Value Chain Insights
Unleashing value chains in the remote mountains of Nepal1
Context
With the hope of turning a new leaf in tackling everyday poverty in some of the most
inaccessible areas of Nepal, the Value Chain approach to improving rural livelihoods
has been consciously pursued in IFAD project. Value chains have been identified and
located across niche products, mostly non-timber, at varying degrees of implementation.
Given the contextual distinctness, locational diversity and a thriving market, the
experiences emanating from the project seems significant in providing insights on
mainstreaming value chain as a concept under conditions where a variety of stakeholders
are backstopping the process through non-profit and profit-making interventions.
The Project
Initiated in 2003, the Western Uplands Poverty Alleviation Project (WUPAP) is currently
in its second phase of implementation. With three phases of 4, 4 and 3 years respectively,
the project will come to a close in 2014. Within an outlay of US$ 32.56 million, the
project is expected to cover 200 village development committees in 11 districts during its
lifecycle. Located in some of remotest and most inaccessible villages in the western
region of the country, the project intends to reach out to as many as 115,000 households.
It must be said that the first three years of the project implementation has been through
one of the most tumultuous periods of political instability in Nepal.
To meet the overall objective `to improve living standards through sustainable growth of
employment, income and access to resources amongst the poor households in targeted
area’ the project is being implemented through five components viz., (i) labor-intensive
infrastructure development, (ii) leasehold forestry & NTFP production, (iii) crop &
livestock production, (iv) micro-finance & marketing; and (v) institutional support.
Adopting rights-based approach, the project has promoted grassroots level organizations
who are responsible for project implementation at the VDC level. The Ministry of Local
Development (MLD) is the lead agency, creating and coordinating synergies between line
departments and the non-governmental organisations.
1
This report should be read in light of the fact that it is primarily based on inputs and discussions
with the project staff and other stakeholders in Kathmandu and Nepalgunj during Oct 11-16,
2009. None of the actual project sites/beneficiaries could be visited/ interviewed during the visit.
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Ground Reality
Value Chain per se doesn’t feature as a project component in WUPAP, however, its
presence can be deciphered from the intervention menu - `micro-finance and marketing’
section enlists activities such as credit for enterprise, saving mobilization support,
entrepreneur training, marketing information service and market linkage establishment.
However, in past year or so `value chain’ as a concept has moved center stage into the
project with the aim of capitalizing on the infrastructure and institutional interventions
that can provide the foundation for unleashing the hidden potential of niche products.
The region is remote and isolated, nestled in the extreme west of the country. The Humla
district, for instance, is synonym to being remote and rugged. The cluster of project
districts have distinct agro-climate that abounds in natural products whose market
potential has yet to be fully exploited2. However, from seabuckthorn to apples and from
handmade paper to medicinal herbs a wide range of niche products (listed below) have
been identified by the project around which not only the project staff but communities are
being trained to provide critical link to the value chain. Further, the project has facilitated
commercial cultivation of medicinal and non-timber species in the leasehold forestry
plots and has networked with leading research, development and commercial agencies in
piloting value chains for specific products.
Value Chain Products
Sector
1. Food/Fruit
2. Medicinal Plants
3. Fibre
4. Essential Oils
5. Handmade Paper
Example of Products
Seabuckthorn, Apple
Yarchagumba, Kutki, Ritha, Allo, Hemp
Jatamasi, Dhupi, Sugandhwal
Lokta
2
*Yarchagumba is special to north-western regions of Humla, Mujhu, Bajhang and Dolpa. What
is known as `herb of life’ is indeed a rare species of parasitic fungi Cordyceps Sinesis that has
wide ranging medicinal properties. When purchased from collectors it costs mere Rs 2.5 to Rs 3.5
lakh a kilo, but once it reaches Nepalgunj or Kathmandu markets its price soars to a staggering Rs
12 lakh a kilo. `The inability of Nepal to capitalize on the natural supply of Yarchagumba and
establish processing plants to add value to the resource harkens back to the Nepali mentality of
arbitrage’, writes Sujeev Sakhya in Unleashing Nepal (Penguin, 2009). Maoists had successfully
raised funds from the (illegal) trading and taxing of this plant. It is only recently that the
Government requires collectors to pay Rs.10,000 royalty per kilo of the plant, though pilferage
abounds.
