of governance structure in an emerging value chain ... 22
5.5 - Dominant actor in the emergent saline agriculture value chain ... 23
5.6 - Determining the type of chain in an emerging value chain ... 24
6. Discussion and conclusion ... 25
6.1 – Mapping the value chain ... 25
6.2 – Governance coordination type ... 25
6.3 – Dominant actor ... 26
6.4 – Value chain type ... 27
6.5 – Two routes in the saline agriculture value chain... 28
6.6 – Potential of the saline agricultural value chain ... 28
7. Practical Implications ... 29
8. Limitations and future research ... 31
9. References ... 33
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1. Introduction
Degradation of agricultural lands due to salinity is one of the most prominent factors that limit the productivity of agricultural field crops (Ghassemi, Jakeman and Nix, 1995). Recent findings point to the fact that in the Netherlands salinization of agricultural lands is an increasing issue (van Dam, Clevering, Voogt, Aendekerk and van der Maas, 2007). An option to cope with salination is to innovate traditional agriculture and find solutions that can adapt to salination and use it as an opportunity. Saline agriculture is a cheaper solution and a more future oriented approach compared to stopping land from getting more saline (de Vos, 2011). With this alternative form of agriculture, it is possible to grow salt resistant crops on salinized land (van Dam et al., 2007). The 1.5 billion acres worldwide and 125.000 hectares in the Netherlands point to the massive potential for saline agriculture (de Vos, 2011).
1.1 Societal Relevance
According to Lamprinopoulou, Renwick, Klerkx, Hermans & Roep, (2014), the Netherlands are one of the leading countries in agricultural innovation. Therefore, it is not a surprise that the pioneer in the field of saline agriculture is based in the Netherlands. Zilt Proefbedrijf is testing with salt tolerant crops (mainly potatoes) on Texel (de Vos, 2011). The Wadden Sea, where Texel is located, and its surrounding agricultural active provinces (Groningen, Friesland and Noord-Holland) provide unique opportunities for saline agriculture. The unique testing opportunities in this area combined with the breeders that are established here is why the geographical focus of this thesis proposal will be on the Northern Netherlands. Aside from the unique geographical location, saline agriculture could be economically important for the region. As known, the Wadden region is a shrinking area (Meijer, Lodders-Elfferich, and Hermans, 2004). Provinces and local government are responsible for finding solutions to counter the economic degradation of these areas (Rijksoverheid, 2015). Research indicates that agriculture could be a stepping stone towards a more sustainable Wadden region (Breman and van Doorn, 2011; de Vos, 2011), in recent years, the first saline agriculture initiatives were launched. Although positive results with growing crops on saline fields are achieved, expert interviews1 underscore the problem of
building a value chain in the Northern Netherlands that has the capacity of growing crops and distribute them in an economically feasible way. They acknowledge the potential of saline agriculture and even as a solution to global food supply problems but they cannot grasp why this emerging value chain is hampering in its evolvement.
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1.2 Academic Relevance
Academic research recognized the applicability of value chain analysis to both mature/developed countries and to developing/poor countries (Kaplinsky and Morris, 2001; Gereffi, Humphrey and Sturgeon, 2005). Value chain analysis aims to identify the dynamics of interfirm-linkages within the within the productive sector (Kaplinsky and Morris, 2001) and is furthermore used in the development literature to describe upgrading opportunities (Stamm and von Drachenfels, 2011). As can be seen from the review of Donovan, Franzel, Cunha, Gyau and Mithöfer, (2015) and also recognized by Stamm and von Drachenfels (2011), most value chain development research is done in developing countries, in established value chains, with the main purpose of encountering poverty. Although market characteristics of developed countries relative to developing countries2,
substantially differ in terms of e.g., infrastructure, funding, governance and technology (Bell and Pavitt, 1997), no useful guides for upgrading and developing emerging value chains in more mature/developed countries can be found. Both fields, value chain analysis and value chain development, underscore the fundamental role of governance structures that coordinate and allocate resources within a (developing) chain (Gereffi, Humphrey and Sturgeon, 2005; Donovan et al., 2015). In their handbook for value chain research, Kaplinsky and Morris (2001), stress that the governance dimension is one of the three main pillars in value chain analysis next to input-output and geography. Governance relations determine the authority and power relations within a chain and therefore is essential in understanding upgrading possibilities (Gereffi, 1994). The abovementioned case of the hampering value chain of saline agriculture in the Northern Netherlands can be used as an attempt of developing knowledge to address the knowledge gap about emerging value chains in developed countries3.
The research question that guides this thesis will be :
“How is value chain governance constituted in emerging value chains of developed countries?
Because governance determines the functioning of a value chain, this thesis aims to develop a more comprehensive understanding of the governance dynamics in emerging value chains in more developed countries. Using an exploratory case study, the emerging saline agricultural value chain in the Northern Netherlands will be examined from a governance perspective. The motivation to write this thesis is partly inspired by the desire of the Waddenacademie to investigate how the saline agriculture value chain in the northern Netherlands can be sparked. With this in consideration, the purpose is to advance the current field of literature on value chain
2 Developing countries are low- and middle-income countries having a GNI per capita lower than $12,736
(World Bank, 2016).
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analysis and value chain development by (1) expanding the value chain development and upgrading literature to emerging value chains in developed countries and (2) to reveal value chain governance dynamics in emerging value chains and (3) provide practical and tangible recommendations that contribute to the development of the saline value chain in the Netherlands. The following chapter will comprise the relevant theoretical concepts. Subsequently, in the third chapter, the case description is presented. The fourth chapter describes the methodology and fifth and sixth chapter will present the results of the case study from a governance perspective and relate this with current value chain governance literature. To conclude, practical implications and opportunities for further research will be provided.
