Commodity chain analysis: Financial analysis

This module belongs to a set of modules which show how to proceed step by step with commodity chain analysis. The modules are intended for a wide audience, ranging from policy analysts and decision makers, to development practitioners, training institutions, and media. They are of particular relevance to senior and mid level officials and professional officers in ministries of agriculture, livestock, forestry, rural development, and cooperatives, including line departments and training institutes/units. They should also be of interest to senior executives of parastatals, financial institutions and NGOs/CBOs. Suitably adapted, they may also be used as a reader in undergraduate courses in development.

This is the second module and is concerned with the financial analysis of commodity chains. A chain is composed of a series of operations or transformations, which visibly comprises a set of agents and a system of markets (in terms of both physical flows and their monetary equivalents), but also includes the behaviour of the agents as guided by their economic interests. This means that it is important for the analyst to remember from the outset that the chain of a product covers far more ground than simply its channels of commercialization.

The first part of this module explains the principles of financial accounting and introduces the concepts of value added, production-trading accounts and the consolidated accounts of commodity chains. The second part explains how to set up the accounts of individual agents and the consolidated account of the chain. In the third part, the module explains how to conduct a financial analysis of the chain and determine the profitability of activities in a chain.

Other modules in this series include:

  • Constructing the commodity chain functional analysis and flow charts
  • Commodity chain analysis: Impact analysis using market prices
  • Commodity chain analysis: Impact analysis using shadow prices

The modules are complemented by two case studies from Mali. The case studies are linked to spreadsheets in which to conduct the exercises.

Related Resources