2
*the list of products is indicative
The value chain narrative of WUPAP has strong undercurrents of unresolved issues, over
which the project has little control, that seemingly impact the outcome significantly:
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lack of transport and communication infrastructure
political instability and over-politicization of communities
culture of dependency leading to apathy in participation
high turnover of government staff
Creating value-chains under such social, political and administrative conditions are
indeed challenging and demand out-of-box thinking in impacting change. This is both a
challenge as well as an opportunity to develop business models under such conditions.
Without doubt, the country is passing through a historic transition where ushering in of
democracy has begun to dilute the erstwhile Kathmandu-centricism alongside concurrent
empowerment of the communities. It has both its pluses and minuses, reflected in the
unresolved issues listed above.
The administrative and political issues can be situated in the country’s turbulent history.
The modern Nepali era consists of the half-century that began with the end of the Rana
dynasty in 1951 to the present experiment with constitutional democracy triggered by the
Maoist uprising. While this period has witnessed a quantum spurt in development, the
weaknesses of the social system to adopting development/technology are starkly visible.
The limits of civil society as a catalyst for change have been exposed. Experts feel that
the early hopes placed in the non-government sector and the free market in affecting
change has been tempered with the state retaining much of its dominance. It is beginning
to change though, but the (social) structural changes are slow to come by3.
Yet, Nepal is different from so many of the poorest countries of the world with a
comparable ranking on the HDI in that it has many ecological and climatic zones that can
produce a variety of agro-based products to feed the growing middle class. What makes
Nepal different from the failed economies of sub-saharan Africa is its climate and terrain,
which can be used to advantage to convert its natural endowments into an engine of
economic growth. It is such contrasting political-economy conditions that the project
ought to negotiate to be able to stay effective.
3
State of Nepal, Himal Books, Kathmandu
3
Market Watch
NTFP turnover from Humla district alone is reportedly worth over Rs 2 crore a year,
through an existing informal market of middlemen and traders. Rich in high value crops,
such land-locked regions have either been on the trade route between India and Tibet or
have contributed raw products to the traders along the route. Barter system is still
prevalent in some pockets although trade in niche products has been formalized through
exit routes from the country. Subsistence agriculture and trade in niche products has
remained the traditional livelihoods in the remote mountainous regions. However, owing
to persistent neglect by the state the communities have resorted to distress migration.
Evidently, value chain development in Nepal hinges around the advantages of having
naturally occurring high value products on one extreme and a fairly organized market of
raw and processed material on the other. Though unresolved issues related to securing
better price to the collectors/growers alongside creating a sustained supply of raw
material persist, the two ends of the value chain are nevertheless in place. WUPAP is
strategically positioned in such a situation to engage with communities to seek better
price for their produce as also help them in domesticating some of the non-timber
products. Its experiment with sharing market price for jadi-buti at Nepalgunj4 (the exit
market) with the communities did enlighten them to be proactive (using mobiles) in
seeking information on prevailing prices directly from the Indian market.
Market for niche and value-added products is well-entrenched in Nepal, and is clearly
poised for growth subject to the policy and trade environment being supportive. An
economy that is saddled with near-zero growth rates for some years, such developments
auger well to uplift the poor out of the poverty trap. However, despite reasonable
turnover by private players the understanding of value chains by them is seemingly naïve,
opening up window of opportunities for projects like WUPAP to step up its role. It can
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liaise with the government in creating a policy environment for building robust
regulatory mechanism for trade in products across borders.
create joint facilities for assessing local production potential, providing market
feedback and establishing processing units through PPP.
4
Jadi Buti Association of Nepal (JABAN) has single-handed fought the arbitrary trade restriction by the
Uttar Pradesh government (in India) by securing a Lucknow High Court stay order, but for how long?
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Need it be said that the interest of the market is in:
i)
increasing volume,
ii)
sustaining quality, and
iii)
supportive regulatory environment.
One gets a feeling that the market playing are seeking partnerships with other
stakeholders in scaling up the impact of trade in niche products. Given the fact that the
country’s economy is emerging out of the near zero growth syndrome, it must be viewed
as a welcome step. Since economic activity is interconnected and interlinked, more so in
a land-locked country, forging partnerships is not a luxury but a necessity. It is clear that
partnerships have to be formed to develop micro-enterprise and sustainable selfemployment opportunities. In the Nepali context, the key to doing business is to make
sure that those possessing competencies and skills are `self-employed’.