2. Theoretical Framework
There is limited academic literature on the topic of governance in emerging value chains in
developed countries, therefore this thesis will use the available literature on value chains and
on governance. In this manner, the thesis aims to develop a more comprehensive understanding
of the governance dynamics in emerging value chains in developed countries. Using value chain
analysis and value chain development and the prominence of governance in this literature,
certain aspects will be underscored that will be used to examine governance in the case study.
2.1 - Value chains
The value chain concept gained increased attention during the 1990s by the writings of Porter (1985, 1990) and Womack & Jones (1996). Porter uses the concept of 'value system' in which he introduces interfirm linkages. Womack & Jones (1996) describe the same concept as 'value stream'. Both authors underscore that the 'value system' or 'value stream' is not mere a set of value added links between activities and business units of the firm but also horizontal interfirm linkages between buyers, suppliers and other actors. The framework was initially used for individual firms but has been extended to assess complete supply or distribution chains. This thesis follows the definition of Kaplinsky (2000, p. 8): “The value chain describes the full range of
activities which are required to bring a product or service from conception through the intermediary phases of production and delivery to final consumption”. This definition or very similar ones are
also used by NGO’s such as FAO, GTZ, USAID, ILO in development contexts (Donovan et al., 2015). In the way described above, the concept of value chains is used as a descriptive construct. The next section will show that more recent developments have created a more analytical structure with the capacity to recognize development opportunities in value chains.
2.1.1 - Value chain analysis
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(Kaplinsky and Morris, 2001; Humphrey and Schmitz, 2002) and is often used in agriculture development contexts (Lowitt, Hickey, Ganpat, and Phillip, 2015). This is mostly used to analyze global value chains, nonetheless value chain concepts can also be applied on a more regional/local scale (Sturgeon, 2001). Literature describes three dimensions of value chain analysis, namely: input-output, geography and governance (Gereffi, 1994; McCormick and Schmitz, 2001).
First of all, the input-output dimension is about the different phases of value adding activities from the input through the output (the eventual product) of the value chain. This dimension reflects the activities in a chain as a set of interconnected links that add value (McCormick and Schmitz, 2001). Secondly, geography of value chains is about the spatial context of a value chain. This can differ from local to global value chains. This has implications for sources of data, people and resources to be analyzed (McCormick and Schmitz, 2001). Thirdly, governance is the control that is exerted by various actors, indirectly and directly, over their own and of other activities that are controlled by others, which make up the value chain (McCormick and Schmitz, 2001). All in all, the three dimensions represent the pillars upon which value chain analysis is built.
2.1.2 - Value chain development
The first initiatives to use the value chain analysis concept in development contexts were introduced by Gereffi, (1994). The use of analysis concepts have found their way into development policies of donor organizations and NGO’s such as the World Bank and OECD countries. Donovan et al., (2015), reviews 11 guides on value chain development and states that two types of definitions about value chain development exist. The first type focuses on the strengthening of certain actors and the improvement of relations between smallholders in a value chain. The second is described as a business-environment type with the focus on improving business environments in which actors operate. Hence, the definition for value chain development in this research fits the second category and follows the definition of Webber and Labaste (2010, p. 12), who define value chain development as actions that “upgrade the whole system to the benefit of all value chain participants”. Development guides provide frameworks that help understanding markets, relations with stakeholders and are used to stimulate economic growth and increase the competiveness of the agricultural sector (Donovan et al., 2015). Development literature is mainly focused on developing countries.
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to have significant influence on the access of chain actors (in developing countries) to markets and the spectrum of actions they can or cannot undertake (Donovan et al., 2015).
2.3 - Value Chain Governance
Governance ensembles “the way that a city, company, etc., is controlled by the people who run it” (Merriam-Webster's dictionary, n.d.). In value chain literature, Kaplinsky and Morris, (2001, p. 29) argue that “value chain governance ensures that interactions between firms along a value chain
exhibit some reflection of organization rather than being simply random”. This thesis follows a more
specific definition of value chain governance: “The concept is used to refer to the inter-firm
relationships and institutional mechanisms through which non-market coordination of activities in the chain takes place” (Humphrey and Schmitz, 2001, p. 2).
From the three dimensions mentioned before, most scientific attention is devoted to the governance dimension of value chains (Lowitt et al., 2015) because governance enables and limits what an actor in a value chain can or cannot do. In this way, value chain governance gives indications about the functioning and the strength of coordination between actors in a value chain and is therefore important in identifying upgrading/development possibilities (Gereffi, 1994).
2.4 – How to assess value chain governance in an emerging value chain?
As stated before, there is no generally accepted framework to assess governance dynamics in an emerging value chain of a developed country. The results of this thesis are built upon governance concepts from reputable authors in value chain analysis and development literature in order to find how governance is constituted in an emerging value chain. A literature review on value chain governance showed the following recurring concepts that are discussed in detail below. It is important to state that the list of concepts is not exhaustive. Literature provides other governance characteristics that were either not relevant or not applicable on this case study. Table 1 sums up the used concepts and the literature that are linked to these concepts.
