Feed the Future Monitoring and Evaluation Program (AID-367-C-14-00001)

Cost Benefit Analysis Report on On-Season Cauliflower

Submitted to USAID/Nepal by Research Inputs and Development Action (RIDA)

October 2016

The contents of this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government

Table of Contents

List of Acronyms and Abbreviations ...... 3 Executive Summary ...... 4 1. Introduction ...... 10 1.1 Background ...... 10 1.2 Context ...... 11 2. Methodology ...... 17 2.1 Source of Information ...... 17 2.2 Sampling Techniques ...... 18 2.3 Limitations ...... 22 3. Analysis Framework ...... 22 3.1 Analysis Overview ...... 22 3.2 Preparatory Tables ...... 24 3.3 Result of the Finding and Analysis ...... 25 3.3.1 Farm Budget Analysis...... 25 3.3.2 Financial Analysis ...... 28 3.3.3 Economic Analysis ...... 30 3.3.4 Impact on Family Income ...... 31 3.3.5 Stakeholder Analysis ...... 33 3.3.6 Sensitivity Analysis ...... 35 3.3.7 Cost Benefit Analysis of Value Chain Delivery ...... 37 3.3.8 Comparison of Production and Yield ...... 37 4. Conclusion ...... 38 5. Recommendations ...... 39 6. Annexes...... 41 Annex I: CBA Models ...... 41 Annex II: CBA Tools ...... 42

List of Tables, Charts and Figures

Figure 1 : Map of Nepal with FTF Program Districts ...... 10

Table 1: List of Districts and their respective VDCs of On-Season Cauliflower Beneficiaries 11 Table 2: Methods and Data Sources 17 Table 3: List of Total Beneficiaries, Total Production, and Yield of Cauliflower in the Intervention Districts 19 Table 4: Total Number of On-Season Cauliflower Growers and Sample Size 19 Table 5: List of Hill Districts and VDCs, Expected Beneficiaries of On-Season Cauliflower and Sample Size 20 Table 6: Results of the Financial Analysis from Project’s Perspective 29 Table 7: Results of the Financial Analysis from Farmer’s Perspective 30 Table 8: Results of the Economic Analysis 31 Table 9: Results of Stakeholders' Analysis 35 Table 10:Comparison of Yield and Production with Farm Size and Socio-economic Characteristics 38

Chart 1 : Hill Farm Budget Analysis "with" Intervention, Real NPR ...... 26 Chart 2 : Hill Farm Budget Analysis "without" Intervention, Real NPR ...... 26 Chart 3: Terai Farm Budget Analysis "with" Intervention, Real NPR ...... 27 Chart 4: Terai Farm Budget Analysis "without" Intervention, Real NPR...... 27 Chart 5: Annual Family Income with on-season Cauliflower Cultivation in Terai ...... 32 Chart 6: Annual Family Income with On-season Cauliflower Cultivation in Hills ...... 33 Chart 7: Price Variation of Cauliflower at Border Towns in Nepal ...... 37

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List of Acronyms and Abbreviations ADSCR Annual Debt Service Coverage Ratios AICL Agriculture Inputs Company Limited ANPV Annualized Net Present Value BCA Benefit-Cost Analysis CBA Cost-Benefit Analysis CBS Central Bureau of Statistics CRO Cash Required For Operation DADO District Agriculture Development Office DAP Di-ammonium Phosphate DoA Department of Agriculture DSCR Annual Debt Capacity Ratios FTF Feed the Future FTF-M&E Feed the Future – Monitoring and Evaluation FWDR Far-Western Development Region GoN Government of Nepal HH Household HMRP Hill Maize Research Program INR Indian Rupee (1 INR is equal to 1.60 NPR) IPs Implementing Partners IRR Internal Rate of Return KII Key Informant Interview KISAN Knowledge-based Integrated Sustainable Agriculture and Nutrition Program LLCR Loan Life Coverage Ratios LPM Levelized Profit Margins MOP Muriate of Potash MT Metric Ton MWDR Mid-Western Development Region NARC Nepal Agricultural Research Council NEAT Nepal Economic Agriculture and Trade NPR Nepali Rupee (1 USD is equal to 87.9 NPR) NPV Net Present Value NRB Nepal Rastra Bank (The Central Bank of Nepal) RIDA Research Inputs and Development Action USAID United States Agency for International Development USD United States Dollar VDC Village Development Committee WDR Western Development Region ZOI Zone of Influence

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Executive Summary

Nepal is one of the 19 designated countries for the Feed the Future (FTF) Presidential Initiative. The FTF initiative aims to address the root causes of global hunger by sustainably increasing agricultural productivity to meet the demand for food, facilitating access to markets, increasing incomes for the rural poor, and reducing under-nutrition. The initiative in Nepal has been launched in 20 Terai and Hill districts of Western, Mid-Western and Far-Western Development Regions with several multifaceted programs covering over 80,423 smallholder agrarian households encompassing more than 1 million beneficiaries.

FTF initiative provides, inter alia, extension and advisory services for paddy, lentil, maize and high value vegetable production. One of the major projects of FTF (USAID) in Nepal is Knowledge-based Integrated Sustainable Agriculture and Nutrition (KISAN), whose major interventions are: promotion of improved seed; support in establishing irrigation scheme; increase credit availability in project districts; increase use of improved technologies; and build linkages with market center. Research Inputs and Development Action (RIDA), an implementing agency of the FTF-M&E program, has been assigned the responsibility of carrying out Cost Benefit Analysis (CBA) and submitting periodic updates of the KISAN interventions. This report presents the third round of CBA - the first two CBAs being on maize and off-season cauliflower.

Cauliflower (Brassica oleracea L., var. botrytis) is one of the major high value winter vegetables of Nepal. Its varieties are very responsive to temperature and photoperiod. It is therefore, very important to sow the appropriate variety at right time. Early varieties if sown late produce “button” head whereas late varieties if sown early give leafy growth producing curds very late. The conventional method of cauliflower cultivation is normally practiced with locally available varieties and surface flood method of irrigation without proper fertilizers and plant protection measures whereas advance technology for cauliflower cultivation, inter alia, makes use of improved/hybrid seeds, application of optimum quantities of manures and fertilizers, irrigation, and disease/pest control measures.

This (On-season cauliflower) CBA report is based on data collected through household surveys conducted in the sampled six districts (viz., Rolpa, Dailekh, Dadeldhura, Jajarkot, Bardiya and Kanchanpur). In addition, literature review and key informant interviews (KII) also provided the data needed for the analysis.

The cost benefit analysis (CBA) of on-season cauliflower involves analysis of “without” and “with” intervention options. The interventions for cauliflower farming include improved seed varieties, increased fertilizer usage, and provision of effective agricultural extension services. The “without” intervention case is considered as a baseline to observe the impact of the project interventions in FTF districts. As the zone of influence of the previously developed models is the same, we have considered “without” models as baseline to compare with the recent interventions of the KISAN project. It uses the same household information as of the CBA for on-season cauliflower conducted in the year 2010/11. “With” intervention cases show the result of interventions carried out by KISAN in 2014/15, with data collected in the year 2016. The allocation of farmland for on-season cauliflower cultivation from the total availability of 0.5

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hectares in a typical family farm “without” intervention option was 0.007 hectares, whereas “with” intervention farmer allocates 0.07 hectares of land in the Hills and 0.06 hectares in Terai.

This study examines the financial and economic viability of KISAN's intervention of promoting improved seed; supporting farmers in establishing irrigation scheme; increasing credit availability; use of improved technologies; and linkage with market center for on-season cauliflower cultivation. For the study, cash flow models were built for both “with” and “without” intervention options from the perspective of projects, bankers, farmers, and economy by incorporating all the inflows and outflows. Assuming an evaluation period of ten years, net present values (NPVs), internal rate of return (IRR), and levelized profit margins (LPM) were calculated by using a discount rate of 12 percent to examine the financial and economic viability of the options. In addition, annual debt service coverage ratio (ADSCR), annual debt capacity ratio or loan life coverage ratio (LLCR) were calculated to examine the sustainability of the intervention. Separate cost benefit analyses of on-season cauliflower were conducted for Hill and Terai districts. Additionally, this study specifies how the two options would influence family- level income, and how the two options would contribute to economic growth. An assumption is made that on-season cauliflower has no export potential, as Nepal cannot compete with the price, mainly of Indian market. Hence, 100 percent of the total production is for domestic market.

The decision will be made on incremental analysis since the task here is to evaluate the benefit of the USAID/Nepal intervention on the existing practice.

Major Findings and Analysis

1. Farm Budget Analysis The farm budget analysis reveals that the on-season cauliflower cultivation is positive as it is providing net profit of NPR 13,776 in Terai and NPR 9,988 in the Hills per farm household.

2. Financial Analysis The financial cash flow statements were constructed from the perspectives of project, bankers, and farmers. Levelized profit margin (LPM) is also calculated to get a measure of the profitability index1.

Project’s Perspective The cash flow statement from the project’s perspective enables the decision makers to determine whether the investment is financially viable or not if the farmer uses his/her own resources to finance the working capital. The “with” intervention option is found to be financially viable from the project’s perspective since the NPVs of on-season cauliflower cultivation are NPR 89,381 for Terai and NPR 32,550 for Hills. The incremental NPVs are NPR 87,092 and NPR 27,978 equivalent to USD 611.0 and USD 219.1, for Terai and Hills, respectively. Comparatively both the incremental value and NPV are found to be high for Terai. The NPV in Terai was nearly three times higher than the Hills.

1 The leveled profit margin is defined as the present value of the net cash flows divided by the present value of the total costs discounted with the opportunity cost of the fund. The opportunity cost of fund is estimated at 12 percent real.

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Banker’s Perspective The cash flow statement from the banker’s perspective enables the decision makers to determine whether the bank would provide loan to finance the working capital. The net cash flows from the banker’s point of view are compared with the corresponding debt obligations in each year in order to assess the bankability of “with” intervention options. This is done by calculating the annual debt service coverage ratios (ADSCR), which for year two is 5.85 for Terai and 2.28 for the Hills indicating that it is viable from banker's perspective.

