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PROMOTING AGRIBUSINESS INNOVATION IN NEPAL
Creating Jobs through Agribusiness Innovation
Feas ibi l i t y Assessment for an Agr ibusiness I nnovat ion Center
PROMOTING
AGRIBUSINESS INNOVATION
IN NEPAL
Feasibility Assessment for an Agribusiness
Innovation Center
Prepared by infoDev
Contributing Authors: Shashi Bhattarai, Neeraj Nepali, Jim Thaller, Anushka
Thewarapperuma, Julian Webb
Agribusiness Innovation Center in Nepal: Draft Report
i
Copyright
©2013 Information for Development Program (infoDev)/The World Bank
1818 H Street NW
Washington DC 20433
Internet: www.infoDev.org
Email: info@infoDev.org
All rights reserved
Disclaimers
infoDev/The World Bank: The findings, interpretations and conclusions expressed herein are
entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors
of infoDev, the International Bank for Reconstruction and Development/The World Bank and
its affiliated organizations, the Board of Executive Directors of the World Bank or the
governments they represent. The World Bank cannot guarantee the accuracy of the data
included in this work. The boundaries, colors, denominations, and other information shown on
any map in this work do not imply on the part of the World Bank any judgment of the legal
status of any territory or the endorsement or acceptance of such boundaries.
Rights and Permissions
The material in this publication is copyrighted. Copying and/or transmitting portions or all of
this work without permission may be a violation of applicable law. The International Bank for
Reconstruction and Development/The World Bank encourages dissemination of its work and
will normally grant permission to reproduce portions of the work promptly.
To cite this publication:
PROMOTING AGRIBUSINESS INNOVATION IN NEPAL: Feasibility Assessment for an Agribusiness
Innovation Center. 2013. infoDev, Finance and Private Sector Development Department.
Washington, DC: World Bank.
Agribusiness Innovation Center in Nepal: Report
ii
List of Abbreviations and Acronyms
ABI-ICRISAT - Agri-Business Incubator at International Crops Research Institute for
the Semi-Arid Tropics
ADB - Asian Development Bank
ADB/N - Agriculture Development Bank, Nepal
ADO - Agriculture Development Office
ADS - Agriculture Development Strategy (of Nepal Government)
AEC - Agro Enterprise Centre
AEPZ - Agro-Export Promotion Zone
AfT - Aid for Trade
AGDP - Agriculture Gross Domestic Product
AIC - Agribusiness Innovation Center
ALFN - Association of Livestock Farming Nepal
ANEP - Agriculture Nutrition Extension Project
ANSAB - Asia Network for Sustainable Agriculture and Bio-resources
APIN - Asia Pacific Incubator Network (of infoDev)
APP - Agriculture Perspective Plan
AusAid - Australian Aid Agency
B2B - Business to Business
BDS - Business Development Services
BFIs - Bank and Financial Institutes
BI - Business Incubation
BIC - Business Incubation Center
BIIN - Business Incubation Initiative in Nepal
BIP - Business Incubation Program (of DCSI)
BMO - Business Membership Organization
BMZ - German Federal Ministry for Economic Cooperation & Development
BO2 - Business Oxygen, SME Venture Fund
CAA - Commercial Agriculture Alliance
CAF - Commercial Agriculture Fund
CADP - Commercial Agriculture Development Project (Financed By ADB)
CARD - Centre for Applied Research and Development (of IOE, TU)
CBO - Community-based Organization
CCIs - Chamber of Commerce and Industries
CDCU - Central Dairy Cooperative Union
CEAPRED - Centre for Environmental & Agriculture Policy Research, Extension
and Development
CENTEV-UFV in Brazil – Technological Centre of Regional Development of Vicosa
CEO - Chief Executive Officer
CFUG -Community Forestry User Groups
CIDA - Canadian International Development Agency
CNI - Confederation of Nepalese Industries
CODEX - International Food Standards
COP - Cost of Production
CPG’s - Coffee Producers’ Groups
CSIDB - Cottage and Small Industrial Development Board
CSITC - Cottage and Small Industry Training Centre
CTEVT - Centre for Technical Education and Vocational Training
Agribusiness Innovation Center in Nepal: Report
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CV - Curriculum Vitae
DADO - District Agriculture Development Office
DCCIs – District Cooperatives
DCPA - District Coffee Producers Association
DCSI - Department of Cottage and Small Industry, Government of Nepal
DDC - District Development Committee
DFID - Department for International Development (of British Gov.)
DFTQC - Department of Food Technology and Quality Control
DLS - Department of Livestock, Nepal
DOI - Department of Industry, Government of Nepal
E4N - Entrepreneurs for Nepal
EDP - Enterprise Development Program
EIG - Education for Income generation (USAID Program)
EU - European Union
FAO - Food and Agriculture Organization
FECOFUN - Federation of Community Forestry Users - Nepal
FGD - Focused Group Discussion
FDO - Forestry Development Office
FMC - Fund Management Committee
FNBK - Nepal Beekeepers and Cooperative
FNCCI - Federation of Nepal Chamber of Commerce and Industries
FNCSI - Federation of National Cottage and Small Industries
FNMEG - Federation of Nepalese Micro Enterprise Group
MORMIN - Ministry of Foreign Affairs (of Finland)
FORWARD - Forum for Rural Welfare and Agriculture Reform for Development
FWEAN - Federation of Women Entrepreneurs Association of Nepal
FY - Fiscal Year
GDP - Gross Domestic Product
GEM - Global Entrepreneurship Monitor
GIZ - German Technical Cooperation (former GTZ)
GoN - Government of Nepal
GTP - Growth and Transformation Plan
GTZ - German Technical Cooperation
HACCP - Monitoring Plan and Hazard Analysis Critical Control Point
HIMALI - High Mountain Agribusiness and Livelihood Improvement Project
HIMCOOP - Himalayan Tea Producers Cooperatives Limited
HIN - Heifer International—Nepal
HVAC - Heating, Ventilating, and Air Conditioning
HVAP - High Value Agriculture Project in Hill and Mountain Areas
IAA-IBP - Inculcator for Agribusiness & Agroforestry, Bogor, Indonesia
ICIMOD - International Centre for Integrated Mountain Development
ICT - Information and Communication Technology
IDA - International Development Association (of the World Bank)
IDE - International Development Enterprise
IEDI - Industrial Enterprise Development Institute
IFAD - International Fund for Agriculture Development
IFC - International Finance Corporation (of The World Bank group)
IIN - Incubator Initiative Nepal
ILO - International Labour Organization
Agribusiness Innovation Center in Nepal: Report
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INCLUDE - The Inclusive Development of the Economy Programme (GIZ)
infoDev - Information for Development (of The World Bank Group)
INGO - International Nongovernment Organization
IOE - Institute of Engineering (of Tribhuvan University)
IP - Intellectual Property
IPO - Initial Public Offering
ISO – International Organization of Standardization
IT & BPO – Information Technology and Business Process Outsourcing
ITC - Indian Trade Centre
ITPF - Information Technology Professional Forum
JABAN -Jaributi Association of Nepal
KPAs - Key Performance Areas
KU - Kathmandu University
KUBIC - Kathmandu University Business Incubation Centre
KUSOM - Kathmandu University School of Management
LCEAN - Large Cardamom Entrepreneurs Association of Nepal
LH - Lotus Holdings
LI-BIRD - Local Initiatives for Biodiversity, Research and Development
LIFDC - Low Income Food Deficit Country
MAP - Medicinal and Aromatic Plant
MBA - Masters in Business Administration
MC - Marcy Croups
MCC - Morang Chamber of Commerce
ME - Micro-enterprise
MEDEP - Micro Enterprise Development Program
MFIs - Micro Finance Institutions
MMA - Morang Merchant Association
MOAD - Ministry of Agricultural Development
MoCS - Ministry of Commerce and Supplies
MOEST - Ministry of Environment, Science and Technology
MOF - Ministry of Finance
MOLD - Ministry of Local Development
MPCs - Meat and Poultry Companies
MPFS - Master Plan for Forest Sector
MSFP - Multi Stakeholder Forestry Program
NARC - National Agriculture Research Council
NARDF - National Agricultural Research and Development Fund
NAST - Nepal Academy of Science and Technology
NBA - Nepal Bankers Association
NBF - Nepal Business Forum
NBI - National Business Initiatives
NBIA - National Business Incubation Association
NBSM - Nepal Bureau of Standard and Metrology (GON, MOI)
NCC – Nepal Chamber of Commerce
NCPA - Nepal Coffee Producers Association ()
NDA - Nepal Diary Association
NDSP - National Development Strategy Paper
NEAT - Nepal Economic Agriculture and Trade (USAID Project)
NEF - Nepal Economic Forum
Agribusiness Innovation Center in Nepal: Report
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NEHHPA - Nepal Herbs and Herbal Products Association
NFOSTA - Nepal Food Scientists and Technologist’s Association
NgCCI - Nepaljung Chamber of Commerce and Industry
NGPTA - Nepal Ginger Producer and Traders Association
NIDC - Nepal Industrial Development Corporation
NIMBUS - NIMBUS Holding (Private Agriculture-based Industrial Holding)
NLBIC - Nepal Lotus Business Incubator Centre
NMPFA - Nepal Milk Producer Farmers Association
NNN - Nepal NTFP Network
NPC - National Planning Commission
NPEDC - National Productivity and Economic Development Centre
NRB - Nepal Rastra Bank (Central Bank of Nepal)
NRs./Rs. /NPR - Nepalese Rupees
NTCDB - National Tea and Coffee Development Board
NTCDB - Nepal Tea Coffee Development Board
NTFP - Nontimber Forest Products
NTIS - Nepal Trade Integration Strategy
NYBF - Nepal Youth Business Foundation
NYEF - Nepalese Young Entrepreneurs’ Forum
NYEF - Nepal Youth Entrepreneurs Forum
ODOP - One District One Product
OECD - Organisation for Economic Co-operation and Development
OVOP - One Village One Product (of AEC / FNCCI)
PA - Practical Action
PA Nepal - Practical Action Nepal (British NGO)
PAC – Practical Action Consulting
PAC Nepal - Practical Action Consulting Nepal (Consulting wing PA Nepal)
PACT - Project for Agriculture Commercialization and Trade
PAF - Poverty Alleviation Fund
PFA - Prevention Food Adulteration
PPP - Public-Private Partnership
PR - Public Relations
R&D - Research and Development
RECAST - Research Centre for Applied Science and Technology
RMFDC - Rural Micro Finance Development Corporation
ROI - Return on Investment
RTA - Regional Trade Agreement
SAARC - South Asian Association for Regional Cooperation
SABAL - Sustainable Agri. with Bazar for Advancing the Livelihoods
SAS-N - Society of Agriculture Scientists Nepal
SAWTEE - South Asia Watch on Trade, Economics & Environment
SDC - Swiss Development Corporation
SEAM-N - Strengthening of Environmental Administration and Management
at the Local Level in Nepal
SEZP - Special Economic Zone Project
SEZs - Special Economic Zones
SME - Small and Medium Enterprise
SMEDP - Small and Micro Enterprise Development Project
SMEs/MEs - Small and Medium Enterprises / Micro-enterprises
Agribusiness Innovation Center in Nepal: Report
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SNV - Netherlands Development Organization
SP - Selling Price
SWOT - Strength, Weakness, Opportunity & Threat
TA - Technical Assistance
TBI - Technology Business Incubator
TBT - Technical Barriers for Trade
TEIs - Tartary Education Institutions
TOR - Terms of References
TOT - Trainings of Trainers
TPC - Trade Promotion Centre
TTO - Technology Transfer Office
TU - Tribhuvan University
UKAid - United Kingdom Aid (DFID)
UN - United Nations
UNCTAD - United Nations Conference on Trade and Development
UNDP - United Nations Development Programme
USAID - U. S. Agency for International Development
USD - U. S. Dollars
USF - Udhayami Seed Fund
VAT - Value Added Tax
VDC - Village Development Committee
VECDAN - Veterinary Chemist & Druggist Association of Nepal
VIOTH - Vaidya's Organization of Industries and Trading Houses
WB - World Bank
WF - World Fish
WEAN - Women Entrepreneurs Association of Nepal
WEAN Cooperatives - Women Entrepreneurs Association of Nepal Cooperatives
WI - Winrock International
WUPAP - Western Uplands Poverty Alleviation Project
WWF - World Wildlife Fund
YES - Young Entrepreneurs Summit
YSESEF - Youth and Small Enterprise Self-Employment Fund
Agribusiness Innovation Center in Nepal: Report
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Table of Contents
1 Executive Summary .................................................................................................... 1
1.1 Objective .................................................................................................................. 1
1.2 Project Beneficiaries ................................................................................................ 1
1.3 Project Rationale ..................................................................................................... 1
1.4 Poverty in Nepal ...................................................................................................... 2
1.5 Feasibility Study Methodology ............................................................................... 3
1.6 Proposed Areas of Focus ........................................................................................ 4
1.7 Services of the AIC .................................................................................................. 7
1.8 Limits of the AIC ....................................................................................................... 9
1.9 Critical Success Factors .......................................................................................... 9
1.10 Implementation of the AIC .................................................................................. 10
1.11 The Role of infoDev ............................................................................................... 14
1.12 Impacts ................................................................................................................... 14
1.13 Budget Requirements ........................................................................................... 14
2 The Concept of Agribusiness Innovation Center—AIC .......................................... 16
2.1 Accelerating Agribusiness Development through Innovation ........................ 16
2.2 Agribusiness Innovation Centers.......................................................................... 16
3 The AIC Feasibility and Business Plan Process ........................................................ 19
3.1 The Process ............................................................................................................. 19
3.2 Agribusiness Stakeholders in Nepal ..................................................................... 23
3.3 Policy Support for Agribusiness Incubation in Nepal ........................................ 28
4 Focusing on Value Addition ..................................................................................... 30
4.1 Value Chains with Market Potential .................................................................... 30
4.1.1 Tea ................................................................................................................... 34
4.1.2 Coffee ............................................................................................................. 35
4.1.3 Honey .............................................................................................................. 35
4.1.4 Ginger ............................................................................................................. 36
4.1.5 Large Cardamom ......................................................................................... 37
4.1.6 Floriculture ...................................................................................................... 38
4.1.7 Potato ............................................................................................................. 38
4.1.8 Milk and Dairy ................................................................................................ 39
4.1.9 Meat ................................................................................................................ 40
4.1.10 Fish ................................................................................................................... 41
4.1.11 Nontimber Forest Products and Essential Oils ............................................ 42
4.2 Donor Value Chain Mapping .............................................................................. 44
4.3 The Focus of the AIC ............................................................................................. 49
5 Target Clients ............................................................................................................. 53
5.1 Nepalese Agribusiness Entrepreneurs Landscape ............................................ 53
5.2 Nepalese Agribusiness SMEs Needs .................................................................... 55
