Includes bibliographical references (pages 25-26)

Agricultural value chains are non-inclusive due to the breakdown of institutions and markets
for goods and services, especially those most needed by the poor. The highest transaction costs
are experienced by smallholders at the end of the value chain where the extent of market failures
is typically most severe. Lead firms and other powerful players in the value chain have the
capacity to influence the governance and the outcome of value chains for smallholders, potentially
making them powerful forces for inclusion. Their decision to directly address market and
institutional failures instead of merely ‘purchasing’ efficiency changes the whole dynamics of the
value chain. The typical trickle-down growth mindset where efficiency is given priority over
equity is reversed, thereby initiating the build-up of social investments for smallholders. This
complementarity of private, public, and non-profit investments through sectoral partnerships is
thus one of the basic pillars of inclusive value chains. This paper examines the transitions from
non-inclusive to inclusive value chains and culls several lessons from three cases of inclusive
business models in agricultural chains in the Philippines.