Farmer’s Perspective The cash flow statement from farmer’s perspective would enable the decision makers to determine whether the investment was financially viable for the farmer if money was borrowed to finance the working capital. The estimates of NPVs and LPMs suggest that the intervention options in the Terai and Hills were financially viable from the perspective of the farmers. The NPVs are NPR 87,985 (617.4 USD) and NPR 31,246 (202.9 USD) for Terai and the Hills, respectively. The numerical gain was much higher in Terai compared to the Hills.

3. Economic Analysis The positive economic NPVs for “with” intervention options for Terai and Hills have established that there is an economic benefit from on-season cauliflower cultivation in both regions. On- season cauliflower cultivation adds value to the country's economy; however, the value is different in the Hills and Terai. In Terai, the incremental gain to the economy is NPR 121,022 (USD 851.7) whereas in the Hills, the incremental gain is NPR 41,716 (USD 284). The productivity is higher in Terai at 20.9 MT/ha compared to the 11.3 MT/ha in the Hills.

Farmers require working capital to make profit from the on-season cauliflower production. The incremental cash required for operation (CRO) in real terms is NPR 3,033.1 for Terai and NPR 3,586 for Hills. The annual debt service coverage ratio is above 2.0 both in Terai and Hills, indicating that bank financing is feasible for on-season cauliflower cultivation at that level of borrowing. Comparatively, the Hills require more cash for on-season cauliflower operation than Terai. One of the reasons might be due to established on-season cauliflower production system with application of agri-mechanization in Terai.

4. Stakeholders’ Benefits The participating stakeholders in cauliflower cultivation are farmers, GoN, financial institutions, suppliers of inputs (fertilizers, etc.) and USAID/Nepal. The incremental gain to the government from on-season cauliflower cultivations is NPR 40,331 in Terai and 15,124 in Hills, which includes the present value of taxes and tariffs collections, savings in foreign exchange premium and payments for fertilizers subsidies over the period of 10 years. USAID/Nepal makes the investment of NPR 7,157 in both Terai and Hill and generates net economic gain of NPR 121,035 for Terai and 37,804 in the Hill region. In the hills, the investment level is same which is NPR 7,157. Micro-finance was gaining NPR 1,396 in Terai and NPR 1,304 in Hills. Farmers in Terai are gaining NPR 85,709 and Hill farmers are gaining NPR 28,223 from on-season cauliflower cultivation.

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5. Sensitivity Analysis On-season cauliflower yield, domestic price, transportation cost and real appreciation of NPR with INR are identified as the key risk variables in this study. The exchange rate management with India is important since informal trade exists between the two countries. India provides subsidies for seeds, irrigation water and fertilizers in agriculture (Sharma and Thakur, 2009). Nevertheless, the intervention in cauliflower cultivation creates positive incremental NPVs in Nepal's economy. There is very small impact of inflation rates on production.

The reduction of spoilage improves the viability of the operation. A 10 percent reduction in spoilage generates in present value a saving of NPR 2,800.4 (USD 19.85) in the Terai and NPR 1,742 (USD 12.3) in the Hills for each farm.

In Terai, if spoilage is reduced by 50 percent from the present level, the improvement is 34 percent; if the spoilage is reduced by 30 percent the improvement is 19 percent; if spoilage is reduced by 20 percent, the improvement is by 12 percent; and if reduced by 10 percent, the improvement is by 5 percent. Whereas in the Hills, if spoilage is reduced by 50 percent from present level, the improvement is 26 percent; if it is reduced by 30 percent, there is improvement of 15 percent. If the spoilage is reduced by 20 percent, then there is an improvement of 10 percent; and a reduction in 10 percent leads to improvement of 5 percent.

6. Comparison of Production and Yield Along with cost benefit analysis, efforts have been made to identify whether the farm size and selected social characteristics of the farmers were making any difference in production and yield. Big farms (above 0.1 ha) have higher production with higher yield than the small farms (0 to 0.1 ha). The social characteristics taken in consideration are age and educational level of the household heads. The result shows that farmers in economically active age groups (15-59) are producing more than older farmers (60+). The difference is also statistically significant at five percent level. Similarly, farmers with higher education were making higher production with higher yields. Illiterate farmers were also making good yield and production; this might be due to their longer experience.

Likewise, on-season cauliflower income is found to be contributing 35 percent of the poverty level income for a family of 7.0 members in Terai and 14.5 percent of the poverty level income for a family with 5.9 members in the Hills.

Conclusion

As a whole, it has been found that current (ongoing) on-season cauliflower production system is viable both financially and economically in both the Hills and Terai as it is providing net profit to the farmers and the incremental NPVs (financial and economic analysis) are positive. Interventions for improvement of on-season cauliflower production in both Terai and Hills are reasonable but more profitable in Terai than in the Hills. This might be due to higher productivity, improved technologies and accessibility to market in the Terai. The contribution to farm income from on-season cauliflower is also higher in Terai than in the Hills. However, both in the Terai and Hill, larger farm size and higher level of education of the household head might be contributing to production and yield of on-season cauliflower. On-season cauliflower

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cultivation has no competitive advantage, as the price is much higher than the nearest Indian markets.

Income derived from on-season cauliflower when combined with other sources of income like services, agricultural and non-agricultural labor and small industries would help a family bridge the poverty level income gap as defined by the GON for the Far-Western, Western and Mid- Western Development Regions. Nevertheless, capital investment in both the Hills and Terai is required to make profitable cauliflower business. The amount required is larger in Terai with higher net profit and productivity.

Recommendations

Based on the findings and analysis, the following sets of actions are recommended. • Continue promotion of on-season cauliflower: Income from on-season cauliflower is contributing to 35 percent of the poverty level income for a family of 7.0 members in Terai and 14.5 percent of the poverty level income for a family with 5.9 members in the Hills. USAID/Nepal is recommended to continue promoting on-season cauliflower among the farmers in FTF zone of influence. As the analysis shows that cauliflower production could contribute to reduce poverty gap, it should be expanded to poor families and promoted more intensively.

• Adopt different priority and implementation strategy by region: There are different achievement levels for Hill and Terai region. In Terai, productivity is already towards maximum attainable level which is 20.9 MT/ha. Here, the priority should be to make production more efficient by improving harvesting practices, reducing spoilage, and managing post-harvest storage and transportation cost. In Hills, there is still a need to focus on improving productivity which requires more capital investment, ensuring easy accessibility of seed, and increasing land utilization for on-season cauliflower production as productivity is 11.3 MT/ha.

• Promote capital investment: For the cauliflower business to be profitable both the Hills and Terai require capital investment which is NPR 3033.1 for Terai and NPR 3,586 for Hills. Therefore, link up with formal financial institution such as microfinance, cooperative, bank (commercial and development both) with lower interest and easy access is recommended.

• Promote information campaign, training, and capacity building (targeting families with illiterate decision makers): The socio-economic data analysis reveals that the level of education is positively associated with production and yield in Terai region. In our analysis higher the education level, higher was the yield. Therefore, information campaign, training, and capacity building should aim to target more farmers who are illiterate or have low level of formal education.

• Encourage engagement of more people in vegetable farming: Analysis shows that farmer of economically active age group (15-59) are making higher production than older age groups therefore emphasis should be given to retention of young generation in agriculture

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programs through providing training to young farmers, catering young farmers in project level interventions, and encouraging families to engage youths in agriculture.

• Expand size of land used for cauliflower production: Size of land utilized for cauliflower production is making difference on production and yield. The farmers growing cauliflower on more than 0.1 ha of land have higher yields than those growing on less than 0.1 ha farm. Hence, it is recommended to promote large farms for on-season cauliflower production, promoting land pooling and/or group farming.

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1. Introduction

1.1 Background

Nepal is designated as a priority country for the Feed the Future (FTF) Presidential Initiative. Feed the Future initiative aims to address the root causes of global hunger by sustainably increasing agricultural productivity to meet the demand for food, facilitating access to markets, increasing incomes for the rural poor, and reducing under-nutrition. There is renewed emphasis on agriculture as the driver of food security and economic growth, with increased importance placed on developing effective and sustainable interventions, and accurately accounting for results and impacts. The FTF initiative is implemented in 19 countries worldwide, including Nepal. FTF in Nepal aims to increase inclusive growth in the agricultural sector and improve nutritional status, especially of women and children. It is implemented in 20 districts in Western, Mid-Western and Far-Western Development Regions of Nepal.

● Six districts in the Far-Western Development Region: Achham, Baitadi, Dadeldhura, Doti, Kailali, and Kanchanpur ● Ten districts in the Mid-Western Development Region: Banke, Bardiya, Dailekh, Dang, Jajarkot, Pyuthan, Rolpa, Rukum, Salyan, and Surkhet ● Four districts in the Western Development Region: Arghakhachi, Gulmi, Kapilvastu, and Palpa.

Figure 1 : Map of Nepal with FTF Program Districts

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1.2 Context

USAID/Nepal has been supporting smallholder farmers through various projects under the FTF initiative. Knowledge-based Integrated Sustainable Agriculture and Nutrition (KISAN) Project is a major intervention under FTF with the goal of increasing farm family income through the focus on target commodities2. KISAN target commodities include high value crops like cauliflower, tomato, cucumber, eggplant, okra, cabbage etc. that are crucial for food security and nutrition. The project’s major interventions are promotion of improved seed; providing support to farmers in establishing irrigation scheme; increasing credit availability and use of improved technologies; and creating linkages with market centers.

At present, vegetables are cultivated mainly for household consumption with the surplus being sold in the domestic market. An increased vegetable production has potential to improve and expand vegetable export to neighboring countries i.e. India and Bangladesh. Therefore, USAID/Nepal plans to provide assistance in vegetable cultivation to 51,500 families who will grow vegetable varieties produced for domestic consumption as well as export. In order to assess the benefits received by farmers as a return of investment made through FTF initiative, cost benefit analysis (CBA) of major crops i.e. cauliflower (on-season and off-season), tomato (on- season and off- season), maize, spring paddy in the Hill and Terai districts and lentil in the Terai is being carried out.