5.2.1 SME Barriers ..................................................................................................... 55
5.2.2 Gaps in Service Provision to SMEs ............................................................... 57
5.2.3 SME Needs ...................................................................................................... 58
5.3 Entrepreneur Pipelines—Feeder Channels and Complementary
Organizations .................................................................................................................. 59
5.4 The Market for Business Incubation ..................................................................... 62
5.4.1 Client Targets ................................................................................................. 64
6 Business Model .......................................................................................................... 67
Agribusiness Innovation Center in Nepal: Report
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6.1 Selecting Clients .................................................................................................... 67
6.2 AIC Service Portfolio .............................................................................................. 68
6.2.1 Payment for Services ..................................................................................... 69
6.2.2 Market and Technical Knowledge ............................................................. 70
6.2.3 Advisory Services and Networking .............................................................. 70
6.2.4 Innovation Acceleration Platform ............................................................... 71
6.2.5 Access to Facilities and Locations: Hub and Satellites ............................ 71
6.2.6 Access to Finance ......................................................................................... 73
6.3 A Multistakeholder Networking Approach ........................................................ 74
7 Institutional and Governance Arrangements ......................................................... 78
7.1 Mission, Vision, and Strategic Objectives ........................................................... 78
7.2 Ownership, Governance, and Management ................................................... 80
7.2.1 Options ............................................................................................................ 81
7.2.2 Roles of Stakeholders .................................................................................... 85
7.2.3 Role of the AIC Board and Management ................................................. 91
7.3 Selecting the AIC Host Institution ......................................................................... 92
7.3.1 Expression of Interest ..................................................................................... 92
7.4 AIC Personnel ......................................................................................................... 93
8 Implementation Requirements ................................................................................ 97
8.1 Facility and Infrastructure Requirements ............................................................ 97
8.1.1 Access to Testing Facilities ........................................................................... 97
8.1.2 Access to Relevant Technology .................................................................. 97
8.1.3 Access to Packaging .................................................................................... 97
8.1.4 Pre-incubation ............................................................................................... 97
8.1.5 Location .......................................................................................................... 98
9 Financial Plan ............................................................................................................ 99
9.1 Budget ................................................................................................................... 100
9.2 Sustainability ......................................................................................................... 101
9.2.1 Royalty .......................................................................................................... 103
9.2.2 Equity ............................................................................................................. 104
9.2.3 Incubation Fee ............................................................................................. 104
9.2.4 Finance Brokerage ...................................................................................... 104
9.2.5 Other Revenue ............................................................................................ 104
9.3 Financing Plan ...................................................................................................... 105
10 Results and Impacts ................................................................................................ 106
10.1 Outcomes ............................................................................................................. 107
10.2 Social and Economic Impact ............................................................................ 108
10.3 Monitoring and Evaluation ................................................................................. 109
11 Conclusions ............................................................................................................. 110
12 Annexes ................................................................................................................... 111
Annex 1: Stakeholder Support ................................................................................. 111
Annex 2: Conclusions of InfoDev Global Good Practices Assessment on
Agribusiness Incubation ........................................................................................... 116
Annex 3: Nepalese Agribusiness Donor Mapping ............................................... 119
Annex 4: Nepalese Agri-based and Food Industry Information ......................... 120
Annex 5: Institutional Arrangement of Business Incubators in Nepal—Operating,
Closed, and Planned .................................................................................................. 126
Annex 6: Value Chain Maps .................................................................................... 127
Agribusiness Innovation Center in Nepal: Report
ix
Tea Value Chain Map................................................................................ 127
Coffee Value Chain Map.......................................................................... 128
Honey Value Chain Map .......................................................................... 129
Ginger Value Chain Map .......................................................................... 130
Cardamom Value Chain Map ................................................................. 131
Potato Value Chain Map .......................................................................... 132
Milk and Diary Value Chain Map ............................................................. 133
Meat Value Chain Map ............................................................................ 134
Fish Value Chain Map ................................................................................ 135
NTFP and Essential Oil Value Chain Map ................................................ 136
Floriculture Value Chain Map ................................................................... 137
Annex 7: Phasing of Enterprise Support ................................................................. 138
Annex 8: AIC’s Prospective Clients ......................................................................... 140
Annex 9: Setting a Royalty Fee ............................................................................... 144
Annex 10: Job and Tax Impacts ................................................................................ 145
Annex 11: Profile of Key Partner Institutions .............................................................. 146
Annex 12: DFTQC Pilot Plant Renovation and Cost ................................................ 152
Annex 13: Preparedness to Pay for Services ............................................................ 153
Annex 14: Learning from Previous Business Incubation Efforts ............................... 155
Agribusiness Innovation Center in Nepal: Report
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List of Figures
Figure 1: AIC Services ............................................................................................................ 17
Figure 2: Nepalese AIC Feasibility Assessment Process .................................................... 19
Figure 3: Composition of Stakeholders Consulted ............................................................ 20
Figure 4: Nepal AIC Feasibility Assessment and Business Planning Methodology ........ 22
Figure 5: Enabling the Development of Innovative Sustainable Agribusiness Sector in
Nepal ....................................................................................................................................... 50
Figure 6: Feeder Channels ................................................................................................... 60
Figure 7: Positioning Nepalese Agribusiness SMEs for Growth ......................................... 68
Figure 8: AIC Operation: Hub and Satellite ........................................................................ 72
Figure 9: AIC Organization Structure ................................................................................... 84
Figure 10: Budget Overview ............................................................................................... 101
Figure 11: Tea Value Chain ............................................................................................... 127
Figure 12: Coffee Value Chain .......................................................................................... 128
Figure 13: Honey Value Chain ........................................................................................... 129
Figure 14: Ginger Value Chain .......................................................................................... 130
Figure 15: Cardamom Value Chain .................................................................................. 131
Figure 16: Potato Value Chain ........................................................................................... 132
Figure 17: Milk and Diary Value Chain .............................................................................. 133
Figure 18: Meat Value Chain ............................................................................................. 134
Figure 19: Fish Value Chain ................................................................................................ 135
Figure 20: NTFP and Essential Oil Value Chain ................................................................. 136
Figure 21: Floriculture Value Chain.................................................................................... 137
Figure 22: Phasing of Support to be Provided to AIC Cilents ........................................ 138
List of Tables
Table 1: Benefit Potential of Value Chains ........................................................................... 3
Table 2: Key Value Chains with Potential for Enterprise Growth ....................................... 4
Table 3: Nepal AIC Service Offering ..................................................................................... 8
Table 4: Nepalese AIC Annual Expenses When Established ........................................... 12
Table 5: AIC Revenue Generation Scheme for the First Six Years of Implementation . 13
Table 6: Nepalese Agribusiness Stakeholder Mapping .................................................... 25
Table 7: Nepal Agribusiness Business Innovation / Incubation Ecosystem Gap Matrix26
Table 8: List of Priority Value Chain ..................................................................................... 33
Table 9: Number of Nepal dairies, size and processing capacity .................................. 39
Table 10: Net Meat Production ........................................................................................... 40
Table 11: Donor Mapping Based on Value Chains .......................................................... 44
Table 12: Licensed Food Industries in Nepal until FY 2012/2013 ...................................... 53
Table 13: Department of Industry Registered Agro-based Industries ............................. 54
Table 14: Feeder Channels .................................................................................................. 61
Table 15: Selected Agribusiness Projects under MOAD .................................................. 65
Table 16: Client Targets ......................................................................................................... 66
Agribusiness Innovation Center in Nepal: Report
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Table 17: Nepal AIC Service Portfolio ................................................................................. 69
Table 18: Potential Collaborating Agencies, Projects and Programs ............................ 75
Table 19: Organizational Arrangement for Nepal AIC ..................................................... 81
Table 20: AIC Host Organization Options ........................................................................... 81
Table 21: Key Stakeholders and their Roles—Network for AIC ........................................ 89
Table 22: AIC Staffing Requirement (at full capacity) ..................................................... 95
Table 23: Budget Summary ................................................................................................ 101
Table 24: AIC Annual Expenses when Established .......................................................... 102
Table 25: AIC Revenue Generation for the First Six years of Implementation ............ 103
Table 26: Nepalese AIC Financing Required (over a four-year period) ...................... 105
Table 27: Aniticipated Impact from AIC .......................................................................... 107
Table 28: Stake Holders Consulted .................................................................................... 111
Table 29: Studied Agribusiness Incubators’ Quantifiable Outputs................................ 117
Table 30: Nepalese Donor Mapping ................................................................................ 119
Table 31: Categorized List of Licensed Food and Beverage Industries in Nepal until FY
2012/2013 .............................................................................................................................. 120
Table 32: Licensed by DFTQC Central Office .................................................................. 121
Table 33: Food Industries Registered at DFTQC, Kathmandu by Fiscal Year .............. 121
Table 34: Food Industries Licensed by DFTQC Biratnagar Regional Office (Eastern
Nepal) ................................................................................................................................... 122
Table 35: Food Industries Licensed by DFTQC Hetauda Regional Office (Central
Region of Nepal) ................................................................................................................. 123
Table 36: Licensed by DFTQC Bhairhawa Regional Office (Western Nepal) .............. 123
Table 37: Licensed by DFTQC Nepalganj Regional Office (Midwestern Region, Nepal)
................................................................................................................................................ 124
Table 38: Licensed by DFTQC Dhangadi Regional Office (Far Western Nepal) ........ 124
Table 39: Alcoholic Beverage Industry in Different Parts of Nepal (As of 2012/13) .... 124
Table 40: Agro-based Industries with more than NPR 30 Million Fixed Capital
Investment ............................................................................................................................ 125
Table 41: Nepalese AIC Target Clients Categorization .................................................. 140
Table 42: Deal Flow of AIC’s Enterprises ........................................................................... 141
Table 43: Combined Turnover of AIC’s Client Enterprises .............................................. 142
1
1 Executive Summary
1.1 Objective
This report examines the feasibility of an Agribusiness Innovation Center (AIC) in the
agro-processing sector in Nepal and proposes a sustainable business model.