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Dominant actor Kaplinsky and Morris, (2001)
Gereffi (1994, 1999)
Humprey & Schmitz, (2001)
Kaplinsky, (2000) Value chain types Kaplinsky and
Morris, (2001)
Gereffi, (1994, 1999)
Bolwig, Ponte, Du Toit, Riisgaard & Halberg, 2010
Table 1 – Used governance concepts and authors
2.4.1 - Mapping value chains to identify governance relations
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Figure 1 - Mapping the value chain - Theory and reality (Kaplinsky and Morris, 2001, p. 52)
2.4.2 - Continuum of Coordination types
Figure 2 - Continuum of Governance Coordination Relationships
Second, After mapping the value chain, horizontal and vertical relationships are visible. The typology of value chain relations (Humphrey and Schmitz, 2002) is useful to assign governance relationships to each specific relationship. The literature distinguishes four types of relationships in value chains in a continuum (figure 2) from arm’s-length market relationships to hierarchal
governance. In between, there are networks and quasi hierarchy (Humphrey and Schmitz, 2002).
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2.4.3 - Dominant actor
Third, Gereffi (1994) and Humprey & Schmitz, (2001) both describe that most chains have a dominant actor, or more than one, that is able to regulate the direction and characteristics of the complete chain. The function of this dominant party can be seen as a 'role of governance'. This key firm or institution is able to appoint roles to actors which is an essential element of the act of governance (Kaplinsky and Morris, 2001). As already mentioned, the coordination in a value chains is not necessarily carried out by one single firm. The power that a lead firm or dominant actor has, can be exerted in diverse forms. Kaplinsky and Morris, (2001, p. 29) make a distinction between “ensuring consequences along the chain, and, actively managing or coordinating the
operations of the links within the chain to ensure that these consequences are met”. To assess the
dominant actor of a value chain, various data gathering techniques can be used. Time and money constraints often influence the choice of the particular data source. Interviews with key actors tested method that can provide useful data (Kaplinsky and Morris, 2001) but this depends on the willingness and cooperation from respondents to provide data (Dekker, 2003).
2.4.4 - Value chain types
Fourth, the governance literature as introduced by Gereffi (1999), highlights the distinction between buyer-driven and producer-driven chains. In buyer-driven chains the most important governing role is performed at the top of the chain, whereas in producer-driven chains, producers which often possess key technologies and proprietary knowhow coordinate the various links (Kaplinsky and Morris, 2001; Bolwig, Ponte, Du Toit, Riisgaard & Halberg, 2010). Although the literature distinguishes between producer and buyer driven chains, in reality the distinction may not be that pronounced. Some chains show little governance at all or sometimes a chain contains both buyer and supplier driven governance (Kaplinsky and Morris, 2001). Table 2 demonstrates some important characteristics buyer and producer driven chains. The chain governance type gives an indication about the power relations in the particular value chain. Identification of the value chain type contributes to formulation of future upgrading/development solutions by pointing out which side is most influential to the functioning/performance of a chain.
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Common industries Apparel, Footwear, Toys Aircraft, Automobiles, Computers
Source of Innovation Design, Sales, Marketing Scale, Volume, Technological advances
Table 2 – Characteristics of buyer and producer driven chains. Source: Kaplinsky and
Morris, (2001) ; Gereffi, (1999).
This thesis aims to contribute the value chain literature with addressing the knowledge gap concerning governance relations in emerging value chains of developed countries. This is done by using the four aspects of governance that were underscored in this section: 1) Mapping value chains, 2) Continuum of coordination types, 3) Dominant actor and 4) Value chain types. The following chapter will introduce the case study about the emergence of saline agriculture is used to explore the governance dynamics in this chain.
3. Case Description
The saline agricultural potato value chain is the case on which this thesis is built. Salination is a threat for agricultural lands close to the sea. In the Netherlands it is most pronounced in parts of Friesland, Groningen and the Wadden isles. Figure 3 shows the increased chloride concentration in the Northern Netherlands.
Figure 3 – Salination in the Northern-Netherlands – Source: RIZA, 2004
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important because the coastal agricultural lands in Friesland and Groningen provides 40% of the total seed potato export in The Netherlands and is responsible for 23% of the global seed potato export (Haalbaarheidsrapport The Potato Valley, 2015). The sector creates 1400 direct and 4200 indirect jobs and has a total value of 230 million euros (Haalbaarheidsrapport The Potato Valley, 2015). The cultivation of consumption potatoes in this region is negligible. Salination threatens the sustainability of this industry and the economy in this region and therefore, solutions are essential. Saline agriculture is not completely new. Saline visionary and entrepreneur M. van Rijsselberghe started experimenting 17 years ago. In 2010, van Rijsselberghe established Zilt Proefbedrijf in combination with the VU Amsterdam. Together they intensified experimenting and testing on Texel and found a lot of potential in salt resistant potatoes. Besides this saline entrepreneur, other breeders, trading companies, and governments started to show interest. Major trading companies such as HZPC, Agrico and Meijer started experimenting and selecting salt resistant potatoes about 3-5 years ago. For these companies, the new, salt resistant potatoes are just a new opportunity to create more revenue in new markets. Zilt Proefbedrijf is completely focused on the new saline agribusiness and saline agriculture is their core business. In 2013 years ago Zilt Proefbedrijf exported the first salt resistant seed potatoes to Pakistan (25ha) and coming year they aim to cover 1000ha in Pakistan. Dutch retailer Ecoplaza is the only retailer at this moment who is selling saline consumption potatoes. These potatoes are more salt resistant than regular potatoes and therefore able to grow on fields that cope with salination problems. The saline agricultural potato value chain in the Northern Netherlands consist of breeders, traders, farmers, retailers, wholesalers and a lot of supporting institutions that all act in this emerging value chain but at the same time. All relevant actors (including supporting institutions) and their function in the value chain are addressed in the following section.
4. Methodology
4.1 - Research Design and Setting
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which little empirical evidence is available (Dekker, 2003). Figure 4 depicts the research approach of this thesis which are based on the case study designs of (Eisenhardt, 1989) and (Noor, 2008).
