The literature that exists concerning the challenges and opportunities for innovation in agricultural value chain is too diversified to be exhaustively reviewed here. Therefore, only those studies that are directly or indirectly related to the variables or objectives of this study were reviewed.
The challenges and opportunities for innovation in a value chain are quite different depending on the nature of the sector or circumstance under which the sector operates. For instance, a study conducted on innovations in banana value chain in Metema (Kahsay, et.al, 2008) indicated that very limited sucker production and supply, low demand for locally available varieties, absence of improved varieties and limited knowledge of banana production in the area were some of the challenges for innovation in banana value chain to enhance its production and productivity. On the other hand, high market demand for improved banana varieties, production potential of the area, availability of irrigation water in the area, presence of enabling environment including policy support for irrigation agriculture, provision of technical advice from both government and nongovernmental organization to boost banana production and productivity in the area are also mentioned as opportunities for innovation in the value chain.
Other study conducted on whether public policies enhance or impede innovation in fish, banana and vegetable value chain in Uganda pointed out that policies have two dimensional influence on innovation in value chain irrespective of sectors; policies that constrain innovation and those that support innovation. The former include lack of favorable credit facilities and no subsidy policy, lack of infrastructure, lack of government support in value addition of local products, stringent and ever changing international market demands, and weak enforcement of existing laws and regulations. On the other hand, policies perceived to enhance agribusiness innovation include: non-taxation of agricultural exports, liberalization of trade and service delivery enabling pluralistic service providers (Kibwika, 2006).
In India, Bhutan district, the status of the rice commodity chain was evaluated using the functional, flow and economic analysis methods. More over the study utilized SWOT analysis to identify the challenges and opportunities and chain mapping to show the flow of rice along the chain. The study identified the various actors in the value chain, strengthen, weakens and opportunities of each actors. Currently, the different agents or stakeholders in the chain include farmers, commission agents, extension agents, researchers, millers, exporters and urban retailers.
The rice production is largely subsistence farming and not directly linked with the market. The CAs supply inputs such as seeds, fertilizers and herbicides to the farmers on a commission basis which requires revision. The current coverage and number of CAs is inadequate for inputs distribution. There are several gaps and weaknesses in the production, processing and marketing
of rice. The low seed replacement ratio and use of modern varieties affects production. Farmers mostly rely on organic manures to supply nutrients to the rice crop, which is not sufficient for raising production. Irrigation water is a core input in rice cultivation, but the problem of inadequate water supply affects a large proportion of rice growers ( Ghimiray, 2007).
Likewise, rice cultivation in Bhutan is labor intensive which due to the scarcity of labor adds to the cost of production. Farming tools and implements are still largely traditional with low use efficiency. Farm mechanization is limited, restricted by the availability of affordable machines and the inhospitable natural terrain. Ownership regulations also have a negative impact on productivity. Landowners often restrict the use of new crops and varieties, leading to low productivity and resource utilization. Crop loss due to wild animals is also substantial. The rice milling machines that are used at present are crude and damage the rice grain leading to breakage and low head and total rice recovery. Marketing of rice is quite limited with less than 15% of the harvest sold in the market (ibid).
Other rice value chain study conducted in Cambodia (Agrifood Consulting International, 2002) revealed that Rice plays an integral role in the economy of rural Cambodia. Over 80 percent of Cambodian farmers cultivate rice, primarily through traditional farming practices. For most of these farmers, rice is the major source of income and sustenance. Yet the rice sector faces a number of important constraints in Cambodia. Farmers lack consistent access to income-generating activities and credit for the purchase of inputs to rice production. Further downstream, the rice processing and distribution sector faces a number of key constraints. Milling technology is often outdated, resulting in high levels of broken rice. Furthermore, millers are fundamentally constrained by a lack of working capital that limits their ability to purchase paddy from farmers and update machinery. This contributes to the unofficial export of paddy to regional markets such as Viet Nam and Thailand and prevents Cambodia from capturing the value-adding from rice milling. The lack of capital also perpetuates the low levels of technology implicit in the sector.
Institutional and infrastructural constraints also impede the sector. High costs in the provision of credit dampen private investment by farmers and millers, forcing farmers to seek unofficial sources of credit from moneylenders, often at usury interest rates, and millers to delay or reduce
investments. Poor infrastructure, in the form of roads and irrigation dampen production incentives and reduce market access. In general, there is a fundamental lack of an enabling environment, in terms of infrastructure and institutions. This enabling environment needs to be developed in order to improve food security, alleviate rural poverty and generate export revenues from the rice industry (ibid).
The study argues that the role of the public sector in the future development of these markets should be to provide an enabling environment for the private sector to gain access to credit and improved marketing channels. The private sector should be encouraged to develop high valued niche markets, which will benefit those few farmers who are supplying high quality varieties of paddy.