Nepal: Agriculture Commercialization and Trade

Challenge

The Nepalese agricultural sector is dominated by the production of basic staple grains. About 82 percent of cultivated land is planted with cereal crops, but basic staple grains contribute only about 30 percent of agricultural Gross Domestic Product (DFP). Since the share of high-value crops in total cultivated area is still small, the desired process of agricultural diversification is struggling to be noticed at the aggregate level. The reliance on subsistence level agriculture hinders the growth and contributes less towards fighting poverty and food insecurity. Trade is subject to gluts and price crashes due to lack of information and services in the local market. Storage and transport facilities are poorly developed; and quality and value enhancement through grading and processing is not well conceptualized. In the absence of adequate marketing channels and opportunities, the incentive and financial capacity to invest in improved farm, value addition and processing techniques, water management or modern inputs is limited.

Solution

PACT aims to improve the competitiveness of smallholder farmers and agribusinesses within selected commodity value chains. The project supports the value chain actors by providing competitive matching grants based on eligible proposals from private entrepreneurs, farmer groups, cooperatives, traders and exporters, for technology support, agribusiness development, post-harvest facilities and market linkages. Matching grant contribution of 25-40 percent of the total agreed amount, depending upon the nature of application, has to come from grant recipient. Several steps of screening followed by detailed field verification take place before a grant is awarded. Results targets and milestones, which have to be achieved prior to the release of each installment, are set for each sub project selected. Overall, PACT’s support to the grant recipients is primarily cash contribution, with some technical support including for ensuring environmental and safeguards compliance, supervision and monitoring, as needed.  

Furthermore, PACT has been supporting the rehabilitation of Kalimati fruits and vegetable market, and has also initiated the support for the construction of Fruit and Floriculture wholesale market in Kathmandu. Rehabilitation and reconstruction of several other fruits, vegetables, fisheries and livestock wholesale markets in Central, Eastern and Western development regions of Nepal has also been initiated. Through PACT's Agribusiness Innovation Center, the project connects emerging agro entrepreneurs and facilitates investments in agribusiness sector. This entails directly working with early stage enterprises and facilitation of their growth through a number of services like shared facilities and equipment, business development, technology, finance, mentoring and networking.

Additionally, the project aims to reduce existing obstacles to agriculture and food trade thereby increasing the ability of farmers and agribusiness to respond to sanitary and phytosanitary (SPS) and food-quality standards to meet domestic and international market requirements. 

Results

Despite political instability leading to public strikes, transport closures and frequent changes in the leadership at the implementing agency, the project has been able to overcome the odds and demonstrate one of the most promising models of agricultural commercialization for Nepal.

In four years, PACT’s support has resulted in significant increase in volume, sales and productivity of the selected commodities value chains, majorly targeting high value fruits and vegetables, cereal crops, dairy and meat products. Procurement of laboratory equipment for the Department of Food Technology and Quality Control (DFTQC), Department of Livestock Services (DoLS) and Department of Agriculture (DoA), and the implementation of a food analysis training program, has improved the departments’ respective capacity to conduct monitoring and verification of quality standards. The project has generated high demand through advocacy to farmers and agribusinesses to increase investments and seek financing through the competitive grant scheme. As a result, there is demand for agribusiness support from all parts of the country, demand from the private sector to engage at a larger and more significant scale and demand for increased services for quality monitoring and certification for exports.

Impacts are also seen at a broader level, e.g. in the coffee sector where the national coffee producer association (NCPA) and 4 district coffee producer associations (DCPAs) from Lalitpur, Kavrepalanchowk, Kaski and Syangja received matching grants to expand coffee plantations, increase productivity, production and sales. The DCPA has seen a net increase in coffee area by 11 Ha within a year; certification of locally produced coffee by an Australian certifying agency (NASA) as organic coffee and a 60% increase in exports within a year. Similarly for cereal seed production the project reports an increase of production of over 150% due to investments which enabled local seed producers from the indigenous Tharu community to access technical advisory services and improved technology. The quality and standards support has resulted in an increased surveillance of the quality of food in Kathmandu and is directly responding to demands from consumer welfare organizations.

PACT has so far supported over 124 cooperatives, 65 farmer groups, 54 private entrepreneurs and 8 producer associations, reaching out to around 42,800 beneficiaries, of which over 42% are women.

Beneficiaries

30-year-old Sushila KC from Lubhu VDC of Lalitpur was a rural housewife who grew vegetables for her own family’s consumption. Now, Sushila belongs to the Pragatisheel Mahila Samuha (Progressive Womens’ Group), a group of women farmers who are supported by the local nursery with subsidized seeds and technical advice to increase vegetable production. Under PACT, 200 other farmers in the area are also participating in the program, planting tomatoes and other cash crops.  They aim to sell vegetables worth 15 million rupees this year.

“I am grateful that I didn’t have to take out a loan to celebrate the festival of Dashain last year. I made a profit of 22,000 rupees in the months leading up to the festival, selling tomatoes and cauliflower.”

Bank Group Contribution

The PACT was approved by the IDA Board of Directors in June 04, 2009 with a commitment amount of $20 million. Later an additional financing of $40 million was approved in November 2012 that extended the project life to June 2018.

Moving Forward

PACT is moving forward to achieve its objective of engaging the organized/institutionalized small and medium scale farmers in profitable market-oriented agriculture activities. The project envisages a steady and commercialized agricultural future for Nepal with commodities eventually produced and marketed not only to cater the local markets but targeted towards export as well. To fulfil this strategic objective, the PACT is encouraging and supporting the local farmers and ensuring efficient and effective Sanitary and Phytosanitory services that have been a major hurdle in the past to market and trade Nepalese agricultural commodities. With its extended support to the private sector, value chain development and investments in agriculture, PACT aspires to shape a better future for commercialized agriculture in Nepal.