(NEAT) Nepal Economic Agricultural and Trade

Strengthening the Foundations for Inclusive Economic Growth Nepal Economic, Agriculture, and Trade (NEAT) Activity: Final Report

August 2013 This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International Inc. © NEPAL NEAT Strengthening the Foundations for Inclusive Economic Growth Nepal Economic, Agriculture, and Trade (NEAT) Activity: Final Report

Contract No. EEM-I-00-07-00008

Task Order No. AID-367-TO-11-00001 under the General Business, Trade, and Investment II Indefinite Quantity Contract (GBTI II IQC)

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. ii Contents CONTENTS

Executive Summary...... 1

CHAPTEr one: Advancing Policies to Unleash Economic Growth...... 7

Chapter two: Strengthening Value Chains to Increase Competitiveness...... 25

Chapter three: Improving Livelihoods and Increasing Resilience...... 45

Chapter four: Transforming Rural Economies through Access to Finance...... 59

Chapter five: Building a Sustainable Future for Economic Growth...... 67

LEFT: Shyam Kumar Shrestha is from a traditional farming family in Sindulpalchowk, central Nepal. He produces and sells agricultural products at the local market. © NEPAL NEAT

INSIDE FRONT COVER: High-quality tea from the Kanchanjangha Tea Estate factory is packed into triangular tea bags, which allow the tea to retain its quality. Acquisition of the packing machine, the first of its kind in Nepal, was supported by NEAT. © NEPAL NEAT

FRONT COVER: Ram Kumari Tharu collects her earnings from selling vegetables at this collection and marketing center in Bardiya, western Nepal, one of 111 such centers strengthened by NEAT. © NEPAL NEAT

BACK COVER: NEAT partner Kabilvastu Integrated Development Services introduced local farmers to good agricultural practices and established a weekly market for farmers to sell their vegetables, significantly increasing farmer incomes. © NEPAL NEAT Contents iii Juna Puri, a 30-year-old cabbage farmer in Madan Pokhara, has belonged to the local farmers’ cooperative since it began. Juna manages the family’s farming business. NEAT training in good agricultural practices for vegetables has helped farmers like Juna increase their productivity and incomes. iv Contents executive summary

Nepal’s decade-long civil war, businesses and strengthen the which ended in a peace process platform for trade, with the idea and abolition of the country’s that empowered and efficient monarchy in 2006, left numer- economic enterprises and indus- ous political and social tensions: tries drive competitiveness and fragmented, underdeveloped economic growth. industries; a large segment of the population living below the An ambitious, multifaceted proj- poverty line; and a government ect with a $22.5-million budget grappling with transitioning to and a 2-1/2-year lifespan, NEAT a modern, democratic federal aimed to build capacities within system. Nepal’s number one industry — agriculture — to reduce poverty The United States Agency for and food insecurity, facilitate International Development important regulatory and ad- (USAID) launched the com- ministrative reforms to increase prehensive Nepal Economic, revenue generation and trade, Agriculture, and Trade (NEAT) improve access to finance, and Activity in December 2010 to attract investment. strengthen the foundations for rapid, sustained, and inclusive This report illustrates how economic growth that would NEAT helped advance policies lessen the pressures that could to unleash economic growth; lead to conflict, reduce pov- strengthened value chains erty, improve livelihoods, and and market access to increase generate revenue. The project competitiveness; improved also aimed to address deficien- livelihoods and increased the cies in the legal framework for resilience of households and

EXECUTIVE SUMMARY © NEPAL NEAT 1 communities; and transformed private firms, to implement key the rural economy by increasing activities throughout Nepal. access to finance. The project’s four components worked togeth- Each component focused on one er to catalyze economic growth, of four intermediate results: (i) create socially inclusive opportu- strengthening economic policies nities, reduce poverty and food through reforms that increase insecurity, and improve lives. revenue generation, build public and private sector capacity, sup- NEAT’s assistance enabled port WTO compliance, improve farmers and agricultural firms agricultural competitiveness, or to experience growth they increase trade and investment; never knew was possible. In (ii) increasing competitiveness in total, NEAT assisted four value the lentil, tea, ginger, and veg- chains, 20 private firms, and etable crop sectors by improving 66,780 farmers, increasing production and quality, facili- farmer incomes by 718 percent tating linkages between buyers and sales by $26.5 million, with and markets, and improving another $10 million in incremen- business and marketing skills; tal farmer sales projected for the (iii) enhancing food security by summer of 2013. In addition, linking subsistence farmers to more than 19,000 rural custom- formal value chains, increasing ers now have access to financial their productivity and access to services through either new bank improved inputs, and promot- branches or branchless banking, ing diversification into vegetable and more than $2.3 million in crops to increase incomes; and rural loans have been disbursed. (iv) increasing access to formal In only 2 1/2 years, NEAT ana- financial services for rural clients lyzed 40 policy or administrative lacking bank accounts and reforms. Of these, nine are being building the capacity of financial implemented and the remaining institutions to design and pilot actionable reforms are pending new products. approval. Among the reforms NEAT supported, 11 are revenue-generating initiatives, nine are World Trade Organization (WTO) accession activities, and seven are initiatives to increase agriculture competitiveness.

Implemented by Chemonics with partners Fintrac, CEAPRED, METCON, Making Cents, Kaizen, WOCAN, Land O’ Lakes, and invaluable Nepalese partners, NEAT built the capacity of more than 40 local organizations, including financial service institutions, business service providers, and

2 EXECUTIVE SUMMARY

panchthar

ilam

terathum

huta k

dan

saptari

tapur

siraha

k bha

avre

k sindalpulcho

sarlahi

rautahat

nuwa

bara

lalitpur

athmandu

parsa

syangja

nawalparasi

papla

hanchik argha

abilbastu

BY DISTRICT BY

MARKET FACILITATION INITIATIVES MARKETFACILITATION

NEAT PRODUCTIVITY AND PRODUCTIVITY NEAT

pyuthan

k ru

rolpa

dang

salyan

jarja

e k

het

ban

daile k sur Vegetable

Tea bardiya

Collection Center

Kailali Ginger

Lentil

Food security

EXECUTIVE SUMMARY 3 NEAT Activity: Key accomplishments $26.5M $2.39M 560,000 Technical and material Assistance to microfinance Initiatives to improve agricultural assistance to farming institutions (MFIs) resulted inputs, production, and post- households and communities in $2.39 million in new harvest handling practices, create resulted in a $26.5 million microloans to rural clients. market linkages, and provide increase in sales, including access to bank accounts and $14.7 million in vegetable loans benefited 560,000 people. sales alone.

3,000 1,204 718% Partner Annapurna Organic NEAT introduced 1,204 small- Under the food security Agriculture Industries entered scale irrigation schemes in 14 component, farmers who into contract arrangements with food security districts, newly received productivity training more than 3,000 ginger farmers, irrigating more than 2,500 and were linked to markets most of them supported by hectares. increased their incomes by 718 NEAT productivity training. percent on average.

67% 60 40 More than two-thirds of farmers Public-private dialogues are In only 2 1/2 years, NEAT assisted under the food security critical for effective policy analyzed 40 policy or component were linked to reform. NEAT helped business administrative reforms, nine of markets by NEAT. associations facilitate 60 public- which are being implemented, private policy dialogue events and the remaining actionable that engaged government reforms are pending approval. officials, private sector representatives, academics, and development partners.

4 EXECUTIVE SUMMARY NEAT Activity: Key accomplishments 263,000 17,030 14,913 More than 263,000 training NEAT partnered with Better technology and higher posters and handouts were FORWARD to build the quality agricultural inputs distributed to district agricultural capacity of 17,030 lentil-growing brought 14,913 hectares under development officers, extension households in good agricultural improved management. service centers, and training practices (GAP) and facilitate centers that previously had none. market access. As a result, household yield increased by more than 50 percent, and sales by more than 100 percent.

300 208% 111 NEAT assistance resulted in 300 Farmers assisted under the food NEAT provided infrastructure, mobile money agents becoming security component increased built management capacity, and operational. the area under vegetable facilitated market linkages for 111 cultivation by 208 percent. tea, lentil, ginger, and vegetable collection centers.

20 19% 1 Material and technical assistance Nearly one-fifth of the farmers NEAT support resulted in to 20 processing firms in the assisted under the food security Nepal’s first commercial lentil, tea, and ginger value chains component leased additional land production of hybrid seed. increased their production and to cultivate commercial crops. export capacity.

EXECUTIVE SUMMARY 5 Agricultural mechanization has a profound impact on productivity. NEAT supported drafting of a new mechanization policy that will enable farmers like Netra Prasad Budathoki to invest in modern farming technologies and increase their incomes.

6 EXECUTIVE SUMMARY CHAPTER one Advancing Policies to Unleash Economic Growth

Building Capacity suffered from weak institutions, to Improve the entrenched interests, and an un- Business Enabling stable political environment. The Environment country ranked near the bottom NEAT strengthened public on virtually every global busi- and private sector institutions ness environment index. WTO to initiate and advance reforms accession in 2003 represented that enhance the business significant progress toward trade enabling environment and liberalization; however, the coun- promote national and foreign try was unable to fulfill its WTO investment. In addition to reform requirements due to po- disseminating information to litical turmoil and uncertainty. investors, building the capacity In addition, foreign investment of public sector partners to was declining and the trade defi- negotiate trade agreements, and cit was rising due to stagnating opening up dialogue between exports and ballooning imports. public and private sector An additional concern was the players, NEAT supported a need for new revenue to finance number of policy reforms to key government functions and promote trade and investment, critical investments in health, as further detailed in the education, and the economy. section “Enhancing Trade and Investment and Fulfilling WTO approach Commitments” on page 18. NEAT’s approach was to focus on key intervention areas: Context and revenue generation; capacity Challenges building of public sector line At NEAT’s inception, Nepal ministries and departments and

policy

Agriculture NEAT Business Enabling Environment and Policy Activities

Generation CoMMUnICAtIon Revenue stAKeholdeR CUstoMs eXPoRts PCA oF oF PCA CUstoM’s CUstoM’s sYsteM teChnologY InVestMent tRAnsFeR FoReIgn And ACt InVestnePAl. enteRPRIse ACt enteRPRIse RegUlAtIons goV.nP IndUstRIAl www. And AnAlYsIs oF PRoCedURes IMPoRteR Id RestRUCtURIng CUstoMs tARIFF eXPoRteR PRoCedURes PRoCedURes And InClUsIVe CUstoMs CUstoMs And ResPonsIBIlItY oF CUstoMs Agent And And Agent owneR InVestMent JoInt FoReIgn

g g ChInA tRAde sAtIs , sAFtA, dIReCt PolICY AgReeMents nePAl-IndIA AnAlYsIs oF And nePAl- (FdI) FeRtIlIZeR AnAlYsIs deMAnd oF Pest RIsK RIsK Pest AnAlYsIs AnAlYsIs CoMMItMents dAtA lInK lInK dAtA wto seRVICe seRVICe wto BooKlet on on BooKlet IRd-oCR ReFeRenCe CoMPetItIon And MARKet PRoMotIon gUIdelInes seCtoR seCtoR PotentIAl ACt FoR MeChAnIZAtIon AgRICUltURAl PRoCedURes PRoCedURes AnAlYtICAl wIng And PolICY tRAde WTO stAndARds ConFIdentIAl ConFIdentIAl MAnAgeMent: CUstoMs RIsK InFoRMAtIon ACCess to to ACCess sPs ConFIdenCe PRoCedURes VAlUAtIon VAlUAtIon BUsIness CUstoMs BAnKIng IndeX BRAnCh BRAnCh FIRst sYsteM (ABBs) AnY IntelleCtUAl PRoPeRtY (IP) PRoCedURes AnAlYtICAl wIng And PRoCedURes PRoCedURes PolICY PolICY AdVIsoRY tRAde tRAde IRd RegUlAtIons ReVenUe leAKAge leAKAge AgReeMents FoR doUBle gUIdelInes tAXAtIon tAXAtIon RegUlAtIons ACt And And ACt gUIdelInes eXPoRt IMPoRt new tAX tAX new FoUR negotIAtIon tRAInIng tRAde CoMPensAtIon CoMPensAtIon RegIstRAtIon gUIdelInes Capacity Building seed And AgRIBUsIness PRoMotIon And tRAde tRAde And AnAlYsIs MARKet ACt seed dIAlogUe PRIVAte PRIVAte PUBlIC Investment Trade and

8 Advancing Policies to Unleash Economic Growth private sector advocacy organiza- Key Activities and tions; agricultural competitive- Results ness; and trade and investment, NEAT analyzed 40 policy or including WTO compliance. administrative reforms, of which The project worked directly nine are being implemented. with the Nepalese govern- These 40 reforms included 11 ment through a demand-driven revenue-generating initiatives and approach to assistance while nine WTO accession activities. actively engaging private busi- NEAT also supported 60 dialogue nesses and associations by facili- events with 2,700 participants. tating public-private dialogue to influence the new economic Generating Revenue framework. Dialogue events Streamlined tax collection. In the included government officials, past, large businesses outside private sector representatives, of Kathmandu sent employees policymakers, academics, and to the capital up to 15 times a development partners, ensur- year to pay taxes to the Inland ing they reflected a pro-business Revenue Department (IRD). agenda to fuel economic growth, This was time-consuming and generate revenue for the gov- expensive, as businesses had to ernment, combat poverty, and pay travel costs. After consult- propel Nepal forward to meet its ing with financial institutions, development goals. NEAT relied NEAT conducted a study on on a combination of local and opportunities for improving the international experts to provide tax payment system through global perspectives, build capac- interbanking, intrabanking, and ity for reviewing policies and Internet payments. The study regulations and drafting new identified the legal, technological, ones, and assist with analyzing and procedural changes required international trade agreements. to implement the Any Branch Banking System (ABBS) for tax payments. As a result of the study, as well as efforts undertaken by government counterparts, the Ministry of Finance authorized the use of ABBS for tax payments easier to do business, by large taxpayers. collect taxes The system, launched in July “In the Office of Company Registration, we have arranged for 2012, allows large taxpayers to previously registered companies to show up in our system. pay their monthly taxes at any Additionally, all new registrations will automatically be reflected in the branch of Rastriya Banija Bank IT system. This is a way to bring them all under the tax system, as well or Everest Bank. The new sys- as to simplify doing business for them.” tem makes it easier — especially for businesses located outside — Tanka Mani Sharma, of Kathmandu — to pay taxes director general, Inland Revenue Department on time. The system was so well received that the IRD and the Ministry of Finance plan to roll

Advancing Policies to Unleash Economic Growth 9 SNAPSHOT New System Eases Burden on Taxpayers

Paying taxes in Nepal used to be a time-consuming and costly process, as accountant Lal Bdr Chettri knows very well. His employer, gas company Bheri Gas Udhyog, used to send him or a trusted representative of the company from Nepalgunj to Kathmandu every month to submit forms and pay taxes. He often had to stay two or three days until the transaction was complete, and if there were any errors in the form, he had to travel back to Nepalgunj to have them fixed. Interest was charged if a monthly payment was late.

Besides being a hassle for the taxpayer, this system was costly for the government, which needs a reliable and efficient cash flow to invest in public services. The government is also keen to improve its score on the World Bank’s Doing Business index. A key indicator is the number of hours it takes to pay taxes.