RIDA, as an implementing agency of the FTF-M&E program, has taken the responsibility of carrying out two major activities: (i) conducting analyses to generate a greater understanding of FTF interventions that support learning and decision making and (ii) assuring that FTF monitoring and reporting done by implementing programs (IPs) is high-quality, accurate and timely, and providing technical assistance and material support to FTF Nepal IPs to establish strong internal M&E systems and build their M&E capacity. In this context, guided by the scope of work under the FTF-M&E contract, RIDA is conducting a cost benefit analysis (CBA) of all the target commodities to measure cost effectiveness of the USAID/Nepal’s agricultural investments through FTF interventions in Nepal. On-season cauliflower was selected as a vegetable commodity for third round of CBA. Table 1 below presents the detail on number of on-season cauliflower beneficiaries by specific VDCs in districts in FTF zone.

Table 1: List of Districts and their respective VDCs of On-Season Cauliflower Beneficiaries Name of No. of beneficiaries Terai No. of No. of growing on-season Districts Name of VDCs Groups beneficiaries Cauliflower Bagheswori 1 15 15 Bankatawa 20 407 407 Bankatti 3 64 64 Banke Betahani 2 33 33 Gangapur 5 127 127 Hirminiya 25 564 564

2 FTF Nepal target commodities include maize, paddy, lentils, high-value vegetables

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Name of No. of beneficiaries Terai No. of No. of growing on-season Districts Name of VDCs Groups beneficiaries Cauliflower Kalaphanta 3 77 77 Kamdi 3 70 70 Katkuiya 3 64 64 Khajurakhurda 3 72 72 Kohalpur 8 182 182 Laxmanpur 2 42 42 Matehiya 1 25 25 Narainapur 4 89 89 Naubasta 1 24 24 Puraina 13 278 278 Rajhena 16 275 275 Samserganj 15 343 343 Sitapur 18 411 411 Udharapur 14 298 298 Sub Total 3,460 3,460 Shivapur 3 63 63 Somdiha 1 21 21 Tilaurakot 5 108 108 Maharajganj 1 22 22 Dohani 1 11 11 Gotihawa 2 32 32 Sihokhore 1 20 20 Lawani 3 60 60 Dharmpaniya 2 35 35 Gauri 3 62 62 Kapilvastu Gugauli 3 49 49 Bahadurganj 3 52 52 Niglihawa 7 143 143 Basantapur 2 44 44 Dhankauli 3 62 62 Baidauli 1 20 20 Hardauna 1 21 21 Pakadi 5 103 103 Nandanagar 2 47 47 Sub Total 975 975 Terai Total 227

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Name of No. of beneficiaries Hill No. of No. of growing on-season Districts Name of VDCs Groups beneficiaries Cauliflower Siddheswor 5 102 102 Gajari 1 25 22 Siddhapur 2 47 44 Baitadi Gurukhola 1 25 18 Bhumeswor 1 15 15 Total 214 201 Chhayachhetra 9 178 178 Phalawang 9 179 179 Rim 25 492 492 Tharmare 8 163 163 Kajeri 7 129 129 Pipal Neta 2 45 45 Tribeni 5 108 108 Salyan Sinwang 7 155 155 Dandagaun 3 67 67 Khalanga 6 129 129 Kotmala 3 57 57 Kavra 2 52 52 Kotbara 2 41 41 Total 1,795 1,795 Masyam 11 191 191 Bodhapokharathok 4 80 80 Rampur 20 386 386 Telgha 7 132 132 Deurali 6 150 150 Chidipani 11 229 229 Timure 4 83 83 Argali 3 83 83 Palpa Chirtungdhara 9 184 184 Hungi 4 71 71 Pokharathok 6 126 126 Palung Mainadi 5 125 125 Khasyoli 4 93 93 Nayarnamtales 4 81 81 Galdha 6 120 120 Chappani 2 44 44 Total 2,178 2,178 Hill total 217

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1.3 Analytical Framework

Theoretical underpinnings of CBA analysis Cost benefit analysis is an economic and rational decision making tool, popular in policymaking and development. CBA of cauliflower is done through the use of three tools (i) Least-cost analysis of action, (ii) Benefit-cost analysis, (iii) Annualized NPV (iv) Discount rate and (v) Sensitivity analysis to determine whether the benefits have outweighed the costs of the project in FTF. The tools commonly utilized during CBA analysis viz. least cost analysis, NPV, NPV of costs/benefits, annualized NPV, discount rate and sensitivity analysis are defined so as to delineate the scope for valuation.

Least-Cost Analysis of Action/Costs of Action The least cost analysis is the basis of calculating costs of each type of intervention. While calculating the costs of intervention, each activity comprising the intervention is studied in detail. This means that each least cost analysis of a particular intervention may result in different costs since different activities would comprise each intervention. The formula that utilized for the least-cost analysis will be as follows3: ,

= 𝑇𝑇 𝑁𝑁 , (1 + ) … … … … … … … … … (1) −𝑡𝑡 𝐶𝐶 � 𝑐𝑐𝑡𝑡 𝑛𝑛 𝑖𝑖 Equation 1 shows the least cost analysis1 formulae, wherein C is sum of costs, c is each discrete cost per action, I is the discount rate, n is the alternative intervention options and t is the time period, in years.

Least cost analysis is unique for each type of interventions. Since each scenario, whether it is through agricultural intervention or nutrition related intervention or both together, will consist of myriad actions, this means that the cost of action/least cost analysis for each will be a discrete value.

Benefit-Cost Analysis (BCA) The benefit cost analysis aids in analyzing the economic feasibility of alternative investment scenarios. Here in this case, since investments (various interventions) have already been made, BCA provides evidence on whether or not the investments made have higher benefits compared to the costs. A Net Present Value (NPV) benefit-cost analysis is calculated for this purpose. NPV analysis estimates the difference in the present value of the benefits (accrued expenditures from a proposed investment) minus the present value of the costs (accrued revenues or monetary savings from a proposed investment) (Rao. et al, 2013: 15)4. An NPV analysis also accounts for changes in inflation and payments made across the lifetime of the project being evaluated5. An NPV benefit-cost analysis “can provide an exceptionally useful framework for consistently

3 Rao N.S., Carruthers T.J.B., Anderson P., Sivo L., Durbing, T. Jungblut V., Hills T., Chape S. (2013).An economic analysis of ecosystem-based adaptation and engineering options for climate change adaptation in Lami Town, Republic of the Fiji Islands. A technical report by the Secretariat of the Pacific Regional Environment Program. – Apia, Samoa: SPREP 2013 4 Ibid. 5 Ibid.

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organizing disparate information,” and is advocated for use in analyzing public policy measures6. An NPV analysis requires quantification of the costs and benefits for the action in terms of the local currency (or in converted into dollars), expressed in equation 17:

, ,

= 𝑇𝑇 𝑁𝑁 , (1 + ) 𝑇𝑇 𝑁𝑁 , (1 + ) … … … . . (2) −𝑡𝑡 −𝑡𝑡 𝑁𝑁𝑁𝑁𝑁𝑁 � 𝑏𝑏𝑡𝑡 𝑛𝑛 𝑖𝑖 − � 𝑐𝑐𝑡𝑡 𝑛𝑛 𝑖𝑖 In equation 2, NPV is Net Present1 Value, b stands1 for benefit, c is costs, t is year, T is the timeframe of the project, and its discount rate.

Annualized NPV The annualized NPV (ANPV) is an average yearly net return over the lifetime of the suite of adaptation options, that is, the annualized cash flow. To calculate the ANPV, we use Equation 3 below8: = … … … . (3) 1 (1 + ) 𝑖𝑖 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 � −𝑇𝑇� 𝑁𝑁𝑁𝑁𝑁𝑁 This ANPV will allow the decision maker− to decide𝑖𝑖 whether, over a chosen time frame and discount rate, the action is economically desirable. Here,

> 0, ( ),

𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖< 0, 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑝𝑝 𝑖𝑖𝑖𝑖 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑤𝑤 𝑤𝑤𝑤𝑤𝑤𝑤( 𝑏𝑏𝑏𝑏 𝑠𝑠𝑠𝑠 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜 )

However, it must𝑖𝑖𝑖𝑖 be𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 noted that this𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 calculation𝑝𝑝𝑝𝑝 𝑖𝑖𝑖𝑖 𝑛𝑛𝑛𝑛𝑛𝑛 does𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 not𝑑𝑑𝑑𝑑 tak𝑑𝑑𝑑𝑑 e𝑚𝑚 into𝑚𝑚𝑚𝑚ℎ 𝑡𝑡account𝑛𝑛𝑛𝑛𝑛𝑛 𝑏𝑏𝑏𝑏 𝑠𝑠the𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 equity𝑠𝑠 𝑠𝑠of the action, whether more vulnerable population are protected, and local vs. regional benefits.

Benefit-cost Ratio The benefit-cost ratio (BCR) is the ratio of the present value of discounted benefits to the present value of the discounted costs of the action. Outcome of this analysis can provide decision-makers with an intuitive answer regarding the desirability of the project. The formula for calculating BCR is given by Equation 4.

, , (1 + ) = … … … . . (4) 𝑇𝑇,𝑁𝑁 (1 + )−𝑡𝑡 �∑1 𝑏𝑏𝑡𝑡,𝑛𝑛 𝑖𝑖 � Here, BCR will be in the form of a ratio where𝑇𝑇 𝑁𝑁 in, −𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑛𝑛 �∑1 𝑐𝑐 𝑖𝑖 � > 1,

𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖< 1, 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑝𝑝𝑝𝑝 𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤 𝑏𝑏𝑏𝑏 𝑠𝑠𝑠𝑠 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠

𝑖𝑖𝑖𝑖 𝑖𝑖𝑖𝑖𝑖𝑖 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤 𝑛𝑛𝑛𝑛𝑛𝑛 𝑏𝑏𝑏𝑏 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 6 Ibid. 7 Ibid. 8 Ibid, pp16

Report on CBA On-Season Cauliflower (Hills/Terai) 15

Discount rate How do we weigh future costs and benefits against current costs and benefits? A convenient way to compare, and add up, costs and benefits that accrue at different times is to calculate their present value, which expresses them as an equivalent amount of today’s dollars (or local currency).Discounting converts the dollar value of benefits received in different time periods to present value9.Choosing a discount rate is a subjective decision. Higher discount rates means the total worth of the currency will be very low in the future and low discount rates means the society values future costs and benefits equally with the current ones.

