Markets and livelihoods Bringing a livelihood perspective to the apple value chain in Jumla, Nepal Tim Daniël Krap February 2012 This thesis was submitted in partial fulfilment of the requirements for the Master of Science degree in International Development Studies at Utrecht University. Supervisor: dr. P.H.C.M. van Lindert International Development Studies Faculty of Geosciences, Utrecht University Copyright © Tim Daniël Krap – 2012. All rights reserved. Brief quotations from this thesis for educational or other non- commercial purposes are authorised without any prior written permission provided that the source is fully acknowledged. Extended quotation from or reproduction of this manuscript in whole or in part is prohibited without written permission of the author. Requests for such permission should be addressed to the author by e-mail: [email protected]. Correct citation: Krap, T.D. (2012), ‘Markets and livelihoods. Bringing a livelihood perspective to the apple value chain in Jumla, Nepal’, M.Sc. thesis, International Development Studies. Utrecht: Utrecht University. MARKETS AND LIVELIHOODS (2012) ACKNOWLEDGEMENTS This thesis is the result of four months of research in the remote district of Jumla, Nepal. I would like to thank the following people for making my research in Nepal a success: First, my supervisor dr. Paul van Lindert of Utrecht University for his guidance before, during and after the fieldwork as well as during the lengthy writing process; Rolf Schinkel and Rik van Keulen who were my internship supervisors of SNV Nepal; Govinda Rokaya of SNV Nepal for accompanying me in Jumla and showing me the life of a development practitioner; the staff of the local NGO 4S – especially Dinesh Bahadur Basnet and Dharma Bahadur Shahi – who assisted during the preparation of the fieldwork, and Sarmila Mahat, who facilitated the interviews during the field visits; and my interpreters Edwin Dewan and Roshan Giri. Finally, I am very grateful to the men and women of Jumla who were always hospitable and generously gave their time to answer my questions. The writing process was a different story entirely. I am especially grateful to Jolanda van Ginkel for her advice, the numerous sparring moments, and her encouragement. Finally, I would like to thank my parents, Harry and Jolande, for their limitless support during my studies and my internships. i MARKETS AND LIVELIHOODS (2012) EXECUTIVE SUMMARY The remote districts in the mountains of western Nepal belong to one of the poorest and least developed regions in the world. For this reason, the International Fund for Agricultural Development (IFAD) and SNV Nepal implemented a poverty alleviation project. This project focuses on strengthening a value chain of apples from Jumla district, which is a place where the conditions are very suitable for cultivating apples due to the district’s low rainfall, high altitude and favourable temperatures. One of the objectives of the project is giving market access to poor people in order to improve their livelihoods, by including them into the value chain. There is thus a clear need to comprehend the potential for including poor farmers into the value chain and to understand how people’s livelihoods can and should be improved. For this, however, it is necessary to first understand their livelihood strategies, their assets, and the context they live in. Therefore, in this thesis it is argued that a multidisciplinary approach is necessary to examine this context, their livelihoods, and how they relate to the value chain. This research uses the livelihood approach to complement the value chain analysis, because it provides a complete picture of the dynamics that are affecting people’s lives, and which are directly or indirectly influencing the cultivation of apples. The main research question of this thesis was thus formulated as follows: What new insights does the livelihood approach provide to the involvement of smallholder farmers in the apple value chain in Jumla? Research setting This research took place from February to June 2011 in the district of Jumla, which is located in the Mid-Western Development Region of Nepal. For the combination of a value chain analysis and a livelihood approach, 68 respondents were interviewed in semi-structured household surveys. In addition, several key informants were interviewed and existing studies on the district were reviewed. While the geography of the region is favourable for the cultivation of apples, at the same time it provides enormous difficulties for the trade of apples (and other products). As one of the most remote districts in Nepal, Jumla is only connected to the national road system by the Karnali Highway, a dangerous and oftentimes impassable road. It takes approximately two full days by bus to travel its length of 232 km to Jumla. Therefore, while the marketable production of apples in Jumla district amounts to approximately 1,900 mt per year, only 200 mt can be exported. A large part of this export happens by airplane, which