© NEPAL NEAT Working with the Ministry of Finance, the NEAT team helped to establish a tax payment system through the Any Branch Banking System Large companies like Bheri Gas Udhyog (ABBS), which allows large taxpayers like Bheri Gas — which contrib- account for 75 percent of Nepal’s tax ute 75 percent of the country’s tax revenue — to pay their monthly revenue. A new tax payment system taxes at any branch of Rastriya Banija Bank or Everest Bank. supported by NEAT has reduced the time it takes to pay taxes from days to hours. The new system saves time and money for taxpayers because it is easier to pay taxes, and it ensures more timely payments of taxes to the government by businesses. Now Lal Bdr Chettri travels to the capi- “ This not only tal just once a year to collect the vouchers that are submitted with tax payments, and instead of taking days to make a tax payment, it takes motivates us toward only an hour or two for him to go to his local bank branch. our work, but it is also The initiative has been so successful that the Internal Revenue Depart- is very encouraging ment is planning to roll out ABBS to all taxpayers in Nepal. that the government is actually concerned and will address our problems. ”

Lal Bdr Chettri,

Accountant, Bheri Gas Udhyog

10 Advancing Policies to Unleash Economic Growth it out to all taxpayers. Expand- national specialists helped draft ing ABBS to the public will guidelines in four specialized increase compliance and create areas: (i) double taxation agree- additional revenue while reduc- ments, the imposition of taxes ing the administrative burden of on the same income in more paying taxes. than one tax jurisdiction; (ii) permanent establishments, the Faster revenue collection. When imposition of taxes only when an new companies registered their enterprise maintains a permanent businesses with the Office of establishment in the country; (iii) Company Registrar (OCR) in transfer pricing, a profit alloca- the past, many waited as long as a tion method used to attribute a year to apply for their tax identi- corporation’s net profit or loss fication number, or PAN, which before tax; and (iv) long-term officially enters a business into the contracts taxation — contracts tax revenue system. Others never for the construction, installation, applied for or received a PAN and building, or manufacturing of therefore never paid taxes. property where work begins in one tax year and is completed in NEAT designed and installed a a later year — to determine when data link between the IRD and and how much tax should be paid the OCR that enabled the OCR during the contract period. to issue a PAN number at the time of company registration NEAT submitted all four and made it possible for the IRD guidelines to the IRD, where to search the OCR database for they were translated into Ne- noncompliant companies and pali. Nepal is currently using taxpayers. Using this data link as NEAT’s double taxation agree- a model, the IRD director general ment guidelines to negotiate plans to initiate similar data links double taxation agreements at with other government agencies. the regional level. The long-term NEAT supported a feasibility contract guidelines are awaiting study on linking the IRD with implementation, and guidelines the Land Registration Office, for permanent establishment and Metropolitan Offices, Nepal Ras- transfer pricing are expected to tra Bank (NRB), and the Trans- be implemented in fiscal year port Management Department. 2013/14 (Nepal 2070/71).

New guidelines for active tax cases. Streamlined customs clearance. As the economy develops and Nepal’s Customs Department business structures and transac- concentrated customs controls en- tions grow in complexity, it is tirely at the border at the time of vitally important that the tax import, often physically inspect- code and enforcement procedures ing between 20 percent and 40 advance apace. To update and percent of the goods entering the streamline the IRD’s tax guide- country. This led to unnecessarily lines and to increase revenue by long delays at the border and inef- applying taxation consistently, fective and inefficient use of the Project tax advisers and inter- inspection staff.

Advancing Policies to Unleash Economic Growth 11 NEAT-Supported Policy and Administrative Reforms through june 2013 Drafted and Presented for Prepared with Passed, presented Policy reforms, regulations, and legislation/ U.S.-government for which Analyzed for public/ administrative procedures executive assistance implementation stakeholder consideration passed/approved has begun consultation 1 ABBS • • • • • Customs valuation manual (in accordance with 2 WTO CVA provisions) • • • • • New Customs stakeholder communication 3 system and procedures • • • • • Formation of Trade Analytical Wing and 4 procedures • • • • • Formation of IRD Analytical Wing and 5 procedures • • • • • 6 IRD-OCR data link • • • • • Seed regulation, with new seed registration 7 procedures • • • • • 8 Guidelines for double taxation agreements • • • • • 9 Revenue leakage regulations • • • • • 10 Guidelines for long-term contracts • • • Customs risk management — access to 11 confidential information • • • 12 Customs PCA of exports • • • Customs agent (joint responsibility of Customs 13 agent and owner) • • • 14 Seed compensation guidelines • • • 15 Seed market and trade analysis • • • 16 Pest risk analysis for five commodities • • • Competition Promotion and Market 17 Protection Act guidelines • • • 18 Guidelines for transfer pricing • • • 19 Guidelines for permanent establishment • • • 20 Feasibility of four new data links for OCR • • • 21 Procedures for exporter and importer ID • • 22 Agribusiness Promotion Act • • 23 Industrial Enterprise Act • • 24 Foreign direct investment policy • • 25 Intellectual property policy • • Restructuring Trade Advisory Committee and 26 procedures • • 27 Analysis of fertilizer demand and policy • • 28 Export Import Management Act • • 29 Export Import Management regulation • • Nepal Company Act, as related to 30 microfinance and Credit Information Bureau • • Restructuring Customs Department and 31 procedures • • 32 Agricultural mechanization policy • • 33 Analysis of Customs tariff restructuring • • Analysis of Nepal-China Trade Agreement 34 issues • • 35 Analysis of SATIS agreement • • 36 Analysis of SAFTA • • Analysis of Nepal-India Trade Agreement 37 issues • • 38 SPS national standards • • 39 FITTA • • 40 IER • •

12 Advancing Policies to Unleash Economic Growth The post-clearance audit (PCA) tuting audit-based controls are a system, based on WTO Customs prerequisite for Nepal to success- Valuation Agreement guidelines, fully apply other trade facilitation was instituted in 2009 and allows measures such as WTO valu- customs staff to authenticate dec- ation rules. The department is larations by examining relevant now implementing international books, records, business systems, standard systems for PCA, and and commercial data. Post-clear- annual revenue is increasing. ance audits enable border regulatory authorities to move from a Tighter controls on revenue collec- strictly transaction-based control tion. The government of Nepal environment to a multilayered, faces challenges in meeting risk-based control approach. increasing targets for revenue generation while confronting ever more sophisticated tax eva- sion schemes. The Department of Revenue Investigation (DRI) has been unable to enforce the Revenue: Going Up! Revenue Leakage (Investigation and Control) Act of 1995, as it “It is difficult to quantify how much revenue has been generated was outdated and incompatible exactly, but USAID NEAT’s support has certainly had a positive with other relevant regulations. impact on revenue generation.” The DRI requested project sup- — Shyam Dahal, port to address this constraint director, Customs Reform and Modernization, and increase awareness among Department of Customs stakeholders. A technical legal expert helped draft new revenue leakage investigation and control regulations to accompany the act passed 17 years ago. The new regulations were passed in NEAT’s international customs May 2013 and the Department expert proposed improvements in of Customs has already noticed regulatory provisions and report- a difference. ing procedures of post-clearance audits based on international Building Private best practices. Subsequently, the and Public Sector team developed and conducted Capacity a training course for 28 customs Building the capacity of NEAT’s officials and 23 PCA auditors in private and public sector partners Kathmandu. In addition, NEAT is integral to NEAT’s approach partnered with the Customs De- for reforming the policy and partment to conduct a two-week business enabling environment. training course in Kathmandu NEAT provided the resources to for PCA auditors to enhance their enable reforms, including expert understanding of how business advice and research opportunities, financial accounting records are and positioned our partners as constructed and how they relate leaders of the reform process. In to valuation declarations. Insti- addition to the capacity build-

Advancing Policies to Unleash Economic Growth 13 ing activities described in this grant to support a second survey section, NEAT strengthened and publication of another issue public and private sector partners of the Business Confidence Survey to improve agricultural policies, Report. Conducted in March to Local undertake reform in the trade and May of 2012, the second survey investment regimes, and increase results indicated that 39 percent Partner revenue generation, as described of respondents believed that eco- elsewhere in this chapter. nomic conditions would improve, Highlight: while only 31 percent thought The Business Confidence Survey. conditions would deteriorate. FNCCI Private sector confidence in the These responses demonstrated a The Federation of Nepalese business and investment climate is trend toward increased confidence Chambers of Commerce a critical and telling indicator that among the business community. and Industry (FNCCI) is can be used as a tool for reform. an association of business All over the world, business confi- The survey, which will be re- organizations that promotes dence surveys are used to measure peated semiannually, has become economic development the private sector’s perception an invaluable tool for members of in Nepal through private of the overall economy and the the business community, policy- sector-led initiatives. business and investment climate. makers, and investors to gauge NEAT increased private Through a grant and technical the direction of the economy. The sector engagement in assistance, NEAT supported results are published and distrib- policy change by building development of a survey method- uted to public and private sector the organization’s capacity ology and tool by the FNCCI. stakeholders, and the government to facilitate public-private has pledged to use the survey dialogue with a wide range The first survey, conducted to inform policy decisions and of stakeholders, including from June to August of 2012, to gauge whether the business government officials, private revealed that only 17 percent of sector’s needs and concerns are sector representatives, respondents believed that over- being addressed. FNCCI plans policymakers, academics, all economic conditions would to continue implementing these diplomats, and donor improve, while more than 50 surveys with its own funding. agencies, around key issues percent of respondents thought that affect the private it would deteriorate in the six Information portal for foreign sector. Over the NEAT months following the survey (the investors. In the past, foreigners implementation period, remaining respondents believed seeking to do business in Ne- FNCCI organized and that things would remain the pal had to hire a lawyer to find facilitated 26 dialogue events. same). Nearly 50 percent ranked out about the visa process and “political instability” as the most the laws, acts, and procedures critical economic challenge for governing investment. Informa- Nepal, followed by energy crises tion was often difficult to obtain, and strikes. Service sector respon- and interested investors had to dents showed more confidence pay for information piece by piece than their agricultural sector through various departments. counterparts. The results were published in Nepal’s first Business The Confederation of Nepalese Confidence Survey Report. Industries (CNI) expressed interest in establishing a web portal To further enhance the institu- that would provide potential tional capacity of FNCCI to mea- investors with relevant informa- sure the confidence level of the tion. NEAT launched a feasibil- private sector, NEAT provided a ity study during the first year of

14 Advancing Policies to Unleash Economic Growth the project, taking into account South Asia Watch on Trade a similar successful web portal Economics and Environment model in India. The study paved (SAWTEE) to develop two train- the way for the project to assist ing packages: a basic course on the CNI in designing the op- international trading systems and erational structure of the portal. a course on trade data analysis. Through a cost-share agreement, These programs now serve as NEAT also provided initial sup- the foundation for trade-related port in the form of staff train- training for government offi- ing and website development. cials. A total of 65 government CNI developed, designed, and officials and representatives of launched the web portal in part- trade institutions participated in nership with the Ministry of In- training-of-trainer sessions on the dustry in October 2012. As part international trading system and of the rollout, NEAT provided how to build trade research and five days of training on website analytical capacity. Twelve senior operation and maintenance. officials are now qualified to lead The CNI-Ministry of Industry future training programs. partnership now maintains and updates the site independently. To In addition, NEAT engaged Ali- date, the portal has had 12,217 cia Greenidge, a former trade ne- visits from 43 different countries. gotiator at the Office of the Unit- ed States Trade Representative Enhanced capacity in trade negotia- (USTR), to design and conduct tions. Nepal’s WTO accession in a three-day advanced course on 2003 called for profound changes international trade negotiations to the trade sector, including for 35 Ministry of Commerce undertaking major regulatory and Supplies officials and other reforms. Years of political in- government representatives. The stability and conflict had led to course covered the trade, transit, an environment of low export and investment aspects of bilateral growth and a steadily rising trade agreements, regional agreements, deficit. The project responded to and the WTO. Ms. Greenidge a request from the Ministry of designed several interactive Commerce and Supplies to help trade negotiation simulations to the government meet the goals of familiarize the participants with the Nepal Trade Integration Strat- practical issues. One simulation egy (NTIS), which recommended involved an initial negotiation strengthening government with a developed country repre- capacity for trade negotiations as sentative on preferential market a top objective. The strategy also access for niche products from called for increasing the capacity Nepal. Another involved a mock of Nepalese negotiators to address regional market access nego- trade barriers, as well as regula- tiation. One of the participants, tory and business environment Bhim Prasad Adhikary, director issues affecting exports. of the Department of Customs, reported that when he attended a To build government capacity, high-level meeting with an Indian NEAT engaged an international trade delegation in May 2013, the trade expert and Nepalese firm techniques he had learned made

Advancing Policies to Unleash Economic Growth 15 it easier for him to understand ing Unit under the Investigation his counterparts’ psychology and and Development Section. Project negotiation strategies, enabling experts helped the IRD develop him to better position Nepal on and install appropriate software tariffs, valuation, unauthorized packages for revenue analysis and trade, and other issues. forecasting. In addition, NEAT supported training on revenue Support for trade policy analysis. forecasting for 34 IRD staff and The Ministry of Commerce and provided funding and support Supplies created a Trade Policy for two IRD officials to receive Analytical Wing (TPAW) to revenue analysis training in the provide analytical information United States. The trained officers and input to trade negotiating used their knowledge in analyz- teams, trade policy teams, and ing and forecasting government government officials. NEAT revenues from different sources NEAT © NEPAL provided technical assistance to support the government’s and material support to opera- budget preparation for fiscal year tionalize this unit. TPAW now 2013/14. provides key input to upcoming trade negotiations. Supporting Policy for Nepal’s Top Sector: Agriculture A legal framework for contract farming. Although some contract farming exists in Nepal, produc- Driving a Better Bargain ers and buyers frequently breach “The Advanced Training Course on Trade Negotiating Techniques, contracts, which have few legal organized jointly by the Ministry of Commerce and Supplies and the mechanisms to uphold their USAID/NEAT Activity, proved very practical, and the techniques we provisions. As a result, export- have learned will be instrumental in enhancing our negotiation skills. oriented production has suffered I took part earlier in several negotiations in my career, including my due to failures in meeting quality four-year service as a minister counselor in the Permanent Mission of and quantity commitments. To Nepal to the United Nations in New York. Had I the opportunity to address this, NEAT engaged a join such a practical training program earlier, I would have been more technical expert to draft the Agri- effective in those negotiations.” business Promotion Act, aimed at creating a legal framework for — Amrit Bahadur Rai, contract farming and promot- undersecretary, Multilateral Economic Affairs, ing commercial agriculture. Two Ministry of Foreign Affairs public-private dialogue events were organized to gather feedback on key issues related to commercial farming. The project also supported a study tour to India Support for research and revenue by business and public sector forecasting. To more accurately representatives to review contract analyze tax issues and gener- farming legislation and see the ate revenue forecasts for various realities of contract farming for taxes, the IRD established a farmers and agribusiness. Research and Revenue Forecast-

16 Advancing Policies to Unleash Economic Growth A contract between Annapurna Organic Agriculture Industries and a ginger farmer, one of 3,000 signed between the company and famers in western Nepal. NEAT supported the Agribusiness Promotion Act, which creates a legal framework for contract farming and commercial agriculture.