Figure 4 – Research approach
Central in this thesis is the case of the emerging saline agriculture value chain inthe Northern Netherlands. The saline agriculture value chain in this thesis is focused on potatoes because this the only salt resistant crop at this moment with a full functioning value chain (breeder to consumer). Within this single-case design, the unit of analysis is the network level and therefore labeled as a holistic case study design (Yin, 1984). In this saline agriculture value chain, 15 different actors on different levels in the value chain were interviewed and analyzed. The thesis provides in-depth insights in how governance relations shape emergent value chains. Table 3 presents the characteristics of the different actors and their function in the value chain that are included in this case study. Each organization is displayed with a different character, where F1 and F2 display two different organizations with the same function and J1, J2 and J3 display three different government institutions.
Organization Function Value Chain Role Interview Participant
A Entrepreneur Saline Cultivation
R&D, Producer, Wholesaler Director
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D Wholesaler Processor, Packager, Reseller
Manager Marketing and Communication E Biological Supermarket Retailer Purchasing Employee F1 Cooperative Organization R&D, Breeder, Packager,
Wholesaler
Manager R&D
F2 Cooperative Organization R&D, Breeder, Packager, Wholesaler
Director R&D
G Research Institution External, R&D Portfolio Holder Climate and Water H Nature Conservation
Association
External Director
I Agricultural Sector External Board member J1 Government Agency
(Province)
External Policy Advisor
J2 Government Agency (Province)
External Project coordinator
J3 Government Agency (Water Board)
External Senior Hydrologist, policy maker
K Funding External Program Director
L Advocacy Saltmarsh Owners External Board Member
Table 3 – Interviewed Organizations and their Functions
4.2 - Data Collection and Analysis
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questions were asked to get a valuable view on the developments in the saline agriculture value chain. The interview questions were based on existing value chain theory and designed to discover interrelations between actors and to discover bottlenecks. During the data collection process, each interview was evaluated with a fellow researcher to identify redundant or unnecessary questions. An overview of the foundation of the research questions can be found in appendix 1. Most interviews took between 1 and 2 hours and after transcribing the interviews they were sent to the interviewees to check for inconsistencies and additional comments. Moving to the data analysis, data collected from interviews was transcribed directly afterwards. Subsequently, the transcribed data was analyzed by reading it and discussed with a fellow researcher to find insights and highlight important quotes. In the next step data was categorized and organized in distinct categories according to governance literature characteristics. After that, following the suggestions of Eisenhardt (1989), the next step involved within-case analysis in which on a more theoretical level in which efforts were made to “look beyond initial impressions
and see evidence thru multiple lenses” (Eisenhardt, 1989, p. 533). Insights and findings from the
within-case were compared with existing literature of the value chain governance. This eventually engendered new theoretical insights concerning governance in emerging value chains.
5. Results
This chapter contains the results related to value chain governance of the saline agriculture case study in the Northern Netherlands. The within-case analysis shows reappearing patterns regarding governance during the emergence of a new value chain. Results follow the four central governance indicators presented in the literature review: 1) Mapping value chains, 2) Continuum of coordination types, 3) Dominant actor and 4) Value chain types. Besides the four presented governance indicators, the case study revealed two other important characteristics that influence the governance dynamics in case study. The existence of two separate routes and the
acknowledgement of potential on every level in the chain are regarded as important for
understanding the emergence of the saline agricultural value chain.
5.1 - Two routes in the saline agriculture value chain
Important in understanding the (governance) dynamics of the saline agriculture value chain is the recognition of two different but heavily intertwined routes in this value chain. Trading house (F2) described: “There are two separate markets, on the one side a small niche market (consumption
potatoes) and on the other side the one we are interested in (exporting seed potatoes)”. This
distinction between consumption (the niche) and seed potatoes is visualized in figure 7 which depicts the complete saline agriculture value chain. This figure visualizes the two potato routes in the value chain. Furthermore, research institution (G) also recognizes the difference by stating:
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actors highlight that most revenue potential is in the export of seed potatoes but that the consumption route is essential for developing knowledge and success in the seed potato route. Trading company (C) highlights this: “The consumption market is small, but we gather a lot of
knowledge so we can make a lot of money later on the international market”. Actors in the chain use
the knowledge created in the relatively small consumption route to develop the other route as breeder (B) explains: : “the consumption market is the generator of knowledge that we need before
we can export seed potatoes”. In total, 8 of 15 actors explicitly mentioned the existence of the two
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5.2 - Mapping the value chain from a governance perspective
This section visualizes the new saline potato agriculture value chain from a governance perspective. It maps the value chain and all interviewed actors of the value chain. Besides mapping the saline agriculture potato value chain, this part includes the specific coordination mechanisms between the actors. In this way the chain governance during the emergence of a value chain can be visualized. Each Bold arrow between actors depicts a product or knowledge exchange and therefore a relationship. Based on interviews, and other secondary data, these relationships are disclosed as free market exchange, licensing. binding contracts or even vertical integration. By specifying and evaluating these relationships and exchanges the overall type of governance can be uncovered (chapter 5.4). The functions and relations in figure 8 constitute the ‘micro’ level of the saline agriculture value chain. Figure 9 depicts the ‘meso’ and ‘macro’ level of the saline agricultural potato value chain which include supporting institutions and public organizations. The figure shows in which stages of the value chain each supporting institution exerts influence (funding, knowledge, regulations, counseling) on the value chain.
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Figure 9 - Coordination in the Saline Agriculture Value chain (Meso and Macro level)
5.3 - Potential of the new saline value chain
For the emergence of a chain, actors must believe in the economic potential of a chain in order to create sustainable value chain. Table 4 shows all involved actors of the saline agriculture value chain and their expressed potential of this new saline agricultural value chain. In total, 12/15 interviewed actors expressed their believe and potential of saline agriculture. Only one actor is purely focused on saline agriculture, none of the other actors is heavily dependent on the success of saline agriculture.