is heavily subsidised by the local authorities. Besides the geography and the lack of proper infrastructure, other important contextual factors were identified which influence people’s livelihoods and the cultivation of apples. The main factors which were found related to the social ostracising by caste or gender, and an abundance of external factors which included natural disasters, civil unrest, and the monsoon season. ii MARKETS AND LIVELIHOODS (2012) Main findings In several cases, the livelihood approach did indeed provide new and useful insights. In other cases, the conclusions that were reached with a value chain analysis were confirmed by the livelihood approach. This is also a valuable result from combining these approaches, because data triangulation is provides better and more solid conclusions. The conclusions from this combined approach are presented below. The value chain arrangement In the Jumla apple value chain, the District Federation of Cooperatives (DFC) in Jumla acts as a middle-man between the anchor firm in Kathmandu and the farmers in Jumla. The contract is signed between the anchor firm and the DFC, while there is merely an informal arrangement between the DFC and the farmers. It was found that this particular value chain arrangement results in the DFC enjoying most of the benefits of assured demand and fixed prices. In contrast, the farmers bear most of the production risks. These production risks are numerous and very diverse, and include pests and diseases or natural disasters like hailstorms or droughts. It is recommended that the contract arrangement should be changed, so that the market certainty is extended to those farmers. In addition, the production risks should be mitigated by an insurance scheme provided by the other stakeholders in the Jumla apple value chain. Airfare subsidy The main stakeholders in the value chain argue that the transportation subsidy by the local authorities for the export of apples by air is necessary to improve the competitiveness of the Jumla apple. However, this subsidy could be counterproductive if it drives those farmers out of the market who are not supported by the subsidies. Hence, the subsidy would be retaining the inefficient farming practices and be decreasing the overall quality of the exported apples, while putting other entrepreneurs out of business. Furthermore, the subsidies do not yet address the lack of flights leaving Jumla. As said above, still only 200 mt of the 1,900 mt of high-quality apples can be exported. This leads to the conclusion that at least part of the subsidies should be used to increase the availability of flights leaving the district, because if a higher proportion of the Jumla apples can be exported, a higher proportion of the people could benefit. Investments During the monsoon season, the road which connects Jumla to the rest of Nepal becomes impassable and the transportation by plane becomes very difficult. This is also the time of harvesting apples, so the high supply of apples results in plummeting prices in Jumla. As a result, large amounts of apples decayed while waiting for the transportation to resume. Apples which are not exported within a short time after the harvest will degrade quickly, which makes them unsuitable for sales outside Jumla. Furthermore, in the months after most of the export has taken place, the prices of apples in iii MARKETS AND LIVELIHOODS (2012) the Terai and Kathmandu rise quickly. Hence, as long as the apples are kept fresh there are opportunities for profitable exports of apples. Therefore, proper storage facilities are necessary to expand the Jumla apple value chain and to let more poor farmers benefit from the export of apples, which is thus a complementary solution to increasing the amount of flights. Inputs and credit Besides these problems of transportation there is also the issue of quality. As said before, a total of 1,900 mt of apples was found suitable for export. However, the total amount of apples produced is approximately 5,000 mt per year. Hence, the majority of apples produced is of low quality. Some of the causes were identified as the low quality and availability of inputs for apple farming. In addition, there is a lack of access to credit facilities which prevents farmers from investing in their orchards. Both the inputs and credit could in theory be provided by the anchor firm or by the DFC by arranging it in the contract arrangement. However, the poorer households are reluctant to use credit, because they do not have any alternative income sources with which they are able to repay the loan. Moreover, most of the loans are not used productively but only as short term relief from natural disasters or personal tragedies. This has led to serious indebtedness in several cases. Therefore, while it is recognised that the use of credit can bring benefits to the cultivation of apples and thereby to the farmer’s livelihood, the findings from this thesis lead to the recommendation to be careful with the provision of credit.