The Agribusiness Promotion Act Ministry of Agricultural Develop- was forwarded to Ministry of ment for final approval in 2011. Agricultural Development for its consideration in January 2013. However, the draft seed regula- The ministry then initiated a tion did not fully address the is- formal consultation process with sues of seed registration and com- relevant line ministries. Once that pensation for damage caused by is completed, the act will come the sale of unregistered seeds. As before the Cabinet for approval. a result, the Seed Entrepreneurs’ Association of Nepal (SEAN) Regulation to streamline seed suggested revising the draft to importation. Seed policy, acts, and attract private sector investment regulations are critical for enhanc- in hybrid seed development and ing the industries that can supply high-quality seed supply. NEAT high-quality seed to increase crop provided technical and financial quantity and quality. In 2008, support for a review of proce- the government amended the dures and guidelines by SEAN Seed Act, which governs seed and the Ministry of Agricultural distribution and trade, to comply Development’s Seed Quality with WTO requirements and Control Center. The project also other international practices. To supported a series of discussions enforce the act, the National Seed with government officials and Board drafted an accompanying SEAN members. regulation and submitted it to the

Advancing Policies to Unleash Economic Growth 17 The revised seed registration the ministry is incorporating procedures were incorporated into feedback. The ministry considers the seed regulation, which was mechanization a policy priority approved by Cabinet in January and intends to forward a final 2013. The seed compensation draft to the Cabinet. guidelines are to be implemented outside of the regulation and are Sanitary and phytosanitary (SPS) expected to be approved by the norms and standards. In recent Ministry of Agricultural Develop- years, global demand for products ment by August 2013. and processes that meet international standards has increased. Agricultural mechanization policy. To make international markets In the past, many in the agricul- accessible to the country’s farmers tural community were worried and producers, Nepal must define that mechanization would re- minimum standards for products duce the number of jobs avail- and processes. In addition, as a able for young people. In recent signatory of the WTO Sanitary years, young people have been and Phytosanitary Agreement, migrating abroad to find jobs at Nepal must harmonize its SPS an astonishing pace. Many who standards with those of other remain feel that agricultural WTO countries. NEAT part- work is undesirable. These factors nered with DEPROSC, a Kath- have contributed to a labor short- mandu-based nongovernmental age on farms, especially during organization (NGO) committed planting and harvesting, at a to social development and liveli- time when the country is trying hood improvement, and supple- to increase production. mented their knowledge with two international SPS experts To address this challenge, the to prepare 16 national standards Ministry of Agricultural Develop- on phytosanitary measures. The ment sought project support to standards have been endorsed by prepare an agriculture mecha- the SPS Implementation Com- nization policy, with the goal of mittee and are pending final supporting private sector invest- approval from the National Plant ment in agricultural mechaniza- Quarantining Program. The new tion. NEAT provided much of its standards will facilitate trade in support for this activity through agricultural products. the Agriculture Enterprise Center, the agricultural wing of FNCCI. Enhancing Trade The center helped draft and final- and Investment ize the policy and held two key and Fulfilling WTO public-private dialogue events Commitments for more than 130 participants. As discussed previously in the In addition, NEAT organized section “Building Capacity to a study tour to Bangladesh to Improve the Business Enabling observe the results of a mecha- Environment” on page 13, the nization policy that has had a project strengthened public and profound impact on production. private sector institutions to pro- The final draft was submitted to mote national and foreign trade the ministry in May 2013, and and investment. This section

18 Advancing Policies to Unleash Economic Growth highlights the policy reforms that Ministry of Industry in drafting NEAT supported to enhance the new industrial enterprise regula- business enabling environment tions. The final draft regulations and attract investors. were submitted to the ministry in June 2013. The minister of Streamlined foreign investment. finance has repeatedly stated that The draft Industrial Enterprise approval of the act is among his Act streamlines registration and highest priorities. increases transparency for foreign investors coming into Nepal. The Foreign direct investment policy existing act, passed in 1992, is and related legislation. Nepal’s outdated and does not conform to transition from a monarchy to WTO requirements. To align the a modern, democratic federal act with WTO requirements and system has left deficiencies in the update it to reflect current private policy and legal framework for sector realities, NEAT supported promoting and regulating busi- five public-private dialogue ses- ness. As a result, the country’s sions to solicit input for revision foreign investment environment and updating. During these is less competitive than that of sessions, business leaders voiced many other countries, an is- concerns about the conditionality sue the Ministry of Finance is of private sector incentives, the seeking to address. To support heavy burden of bureaucratic pro- the ministry’s efforts, an interna- cedures, and the need to update tional expert and the Institute for the classification of industries. Policy Research and Development The new draft act, which was (IPRAD) were commissioned to submitted and is expected to be review the current foreign direct reviewed and passed, adds service investment (FDI) environment in industries such as information Nepal. After its review, IPRAD and communication technology recommended that all sectors be (ICT), simplifies the registra- open to FDI, minimum equity tion procedure, and reduces the provisions be reconsidered, and processing time for investment. It additional investment protection also establishes funds for promot- be provided to foreign investors. ing industry (e.g., the Venture It also recommended that foreign Capital Fund, Women Entrepre- investors be allowed to open neurs Development Fund, and service-based companies, such as Small Industry Development Internet companies, which was Loan Fund), creates institutional previously prohibited. Based on mechanisms (oversight commit- the findings of this report, which tees) to manage these funds, and was presented to Ministry of invests the Ministry of Industry Industry and other stakeholders, with the legal authority to admin- NEAT extended technical and ister the funds. New industrial logistical support to the ministry enterprise regulations will be re- through IPRAD to draft a new quired to implement the proposed FDI policy. FNCCI also cooper- new Industrial Enterprise Act. ated by organizing two public- With project support, PACE, a private dialogue events. The local consulting firm, assisted the Ministry of Industry organized a

Advancing Policies to Unleash Economic Growth 19 separate mass consultative meet- Promoting competition. Price- ing in May 2013 to review the fixing and cartel issues are final draft of the policy. significant constraints to foster- ing a competitive environment in In March 2013, IPRAD was Nepal. The Competition Promo- subcontracted by NEAT to tion and Market Protection Act, draft the Foreign Investment passed in 2007, adequately ad- and Technology Transfer Act dresses many of these issues, and (FITTA) to replace the 1992 act, while related regulations exist, another legal reform to make there were no practical guide- Nepal a more attractive desti- lines for enforcement, so the law nation for foreign investment. was not widely understood or The draft act, discussed at five implemented. To promote and public-private dialogue sessions increase investment and trade, throughout Nepal, was finalized and as part of Nepal’s accession in late June 2013. to the WTO, NEAT prepared draft guidelines for implementa- Intellectual property policy reform. tion of the act, working in close Until recently, the legal frame- collaboration with the imple- work around intellectual property menting authority, the Depart- law was disjointed. Responsibil- ment of Commerce and Supply ity for the various elements of Management. The South Asia intellectual property was scattered Watch on Trade, Economics, throughout different ministries. In and Environment (SAWTEE) addition, the framework did not completed the draft guidelines comply with the WTO’s Trade- and organized a series of interde- Related Aspects of Intellectual partmental technical discussions Property Rights (TRIPS) agree- to solicit proposed modifications. ment. To formulate a new intellec- Based on comments and sugges- tual property rights (IPR) policy tions from enforcement officials, and amend Nepal’s IPR legislation SAWTEE finalized the draft to comply with TRIPS, NEAT guidelines and submitted them commissioned PACE to assess in March 2013 to the Depart- the country’s IPR regime and, ment of Commerce for adoption. with the input of an international expert, worked with the Ministry Export/import management. To of Industry to prepare a new IPR make trade policy more effec- policy. Private sector input was tive and to incorporate service gathered through two public- industries, NEAT partnered private dialogue sessions, and a with the Ministry of Com- new intellectual property rights merce and Supplies to draft a policy was drafted that combines new Export Import Manage- the Copyright Act, Trademark ment Act to replace the existing, Act, and Patent Act and adds geo- outdated act of 1957. In four graphic indications. The ministry public-private dialogue ses- finalized the IPR policy draft, sions, a dedicated committee of which is to be forwarded to the ministry staff worked to validate Cabinet for approval. proposed revisions proposed by

20 Advancing Policies to Unleash Economic Growth project experts. A final draft bill implementation, the vast majority has been reviewed and is ready of customs officials were trained for submission to Parliament. on international best practices The new bill emphasizes trade and the new procedures. promotion and development rather than trade control and In addition, harmonized system will bring Nepal into compli- (HS) classification explanatory ance with WTO requirements. notes were previously available only in English, making them inaccessible to many and resulting in incorrect coding and tariff application. NEAT organized the Now You’re Speaking translation of five volumes of HS explanatory notes into Nepali. My Language! They were printed and presented to the Ministry of Finance on “One of the major areas that we got support from the NEAT January 26, 2013, World Cus- project is the translation of the explanatory notes. Actually, this is a toms Day. The notes are now big job, because there are 2,700 pages in English. This will help our being disseminated to all customs transit officers go through all the classification opinion. We went on offices throughout Nepal. The a visit and learned best practices, and this will help us enhance our project partnered with the De- trade facilitation.” partment of Customs to deliver — Shyam Dahal, training on the correct use of HS director, Customs Reform and Modernization Section, valuation for 30 customs officers Department of Customs of the central region and 25 in the far western regions. The explanatory notes and training are expected to improve the accuracy of declarations and increase revenue for the Nepalese government. Customs valuation. Customs officers often used reference tables Analytical support for regional with the highest values avail- trade agreements. Nepal increas- able to determine import value, ingly imports more goods than regardless of quantity or varia- it exports, creating a significant tion. Importers complained that trade deficit, especially with Chi- large-volume importations were na and India. To understand the routinely valued with the same reasons and begin to address this higher unit price as smaller-quan- issue, NEAT partnered with the tity importations. Such practices Ministry of Commerce and Sup- directly contradict the WTO plies and SAWTEE to compre- Customs Valuation Agreement, hensively assess trade strengths, which requires adjustments to be weakness, and opportunities with made for differences in quantity the two countries. The reports and trade level. An international recommend increasing exports of expert worked with the Depart- high-value goods, building special ment of Customs to revise valua- economic zones near borders, and tion procedures. During NEAT ensuring good infrastructure,

Advancing Policies to Unleash Economic Growth 21 including roads, quarantine facili- negotiating strategy and agenda ties, and container yards. should include removing Nepal’s high-potential export products The Nepal-India study recom- from other members’ lists of sensi- mended incorporating numerous tive items, harmonizing customs issues into the negotiating agenda, documentation and procedures, such as increasing the number of and establishing regional transit quarantine facilities and food test- and transshipment facilities. ing laboratories at border points or accepting third-party certifica- These reports form an impor- tion; providing reciprocal treat- tant basis for the government to ment to Nepalese transporters, develop a strategy and agenda for permitting their access to Indian future negotiations at the SAFTA territory; and providing excep- and SATIS forums. tions for goods intended for use in the agricultural, manufactur- impact ing and service sectors. The full impact of NEAT’s support for creating and The Nepal-China study rec- implementing new policies to ommended that negotiations improve the business enabling include developing Nepal as a environment and increasing transit link between China and the capacity of government India through infrastructure officials to effectively negoti- development; improving pay- ate trade agreements will take ment modalities by working with years to measure. However, the Bank of China and Nepal project initiatives have already Rastra Bank; drafting a separate resulted in deeper engagement agreement to address quarantine through public-private dialogue and quality assurance for plants, and strengthened the way the agricultural items, and food government operates, especially items; and addressing piracy and in regard to revenue genera- counterfeit trade. These recom- tion, WTO requirements, and mendations have been validated improving the business enabling by the Nepalese government and environment. private sector and will be considered in upcoming negotiations. lesson learned High-level, respected policy staff In addition, NEAT partnered are critical to achieving results. with the Ministry of Commerce NEAT’s mandate to work with and Supplies to assess trade pros- the government and private sector pects through the South Asian on activities with broad politi- Free Trade Area (SAFTA) and cal support required senior staff the South Asian Association for members who could gain access Regional Cooperation (SAARC) to high-level bureaucrats and poli- Agreement on Trade in Services ticians and enlist their trust. The (SATIS). The assessment, pre- policy team worked closely with pared by SAWTEE in consulta- the government and private section with government and the pri- tor to develop and push forward vate sector, recommended that the important initiatives, support

22 Advancing Policies to Unleash Economic Growth the drafting of new policies and agricultural processing firms, guidelines, and organize public- and farmer group representa- private dialogue to ensure the tives, about particular issues of success of project activities. concern. As a result, proposed agricultural reforms address Policy reform should not focus real constraints and have broad exclusively on high-level policies or support from different private laws. NEAT provided assistance sector constituencies. to government counterparts to improve administrative proce- Demand-driven support should dures, in addition to reforming drive the agenda. If one were to policies, acts, and regulations. ask public and private sector Reforming administrative proce- partners who led the process of dures can have a significant im- improving a particular policy, pact on the policy and business act, or procedure, the response environment and government would be, “We did.” NEAT’s de- revenue generation. In addition, mand-driven approach ensured administrative reforms can often stakeholder ownership, timely be approved at a level below implementation, and a commit- Parliament or the Cabinet, pro- ment to achieving results. NEAT viding an opportunity for quick helped develop the process, wins. For example, the project’s incorporated significant public- work with IRD on ABBS and private dialogue, and provided the data link with OCR were ap- the tools and resources to get the proved at the ministry level and job done, but public and private implemented rapidly. sector partners drove the process. This is likely to ensure continu- Agricultural reform should ity on reforms already enacted or incorporate both farmers’ and still in process. firms’ perspectives.Both perspectives were incorporated in the Public-private dialogue leads Agribusiness Promotion Act and to expedited results. Intensive the agricultural mechanization public-private dialogue motivates policy to ensure that they would government and private sector be grounded in reality. During organizations to reach consensus. study tours to India and Bangla- Identifying motivating factors desh, government officials and and key change agents in advance private sector representatives was critical for moving the pro- were able to speak to farmers cesses forward and will continue and firms about what legislation to be critical in the future. would be necessary to successfully implement contract farming and scale up mechanization. Support for public-private dialogue offered the government an opportunity to hear from various private sector constituencies, including association and cooperative members,

Advancing Policies to Unleash Economic Growth 23 Radhika B.K. sells ginger to Annapurna Organic through her women’s cooperative. She is one of 9,000 ginger farmers who benefited from NEAT assistance.

24 Advancing Policies to Unleash Economic Growth CHAPTER two Strengthening Value Chains to Increase Competitiveness

Context and in the tea, lentil, ginger, and Challenges vegetable value chains, NEAT Agriculture is the mainstay of focused on a push-and-pull ap- Nepal’s economy. The sector proach, working with farmers employs more than 80 percent and enterprise-level producers to of the population and accounts push a high-quality product to for approximately 38 percent market, and on the demand side of GDP. Despite that, Nepal’s to increase uptake. The project agricultural sector is unable to also created linkages between meet domestic and international producers and buyers, building market demand in terms of both the capacity of actors throughout quantity and quality. Constraints the value chain, training farmers include lack of knowledge of in improved production prac- improved practices, reluctance tices, and supporting the govern- to adopt new practices due to ment in addressing agribusiness perceived risk, lack of access policy constraints. to high-quality inputs, limited access to finance for business Key Activities and investments, and inefficiencies Results and a lack of business skills along NEAT supported more than the value chain. 38,400 households to improve production practices, business approach skills, and market access in the USAID’s economic growth strat- ginger (8,904), lentil (17,030), egy asserts that competitiveness tea (6,500), and vegetable sectors is defined by the ability of an en- (5,459). More than 100 collec- terprise to compete in end mar- tion centers were constructed or kets. To increase competitiveness upgraded, with staff receiving

Improved products for domestic and export 311 66,780 111 155 20 markets Input Producers Collection Traders Processors Suppliers Centers

training in management or mar- Collection centers. Many Nepalese ket linkage. Between July 2012 tea farmers must travel for hours and May 2013, collection center on foot carrying hand-picked sales increased by $3.37 mil- leaves to a pick-up location on lion. In addition, 7,227 hectares a roadside or a storage structure were under improved technolo- with dirt floors. The extensive gies or management practices travel and inferior storage prac- as a result of project assistance; tices degrade the quality of tea, 15,263 farmers were linked to a affecting its price in end markets. larger firm rather than selling to village traders; 41,676 farmers To address this challenge, received business services such NEAT partnered with Nepal as improved seeds or business Small Tea Producers Limited skills training from a business (NESTPROL), Kanchanjangha service provider strengthened by Tea Estate, Himalayan Shangri-la NEAT; and farmer sales in- Tea Producers, Gorkha Tea, and creased by $10,777,976. Hariyali Jabik tea factories in Ilam to construct 22 collection Increasing centers, each tied to a farmer Competitiveness in group in a specific area. The Tea collection center staff, paid from Tea is an emerging product in farmer fees, grade the tea by type Nepal. However, most tea from and quality, weigh it, and spread Nepal is sold in bulk to India, the leaves out on a clean surface where it is processed, packaged, to avoid fermentation while they and sold to European markets. wait for factory pick-up. NEAT NEAT assistance focused on trained collection center staff on increasing productivity, improv- how to manage members and ing quality, and raising brand fees and strengthen business visibility. relationships.