Sensitivity Analysis Sensitivity analysis is a systematic method for examining how the outcome of benefit-cost analysis changes with variations in inputs, assumptions, or the manner in which the analysis is set up10. Sensitivity analysis can be performed in various ways, such as modifying the discount rate, time length of the project, selected prices, or the amount of the physical quantities of the different inputs. By varying some of the key parameters and measuring the results, one parameter at a time, we can examine to what parameter the NPV outcome is sensitive. When the parameter to which the NPV outcome is sensitive is determined then the researchers can direct effort into forecasting these parameters into the future, policy makers can design policy or assign funds to manage these specific parameters as the project is implemented (Rao et al, 2013: 16)11.

9 Harrison, M. (2010).Valuing the Future: the social discount rate in cost-benefit analysis, Visiting Researcher Paper, Productivity Commission, Canberra. 10 http://bca.transportationeconomics.org/calculation-issues/sensitivity-analysis. Last accesses on: Jan 17, 2014 11 Rao N.S., Carruthers T.J.B., Anderson P., Sivo L., Durbing, T. Jungblut V., Hills T., Chape S. (2013).An economic analysis of ecosystem-based adaptation and engineering options for climate change adaptation in Lami Town, Republic of the Fiji Islands. A technical report by the Secretariat of the Pacific Regional Environment Program. – Apia, Samoa: SPREP 2013

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2. Methodology

2.1 Source of Information

Quantitative methods are dominant in this process of collecting data for calculating CBA for on- season cauliflower production. However, additional methods such as reviews, discussions, and consultations supplemented other quantitative data. Both primary and secondary data were required for CBA. So following procedures were adopted to collect data:

Primary data 1. Household surveys: Primary data was collected through household survey conducted with the beneficiary households in the intervention districts. In total, 431 farmers in five selected districts were interviewed to collect information about on-seasonal Cauliflower production.

2. Key Informant Interviews - KIIs were conducted with model farmers and value chain to other stakeholders such as middlemen, traders operating locally and at district headquarter-level, and doing cross border traders at the adjoining border site.

Secondary data 1. Desk review – Concerned literature, project documents (reports, plans, etc) were reviewed as a part of desk study. 2. The secondary-level data and information required for the estimation of model parameter, projection, interest rate and other necessary macro information were collected from the following sources: a) KISAN project b) Central Bureau of Statistics (CBS) c) Nepal Rastra Bank (NRB) d) Department of Agriculture (DOA) e) Nepal Agricultural Research Council (NARC) f) Agriculture Inputs Company Limited (AICL) g) Relevant literature and information available

Table 2 below describes the methods used in the CBA process in detail:

Table 2: Methods and Data Sources Data Type Methods Source 1. Household survey List of KISAN beneficiaries receiving on-season Primary cauliflower training 2. Key informant DADO, model farmers, value chain actors, middle- interviews men, traders 1. Literature review KISAN project documents, CBS publications, DOA Secondary publications, relevant documents of NARC, NRB, and other available sources 2. Central level KISAN, DOA, NARC, and AICL interactions

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2.2 Sampling Techniques Beneficiaries based household survey was done by adopting two-stage cluster sampling technique. At first stage, households producing on season cauliflower were listed and districts were selected. In second stage, VDCs were identified in each district. The total numbers of on- season cauliflower growers in KISAN project’s twelve districts12was 16,359. Five districts were selected considering regional inclusiveness with respect to hills and Terai, and Western, Mid- Western and Far-Western Region within FTF ZOI. In these five selected districts, there were 8,610 on-season cauliflower growers. The total sample size is 444, which is five percent of on- season cauliflower growers. For Hills, the sample size 217 whereas 227 for Terai region. During the sample selection, the district coordinators of KISAN were consulted to confirm about the farmers. Out of the total beneficiaries who are growing on-season, cauliflower in the selected districts random list of the sample was generated using MS-Excel to fix the sample.

The basis for selection of sample districts was ecological and development region, the number of beneficiaries in the intervention districts and their production performance in the year 2014/15. Table 3 below shows the total number of on-season cauliflower growers of past three years (from 2013 to 2015) who have received training on season cauliflower in the FTF zone of influence districts. It also presents the data on production and yield of cauliflower in 2014 in the corresponding districts as produced by Ministry of Agriculture Development. Productivity in districts like Bardiya, Banke, and Kapilvastu are highest among the six Terai districts and the numbers of KISAN beneficiaries are higher in Dang, Banke, and Bardiya. Keeping in mind the ecological and development region representation, two Terai districts - Kapilvastu and Banke of WDR and MWDR; and three Hill districts - Baitadi, Salyan and Palpa of the FWDR, MWDR and WDR were selected.

12Kapilvastu, Banke, Salyan, Rukum, Jajarkot, Argakhachi, Dailekh, Dadeldhura, Baitadi, Doti, Achham and Palpa

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Table 3: List of Total Beneficiaries, Total Production, and Yield of Cauliflower in the Intervention Districts Hill Districts Total Total Yield Terai Districts Total Total Yield KISAN product (metric KISAN product (metric Beneficia ion ton/ha) Beneficia ion ton/ha) ries13 (mt.) ries (mt.) 245 8.75 6,996 14.50 Achham 2,668 Banke 10,352

Arghakhanchi 1,709 2,450 14.00 Bardiya 10,515 14,000 23.33 Baitadi 1,709 1,069 12.58 Dang 9,737 3,875 11.57 Dadeldhura 1,816 2,940 14.00 Kailali 5,637 3,060 10.55 Dailekh 4,380 282 11.75 Kanchanpur 5,737 2,296 8.20 Doti 1,866 780 12.00 Kapilvastu 5,756 6,181 19.02 Gulmi 3,089 1,415 11.50 Jajarkot 2,248 160 4.00 Palpa 2,797 8,147 18.56 Pyuthan 3,812 2,243 11.50 Rolpa 2,957 1,534 13.00 Rukum 2,850 3,195 14.20 Salyan 3,000 1,820 14.00 Surkhet 3,099 2,450 16.90 Total Total Source: Ministry of Agricultural Development (2014/2015)

The Table 4 below shows the total sample size and sample from selected districts. District sample size is also five percent of cauliflower beneficiaries within the district. Sample size in each VDC was allocated proportionately to each number of VDC to district sample number.

Table 4: Total Number of On-Season Cauliflower Growers and Sample Size Name of No. of Beneficiaries Growing Sample size Districts on-season Cauliflower Hill Districts Salyan 1,795 92 Palpa 2,178 109 Baitadi 202 16 Sub Total 4,175 217 Terai Districts Kapilvastu 975 50 Banke 3,460 177 Sub Total 4,435 227 Total 8,610 444

Table 5 below shows the list of sample districts, sample size, their respective VDCs, number of farmers groups and total number of cauliflower beneficiaries. VDCs were selected based on total

13Beneficiaries of on-season cauliflower training.

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number of on-season cauliflower growers, its accessibility from district headquarters and geographical representation within the district. Within VDCs, the strata (i.e. village) were selected based on information provided by KISAN on the list of on-season cauliflower growers. After stratifying the village within the VDCs, each household was assigned a randomly selected number.

The sample size is 16 in Baitadi, 92 in Salyan, and 109 in Palpa, which results in total sample size of 217 for Hill districts. Similarly, the total sample size in Terai is 227 among which 177 was from Banke and 50 from Kapilvastu.

Table 5: List of Hill Districts and VDCs, Expected Beneficiaries of On-Season Cauliflower and Sample Size No. of beneficiaries Hill No. of No. of growing on-season Districts Name of VDCs Groups beneficiaries cauliflower Sample size Siddheswor 5 102 102 11 Gajari 1 25 22 Siddhapur 2 47 44 5 Baitadi Gurukhola 1 25 18 Bhumeswor 1 15 15 Total 214 201 16 Chhayachhetra 9 178 178 Phalawang 9 179 179 0 Rim 25 492 492 26 Tharmare 8 163 163 15 Kajeri 7 129 129 21 PipalNeta 2 45 45 0 Tribeni 5 108 108 Salyan Sinwang 7 155 155 23 Dandagaun 3 67 67 Khalanga 6 129 129 4 Kotmala 3 57 57 Kavra 2 52 52 Kotbara 2 41 41 Total 1,795 1,795 92 Masyam 11 191 191 29 Bodhapokharathok 4 80 80 16 Rampur 20 386 386 40 Palpa Telgha 7 132 132 Deurali 6 150 150 Chidipani 11 229 229 Timure 4 83 83

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Argali 3 83 83 8 Chirtungdhara 9 184 184 Hungi 4 71 71 Pokharathok 6 126 126 PalungMainadi 5 125 125 Khasyoli 4 93 93 10 Nayarnamtales 4 81 81 Galdha 6 120 120 Chappani 2 44 44 6 Total 2,178 2,178 109 Hill total 217

No. of beneficiaries Name of No. of No. of growing on-season No. of Terai Name of VDCs Groups beneficiaries Cauliflower Sample size Districts Bageswori 1 15 15 Bankatawa 20 407 407 31 Bankatti 3 64 64 Betahani 2 33 33 Gangapur 5 127 127 12 Hirminiya 25 564 564 44 Kalaphanta 3 77 77 Kamdi 3 70 70 Katkuiya 3 64 64 Khajurakhurda 3 72 72 Kohalpur 8 182 182 18 Banke Laxmanpur 2 42 42 Matehiya 1 25 25 Narainapur 4 89 89 Naubasta 1 24 24 Puraina 13 278 278 Rajhena 16 275 275 28 Samserganj 15 343 343 Sitapur 18 411 411 44 Udharapur 14 298 298 Sub Total 3,460 3,460 177 Shivapur 3 63 63 8 Somdiha 1 21 21 Kapilbastu Tilaurakot 5 108 108 15 Maharajganj 1 22 22

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Dohani 1 11 11 Gotihawa 2 32 32 Sihokhore 1 20 20 Lawani 3 60 60 Dharmpaniya 2 35 35 Gauri 3 62 62 Gugauli 3 49 49 Bahadurganj 3 52 52 7 Niglihawa 7 143 143 Basantapur 2 44 44 Dhankauli 3 62 62 Baidauli 1 20 20 8 Hardauna 1 21 21 Pakadi 5 103 103 12 Nandanagar 2 47 47 0 Sub Total 975 975 50 Terai Total 227

2.3 Limitations This analysis is based on data collected from five districts of Far Western, Mid-Western and Western Development Regions and the major analysis is based on data collected from 444 farm households of KISAN project beneficiaries. Hence, the extrapolation in the analysis and models may not represent the national data.

