Agriculture Supply Chain (Nepal Overview): Challenges and Opportunities

Agriculture Supply Chain (Nepal Overview): Challenges and Opportunities 

According to a World Bank report, 730 million people are below the poverty line and approx. 2/3 of them work in the agriculture sector. Nepal is known as an agricultural country and 66% of people are engaged in agriculture directly. As the locally grown fruits and vegetables rot during the lockdown, the Nepal government has been busy importing vegetables and fruits from India due to rupture in Nepal's Agriculture Supply Chain. Fragmentation in the supply chain has been the major issue for Nepal. 

Agriculture Supply Chain
Source: Pexels
The real success of the supply chain is visible when the activities across the supply chain are well coordinated to create value for consumers while increasing the profitability of every member over the link. As in Nepal's case, all the components are mostly disjoint and there is little to no coordination among the supply chain members. This has cost the country greatly. 

The maturity of the supply chain clearly shows the status/standing of any company or a country [1]. 

Supply Chain includes all the activities involved from cradle to grave of the product life cycle. The general structure of the agriculture supply chain consists of Procurement or Sourcing, Logistics Management, Organizational Management, Application of Efficient Consumer Response (ECR) System. 

Agriculture's contribution to Nepal's GDP has decreased from 49 % (1999) to 27 % (2017). The poverty rate has declined too but it is mainly due to reasons like off-farm labors, migration, remittance (mainly), and commercial agriculture. But most of these solutions to poverty reduction are not long term solutions, for example, migration, and remittance is already affected by the COVID-19 and one can not predict how badly it will hit. Also, GDP will be influenced as remittance officially contributes to 30 % of Nepal’s GDP. Nepal is a landlocked country and only 42,120 sq. km of the total land is cultivable, mainly in the Terai region. 

The problem in Nepal is that all the components of the supply chain act in an isolated manner without coordination. This type of uncoordinated activity damages the supply chain since the coordination and information exchange are prerequisites. Staple commodities like Rice, wheat, millet, barley, etc. and the high-value food commodities such as fruits, vegetables, milk, meat, eggs, and fish, etc. are major agricultural products of Nepal. 

Agriculture Supply Chain Network- All nodes

Source: Mckinsey

The participation of youths in agriculture is very limited. Land size, lack of training and information, government support, lack of manpower, technology, job security, income stability, etc. are a few of the reasons for the agriculture sector depletion. It is a well-known fact among Nepalese that you will fare much better if you are involved in off-farm work rather than farming. Smallholder farmers are the ones that are most affected because most of the time harvesting cost, transportation cost, weighing, and other costs are mainly borne by the farmers. 

It is impossible to analyze and discuss each component or players of Agriculture Supply Chain in a single article. So, this article provides a general overview of challenges, problems, and possible solutions and opportunities for the current Supply Chain practices in the agriculture sector of Nepal. Major problems faced by the farmers are discussed below. 

Since farmers are the critical player and central point for Agriculture Supply Chain’s success, problems faced and possible ways to strengthen farmers are discussed.  

Key Problems in Agriculture Supply Chain (Nepal)

1. Multiple intermediaries

Intermediaries add zero value to the product yet they are most profitable. In Nepal, consumers pay almost 4 times the actual price yet farmers only get 1/4 of that amount. So where does all the money go? Intermediaries who add zero value to the process collect a huge amount of money compared to the farmers. This phenomenon has been going on for a very long time now and without limiting or eliminating intermediaries who add zero value, the development of agriculture and upliftment of farmers seems impossible. 

Farmers are unable to bargain a better price for their products due to long-chain or multi-layered intermediaries, handling, and loss in quality. This increases the gap between the producer and consumer price and affects the real players of the supply chain i.e producers and consumers. 

2. Production

There is no link between the producers (farmers) and consumers so the concept of demand and supply is foreign in Nepal's agriculture. The productivity is very low compared to other countries, for example, Nepal was one of the key Cardamom suppliers until 2012 but due to the inability to improve its production and sticking with traditional approach without market research, Nepal has lost its place in market. However, due to the quality of Cardamom produced in Nepal, there's still a chance for a comeback [2]. 

Lack of production and improper post-harvest management has resulted in poor quality products hampering farmers as well as consumers. There are no collection centers and there is no sorting, grading, washing, and packaging for most of the agricultural products. 