The proposed AIC will foster and accelerate the growth of Nepal’s agro-processing
sector, thereby helping to commercialize agricultural production, increase
agricultural incomes, and reduce poverty. It builds upon infoDev’s earlier efforts to
develop and expand business incubation in Nepal. Lessons gathered are from
various agribusiness incubators (see the Global Good Practices Assessment on
Agribusiness Incubation1) and similar feasibility assessments carried out in Ethiopia,
Mozambique, Senegal, and Tanzania.
The AIC will contribute toward this objective by identifying innovative growth-
oriented entrepreneurs who are pursuing business opportunities based on post-
harvest value addition of agricultural commodities. It will provide these
entrepreneurs with a holistic service offering that accelerates their growth and
increases their sustainability. In the process of doing so, the AIC will engage all
stakeholders along the value chain, thus strengthening the innovation and
entrepreneurship ecosystem affecting the start-up and growth of innovative
agribusiness enterprises. Relatedly, the AIC will strive to have a demonstration or
catalytic effect, encouraging a new generation of entrepreneurs to enter, grow,
and advance the industry.
1.2 Project Beneficiaries
The AIC will have three groups of beneficiaries.
The direct beneficiaries include high growth potential agribusiness
entrepreneurs and small businesses.
The indirect beneficiaries are smallholder farmers that supply raw materials to
enterprises and tangential service providers, such as logistical support
providers and packaging services, who will benefit from the increased
demand for their services.
Associated beneficiaries include PACT and other agencies supporting the
commercialization of agriculture, whose clients involved in agro-processing
will receive additional support from the AIC.
1.3 Project Rationale
Subsistence agriculture with traditional farming practices predominates in Nepal,
resulting in widespread underemployment and poor use of resources. According to
1infoDev. 2011. Growing Food, Products, and Businesses: Apply Business Incubation to Agribusiness SMEs.
Washington, DC: World Bank. http://www.infodev.org/en/Publication.1139.html
Agribusiness Innovation Center in Nepal: Report
2
the Nepal Economic Survey 2011/12, only 1,766,000 hectares out of a total of
2,641,000 hectares of arable land have been irrigated.
Agricultural production (typically without any processing), accounts for nearly 26
percent of total exports, mostly to India, although the majority of Nepalese farmers
are subsistence farmers, who do not export surplus production. Moreover, Nepal is a
mountainous country, in which there are numerous pockets of food-deficit areas,
because surpluses are more easily directed to India than to remote mountain
regions within Nepal, which have transport difficulties.
The major food crops grown in Nepal are paddy, wheat, maize, barley, millet, and
pulses. Sugarcane, potatoes, oil seeds, jute, tobacco, fruits, vegetables, honey, tea
coffee and cotton, mushroom, and floriculture are the main high value cash crops.
Animal products (including milk, meat, eggs, fish, and wool) are produced in the
country also.
Nepal expects growth in the agriculture sector. In the current fiscal year (2012/13),
paddy production is expected to increase by 2.3 percent and maize by 5.4 percent.
Similarly, the production of wheat, millet, barley, and buckwheat is expected to
increase by 5.9, 4.1, 14.9, and 13.3 percent, respectively. Despite significant livestock
numbers and an expected record rise in milk production of 4.6 percent to 1,623,000
MT,2 production does not meet the demand from local consumers.
1.4 Poverty in Nepal
Poverty poses a serious problem for Nepal. The Nepal Economic Survey (20011/12)
conducted by Ministry of Finance estimates that 25.2 percent of the population is still
living below the poverty line, defined as an average annual income of Rs. 19,261,
down from 41.76 percent in 1995/96. However, there are significant differences
between urban and rural areas. The urban population living below the poverty line
was 21.55 percent in FY 1995/96, which fell to 9.55 percent in FY 2003/04, but which
rose to 15.46 percent in FY 2009/10, according to the Nepal Living Standard Survey
(III).3
Poverty in rural areas has shown gradual improvement, even though it is still higher
than in urban areas. In FY 1995/96, the rural population living below the poverty line
was 43.27 percent, which fell to 34.62 percent in FY 2003/04 and 27.43 percent in FY
2009/10. According to the Nepal Life Standard Survey III (2011/12), the Gini Index,
which depicts income inequality, declined to 0.33 percent, meaning there has been
a decline in income inequality.
The Food and Agriculture Organization of the United Nations (FAO)4 lists Nepal as a
Low-Income Food-Deficit Country (LIFDC). The key contributing factors are poverty,
2 Government of Nepal. National Economic Survey-Nepal 2011/12. 3 Nepal Living Standard Survey-II, 2003/04. 4http://www.fao.org/countryprofiles/lifdc.asp
Agribusiness Innovation Center in Nepal: Report
3
uncontrolled urbanization, and associated use of agricultural land in accessible
lowland areas for real estate development and shortages of manpower in the
uplands. Furthermore, climatic factors, poor agricultural facilities, poor agricultural
inputs, and malpractices, such as inappropriate cultivation patterns and pesticide
use, have contributed to declining agriculture productivity.
Agricultural development is the foundation for food security and sustainable
economic development in Nepal, because it is the major source of income and
employment for most Nepalese and because of the key role it plays in the
economy. As such, the government has made agricultural development a priority,
recognizing the importance of agricultural commercialization for economic
development.
1.5 Feasibility Study Methodology
Agribusiness incubation—defined as the provision of a holistic service offering to
growth-potential small and medium enterprises (SMEs)—can either focus on one or a
few subsectors or value chains, or on a broader model that assists any growth-
potential agribusiness enterprises. The choice of model depends in large part on the
local market conditions as assessed against the parameters outlined in the table
below.
Table 1: Benefit Potential of Value Chains
Indicator Specific Questions
Scalable Production Potential (with
comparative advantage)
Are there agricultural subsectors and value
chains with known comparative advantage
that offer sufficient production of adequate
quality within economic reach of processors,
and can this be increased (if required) to
facilitate beneficiation expansion?
Geographically Clustered Growth
Entrepreneur Capacity
Do growth entrepreneurs exist or can they be
developed or recruited to ensure the growth of
beneficiation activities within a suitable
geographic cluster? What do they need to
access and develop opportunities? Are there
gaps in these areas and can an AIC offer
solutions?
Access to Finance
Does suitable and accessible funding exist or
can it be facilitated, for development, research
and development (R&D), commercialization,
and expansion?
Clear, Ready Stakeholders (including
industry leverage)
Are there strong stakeholders that are, or can
be, active in supporting the value chain? Can
they positively affect the likelihood of
implementation?
Scalable, Accessible, and Viable
Markets
Can markets be identified that are scalable,
accessible, and viable now and in the future?
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Infrastructure and Regulatory Constraints
Is there sufficient infrastructure available and
does the regulatory environment provide
incentives for entrepreneurs to take advantage
of the value addition opportunity?
A significant part of the feasibility assessment entailed analyzing the Nepalese
market against these parameters, building upon earlier incubator feasibility studies
for Nepal, using a methodology that involved a combination of desk research to
review literature on agribusiness in Nepal, consulting with stakeholders and
agribusiness entrepreneurs, and learning from infoDev’s initial work in agribusiness in
Sub-Saharan Africa. Individual meetings were held with 67 public and private
stakeholders and entrepreneurs. The inception workshop involved 25 people and
the stakeholder consultation workshop involved more than 70 people from multiple
organizations. The work was undertaken in the second half of 2012.
