Development of an emerging value chain: case study of saline agriculture in the Northern Netherlands

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Development of an emerging value chain: case study of

saline agriculture in the Northern Netherlands

Edik Saidov - S2185849

e.saidov@student.rug.nl

Master Thesis

MSc BA: Strategic Innovation and Management Faculty of Economics and Business

University of Groningen

Supervisors

1st: Dr. K.R.E. Huizingh 2nd: Dr. W.G. Biemans

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ABSTRACT

The aim of this research paper is to build a more comprehensive understanding of (1) the bottlenecks which impede a new value chain to emerge, and (2) how these bottlenecks can be overcome to eventually create a viable value chain, i.e. how a new value chain can be

developed in the context of advanced countries. Literature review revealed the

underdeveloped field of research of the development of new value chains in advanced countries, such as The Netherlands. A case study research design is used in this study as it is fitting for theory development, since it allows to answer “how” questions (Yin, 1984) and when researching phenomena about which little empirical evidence is available (Dekker, 2003). In this emergent saline agriculture value chain case, 15 different actors on different levels (internal and external) of the value chain were interviewed and analyzed.

The paper identifies several key bottlenecks that hamper a new value chain to emerge and become viable, and shows how firms may deal with these bottlenecks. Four different, yet related themes are revealed: market bottlenecks, non-enabling environment bottlenecks, governance bottlenecks, and awareness/urgency to change bottlenecks.

This study contributes to the extant literature about value chains by investigating three related matters: (1) bottlenecks which prevent a new value chain to emerge, (2) value chain

development in advanced countries, and (3) the strategies to overcome the bottlenecks, to develop a viable value chain.

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1. INTRODUCTION

Organizations achieve sustained competitiveness by providing high-quality innovative

products and services at reasonable and competitive prices. To attain a competitive advantage, the firm has to surpass their competitors, and discover customers’ needs and satisfy their expectations (Barney, 1995; Peteraf, 1993). However, organizations are more and more working in collaboration with, for instance, suppliers and resellers. Hence, competition is increasingly between value chains rather than between firms (Fearne et al., 2012). By assessing the strategic advantages and disadvantages of the company’s activities and value creating processes in the marketplace, value chain analysis is crucial to assess the value chain’s, as well as the company’s competitive advantages.

Researchers have recognized the relevance of value chain analysis for quite some time (Kaplinsky & Morris, 2001; Gereffi, Humphrey & Sturgeon, 2005). Value chain analysis has the capacity to look beyond the firm-specific analysis of much of the innovation literature because it recognizes inter-industry linkages and is therefore more dynamic relative to the traditional, more static sectoral analysis (Kaplinsky & Morris, 2001). After mapping the activities in an (emerging) value chain and finding the bottlenecks, interventions can be proposed to develop or upgrade existing value chains to a more competitive and viable configuration (Stamm & von Drachenfels, 2011). Value Chain Development (VCD) gained more and more attention in the last years. In a comparative review, Donovan et al. (2015), examines 11 development guides that are proposed in the last 10 years. As can be seen from the review of Donovan et al. (2015), and also documented by Stamm & von Drachenfels (2011), most value chain development research is done in developing countries with the central purpose of countering poverty. Additionally, the research stream of value chain development analyses value chains which are already established and not value chains which are emerging. In this research we extend the value chain development research, by analyzing an emerging value chain in the context of developed countries with the ultimate purpose of improved overall chain performance to yield tangible benefits in terms of competitive advantage and regional economic performance.

This research study is an exploratory one, wherein the major emphasis is on discovery of ideas, insights and relationships. The objective of this paper is to build a more comprehensive understanding of what the main bottlenecks are to have a new value chain emerged in

developed countries and how these bottlenecks can be overcome to eventually develop a

viable value chain. A case study design is used to realize this objective. The case of this

research will be the emerging saline agriculture in the coastal Wadden Sea region in Northern Netherlands, because this new field of agriculture is emerging since the risk of saline water affecting agricultural land will aggravate in the future due to climate change and subsidence in coastal areas (Planbureau voor de Leefomgeving, 2012; Snellen et al., 2012; De

Kempenaer et al., 2007).

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development guides that are tailored to developing countries/markets and apply them to value chains of more developed countries/markets such as The Netherlands. However, research in other contexts, and other literature fields can offer insights. The aforementioned case of the hampering value chain of saline agriculture in the Northern Netherlands1 can be used to develop knowledge to address the research gap about bottlenecks of emerging value chains and value chain development in developed countries.

This is why this research aims to contribute to existing literature with a more comprehensive understanding of why a new value chain is hampering to emerge and how the main

bottlenecks can be overcome to eventually develop a viable value chain. Therefore the research question will be:

Which bottlenecks prevent a new value chain to emerge, and how can these be overcome to eventually develop a viable value chain?

The paper unfolds as follows. First, we review the literature on value chain development, the associated bottlenecks, and possible solutions to these bottlenecks. Next, we presents the methodology used in this exploratory study and our major findings. Finally, we conclude with a discussion of the study’s implications and suggestions for future research.

1.1 Case description

The saline agricultural potato value chain is the case on which this thesis is built. It comprises the Wadden region (Noord-Holland, Friesland, Groningen and all Wadden isles). Since the report of commission Meijer (Meijer, Lodders-Elfferich, and Hermans, 2004), initiatives were launched to advance the Wadden region economically and ecologically. NGO’s like the Waddenacademy (knowledge creation) and Waddenfonds (funding) were established to stimulate this process. These NGO’s have diverse agendas and contesting the salinization problem is one of the pillars in these programs. This is important because the coastal zones in Friesland and Groningen provide for 23% of the total seed potato export in The Netherlands. Salinization threatens the stability of this business and the economy in the region. Hence, solutions are vital. Saline visionary and entrepreneur Marc van Rijsselberghe started

investigating salinization 17 years ago, so saline agriculture is not completely new. In the last 6-7 years this entrepreneur intensified the experimentation and tests and found a lot of

possibilities in salt resistant potatoes. Moreover, other breeders, trading companies, and governments started to show interest in the saline agriculture developments. The first saline potatoes are currently exported and retailers in the Netherlands started trading saline potatoes. These potatoes are more salt resistant than common potato varieties and accordingly are able to grow on lands that cope with salinization. The saline potato value chain in the Northern

1_{The first saline agriculture initiatives are already launched, and even though positive results with growing crops}

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Netherlands consist of internal actors, such as breeders, farmers/producers, traders,

wholesalers, retailers, and a lot of external actors, such as, governmental institutions, research institutions, and funds, that all act in this emerging value chain.