26 Strengthening Value Chains to Increase Competitiveness SNAPSHOT Collection Centers Link Tea Farmers to Firms

With its high altitudes and favorable soil conditions, Nepal has an excellent climate for growing tea. While many of the teas from Nepal are considered superior in aroma, taste, and color to the better-known

© NEPAL NEAT teas from neighboring Darjeeling in India, Nepal has been unable to capture a significant share of the global market. Outdated post-harvest Hom Kumari Khatiwada brings tea to technologies and insufficient infrastructure have kept Nepal from com- the Gogane Tea Producers’ Cooperative mercially producing tea that meets international standards. in Ilam. Her journey to market used to take five hours — now it takes seven To address these constraints, NEAT targeted four tea-growing districts minutes. in eastern Nepal for interventions. Partnering with five tea processors — Nepal Small Tea Producers Limited, Himalayan Shangri-La, Hari- yalijaibik, Kanchanjanga Tea, and Gorkha Tea — NEAT supported the construction or upgrading of 22 tea collection centers and provided management training.

The collection centers have changed the lives of farmers like 55-year- old Hom Kumari Khatiwada, who has 20 years of experience growing tea in Ilam. Khatiwada used to spend five hours a day traveling to and from the nearest factory to sell her tea leaves. Traveling reduced the time she could spend plucking tea and managing her tea garden. In addition, she would pack as many tea leaves as possible into her sack. This damaged the leaves, sometimes so severely that the factory would reject the entire daily harvest and send her home empty-handed.

NEAT brought processors and farmers together to decide where collection centers should be established to link as many farmers as possible to tea firms. Now Khatiwada travels seven minutes to deliver her tea to the collection center. She spends more time using high-quality plucking methods and delivers better quality tea leaves than before. In 2012, she increased her earnings by 50 percent over the previous year.

The new collection center “has made life a lot easier for us,” says Khatiwada. The centers are owned by the farmer cooperatives, which donated the land and some of the labor for the collection centers. The farmers take pride in maintaining the facilities and overseeing operations.

Besides benefiting the farmers, the new collection centers bring tea processors a steady supply of high-quality tea leaves — one step toward raising quality and increasing exports.

Strengthening Value Chains to Increase Competitiveness 27 Today, more than 1,000 farmers Organic certification.Nepalese come to these collection centers tea has significant potential to daily with their tea leaves. For penetrate the U.S. and Euro- many farmers, the collection pean markets if the number Local centers cut the travel distance of organic certified producers by more than half, and because increases to meet the growing Partner the quality of the tea leaf is now demand for organic tea. Even much better, farmers typically to continue to supply India and Highlight: earn a premium of 15 percent or other non-European markets, more. The collection centers have farmers will have to manage nestprol helped not only the farmers, but pesticide use more carefully NESTPROL, a small tea also the processing firms. Firms after banned pesticides were re- manufacturing company are receiving higher-quality tea cently detected in Nepalese tea with 13 employees, aims to and increasing profits as a result. exports. New Indian food safety create market opportunities laws mandate that from January for small tea farmers in Bagging and drying. Tea from 2014, tea exports must undergo Ilam district, the source of Nepal is often processed in laboratory testing to meet rigor- 77 percent of Nepal’s tea. India and sold as “Darjeeling” ous pesticide standards. © NEPAL NEAT © NEPAL NESTPROL has grown tea. To increase value addition from 40 shareholder and attract European buyers To promote organic tea sales farmers to more than 180. willing to pay higher prices, and meet market requirements, Due to collection centers NEAT provided a grant to NEAT’s approach was three- supported by NEAT, Shangri-La Agro World (SAW), fold: (i) assist farmers who are the quality of green leaf an agricultural processing and certified or in the process of available to NESTPROL has export company, to cost-share obtaining certification to renew increased the retail price by the purchase of a pyramid tea or advance their status, (ii) as- 12 percent. bagging machine, the first of its sist farmers who are producing kind in Nepal. Triangular bag- organic but not seeking certi- ging produces premium sachets fication to begin the process, of tea that fetch a high price in and (iii) provide integrated pest European markets. Marketing management training to help training and linkage support farmers who are selling non- helped the company send sam- organic tea manage pesticide ples to France, Germany, Qatar, use. Through this approach, Switzerland, Ukraine, and the more farmers began converting United Kingdom. SAW has to organic farming and obtained sold tea to clients in the United organic certification. Farmers States and Japan and continues supplying partner tea companies to look for new markets. were trained in integrated pest management, vermin compost NEAT also provided a grant to technology, management of install a tea dryer at the organic cowsheds, and improved prun- Kanchanjangha Tea Estate. The ing and plucking techniques. tea dryer, which meets interna- tionally accepted standards for The conversion to organic farm- export, stops oxidation at its ing can be a lengthy process and optimum point and then reduces requires strong farmer commit- the moisture content of the tea to ment. With support and training 2.5- 3.5 percent, at which point from project grantees, 229 tea the tea will retain its quality. farmers earned organic certifica-

28 Strengthening Value Chains to Increase Competitiveness Farmers bring tea leaves to the Eco Tea Cooperative’s NEAT- supported collection center in Kolbung, Ilam.

tion from the National Associa- outdated marketing efforts and tion for Sustainable Agriculture contributed to a push for greater Australia (NASAA) for the first visibility throughout the sec- time. The agency’s strict stan- tor. As a result, farmer tea sales dards include extensive orienta- increased by more than $1.2 tion, detailed recordkeeping at million and were expected to the farm level, and an internal increase by another $800,000 by control system within each farm- the end of the 2013 season. ing group. NEAT also helped more than 1,137 farmers produc- As part of the effort to increase ing organic tea for three factories visibility for tea from Nepal, renew their organic certification. NEAT assisted the Himalayan Another 107 farmers are in the Orthodox Tea Producers conversion process. Cooperative (HIMCOOP) with creating promotional materials Branding and marketing. Build- and organizing a booth at the ing a strong brand around Nep- Tea and Coffee World Cup in alese tea to catch the attention of Vienna, Austria, in March 2012 potential buyers requires produc- and at the World Tea Expo in ing consistently high-quality tea. Las Vegas, Nevada, in 2011, NEAT helped partners improve 2012, and 2013. As a result, product quality and build strong HIMCOOP tea export sales to domestic and international link- all countries except India in- ages by marketing a national creased in volume by 20 percent. brand. The approach replaced Halseen and Lyon Tea of Ger-

Strengthening Value Chains to Increase Competitiveness 29 many and U.S. firm the Tao of India placed tighter restrictions TEA FARMERS Tea, which previously purchased on lentil exports, Nepal gained ADOPTING IMPROVED small quantities of tea from pri- an opportunity to fill the gap TECHNOLOGIES vate Nepalese firms, now plan to by entering new markets and purchase tea from HIMCOOP expanding the quantity of lentil 85% so they can source high volumes, exported to existing markets, PRUNING AND guarantee quality, and purchase such as Bangladesh, which PLUCKING a wider variety of Nepalese tea. recently agreed to provide duty- HIMCOOP is preparing to ship free access to its market. 71% samples to other interested buy- COMPOST ers they met during their mar- To expand productivity and prof- FERTILIZER keting trips. With support, the itability, NEAT partnered with Himalayan Orthodox Tea Pro- FORWARD Nepal, an NGO 57% ducers Association-Nepal hosted dedicated to reducing poverty DISEASE AND a visit of the Tea Association of by improving food security, to PEST CONTROL the USA to Nepal in May 2012. build the capacity and knowl- The visit brought important edge of farmers through train- potential tea importers from the ing, demonstration plots, and United States to Nepal, resulting introduction of better varieties in new sales to the Republic of and processes. Assistance was Tea, one of the most influential provided in three areas: produc- U.S. tea buyers. tion and value addition, processing, and marketing. To address quality, NEAT supported orthodox tea productivity Production and value addition. and green leaf quality improve- To reach the maximum num- ment through training in tea ber of lentil farmers, NEAT garden management, organic identified motivated farmers production, safe pesticide use, who could be trained to provide 2,244 and improved production training to neighboring farm- TOTAL HECTARES practices. The project partnered ers side by side with project UNDER IMPROVED with cooperatives and processing field technicians. More than 60 MANAGEMENT firms to train more than 6,500 farmer-trainers received five days households in best practices for of training in group manage- production and harvesting. ment, improved production and processing technologies, market- Boosting Lentil ing, planning, and monitoring Production and and evaluation. Next, the team Facilitating Market identified village development Linkages committees (VDCs) — small Lentil is Nepal’s number one villages within larger districts agriculture export, yet the — where farmers located near country’s 700,000 lentil farmers large lentil processors, millers, are smallholders who do not use and traders were eager to ex- modern production and post- pand lentil production. In each harvest practices, resulting in district, three lentil clusters were low productivity, post-harvest selected for commercial block losses that can top 20 percent, production. Using this strategy, and low profitability. When FORWARD built the capacity

30 Strengthening Value Chains to Increase Competitiveness of 17,030 households in good As a result, farmer groups are agricultural practices by estab- selling in bulk at a premium to lishing demonstration plots, processors or traders who are increasing access to improved willing to pay a higher price. Local varieties, and grading lentil by Approximately 7,300 farmers sieving. Between 2011 and 2013, now sell directly to firms, or to Partner lentil yield increased by more district or regional traders, rather than 50 percent and farmer sales than village traders. In addition Highlight: by more than $4.5 million. The to improving market access for share of farmers using improved lentil producers, NEAT provided forward seed increased from 4.4 percent current market intelligence on to 92 percent, and the area under the Bangladesh market and other nepal lentil cultivation increased by 25 emerging markets to ANROPI FORWARD Nepal, a non- percent over the baseline. and its members. profit with more than 100 employees, was founded in Processing. To increase exports, Securing a Steady 1996 by a team of agricultur- the project partnered with Ginger Market ists, sociologists, economists, Durga Dal Mill to modernize and Boosting social workers. and farmers. their machinery to include color Productivity It aims to reduce poverty by sorting, which increased export Nepal is the third-largest ginger improving food security and capability from 1,120 metric producer in the world after rural household incomes by tons to as much as 3,500 metric India and China but ranks 11th providing technical assis- tons. FORWARD brought lentil in earnings from ginger. More tance in high-value crops, traders and producers together than 75,000 Nepalese ginger livestock, forestry, micro-in- from 11 districts to discuss how farmers in the east, west, and frastructure, social mobiliza- to improve quality and took midwest regions suffer from low tion, market development, producers to a factory to ob- productivity, post-harvest losses, and value chains. FOR- serve quality checks. Today, 95 and a disorganized market WARD has strong working percent of farmers supported dominated by mid-level actors. relationships with different by FORWARD are grading, In addition, 80 percent of fresh farmer groups, cooperatives, sorting, and cleaning their lentil ginger produced in Nepal is and community organiza- before they sell to the market. sent unclean and unsorted to tions in more than 38 dis- Knowing what quality grades get market-savvy Indian wholesalers tricts and was a key partner what price ensures transparency, at rock bottom prices. and grantee for NEAT. builds trust, and helps farmers increase sales. NEAT analyzed the market and saw significant potential for Bulking and marketing. Farm- farmers to improve production ers’ reluctance to combine their and processing and secure higher lentil crop with their neighbors’ prices. The project organized crop left them at the mercy of ginger assistance into three areas: small traders. NEAT supported production, processing and value the construction of seven bulk addition, and market linkages. collection facilities for lentil, organized 32 cluster-level collective Production. Ginger farmers marketing meetings, and fa- experience low productivity due cilitated 11 collective marketing to poor production technolo- initiatives with the participation gies and disease. Local partners of more than 300 farmer groups. Multidimensional Agriculture

Strengthening Value Chains to Increase Competitiveness 31 for Development, Public Prog- • AOAI was initially unable to ress Social Development Cen- meet market demand from ter, and the Forum for People’s existing buyers because they Awareness worked to improve didn’t have a large enough the production practices of ap- processing facility. With a proximately 9,000 farmers in grant from NEAT, AOAI midwestern Nepal by promoting established a new ginger pro- high-quality seed production, cessing center in Kapilvastu improving disease management, district, the first of its kind introducing new harvesting in Nepal. The new facility techniques, and training ginger has a ginger washing station collectors on quality standards. with a 10,000-metric-ton When partner Annapurna capacity per season, as well Organic Agriculture Industries as peeling, slicing, and dry- (AOAI) needed organic ginger ing facilities. In the first full for processing, project partners season of operation, AOAI trained 3,000 ginger farmers on processed 1,000 metric tons. good agricultural practices for growing organic ginger. AOAI Market linkages and contract trained farmers on how to imple- farming. Through local partment an internal control system ners, NEAT facilitated market for organic certification. links at the farmer group level by organizing producer-buyer Processing and value addition. meetings. To ensure they would Processing and value addition meet their market commitments were identified as key areas to for processed ginger, partner promote ginger market growth. Annapurna entered into con- Activities in this area included tract farming arrangements with the following: more than 3,000 ginger farmers for organic production. This • Working through three provided farmers with a ready local partners, producers market and earned them a 15 received assistance in drying percent premium over the pre- and processing, packag- vailing market price. As a result, ing in crates to maintain Annapurna expanded from 25 quality, and low-cost storage to 90 employees, and process- construction so they would ing increased from 100 metric not be forced to sell at the tons to 1,000 metric tons in bottom of the market. 2013. Sales of the 9,000 project- supported farmers increased by • Partner Khaptar Aroma more than $2,153,000. introduced ginger oil production by establishing Enhancing a washing station, a distilla- Vegetable Markets tion unit, and a larger stor- Nepal’s vegetable producers are age facility. Production from often unaware of the extent of the first season was sold to market demand or quality stan- buyers in the United States, dards. Even traders lack knowl- France, and Switzerland. edge about pricing systems based

32 Strengthening Value Chains to Increase Competitiveness SNAPSHOT Linkage Benefits Lentil Farmers, Exporter

Lentil is Nepal’s top agricultural export, yet most lentil farmers are not commercially oriented. Most farm on a small scale and sell individually to local traders. This gives them little ability to negotiate price.

With NEAT support, a local organization called FORWARD provided productivity and market linkage training to more than 17,000 farmers. As a result, more lentil is reaching the market, and farmers are earning a higher price.

FORWARD also facilitated direct linkages between farmers and processor Durga Dal Mill, also supported by NEAT. “The fact that we can send the lentils directly to the factory means that we have a ready market,” says Ganga Pun, vice chairman of the Bhuwar Bhawani Agri- culture Cooperative in Banke.