There are few limitations of the study. Due to lack of exact records at the household level, the data received from the beneficiaries is mostly recall-based. Furthermore, this study has certain limitation arising from the selection of participation. This study is performed only among KISAN beneficiaries with some degree of intervention who were not selected randomly.

3. Analysis Framework

3.1 Analysis Overview

The analysis has been set to evaluate the potential impact of KISAN interventions on on-season cauliflower production in the Hill and Terai regions of Nepal. The cost-benefit model reflects the core logic of project alternatives by comparing the incremental results of cauliflower interventions with the counterfactual over a period of ten years.

Counterfactuals and Assumptions Certain assumptions and counterfactuals are necessary for cost benefit analysis. The panels of parameters are based on counterfactuals and assumptions developed through in-depth discussions with expert both at center and district level.

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“With” and “Without” Intervention Comparison The CBA of on-season cauliflower involves analysis of ‘with” and “without” intervention options. We have considered “without” models as baseline to compare with the recent intervention of the KISAN program. The baseline uses the household information collected for the CBA of on-season cauliflower in 2010/11. The influence zone of the previously developed models is same, “With” intervention cases show the result of the interventions made by KISAN project in 2014/15 with data collected in 2016. The land allocated for on-season cauliflower cultivation from the total 0.05 hectares available in a typical family farm in “without” intervention option was 0.007 hectare. A farmer “with” intervention allocates 0.07 hectares of land for on-season cauliflower cultivation in the Hills and 0.06 hectares in Terai and adopts modern technological inputs expecting a significant growth rate in the yield in both the regions of Nepal. The remaining portion of the land is put to other use.

The CBA of on-season cauliflower cultivation is expected to determine which of the two options is better for the farmer, how these options would impact the family-level income, and its contribution to economic growth in Nepal.

As CBA requires macro-level parameters, some of the following were calculated or assumed in the model:

1. The economic opportunity cost of family labor was assumed at 75 percent of the on- going market wage rate during the cultivation period. The on-going wage rate was NPR 345 per day in Terai and NPR 350 per day in Hills. 2. The estimated economic opportunity cost of land for cauliflower cultivation was based on the on-going rental rate of land. The rental rate of agricultural land was NPR 16,561 per hectare in Terai and NPR 21,060 per hectare in the Hills. 3. The irrigation cost of pumped water was estimated at NPR 10 for Hills and NPR 12 for Terai per cubic meter in 2015 prices. 4. The annual inflation rates and exchange rates are assumed at their one-year average for Nepal, India, and USA. 5. The financial discount rate, economic discount rate, and interest rate for micro- finance were assumed at 12 percent real. 6. For farm budget analysis, assumption have been made that farmers hired bullock for plowing.

The analysis was built for a period of ten years. The costs and revenues were estimated based on the projected real prices of inputs and outputs, annual inflation rates and nominal exchange rates. Calculated NPV, incremental NPV, farm income and farm budget analysis are derived based on per farm household.

The accuracy of the results of this model depends on the accuracy of the model parameters. Both published and unpublished documents from the Government of Nepal, USAID/Nepal and implementing agencies were consulted while verifying the field data. Extensive consultations were done with field staffs of implementing agencies, individual farmers and farmers’ groups, and traders in the regions and others who have been contributing directly or indirectly in cauliflower cultivation of the country.

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3.2 Preparatory Tables

The cost and revenue structures remain same for CBA of on-season cauliflower for both Terai and Hills. The differences were in transportation costs of agricultural inputs, opportunity costs of labor, rental values of paddy land, and yields.

Growth Rate and Growth Indices Table: CTW-2.01*14 contains the growth rates and growth indices for “without” and “with” intervention options in Terai. The starting yield for “without” intervention option was assumed at 6.00 MT per hectare, which was an average of the Terai district in Far-Western and the Mid- Western Development Regions in 2010. There will be no growth rates in the yield or input usages. For “with” intervention option, the yield was 20.9 MT per hectare in year one, and then assumed to grow at an annual rate of 2.0 percent.

Table: CHW-2.01* contains the growth rates and growth indices for “without” and “with” intervention options in the Hills. The starting yield for “without” intervention option was assumed at 6.0 MT per hectare, which was close to an average of the Hilly districts of Far- Western and the Mid-Western Development Regions in 2011. There will be no growth in yield or input usage. In “with” intervention option, yield was 10.3 MT per hectare in year one, which was assumed to grow at an annual rate of 2 percent until it, attains 14.05 MT per hectare in year ten. The annual growth rate in input usage will be 1 percent to support the growth rate in the yield.

Inflation and Exchange rate Tables CTW-2.02* and Table: CHW-2.02* contain the projected inflation rates and exchange rates in CBA models for Terai and Hills respectively. An annual inflation rate is 8.6 percent for Nepal, 5.4 percent for India, and 0.4 percent for US is in year 2015. The market exchange rate was assumed at NPR 103 per USD, with a fully adjusted real exchange rate at NPR 100 per USD. The exchange rate between NPR and INR is 1.6. Fully adjusted exchange rate is assumed at 2 between the NPR and INR. Provisions were made in the models to capture any real depreciation or appreciation of the NPR against the US dollar or the Indian rupee (INR).

Input and Output prices Tables CTW-2.03* and CHW-2.03*contains the projected nominal prices of inputs and outputs in the CBA models for Terai and the Hills, respectively. Urea and DAP are imported from the international markets in USD. MOP, PPM and Zinc Sulphate are imported from India using INR. It was assumed that Nepal also imports cauliflower seeds. Adjustments were made to the border prices for import duties, taxes, transportation costs, and trade margins. The subsidized prices of Urea, DAP and MOP were used in the calculation of the financial costs to the farmer. Assumption were made that value of on-season cauliflower was estimated based on the market price in major wholesale market in Far and Mid-Western Development Region of Nepal (CTW- 2.04* and CHW- 2.04*).

14* Tables are attached in excel sheet.

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3.3 Result of the Finding and Analysis

3.3.1 Farm Budget Analysis

Farm budget analysis is an important tool to identify whether the farm business is worth doing or not. It is useful in the decision-making process. Farm owners and managers use it to decide on alternative uses of their resources. The major components of the analysis are; gross value, operating cost, gross margin, net farm income and net profit. The gross value is the value of total production in terms of NPR, operating cost consist total cash investment on inputs. Gross margin is operating cost deducted from gross value; Net farm income is allocated cost deducted from gross margin. Allocated cost includes: opportunity cost of land, value of fixed asset, extension service, land tax, and interest. Finally, net profit is calculated deducting value of family labor cost from net farm income. Hence, here net profit is value obtained from deduction of all cash and non- cash investment for the production of cauliflower.

The farm budget analysis reveals that on-season cauliflower cultivation is beneficial as it provides net profit to the farmers. On the initial year, Hill farmers were making profit of NPR 9,988. It is expected to reach NPR 26,570 by the end of 10th year (Chart 1). However, in Terai it was NPR 13,767 in first year, which will be NPR 6,274 at 10th year (Chart 3). In Hills, growth is in increasing trend however, in Terai at the initial year, profit was higher but by the end of sixth year, it is predicted to go down. This might be the result of improvement in production and the yield, which is already in optimal stage in the selected areas in Terai. It shows that the cauliflower production and business is already an established business in Terai. The yields were also comparatively higher than national average for the selected districts in Terai region. Even for “without” option case, the net profit in positive.

Table CTW 2.1.1* and CTW: 2.1.2* shows farm budget analysis done for 10 years for “without” and “with” cases in Terai, respectively. Similarly, CHW 2.1.1* and CHW: 2.1.2* shows the farm budget analysis done for “without” and “with” case respectively in the Hills. We have assumed that in both “with” and “without” cases, farmers are hiring bullock for plowing.