1.6 Proposed Areas of Focus
Table 2: Key Value Chains with Potential for Enterprise Growth
Coffee:
Despite high prices fetched by Nepali coffee in the international market, export volumes
have not increased significantly. As per the National Tea Coffee Development Board
(NTCDB), production of coffee in the fiscal year 2011/12 was 153 tons5, of which 279,762
kilograms were exported. In the same period, 31,326 kilograms were imported. The
government of Nepal is keen on developing a Nepali coffee brand in the country and
has approved the Nepali Coffee Logo (brand) and awarded rights to three traders that
meet the set standards. Fourteen coffee processors are the members of NTCDB-Nepal,
the apex body for the coffee sector. Development organizations working for promotion
and commercialization of coffee in Nepal are Project for Agriculture Commercialization
and Trade (PACT), International Development Enterprise (iDE), Winrock International (WI),
Education for Income Generation (EIG), Local Initiatives for Biodiversity, Research and
Development (Li-Bird), Agro Enterprise Centre (AEC), Agriculture Development Office
(ADO), U.S. Agency for International Development (USAID).
Fish:
From water surface area of 26,036 hectares, 26,941 tons of fish are produced per annum.
With huge unmet and growing domestic demand for fish and related products,
commercialization of this sector has potential for growth and for import substitution.
Although the exact number is not known, a large number of farmers are engaged in fish
production, particularly in the southern plains of the country and the subsector offers
potential for growth and improvement in rural livelihoods. The major organizations,
projects and donors working in the sector are PACT, EIG, Forum for Rural Welfare and
Agriculture Reform for Development (Forward), Centre for Environmental & Agriculture
Policy Research, Extension and Development (CEAPRED), Agriculture Nutrition Extension
Project (ANEP), iDE, ADO, USAID, and World Fish (WF).
Floriculture:
There is a growing demand for cut flowers in the country. By FY 2010/11, 86 flower
showrooms had been established in the country and more than 600 nurseries have been
established. About 635 firms and individuals are directly engaged in this subsector out of
5 “Ton” in this document refers to metric tons. Its abbreviation is “t.”
Agribusiness Innovation Center in Nepal: Report
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which only 467 are members6 with Floriculture Association of Nepal FAN. The sector
currently displays a growth rate of 10 to 15 percent annually.
Ginger:
Nepal is the fifth largest producer and the 15th largest exporter of ginger in the world,
producing 216,289 tons from 19,081 hectares. The market for ginger is expanding with
increasing use by ayurveda pharmaceutical industries in Nepal and India. More than 80
percent of the total production is exported to India, the only export destination of fresh
and dried ginger produced in Nepal. Initiatives such as the Ginger and Spice
Development Program have commenced, providing technical services to farmers
through Department of Agriculture with the government of Nepal emphasizing ginger as
a priority for commercialization. Forty-three entrepreneurs, including producers, exporters
and processors, were identified by the NEAT activity (USAID funded Project) in the mid-
western and eastern regions. The main projects, donors, and nongovernmental
organizations (NGOs) in this sector are Micro Enterprise Development Program (MEDEP),
Comercial Agriculture Development Project (CADP), PACT, German Technical
Cooperation (GiZ), NEAT, PA, EIG, Marcy Croups (MC), AEC, ADO, and USAID.
Honey:
Nepal has the potential to produce more than 10,000 tons of honey per year. However,
the total production of honey at present is estimated to be about 1,500 tons per year.
Nepali honey could benefit from international market demand, if appropriate measures
are taken and programs are available to strengthen the sector. One of the leading
honey companies calculates that if honey consumption increased by 0.1 kilogram per
capita then total demand for honey in the domestic market would be about 2,500 tons
per year. At present, there are eight major honey processing and exporting companies in
the country. Some of the key donor organizations/projects working in the honey value
chain are MEDEP, PACT, GiZ, International Centre for Integrated Mountain Development
(ICIMOD), AEC, ADO, USAID, and World Bank through various projects.
Large Cardamom:
Nepal is the world’s largest producer of large cardamom, with annual production
exceeding 5.2 thousand tons, which is expected to increase annually. Cardamom is
produced and processed by over 70,000 households in the East of Nepal. It ranks
consistently in the top 12 export commodities of the country and contributes on average
an annual $20 million7 to the national economy, including $12 million in export earnings.
During the study, four processing industries were identified. Projects and organizations
such as CADP, PACT, NEAT, ADO, Netherlands Development Organization (SNV), USAID,
and NTCDB are the major working entities in this subsector.
Meat:
With a total number of 9,991,520 sheep and goats reared in the country, Nepal produces
55,531tons of meat annually. There are 17 large meat processors in the country, who
produce a variety of meat products, including sausage, salami, chicken cuts, and
“momo.” Demand for meat has been increasing, as a result of the growth in population,
urbanization, growing income levels, and a desire to shift consumption to quality animal
products. A large number of projects and organizations are engaged in strengthening
the sector: PACT, High Mountain Agribusiness and Livelihood Improvement Project
(HIMALI), Western uplands Poverty Alleviation Project (WUPAP), Education for Income
Generation (EIG), Practical Action (PA), Forward, Li-Bird, AEC, ADO and Heifer
International-Nepal (HIN).
Milk and Dairy:
6FAN, March 2013 updated data. 7 All dollar amounts are U.S. dollars unless otherwise indicated.
Agribusiness Innovation Center in Nepal: Report
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Livestock is one of the essential activities for Nepali farmers, important for manure, milk,
meat, and religious purposes. The total milk production of the country is about 1.5 million
tons. The annual growth of internal consumption of milk is about 8 percent, but
production is increasing at only 3 percent. The major milk products of the country are milk
powder, buttermilk, curdled milk, cream, cheese, ghee, ice cream, and other sweet
products. The Nepal Dairy Association is the apex body for milk processors with 76
members. According to the study conducted by FAO, Nepal in 2010 reported the
following dairies: three large, six medium, 26 small, and 215 cottage-industry level. Some
of the major organization working in the milk and dairy subsector are MEDEP, PACT, GiZ,
Market Access for Smallholder Farmers (MASF), iDE, PA, Forward, AEC, Department of
Livestock, Nepal (DLS), USAID and Department for International Development (DFID).
NTFP and Essential Oils:
With its unique geography, Nepal is rich in biological resources and possesses a diverse
variety of nontimber forest products (NTFPs). About 2,171,522 kilograms of NTFP products
are collected, with revenues of more than $245,000. There are 108 processors in the NTFP
value chain range from small to large, but only 31 of them are under Nepal Herbs and
Herbal Products Association (NEHHPA). The small processors produce cosmetic products
and essential oils and supply them to the local market; whereas, the large producers
mainly export unprocessed commodities. Essential oil and related products and the most
important types of products processed, including dementholized oil, eucalyptus oil,
mentha arvensis oil, anthopogon oil, artemisia oil, juniper berry oil, spikenard oil, valerian
oil, wintergreen oil, Zanthoxylum oil, and massage oil. Other products include handmade
paper, morel, herbs, ayurveda herbal teas, organic teas, sorbet (juice) herbal drinks,
ayurveda cream, cosmetics, neem soaps, and mentha products. However, Nepal
exports about 90 percent of NTFPs in raw form, mostly to India where it is processed into
essential oils and used in manufacturing medicines and cosmetic products. Key
organizations working in the NTFP sector are MEDEP, PACT, HVAP, WUPAP, GiZ, EIG, iDE,
PA, ICIMOD, Forward, ANSAB, AEC, JABAN, Forestry Development Office (FDO),
Federation of Community Forestry Users - Nepal (FECOFUN), USAID, DFID and World
Wildlife Fund (WWF).
Potato:
The state of potato production in the country is 2,508,044 tons with a productivity of
13,735 kilograms per hectares. Potatoes are cultivated in all zones of the country.
Demand for potato is increasing in Nepal and Nepali potato seeds have a high demand
in Bangladesh and India, to where a limited amount is exported at the moment.
Although clear records on potato processors are not available, a total of 136 snack and
vegetable processing companies of different levels are registered in Department of Food
Technology and Quality Control (DFTQC), which may be processing potato related items.
The major projects and donors working in this subsector are CADP, PACT, MC, ADO, and
EU.
Tea:
Nepal produces 115,432 tons of green leaves of tea, including 3.2 million kilograms of
Orthodox Tea, of which15 percent is exported and of which 85 percent is sold in Kolkata.
World tea consumption is increasing, as is the market for organic, fair trade, and value
added products, such as specialty, blended, and flavored teas, for which the flavor and
aroma of Nepalese tea is an advantage. The Himalayan Tea Producers Cooperative
Limited (HIMCOOP) has 19 processing factories and major donor projects. Programs
working in this sector are CADP, PACT, NEAT, ADO, SNV, GiZ, USAID, and NTCDB.
Agribusiness Innovation Center in Nepal: Report
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The analysis discovered the following:
a. No one value chain represents a sufficient quantity of growth-oriented
entrepreneurs to warrant a focused incubation model. Therefore, a broader
model that works across subsectors and value chains is proposed.
b. While the market opportunities outlined in Figure 2 are promising, even these
value chains face significant challenges, which many donors and Nepalese
government agencies have recognized and are now working to overcome
value chain bottlenecks. The timing for the AIC is thus opportune to
complement this work by addressing the business-level impediments faced by
agro-processors.
c. The analysis identified some interesting cross-cutting market opportunities in
the areas of branding, certification and compliance, packaging, recycling,
dryer innovation, traceability, and logistics. Therefore, the AIC should
encourage and enable the start-up and growth of innovative enterprises in
these areas.
d. The AIC will target existing agro-processing enterprises to accelerate and
realize their growth potential, while leaving room for some start-up support.
This is being done because of the challenging operating environment and
the desire to achieve results quickly.
e. Across the dominant value chains of Nepal, the resonating challenge
experienced by most existing entrepreneurs is the development of domestic,
regional, and international markets. Food processing entrepreneurs struggle
to understand the opportunities in both domestic and international markets,
distribution options, the industry standards associated with each target
demographic, and the logistical constraints, all of which the AIC needs to
address.
1.7 Services of the AIC
Traditionally support to entrepreneurs in Nepal has been characterized by support
for micro-enterprise development and training, with almost no tangible support for
growing firms past the micro stage. Things are changing with agribusiness
commercialization services, through such programs as the matching grant program
from PACT and similar CADP and CAA programs. Nonetheless, a gap still exists,
encapsulated with three quotes from infoDev’s earlier stakeholder consultations:
“Lack of mentorship…everyone craves advice and mentoring and no
one gets it.”
“Business helping business in a dynamic environment is what is needed.”
“Too much training about business from people who have never done business.”
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Without exception, agribusiness entrepreneurs and participants in focus groups were
enthusiastic about the need for business incubation. Most agribusiness entrepreneurs
need help with marketing, accessing new markets, networking, branding, and
compliance, along with finance. They commonly stress the need for a dynamic
environment that engenders trust, courage, fairness, and motivation, without
bureaucratic hassles.
The needs of entrepreneurs, along with value chain analysis, underpin the AIC
service offering as outlined in the table below:
Table 3: Nepal AIC Service Offering
As illustrated in the table, the AIC will provide entrepreneurs with a comprehensive
service offering that will facilitate access to markets, advice, finance, and facilities.