2. LITERATURE REVIEW

To understand the remainder of this research paper it is crucial to understand the background theories which are used to give an answer on the research questions.In the process of

extending existing literature with (1) knowledge about bottlenecks which prevent a new value chain to emerge and (2) about value chain development in mature countries such as The Netherlands, it is useful to understand the evolution of value chain literature. This section describes shortly the progression of value chain theory and the concepts that are vital for building new theory in this field of research.

2.1 Value chains

We define a value chain as a set of organizations involved in different processes that produce value in the form of products and services, and distribute them to the end-consumer

(Christopher, 2010). Value chains emerge and exist because each actor/member of the value chain adds value to products through activities to which they are best suited, and permits other actors to do the same (Porter, 1985). Thus, each actor has its own position and role in the value chain. For instance, farmers grow vegetables and sell them to restaurants that in turn produce dishes that are sold to end-consumers. In such a way, the farmers add value by using optimized growing methods, and the restaurant adds value through expertise in food

preparation. The end-consumer realizes the value through their buying (Christopher, 2010). These are internal actors which are directly involved in adding value to create the final product/service. External actors are also important, since these actors support the value chain with a range of technical, business and financial service activities. Value chains concentrate on value creation by innovation in products/processes or by marketing efforts (Webber & Labaste, 2010).

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Figure 2.1.1 – Viable value chain with extensive links between internal actors

As described above, the value chain concept is used as a explanatory construct. Below we will explain that more recent developments have generated a more analytical construct with the ability to identify (potential) bottlenecks and development opportunities in value chains.

2.2 Analysis and development of value chains

Value chain analysis (VCA) is an analytical tool that helps clarify relationships between actors in a chain and helps to understand potential development opportunities (Humphrey & Schmitz, 2002). In those circumstances where a firm in a value chain does not internalize much of the activities of the value chain in its own operations, its own efforts to upgrade and realize efficiency will be of little effect i.e. increasing the performance of individual firms may have little impact if they are imbedded in a sea of inefficiency (Donovan et al., 2015). Thus, it is needed to analyze and upgrade the whole value chain to eventually develop a viable value chain.

Webber & Labaste (2010, p. 12), define value chain development as interventions that “upgrade the whole system to the benefit of all value chain participants”. According to these

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authors, at the heart of value chain development is the effort to strengthen mutually beneficial linkages among value chain actors so that they work together to gain from market

opportunities, specifically, to create and build trust among value chain actors. So value chain development is needed to develop a viable value chain. This is also in line with the above mentioned insights of SCM literature. Nearly all of the papers on value chain development contain this notion of the importance of inter-firm cooperation and creating economies of scale through increased coordination, i.e. governance (Webber & Labaste, 2010). Although developing a closely aligned value chain can be a difficult process, the benefits are

undeniable. Most notable is the ability to reduce costs and increase profits, which can have a substantial effect on the viability of the value chain.

It is not uncommon that value chain have a dominant actor that is regulating the strategy and characteristics of the complete chain (Gereffi, 1994). The role of this dominant actor can be seen as a 'role of governance'. This dominant party can assign roles to other actors, which is an vital element of governance (Kaplinsky & Morris, 2001). The authority that a dominant actor has, can be exercised in different ways, since the governance in a value chain is not necessarily carried out by one single organization (Humphrey & Schmitz, 2002). Kaplinsky & Morris, (2001, p. 29) make a division 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”. In this paper governance is defined as in the handbook of

Kaplinsky & Morris (2001): “governance ensures that interactions between actors along a value chain exhibit some reflection of organization rather than being simply random”

(Kaplinsky & Morris, 2001, p. 29). Thus, value chain governance gives indications about the effectiveness and the strength of coordination and collaboration between firms in a value chain.

Furthermore, literature differentiates four kinds of relationships/cooperation in value chains in a range from arm’s-length market relationships to hierarchical governance. Amidst, there is networks and quasi hierarchy, respectively (Humphrey & Schmitz, 2002). In the arm’s length market relationship, no close connections between buyer and supplier are present. Also, products and services are generally standardized and supplier switching costs are very low. In the networks relationship type, more information exchange with reciprocity between buyer and supplier is present. In the quasi hierarchy relationship type, ‘lead firms’ generally control which products/services are produced, and even govern processes and control mechanisms. The ‘lead firm’ can take a coordinating and catalyzing role in the value chain to stimulate the emergence and development of the value chain. In hierarchical governance chains, firms take ownership of processes up or down the value chain, to coordinate/manage most of the value chain. This gives them the power to set up the strategy and activities of the value chain, which results in easier management/coordination of the value chain compared to the other three types of governance.

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Besides, most value chain development literature is based on the context of developing countries. However, research in developing countries contexts, and other literature fields offered many insights. But, since strategies which are designed to develop or upgrade certain value chains the notion of context is important (Donovan et al., 2015), this research is a useful contribution to literature. This paper namely aims to contribute to the value chain literature with filling this gap by providing a more comprehensive understanding about how to develop a new emerging value chain in developed countries.

Value chain development research in the context of developing countries offered some insights in issues and bottlenecks for our research. Notable papers are Da Silva, & de Souza Filho (2007), and Webber & Labaste (2010) which identify among others non-enabling environment, trust, cooperation, knowledge exchange, and governance as potential

bottlenecks of a value chain to become viable. The bottleneck which we have not discussed yet is enabling environment, which is defined in this paper as sets of policies, institutions, support services, fundamental research and other conditions that collectively improve or construct a general business setting where business activities can start, grow and thrive. The environment shapes the costs and risks of doing business, thus the competitiveness of a business and its value creation abilities (Konig, Da Silva & Mhlanga, 2013). An enabling

environment where businesses can prosper is hence a crucialrequirement for economic development.

Another notable value chain analysis study which aims to find barriers in a food value chain in an advanced country (Kline et al., 2016) provided insights for our research despite the fact that this study focused on an already established value chain. Kline et al. (2016) identified the most critical issues by analyzing each level of an agri-food value chain in North Carolina (USA). Some relevant barriers which were found were: connectedness of the actors within the value chain, profitability of producers/growers, access to markets and marketing, and non-supporting institutions.