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Chart 1 : Hill Farm Budget Analysis "with" Intervention, Real NPR 160,000

140,000 26,570 120,000 23,804 21,433 100,000 31,861 19,200 28,605 17,193 80,000 25,788 15,477 23,151 13,857 20,778 38,379 60,000 12,403 18,729 34,566 11,162 16,807 31,240 9,988 15,079 28,136 40,000 13,590 25,338 3,918 12,191 20,624 22,900 3,232 3,619 16,784 18,570 2,755 2,983 15,114 2,271 2,461 20,000 1,875 2,098 38,185 42,298 1,730 28,093 31,119 34,471 16,844 18,659 20,668 22,895 25,361 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Gross Operating Gross Net Farm Net Profit Value cost Margin Income

Source: RIDA Field Survey

Chart 2 : Hill Farm Budget Analysis "without" Intervention, Real NPR

3,500

3,000 480 436 Net Profit 388 335 1,012 277 214 2,500 145 69 693 664 634 600 563 523 479 432 380 Net Farm 2,000 Income 1,012 869 855 841 825 807 788 767 744 718 Gross 1,500 Margin 131 143 157 171 187 205 224 245 268 293 Operating 1,000 cost 500 1,012 1,012 1,012 1,012 1,012 1,012 1,012 1,012 1,012 1,012 Gross Value - -482 -13 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -500

Source: RIDA Field Survey

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Chart 3: Terai Farm Budget Analysis "with" Intervention, Real NPR 80,000

70,000 13,786 13,386 12,978 12,496 11,614 10,480 13,767 9,236 7,771 60,000 6,274 16,442 16,347 16,209 15,707 14,991 14,209 13,252 12,317 50,000 16,282 16,558 40,000 20,373 20,260 19,970 19,654 19,207 18,830 19,196 19,744 19,925 20,154 30,000 2,408 2,670 2,892 3,135 3,477 3,766 4,082 4,529 4,907 20,000 2,521 10,000 21,717 22,152 22,595 23,047 23,508 23,736 23,736 23,736 23,736 23,736 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Gross Operating Gross Net Farm Net Profit Value cost Margin Income

Source: RIDA Field Survey

Chart 4: Terai Farm Budget Analysis "without" Intervention, Real NPR 7,000

6,000 906 2,039 5,000 841 780 724 1,248 4,000 671 1,151 623 1,062 577 979 2,039 3,000 535 903 496 833 1,410 1,529 708 768 1,300 653 1,106 1,199 349 2,000 1,020 292 319 867 940 244 267 799 204 223 1,000 157 171 187 2,039 1,466 1,592 1,729 1,878 970 1,054 1,145 1,243 1,350 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Gross Operating Gross Net Farm Net Profit Value cost Margin Income

Source: RIDA Field Survey

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3.3.2 Financial Analysis

The financial cash flow statements were constructed from the perspectives of project, bankers and farmers. The cash flow statement from project’s perspective enables the decision makers to determine whether the investment was financially viable or not in the case where farmers use their own resources to finance the working capital. The cash flow statement from the banker’s perspective enables the decision makers to determine whether the bank would provide loan to finance the working capital. The cash flow statement from farmer’s perspective would enable the decision makers to determine whether the investment was financially viable for the farmer if borrowed money was used to finance the working capital. Levelized profit margin (LPM) is also calculated to get a measure of the profitability index15. LPMs are useful for interpretation of the results since the internal rate of return is not always accurate or sometimes the models cannot estimate particularly when net cash flows are mix of negative and positive values.

The decision will be made on incremental analysis since the task here is to evaluate the benefit of the USAID/Nepal intervention on the existing practice.

Project's Perspective Tables CTW-3.01* and CTW-3.02* show cash flow statements for “without” and “with” intervention options, respectively; and Table: CTW-3.03* shows the incremental cash flow statement obtained by subtracting Table: CTW-3.01* from Table: CTW-3.02*. These three tables are combined used to evaluate financial viability of the intervention from the perspective of the project in Terai region.

Similarly, Table: CHW-3.01* and Table: CHW-3.02* shows the cash flows statement for “without” and “with” intervention options; and Table: CHW-3.03* shows the incremental cash flow statement obtained by subtracting Table: CHW-3.01* from Table: CHW-3.02*. These three tables are used in combination to evaluate financial viability of the intervention from the perspective of the project in the Hills.

The results of different options for Terai and Hills indicate that the ongoing on-season cauliflower cultivation practices are financially viable for the farmers in both Hills and Terai. The interventions for “with” intervention option were financially viable from the perspective of the project since the NPV of on-season cauliflower cultivations are NPR 89,381 for Terai and NPR 32,550 for Hills. The incremental NPVs are NPR 87,092 and NPR 27,978 equivalent to USD 611 and USD 176, for Terai and Hills, respectively (Table 7). Comparatively both the incremental value and NPV were high in the Terai. The NPV in Terai was nearly three times higher than the Hills.

15 The leveled profit margin is defined as the present value of the net cash flows divided by the present value of the total costs discounted with the opportunity cost of the fund. The opportunity cost of fund is estimated at 12 percent real.

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Table 6: Results of the Financial Analysis from Project’s Perspective Analysis Models Net Present Value Internal Rate of Levelized Profit (NPV) Return (IRR) Margin (LPM) On-season cauliflower CBA Model- NPR 89,381 Not estimated 188 percent Terai “with” Intervention USD 627 On-season cauliflower CBA Model- NPR 2,276 Not estimated 83 percent Terai “without” Intervention USD 16.3 On-season cauliflower CBA Model- NPR 87,092 Not estimated 195 percent Terai Incremental USD 611 On-season cauliflower CBA Model- NPR 32,550 Not estimated 47 percent Hill “with” Intervention USD 219.1 On-season cauliflower CBA Model- NPR 3,024 Not Estimated 113 percent Hill “without” Intervention USD 21.0 On-season cauliflower CBA Model- NPR 27,978 Not estimated 42.3 percent Hill Incremental USD 176 Source: RIDA Field Survey

Banker's Perspective We found that most of the farmers from both Terai and Hills borrowed some amount of money from the banks for on-season cauliflower cultivation. With the proposed interventions, the farmers borrowed money to finance the costs of fertilizers, seeds, and irrigation. Hence, micro financing components were built into the models to examine the sustainability of the interventions if adequate fund was not available within the families.

Table: CTW-3.05* and Table: CHW-3.05* shows the cash flow statements from the viewpoint of a banker for “with” intervention options in Terai and Hills respectively. Table: CTW-3.04* and Table: CHW-3.04* contains the estimates of the respective monthly loan repayments schedules, assuming that 25 percent of the cash required for operation (CRO) is borrowed with monthly nominal interest rate of 1.65 percent in Hills and 2.09 percent in Terai.

The net cash flows from the banker’s point of view are compared with the corresponding debt obligations in each year in order to assess the bankability of “with” intervention options. This is done by calculating the annual debt service coverage ratios (ADSCR), which, for year two is 5.94 for Terai and 2.28 for the Hills.

Farmer's Perspective If the farmers borrowed 25 percent of the working capital at a monthly real interest rate of 2.09 percent in Terai and 1.65 in the Hills and repaid it with interest at the end of the cropping season, the estimates of NPVs and LPMs suggest that the intervention options in the Terai and Hills were financially viable from farmer’s perspective. The NPVs were NPR 89,985 and NPR 31,246 for Terai and the Hills, respectively. The numerical gain was much higher in Terai than in the Hills (Table 7).

Table: CTW-3.06* shows the cash flow statement for “with” intervention options. This table evaluates the financial viability of the intervention options from the perspective of farmers in

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Terai. Similarly, Table: CHW-3.06* shows the cash flow statements for “with” intervention options from the perspective of the farmers in Hills.

Table 7: Results of the Financial Analysis from Farmer’s Perspective Analysis Models Net Present Value Internal Rate of Levelized Profit (NPV) Return (IRR) Margin (LPM) On-season Cauliflower CBA NPR 89,985 Not estimated 135.3 percent Model-Terai “with” Intervention USD 617 On-season Cauliflower CBA NPR 31,246 Not estimated 35 percent Model-Hill “with” Intervention USD 209.9 Source: RIDA Field Survey

3.3.3 Economic Analysis

An economic value differs from financial value because of distortions in the prices of inputs or outputs due to taxes, subsidies or foreign exchange premiums. Analysis was done to calculate the economic values of each of the line items in the cash flow statement from the project’s point of view.

For example, the economy values of urea DAP and MOP is higher than what is being paid by farmers in the market because the government subsidizes fertilizer, fixing the selling price. The economic cost of irrigation water was 94 percent of the financial cost because of distortions in the capital cost of pump and input prices. The details of the calculation of conversion factors are given in Table: CTW-11.01* to Table: CTW-11.09* for Terai, and in Table: CHW-11.01* to Table: CHW-11.09* for Hills.

Table: CTW-4.01* and Table: CTW-4.02* show the economic resource flow statements for “without” and “with” intervention options, respectively; and Table: CTW-4.03* shows the incremental economic resource flow statement generated by subtracting Table: CTW-4.01* from Table: CTW-4.02*. These three tables are used to evaluate the economic viability of on-season cauliflower cultivation in Terai16.

Similarly, Table: CHW-4.01* and Table: CHW-4.02* shows the economic resource flow statements for “without” and “with” intervention options; and Table: CHW-4.03* shows the incremental economic resource flow statement generated by subtracting Table: CHW-4.01* from Table: CHW-4.02*. These three tables were used to evaluate the economic viability of on-season cauliflower cultivation in Hills.

Whether “with” intervention option are economically viable or not was determined by calculating the incremental economic NPVs, incremental economic IRRs or incremental

16 The first step in economic analysis is the calculation of conversion factors for each of the line items in the cash flow statement of project point of view. Then, second step is to multiply each line item in the cash flow statement from project’s point of view with the corresponding conversion factor to generate resource flow statement from the point of view of the economy.

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economic LPMs. The economic discount rate for the calculation of NPVs or LPMs was assumed at 12 percent.

Table 9 below contains the estimation of NPVs, LPMs and IRRs and the respective incremental for each of the options. The positive economic NPVs for “with” intervention options for Terai and Hills have established that there is an economic benefit from on-season cauliflower cultivation. The interventions created positive incremental NPVs. The incremental economic NPVs are NPR 121,022 and NPR 37,795 for Terai and Hills respectively. The interventions added value to Nepal’s economy, which amounts to USD 851 for the Terai and USD 256 for the Hills in net present values. The incremental profit margin was higher in the Terai compared to Hills. It is 278 percent in Terai and only 58.5 percent in Hills. In Terai, the production process has already been established and there is not much space for increasing production; however, in the Hills, there is still space for increasing productivity by improving input uses.