The AIC will add value to the PACT service offering by providing tailor-made services
addressing the needs of Nepalese agribusiness SMEs, furthering the matching grants
offered by PACT, and as a service that will continue beyond PACT, based on
revenues from the companies assisted.
The services revolve around the following:
Agribusiness market development
o Market access and information
o Branding and labeling
o Certification and compliance (nutritional analysis plus)
o High-value niche markets
Technology
o Suitable technology for post harvesting and processing
o Product design and testing
o Packaging technology
Finance
o Assessing readiness
o Seed capital / matching grants
o Finance for growth
Technical Knowledge
•Market Research and Intellegence
•Business Training
•Technical Training
•Industry Seminars
Advisary Services Networking
•Advisory and Coaching
•Mentors
•Value Chain Partner Facilitation
•Networking Events
Innovation Acceleration
Platform
•Competitions
•Ideation and Prototyping Events
•Acceleration Events
•Collobaration Platforms
Access to Facilities
•Compliance & Certification
•Early Processiong Space
•Working Space / Hot Desking
•Product Showcasing
Access to Finance
•Investment Facilitation
•Linking to Matching Grants
•Connecting to Risk Capital Funds
•Brokerage for Growth Funding
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Management support
o Infrastructure—office space, product showcasing, and early processing
o Human resources management
o Accounting, legal, compliance, and networking
The AIC will provide support to incubatees in partnership with relevant stakeholders,
avoiding duplication by complementing and levering their services and addressing
service level gaps. It will focus its support services toward expanding domestic and
international market opportunities for companies operating in value chains with
potential. It will emphasize supporting the activities of PACT and its clients (the
primary sponsor of the AIC). The AIC will work with similar organizations and their
clients, such as the CAA, the AEC, donor programs, and micro-enterprise
development providers.
1.8 Limits of the AIC
Awareness and preincuabtion services (involving workshops and advice to
prospective AIC clients prior to the rigorous selection process) will largely be at no or
only minimal cost. Once clients are selected, they will pay for the business support,
which will be tailored to their unique needs on a case-by-case basis, by way of
success sharing arrangements, whereby they pay for the support out of increased
sales, increased business value and investment in the business, and payment for use
of office and other infrastructure services.
The AIC will not directly meet these barriers to the growth of agribusiness enterprises:
the development of the primary agriculture sector, a system of supply chain
facilities, storage facilities, transport logistics, and a reliable energy supply.
The AIC will seek to overcome these particular challenges by working with allied
organizations, such as Federation of Nepal Chamber of Commerce and Industries
(FNCCI), Federation of National Cottage and Small Industries (FNCSI), AEC and
government agencies. In addition, partnerships will be developed with the many
donor programs that are focused on value-chain development, thereby leveraging
their work.
1.9 Critical Success Factors
As revealed in Growing Food, Products and Businesses8, there are a number of
critical success factors for an intervention of this kind: 1) helping clients manage risk;
2) understanding the details of the value chain; 3) maintaining a broader goal of
demonstrating innovative business propositions so as to stimulate broader sector
take-up; 4) adapting the focus and business model of the incubator; 5) proactively
identifying and promoting higher value market opportunities; and 6) designing and
8 Global assessment carried out by infoDev to understand the impact and lessons from agribusiness
incubators and innovation centers available at: http://www.infodev.org/en/Article.800.html.
Agribusiness Innovation Center in Nepal: Report
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operating the business incubator in line with good practice, including ensuring a
strong selection process that identifies and cultivates innovative, growth-oriented
entrepreneurs, and developing strong partnerships with the public and private
sector.
The AIC needs the following to fulfill these success factors: 1) staff with extensive
experience in the agribusiness sector and in particular in market development, 2) a
strong capital structure, and 3) a governance framework that allows the
management to operate the AIC in a businesslike manner.
1.10 Implementation of the AIC
Institutional Framework
infoDev with its knowledge and lessons from similar initiatives elsewhere will provide
guidance to local implementers. The AIC is intended to be an autonomous self-
sustaining entity, which will be locally owned and operated as a business in a new
nonprofit-sharing structure, under private sector leadership and with public sector
sponsorship from PACT and the Ministry of Agricultural Development (MoAD). The
tailor-made agribusiness service offering requires a key stakeholder partnership
(Public Private Partnership [PPP]) with additional mechanisms to involve stakeholders
as advisors and service providers. Key government partners include the MOAD
(PACT), Ministry of Industry (MOI; DCSI), NARC, and DFTQC, in addition to
agribusiness entrepreneurs and private sector organizations. PACT, supported by
infoDev, will lead the process to select an implementing institution or consortium and
asssit with operational funding and funding for technical assistance. The
implementation agency will then need to manage the AIC so it becomes an
autonomous and independent self-sustaining organization.
Location
The AIC will operate nationally, with a hub in Kathmandu, the largest urban center
and market in Nepal, and satellites, levering partners’ facilities and services, in
Nepalgunj in the West, a regional center for NFTP industries, and Birattnagar in the
east, a hub for horticulture. From these sites, outreach services will be provided to
support entrepreneurs in their own locations, as well as supporting entrepreneurs
who locate in the AIC facilities, or drop in to make use of the services.
The AIC hub in Kathmandu must be based in an area that is conducive for business,
close to regulators of food products, and with proximity to agribusiness
entrepreneurs, business mentors, and knowledge centers (R&D). The AIC satellite
center locations need proximity to a critical mass of agribusiness entrepreneurs,
access to logistics, and access to procurement of raw materials, processing, and
packaging infrastructure. The AIC will commence with the hub in Kathmandu
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followed by satellites in the east at Biratnagar and in the west at Nepalgunj in Year 2,
after the hub has is established.
Agribusiness Innovation Center in Nepal: Report
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Business Model
The AIC aims for financial self-sufficiency with a number of payment options
addressing the needs of agribusinesses at different stages of development. The AIC
revenue model includes success sharing, finance facilitation, and fees from services.
The success sharing model will align incentives of management with clients, by way
of payment arrangements, whereby entrepreneurs only pay if they either increase
their sales or the company value, or by securing external finance, with AIC
assistance. Options include a 5 to 7 percent royalty on an increase in gross sales for
three to four years or AIC equity in the client company ranging from 5 to 7 percent
and success fees for helping secure finance.
Success sharing will only suit some companies. Others will prefer to pay service fees
for their incubation or training. The AIC will have offices and other facilities such as
meeting rooms, hot desks, office facilities, and a processing facility within its network
for use by clients, for which rent and user pay charges will be levied.
Expectations of Sustainability
The model seeks to achieve 100 percent financial sustainability within four years.
After the initial ramp up period, costs are in the order of $970,000 per annum, in the
following categories:
Table 4: Nepalese AIC Annual Expenses When Established
Expenses
Personnel—Administrative 152,600
Client Services 399,000
Overheads 116,900
Building Services 161,640
Provision for Doubtful Debt 97,593
Depreciation 46,427
Total Expenses 974,160
The cost recovery model is justified by the capacity and willingness of the target
enterprises to pay to the AIC for services.
The agribusiness entrepreneur focus group discussions found that some prefer to pay
at full cost and others preferred payment by way of either a small percentage of
equity, or with a royalty levied on the increase in their sales for a period. The
consultative workshop outcomes showed preference for payment in terms of a
share of revenues and consultation fees.
This implies the AIC should offer options. Businesses at different stages will have
various capacity and potential. For instance, an existing business may find it very
complicated to give up equity, but may be prepared to pay for services at full cost
at the time, or enter into a royalty agreement. A newer business may be in a position
to give up some equity, but may not have the funds to pay for support.
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Noting further refinement of the flexible model, the revenue projected for the first six
years, excluding grants, is summarized in the table below.
Table 5: AIC Revenue Generation Scheme for the First Six Years of Implementation
Year Yr1 Yr2 Yr3 Yr4 Yr5 Yr6
Income
Rent 5,375 10,750 16,125 16,125 16,125 16,125
Incubation Fee 62,497 124,994 187,491 187,491 187,491 187,491
Royalty 187,212 456,273 749,966 749,966 749,966 749,966
Finance Brokerage 22,350 22,350 22,350 22,350 22,350 22,350
Total Income 277,435 614,367 975,932 975,932 975,932 975,932
With four main revenue options, the model has flexibility, for review and adaptation
as the AIC is implemented. Despite positive responses in the agribusiness
entrepreneur survey, payment for services is not the norm in Nepal and paradigms
need to change. Benefits may need to be demonstrated with carefully selected
clients in the first year to show the advantages.
Selecting Clients
The AIC will particularly emphasize networking, engaging, and working
collaboratively with PACT, CAA, chambers of commerce, private stakeholders’
associations and private business development service providers in order to not only
identify, but also select and support AIC client enterprises. A detailed selection
process will need to be prepared in order to select the enterprises. A number of
points are pertinent:
1. Enterprises will need to have a growth focus.
2. Entrepreneurs will need to demonstrate strong entrepreneurial traits, including
leadership and innovation.
3. Enterprises will have a track record indicating success and will demonstrate
competitive advantages in some ways.
4. The market potential of enterprises will need to be positive to allow for growth
activities.
5. The enterprise will not need external financing and be fundable.
Selection will follow a process of application, assessment, review, and capacity
building. Finally, a selection panel will assess the merits of each enterprise. This panel
will include representation from a financial institution, for which Business Oxygen9 is
recommended, as well as a professional with sufficient market knowledge in the
specific product market to assess the market potential of the product.
9A $14 million SME venture fund, Business Oxygen, has just been launched with the support of the IFC
and the World Bank, in partnership with a local private bank, the Bank of Kathmandu, and Beed
Management of Nepal.
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Successful enterprises will be required to formally and legally commit to the
conditions of service, including payment regimes and conditions.
The initial focus of the selection will be on existing firms to help them grow, although
not to the exclusion of new businesses, which will become a more important target
in future years. New businesses will piggyback on the experience of pre-incubation
programs to develop competitive and viable business propositions. This approach
will enable the AIC to more quickly create a set of “demonstration clients” to show
the tangible benefits to other future clients and that payment for services is
worthwhile for the entrepreneur.
1.11 The Role of infoDev
At the planning and implementation stage, infoDev views its role as providing the
technical guidance to plan, resource, and operate the AIC successfully. InfoDev will
draw on its decade-long experience in setting up business incubators and
innovation centers, its agribusiness incubation training program, and its international
network of innovation and entrepreneurship professionals across 107 countries. With
a strong commitment to building local institutional capacity, infoDev will harness its
experience to guide the board and the AIC manager through important milestones,
such as developing a governance framework, client selection processes, service
design and execution, marketing, and monitoring and evaluation. In order to ensure
sustainability and adequate local capacity, infoDev typically remains engaged for a
three to five-year period, gradually scaling down its support as the capacity of the
local team and partners increases.