According to Kline et al. (2016) increased connectedness, sharing of critical

information/knowledge and technology, and cooperation among the different actors of the value chain can improve the efficiency and effectiveness of the value chain. Furthermore, (farm) profitability is relevant to attract a new wave of farmers to take up the trade. Another relevant finding of the paper of Kline et al. (2016) is that actors in production (farmers), and external institutional actors cited the issue of regulatory barriers/bureaucracy, and the need for additional support from government agencies and non-profit organizations.

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3. METHODOLOGY

3.1 Research design

The aim of this research paper is to build a more comprehensive understanding of (1) the bottlenecks which impede a new value chain to emerge, and (2) how these bottlenecks can be overcome to eventually create a viable value chain, i.e. how a new value chain can be

developed in the context of advanced countries. Literature review revealed that the development of new value chains in advanced countries is a premature field of research. However, research in other contexts, and other literature fields offered many insights for our research.

A case study research design is fitting for theory development because it allows to answer “how” questions (Yin, 1984) and when researching phenomena about which little empirical evidence is available (Dekker, 2003). We conducted a case study of the emerging saline agriculture value chain in the Northern Netherlands. 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 emerging saline agriculture value chain, 15 different actors on different levels in the value chain were interviewed and analyzed. Firms were added to our research until the results converged and additional interviews yielded no substantial new insight (Eisenhardt, 1989). Table 3.1.1 presents the characteristics of the different actors and their roles in the value chain.

To examine the value chain of our case, a detailed value chain analysis was made of the current emerging value chain. This value chain analysis required, firstly, the mapping of the current state of the value chain by identifying the internal and external actors and roles. After the mapping, the functioning and performance of the emerging value chain were analyzed through interviews with (internal and external) actors of the value chain. With this data, bottlenecks which prevent a new value chain to emerge, and strategies to develop/improve the value chain were identified and analyzed. For the value chain analysis the ‘Handbook for value chain research’ of Kaplinsky & Morris (2001) and the study of Taylor (2005), was mainly used.

3.2 Data collection and analysis

In-depth semi structured interviews were used to gather the data (see Appendix I). In an effort to improve the reliability and validity of the outcomes (Yin, 2003; Eisenhardt, 1989), the data was triangulated by cross-checking for consistency of the interview data by using multiple other sources of data: journals (e.g. FrieschDagblad, 2015), reports (e.g. Guldemond, 2007; Snellen et al., 2012), and presentations (e.g. van Rijsselberghe, 2015).

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were conducted. Additional “why” and “how” questions were asked to get a more valuable view on the developments in the saline agriculture value chain. Most interviews took between 1 and 2 hours and after transcribing the interviews were sent back to the interviewees to check for inconsistencies and additional comments. The interviews were conducted and transcribed in Dutch, and the analysis and synthesis were written out in English.

Subsequently, the next step involved within-case analysis, since thorough understanding of all interview data was necessary to discover patterns in the case. The within-case analysis was facilitated by Microsoft Excel software, which resulted in the codifying scheme (Appendix II).The interview transcripts were coded using descriptive, interpretive and pattern codes (Miles & Huberman, 1994). Common methods such as tables and flowcharts (Miles & Huberman, 1994) were used to discover ideas and shape the analysis.

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4. RESULTS

4.1 Aggregated categories of bottlenecks

To identify aggregated categories/themes a coding scheme was developed (Appendix II). In this process,each interview transcript was carefully analyzed and important findings were coded. After this, all the interview data was combined to find patterns, ideas and categories by marking comparable codes with a second-order code label so that these could be used for further comparison and analysis to eventually converge tothe key themes/bottlenecks. The key bottlenecks identified in this research offer a number of insights into some of the primary concerns when new value chains emerge. Four different, yet related themes represented by participants in the study were revealed: market issues, non-enabling environment issues, issues with governance of the emerging value chain, and no

awareness/urgency to change. Table 4.1 provides an overview of the critical bottlenecks which were found. Each bottleneck theme is discussed in more detail in the following sections. In each section we also describe how to overcome these bottlenecks.

Theme Market Non-Enabling environment Governance Awareness/Urgency to change Mentioned by interviewees 14/15 14/15 13/15 13/15 Mentioned as critical 14/15 10/15 10/15 11/15

Table 4.1 – Identified critical bottlenecks

4.2 Market

This critical bottleneck is a prerequisite to have a new value chain emerged. Thus, to have a new value chain emerged there eventually needs to be a market, i.e. end-customer demand. Without a customer (demand) who will buy a specific product, it is meaningless to produce this specific product since there will be no return on the investment.

Firstly, it is important to recognize the two different markets which the value chain in our case serves. The two different markets are: (1) high-end niche consumption potatoes market and (2) seed potatoes for export. Below, we will briefly describe the two different, but intertwined, markets in the saline potato business since this is important to understand the market bottleneck.

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“There are two separate markets, on the one side a small niche market (consumption potatoes) and on the other side the bigger international market we are interested in (exporting seed potatoes). Our main objective is that when we have a new potato variety that has a certain salt tolerance, we can keep cultivate these for seed potatoes. This will reinforce our current seed potato chain”.

It is also important to note the differing customer needs of the two markets. The saline seed potato targets at international customers which are in developing countries and salinization already is a big national problem. And the saline consumption potato targets at upper-class customers in advanced countries, with differentiating on the added value of the product (e.g. FrieschDagblad, 2015). Like F2 explains:

“The international seed potato customers are often in premature markets where the first problem of the end-consumer is food shortage. Their first problem is not to have more choices of different potato varieties [but to get some good nutrition]. They do not face ‘overchoice’, like we have [in developed countries]. E.g. when we go to the supermarket and want to buy something exclusive/high-end”.

However, like is stated before, the consumption potato market is connected with the seed potato market. Firm F2 explains further:

“Ultimately, we sell seed potatoes, but it only has value if it performs well on consumption potato later on. You first need to demonstrate the yield to the grower, the added value in the factory and the taste to end-consumers. That needs to be proven first and then you can produce your seed potatoes which will ultimately produce consumption potatoes in other countries. There is very little production of consumption potatoes in The Netherlands for support [to introduce a new breed].”

