Agribusiness value-chain risk, fragility and coordination strategies : case studies of South African value chains

Abstract

Accelerating volatility, complexity and scrutiny will be the norm in the landscape for agribusiness value chains as the future unfolds. Evidence of this new landscape is clear from the extent and intricacy of global food and fibre value chains, the rise of consumerism, and the prominence of the sustainability and responsibility narrative. As a result, agribusinesses and their value chains are compelled to evolve to meet the challenges and opportunities that this new landscape presents. However, agribusinesses and their value chains generally seem lethargic to adapt to this new environment and are consequently every so often ensnared by a cascade of effects that highlight the volatile, complex and scrutinising challenges for these value chains. Confirmation of these cascading effects is evident from the range of food scandals, product recalls, instantaneous bankruptcies, and reputation and brand devastation, where unexpected events lead to these, and other, non-linear payoffs that ripple through these chains. The conspicuous occurrence of these events with non-linear impacts is indicative of fragility in these chains and specifically highlights the rationale for detailed exploration of fragility, as a phenomenon, in agribusiness value chains. This thesis addresses this overlooked phenomenon by threshing out the factors that cause fragility, by developing a framework to quantify fragility, and finally by exploring the interaction between fragility and the coordination of agribusiness value chains. Through a normative Delphi approach with key stakeholders and a principal component analysis, this thesis explored the factors that contribute to agribusiness value chain fragility in selected meat, fibre and fruit chains and found that those factors that contribute to the efficiency of value chains are also the factors that drive the fragility of these chains. This finding exposed a juxtaposition between value chain efficiency and fragility and the need to find a measured balance between these approaches to achieve and sustain chain goals. The thesis develops a framework to measure agribusiness value chain fragility and applies this framework to the South African lamb value chain through a modified value chain analysis methodology. This framework exhibits the detection and quantification of fragility at the factor, stakeholder and chain level in the particular chain. The thesis finds a golden thread of specific factors that are critical to the fragility of the particular chain. The whole chain of actors is fragile to the actual quality and safety performance and the cash flow position of actors in the chain. Likewise, the thesis also finds nuances in specific factors that are critical to the fragility of the particular actors in the chain due to the activities’ unique techno-economic characteristics. Producers are uniquely fragile to buyer and operational reliability, abattoirs to the quality and training of human resources, and the quality and adequacy of infrastructure, packers to regulations and supplier reliability, and retailers to the management information and supplier relationship and alignment. The idiosyncrasy is that activity-specific fragilities could, unpredictably, cascade into the rest of the chain due to sequential interdependencies in a typical chain. Quantification of the fragility of the South African lamb chain also establishes that increasing coordination intensity and interdependency in the chain increase the fragility of the chain. Hence the thesis argues that traditional transaction costs economising model that guides the coordination strategies of successive exchanges in value chains may, in fact, contribute to chain fragility in the effort to economise on the costs of exchange. Conscious of the findings of the analyses the thesis argues that complex systems like value chains are unavoidably exposed to human limitations in their design and management. Humanity appears challenged in coping with complexity, and as a result, the coordination of value chains oscillates between hubris and nemesis in pursuit of coordination precision – sailing too close to the wind and then crying foul when the inevitable happens. Therefore, the thesis makes a case for a more mindful and less ‘fragilising’ approach to the coordination of value chains by arguing that both fragility and the cost of exchange be considered in the governance of chains. The shortcoming of the traditional approach is laid bare by the growing frequency and impact of events with cascading consequences that ripple through chains. Hence the thesis’ argument is contrary to the traditional transaction costs economising model that only considers economising on the costs of exchange, at all cost, in the coordination of value chains.