The cooperative — about 10 times larger than most, with 250 members — is growing because farmers are impressed with its record of helping members get their lentils to market on time and sell them at a good price. During the 2013 season, the cooperative sent 9.3 metric tons of lentils to Durga and earned a 15 percent premium over © NEPAL NEAT the price offered by local traders, even taking transportation costs into account. Kum Singh Chaudhary, a cooperative executive and lentil farmer from Banke, Kum Singh Chaudhary, another cooperative executive and a lentil midwestern Nepal, is one of 7,300 farmer, sold his entire 900-kilogram crop through the cooperative. NEAT-supported farmers who now “Previously, I used to sell small quantities to whoever happened to be sell directly to firms rather than village interested,” he says. Now, farmers call their contact at Durga, find the traders. Grantee FORWARD linked day’s prices, and send the lentils on their way. farmers with processors and traders who pay a premium for produce sold in bulk. For its part, Durga trained the farmers to sort and grade lentils ac- cording to market specifications. Now the cooperative owns a machine sieve that does the sorting and grading.

For farmers like Pun and Chaudhary, the farm-factory linkage significantly increased their income, motivating them to invest more in lentil cultivation. For Durga, NEAT support at the factory level and with market linkages helped the company increase its exports dramatically.

Strengthening Value Chains to Increase Competitiveness 33 93 PERCENT collect market information, Capacity an increase from 53 percent before NEAT Building for Collection 60 PERCENT Centers have purchased new equipment, such as scales and crates After only nine months, NEAT- 73 PERCENT supported are investing more time in marketing or improved collection centers management procedures have seen the following results: 20 PERCENT have hired new employees

on sorted, graded, and well-pack- price premiums, and vegetable aged products. Also, vegetable exports in the off season. NEAT productivity is often low due to a worked with producers linked to lack of irrigation, limited use of the Kathmandu, Butwal, Koha- high-quality inputs and services, lpur, and Ghorai markets and in and insufficient knowledge or collection centers in 20 districts use of improved farming prac- to increase vegetable produc- tices and technology. tion with high market potential through five partners: Agribusi- NEAT addressed these issues ness and Trade Promotion Multi- and increased the competitive- purpose Cooperative, Institute for ness of more than 20 vegetables, Sustainable Agriculture in Nepal, including onion, chili, and Kapilvastu Integrated Develop- tomato (chosen for their high ment Services, Unity Services Co- import substitution and export operation, and Madanpokhara, a value). Support was provided in vegetable cooperative. three areas: technical assistance and training on good agricul- Project partners trained 5,459 tural practices; introduction and households to increase vegetable expansion of bulk collection, production and quality through sorting, and grading; and foster- better inputs and improved ing market linkages between farming practices. Topics in- producers, traders, processors, cluded which seeds to use and and end markets. how to plant them; correct use of fertilizer, composting, and Good agricultural practices. pesticides; grading and packag- Demand for vegetables is high ing techniques; and business skill year-round, especially in urban training. Vegetable sales by as- centers. There is also significant sisted farmers increased by more potential for import substitution, than $2,821,000.

34 Strengthening Value Chains to Increase Competitiveness SNAPSHOT Contract Farming Boosts Ginger Exports

Nepal is the third largest producer of ginger in the world but ranks 11th in earnings. Outdated production practices, low processing capacity, and unreliable ginger supplies have kept exports far below their

© NEPAL NEAT potential. Contract farming, which links producers with processors, is one way to improve reliability. Annapurna Organic’s purchase of mechanized equipment increased the With NEAT support, leading ginger exporter Annapurna Organic amount of ginger processed from 100 Agriculture Industries established the first large-scale ginger process- metric tons to 1,000 metric tons per ing plant in Nepal. To supply the plant with high-quality ginger, Phar- season. Annapurna supplies ginger to suram Acharya, head of Annapurna, wanted to increase the amount markets in four countries and plans to he purchased from 100 metric tons to 1,000 metric tons. NEAT linked reach eight more within five years. Annapurna with farmers who had received NEAT productivity training, and the first contract agreements between the parties were drafted and signed in 2012.

“Contract farming gives us certainty about the quantity of ginger we will receive,” says Acharya. “We can then plan ahead and make contracts with our own clients in regional and international markets.”

Annapurna used to buy ginger from 169 farmers. Today, the processor has contract agreements with 3,000 farmers in eight districts in western Nepal. The farmers earn a premium for their ginger and have a reliable market.

At Annapurna, sparkling new machines hum as they wash, slice, dry, and package organic ginger. With increased capacity and a more de- pendable supply, Acharya has big plans. In 2012 he processed 1,000 metric tons, and he plans to increase that tenfold . He currently sells to Germany, Japan, Australia, and South Korea and plans to reach eight new countries — and contract with 22,000 farmers — within five years.

Contract farming is not always so successful. In some cases, a lack of oversight has led to breaches of contract by producers or buyers, as well as failure to meet quality and quantity commitments. To address this issue, NEAT supported preparation of the Agribusiness Promo- tion Act, which will provide a legal framework for contract farming and commercial agriculture when passed.

Strengthening Value Chains to Increase Competitiveness 35 Bulk collection, sorting, and grad- As a result, the share of farmers ing. A local association partner, using improved post-harvest prac- the Federation of Fruit and tices increased from 20 percent to Vegetable Entrepreneurs Nepal 80 percent, 80 percent of collec- Local (FEFVEN), developed voluntary tion centers are linked to new quality standards for seven veg- traders or wholesale markets, and Partner etables and trained nearly 200 87 percent of collection centers producers in four collection cen- are linked to new farmer groups. Highlight: ters in central Nepal. With proj- madanpokhara ect support, FEFVEN set up and Improving continues to operate a call system Standards, Access A small nonprofit dedicated where traders can inquire about to Markets, and to commercial vegetable the daily price of these vegetables Enterprise Skills production, Madanpokhara at Kalimati Market from 6 a.m. Standards. Lacking knowledge, had 115 members when it to 5 p.m. The project constructed farmers previously did not dis- began its partnership with 11 vegetable collection centers, tinguish between high-quality NEAT in January 2012. By upgraded more than 24 centers, and low-quality produce. They December 2012, it had 202 and provided collection center simply brought all their produce members, mostly women. management training to staff in to market and sold it, usually at Farmers increased their veg- 42 centers. These centers ensure low prices. To increase awareness etable production area from proper post-harvest manage- and to bring farmers and traders 25 hectares to 45 hectares ment, provide opportunities for together to discuss how quality and were able to supply collective marketing, and help affects pricing, NEAT partnered more than 5 metric tons of link producers and traders. They with three commodity associa- vegetables daily during the also save farmers time and labor. tions — FEFVEN for vegetables, high season. In total, produc- “Farmers used to take their pro- ANROPI for lentils, and the tion increased more than 33 duce to market themselves,” said Nepal Ginger Producers and percent over the previous Sarjan Chaudhary, a collection Traders Associations (NGPTA) year. In addition, NEAT cre- center staff member and farmer. — to introduce voluntary quality ated an automated record- “They would set up in a corner standards for each product. Pic- keeping system, trained staff or in some alley and sell it. Now torial posters for ginger, vegeta- in data entry and analysis, they just grow the vegetables, ble, cauliflower, cabbage, onion, provided computers, and bring them here to the collection cowpea, chili, and cucumber designed an e-database. center, and go home.” depicted different quality grades Now Madanpokhara can to harmonize standards across now keep electronic records Market linkages. All project- Nepal’s markets. FEFVEN also and produce sales reports, supported vegetable producers conducted training to promote review market trends, and were successfully linked to collec- vegetable quality standards and project future sales. tion centers, which in turn were sound post-harvest practices. linked to traders. Through these linkages, producers and traders Adopting voluntary standards is are earning higher incomes, and a significant milestone toward the quality of their produce has promoting quality. Association improved. Producers and trad- members have welcomed the ers received training in good standards as a way to reduce agricultural practices for summer losses and increase competitive- vegetable production, post-harvest ness. “In the past, out of 3,000 handling, quality standards, or kilos transported to the market, packaging and market linkages. up to 700 kilos were low-quali-

36 Strengthening Value Chains to Increase Competitiveness NEAT Strengthens Value Chain Linkages Through Agricultural Enterprise Training and Value Chain Workshop traders input suppliers Now train farmers in post-harvest techniques, which fetches farmers and traders a higher price 96% Report having a more transparent relationship with farmers 95%

93% Report that farmers deliver a higher quality supply of goods, 91% and 64% of farmers deliver the Say their relationship with producers has improved since quantity of crops promised the training

Report the number of clients has increased, and 38% say their existing clients are buying more products 84% 84% Provide crates or packing materials to farmers to minimize 82% post-harvest loss Report an improved relationship with other input suppliers Traders report they have more Report they have improved their approach to managing 80% transparent relationship with inventory farmers now

Report that farmers ask them about technical agriculture issues 73%

Now talk to farmers in their fields about what types of 70% seed they need

Provide prices to the farmers 64% before the season begins

60% Have a relationship with new lead farmers or collection centers after the market linkage workshop

ty,” said Purushottam Bajagain, tion centers in project-assisted a farmer and trader. “Money was districts was low. As supply and wasted on transportation costs. demand increased, these cen- Now we’re grading, packing, and ters needed to develop better sorting here.” recordkeeping and management practices to operate successfully. Marketing. Collection centers re- The project provided training duce the time and cost of getting in management, market link- produce to market. Previously, age, and post-harvest handling the capacity of most collec- to staff in 111 collection or

Strengthening Value Chains to Increase Competitiveness 37 SNAPSHOT Landless Youth Dig In for a Better Future

For many young people, the lack of employment opportunities leaves even the most highly educated with no other option than to leave their families and look for work in other countries. Through partnerships with Unity Service Cooperation Nepal, a local not-for-profit organization, and the Human Resource Development Center, a business service provider, NEAT worked with youth to develop home-grown opportunities in agriculture.

Gajendra Rai, a 23-year-old college graduate living near Kathmandu, partnered with a friend to lease a small plot of land and start an organic vegetable farming business. Although he began his enterprise with a limited understanding of vegetable farming, NEAT training in agriculture productivity and business skills gave Gajendra new knowledge and confidence. Based on early success, Gajendra leased more land and purchased organic fertilizer in bulk through his farmers’ group at a lower cost than he would have paid at the local market.

Gajendra is now selling his organic vegetables at a high price to super- markets, Dwarika’s Hotel, and Kathmandu University. Demand is so strong he recently started buying organic produce from his neighbors © NEPAL NEAT to help fill buyers’ orders. Gajendra says he now understands the importance of each link in the value chain — especially the market and Although he does not own land, the needs of his customers. Gajendra Raji successfully farms vegetables on land he leased after As a young man who runs his own business, Gajendra wants to serve taking NEAT-supported agricultural and as a positive example to other youth who may be considering migra- business training. tion. “No matter where you live,” he says, “you need to make a commitment and have a goal. I do not own my own land, but I am farming vegetables on leased land and am quite satisfied with my earnings, which are enough to meet my family’s expenses.”

38 Strengthening Value Chains to Increase Competitiveness market centers in 19 districts. would result in lasting partner- The centers were selected based ships among them, subcontrac- on operational status, volume tor Making Cents developed a of transactions and turnover, customized training package ownership, and accessibility. The featuring experiential learn- selected centers collectively work ing in the form of case studies, with more than 1,000 produc- role-playing, and simulations. ers daily and process more than Through a local partner, the 41,645 metric tons of produce Human Resource Development annually. The goal of the train- Centre (HURDEC), NEAT ing event was for each center to certified 50 facilitators to train develop bylaws and a business producers, input suppliers, and plan. Topics included business traders. Using these techniques planning, revenue generation, and materials, known as the post-harvest handling, market- Agricultural Enterprise Curricu- ing, recordkeeping, and policy. A lum (AgEC) toolkit, HURDEC total of 322 staff were trained in trained 7,247 producers, 311 the west, midwest, and far west- input suppliers, and 138 traders. ern regions. NEAT also arranged Based on participant feedback, for 76 participants to travel to HURDEC designed and intro- high-performing collection cen- duced interactive workshops for ters elsewhere in Nepal and in value chain actors, resulting in India to learn best practices. As a new market linkages between in- result, more than 3,500 farmers put suppliers, farmers, and trad- were linked to project-assisted ers and improved farmer under- centers. After the training, staff standing of market requirements. at each center were tasked with The project also delivered four creating three-year marketing training sessions to district agri- plans and increasing farmer culture development offices from membership by 25 percent to 35 Kathmandu and Chitwan. The percent. Today, 67 percent of the training deepened all actors’ un- centers have marketing plans, up derstanding of their roles in the from 13 percent before, and sales value chain and built linkages increased by $3.37 million. that improved competitiveness. A survey of producers revealed that Enterprise skills. Historically, 85 percent were keeping busi- Nepalese farmers have engaged ness records, up from 25 percent in subsistence farming rather previously, and nearly 90 percent than commercial farming, due reported having better relation- to both tradition and a lack of ships with traders. business knowledge. Most trading was for household needs, impact and only the surplus was taken NEAT made systemic changes to the market. Few value chain to increase the competitive- actors knew how to increase ness in the tea, lentil, ginger, production, volume, or profits. and vegetable value chains that To enhance the business skills of improved relationships and producers, input suppliers, and changed behaviors and practices traders and to build trust that of value chain actors. In addition

Strengthening Value Chains to Increase Competitiveness 39 Pavitra Aryal, a member of the Eco Tea Cooperative, plucks the first flush of organic tea in her farm in Ilam, Eastern Nepal. To help Nepal meet the growing demand for organic tea in the U.S. and European markets, NEAT supported farmers to convert to organic farming and obtain certification.

© NEPAL NEAT 40 Strengthening Value Chains to Increase Competitiveness Strengthening Value Chains to Increase Competitiveness 41 to increasing farmer and firm leaf available and brought farm- sales, new market linkages will ers higher sales and profits. The have a continuing impact on the project supported establishment competitiveness of each value of the first large-scale ginger chain, bringing more and bet- processing facility in Nepal and ter produce to end markets for linked the processor with more years to come. Project-supported than 3,000 small-scale ginger collection centers, management farmers. The farmers earned a 15 systems, and market facilita- percent premium over the market tion workshops have built trust price, and the processor bought among parties, linked small more than 1,000 metric tons of farmers to larger end markets, raw ginger and exported washed and brought traders and firms and processed ginger valued a steady supply of goods that at $550,000 in one season. In meet national and international the lentil sector, only one of 18 standards. Contract farming in processing plants partnered with ginger and tea ensures steady in- the project to expand linkages comes for farmers and a reliable with farmers even though most flow of high-quality goods to plants operate at only 35 percent processing firms to export. of capacity and there is an assured market for all processed lentil lessons learned at a premium price. As a result, Simple solutions, done right, the project’s partner in lentil NEAT © NEPAL are key. Complex development increased the value of exports challenges often require simple significantly. Partner SEAN Seed solutions. An example was the Service Centre (SSSC) had great project’s work to develop tea success commercializing local collection centers. While the hybrid seed production by invest- concept is not new, NEAT ing and forging partnerships secured buy-in from firms by ex- upstream with seed producers and plaining how collection centers downstream with input suppliers. would improve their business, Although some firms are reluctant then worked with farmers to to invest in their supply chains, choose locations and build man- experience demonstrates that such agement capacity. Integrating investment yields positive results. value chain actors resulted in transformation of these agricul- Use local knowledge and secure tural communities. local buy-in. To boost lentil production, farmers were first Investments by processing and asked why they were using the trading firms in the supply chain techniques they were using, then are essential for continued profit- helped to understand how they ability. NEAT worked with five could become more efficient. tea factories to cost-share the Farmer engagement led to the establishment of collection centers implementation of a large-scale and training programs targeting demonstration and training smallholder tea growers. The tea program encompassing 11 dis- factory investments increased tricts, 17,537 farmers, and 1,842 the quality and quantity of green demonstration sites.