Albeit 12/15 actors expressed the economic and technical potential of saline agriculture, there is a difference between the two separate markets previously discussed. For the seed-potato route, potential by actors on all levels in the chain is undisputed. All actors see the fast growing salination problems in other parts of the world as an opportunity for seed potato companies in the Netherlands “This means that the varieties that are resistant to salt will grow in demand because
the problem of salination problems will continue to grow” (actor F2). For the consumption route,
some actors expressed less optimistic potential. Major potato trader (F2) stated “I simply don’t see
the added value, when it comes to saline potatoes, we focus on exporting seed potatoes to foreign countries” and saline entrepreneur (A) declared “as long the regular potato growers can harvest 80 tons per hectare, then you know it will stay a limited segment. This difference in acknowledged
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for upgrading or development solutions carried out by supporting institutions. The discussion, conclusion and practical implications will address this difference more thoroughly.
Actor Function Expressed potential
A Entrepreneur saline cultivation
“I think that there is a market value of 150 – 300 million euro a year if we manage the interaction between man and sea in the right way”
B Breeder “I think that we cannot even imagine what the possibilities are of saline agriculture”
C Trading company “Saline agriculture is taken more serious nowadays, if you had problems with salt 6 years ago, people would advise you to move your business”
D Wholesaler “I think that saline potatoes are a here to stay and that it will become an established brand”
E Retailer “I expect that the trade of saline potatoes will grow in the future”
F1 Cooperative Organization *
F2 Cooperative Organization “This means that the varieties that are resistant to salt will grow in demand because the problem of salination problems will continue to grow”
G Research Institution “We think that saline agriculture will become a worldwide market, therefore it is interesting for us to explore what crops can be developed for this purpose”
H Nature Conservation Association
“If you are able to enrich the agri-sector with something saline, than there definitely is an opportunity to create revenue” I Agricultural Sector *
J1 Government (Province) “Inhabitants (of villages) in the Wadden region see salination as a great opportunity “
J2 Government (Province) "Yes there is definitely potential, but it has to be proved first" J3 Government (water
board)
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K Funding “If you can breed a potato that can grow in salinized areas in the world, than you are talking about a very big, international market”
L Agricultural Sector “From a global perspective, it is a very promising development. It is good that The Netherlands wants to play a big part in this development”
Table 4 – Expressed potential of saline agriculture
5.4 - Identifying the type of governance structure in an emerging value chain This chapter couples interview data to the governance structure characteristics as introduced in the literature chapter with the purpose of identifying the type of governance structures (arm’s length market relationship, networks, quasi hierarchy and hierarchical governance) within this value chain. The new saline agricultural value chain does not embody ‘arm’s length market relationships’ because the product is not standardized. It needs complementary knowledge to grow and harvest. As actor (A) stated “it’s more complicated than it looks, you cannot just send a
bag of potatoes and let them put it in the ground, then it won’t work”. This statement belongs to the
seed potato market but also the smaller niche market of saline consumption potatoes cannot be characterized as ‘arm’s length’ because buyers do not have the option to numerous other suppliers because they do not exist yet. The ‘Networks’ relationship has a better fit with the new saline agricultural value chain. Especially on the ‘meso’ level more information intensive relationships exist. Different actors started working together: “We are busy with developing Potato Valley, it is a
knowledge platform with a lot of companies and organizations in order to improve the potato chain”.
On a ‘micro’ level there is a lot less cooperation. The next statement of a large trading house points out the limited the information exchange between different saline developments: “No knowledge
exchange, in business you want to create and sustain a lead position relative to your competitors”. A
small potato trader comments on this behavior: “The larger the potato company, the more
protective they are. It’s simple, small companies have to work together to achieve something, the bigger ones can afford working alone”. This protection behavior is mainly displayed by the large
trading houses that control a lot of knowledge and resources such as high-tech breeding facilities, sales agents and distribution channels. Smaller companies, including the dominant actor (A), show ‘network’ characteristics. They cooperate and exchange knowledge but as the next statement from breeder (B) indicates:“There are no collaborations like ours, we are at one table with
‘dominant actor A’ and 5 other companies”. Other evidence that points to ‘network’ characteristics
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supporting institution (K). There is also evidence that points to more ‘quasi- hierarchy’ relationships in which one firm exercises a high degree of control of other firms in the chain. The major potato companies, actors F1 and F2, act on multiple levels in the value chain. Sometimes with their own company name and sometime in the form of a subsidiary “We are owner of a small
packaging company, which supplies to retailers” (F2). Although such hierarchical relationships
exist in this case, the major potato companies do not own the production of the potatoes, which is done by individual farmers. So, although the saline agriculture value chain contains some hierarchical characteristics, the freedom of the individual farmer’s point to a form of ‘quasi hierarchy’. Competitor of actors F1 and F2, namely dominant actor (A) has chosen a strategy that is the opposite of constructing hierarchical relationships “we deliberately choose not to own any of
the varieties, we don’t want to be bound to one supplier”.