A small hut of straw in agricultural field

3. Transportation

Transportation has crippled this sector like other sectors. There are places that produce high-value products that lack proper road infrastructures. Due to the unmanaged transportation system, wastage and price hikes have become usual in Nepal. The road network is challenging especially in the Hilly region so any obstruction in the road can cause huge wastage for farmers and most of the loss has to be borne by farmers which pushes people away from agriculture. 

4. Cold Chain

There are very few ( I believe we can count the number in hand) cold stores in Nepal. This has hampered the farmer's income as well as the Nation's. If the number and quality of cold storage improves, farmers will be able to sell their products throughout the year gaining good and consistent income and there won't be price hikes for consumers. Refrigerated trucks are not used even for highly perishable goods. Ripening facilities are very few and limited to certain areas that are not beneficial for the farmers in remote areas. 

Fun fact: Major meat consumption in Nepal is during festivals and elections.

5. Lack of information and Quality Check/Inspection

This problem is visible on both ends of the agriculture supply chain. Farmers are unaware of commercializing agriculture by using quality seeds which increases the yield, mechanization, use of fertilizers, utilization in full capacity, prevention against insects, and diseases, etc. Products are directly sold without adding additional value, for example, meat is sold directly for freshness. Grading and processing products are lacking. 

People in Pokhara dump fresh vegetables from Chitwan during COVID-19 lockdown

For better yield, quality checks and inspection should be done at every stage of the supply chain rather than at the end.  This has been completely ignored by all the components of the supply chain. The decline in agricultural production and quality is the result of ignoring quality checks. 

6. Government Plans and Policies

During this lockdown, Nepal Government has imported thousands of trucks full of vegetables and fruits from India but national production is discarded or dumped. Many agri-business and small farmers have suffered a huge loss due to the incompetence of the government. Even though the plans and policies in agriculture were promising but the implementation is missing (like always) [3]. 

I am trying to write an article in which the incompetence of the government is not present. But  so far, no success. 

7. Promotion/Transparency

Lack of grading, no linkages, non- transparency in prices, long delays from producers to the retailer, and poor infrastructure are all present in Nepal's agriculture supply chain. Commodities like Tea and other products are sold to India for a wholesale price and then India re-brands the products and sells to the international market for a higher price. Lack of exposure to the international market and intervention of India in exports is visible but no action has been taken to address the issue [4]. 

8. MFIs/Cooperatives/Banks

Government schemed agriculture loan with a low-interest rate is available but smallholder farmers are not able to access these facilities due to paperwork or wickedness of people in power. Actual farmers are yet to reap benefits from microfinance institutes, cooperatives, and banks. In most cases, these institutions mainly support the bigger business rather than small farmers. Fake agro-businesses are enjoying the benefits of loans and other services. Cooperatives has been slightly better for farmers than the other two to some extent but the dominance of committee members and mishandling of funds are frequently heard throughout the country. 

9. Land fragmentation and Irrigation

Recent trend of urbanization has destroyed the huge amount of agricultural land. People are migrating from hills to Terai because most of the facilities and opportunities are concentrated in terai or cities like Kathmandu and Pokhara. "Plotting" was very famous as the real estate business skyrocketed until the intervention from the bank. 

Koshi Dam, Nepal - Constructed for Irrigation for Nepal and India

In irrigation's context, all Water treaties with India have backfired. And, agriculture in Nepal is still rain based. Farmers are dependent on rain which has limited the options for commercial farming. Seasonal farming is still thoroughly evident in Nepal. 

By the way, Nepal is the world's second-richest in inland water resource. 

10. Manpower

Most of the people engaged in agriculture are aging, feminizing, and declining. This is because most of the youths are attracted to foreign employment. Especially in developing countries like Nepal, there's a false perception that when young people gain education, they should seek off-farm employment and are encouraged to do so. This has been one of the key reasons for the lack of manpower in the agricultural sector. Most of the skilled, semi-skilled, and unskilled workers vie for foreign employment. 

Possible Solutions and Opportunities

A common approach taken by the aid agencies or the government is to focus on improving productivity but it has not been as effective as it was promised for improving lives involved in agriculture. Lack of implementation, monitoring, training, and information has contributed to its downfall. All of the plans and policies for this sector have been sound to hear but there is no to minimal implementation like other projects, plans, and policies of the Nepal Government.