42 Strengthening Value Chains to Increase Competitiveness Workers weigh green leaf at the Kanchanjangha Tea Estate factory. Kanchanjangha was one of NEAT’s 19 grantees in the tea sector.

Strengthen value chain linkages ness relationships with input to build trust and increase col- suppliers, and 88 percent said laboration. AgEC training for they have better relationships 7,697 producers, input suppliers, with traders after participating and traders focused on busi- in training. ness skills, as well as building sustainable relationships among value chain actors. Relation- ships built around knowledge and trust served as a foundation for sustained economic growth. In a survey of project-assisted farmers, more than 90 percent reported having better busi-

Strengthening Value Chains to Increase Competitiveness 43 Chilies for sale at Buddhi Haat Bazaar, Kapilvastu, western Nepal. With NEAT support, farmers increased their productivity of vegetables that have high market value, including chili.

44 Strengthening Value Chains to Increase Competitiveness CHAPTER three Improving Livelihoods and Increasing Resilience

Context and farmers; and introducing crop Challenges diversification for increased Nepal ranks among the most income and nutrition. To build food-insecure countries in the farmers’ confidence and pro- world. Historically, most farmers mote ownership, the project have been subsistence farmers. worked with food-insecure Conflict, increasing food prices, households through a phased and frequent natural disasters approach over five crop seasons exacerbate food insecurity. In to introduce improved farming addition, men migrate for work, practices, encourage increased which breaks up households and investments in agriculture, and leaves women to farm with little facilitate market linkages. access to inputs, infrastructure, and markets. NEAT worked Key Activities and to bring traditional subsistence Results farmers, most of them women, NEAT provided 28,708 house- into formal value chains. holds — 69 percent of them women — with crop or livestock approach management training. As a NEAT sought to promote result, 7,685 hectares came under sustainable, improved produc- improved management prac- tion practices in food-insecure tices or technologies; 19 percent districts by facilitating access to of assisted farmers leased land markets, financing, and high- to cultivate additional crops; quality inputs; increasing pro- 1,204 irrigation systems cover- duction by introducing good ag- ing more than 2,568 hectares ricultural practices; encouraging were installed; 50 metric tons livestock production by landless of improved and hybrid seed

What are the constraints to accessing Inputs

» Regulations for the registration of new seed varieties are lacking. » Quality inputs are often unavailable in time for the planting season. » Farmers are not yet convinced of the positive return on investment from improved inputs. » Farmers lack access to credit to invest in inputs.

NEAT’s multisectoral approach to improving access to Inputs

Economic Policies Competitiveness NEAT drafted seed registration guidelines, one of NEAT improved the business skills and quality of 40 policy reforms supported. services of more than 311 input suppliers.

Financial Services Food Security NEAT linked more than 19,000 rural clients to NEAT helped 26,500 food-insecure households nancial services. Within ve years, mobile access quality seed and supported the eld- testing nancial services will reach all 75 districts of of 90 seed varieties. Nepal, which will allow farmers throughout the country to access credit or accumulate savings to purchase inputs.

Improved productivity with increased use of quality Inputs

NEAT’s approach has increased the availability and quality of seeds and other inputs in the market. More than 51 metric tons of hybrid and improved seeds have been produced and sold in Nepal. Farmers are seeing a positive return on investments in improved seeds, as farmer sales have increased by more than $24 million in less than two years. 84 percent of farmers who now have access to savings or credit are using their funds for farm inputs.

46 Improving Livelihoods and Increasing Resilience incremental sales of food-insecure farmers IN USD

Maize

Tomato Onion

Wheat + Cauliflower = Paddy Cucumber $15,509,567

Long Cabbage in Total Sales Bean Green Chili

Total Staple Crops: Total Vegetable Crops: $3,558,340 $11,951,227

produced in Nepal was sold to and trying new technologies. As Calculated Risks Nepalese farmers; and farmer farmers gained confidence, they Yield Rewards sales increased by $15,766,543 gradually began investing more NEAT shared the cost of im- and were projected to increase by and needed less project support. proved inputs on just 0.1 hect- another $7 million in the sum- Project technical staff encour- are of land per farmer over the mer of 2013. aged farmers to diversify their course of five crop seasons. crops, and to increase production Farmers saw a clear return on Improving and productivity in vegetables, their investment, as 97 percent Agricultural Inputs key staple crops, and small remained enrolled until the and Practices livestock, thereby addressing the end of the project, by which A phased approach to assistance two main determinants of food time assisted farmers were us- and cost-sharing. NEAT helped insecurity in Nepal: low and ing improved technologies on subsistence farmers and dis- variable agricultural productivity, more than 0.28 hectares each, advantaged households boost and limited access to food. or 7,685 hectares total. productivity, product quality, and sales in 14 food-insecure The phased approach revolved districts through an innova- around five crop seasons. tive phased approach, apply- Farmers shared 40 percent of ing hands-on assistance across the cost of improved seed and multiple crop seasons and shar- fertilizer in the first production ing the cost of improved seeds season. In addition, the first and other inputs on a declining and second production seasons scale for a small experimental focused on intensive training in plot on each farmer’s land. The good agriculture practices and model reduced farmers’ percep- diversification into vegetable tion of risks related to planting production. In the third to fifth new crops, using better inputs, seasons, the project continued

Improving Livelihoods and Increasing Resilience 47 Improved to offer productivity training preparation, nursery manage- Technologies but also placed a strong empha- ment, soil nutrient management, Adopted by NEAT sis on market linkages, market irrigation, integrated pest man- Farmers information, and collective bar- agement, post-harvest handling, gaining. By the fifth season, all and market linkages. Com- farmers paid for 100 percent of munity agriculture facilitators their inputs and had increased continue to serve as important their incomes significantly. resources for farming communities post-training. At the end of Increases in the number of the project, 94 percent of assisted farmers diversifying into veg- farmers reported being linked etables, growth of farmer sales, to someone in their community 100% and increases in land area under who could continue providing • Timely weeding improved technologies all di- agricultural information. rectly correlated with the length of farmer involvement in the To stimulate wider interest in program. As farmers saw change, new practices, NEAT organized they invested more in their land. field days involving farmers and For example, farmers were us- other stakeholders before each ing improved technologies and crop’s harvest to demonstrate the practices on 0.15 hectares after superiority of the improved and 99% one crop season, on 0.22 hectares hybrid varieties coupled with • Irrigation after two crop seasons, and on good agricultural practices. With • Proper harvest 0.29 hectares by the fourth crop project encouragement, farmers activities, including season. Also, farmers started to switched some of their land from grading and storage invest more money in improved cereal to vegetable crops. Dur- or hybrid seed over each crop ing project implementation, the season. In the final phase of land area dedicated to vegetable the project, where farmers were cultivation increased during the responsible for 100 percent of monsoon season by 157 percent input costs, 88 percent of farm- and during the winter season by ers producing paddy purchased 208 percent. This increased their improved or hybrid seed. Binita incomes and improved house- Chaudhary, a farmer from Kai- hold nutrition. 98% lali district said: “In the past, all • Land preparation/ ploughing the money we earned from the Irrigation. Most people farm on • Proper row spacing land had to be invested back into land that is entirely rain-fed. As the land. Now, due to increased a result, they produce mostly for production and sales, we are able home consumption and sell only to meet our needs, and we save a small surplus in the market. on a regular basis. We no longer Yields vary greatly depending have to take out loans to pur- on rainfall, and most farmers chase seeds.” are reluctant to diversify into vegetable farming without a reli- Farmers received training from able water supply. An irrigation 89% 14 district managers, 80 field scheme dramatically reduces the • Composting technicians, and 160 community chance for crop failure while also • Proper fertilizer agriculture facilitators on critical increasing production and qual- application production practices such as land ity. To address this challenge and © NEPAL NEAT © NEPAL

48 Improving Livelihoods and Increasing Resilience Ram Prasad Tharu, a chili farmer, used to earn less than $0.25 per day as a laborer. With NEAT support, now he owns his own farm and produces two harvests a year, earning $2,350 annually.

Improving Livelihoods and Increasing Resilience 49 types of paddy seed planted by food-insecure farmers IN PERCENTAGES

100 41 80 60 59 60 86 88 Improved + Hybrid 40 40 Local

20 14 12

0 Before NEAT Monsoon 2011 Monsoon 2012 Monsoon 2013 NEAT Paddy Season 1 NEAT Paddy Season 2 NEAT Paddy Season 3

Increased Area safeguard food production, on- handled quickly, inexpensively, Under Vegetable farm employment, and incomes, and locally. Cultivation by NEAT provided the materials NEAT Food Security and farmers constructed 1,204 Bringing Farmers Farmers small-scale irrigation schemes in into the Formal IN HECTARES (HA) 14 food-insecure districts. The Value Chain Agricultural project identified low-acreage Market linkages. In addition to Season farmers without irrigation and providing technical assistance to selected sites that could be irri- help farmers grow more pro- gated and where irrigation would ductive, nutritious, and diverse Monsoon Winter reach the maximum number of crops, NEAT facilitated sustain- Before NEAT 0.06 0.04 farmers. Irrigation technologies able linkages between food-inse- Ha per farmer included shallow and deep tube cure farmers and other key value After NEAT 0.15 0.12 Ha per farmer wells, plastic ponds, cement wa- chain actors, including input Before NEAT ter harvesting tanks, canal reha- suppliers, traders, and microfi- 1,509 1,025 total bilitation, drip irrigation, and lift nance institutions. After NEAT 3,877 3,156 irrigation, among others. Tahaki total Tharu of the Shristi women’s To strengthen relationships with Percent increase farmers’ group of Mainapokhar farmer groups at the value chain of total 157% 208% said her group was able to grow level, the project provided orien- area under vegetable more vegetables after receiv- tation and training to nearly 74 cultivation ing and installing a new water private input suppliers on how to pump. The project provided give technical advice to farmers. materials, while farmers contrib- In the second and third year, uted the installation costs and training was expanded to include labor, sometimes with assistance demonstration site activities to from VDCs or other donors, increase interaction between including Oxfam. NEAT also input suppliers and farmers and provided training to mechanics to build marketing, business, in all districts so that mainte- agronomic, and veterinary skills. nance and repair of irrigation Subsequently, 84 percent of facilities and equipment could be input suppliers reported that the

50 Improving Livelihoods and Increasing Resilience number of clients had increased, the price of their products by 38 percent said existing clients grading and sorting, improving were buying more products, 70 packaging, or timing sales, up percent said they now talk to from 11 percent previously. farmers in the field about what types of seed they need, and 52 Block farming. Farmers who work said they ask farmers how much alone or with just a few family seed they will need. These input members are unable to develop suppliers are now able to provide strong relationships within the sound technical advice and rec- value chain or to bargain for a ommendations on crop produc- better price based on volume. To tion to their farmer clients in address this challenge, NEAT 14 food-insecure districts. More trained district managers, field than 90 percent of beneficiary technicians, and community farmers reported having access agriculture facilitators to encour- to improved inputs, up from 21 age the formation of new farmer percent previously. groups and to teach group management skills. Training focused on teamwork, clarifying roles and responsibilities, keeping records, negotiating collectively, using block farming — sharing Responding to land to cultivate the same crop Market Signals —and strengthening linkages to traders and collection centers. “If my cucumbers are not selling in the market, I will go to a few markets to talk to customers and understand what other vegetables Promoting block farming en- are in demand and grow what is selling well in the market.” abled farmers to aggregate their produce to engage in collective — Man Singh, bargaining. Because of the larger Durgauli VDC volume, buyers reported they were more willing to collect the goods and transport them to markets. In total, NEAT helped facilitate 395 block farming Farmers were also trained on how schemes in three regions. In to collect market information, all food-insecure districts, 23 respond to market signals, and percent of farmers are now using negotiate with buyers as a group collective marketing. to secure better prices for their produce. Farmers now speak di- Commercial vegetable production. rectly with traders and input sup- As NEAT farmers transitioned pliers about what is in demand, from staple crop production to and they decide what to grow commercial vegetable cultiva- based on market trends. Among tion, farmer sales increased by beneficiary farmers, 92 percent more than $15.5 million over reported having direct market the life of the project, of which access, and 67 percent said they nearly $12 million were gener- were linked by NEAT; 78 percent ated from vegetables. reported being able to influence

Improving Livelihoods and Increasing Resilience 51 Social capital and access to credit. now running businesses, traveling Uniting Families Groups learned the importance freely, and assuming leadership Twenty-two percent of food- of business plans (crop planning) roles. They have gained a voice in insecure farmers reported and financial management, how household decision-making and that at least one family mem- to manage their groups effec- financial management, and as a ber had previously migrated tively, and how to take advantage result, conflict in households has for work but returned home, of the skills of each member. By declined and trust has increased. or had decided to stay home the end of the project, 77 percent Families are also investing in and work on the farm, be- of farmers were keeping records education. When families were cause of project support. as a result of the business skills asked how they were using their training, up from 4 percent pre- increased income, the most viously. These groups also started frequent answer was to pay for their own savings and loans children’s schooling. Families programs: 92 percent reported are investing more in nutritious having access to savings and food, such as vegetables and dairy credit, up from 37 percent previ- products, because they have seen ously. Of those participating in that other families’ children are a savings and credit program, 84 healthier when they eat well. percent were using their loans for More households are taking a agricultural investments. longer-term approach to planning and investments, a change from By working together, farmers previous survivalist attitudes. were able to solve larger problems affecting the farming commu- Creating Livelihood nity. For example, as the Temhi Opportunities for Farmer group transitioned into Landless Farmers commercial vegetable farming, Rising food prices — particular- the importance of having a road ly for grains, vegetables, poultry, to transport their goods became dairy, and meat products — have crucial. The government was increased food insecurity among unable to provide the road, so the poorest and most vulnerable. the group pooled together more Recognizing that livestock pro- than $250 for the materials and duction, especially for landless constructed one kilometer of farmers, could increase incomes road themselves. and household consumption of nutritious food products, Empowerment and social norms. NEAT’s livestock management Increased resilience to food secu- program engaged food-insecure rity shocks and newly acquired households in raising poultry, business skills, social behaviors, goats, or pigs. Animals and and practices in the home and training were provided under community transformed lives. a cost-share arrangement, with Farming is now seen as a viable the beneficiary providing animal livelihood option, and some men housing, food, and vaccina- no longer feel they have to leave tions. In total, NEAT supported their families and migrate for more than 1,500 households in work. Women who lacked confi- the livestock program. The full dence and rarely left the house are value of livestock consumed,

52 Improving Livelihoods and Increasing Resilience SNAPSHOT Subsistence Farmers Learn to Read Market Signals

Nepal’s subsistence farmers struggle to feed their families throughout the year. As a result, many go abroad to earn a living. When Shanti Chhetri’s husband went to India to work, she was left to care for her

© NEPAL NEAT family of nine with only the small amount of money he was able to send back. Shanti Chhetri is a vegetable farmer in Bardiya, midwestern Nepal, sells her Things are different now. With NEAT support, Chhetri began planting produce to markets in nearby Nepalgunj vegetables to sell in the local market. Two years later, she earns enough and across the border in Kohalpur, to support her family and hopes to bring them all back together. “I India. By encouraging block farming and plan to expand my farm so that my husband can come home and work teaching group management skills, NEAT here with me on vegetable farming,” she says. “My experience has helped farmers bargain for a better price given me the confidence to undertake this on a larger scale.” based on volume, and to connect to traders and collection centers. NEAT provided intensive training in good agricultural practices to Chhetri and other farmers, helped them access improved inputs, and linked them to markets. Every morning, a member of Chhetri’s cooperative calls traders in all the major local markets to find out where demand is strongest and where their produce will sell at the best price.