1.12 Impacts
Once the AIC is up and running, it is projected that 10 new agribusinesses will be
supported per annum with a total of 30 clients under incubation at any one time
once the AIC is fully established. With 100 clients over a 10-year period, 50
graduates, and with 30 percent revenue growth per annum, preliminary modeling
indicates that over a 10-year period the AIC will create 3,024 direct jobs and 8,649
indirect jobs in 100 companies with an increased turnover of more than $27 million
and payment of $2 million in taxes
Smallholder farmers produce most of Nepal’s primary production. The initiative is
expected to significantly affect the incomes of small-holder farmers, the suppliers to
agribusinesses (in terms of reliability), steady prices, and increased sales. Young
people comprise the bulk of Nepal’s new entrepreneurs and the AIC will directly
benefit those involved in agro-processing.
1.13 Budget Requirements
The AIC is designed to become 100 percent financially sustainable after four years
defined as covering the ongoing operating expenses of the AIC, including
depreciation, through earned revenues. A flexible revenue model is proposed in
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which sustainability may be enhanced once various revenue options are tested. An
initial investment of $4 million will be needed as start-up capital in order to achieve
this objective.
The financing required to initiate the AIC will be provided for the first four years, with
income generated during this period being banked. The front-loading of the
external investment allows the management to focus on the development of the
AIC. It also allows the model to be changed, if it becomes clear after two years that
the income generation targets are not likely to be met, or that one revenue option is
preferred to another, or a flexible combination is required. This approach allows
changes to be made before the AIC has to generate income in later years.
The income generating component for the initiative is a mix of royalty fees on
turnover, equity, pay-as-you-go fees (incubation fee) and finance brokerage fees.
This accommodates a mixed portfolio of clients at varying stages of development.
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2 The Concept of Agribusiness Innovation Center—AIC
2.1 Accelerating Agribusiness Development through Innovation
According to the World Bank, “the potential of agricultural growth to reduce
poverty is four times greater than the potential of growth from other sectors.” The
2008 World Development Report outlined how investments in agribusiness produce
significant multiplier effects through their forward and backward linkages,
generating demand for agricultural products and associated inputs and services
and creating on and off-farm employment. Interventions that can unleash this
potential can have a tremendous impact on poverty.
Many developing countries have not turned their vast comparative advantage in
agriculture into a competitive advantage in value-added processed products. They
have subsequently lost out on income generation and job creation opportunities
that this value addition opportunity offers. Tanzania, for example, exports raw
cashew nuts and imports processed cashew nuts. Senegal’s retailers stock only a
handful of locally manufactured food products—preferring imported products,
despite Senegal’s extensive horticulture industry and rich culinary traditions.
Reaching such development goals as job creation and inclusive growth in
agriculture will require a greater focus on supporting growth-oriented entrepreneurs
engaged in downstream business activities (such as processing) to develop
competitive enterprises to link effectively into productive value chains.
InfoDev seeks to advance new approaches to accelerating the growth of
innovative, technology-enabled agro-processing enterprises, while creating
powerful demonstration cases that illustrate how engagement of farmer
associations, industry, financiers, and government in creating innovation and
market-driven shared value can catalyze the green growth of an inclusive and job
creating, competitive agro-processing sector.
2.2 2.2 Agribusiness Innovation Centers
InfoDev is piloting the concept of an AIC as a mechanism to increase the
competitiveness and growth of pioneering innovative growth-oriented small or
medium agro-processing enterprises that have the potential to become an industry
leaders. These SMEs would translate product, process and business model innovation
into improved products and larger market share in existing markets or entry into new
markets and development of new products for existing or new markets.
The AICs are unique from the perspective of their target clientele, their business
model, and the holistic service offering. Although the AICS are tailored to the
specific needs and characteristics of the target market, they generally provide the
following services:
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Figure 1: AIC Services
Over the past decade, infoDev has accumulated a range of lessons about enabling
the start-up and growth of high growth potential enterprises in developing countries.
Its recent global assessment: Growing Food, Products and Businesses,10 revealed a
number of critical success factors for an intervention similar to an AIC (the
conclusions of the global study are available online):
Help clients manage risk: Agribusiness is inherently risky, because of its reliance
on farming (which is susceptible to such environmental risks as flood, drought,
and pests) and perishable products. Critical to the success of an AIC is to help
agro-processors manage these risks
above and beyond the business
challenges that any enterprise faces
in any industry.
Understand the characteristics of the
value chain: The agribusiness value
chain can be long with critical
dependencies between each
element in the chain. The AIC must
understand the state and dynamics
of the value chain to assist the agro-
processing enterprise in being
successful. The World Bank has found
in its review of agribusiness
investments that a strong focus on a
few crosscutting issues, locations, or
10
The global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and
innovation center is available at http://www.infodev.org/en/Article.800.html.
Agribusiness entrepreneur networks,
competitions and fairs
Financial management skills and access to appropriate financing products
Technology information, training and technology access
Business center, mentoring and coaching
and assistance with navigating regulatory requirements, standards and compliance
Market information, marketing skills and market linkages backwards and forwards in the value chain
Agribusiness
Innovation Centers
Market Linkages
Finance
Technology
Business Services
Networks
Results from Agribusiness
Incubation
Fundación Chile:
Initial investment: $50 million
Entrepreneurs’ sales: $425 million
IAA-IPB, Indonesia:
Initial investment: $300,000
Entrepreneurs’ sales: $8 million
Agribusiness Innovation Center in Nepal: Report
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value chains with an established comparative advantage and strong market
prospects provides an opportunity to “pilot difficult reforms, demonstrate
success, and learn from those efforts in scaling up the program.” infoDev has,
therefore, sought to pro-actively identify a few initial focus areas for each
AIC.
Proactively identify and promote higher value market opportunities: The
agribusiness sector is complex and plagued by information asymmetries that
often prevent enterprises from recognizing high-value business opportunities.
An important role of the AIC is to help the enterprise gain access to relevant
market information.
Maintain a broader goal of demonstrating innovative business propositions:
The desired catalytic effect of an intervention of an AIC does not necessarily
happen without a deliberate, tangible effort. Specific programs must be
designed for this purpose.
Design and operate business incubation in line with good practice.
Business incubation good practices include the following, regardless of sector:
o Ensuring a strong selection process that identifies and cultivates
innovative, growth-oriented entrepreneurs.
o Developing strong partnerships with the public and private sector.
o Locating the AIC in a geographic location that is attractive to the target
clientele. The World Bank’s review of agribusiness investments collaborates
this lesson: “Locations with revealed competitive advantage and proven
investor demand should be preferred over attempts to initiate new
industries in new areas.”
o Ensuring that the AIC manager and service provider have entrepreneurial,
and preferably industry, knowledge and that these staff members have
incentives that align with the desired outcomes and impacts of the AIC.
o Obtaining a strong capital structure.
o Putting in place a governance framework that allows the management to
operate the AIC in a businesslike manner.
o Continuously adapting the focus and business model of the incubator in
line with evolving market conditions.
infoDev has sought to address each of these factors in the design of the AICs.
Agribusiness Innovation Center in Nepal: Report
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3 The AIC Feasibility and Business Plan Process
3.1 The Process
The feasibility study for establishing an AIC in Nepal builds on earlier studies,
recommendations, and observations made through infoDev’s activities in Nepal
since mid of 2010. These included a study and report for Enabling the Growth of
Innovative SMEs in Nepal through Business Incubation (2011); a series of capacity
building activities, and an observation tour. Observations on previous incubation
attempts in Nepal are provided in Annex 14. The AIC feasibility assessment was
conducted in close collaboration with PACT to foster a strong commitment to lasting
impact, sustainability, and local ownership. The work was undertaken in the last six
months of 2012 and early 2013.
The earlier infoDev study, Enabling the Growth of Innovative SMEs in Nepal through
Business Incubation (2011), which focused primarily on information and
communication technology (ICT) but also agribusiness and NTFP in the eastern and
western parts of Nepal, served as the starting point for this study. However, the
learning involved and incorporated in the current study, reaches back to 2001, as
shown in the diagram below, drawing upon earlier lessons, entrepreneur surveys,
studies, and capacity building efforts, conducted by infoDev and other local
stakeholders.
Figure 2: Nepalese AIC Feasibility Assessment Process
The key activities for the AIC Study involved are the following:
Inception Workshop
The inception workshop was organized with the key stakeholders to brief them on
business incubation, infoDev, earlier work in Nepal, and the scope of work. It was
also done for initial feedback.
The feedback from the workshop informed detailed work developing the business
model and institutional arrangements for the AIC and helped frame the wider
stakeholder consultation workshop.
Agribusiness Innovation Center in Nepal: Report
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Meetings with Stakeholders and Understanding Local Situation
One-to-one meetings were held with 67 public and private stakeholders, including
government representatives, business member organizations, leading agribusiness
entrepreneurs, leading super market operators, and emerging food processors.
Figure 3: Composition of Stakeholders Consulted
See Annex 9 for the detailed list.
The meeting gathered important information regarding:
Agribusiness challenges
Opportunities for agribusiness
Gaps in services to agribusiness entrepreneurs
Entrepreneur needs and potential services portfolio
Foci of the AIC and services needed to address entrepreneur needs
The AIC business model
Networks and the role of the AIC
Institutional arrangements and governance
Stakeholder Consultation Workshop
A multistakeholder workshop attended by more than 70 entrepreneurs, government
officials and other key stakeholders discussed the preliminary findings. Following
group work, the workshop provided important feedback and endorsement
regarding the AIC and included questions for discussion.
The following are questions regarding the involvement of the network of
stakeholders:
Which organizations need to be involved?
What role should they play?
Agribusiness Innovation Center in Nepal: Report
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How do entrepreneurs overcome barriers in the business environment?
The following are questions regarding institutional arrangements:
How should the AIC be structured to ensure that it operates as an
entrepreneurial business?
How will it reach self-sustainability with revenues from clients?
What can and cannot work in Nepal?
Business model:
What are the revenue options to underpin sustainability?
How will entrepreneurs prefer to pay for the support?
o Large enterprises
o SME enterprises
What works or does not work in Nepal?
The following are questions regarding services and service providers:
What services do growth oriented agribusinesses need?
Who in the network is best suited to provide them?
What are the main service gaps where the AIC should focus?
22
The feasibility assessment and business planning methodology is outlined in the diagram below.
Figure 4: Nepal AIC Feasibility Assessment and Business Planning Methodology
•Review of the agriculture & agribusiness sectors and value chains that offer opportunities for growth enterprises.