For any sector to bloom, the focus should be on the free play of demand and supply. Until the market position of the farmers strengthens; stability, negotiation power, and choice of trade which provides greater control for farmers in the supply chain will not be achieved. Government or relevant departments and farmers should try to come up with a scheme or business model which will be more direct i.e farmers to buyers. Cooperatives are a great initiative but it has not been effective in Nepal. Cooperatives like Amul can be a role model for Nepal. Politics and malpractice have played it’s part; these things should be completely removed from this sector for its growth.

Amul - Successful Cooperative

Long-term contracts and services play a major role and gives a sense of security for the farmers. Cold storage and credit flexibility will allow the farmers to sell their goods when it's most profitable. Long term financing with a flexible term should be the focus. The concept of Insurance and Minimum profit guarantee has started to emerge for providing stability and encouraging farmers but the outcome is yet to be seen [5]. The private sector or businesses are also a key player in the agriculture supply chain, they can design and manage their business model to serve the farmer's interest as well as their own by providing long term contract and guaranteeing a market place or raw materials. 

Unless buyers rather than the middleman are approached directly, poverty elimination and farmer's lives won't alleviate. Contract farming, direct marketing, setting up the private market, and digital platforms will create transparency and remove unnecessary intermediaries who add zero value and make the supply chain inefficient. The power of the domestic market is hugely underestimated in Nepal. A general misconception is that if you want to earn more money then you have to tap into the international market. However, people fail to realize that the domestic agricultural market is less demanding, it's large and always growing [6]. Export and domestic consumption should go hand in hand. 

Quality promotion will attract domestic and foreign buyers. Improved quality checks at all stages of the supply chain, innovation, diversity, value addition (weighing, grading, sorting, cleaning, packaging, labeling), coordinated supply chain, access to information, resource center establishment, training for farmers, knowledge about pesticides, cold storage, transport quality and coordination, technical service, fungicidal treatment facilities are mandatory for sustainable agriculture. 

Fruits and Vegetables are displayed in  an organized manner in a market

Coordinated supply chains have structured relationships among buyers, farmers, traders, and processors and detailed specifications are provided to each party. All the parties involved have information on what to produce and how much to produce, the time of delivery, safety, and price [7]. 

Also, transportation has been a real obstacle for farmers. Roads to China are still "under-construction" though it was initiated almost 5 years ago. Due to this scenario, the options for export have been limited. Patenting Nepalese products like tea which is renowned in the world for its quality should be the first step towards internationalization. Currently, Nepal sells tea to India for a wholesale, and India rebrands and sells to other countries at a much higher price. 

Only 28 % of the total agricultural land has been irrigated. There is still a considerable amount of land that can be irrigated. Rain unfettering will boost the scope of crops for agriculture. Farmers will have more options to choose the most profitable one. Revising the River treaties and construction & maintenance of irrigation canals are needed for diversifying agriculture. To control land fragmentation, the government should classify the land or area where agricultural productivity is high and make strict regulations regarding that area/land. "Plotting" the agricultural land for short term gain should be halted for the foreseeable future. 

For the first time in many years, Nepal will have its maximum manpower for utilization. People returning from India and overseas due to COVID-19 provides a perfect opportunity for the government. If the government can utilize and hold the manpower this time, this might be a huge step towards stopping migration. Foreign employment is not considered as the long term poverty elimination solution, so, this opportunity to stop people from going abroad is almost like now or never situation for Nepal. 

Data science in agriculture

Digital and analytics technologies offer a way to create Smart Agriculture by optimizing the supply chain. Supply chain mapping is another solution, while the experiments about the utilization of Blockchain in this sector are also very interesting. But the utilization of Blockchain in Nepal in this sector is highly unrealistic for a few years and feasible options like Smart Agriculture with Supply Chain mapping should be pursued to uplift the agriculture sector of Nepal. 

Most of the risks and loss in the agriculture supply chain is borne by the farmers. Farmers should be kept at the center of the business/supply chain. Business practices and improvements should to done in a way that the benefits and risks in the supply chain should be distributed/shared. To do something unexpected, work-related or the input should be something different from the traditional approach. It's more like doing business differently and following the leaders in these sectors or innovate something new. Coordination between farmers as strategic business partners is a must if the agriculture sector is to bear fruit. Improving income and providing stability in this sector can draw people back to agriculture. 

Thank you for your visit. I hope everything was clear, if not please do not hesitate to contact me for suggestions or queries regarding this topic. Honest feedback is highly appreciated. You can contact me via “ “. Thanks again.

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