Many traders come directly to the cooperative’s collection center to pick up produce because it is high-quality and sells at an attractive price. The cooperative also sells directly to larger markets in the area, choosing where to sell based on price. Some of their vegetables even reach Kathmandu, 20 hours away by road.

Besides improving food security for Chhetri’s family, vegetable farming has elevated her status in the community. In her role as vice chair- person of the cooperative, she advises fellow farmers on what kinds of seeds to buy, how to plant them, and ways to reduce post-harvest losses. “If all farmers plant the same crop, prices for that crop will drop, so we have to understand the market” she says. NEAT also taught the farmers how to link with local input suppliers so they can continue to buy high-quality inputs.

Food-insecure farmers assisted by NEAT now understand market signals and know how to use market information to decide which crops to grow and where to sell them. They are investing more in their land because they know there is a market, and they are seeing the benefits at home.

Improving Livelihoods and Increasing Resilience 53 Hybrid and sold, and remaining is more than SSSC started producing hybrid Improved $450,000. With remaining live- seed commercially at the farmer Seed stock, these households will con- level for the first time in Nepal. Production tinue to generate income from The company also decided to IN KILOGRAMS (KG) their investments in livestock. expand commercial produc- amount tion of popular improved seeds. Radish 32,405 KG Supporting Research SSSC has successfully produced Broadleaf mustard 1,560 KG and Development 50,023 kilograms of improved Cucumber 587 KG Hybrid seeds. Hybrid seeds have and hybrid seed for radish, Cauliflower 2,071 KG increased quality and boosted broadleaf mustard, cucumber, Tomato 525 KG yields in Nepal and world- cauliflower, maize, and tomato. Maize 12,875 KG wide, but most hybrid seeds in As a result, Nepalese farmers Nepal are imported and sold at now have access to hybrid and premium prices. SEAN Seed improved seeds more affordably Total hybrid and Service Centre (SSSC), a private and from a local source through improved seed production sector seed company, recognized the SSSC’s network of more 50,023 KG = 50 Metric an opportunity to enter a new than 40 input suppliers. Tons and profitable line of business: hybrid seed from Nepal. For SSSC trials showed significant NEAT, local production of success with and potential for hybrid seeds reduces reliance on a new local hybrid maize vari- imports, creates a new Nepali ety. As a result, SSSC piloted a industry, and generates an in- “hybrid maize village” in 2013, come stream for seed-producing contracting 29 farmers to pro- farmers, often located in remote duce hybrid maize seed, improv- areas of the country. ing the livelihoods of the farmers involved and guaranteeing the With project support, SSSC supply of a new seed variety in selected crops for which seed was growing demand in the market. being imported in large quanti- SSSC anticipates they will be ties and for which new hybrid able to increase the domestic sup- varieties had already undergone ply of commercial hybrid maize testing by the National Agricul- seed by 50 percent within the tural research Council (NARC). next twelve months. SSSC evaluated which geograph- ical areas would be best suited Impact for producing each type of seed NEAT’s phased approach re- and then entered into a contract sulted in farmers converting to arrangement with farmers to high-value vegetable crops and produce seed for the company. incrementally taking full respon- SSSC provided training to farm- sibility for purchasing improved ers, who were enthusiastic about inputs as their incomes in- getting into the seed production creased. As a result, farmers con- business. The program guaran- tinue to invest in farming and teed farmers a 100-percent buy- have access to formal markets to back and provided the technol- sell their products. Households ogy and support needed to enter are saving more, women are this new business. gaining confidence and taking

54 Improving Livelihoods and Increasing Resilience SNAPSHOT Hybrid Seed Production Takes Root

Nepal is a food-deficit country, where two out of three people experience food insecurity. With a growing population, Nepal has a critical need to boost agricultural production. Using hybrid seed can signifi-

© NEPAL NEAT cantly increase productivity, improve disease resistance, and reduce water requirements. Women package hybrid maize seed for sale to input suppliers. NEAT support Until recently, nearly all hybrid seed in Nepal was imported and expen- has reduced the need for expensive sive. Through a partnership with the Seed Entrepreneurs’ Association imported seed while promoting hybrids of Nepal Seed Service Center (SSSC), NEAT supported the country’s that improve quality and increase yield. first commercial hybrid seed production. This provides Nepali farmers access to local, trusted hybrid seeds at an affordable price.

SSSC is helping the Sailung Seed and Vegetable Production Farmers’ Association produce hybrid seed. A group of 29 farmers now specialize in hybrid seed production, and approximately 200 farmers are producing improved seed. SSSC ensures a high-quality product by training farmers on hybrid seed production and using state-of-the-art processing techniques that include grading, lab tests, and proper packaging and labeling. SSSC works throughout the supply chain, providing a 100 percent buy-back guarantee to farmers and promoting the new local hybrids among input distributors.

An input distributor in Kalimati who sells SSSC-packaged hybrid seeds noted an increase in demand for locally produced hybrid seeds. “The quality of the product is good and the prices are significantly lower than the imported seeds, so the farmers keep coming back for it,” he said.

The Sailung cooperative signed an agreement with SSSC to produce 60 kilograms of hybrid tomato and maize seeds for the 2013 season and has a goal of producing even more in 2014. SSSC has surpassed its goal of increasing the domestic supply of hybrid maize seed in the market by 50 percent.

Improving Livelihoods and Increasing Resilience 55 Prakash Adhikari’s daughter smiles as she holds a cauliflower they picked from their farm for dinner. Prakash recently returned from Qatar to start vegetable farming.

56 Improving Livelihoods and Increasing Resilience on leadership positions, fami- groups and buyers. Once farmer lies are sending their sons and groups learned how to participate daughters to school, and men in the formal value chain, those have the option of staying on relationships fueled demand their farms to earn a living rather and sustained growth. Farmers than emigrating. reported they plan to continue growing vegetable crops because Lessons Learned they know there is a market for Provide support that coincides them and have built relationships with key decision-making peri- with buyers. Linkages with input ods in the agricultural season. sellers will continue to provide NEAT’s phased approach al- farmers with access to the high- lowed food-insecure farmers to quality inputs they need to meet take small, calculated risks over market demand. five crop seasons. Farmers saw a positive return on their investments in new technologies such as improved seed and fertilizer and diversification into vegetables. Project technical support helped farmers decide what seeds to buy, how to plant and harvest them effectively, and how to get them to market efficiently. Farm- ers reported that the project’s relevant and real-time support gave them the confidence to take risks. Many farmers expanded vegetable production significantly and are now selling to traders in the formal value chain.

Promote commercial vegetable production to increase incomes and household resilience. NEAT’s strategy of promoting diversification of farmers into commercial vegetable cultivation to increase incomes and resilience has been very successful. Beneficiary farmers increased their cumulative sales by more than $15.5 million over four crop seasons, of which nearly $12 million was generated from vegetables.

Link to value chains for a sustainable exit. NEAT’s strategy empha- sized linkages between farmer

© NEPAL NEAT Improving Livelihoods and Increasing Resilience 57 Prajwol Bhattarai owns a general store in Biblyate, Ilam, and has been a mobile money customer since he opened his store. Through NEAT’s partnership with banks, rural customers can pay bills, take out loans, and send and receive money without traveling long distances to a bank branch.

58 Improving Livelihoods and Increasing Resilience CHAPTER four Transforming Rural Economies through Access to Finance

Context and agricultural enterprises. External Challenges support for financial institutions More than 70 percent of helps mitigate the risk of expand- households in Nepal have no ing in rural and remote areas and bank account. Due to the high introducing new products and transaction cost of delivering services, resulting in increased financial services in rural and access to financial services. remote regions, formal financial institutions are hesitant to approach open new branches in those NEAT worked to expand cover- areas. As a result, microcredit age of formal financial services and microsavings products for for rural clients, build the capac- on-farm and off-farm income- ity of financial institutions to generating activities are unavail- design and pilot new products able. Without formal financial and services, and strengthen services, households pay more for financial institutions to continue monetary transactions, and cash delivering sustainable services payments are less secure. Im- and products. proved access to formal financial services enables farmers to make Key Activities and small investments in better farm- Results ing equipment and irrigation, NEAT hosted Nepal’s first improved seeds or other inputs, mobile financial services summit, and small-scale storage facilities. bringing together microfinance The impact of well-conceived, stakeholders to discuss build- well-priced, and well-marketed ing a mobile money sector with financial products and services nationwide coverage. The project can be equally dramatic for non- helped introduce two major in-

© NEPAL NEAT Transforming Rural Economies through Access to Finance 59 Workers in a stone quarry in Bagmati province receive their salaries through mobile phone transfers. With NEAT support, Mega Bank and Laxmi Bank introduced mobile banking services in hard-to- reach rural locations, expanding access for many villagers.

novations: branchless banking us- an enormous opportunity to Mobile Phone ing point-of-sale technology, and introduce banking that uses Banking: Speedy branchless banking using mobile popular mobile technology and phones. Branchless banking increase access to savings and and Secure partners established 300 agents loans for hundreds of thousands For the 18.9 million people in 30 districts, reaching more of unbanked households. in Nepal with access to a than 19,000 new rural custom- mobile phone but not a bank ers. NEAT partners disbursed To spur the private sector to rise account, mobile financial $2,388,187 in rural loans to 7,517 to the challenge, NEAT hosted services allows for quick and borrowers, mostly women. Nepal’s first Mobile Financial easy financial transactions that Services Summit in June 2012. would otherwise be difficult Increasing The two-day gathering brought or impossible, including mak- Accessing to together Nepalese mobile finan- ing or receiving payments, Finance Through cial services pioneers and inter- making deposits or withdraw- Mobile Money and national mobile financial services als, or transferring money. Bank Support leaders to share experiences and Mobile money momentum. Access deepen their understanding of to finance and banking ser- the opportunities and challenges vices is one of many challenges involved in branchless bank- faced by rural families living ing in Nepal, whether based on in poverty. Only 28 percent of mobile phones or point-of-sale households in Nepal have bank technology. Participants explored accounts. On the other hand, four broad topics: regulatory 70 percent of households have frameworks, business and opera- a mobile phone. This creates tional models, products that can

60 Transforming Rural Economies through Access to Finance TRANSFORMING THE ECONOMY OF NEPAL THROUGH MOBILE FINANCIAL SERVICES

Most households in Nepal, especially 72%72% ofof NEPALIS areare UNBANKED in mountain regions, lack access to financial services. NEAT partnered with financial institutions to launch $$ $$ $ $$ $ $ $ $$ ofof Nepal’sNepal’s GDP isis inin thethe InformalInformal EconomyEconomy the first mobile banking services in 50% Nepal. Now, private sector leaders estimate that mobile financial services 70% ofof HouseholdsHouseholds havehave ACCESS toto aa CELL PHONE will reach all 75 districts of Nepal in five years, and new products such as insurance, health services, and USAID NEAT LAUNCHED MOBILE FINANCIALFINANCIAL $ market information will be available SERVICES FORFOR THETHE UNBANKED IIN NEPAL — benefiting Nepal’s rural population and growing the economy. USAID NEAT supported the firstfirst 300300 mobilemobile agentsagents inin ruralrural Nepall

Transactions with mobile agents costcost 2020 timestimes lessless thanthan bankbank branchesbranches

USAID NEAT supportedsupported thethe FIRST MOBILE MONEY SUMMIT inin © NEPAL NEAT $ Nepal bringing key stakeholders together Now 3 mobile platformsplatforms workingworking withwith 20 banks and 3 telecomstelecoms are scaling up mobile financialfinancial servicesservices iin rural Nepal $

WHEN THETHE UNBANKEDUNBANKED START USING FORMAL FINANCIAL SERVICES,, MONEY IN THE FORMAL ECONOMY INCREASES

Household resilienceresilience andand savings increaseincrease

Banks lendlend more money toto businessesbusinesses

GDPGDP Nepal’s GDP increasesincreases

NEPALNEPAL ECONOMIC,ECONOMIC, AGRICULTUREAGRICULTURE && TRADETRADE (NEAT)(NEAT) ACTIVITYACTIVITY

Transforming Rural Economies through Access to Finance 61 drive growth, and critical issues With these services, many rural Mobile Finance in making a mobile financial villagers with no prior access to Services: Big Names, business profitable. financial services now have bank Big Plans accounts or the opportunity to Laxmi Bank’s successful launch During the summit, a group of open them. In many cases, this of mobile financial services has banks decided to join together saves hours of travel to the nearest generated significant interest to roll out a shared national plat- bank branch to pay bills. Cus- from potential customers and form, and a large national input tomers can also send money to or the business sector. FinAccess, distributor and a mobile platform receive money from family mem- the company that developed provider signed an agreement to bers and take out loans to invest the mobile platform used by provide mobile money services in income-earning opportunities. Laxmi Bank, recently doubled through input retail agents na- the capital of the company, tionwide. Meanwhile, the Nepal The project also organized a incorporating as investors: Rastra Bank (the country’s study tour to Pakistan for key central bank) released branchless mobile money stakeholders and • Kantipur Group, Nepal’s banking and e-banking direc- conducted market research on largest media group tives and announced their will- the use of mobile phones and • Prabhu Group, Nepal’s ingness to improve regulations as demand for financial services. second-largest remittance banks and regulators gain more Mobile agents play a critical company experience with mobile financial role in helping banks grow their • Buddha Air, Nepal’s largest services. This built a foundation customer base. They now market airline for public-private cooperation to bank services and help enroll expand branchless banking. new bank customers at a frac- • Agni Incorporated, tion of the cost of setting up distributor or Mahindra NEAT partnered with Mega new branch locations. Reducing automobiles and tractors Bank to support the establish- the outreach cost is critical for • Jiba Lamichhane, president ment of branchless banking getting financial services to rural of the Nonresident Nepal- outlets through point-of-sale customers. Mobile banking has ese Association devices, and with Laxmi Bank also brought the banks a new to support rollout of its Mobile line of business. FinAccess now has the capital Khatta service using FinAccess’s and strategic partners required Hello Paisa shared platform. Strengthening to ensure the success of its For the banks, the partnership Microfinance plans to rapidly scale up its reduced the risk of launching a Institutions and services nationwide. much-talked-about but untested Commercial Banks technology and service with the New products and services for potential to transform the rural rural populations. Access to economy. It enabled these banks financial services in the rural to gain experience with new areas of Nepal is severely limited. strategies, products, and pric- Microfinance institutions (MFIs) ing and to refine them to ensure have reached areas where previ- future success. Through mobile ously no financial services were banking and branchless out- available. NEAT helped two lets using point-of-sale devices, MFIs, Nirdhan Utthan Bank Laxmi Bank and Mega Bank Limited (NUBL) and United now serve more than 10,000 Youth Community (UNYC), customers in 30-plus districts at to open eight new branches in 300 rural locations. underserved areas.

62 Transforming Rural Economies through Access to Finance SNAPSHOT Money on the Move in Rural Nepal

When Umesh Sherchan was young, he moved to Kathmandu to enroll in college. He had less than five dollars in his pocket — his whole life savings. Unfortunately, his plans came apart, so instead he found

© NEPAL NEAT a job at a sand depot. After many years of hard work and saving money, Sherchan opened his own sand depot. Today, he owns two NEAT-supported mobile banking saves quarries in Sukute. time and money for rural entrepreneurs like sand depot owner Umesh Sherchan. Despite Sherchan’s success as an entrepreneur, paying his 40 employ- He no longer has to travel long distances ees and various business partners used to be a challenge. Sukute is a to visit a bank or purchase supplies. rural village without a single bank branch.

Previously, either Sherchan or one of his trusted employees had to travel long distances, carrying cash, to transact business at a bank or with business partners. This was not only risky, but also costly and time-consuming.