Value Chain Analysis
•Identification of stakeholders affecting the success of agribusiness entrepreneurs
Stakeholder Identification
• Workshops and interviews -to validate selection of value chains and identify barriers to SME start-up and growth
Stakeholder Consultation
•Interviews to map existing service offerings and planned initiatives
Gap Analysis •Data gathering to create business model, evaluate locations, principal partners/hosts, etc
Business Modeling
•Feedback from local stakeholders
• Review and inputs from international expert group
Stakeholder Consultation
Partner
Identification
Agribusiness Innovation Center in Nepal: Report
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The main government agencies
most relevant to the AIC include
the following:
Ministry of Agricultural
Development and PACT
Nepal Agriculture Research
Council
Ministry of Industry, DCSI / BIP
DFTQC
PACT is a key government of Nepal
initiative established with the
assistance of the World Bank to
foster commercialization of
agriculture.
DFTQC is the lead government
agency for licensing of food
processing industries.
MOI / DCSI / BIP is the lead
government agency for promoting
business incubation in Nepal.
The process of the AIC feasibility assessment started with a literature review to identify
agricultural subsectors and value chains for which Nepal has a comparative
advantage. The team examined the market opportunities associated with these
products and the quality of the products to narrow down the selection of the subsector
and value chains of focus. Stakeholders agreed that the AIC in Nepal should focus on a
range of agricultural and NTFP value chains, rather than just one or two.
The needs of agribusiness entrepreneurs and the service offering available to them
were examined to understand the gaps in the market, derive a potential service
offering, and map potential partners. Upon deriving a draft service offering, a business
model was developed and verified.
The output of this process is a well-motivated business model for the AIC and the
identification of a range of offerings that are tailored to the needs and market
opportunities of growth-oriented agribusiness entrepreneurs in Nepal.
3.2 Agribusiness Stakeholders in Nepal
A diverse set of stakeholders is involved in
agribusiness in Nepal, both from the public and
private sectors. Their interventions target different
sectors, value chains, and value chain segments.
The AIC’s implementation approach will be to
engage all actors, affecting the ability of its target
clients to succeed and to partner with
organizations that have key competencies
required to serve these clients effectively. The AIC
will seek to complement existing initiatives and
strengthen the innovation and entrepreneurship
ecosystem required for innovative, growth-
oriented enterprises to thrive.
Agribusiness Innovation Center in Nepal: Report
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PACT is a key gover -
nment initiative estab
-lished with the assista-
nce of the World Bank
to foster commercial-
ization of agriculture.
The objective of PACT
is to improve the
competitiveness of
smallholder farmers
and the agribusiness
sector in selected
commodity value
chains, mainly vege-
tables, fish, ginger,
coffee, floriculture,
and horticulture in 25
districts supported by
the project.
PACT plans to
achieve the objective
by (i) helping farmer
groups and
cooperatives engage
in profitable market-oriented production and improved access to markets through the
provision of technology and information services and critical public infrastructure and
linkages to agribusiness, ii) creating and strengthening industry-wide partnerships along
the value chain, thus forging linkages among producers, traders, processors, and other
stakeholders, and (iii) reducing existing obstacles to agriculture and food trade thereby
increasing the ability of farmers and agribusiness to respond to sanitary and
phytosanitory (SPS) measures and food-quality standards to meet domestic and
international market requirements.
The main components of PACT are Component 1: Agriculture and Rural Business
Development and Component 2: Support for Sanitary and Phytosanitary Facilities and
Food Quality Management.
The Commercial Agriculture Development Project (CADP) is an Asian Development
Bank (ADB) project with relevance to agribusiness incubation. In September 2006, CADP
created the Commercial Agriculture Alliance (CAA) as a permanent institution, a not-
for-profit-sharing company, with its head office in Biratnagar, in the Morang district of
PACT—Key Components
Component 1: Agriculture and Rural Business Development
This component helps agro-enterprises, commodity associations,
cooperatives, registered farmer groups and organizations, and
technology and service providers to engage actively in the
development of commodity value chains by partially financing
demand-driven investment proposals through competitive matching
grants. The component also supports investments aimed at creating
viable enterprise-based farmer institutions that are linked to other value
chain participants and are actively engaged with the markets. The
specific activities under this component are the following:
Preinvestment and advisory support
Direct financing of approved subproject proposals in technology,
information, and market infrastructure support
Agribusiness development through partial financing of demand-
driven investment proposals
Component 2: Support for Sanitary and Phytosanitary Facilities and Food
Quality Management.
This component aims to strengthen the efficiency and effectiveness of
sanitary and phytosanitory services in order to reduce existing obstacles
to agricultural and food trade. It also aims to support the private sector’s
efforts to gain market advantage through improved food quality
management.
Agribusiness Innovation Center in Nepal: Report
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eastern Nepal. CAA is responsible for implementation of “Commercial Agriculture
Investment and Management," which is one of five outputs of CADP. CAA manages
the Commercial Agriculture Fund (CAF), which is a cost-sharing grant facility of CADP.
The total budget for CAA is $15 million, including $8 million for CAF (2007–2013). The CAF
facility is available to CAA general members and the DDCs to strengthen market-chain
activities and develop linkages within the market chain. CAA is interested in partnering
with the AIC for the proposed Biratnagar satellite center.
The AIC aims to complement and build upon PACT activities and reinforce CAA
activities, as the CADP will be phased out by the end of FY 2013.
A quick overview of the key agribusiness stakeholders in Nepal is provided in the table
below. Further details on the existing agribusiness support initiatives in the country are
provided in Annex 3 as donor mapping.
Table 6: Nepalese Agribusiness Stakeholder Mapping
Agribusiness Entrepreneurship—Stakeholders and Ecosystem in Nepal
Government of
Nepal / Policy
Ministry of Agriculture Development (MOAD), Ministry of Industries (MoI), Ministry of
Commerce and Supplies (MoCS), Ministry of Science and Technology (MoST),
Department of Food Technology and Quality Control (DFTQC), Department of
Cottage and Small Industries (DCSI), Industrial Enterprise Development Institute
(IEDI), Industry Policy 2010, NTIS 2010, Industrial Enterprise Act (draft), Business
Incubation Program – DCSI, Agriculture Perspective Plan 1995, Agriculture
Development Strategy (ADS), Master Plan for Forest Sector (MPFS), Forest Act 1993,
Forest Rules 1995, National Conservation Strategy (1983), Annual Budgets
Donors /
Bilateral /
Multilateral
World Bank, Asian Development Bank, UNDP, FAO, International Fund for
Agriculture Development (IFAD), Finland, DFID, SDC, USAID
R & D Institutes
Nepal Agricultural Research Center (NARC), Nepal Agriculture Research Fund
(NARF)
International Center for Integrated Mountain Development (ICIMOD)
Business and
Professional
Communities
Federation of Nepalese Chamber of Commerce and Industries (FNCCI),
Federation of Nepalese Cottage and Small Industries (FNCSI), Confederation of
Nepalese Industries (CNI), Agriculture Enterprise Center (AEC-FNCCI), Nepal
Chamber of Commerce (NCC), Nepal Youth Entrepreneurs Forum (NYEF), Nepal
Bankers Association (NBA) , Nepal Business Initiatives, Nepal Economic Forum – NEF
Nepal Food Scientists and Technologists Association (NEFOSTA), Society of
Agricultural Scientists Nepal (SAS-N), Nepal Veterinary Association, Nepal Herbs
and Herbal Products Association, Jadibuti Entrepreneurs Association, Nepal
Foresters’ Association (NFA), Nepal NTFP Network (NNN)
University /
Academia
Agriculture and Forestry University, Kathmandu University, Tribhuvan University,
Pokhara University, Purbanchal University, Business Schools – KUSOM, Ace Institute
of Management, South Asian Institute of Management
Institute of Agriculture and Animal Sciences, Institute of Food Technology, Institute
of Forestry, Technology and Innovation Management Program – Tribhuvan
University
Innovation /
Entrepreneurship
/ Incubation
Agriculture Enterprise Centre (AEC), Business Incubation Program (BIP – GON),
Biruwa Venture Pvt. Ltd.
Agribusiness Innovation Center in Nepal: Report
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Agribusiness Entrepreneurship—Stakeholders and Ecosystem in Nepal
Industries
Sujal Diary / Foods, Shreenagar Agro Farm, NIMBUS Holdings, Gorkha Aurved
Company, Gandaki Honey, The Organic Village, Herbs Processing and Production
Ltd, Nepal Ayurved Centre Ltd – Baidhyakhana, Bhatbhateni – Supermarket
INGOs, Informal
Groups
Agriculture Enterprise Center (AEC), International Development Enterprise (IDE),
Winrock International, ICIMOD, World Wildlife Fund, The Netherlands Development
Organization (SNV), Forum for Rural Women Ardency Development (FORWARD),
Center for Environmental and Agriculture Policy Research, Extension and
Development (CEAPRED), Asia Network for Sustainable Agriculture and
Bioresources (ANSAB), Local Initiatives for Biodiversity, Research and Development
(LI-BIRD)
Sambridhi – The Prosperity Foundation, Change Fusion Nepal (Social
Entrepreneurship Bazzar, Youth Action Fund Program, Social Entrepreneurship
Award), Entrepreneurs for Nepal – E4N, Udhayami Seed Fund – USF, Kalpasala
(IOE), NIMBUS Young Entrepreneurs Summit (YES 2012), Entrepreneurs Lab – KUSOM
Projects /
Programs
Project for Agriculture Commercialization – PACT (WB), Commercial Agriculture
Development Project - CADP - Commercial Agriculture Alliance – CAA (ADB), High
Mountain Agribusiness and Livelihood Improvement Project – HIMALI (ADB), High
Value Agriculture Project in Hill and Mountain Areas – HVAP (IFAD/SNV/AEC), Micro
Enterprise Development Program – MEDEP (GON/UNDP), Nepal Economic
Agriculture and Trade - NEAT (USAID), OVOP – AEC
Consulting /
Training
Beed Management, Lead International, Practical Action Consulting, Business Age,
Lotus BizPort, Future Now, Panos, Saadhya
Funding and
Financiers
SME Venture Capital, Bank of Kathmandu, National Agricultural Research and
Development Fund; Youth and Small Enterprise Self-Employment Fund – MOF,
FNCCI (YSESEF), Micro, Cottage and Small Industry Development Fund,
International The World Bank, IFC, infoDev, Asia Pacific Incubator Network (APIN)
The following table plots the various stakeholder types noted above against business
development stages and notes the main gaps.