Table 8: Results of the Economic Analysis Analysis Models Net Present Value Internal Rate of Levelized (NPV) Return (IRR) Profit Margin (LPM) On-season cauliflower CBA Model- NPR 124,956 Not estimated 270 percent Terai “with” Intervention USD 879.6 On-season cauliflower CBA Model- NPR 3,922 Not estimated 144 percent Terai “without” Intervention USD 28.05 On-season cauliflower CBA Model- NPR 121,022 Not estimated 278 percent Terai Incremental USD 851.7 On-season cauliflower CBA Model- NPR 41,716 Not estimated 62.0 percent Hill “with” Intervention USD 284 On-season cauliflower CBA Model- NPR 3,912 Not estimated 146 percent Hill “without” Intervention USD 28 On-season cauliflower CBA Model- NPR 37,795 Not estimated 58.5 percent Hill Incremental USD 256 Source: RIDA Field Survey

3.3.4 Impact on Family Income In order to identify the impact of the project interventions on farmers' family income, we have tried to measure how the interventions have been making an impact on the annual net cash flow of the beneficiaries.

The average family size was found to be 7.5 in Terai and 5.9 in Hills for "with" case; however, the figure is less in “without” case which is 6 in Terai and 5 in Hills. The majority of the USAID/Nepal targeted beneficiaries have per capita income of below USD 1.25 per day, which is defined as an international poverty level income.

Tables CTW-6.01* and CTW-6.02* contain the profiles of farmer’s annual income from on- season cauliflower cultivation in Terai. The average annual income in 2015 for “without” option is NPR 1,532 and for “with” option is NPR 17,117. There is a huge difference on family income

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trend between “with” and “without” case. An annual income for “with” option was nearly ten times higher than for “without” option due to higher yields. The yield is only 6.0 MT/ha for without case however in “with” case it was discovered to be 20.9 MT/ha.

Chart 5 below depicts the profile of annual incomes from on-season cauliflower cultivation in Terai. The graph shows that the income is increasing slowly. This might be due to optimal yield in the selected districts of Terai region.

Chart 5: Annual Family Income with on-season Cauliflower Cultivation in Terai

25,000 20,000 15,000 10,000 5,000 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Without 1,532 1,575 1,574 1,573 1,572 1,571 1,570 1,569 1,568 1,567 With 17,117 19,740 20,029 20,559 21,039 21,110 21,190 21,209 21,046 21,128

Source: RIDA Field Survey

Tables CHW-6.01* and CHW-6.02* contain the profiles of annual income derived from on- season cauliflower cultivation in Hills for “with” and “without” options. At the initial year, with intervention the annual family income in Hills was only NPR 7,043 which increases gradually and to reach NPR 12,269 by the end of the tenth year. An average annual income for “without” option is NPR 1,838. Annual family income in “with” option is more than three times the family income in “without” option.

Chart below shows the pattern of family income in the Hills. The productivity level is much low in Hills as compared to Terai as the opportunity cost of land and labor are higher in the Hills which results to much higher income to farmers in Terai.

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Chart 6: Annual Family Income with On-season Cauliflower Cultivation in Hills

15,000 10,000 5,000 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Without 1,838 1,868 1,867 1,866 1,865 1,864 1,863 1,863 1,862 1,861 With 7,043 10,104 10,296 10,598 10,879 11,086 11,406 11,706 11,929 12,269

Source: RIDA Field Survey

The net annual income of the family has been derived by adding the costs deducted earlier for the opportunity cost of family labor, opportunity cost of compost manure, and opportunity cost of land owned by the family back to the net cash flow of the farmers.

3.3.5 Stakeholder Analysis

The major participating stakeholders in cauliflower cultivation are farmers, Government of Nepal, microfinance institutions, supplier of fertilizers and USAID/Nepal. There are other stakeholders who are not directly involved in the on-season cauliflower cultivation but are participating in supply of inputs like seeds and fertilizers. The stakeholders’ present values are calculated by discounting the respective net cash flows with the economic discount rate and adding the incremental shares of all the stakeholders. The intervention in cauliflower cultivation increases the crop yield, encourages the farmer to shift from a consumption-oriented production towards commercial production, and generates significant annual net revenue for the farmer. The selling price of urea, DAP and MOP are fixed by the government and adjusted for inflation after every two years.

The total net economic benefits generated by on-season cauliflower cultivation are represented by the economic NPVs under “with” and “without” intervention options. To generate these benefits, the farmers use their land and family labor; USAID/Nepal provides seed and extension services; the Government of Nepal supplies fertilizers at subsidized rates, foreign exchange to import agricultural inputs, and collects value added taxes or tariff on the goods or services procured for on-season cauliflower cultivation. In addition, banks or microfinance institutions get involved by providing the working capital loan enabling farmers to buy the required inputs. Hence, there is a need to calculate the share of costs or benefits attributable to each of the stakeholders.

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The farmer’s share of costs and benefits is the financial NPV after netting out the cost of financing the working capital. USAID/Nepal’s share is the present value of the cost of the extension services [Table: CTW-5.01*, Table: CHW-5.01*]. The microfinance institution/bank’s share is the interest paid by the farmer on the working capital loans. The government’s share is the cost of subsidies on fertilizer, cost of the foreign exchange premium on the imports, benefits from the collection of taxes or tariffs, and the savings in the foreign exchange premium on the value of on-season cauliflower which has potential of exports to some nearest Indian markets.

For the calculation of costs or benefits accruing to the government, one needs to go back and examine how the conversion factors are calculated. Essentially, the processes of calculating conversion factors reveal the sources of distortion. Conversion factors are a ratio between the economic values and the financial values. The differences between the economic values and financial values are called the economic externalities. Therefore, there might be other stakeholders staking a claim on the economic externalities as is the case in the supply of fertilizers in Nepal. For example, the entire amount of subsidies on urea, DAP and MOP are not captured by the farmers. The economic externalities that are captured by other groups are 21 percent on urea, 81 percent on DAP and 56 percent on MOP [Table: CTW-11.01*, CTW-11.02*, and CTW-9.03*] in Terai. These figures are marginally high in Hills [Table: CHW-11.01*, CHW-11.02*, and CHW-11.03*]. It is important to understand that there are intermediaries in the fertilizer delivery chain who are capturing a share from the subsidy scheme.

In practice, the externalities are calculated from the project’s point of view. Externalities are estimated by subtracting flow of resources of the financial cash flow statement from economic analysis. Therefore, Table: CTW-5.02* is generated by subtracting Table: CTW-3.01* from Table: CTW-4.01*, which is the statement of externalities in “without” case; and Table: CTS- 5.03* is generated by subtracting Table: CTW-3.02* from Table: CTW-4.02*, which is the statement of externalities in “with” case. The present values of the externalities for each of the line items in the statement of externalities are calculated from these tables by discounting with the economic discount rate. Reconciliations of externalities are done before allocating the present values of the externalities to different stakeholders. In the reconciliation, the addition of the financial NPV and the PV of externalities should be equal to the economic NPV, all discounted with the economic discount rate [Table: CTW-5.04* and Table: CTW-5.05*]. The present values of the externalities are distributed to different stakeholders based on the sources of distortions [Table: CTW-5.06*, Table: CTW-5.07*]. This is demonstrated in the Table: CTW-5.08* for on- season cauliflower cultivation in the Terai.

Similarly, the present value of externalities and allocation of externalities are also calculated for Hills. Table: CHW-5.02* was generated by subtracting Table: CHW-3.01* from Table: CHW- 4.01*, which is the statement of externalities in “without” case; and Table: CHW-5.03* was generated by subtracting Table: CHW-3.02* from Table: CHW-4.02*, which is the statement of externalities in “with” case. From these tables, present values of the externalities were calculated, reconciled [Table: CHW-5.04* and Table: CHW-5.05*] and allocated to different stakeholders [Table: CHW-5.06*, Table: CHW-5.07*]. This is demonstrated in Table: CHW-5.08* for on- season cauliflower cultivation in Hills.

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Table 10 below illustrates share of different stakeholders for “with” and “without” intervention options in the Terai and Hills for 2010/11 and 2015. The result of cost benefit analysis for the year 2015 reveals similar results showing fiscal impact on the GON and the funding agency- USAID/Nepal. The gains to farmers due to interventions were demonstrated by incremental financial NPVs, which have been discussed above. The incremental gain to the government from on-season cauliflower cultivations is NPR 85,709 in Terai and 28,233 in Hills, which is the present value of taxes and tariffs collections, savings in foreign exchange premium and payments for fertilizer subsidies over the period of 10 years. USAID/Nepal makes investment of NPR 7,157 and generates net economic gain of NPR 24,956 for Terai region. In the hills, with the same investment of NPR 7,157, net economic gain is only NPR 41,716. Micro-finance is gaining NPR 1,396 in Terai and NPR 1,304 in Hills.

Farmers, one of the major stakeholders of on-season cauliflower production process are gaining equivalent to NPR 87,985 and 31,246 in Terai and Hills respectively. However, there is a larger difference in achievement between Hills and Terai. This difference indicates that Hills farmers need more support on on-season cauliflower production. In Terai yield was already high which was making large amount of gain. In total, the incremental gain in Terai region is NPR 121,035, which was much higher than NPR 37,804 in Hilly region.

Table 9: Results of Stakeholders' Analysis 2011 (in NPR) 2015 (in NPR) Stakeholders NPVwit NPVwithout NPVincremen Stakeholders NPVwith NPVwithou NPVincrementa h tal t l Terai Terai Farmer 51,944 3,980 56,949 Farmer 87,985 2,276 85,709 Government 12,616 918 11,698 Government 41,976 1,645 40331 USAID/Nepal -4,541 0 -4,541 USAID/Nepal -7,157 0 -7,157 Micro finance 457 0 457 Micro finance 1396 0 1,396 Others 453 0 453 Others 756 0 756 Total 60,928 3,979 56,950 Total 24,956 3,922 121,035 Hills Hills Farmer 4,521 -76 4,597 Farmer 31,246 3024 28,233 Government 9,326 428 8,898 Government 16,013 888 15,124 USAID/Nepal -4,541 0 -4,541 USAID/Nepal -7,157 0 -7,157 Microfinance 1,219 0 1219 Microfinance 1,304 0 1,304 Others 496 0 496 Others 309 0 309 Total 7,734 668 10,669 Total 41,716 3,912 37,804 Source: RIDA Field Survey

3.3.6 Sensitivity Analysis

Table: CTW-7.01* to Table: CTW-7.08* contains the result of sensitivity test on the NPV of farmers, NPV of economy and ADSCR of year two for the changes in domestic inflation rate, domestic price of on-season cauliflower, export price of cauliflower, yield of on-season cauliflower, appreciation or depreciation of NPR, transportation cost, packaging cost, real increase or decrease in inputs prices, and spoilage factor. The risk variables are on-season

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cauliflower price, yield, transportation cost and appreciation or depreciation of NPR against INR and inflation for Terai.