5.5 - Dominant actor in the emergent saline agriculture value chain
Interview data shows that some actors in the new saline agricultural value find it difficult to point out a real dominant actor. This is partially because our results are based on actors across the complete value chain which causes that some actors are limited active in the saline agricultural value chain and therefore have difficulty appointing a dominant actor. Actors that are heavily involved or integrated in the potato value chain have better view on the complete chain and were able to pinpoint a dominant actor. In total, 7 of the 15 actors see actor (A) as a driving force behind the saline agriculture innovations. Statements such as : “Company (A)
is very important in the field of saline agriculture and definitely the stimulator” or “Do you know Company (A)? He is the booster of saline agriculture and experimenting for years” really point out
the importance of actor (A) in the emergence of the new value chain. Answers to the question, who are important players in the saline agriculture? Also pointed towards the important position of company (A). As the head R&D from a large trading house stated: “Companies that make use of
Company (A) they make a business model and therefore a chance for success”. These statements
show that actor (A) fulfills a central role in connecting other companies to the new saline agriculture developments. No other dominant players beside actor (A) were pointed out but often interviewees added comments such as “It must be a combination of governments, farmers etc. that
will rule the roost” or “If there is an exportable product, then the trading houses will play a very big role in this”. So although actor (A) is mostly seen as the dominant player that was indispensable
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5.6 - Determining the type of chain in an emerging value chain
While examining the chain type (buyer or producer driven) characteristics in an emerging value chain, it is important to be aware of the two different routes in the saline agriculture value chain. As the results will show, both routes have different characteristics that helps determining the type of chain.
Actor (A) has already been appointed as dominant actor of the complete saline agriculture value chain. Regarding the consumption route, which only is domestically, actor (A) is the only producer of saline potatoes and actor (E) is the only retailer of saline potatoes and exclusively sells the potatoes grown by actor (A). This thesis identifies the consumption route of saline potatoes at this moment as a buyer-driven value chain. First, because of the importance of marketing in the saline agriculture. Statements such as: “For us, actor (E) is very important, growing potatoes is not that
complicated, marketing is” or “Saline agriculture needs to distinguish itself in taste in order to create an own market” emphasize the pivotal roles of retailers and branded manufacturers in an
emerging value chain. Second, the saline potatoes are seen as a more exclusive potato “People that
are interested in saline potatoes don’t go to normal supermarkets, they want something exclusive”.
The cost per hectare are higher and as the research manager of actor (F2) said “It will be
interesting because eventually the price per kilo counts”. Also comments such as: “Most important is to show the added value of the product, you have to invest in this added value” affirm the
importance of research, sales and marketing in order to create profits for the product. This is in line with the buyer-driven characteristics from the literature and give enough reason to state that the consumption route of in the emerging saline agricultural value chain can be seen ‘buyer-driven’.
The international active seed-potato route of the saline agriculture value chain has other characteristics that indicate a more producer driven-chain. In the seed potato business several companies are able to export seed potatoes anywhere in the world. Most of their sales are based on long lasting relationships with oversea buyers. The major seed potato traders have agents stationed in foreign countries who are responsible for generating sales and monitoring potato deliveries. As typical for producer-driven value chains, large organizations coordinate production networks. The giants of the Dutch seed-potato industry are organized as cooperatives or very similar to cooperatives (LEB, 2015). Potato cooperatives united all small producers of potatoes into large collectives that gained leverage over buyers domestically and internationally. Besides this, at this moment, dominant actor (A) possesses vital technologies. Owner of actor (A) stated
“We have the only ISO certified outside test location in the world”. The possession of vital
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6. Discussion and conclusion
This thesis aims to develop a more comprehensive understanding about how value chain governance in emerging value chains in developed countries is constituted. To answer the research question, this chapter will connect the used value chain governance literature to the results of the saline agricultural case study to address the knowledge gap and to gain a better understanding of how value chains can be developed or upgraded into more viable forms. Four value chain governance concepts were used: 1) Mapping value chains, 2) Continuum of coordination types, 3) Dominant actor and 4) Value chain types. It is found that all four concepts were applicable to uncover value chain governance in the emergence of the saline agricultural value chain. In addition to the four governance concepts, the results revealed two other contextual factors (two routes in the value chain and expressed potential) that were important for the emergence of the saline agricultural value chain. First the four initial concepts will be discussed and subsequently the two new, contextual factors are reviewed.
6.1 – Mapping the value chain
In the quest of discovering governance characteristics during the emergence of a value chain, this thesis made an effort in mapping the current saline agricultural value chain. In this attempt it responded to calls from literature to include horizontal value chain links (meso and macro level) and not only focus on the vertical (micro level) value adding activities (Springer and Heinze, 2007; Herr and Muzira, 2009; Taylor, 2005). This thesis shows that mapping value chains is very important in discovering governance characteristics of an emerging value chain. It was found that the value chain mapping techniques used in established value chains as proposed by Springer and Heinze, (2007) were relevant and transferable to the emerging saline potato value chain. It is therefore advised that future value chain research in emerging value chains includes both horizontal and vertical relationships. Mapping the value chain aids in identifying patterns of coordination and possible power asymmetries that indicate governance relationships in emerging value chains. The results revealed that the horizontal relations (meso and macro level) with supporting institutions enabled actors to attract funding, scientific knowledge and technologies to accelerate saline agriculture developments and therefore influence the value chain governance in this emerging chain.
6.2 – Governance coordination type
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operation form, display strong indications of ‘quasi-hierarchical’ relationships. They own packaging companies and monitor the performance of suppliers. Various scholars have examined and described the typology of governance types in different ways (McCormick and Schmitz, 2001; Humphrey and Schmitz, 2001). But although these papers describe the thin line between the four types of governance, none of the papers found describe the possibility of two governance types in one value chain. This research indicates that two adjacent but different governance types coexist in the saline agriculture value chain. It is exposed that smaller and relatively young firms pursue a ‘network’ oriented coordination type whereas larger and older firms seek more ‘hierarchical’ relationships. This is important for possible upgrading strategies because “different forms of chain governance have different upgrading implications” (Humphrey and Schmitz, 2002, p. 1023). This paper argues that for the emergence of a new value chain, ‘network’ directed governance types are most beneficial. ‘Network’ types have more horizontal and vertical relationships which provides a more open coordination and cooperation climate compared to the ‘hierarchical’ type. Open coordination relationships are helpful in refining processes, upscaling sales and overcoming problems in the emergent phase of a value chain.