This emerging saline agriculture value chain is visualized in figure 4.2. This figure also shows the connection between the two markets, which is also emphasized by breeder B:

“The saline consumption market [high-end niche] is the generator of knowledge that we need before we can export saline seed potatoes successfully”.

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Figure 4.2 – Value chains of our focus

Supporting Institutions + Functions Research Institution: G

(Catalyst and knowledge providers)

Governance Agencies: J1, J2, J3

(Catalyst, knowledge provider, policy making, water policies)

Financial Provider: K (Funding, catalyst of saline

innovations) Nature conservation: H

(Advisor and advocating environmental interests)

Agricultural Sector: I (Representing agro sector on

local and regional level)

National Consumers International Retailing (Seedling) Traders: C, F1, F2 Production (Farmers) Processing and Packaging: D Wholesaling: D, F1, F2 Seed Potato Wholesaling: A, C, F1, F2 National Retailing: E Global Consumers International Seed-Potato Traders: A, C, F1, F2 National Seed-Potato Traders: A, C, F1, F2 International Seed Potato Market National Seed Potato Market Breeders and Testing: A, B, F1, F2

Seed Potato Processing and Packaging

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4.2.1 Supply and demand

Demand denotes to how much (quantity) of a product is desired by customers. The quantity demanded is the amount of a product customers are willing to buy at a certain price. On the other side, supply represents how much the producers can offer to the market. The quantity supplied refers to the amount of producers are willing to supply when receiving a certain price. As is stated by actor G, the relationship between supply and demand is important:

“The market is always the demand and supply. There is currently no structural supply [of saline potatoes]. And if you do not have a steady supply, the interest/demand of the retailer will decrease because they only buy in bulks. So it is a matter of quantity, you will need a certain quantity to get the self-sustained market development started, i.e. critical volume in order to be able to create a start. But we are still far below the critical volume. We [as external supporting actor] are stimulating currently more the supply-side”.

This way of thinking was also underscored by actors B, I, J2, J3. Actor B notes:

“On the one hand, the market (demand) needs to be developed, on the on the other hand, breeding and the cultivation (supply) needs to be developed. These factors reinforce each other. But to grow, the marketing [to increase the demand] will have to be good, the rest will be okay”.

However, the agricultural sector (actor I) is stating that the supply-side is not growing because there is no/very little demand for the products.

“It is a market mechanism. If there is demand, the saline potatoes will be cultivated. If there is no demand, then it just stops"

This illustrates that it is more important to focus on increasing the demand-side. When there is more demand and it is more profitable than other products, more farmers (producers) will start producing saline potatoes, which will ultimately increase the supply-side. Besides, this will enable economies of scale to reduce the price of the ultimate product (Krugman, 1980). This is also noted by actor J3:

“Now the products are quite expensive, but if there is more supply then the price will go down”.

Summarizing, the bottlenecks are (1) the low supply, and (2) the low end-consumer demand. When the supply-side is low, retailers will not be interested since they buy in bulks and with a steady stream. When the supply is low, also the price per product will go up. These are

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4.2.2 Price and profitability

“We try to put it [saline consumption potatoes] affordable in the high-end niche market. There are huge price differences between organic and salt potatoes, as we have encountered. We now sell it for about four euros per kilo, this also indicates that we have missed our initial objective”

(Wholesaler D).

The retailer (E) also mentioned the high price of the product in comparison with organic potatoes, since these products serve the same market segment. This is clearly a bottleneck for the demand-side, but also eventually for the supply-side as is explained above. Integrated actor F1 explains why the high retail price is a bottleneck at the demand-side:

“If you look at the organic potato market, the producers also started with subsidies, but which now is self-sustaining/viable. What was demonstrated is that when the retail price is about two times higher as the regular potato retail price, the consumer will not buy it. This will be the same for the saline consumption potatoes. They target with this high-end niche on consumers who are willing to pay more for a potato, but that obviously has a ceiling”.

Another part of the market bottleneck is the profitability, which is connected with the above mentioned supply and demand section. Since with saline (consumption) potatoes there is much less to earn compared to the regular seed potatoes, most farmers are continuing with their regular business. As actor A remarks:

“There is (some) demand, but we cannot compete against the revenues of regular seed potatoes. This has to be compensated in the price per kg [becomes higher]”.

Ceteris paribus, the producers (farmers) will not change to produce saline consumption potatoes if they will make less profit from it, compared to regular seed potatoes. There is no need for farmers to change if their traditional way is still economically feasible.

“Now most of the profit is made from seed potatoes. The soil might be a bit saline, but the profit is decent and that is the most important. E.g. If I start with the production of saline consumption potatoes in the Wadden Sea region, I have to get the same (or more) profit. So, if farmers do not make enough profit, they will cultivate other [more profitable] things” (Actor C).

Research institution G explains further, with an example:

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Summarizing, the value chain will become viable when the ultimate products will become affordable for the target customer. The price, in turn, can be reduced with economies of scale. However, to get the economies of scale advantage, producers need to make higher profit than with their regular business, and a higher demand for high-end consumption potatoes is needed from customers. This problem can be tackled by finding a better consumption saline potato variety (in combination with other profitable saline crops) which has a higher yield, and/or by increasing the willingness to pay of consumers (this will be explained below).

4.2.3 How to overcome the market bottleneck?

This part will elaborate more extensively on the high-end niche market, since the demand for the saline seed potato is already high and it is not needed to increase awareness and

willingness to pay in this market (van Rijsselberghe, 2015). To remind, when the demand will increase (and thus a market will exist) the new saline potato value chain will emerge. And to develop a viable value chain, the actors need to make profits. How this can be achieved will be analyzed next. Breeder B explains this bottleneck:

“You have to achieve a good retail price and that is only possible if there is a good marketing story (better taste, health benefits, locally grown etc.) communicated to the consumer. So the bottleneck lies in that story [added-value of saline crops] and marketing. If the story is not good, and

consumers do not buy it we may have to stop everything”.

With this clarification breeder B refers to the communication of the added-value (compared to regular potatoes) of saline crops to the consumer with marketing to increase the awareness, the demand and willingness to pay of the consumer. This way of thinking is also supported by other actors (10/15). If this is not accomplished, the value chain which serves the high-end niche market of saline consumption potato will not become viable and eventually fall apart. According to some actors, the downstream value chain actors should fulfill this role of marketing, since these actors are closer to the end-consumer. Retailer E is also in line with this reasoning:

“The distinction between regular potatoes and saline potatoes, because the price is much higher, needs to be communicated clearly. It is important that we explain the story behind the saline potato. What is so special about saline potatoes? How can you prepare them? Etc. Without this additional communication it is just an 'expensive' potato and often you will see that such a nice product then gets no chance. A solution to this can be to create more awareness and provide clear information [to the consumer]”.