The growing business in instant noodles reflects a curious case for building
such partnerships. While the industry can create sub-units to supply inputs,
outsourcing inputs like flour and spices can help cottage industry to flourish
alongside. But the industry would need incentives to promote sub-contracting.
The market is currently operating in somewhat of an institutional vacuum, dealing
directly with the producers. For value chains to succeed and contribute to alleviating
poverty, the challenge would be to create a mix of community-led institutions and smallscale enterprises to build viable economic models. For partnerships between
entrepreneurs and businesses to succeed, reforms in land, tax, labour and financial sector
have to be carried out. Evidently, donor projects can facilitate the process of accelerating
reforms by piloting and demonstrating viable and workable models
In the political economy context of Nepal, value chains ought to be viewed beyond the
product-market economic linkage. Value Chains can be situated in the larger context of
alleviating poverty through forging links between micro and macro economics. The
guiding principle of scaling-up value chains should be to remove market inequalities,
alongside creating institutional mechanisms that can sustain the value chains.
-----------------------------------------------------------------------------------------------------------following our discussions, WUPAP and JABAN have agreed in principle to work together in
convening a multi-stakeholders national workshop to flag, network and resolve issues
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Non-Market Actors
Value Chain sector reflects `crowding in’ by non-government stakeholders, that has been
adequately backed by donors. It offers diversity of approaches and methodologies for
making value chains viable and effective. From community mobilization for enterprise
development to certification of quality products, the non-market stakeholders have
adopted diversity of approaches in grounding value chains. If attribution of success is any
issue, it continues to remain a grey area. Attribution could easily be a non-issue provided
the impact of cumulative efforts is discernible.
Given the diversity of value chain products on offer, there is seemingly space for each of
the stakeholders to pilot their creative initiatives in the sector. Evidently, however, there
is a need for multi-stakeholders value chain approach in selected products (like tea and
cardamom). Current focus of attention by non-market actors has been in two areas:
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horizontal and vertical coordination for capacity building, input provision, credit
access, product bulking and market linkages.
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upgradation of value chain by improving quality, increasing volume, sustaining
supply and creating micro-enterprises.
These focus areas of interventions are based on the assumption that there exists a
`market’, both domestic and international, that is ready to absorb increased supplies. In
reality, however, it ought to be tested if the business environment is indeed supportive of
value chains! Undeniably, the non-market actors can be supportive in the interest of the
poor and the marginalized but creation of remunerative jobs rests with the businesses.
To address concerns of the `market’, the non-market actors are contemplating `inclusive
business approach’ a’la contract farming to overcome quantity and quality glitches that
often mar the value chain approach. Given the fact that value chain is a fairly new
concept in the development arena, care ought to be taken to keep distance from
approaches that undervalue social equity and justice.
Though these are early days of diverse experimentation of value chains in the context of
mountain specificity in Nepal, the non-market actors can factor-in the concerns of the
market at one end and the producer at the other in filling gaps in building value chains
around identified products. These could be:
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assess value chains in order of local specificity, product exclusivity and
economic marketability.
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develop micro, small and medium enterprises to bridge institutional gaps
between the producer/collector and the market.
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provide technical support to the `market’ with sustainable harvesting techniques
and processing up-gradation through new technologies.
The list above reflects a comprehensive portfolio of activities that would warrant out-ofbox thinking to forge multi-stakeholders alliances to address issues at the micro, meso
and macro levels. To contribute to the overall economic growth in the country, the market
and non-market actors need to spruce up their respective capacities to not only develop
community-led micro-enterprise models but to contribute to the reform process as well.
The ground for such cooperation is worth exploring.
Advantage WUPAP
It goes to WUPAP credit for having networked with both the market and non-market
actors in the short span of time it has been in the value chain arena. In the process it has
been able to develop value chains around seabuckthorn in 7 districts, handmade paper
and Allo (Himalayan Nettle) both in 6 districts. Work on other value chains seems to be
in fairly advanced stages with training and capacity building support activities lined-up.
However, in doing so it has effectively partnered with both market and non-market
actors.
How far WUPAP succeeds in mainstreaming value chains is a matter of conjecture, given
the fact that the project has `spread the butter too thin’ on the slice of activities? Though
infra-structural developmental activities are critical to the region, these not only dilute the
focus but the impact too is hard to quantify. Yet, the advantage rests with WUPAP, a
donor-government project, to capitalize on its strategic position in the diverse value chain
mosaic in the country. In the light of interaction with diverse stakeholders, WUPAP
could consider the following:
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WUPAP is at an advantage to capitalize on learning from both market and nonmarket actors in creating `common ground’ for networking, experience sharing,
knowledge building and policy influencing processes.