6.3 – Dominant actor
The results suggest that the new saline agricultural value chain has one ‘lead firm’ or ‘dominant actor’ (Kaplinsky and Morris, 2001; Gereffi, 1994; Humprey and Schmitz, 2002) that is able to govern the direction of the chain. In this case study, the ‘lead firm’ in the field of saline agriculture is the pioneer and proven to be a driving force behind the emergence of the saline potato value chain. The dominant actor is able to determine the direction of the chain, which is typical for a ‘lead firm’ that is “actively managing or coordinating the operations of the links within the chain to
ensure that these consequences are met” (Kaplinsky and Morris, 2001, p. 29). This thesis argues that
without the pioneering efforts of the dominant actor that demonstrated the potential of saline agriculture, the saline agricultural value chain would not have emerged in the first place.
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this reason, the development in total sales and therefore is still marginal which blocks the expansion of the value chain.
6.4 – Value chain type
In the distinction between value chain types, Gereffi, (1999) introduced the buyer-driven and producer-driven value chain. This thesis presents results that are consistent with scholars who state that both forms can exist alongside in the same value chain and geographical location (Kaplinsky and Morris, 2001) and even adds a possibility. The saline case study reveals that the two separate but intertwined potato chains are driven in distinct form.
First, within the seed-potato route in the saline agriculture value chain, it is seen that the cooperative forms of organization unite all the small scale farmers into powerful organizations that are able to coordinate the world market of seed potatoes (including saline potatoes). This is similar to the change from a buyer-driven to a producer-driven chain that took place in the cut flower industry (Patel-Campillo, 2010). Another indication for the producer-driven seed potato route is the possession of unique technologies by the dominant actor in the chain. Holding key technologies creates entry barriers as is described by Bolwig et al., (2010), Humphrey, (2001) and Gereffi, (2001). Interesting is the attitude of the dominant actor in this producer driven chain. Where literature argues that technology and proprietary knowhow create entry barriers that are used to constitute the position of ‘lead firms’ in producer-driven chains (Bolwig et al., (2010), the dominant actor in the saline value chain displays a contrasting approach. It explicitly chooses not to patent knowledge or integrate vertically. It maintains the dominant actor by innovating with public knowledge with faster pace than competitors, creating a lead-time advantage.
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6.5 – Two routes in the saline agriculture value chain
Essential in the saline agriculture case study is the existence of two separate ‘routes’ (seed potatoes and consumption potatoes). As demonstrated, each route is driven in a different way which leads to a difference in governance dynamics and therefore in upgrading possibilities. The literature recognizes the different upgrading possibilities for different chain types (Gereffi, 1999) but pays little attention to industrial context that influences governance structures in a particular value chain. This thesis argued that producer and buyer driven structures can be found in one organization and therefore complicates the value chain governance identification process. It would be beneficial to include industrial context literature to get a more comprehensive understanding of how value chain governance is constituted.
6.6 – Potential of the saline agricultural value chain
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7. Practical Implications
The idea of examining the saline agriculture value chain is borne in dialogue with the Waddenacademie. For this reason, the practical implications and recommendations of this thesis are divided in development options directed at each relevant actor in the saline agriculture potato value chain.
Lower levels of the chain. For breeders and traders at the lower levels of the value chain, cooperation and collaboration is essential. These relatively small actors do not have the same scale advantages as the major trading companies. They thrive by actively cooperating which is beneficial for their learning curve in saline agriculture research. At this moment they are learning faster compared to the major trading companies. It is recommended not limit the cooperation to the micro level (vertical) but upgrade the cooperation with horizontal (meso and macro) relationships. For example, cooperation with nature conservation organization ‘it Fryske Gea’ is advised. This organization has a different perspective (nature conservation) compared to the profit driven actors. It Fryske Gea is now pioneering on own initiatives and the acquired knowledge could be combined with knowledge from breeders and farmers to speed up the learning process in order to safeguard economic and ecologic interests.
Farmers, represented by advocacy organization LTO, display higher skepticism of saline agriculture compared to other actors. This is not startling because a possible switch to saline agriculture holds huge uncertainty for these farmers. Interviews showed that farmers can only be convinced and persuaded with hard evidence of sustainable profits. The Province of Groningen started a pilot with the aim of proving sustainability but it is on a relatively small scale (Kwakernaak, Lenselink, Officer and Buurman, 2015). It is up to the Waddenacademie and the Provinces of Noord-Holland, Friesland and Groningen to expand and initiate more similar projects and provide hard evidence that endorses saline agriculture. Especially the farmer’s advocacy (LTO) must be convinced and involved in these projects because they exert a lot of power in local governments. A second possibility could be the ‘Project Holwerd Aan Zee’, (2015). Successful pilots (proven sustainability and profits) with saline agriculture are the only way to convince farmers and get them more receptive to saline agriculture. If these experiments turn out badly, the saline agriculture is bound to fail because in the end, the land owners (farmers), decide how their lands are cultivated and without their support the scale and impact on economy and ecology of saline agriculture will be negligible.
Higher levels of the chain. For processing, wholesaling and retailers this thesis distinguishes between seed potatoes and consumption potatoes.