In Terai region, the impact of domestic inflation rates was very nominal [Table: CTW- 7.01*].The NPVs of the economy turns into negative values if the domestic price of on-season cauliflower drops below NPR 12.0 per kilogram [Table: CTW-7.02*]; and if NPR appreciates against INR by one percent for both the economy and farmers [Table: CTW-7.07*]. In addition, the NPVs of the economy are sensitive to the changes in the transportation cost [Table: CTW- 7.05*] and spoilage factor [Table: CTW-7.08*].

Similarly, Table: CHW-7.01* to Table: CHW-7.07* contains the results of the sensitivity test for Hills on NPV of the farmers, NPV of the economy and ADSCR of year two for the changes in domestic inflation rate, import price of on-season cauliflower, cauliflower yield, appreciation or depreciation of NPR, spoilage factor and packaging cost. The risk variables are import price of on-season cauliflower, yield, spoilage cost, packaging cost, transportation and appreciation or depreciation of NPR against INR for on-season cauliflower cultivation in Hills.

In the Hills, domestic inflation has very small impact but price is more important. NPV becomes negative if the starting yield falls below 7.0 MT per hectare for the economy and 8.0 MT per hectare for the farmer [Table: CHW-7.02*]. NPC also becomes negative for the farmers and economy if NPR appreciates against INR by one percent [Table: CHW-7.05*]. In addition, the NPVs of the farmers and the economy are sensitive to the changes in the transportation cost, packaging cost and spoilage factor [Table: CHW-7.03*; Table: CHW-7.04* and Table CHW- 7.65*]. The changes were more profound in the case of the economy. The ADSCR is sensitive to risk variables like import price of cauliflower, yield, and real appreciation or depreciation of NPR. The ADSCR becomes less than one if the yield is less than 9.0 MT/ha and import price is less than INR 12.

Table: CHW-7.08*illustrates the joint impact of domestic prices and export price on the NPV of the farmer. On-season cauliflower cultivation is financially viable only if the domestic price is INR 8.0 with yield of 16MT/ha in the Hills of Nepal.

Of all the risk variables, domestic price, transportation cost, packaging cost of cauliflower prices, yields and appreciation of NPR against INR were considered as key risk variables. Cauliflower was not exportable during the peak cultivation season. An appreciation of NPR makes imports cheaper in Nepal thereby squeezing the returns to marginal farmers, particularly those cultivating cauliflower in the winter season. Similarly, a depreciation of NPR makes imports cheaper for the Indian consumers. Therefore, exchange rate management by Nepal is the key to financial and economic viability of cauliflower cultivation. On the other hand, on-season cauliflower in not exportable hence it does not have competitive advantage.

Among the major border markets taken in consideration, Kailali, Nepalgunj and Kohalpur, the price of cauliflower was highest in Kohalpur throughout the year, except in the month of July when Kailali market overtakes it. One of the nearest Indian markets from Kailali is Delhi with potential of export; hence a comparison was made between these two markets. The graph below

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shows that the price of cauliflower in Delhi from mid-April to mid-June is higher than Kailali (Nepal) market. The data of Lucknow, market near to Nepalgunj is not available in the source comparison could not be made.

Chart 7: Price Variation of Cauliflower at Border Towns in Nepal Price Variation of Cauliflower price at Border Town of Nepal , 2015 70 60 50 40 Kailali 30 Nepalgunj NPR/Kg 20 Kohalpur 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

3.3.7 Cost Benefit Analysis of Value Chain Delivery

In order to identify the financial value of the losses of cauliflower at different stages of value chain, cost benefit analysis of value chain delivery was done. Table CTW: 10.01* shows the cash flow for losses of value chain delivery in Terai and Table CHW: 10.01* for the Hills. It captures losses during harvesting, domestic collection, transportation, wholesale store, retailing process, domestic supply, collection process (export) and transportation (export). The result of the analysis shows that value of total spoilage losses was NPR 47,423 in Terai and 35,023 in the Hills. If these losses can be minimized, the profit can be increased.

3.3.8 Comparison of Production and Yield

Along with cost benefit analysis, we have made an effort to identify whether the farm size and socio-demographic characteristics are making any difference in the production and yield of on- season cauliflower. For the purpose of this analysis, the farm size is classified into two categories (small and big). Small farm has size of 0 to 0.1 hectare of land and big farm has size above 0.1- hectare land. The socio-demographic characteristics taken into consideration are age and educational level of household heads. The analysis revealed that those with big farms have higher production and higher yield. The result shows that farmers in economically active age group (15-59 years)have higher production than older farmers(60 years and above), which is statistically significant at five percent. Similarly, in Terai, farmers with higher level of education produced higher yields. In the Hills, illiterate farmers were also making good yield and production, which may be attributed to their longer experience.

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Table 10:Comparison of Yield and Production with Farm Size and Socio-economic Characteristics

Number of Total beneficiar Production Yield Category Grouping ies (Ton) (MT/ha) Terai districts Age group of Economically active age group (15-59) 167 0.057 21.9* HH head Economically inactive group(60+) 60 0.059 17.9* Education of Illiterate 57 0.067 19.7 HH head Literate + primary (1-5) 133 0.053 20.8 Secondary (6-10) + above 37 0.059 23.1 Small farm ( 0-0.1ha) 197 0.04*** 20.9 Farm size Big farm ( Above 0.1 ha) 30 0.173*** 21.05 Hill districts Age group of Economically active age group (15-59) 201 0.850 11.4 HH head Economically inactive group(60+) 13 0.540 9.8 Illiterate 33 1.2*** 13.5 Education of HH head Literate + primary (1-6) 102 0.66* 10.07 Secondary (7-10) + above 82 0.89* 11.90 Farm size Small farm ( 0-0.1 ha) 196 0.64*** 10.9** Big farm ( Above 0.1 ha) 21 2.06*** 14.9**

Source: RIDA Field Survey Note: *** the difference is significant at 1 percent level ** the difference is significant at 5 percent level * 17the difference is significant at 10 percent level

4. Conclusion

As a whole, it has been found that ongoing on-season cauliflower production system is viable both financially and economically in the Hills and Terai as it is providing net profit to the farmers and the incremental NPVs (financial and economic analysis) are positive. Interventions for improvement of on-season cauliflower production in both Terai and Hills are reasonable, though more promising in Terai than in the Hills. This might be due to higher productivity, improved technologies and accessibility to market in the Terai. The contribution to farm income from on-season cauliflower is also higher in Terai than in the Hills. However, both in the Terai and Hill, larger farm sizes and higher levels of education of the household heads are contributing to higher production and yield of on-season cauliflower. On-season cauliflower cultivation has no competitive advantage, as the price is much higher than the nearest Indian markets.

17Note: The table indicated by * mark are in excel sheet. You have to check excel sheet of Hills and Terai separately for detail information.

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Income derived from on-season cauliflower when combined with other sources of income like services, agricultural and non-agricultural labor and small industries would help a family bridge the poverty level income gap as defined by the GON for the Far-Western, Western and Mid- Western Development Regions. Nevertheless, capital investment in both the Hills and Terai is required to make profitable cauliflower business. The amount required is larger in Terai with higher net profit and productivity.

5. Recommendations

Based on the findings and analysis, the following sets of actions are recommended. • Continue promotion of on-season cauliflower: Income from on-season cauliflower is contributing to 35 percent of the poverty level income for a family of 7.0 members in Terai and 14.5 percent of the poverty level income for a family with 5.9 members in the Hills. USAID/Nepal is recommended to continue promoting on-season cauliflower among the farmers in FTF zone of influence. As the analysis shows that cauliflower production could contribute to reduce poverty gap, it should be further expanded to poor families and promoted more intensively.

• Adopt different priority and implementation strategy by region: There are different achievement levels for Hill and Terai region. In Terai, productivity is already towards maximum attainable level which is 20.9 MT/ha. Here, the priority should be to make production more efficient by improving harvesting practices, reducing spoilage, and managing post-harvest storage and transportation cost. In Hills, there is still a need to focus on improving productivity which requires more capital investment, ensuring easy accessibility of seed, and increasing land utilization for on-season cauliflower production as productivity is 11.3 MT/ha.

• Promote capital investment: For the cauliflower business to be profitable both the Hills and Terai require capital investment, which is NPR 3033.1 for Terai and NPR 3,586 for Hills. Therefore, link up with formal financial institutions such as microfinance, cooperative, bank (commercial and development both) with lower interest rates and easier access is recommended.

• Promote information campaign, training, and capacity building (targeting families with illiterate decision makers): The socio-economic data analysis reveals that the level of education is positively associated with production and yield in Terai region. The analysis indicates higher the education level, higher the yield. Therefore, information campaign, training, and capacity building should aim to target more farmers who are illiterate or have low level of formal education.

• Encourage engagement of more people in vegetable farming: Analysis shows that farmers of economically active age group (15-59) are making higher production than older age groups. Therefore, emphasis should be given to retention of young generation in agricultural activities by providing training to young farmers, focusing on young farmers in other project level interventions, and encouraging families to engage youths in agriculture.

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• Expand size of land used for cauliflower production: Size of land utilized for cauliflower production has been found making difference on production and yield. The farmers growing cauliflower on above 0.1 ha of land have higher yields than those growing in the farm of less than 0.1 ha. Hence, it is recommended to promote farm-size-increment measures for on- season cauliflower production.

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6. Annexes

Annex I: CBA Models

1.1 CBA Model Hills: Attached in Excel Sheets 1.2 CBA Model Terai: Attached in Excel Sheets

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Annex II: CBA Tools

A. Household Survey Questionnaire

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