Wholesaler D grasps the (future) potential of this product. This actor expects an increase in demand of locally produced saline crops in the (near) future.

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Product/market awareness suggests a continuing concern with the existing demand for the product. Demand is not only affected by price, but also by the lack of consumer information about the product. Lack of information may influence demand patterns and reduce the power and influence of farmers to increase their access to markets, creating a circular cause and effect configuration. Consequently, to develop a viable value chain actors need to collaborate to make the value chain more effective and efficient. Breeder B emphasized this significance in the new emerging value chain of saline (niche market) consumption potatoes:

“By definition, the high-end niche consumption market is something limited. That means if you do want to make sustainable profits, you have to organize [the value chain] tighter with one clear message (marketing)”.

For example, a brand (which is backed by all value chain actors) can make the message clear to the consumer. In this way the consumer doesn’t get overwhelmed by varieties and

products. Examples are the “Club apples”, which are patented apple varieties regularly grown by members of a cooperative who plan the production and marketing of the apples.

4.3 Non-enabling environment

The second bottleneck identified in this research is the non-enabling environment, which is a bottleneck to have a new value chain emerged (mentioned as critical by 10 out of 15 actors). An enabling environment where businesses can prosper is a crucialrequirement for economic development. We therefore state that when the environment where the actors are situated in is enabling, it will be more likely to have a new value chain emerged.

4.3.1 Regulations

To increase the pace of development in the saline agriculture field, it is needed to give entrepreneurs and businesses the freedom to start exploring the opportunities, grow their business and thrive. As some respondents mentioned, governmental regulations do not allow the inflow of salt water to inner dike areas at all. This blocks the research and development of saline agriculture in inner dike areas. As actor H mentions:

“As the provincial council says no drip salty water may be used within the dike, then this is a bottleneck and therefore there is no chance [to develop saline cultivation]. Currently there is no urgency, the regulations are not ready, and people do anyway not like to change so often, so they keep doing what they have always did”.

With this explanation external actor H touches on different points, namely the impeding regulations, the urgency to change (which will be extensively analyzed in 4.5), and the resistance to change. However, there may be other more important reasons why the government decides not to change these regulations.

Since saline cultivation experimentation is prohibited within the dykes, and thus entrepreneurs and businesses are impeded to develop this field of agriculture, they need to search for

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As these salt marshes are outside the dyke, the above mentioned regulations do not affect experimentation and development with saline cultivation. Nevertheless, other regulations prevent this:

“Salt marshes are all Natura 2000 area, therefore also regulated. There maybe will be movement but it will take some time” (External actor J2).

So outer dike areas, such as the salt marshes which are already saline, are nature reserve and therefore it is prohibited to grow crops on these salt marshes. This impedes the emergence and development of the saline agriculture value chain, since many businesses cannot experiment and the supply-side of the saline crops cannot grow. Entrepreneur of saline agriculture A stressed:

“There is about 300 hectare salt affected land in Groningen, with farmers who want to participate [with saline cultivation]. But that is prohibited by regulations [Natura 2000], and they [governmental organizations] are not flexible enough to consider whether they want to redeem inferior land for agriculture”.

Another respondent emphasized the need for regulatory change to help the development of saline agriculture:

“Regulatory changes are needed anyhow, because currently it is blocking everything” (Firm H).

4.3.2 Uncertainty because knowledge/research is lacking

Many actors see the potential of saline agriculture (12/15), however there are many uncertainties (besides the market uncertainties) currently, e.g.

"Yes there is definitely potential, but it has to be proved first" (Firm J2), “More knowledge and acceptation is needed to create a successful transition to saline agriculture” (Firm H).

These findings show that there are many uncertainties, and thus the risk to invest in this area of business is high. There is still much basic and applied research needed to remove the uncertainties and lower the risk (to eventually remove the high barrier for entry in this area of business).

The knowledge that is now accumulated about salt tolerant crops and saline cultivation is mostly theoretical knowledge and not yet tested in practice under different conditions. Integrated firm F1 explains:

“Working outside is also very different than in a lab. The weather and climate conditions are very important and this differs each year. To develop a sustainable breed it usually takes about 10-12 years”.

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potato cultivation needs to be considered by the farmers/producers, because potatoes are grown only one time in five years on the same piece of land. So the saline piece of land should also be used another 3-4 years for other crops. Consequently, these crops should also have the same salt tolerance if a farmer wants to remain profitable.

In the case of commercialization of saline consumption potatoes respondent F2 states:

“There is still much proof needed, because if you promise something [added value, e.g. healthier potatoes] to a consumer it has to be true. When you do something wrong, you will lose your image. So I'm pretty wary of people who say we promise this and that. It has to be scientifically proven and with many studies that support it”.

When there will be more knowledge about these issues, it is expected that more and more businesses will take the opportunity and more and more value chains will emerge in this field. This is also mentioned by external actor J1:

“Nobody wants to switch [currently to saline cultivation], because saline crops are surely very different from the current intensive farming system. That uncertainty is too high. There has already happened a lot, except the experimentation with farmers. For this kind of developments land owners are needed, because ultimately they decide what should happen or not”.

So the acceptation of farmers/producers is needed, this can be accomplished by reducing the uncertainties and increasing awareness among farmers. However some pioneers are having a lead because they have started with research and experimentation much earlier than others. E.g.

“Now we are gaining a lot of knowledge [about saline agriculture], which is currently the biggest advantage. With this knowledge we will later probably have a competitive advantage. However, it will take a lot of time”

(Actor C).

4.3.3 How to overcome the non-enabling environment bottleneck?

Because there is not much knowledge about the emerging field of saline agriculture (as is explained in the previous section), and the market is premature, governmental institutions can provide support to reduce uncertainties and help increase the awareness about saline

cultivation and crops. In this section we discuss how this can be done to eventually create an enabling environment and viable value chains.

Governmental institutions already support much research, however to do research with solid results it takes much time. Much research has started just recently, e.g.