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Currently under-staffed, the value chain portfolio in WUAP may need to given
importance in developing creative strategies for piloting `innovative models’ that
bridge the micro-macro gaps are not repetitive.
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Within the bustling value chain sector, WUPAP may need to situate itself closer
to the needs of the poor in piloting those value chains that may not necessarily
attract the market on account of low volume and unpredictable supply.
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The effectiveness of WUPAP within the uncertain realities of the transition phase
(new government) need to be factored in while designing next generation projects
wherein government’s role could be restricted to being a custodian.
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Space and scope for restructuring and thinning of the activities for the remaining
time period (of WUPAP) may be explored such that value chain can be
mainstreamed as a focus area with policy influencing as its intended outcome.
ULIPH vs WUPAP
Though both are located in the mountain ecosystems, ULPIH (Uttarakhand, India) and
WUPAP (Nepal) represent two contrasting cases, as under:
ULPIH
WUPAP
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VC is being conceived & introduced
product lines for value addition are
being experimented with
markets need to explored and developed
around identified VCs
targeted areas have market-access
through reasonable infrastructure
external influences (of market
proximity) trigger apathy towards VC
VC is fairly new concept with limited
players
VC being situated in market-driven
poverty reduction strategy
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Both ends of VC are largely in place
niche products and informal markets need to
be value-linked
markets exist for niche products, scaling-up
of volume and supply the issue
target areas lack transport and
communication infrastructure
for communities the need for building value
chains is critical livelihoods issue
VC is a bustling sector with diversity of
market and non-market actors
VC is strategically positioned in the
political-economy of development
* the comparative features are indicative
Dr. Sudhirendar Sharma
November 6, 2009
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Value Chain Mosaic
Agency
Persons
Brief
MEDEP
Lakshman Pun
C L Choudhary
Heidi Heikkinen
Bhimendra Katwal
Into its third phase (2008-10), the Micro Enterprise
Development Programme (MEDEP) is a nationally
executed project of the UNDP under the Ministry of
Industry with additional funding from AusAid. It
was set-up in 1998 and is active in 36 districts
SNV
Rik van Keulen
SNV is an international development organisation of
Dutch origin. SNV is being engaged by IFAD to
pilot value chain in its upcoming High Value
Agriculture Project and is working with WUPAP for
seabuckthorn promotion.
ICIMOD
Dhrupad Choudhary,
Dyutiman Choudhary
Brigitte Hoermann
ICIMOD is providing technical support to diverse
stakeholders in situating and grounding value chains
taking into account social, economic, ecological and
cultural contexts.
JABAN
Madhukar Kshetriya &
10 other office bearers
Located at Nepalgung, JadiButi Association of
Nepal is the only agency trading in unprocessed
medicinal plants. With an annual turnover of Rs 80
crore, it trades in 6.5 million kg of medicinal herbs.
HANDPASS Dibya Acharya
Kiran Dangol
Nepal Handmade Paper Association promotes
handmade paper under the brand name Nepalokta,
which is a registered trademark in Europe.
IFAD
Bashy Aryal
Country Representative of IFAD Nepal
WUPAP
Dhan Bahadur Shrestha
Sanjeev Shrestha,
Keshab Nepal, Shyam
Paudel
WUPAP is 11-year project being implemented in 11
districts of Nepal. Its coordination office is located
in Nepalgunj.
ANSAB
Bhishma Subedi
Sushil Gyawali
Reejuta Sharma
The Asia Network for Sustainable Agriculture and
Bioresources (ANSAB) is committed to biodiversity
conservation and economic development through
community-based enterprise development.
AHP
Govind Ghimire
Got a real taste of value chain as we were offered
bel juice at the office of the Alternate Herbal
Products, a company dealing in value-driven,highquality processed herbal/agro products.
WUPAP project coordinator and value chain specialist had facilitated interaction and discussion
with value chain stakeholders in Kathmandu and with the project staff in Nepalgunj.
This report is based on field visit undertaken on behalf of ENRAP to appraise the work of
WUPAP. The help extended by the Project Coordinator WUPAP Mr Dhan Bahadur Shrestha and
Value Chain Specialist Mr. Sanjeev Shrestha is gratefully acknowledged.
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