Then came mobile banking. Through a Laxmi Bank agent, Sherchan opened a Mobile Khatta account. He instructed his employees to open accounts and asked his vendors to do the same. Now Sherchan uses Mobile Khatta to pay employee salaries, his diesel supplier, and other vendors.

Mobile banking is revolutionizing business in rural Nepal. More than two-thirds of households do not have formal bank accounts — but they do have mobile phones. With NEAT support, Laxmi Bank was the first to launch mobile money services through 250 mobile agents. These agents offer Mobile Khatta-branded services in 16 districts. Services include mobile phone payments, loan disbursements and repayments, savings deposits and withdrawals, and money transfers, among others.

Sherchan is convinced that Mobile Khatta helped his company save time and money. At first, it was difficult to explain how it works to his staff and vendors. Most of his staff just stared at him or told him the idea was too far-fetched. “But now that they have experienced it and it actually works, everyone is amazed at the simplicity of getting things done,” he says.

Transforming Rural Economies through Access to Finance 63 UNYC also piloted three new Training for MFIs. NEAT sup- products in its branch offices in ported the Center for Self-Help Sanoshree, Bardia, and Tikapur, Development (CSD), a national Kailali: emergency loans, hous- training provider, to develop ing loans, and microenterprise and launch a training program loans. The emergency loans al- for MFIs on risk management, low clients to borrow for emer- value chain lending, and indi- gency medical expenses such vidual lending to rural clients. as accidents or surgery. Previ- International experts helped ously, those in need would be develop the course and deliver forced to borrow from informal trainer training to local resource sources at high interest rates. persons. An international train- The housing loans allow clients ing and capacity building expert to improve living conditions in helped CSD develop a business their existing homes. Microen- plan addressing market demand NEAT © NEPAL terprise loans allow clients to and organizational sustainabil- borrow up to $2,200 to expand ity requirements. their businesses. CSD’s course on value chain NUBL designed two products, finance, delivered with project one focused on long-term savings support in April 2012, created (Sambridhi Bachat Yojana) and such demand that CSD trans- the other related to project loans. lated it into Nepali and repeated The long-term savings product it three months later. As most allows clients who deposit a set MFIs focus almost exclusively amount each month for 14 years on group lending, the course on to benefit by having the total individual lending filled a huge amount saved matched by the knowledge gap and helped close bank. The purpose is to help a major credit gap in the mar- clients meet needs for wed- ket. The initial course, in which dings and other events, higher 27 loan officers from 18 MFIs education for their children, or were trained, was significantly purchase of a large asset. oversubscribed. In addition, CSD trained all of the branch UNYC’s microenterprise loan managers from Swabalamban and NUBL’s project loan helped Laghubitta Bikas Bank Limited, fill gaps in the market by reach- the second-largest MFI in Nepal, ing clients with borrowing re- with 106 branches, in individual quirements that are too large for lending as part of their plan to group loans but not large enough roll out a revamped best-practice for commercial bank loans. Tar- individual loan product. In geting the small business sector response to recommendations with financial services generates from the Nepal Microfinance new jobs and fuels economic Bankers Association and the growth. UNYC’s and NUBL’s Microfinance Association of eight new branches disbursed Nepal, CSD delivered training $981,614 in loans during the on risk management. The CSD grant period. now regularly offers courses in

64 Transforming Rural Economies through Access to Finance The expansion of mobile money services has made it much easier for business owners like Radhika Baral to make daily deposits into savings accounts. After making deposits for six months, Baral has become much better at managing her finances.

the eastern and western regions lessons learned on financial management, Support innovation through pilots. delinquency management, Investing in pilots is often neces- account keeping, and micro- sary to spark innovation. Support finance operational concepts and for Mega Bank and Laxmi Bank lending modalities. to pilot branchless banking using point-of-sale and mobile phone impact technology allowed the banks to The mobile money summit cre- test new product lines and refine ated momentum for the private strategies that could help rural sector to introduce mobile populations access finance. banking technology and launch a national platform for mobile Financial institutions will pay money services nationwide. As a for high-quality training. Soon result of the summit and direct after NEAT’s launch, a number assistance to Laxmi Bank and of private sector representa- Mega Bank, more than 10,000 tives told the project team that rural customers who previously financial institutions, particu- had no bank accounts now use larly MFIs, would not pay for branchless banking through training. Experience over two either point-of-service or mobile years proved that financial technology. As a result of project institutions, including MFIs, support for MFIs more than are willing to pay a market price $2,388,187 million in micro- for high-quality training that loans have been distributed to responds to market demand. rural households.

Transforming Rural Economies through Access to Finance 65 Bishnu Khadka, from Palpa, studies a poster about vegetable production. NEAT trained people from 28,000 food-insecure households on improved farming practices.

66 Transforming Rural Economies through Access to Finance CHAPTER five Building a Sustainable Future for Economic Growth

Some key factors influencing environment, with 40 policy or economic growth in Nepal in- administrative reforms analyzed clude the political and economic and nine implemented. Those environment, reliable power pending implementation will supplies and infrastructure, and be carried forward by high-level labor. NEAT supported the champions. For example, the building blocks for economic minister of Finance, the secretary growth by building capacity of of the Ministry of Industry, and the agricultural labor force to the presidents of FNCCI and improve competitiveness and CNI are strong supporters of by working with the public and the Industrial Enterprise Act, so private sectors to enhance the this reform should travel swiftly business enabling environment. through the approval process. This section presents a discussion Other policy reforms pending of areas that should continue to final approval have USAID or be strengthened to build on this other donor support. USAID foundation for growth. should continue to support agricultural reforms, such as the Policy Agribusiness Promotion Act and Recommendation 1: Keep up the the agricultural mechanization momentum on policy reform. policy. The International Finance Through government and Corporation continues to sup- private sector partners, and port business environment and with technical support from trade reforms, such as streamlin- numerous Nepalese and inter- ing the tax payment system. It national short-term consultants is critical that the government and subcontractors, NEAT made of Nepal, the country’s private significant progress in improving sector, and development partners the policy and business enabling maintain the momentum created

© NEPAL NEAT Building a Sustainable Future for Economic Growth 67 through NEAT partnerships ect support, the tea sector made by approving pending reforms, progress in selling the Nepal effectively implementing and en- brand, but sales could accelerate forcing reforms already enacted, if sector players work together and continuing to work together to market Nepal-branded tea. to identify other ways to improve As was demonstrated through the business environment. NEAT’s interactive workshops with input suppliers, producers, Agriculture Sector and traders, initiatives that build Competitiveness trust and improve communica- Recommendation 2: Consider tion among value chain actors investing in other promising value are critical for strengthening chains. Given the limited time the supply chain of high-quality frame, NEAT supported estab- products, increasing farmer and lished value chains with high po- firm sales, and improving agri- tential for quick and significant cultural competitiveness. returns. However, other promising sectors where there may be a Food Security time lag between investment and Recommendation 4: Continue to impact should be considered for promote commercialization among future investments if sufficient subsistence farmers. NEAT had time and resources are avail- significant success promoting able. Tourism, for example, has diversification into cash crops significant potential to increase and linking food security ben-

employment and contribute to eficiaries to formal value chains. NEAT © NEPAL economic growth. Other service Providing appropriate train- sectors, some of which Nepal ing and material support and made a commitment to opening facilitating linkages with more up under the WTO accession than 70 collection centers to process, such as ICT-related sec- improve market access was a key tors, also have potential. factor in this success and should be continued. While indications Recommendation 3: Value chain are that lasting change has taken actors should actively work togeth- place at the farm and commu- er to increase sector competitive- nity levels, NEAT’s approach of ness. Each of the sectors NEAT providing intensive training to focused on has an industry as- all beneficiaries should be evalu- sociation: Himalayan Orthodox ated for sustainability versus Tea Producers Association and other lighter-touch models. HIMCOOP for tea, ANROPI for lentil, NGPTA — a new Recommendation 5: Continue to association — for ginger, and improve the competiveness of com- FEFVEN for vegetable. While mercializing farmers. As noted NEAT worked with several of in Recommendation 4, NEAT these, actors within each sector demonstrated that a tailored must join forces to become truly approach can bring farmers competitive in international into the formal value chain. markets. For example, with proj- Tremendous advances were

68 Building a Sustainable Future for Economic Growth Ram Kumari Tharu (far right) formerly worked as a day laborer. With NEAT training in good agricultural practices, she now farms her own land and has significantly increased her income by growing and selling vegetables.

made in increasing production Opportunities for farming com- quantity, improving quality, and munities are likely to increase in linking farmers with collection the years ahead if farmers can centers. As farmers continue to meet more rigorous quantity and advance, they can link directly quality requirements. Additional with wholesale or end markets. support to farmers, cooperatives, Already, some beneficiaries and business service providers is are linked with major hotels essential for improving overall and other institutional buyers. agricultural competitiveness. Bhat-Bheteni, an expanding As farmers become more com- supermarket conglomerate, has petitive, there will be greater expressed an interest in buying demand for inputs, transport direct from farming communi- services, and labor, which will ties rather than through the large also support economic growth in Kathmandu wholesale market. rural Nepal.

Building a Sustainable Future for Economic Growth 69 The sun sets over the Gogane Tea Producer Cooperative’s collection center in Ilam, eastern Nepal. The cooperative is linked with the Gorkha Tea Estate, a NEAT grantee. Collection centers have raised productivity, quality, and sales by saving transport time and expense for tea producers and protecting the tea from the elements.

Recommendation 6: Strengthen tunity to expand farmer incomes the role of the private sector in through seed production, reduce research and development and dependence on imported seed, extension. NEAT partner SSSC and promote the involvement of successfully commercialized local input suppliers and distributors hybrid tomato and maize seed. in marketing higher-quality seed. It provides technical training to farmers who produce the seed Access to Finance and promotes marketing of the Recommendation 7: Continue to seed with a network of input promote agricultural sector growth suppliers. Other local seed and through finance.NEAT analyzed input companies have expressed the tea value chain for agricul- interest in commercializing local tural finance opportunities, seed production, including some developed an agricultural finance of the country’s major input sup- value chain lending course that pliers country. This is an oppor- was delivered to 18 financial

70 Building a Sustainable Future for Economic Growth institutions and is now housed businesses often seen as either at partner CSD, and provided too small or too large. Around international expert mentoring the world, economic growth is on agricultural finance to four often led by micro, small, and commercial banks. Demand for medium enterprises, which are agricultural lending training often the strongest employ- is strong among local financial ment generators in the economy. institutions for a number of rea- Working with commercial banks sons. First, Nepal Rastra Bank to move down market and with requires that commercial banks MFIs to move up market will have 15 percent of their loan spur economic growth and portfolios invested in agriculture increase employment. Although and energy. Second, competition training and mentoring can have in the banking sector is forc- significant impact, regulations ing banks to look outside their regarding collateral requirements comfort zone. Third, Nepal’s for individual loans should also economy is heavily dependent on be reviewed. the agricultural sector. NEAT worked with both MFIS and Recommendation 9: Continue to commercial banks to develop expand access to financial services appropriate products to serve the through mobile banking. NEAT sector; however, there remains helped launch mobile banking significant demand from finan- in Nepal. The project introduced cial institutions for agricultural key stakeholders to proven mod- finance training. This type of els and regulations on a study training and mentoring could tour to Pakistan and brought © NEPAL NEAT help commercialize the agricul- some of the foremost experts tural sector in Nepal. in mobile banking to Nepal to share their knowledge and expe- Recommendation 8: Grow the rience. More importantly, project economy by increasing the avail- support enabled two financial ability of finance to the unbanked institutions to design and deliver and underbanked. Commercial services to a new market. As a banks have historically worked result, one partner went from at the corporate level, providing believing in an idea to develop- only collateral-based loans to the ing a growth plan to reach over larger businesses in Nepal. Most 200,000 clients in the follow- MFIs offer only small group loan ing three years. Nepal is on the products to the smallest micro- right road, but it has been proved entrepreneurs. NEAT helped around the world that mobile commercial bank partners Laxmi financial services are successful Bank and Megabank to enter — and access to finance is maxi- the small and micro sectors with mized — when scale is reached smaller individual loans. A train- quickly. More could be done to ing course helped MFIs intro- get to scale. Nepal Rastra Bank duce larger individual cash-flow- should analyze the regulations based lending products. There is developed in countries with more significant scope for expanding branchless baking experience and the availability of finance to incorporate best practices into

Building a Sustainable Future for Economic Growth 71 With microfinance services provided by United Youth Community, this new borrower opened a beauty products shop in March 2013, the first of its kind in the Parseni community.

Nepal’s regulatory framework. local production of improved Development partners should and hybrid seed, with input sup- work with industry partners to pliers to improve their business provide incentives for the rapid and marketing skills, with farm- establishment of agent networks. ers to improve access to high- quality seeds, and with financial COMPREHENSIVE institutions to expand services PROGRAMMING to rural areas so that farmers Recommendation: Leverage op- could borrow money to invest in portunities throughout the value improved inputs. NEAT’s mul- chain. NEAT worked from tidimensional structure allowed the macro to the micro level the project to address barriers to promote economic growth. and take advantage of opportu- Comprehensive program design nities at every level of the seed presents unique opportunities value chain. Now, nearly every to leverage different perspec- farmer that NEAT supported tives to overcome challenges and has access to improved seed, promote growth. For example, and more than 51 metric tons of better access to improved seed produced in Nepal is avail- inputs is a key factor in increas- able in local markets. ing agricultural productivity (see graphic, page 46). NEAT worked at the policy level to promote new seed guidelines, with seed companies to increase

72 Building a Sustainable Future for Economic Growth NEAT Life-of-Project KEY RESULTS

$26,544,519 Change in value of incremental famer sales of selected sectors Number of hectares under improved management technologies or management 14,913 practices as a result of U.S.-government assistance 73,909 Number of rural households benefiting directly from U.S.-government interventions Number of policy reforms, regulations, or administrative procedures analyzed and 40 drafted and presented for public stakeholder consultation Number of policy reforms, regulations, or administrative procedures presented for 20 legislation/executive consideration Number of policy reforms, regulations, or administrative procedures passed/ 9 approved and for which implemented has begun 1,888 Number of participants in trade and investment or fiscal policy environment training

3 Number of commodity associations/NGOs strengthened in advocacy © NEPAL NEAT 60 Number of public-private dialogue events held

2,700 Number of participants in public-private dialogues/events

22,485 Number of hits accessing NEAT-supported information portals Number of food security private enterprises (for-profit), producer organizations, 2,677 and community-based organizations receiving U.S.-government assistance 80,614 Number of individuals who have received U.S.-government-supported training Number of improved production and processing processes and marketing 42 approaches adopted Number of MSMEs, including farmers, receiving business development services from 42,315 U.S.-government-assisted sources Number of microenterprises linked to larger scale firms as a result of 15,263 U.S.-government assisted sources 75 Number of new or upgraded collection centers Number of people who have received U.S.-government-supported short-term 28,708 agriculture sector productivity and food security training Number of farmers who have applied a new technology or management practice as a 27,984 result of U.S.-government assistance New technologies or management practices under field testing as a result of 91 U.S.-government assistance $2,388,187 Value of new loans made by assisted microfinance institutions

7,517 Number of new borrowers from U.S.-government-assisted microfinance institutions

7 Number of supported microfinance innovations implemented

128 Number of financial sector professionals trained on international standards

Building a Sustainable Future for Economic Growth 73 74 Building a Sustainable Future for Economic Growth 3 U.S. Agency for International Development 1300 Pennsylvania Avenue, NW Washington, DC 20523 Tel: (202) 712-0000 Fax: (202) 216-3524 www.usaid.gov