“Since 2012 we have two themes. On the one hand "adapting to

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One of the projects governmental institutions support is Salt Farm Texel, which is doing research on the influence of salinity on crops such as potatoes. However, actor A states:

“The local government [e.g. province, funding firm] acts convulsively and doesn’t make decisions, this slows down the process of development”.

This illustrates how the development of saline agriculture and the emergence of the new value chain is slowed down by the institutional environment. Also there is a need for regulatory change to stimulate the development of saline agriculture.

Another research which the external actors stimulate is ‘The Potato Valley’ (Matahelumual, 2015). The Potato Valley (which is in the starting phase) is a cooperation between external and internal actors and has multiple goals, one goal is to create knowledge on the salinization problem in Northern Netherlands and to support innovations to strengthen the agriculture in the region (actors K, I, J1, J2). This is a good example of supporting governmental institutions which help to create an enabling environment. However, this project is still in the starting phase.

Although external actors (e.g. government and branch organizations) promote cooperation and knowledge exchange, currently the different links are not yet applying it on a large scale. Thus, to overcome this bottleneck more basic and applied/practical research needed be done to remove the uncertainties and lower the risk (to eventually remove the high barrier for entry in this area of business). Another important solution for this bottleneck is help from external actors (environment) to increase the consumer demand, this is explained below.

4.3.3.1 Support in consumer demand development by governmental institutions

Overlapping with the market theme, the importance of consumer awareness was confirmed by the participants across the value chain. Concern was expressed about the need to increase consumer awareness about (the benefits) saline crops, and improve education on why buying local nutrition supports local jobs etc. to increase the demand. This can be supported by the governmental institutions, which have a big influence on the enabling environment. However, this is not supported yet. Also no support is given in the commercialization of saline crops yet, to help actors of the value chain to increase the demand with, for example, advertising:

“There are no subsidies in the commercialization/marketing of saltine potatoes” (Wholesaler D).

However, to have the saline agriculture value chain emerged, it is important to not only do research on the possibilities of the supply-side of the market, but also to increase the demand from end-consumers, like is stated in section 4.2. Research institution G and funding

association K are realizing this crucial need:

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demand-side, because we realize that only supporting the supply-side is not working, you have to do demand development alongside” (Firm G).

“The last grant [to Salt Farm Texel] was also about market development. We have also supported the commercialization very recently” (Firm K).

4.4 Governance

The third bottleneck that emerged from our results is the lack of governance of the emerging value chain. This theme is more extensively analyzed by the fellow researcher in his master’s thesis Holtslag, L, J. (2016). ‘Emerging value chains in The Northern Netherlands: a

governance perspective’.

This part analyzes the specific coordination mechanisms between the actors. In this way the chain governance during the emergence of a value chain can be clarified. The purpose is to identify the type of governance structure in the emerging value chain (arm’s length market relationship, networks, quasi hierarchy and hierarchical governance), in order to identify how the bottlenecks can be tackled to develop a viable value chain. As discussed in section 2, the type of governance structure is determined by coordination and relationship characteristics. Based on our findings we can state that the new saline agriculture value chain does not embody the ‘arm’s length market relationship’ because the product is not standardized. As actor A stated

“It’s more complicated than it looks, you can’t just send a bag of potatoes and let them put it in the ground, then it won’t work”.

The ‘networks’ relationship has a better fit with the new saline agricultural value chain. Especially with external actors there is more knowledge exchange and intensive relationship is created very recently (since The Potato Valley project is in the starting phase). Different actors started working together:

“We are busy with developing The Potato Valley, it is a knowledge platform with a lot of companies and organizations in order to improve the potato chain” (Firm J1).

Based on our findings, currently the cooperation among internal actors of the emerging value chain is little. The next statement really point out the limited knowledge exchange about saline developments:

“No knowledge exchange, in business you want to create and sustain a lead position relative to your competitors [competitive advantage]” (Firm F1).

A small potato trader comments on this behavior:

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This is clearly a bottleneck, since at the start of a new business field development cooperation and knowledge exchange is crucial, even more between internal actors of an emerging value chain to develop an effective and efficient value chain. Consequently, to develop a viable value chain actors need to collaborate and exchange more knowledge with each other.

4.4.1 How to overcome the governance bottleneck?

Breeder B emphasized significance of collaboration and knowledge exchange in the new emerging value chain of saline (niche market) consumption potatoes:

“By definition, the high-end niche consumption market is something limited. That means if you do want to make sustainable profits, you have to organize [the value chain] tighter with one clear message (marketing)”.

This is in line with the above mentioned solution of the market bottleneck. Since, to develop a viable value chain actors need to collaborate and communicate with each other to make the value chain more effective and efficient. For example, a brand (which is backed by all value chain actors) can make the coordination easier, and increase the incentive to exchange knowledge with each other. Examples are the “Club apples”, which are patented apple varieties regularly grown by members of a cooperative who plan the production and marketing of the apples. Indeed, if the value chain can create a strong identity (which will increase the trust) and coordinating rules, then it will be superior to a firm as an organizational form at creating and recombining knowledge due to the diversity of knowledge that is within the complete value chain.

Notable is that when the respondents described a dominant actor, they often complemented this with comments about changes that were needed to let the saline value chain become viable. In total, 7 out of the 15 actors perceive actor A as the dominant force behind the saline agriculture innovation developments. E.g.

“Firm A is very important in the field of saline agriculture and definitely the stimulator” (Firm H),

“Do you know Firm A? They are a booster of saline agriculture and experimenting for years” (Firm J1).

Because firm A is ‘selected’ as the dominant actor in this emerging value chain, it is important to have this actor as a catalyst and coordinator which can increase the trust, the collaboration and knowledge exchange between all actors in this essential phase of value chain emergence.

4.5 Awareness/Urgency to change

The final bottleneck to have a new value chain emerged is the lack of awareness/urgency to change. All the participators appoint the potential of saline agriculture for the Northern

Netherlands and even as a solution to global food supply problems but they do not understand why this value chain is hampering in its evolvement. Based on our findings,

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reasons may also be, as described in section 4.3.2, too many uncertainties (high risk) and because too little knowledge about saline cultivation is present. However when the urgency would be high i.e. there would be a change in the salinity of the soil now, and consequently potato growers would be forced to grow saline crops. Because this urgency and awareness is low, potato growers do not see the need to change their current profitable business. As respondent F1 notes:

“I think the urgency is not high enough. In The Netherlands, farmers will continue to cultivate potatoes in the same way, because there is no reason to change. Only if the urgency will become very high in The Netherlands (but abroad this is already the case on many places) we think the current value will change in a saline value chain”.