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upgrade the saline agricultural value chain. At this moment the distribution and sales channels of current and single dominant actor (A) do not have the capacity to serve the market in foreign countries. At this moment, major trading companies are experimenting with saline potatoes but not yet exporting them. For saline agriculture success, saline sales activities by major trading companies such as (F1) and (F2) is essential for expanding the volume of exported saline seed potatoes. With the export knowledge, distribution channels and resources of actors (F1) and (F2), the saline agricultural value chain in The Netherlands will be boosted by higher foreign demand. More collaboration between the major actors (F1), (F2) and dominant actor (A) would be beneficial. This collaboration could be initiated by a joint program coordinated by the Waddenacademie and backed by the Waddenfonds to spur saline developments. Besides funding of the Waddenfonds, it would be an opportunity to retrieve funds from for example the EU, WorldBank or other development donors. Funding or subsidies will motivate and persuade the major (profit driven) trading houses to export saline potatoes to foreign countries which will boost the development of saline agriculture in the Northern Netherlands.
To achieve this higher level of collaboration between actors, an increase in micro, meso and macro level relationship is vital. Actors (A), (B) and (C) showed that their collaboration led to the first exported saline potatoes. They are supported by government institutions such as the Provinces Friesland and Groningen who declared to take a facilitating role in saline developments this because their ultimate goal is economic improvement in the Waddenzee area. A second option to involve the major trading houses is by a public-private partnership cooperation form such as the Potato Valley, (2015) initiative in which actor (F2) is involved. This initiative is a step in the right direction but the Potato Valley project is initiated to serve multiple goals. A public-private partnership with Provinces, farmers, trading houses, LTO and the Waddenacademie solely focused on the export and development of saline potatoes is recommended.
Second, the consumption route of saline potatoes. The results showed that this is a small niche market mostly with the purpose of generating knowledge that can be used in the seed potato course.
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potato market. This thesis recommends to keep the saline consumption route relatively small in order to control supply and secure profits. To control the size niche market, it is recommended to create a saline certification/brand with strict requirements. It is important that all actors of saline agriculture are involved and acknowledge the use of this certification/brand. The already active certification institution could be used to control this important but vulnerable saline branch. The Waddenacademie is the designated actor to investigate the feasibility of such a label.
8. Limitations and future research
As all studies, this thesis has limitations that give opportunities for further research. First, the results and conclusions of this thesis are built on one in-depth case study concerning the saline agriculture potato industry in a small region of one country. Findings therefore only hold in this particular research setting and have limited generalizability. It would be interesting to compare other saline trajectories with the saline potato case and analyze if similar governance characteristics exist in those chains to increase the generalizability of the results. Other saline developments such as cultivating clams or cultivating seaweed are options but at this moment still underdeveloped as a chain itself4. Besides, inclusion of foreign buyers of saline products would
form an even more comprehensive representation of emerging value chains.
Second, the saline agricultural value chain is small, for this reason some companies in this thesis with only have 1 or 2 employees represent a complete level in the saline agricultural potato value chain. Accordingly, the possibility of subjectivity of the interviewee is present which could be disadvantageous for the validity of this case study. In the expansion of the saline agricultural value chain, more actors will be present on each level of the value chain. It is advisable to include several actors of each level in future research to improve the validity of the outcomes.
Third, the value chain analysis literature is mainly build upon three pillars (McCormick and Schmitz, 2001; Gereffi, 1994). Although the governance perspective is appointed as most developed (Lowitt et al., 2015), the input-output and geography dimension in value chain analysis literature could also hold valuable insights that strengthen the knowledge about emerging value chains. It is advised that future research includes the input-output and the geography dimension in emergent value chain research.
Fourth, value chain governance in thesis is mainly explained with the four value chain governance concepts. However, this does not mean that these concepts are able to comprise the complete picture of value chain governance in emerging value chains. As the results show, industry and social contexts influence the emergence of a value chain and therefore affect how governance in a
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11. Appendices
Appendix 1 – Interview questions
As stated before, the actors in the saline agricultural value chain were acting on different levels in the value chain. For this reason not all participants possess the same knowledge or insights. For this reason each interview had a set of interview questions that were customized to the relevant actor. The interview questions below is the standardized version of the interview questions.
1. General questions
a. Can you tell a little about yourself and your function [at VC actor]? b. Can you tell us something about the work [the actor]?
c. How many people work for [the actor]?
d. Do you have experience in the field of salinization?
2. Current saline value chain (structure)
a. How long is saline agriculture already on the agenda [of actor]?
b. Is salinization in The Netherlands problematic for farmers in the northern regions? Long-term of short-term?
c. What is [actor] precisely doing in the new saline agriculture? What is your role in the value chain?
d. How does [actor] look at the development of saline agriculture? Is this changing lately / last years?
e. Which companies / organizations / governments play an important role (stimulators) to allow the emergence of this new value chain?
f. Is there a party that should take the lead? If so, who?
g. Did you have contact / knowledge exchanges about saline agriculture with other organizations? If not, why not? If so. With whom and how often for example?
3. Bottlenecks
a. What do you think are the problems currently causing the saline value chain fails? Is it profitability, small market etc.
b. Is the low necessity, because there is not much salinity a bottleneck? c. Do you think the "saline market" will grow in the coming years? Why? d. Are there impeding regulations that do not allow saline experimentation? e. Are there subsidies for farmers / growers who grow saline crops?
f. How can the current new value chain become profitable/viable, so farmers/producers will have the incentive to change?
4. Future/Ideal value chain
a. How do you [actor] see the future of the saline crops/potatoes?
b. How do you [actor] see the saline agriculture value chain in an ideal situation? c. What would be the advantages and disadvantages of a saline value chain in Northern