Because of the low urgency to adapt, the focus is to increase the competitive advantage on the international seed potato market. Another respondent (K) mentions:

“I think mainly the awareness of the agricultural sector needs to grow about the problems of salinization. They must also be more open to cope with salinization, so they will see it as an opportunity rather than as a threat”.

4.5.1 Governmental support

Another reason why the urgency is low in The Netherlands is the governmental support to keep the current potato business, since water boards in The Netherlands flush the salt water away and socialize the costs. When the water board would not flush the salt water, it would become a big problem for farmers/producers and consequently the urgency would increase. However, the flushing costs may come under pressure soon, according to Firm G.

Yet the governmental support is understandable, because of the high profitability of the current potato business:

“Here stands an industry which exports for about 80 million. That is disproportionate, you cannot easily change this” (Firm I).

However some actors note that it is important to be prepared for the change when the urgency will be high. Additionally, firm H and F1 link different themes (urgency to change,

governmental regulations, collaboration, and knowledge exchange) together:

“The urgency is not high, the regulation is not changing, and people do not like to change. So often you keep doing what you always did”.

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4.5.2 Resistance to change

Another part of this bottleneck is the resistance to change. Because some people and organizations are not flexible enough and not open to changes, they resist to change to this emerging business field. External actor J3 mentions:

“What the farmer doesn't know, he doesn't eat. The question is what a saline cultivated potato really is. What is the advantage of it, in comparison with the regular potato, in terms of revenue?”

Another respondent (J1) mentions the conservative culture of farmers/producers with an example of the developments of organic cultivation years ago.

“You can see that the agricultural sector has fairly conservative

characteristics. It has its own culture and they are skeptical about almost everything that is different. Organic farming was also a long time

considered as second-class. A long time there was a moral resistance and that is an important barrier [to change]. That is ingrained in the

agricultural sector, they want to do more, but not different. Partly, this is because of the fear of the unknown.”

This bottleneck (resistance to change) is also in line with the high uncertainty and risk like we explained in section 4.3.3. Governmental support in research, to reduce the uncertainties, is key to overcome this bottleneck.

4.5.3 How to overcome the awareness/urgency to change bottleneck?

To overcome this bottleneck, the awareness/urgency to change needs to be increased. As explained above, the bottleneck themes of urgency to change, impeding regulations,

collaboration, and resistance to change are heavily intertwined. When regulations will change (for example, allow saline cultivation on salt marshes and inner dike), the awareness and urgency to change will increase. And when the urgency to change will be high, the necessity to collaborate and exchange knowledge will become higher. So the best strategy is not to tackle these bottlenecks separately, but together.

On the question ‘Why is there such a large group of farmers still against saline cultivation?’ respondent K answers:

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Consequently, we can state that when the urgency, awareness and knowledge about salinization (and how to cope with it) will grow, also the resistance to change can be decreased.

5. DISCUSSION AND CONCLUSION

This study contributes to the extant literature about value chains by investigating three related matters:

1. Bottlenecks which prevent a new value chain to emerge; 2. Value chain development in advanced countries; and

3. The strategies to overcome the bottlenecks, to develop a viable value chain.

This is one of the first studies that expands the concept of value chain emergence, and value chain development to advanced countries and thus contributes to the extant literature on value chains. It explores not only the bottlenecks which prevent a new value chain to emerge, but also strategies (with examples) that increase the likelihood of success. Our findings are discussed below.

First, we will discuss which bottlenecks are the most important, and in which sequence the bottlenecks need to be overcome. The four bottleneck themes can be divided in two

overarching categories. Precondition bottlenecks, which are a preconditions to have a new value chain emerged, and secondary bottleneck which are less crucial to have a new value chain emerged. The importance and sequence to overcome the bottlenecks is in accordance to the overarching categories. In other words, first the precondition bottlenecks are needed to be overcome. After the precondition for a new value chain to emerge is fulfilled, the secondary bottlenecks can be tackled to eventually develop a viable value chain. Our findings suggest that the market, non-enabling environment, and governance are precondition bottlenecks. To have a new value chain emerged there needs to be a market (end customer demand). Without a consumer (demand) who will buy a specific product it is meaningless to produce this specific product, since there will be no return on the investment. The non-enabling environment is a precondition, since the environment shapes the costs and risks of doing business, and thus the competitiveness of a business and its value creation abilities (Konig, Da Silva & Mhlanga, 2013). A general type of definitions for value chain development in

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profits, it is assumed that a new value chain can emerge. Accordingly, the awareness/urgency to change is not necessary to grab new opportunities to make profits.

Next, we will discuss some links between the bottlenecks and the links between solutions. Consumer demand, marketing, the (societal) awareness to change and consumer education (e.g. to eat healthier) are linked in that they target the end consumer. However, awareness to change and consumer education can come from multiple sources, both internal and external the value chain. Media outlets such as online and print news, research reports, magazines, blogs, and movies can inform consumers to health and sustainability issues. These can be influenced and stimulated more intensely by governmental institutions to create a more

enabling environment. On the other hand, internal actors can start marketing campaigns which are directed at the consumer, e.g. a retailer can improve information about local and healthier products. Combining the many shareholders involved in marketing saline agriculture

products, advertisers, media, event planners, tourism marketers, governmental institutions, grocery stores, and restaurants, could provide a networking forum and would also be a good first step in creating trust, knowledge exchange, and collaboration.

A part of the market bottleneck is the supply and demand which is connected with the awareness/urgency to change. Because the urgency to change to saline agriculture is low (since no/little parcels are salinized in The Netherlands), the supply and demand sides of saline crops are not developing as quickly as possible. Also, the acceptation of

farmers/producers is needed, but this only can be accomplished by reducing the uncertainties and increasing awareness among farmers. Another reason why most farmers are not willing to participate in this business, is the profitable business they have now, which is currently

subsidized by the government (this creates a non-enabling environment for saline agriculture). When this is not solved, to create an enabling environment, the saline agriculture value chain will not emerge and become viable.

One part of the awareness/urgency to change bottleneck we found was the resistance to change, because when the urgency is not high (and the option to do things as always is open) there will be resistance to change. Therefore, we can state that when the urgency, and

knowledge about salinization (and how to cope with it) will grow, the resistance to change can be decreased. So, one solution to overcome the resistance to change is to do more research (to reduce uncertainties), and to increase the urgency to change. This can only be accomplished with support of governmental institutions.

5.1 Theoretical implications

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Another contribution to existing literature is the need to reduce the uncertainty and risk for the (potential) value chain actors. When the risk is lowered (by governmental institutions), firms will see more opportunities to step in the new business area. Also, concern was expressed about the need to increase consumer awareness (increase demand-side), and improve education on why buying local nutrition supports local jobs etcetera. Again, this can be supported by the governmental institutions (e.g. by subsidizing marketing/advertising), which have a big influence on the enabling environment.

We have found that the lack of governance is a bottleneck to have a value chain emerged, since at the start of a new business field development cooperation and knowledge exchange is crucial. Because this is not researched before in the context of emerging value chains, this is also a contribution to the literature. Besides, to develop a viable (more effective and efficient) value chain, actors need to collaborate and exchange more knowledge with each other.

However, while many respondents recognized the importance of working with all value chain actors, we found that only a few firms actually had established direct and extensive

relationships with other actors. A reason why actors do not (extensively) exchange knowledge could be their fear for knowledge spillovers and/or lack of trust. Actors do not exchange knowledge to protect it from competitors (Teece, 1986; Liebeskind, 1996). This is also found in our research at actor F1 and F2. Consequently, it is important to create trust between the actors of the value chain. This can be done with, for example, organizing more networking forums, meetings and events where different actors can meet each other and learn from each other to create strong ties. This will also motivate members to participate and openly share valuable knowledge with other actors (Dyer & Nobeoka, 2000), to eventually create a viable value chain.

Another bottleneck which is found in this research is the awareness/urgency to change, to have a new value chain emerged. When the urgency is low, firms will not be

stimulated/forced to change, and will ‘stick to their knitting’. Also collaboration and knowledge exchange is linked with the urgency to change. Subsequently, the bottleneck themes of urgency to change, impeding regulations, collaboration, and resistance to change are heavily intertwined, as explained above. Since, this is not found before in the value chain literature, we contribute with this finding to the existing literature.

However, much is already written about readiness to change in the context of organizational change. According to Smith (2005) and Kotter (1995), in order to be successful, change efforts must achieve a sense of urgency. Many change efforts fail on the fact that not enough individuals in the organization perceive and/or accept the need for change. Creating a felt need for change is therefore an essential first step.

5.2 Practical implications

The motivation to write this paper was partly inspired by the desire of the Waddenacademie (research institution) to investigate how the new saline agriculture field in the Northern Netherlands can be sparked. With this in consideration, the aim was, besides finding new theoretical insights, to come up with practical and more tangible recommendations.

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farmers, and food retailers) mitigate these problems, and help improve the chain’s

effectiveness and competitive advantage to develop a viable value chain, and impact on local economies (Kaplinsky and Morris, 2001). Below we will describe what each actor should do to develop a viable value chain. Figure 5.1 provides an overview.

Most value chains have a dominant actor that is able to regulate the direction and

characteristics of the complete chain (Gereffi, 1994). In our case this is actor A. This key player is able to appoint roles to actors which is an essential element of the act of governance (Kaplinsky & Morris, 2001). In our case the dominant actor A did not appoint roles or

regulate directions of the complete value chains. Taylor (2005) explains in his value chain analysis paper, that no one person or group had responsibility for management of the whole supply chain, which is a point of improvement. So, it is recommended for actor A to act as the dominant actor, or to choose another dominant actor in the value chain. An example can be found from the paper of Dyer & Nobeoka (2000), in which a dominant actor takes the role to create a strong value chain identity with rules for participation and entry into the network. When this is done, trust will be created between the actors, and knowledge will be viewed as the property of the whole value chain. This will also facilitate multidirectional knowledge flows among the actors, which will develop the value chain to become viable.

To increase the demand of consumers effectively, it is suggested to differentiate the produced products, and target the right cunsumer segment. According to Christopher (2011) successful firms either have products with a cost advantage or they have a value advantage, or, even better, a combination of the two. Cost advantage gives a lower cost profile and the value advantage gives the product or offering a differential ‘plus’ over competitive offerings. Since the high-end niche market of consumption potatoes in our case produce high-end products and thus target a customer segments with consumers who are willing to pay more for exclusive products, it is recommended to differentiate and underscore the added value of the products with marketing to increase the demand. This can be done by the downstream value chain actors, since they are closer to the consumer. Also, it is important to decrease the current price, since it is even too high for this customer segment. This can only be accomplished when the whole value chain becomes more efficient and is therefore the responsibility of all actors.

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development by, for example, improving the education on why buying locally produced food is more sustainable and healthier.

The insights provided in this paper provides managers, researchers and policy makers the opportunity to tackle the bottlenecks more targeted. The strategies to overcome the

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5.2 Limitations and future research

The study’s findings resulted in findings that explain the bottlenecks which prevent a new value chain to emerge, and explain how these bottleneck can be overcome to eventually develop a viable value chain. However, this study was exploratory in nature and only looked at a limited number of value chains, and at one developed country (The Netherlands). The dependence on subjectivity in data because of the character of the main data is the first limitation. Semi-structured face-to-face interviews were the main data source, which mostly contain opinions of small firms. In order to further develop the insights provided in this research, future empirical research is required to develop the insights into hypotheses. In this future empirical research geographical differences need be incorporated, to increase

generalizability.

Moreover, our findings exposed several bottlenecks that hinder a value chain to emerge and indicate how organizations may deal with them. Future research might concentrate on

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ACKNOWLEDGEMENTS

I would like to express my gratitude to my supervisors Dr. K.R.E. Huizingh, Dr. W.G. Biemans for their valuable comments and suggestions that helped to shape the paper in terms of improved clarity, structure and contribution. Also I would like to express my gratitude to my fellow student Lauren Holtslag with whom I worked together to accomplish this thesis. Furthermore, this research would not have been achieved without the willing cooperation of diverse business people and civil servants from the case. For questions, comments or

suggestions I am always accessible via e.saidov@student.rug.nl.

Edik Saidov

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Development of an emerging value chain: case study of saline agriculture in the Northern Netherlands