Table 7: Nepal Agribusiness Business Innovation / Incubation Ecosystem Gap Matrix
Stakeholder
Domain
Agribusiness Development Stages
R&D and Idea
Development
Demonstration
and Development
Micro-enterprise
Development
Scale Up
and Growth
Commercial
Government
Agencies
MOAD, DOA, MOI, DCSI, DFTQC, NARC
Focused on poverty alleviation, facilitating
smallholders, producers & farmers, commercialization
at producers level
Wealth creation, processing entrepreneurs
development, agribusiness promotion, growth
orientation, innovation, competitiveness enhancement
R & D Institutes
NARC, ICIMOD, NARF
Technical expertise, lab facilities,
knowledgebase, fund
Innovation & IP, commercial
technology transfer, budget
Universities
Academia
Agriculture and forestry, Tribhuvan,
Kathmandu, Pokhara, and
Purbanchal University
Student projects, innovation, lab, knowledgebase,
technocrats
Agribusiness Innovation Center in Nepal: Report
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Stakeholder
Domain
Agribusiness Development Stages
R&D and Idea
Development
Demonstration
and Development
Micro-enterprise
Development
Scale Up
and Growth
Commercial
Entrepreneurship, innovation, commercialization
Professional
Communities
NEFOSTA, Society of Agricultural Scientists Nepal (SAS-N),
Nepal Veterinary Association
Technical expertise, knowledge base
Innovation and entrepreneurship promotion
Business
Communities
FNCCI, FNCSI, CNI, NCC, CCIs, NBI, NYEF
B2B Linkage, business promotion, lobbying, policy
influence
Program design, reach to critical mass, over
politicized, continuity of projects
INGOs
Informal
Groups
AEC, IDE, ICIMOD, CEAPRED, ANSAB, LI-BIRD, Sambridhi – The Prosperity
Foundation, Birewa Venture, Change Fusion Nepal (Social
Entrepreneurship Bazzar, Youth Action Fund Program, Social
Entrepreneurship Award), Entrepreneurs for Nepal (E4N), Udhayami Seed
Fund – USF, Kalpasala (IOE), NIMBUS Young Entrepreneurs Summit (YES
2012), Entrepreneurs Lab - KUSOM
Innovation and entrepreneurship promotion and facilitation
Critical mass—scale up and growth
Projects
Programs
PACT, CADP, HIMALI, NEAT, HVAP, MEDEP, OVOP
Donor support—value chain development—B2B
linkages—potential for growth orientation
Innovation - growth orientation—up-scale
commercialization, focused on small holders and
producers
Consulting /
Business /
Enterprise
Development
Services
IEDI, CSIDB, Beed Management, Lead
International, PAC, Business Age, Lotus BizPort,
Future Now, Panos, Saadhya, Center for Business
Development, Birewa Venture
Business development consulting services
Focus on start-ups—Young entrepreneurs—
Comprehensive Service Packages—Growth—
Limited access—Affordability
Agribusiness
Promotion,
Innovation
and
Incubation
AEC-FNCCI, IDE, CAA, BIP—GON,
Birewa Venture, Change Fusion
Nepal, Sambridhi
Commitments—Resources
(though limited)
Growth orientation—not to the
scale—Strategic partnership
Financiers
MFIs – Savings and Credit Cooperatives,
Agriculture Development Bank, Bank of
Kathmandu, Commercial Banks
Micro finance, BFIs - Physical Collateral focused
Business Oxygen, the IFC—Bank of Kathmandu:
SME Venture Fund—very early stage
Growth finance—Angels Network, Other Private
Venture funds
LEGEND Institutions Capacity/Strength Gap/Shortcomings
Agribusiness Innovation Center in Nepal: Report
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3.3 Policy Support for Agribusiness Incubation in Nepal
The Industry Policy 2010, Agribusiness Policy 2006 and Draft Industrial Enterprise Act 2011
are the specific provisions relevant to the AIC and business incubation. The policies and
proposed acts will facilitate the AIC’s operation.
The Agriculture Development Strategy (ADS), Policy Option Report11 paragraph 64, 65,
459, 511, 529, 548, 564, 575 and 582 highlight agribusiness innovation and incubation.
Agribusiness Promotion Policy 2006
The Agro-Business Promotion Policy was formulated in 2006 (2063 BS) to transform
subsistence-oriented and dispersed agricultural production systems into modern,
sustainable, competitive, and commercial production systems. The policy intends to
reduce poverty through agriculture commercialization, along with import substitution
and export enhancement.
The specific objectives of the Agribusiness Promotion Policy are the following:
To help market-oriented competitive agricultural production
To develop agro-industry to contribute to national and international market
development
To contribute to poverty alleviation by agriculture commercialization
Industry Policy 2010
The government of Nepal instituted a policy for business incubation, under the new
Industrial Policy, for implementation by the Department of Industry, with which the
Department of Cottage and Small Industry is to be merged.
The gist of the Industrial Policy 2010 for Business Incubation is the following:
11.20 Business incubation services will be operated for agriculture and nontimber
forest products and technology related enterprises, in collaboration with private
sector apex bodies, including the Federation of Nepalese Cottage and Small
Industries, Federation of Nepalese Chamber of Commerce and Industries and
National Micro Entrepreneur Group.
11.21 Business incubation services will be provisioned to attract creative,
innovative youth, and women into micro, cottage, and small enterprises.
11.22 To support graduated business incubates to run their businesses, angel fund
and venture capital fund will be provisioned to create employment
opportunities.
11 ADB 7762-NEP. 2013. Policy Options Report. Technical Assistance for the Preparation of the Agricultural
Development Strategy. Asian Development Bank.
Agribusiness Innovation Center in Nepal: Report
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Draft of Industrial Enterprises Act 201112
The proposed Industrial Enterprise Act, which will replace the existing Act of 1992 and is
posted at the FNCCI’s website for comments and suggestions, has the following two
provisions relating to the Business Incubation.
Business Incubation Centers are to be classified as service industries.
There will not be any tax to industries established within Business Incubation
Centers (Clause 21, i).
12Source: http://www.fncci.org.np/downloads.php, in Nepali, accessed April 16, 2013.
Agribusiness Innovation Center in Nepal: Report
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4 Focusing on Value Addition
Agriculture accounts for more than one third of Nepal’s GDP (35.1 percent), more than
3.6 percent of its export revenue, and 67 percent of jobs.13 Furthermore, the Nepal
Labor Force Survey Report 2008 estimates that 84.3 percent of employed women work
in the agricultural and forestry sector. Nepal benefits from varied geographical and
climatic conditions that make the production of a wide variety of agricultural products
possible—from a large domestic market of 27 million people, as well as from its proximity
to northern India and the Tibetan part of China, which represents a market of more
than 16414 and 2.915 million respectively of potential customers for agricultural products
produced in Nepal.
Given the importance of the sector to the economy and people’s livelihoods, the
government of Nepal has made agriculture a key priority in the country’s Growth and
Transformation Plan (GTP), in which it gives priority to agro-processing, SME growth,
increasing the capacity of women, and job creation. The government has prioritized 19
value chains from different sectors for commercialization, including agriculture, service,
and industrial sectors under its Nepal Trade policy (2009) and Nepal Trade Integration
Strategy (2010) reports as listed in section 4.1.
In line with the government’s priorities, the AIC has been designed to accelerate the
growth of an indigenous agro-processing sector. By enabling the start-up and growth of
value-adding agribusinesses, Nepal should move up the agricultural value chain,
capturing a larger share of income for local businesses and small-holder farmers, and
creating more jobs.
4.1 Value Chains with Market Potential
The AIC is to focus on value addition through post-harvest processing of agriculture
products, for which Nepal has a comparative advantage and significant growth
potential. In order to select value chains of focus for the AIC’s intervention; several of
them have been studied in depth. All of them demonstrate the following:
Supply-side problems in terms of both quantity and quality, along with issues
other stakeholders are addressing and which processors are overcoming
themselves.
Increasing domestic, regional, and international market demand.
There are only a limited number of processors in any specific value chain and a
need for more to address the increasing market demand.
Poor marketing and management capabilities.
13Ministry of Agriculture and Cooperatives, 2012. 14http://en.wikipedia.org/wiki/List_of_regions_of_India. 15http://tibetanyouthcongress.org/facts-about-tibet/.
Agribusiness Innovation Center in Nepal: Report
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A priority for local stakeholders.
The Nepal Trade Integration Strategy (NTIS) 201016 study shows that Nepal has
comparative advantages in agriculture and agro-processing, medicinal herbs and
essential oils, hydro-power generation, and service-based industries, especially tourism
and ICT. An ADB study of 130 countries, which assessed the level of opportunity the
country has in terms of product upgrading and growth, ranked Nepal second in South
Asia. The study stated that from 2001 to 2007, Nepal had a diversified export base with
an export basket of around 100 products in which it had a comparative advantage.
Ranked 33rd out of 130 countries, the report reaffirmed that the Nepali economy has
considerable opportunities to tap into export driven growth. NTIS has identified the
following 19 products as those with the best potential for export, out of which seven are
agro-based.
Agro-food
Large cardamom
*Ginger
*Honey
Lentils
*Tea
Instant noodles
*Medicinal herbs and essential oils
Crafts and Industrial Goods
Handmade paper
Silver jewelry
Iron and steel products
Pashmina products
Wool products
Services
*Tourism
Labor services
* Information Technology and Business Process Outsourcing (IT & BPO)
Health
16Government of Nepal, Ministry of Commerce and Supplies, 2010. Nepal Trade Integration Strategy 2010.
Agribusiness Innovation Center in Nepal: Report
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Education
Engineering
*Hydro-electricity
Note: * indicates most viable business from the list, as per views of experts and entrepreneurs.
The value chains on which PACT focuses are seeds, vegetables, coffee, ginger, potato,
floriculture, honey, mushroom, oilseed (mustard and ground nuts), fruits (citrus, banana,
papaya, and mango), lentil, herbs, fish, feed, milk processing, dairy processing, and
poultry. The project is designed to achieve the target by helping farmer groups and
cooperatives engage in profitable market-oriented production, creating and
strengthening industrywide partnerships along the value chains. It also seeks to reduce
existing obstacles to agriculture and food trade. In addition, it has provisions for
technology and information services and critical public infrastructure and linkages to
agribusiness.
Eleven key value chains (or value chain groupings) with potential for enterprise growth
by way of post-harvest and food processing were identified and analyzed in-depth as
those with the best potential for the AIC. These 11 value chains were selected on the
basis of their potential for AIC purpose and common priority of NTIS, PACT and
FNCCI/AEC, as described below.
1. Coffee
2. Fish
3. Floriculture
4. Ginger
5. Honey
6. Large cardamom
7. Meat
8. Milk and dairy
9. NTFP and essential oils
10. Potato
11. Tea
Agribusiness Innovation Center in Nepal: Report
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The following table lists the value chains selected for the AIC alongside those on which
PACT, NTIS, and FNCCI’s AEC focus.
Table 8: List of Priority Value Chain
SN PACT NTIS FNCCI/AEC Selected for AIC Study
1 Seeds
2 Vegetables
3 Coffee Coffee Coffee
4 Ginger Ginger Ginger Ginger
5 Potato Potato Potato
6 Floriculture
7 Honey Honey Honey Honey
8 Mushroom
9 Onion
10 Oil Seeds
(mustard, sun
flower, groundnut)
11 Fruits
(citrus, banana,
papaya, mango)
Junar
12 Floriculture Orchid Floriculture
13 Herbs Medicinal
Herbs/Essential
Oil
NTFP
Essential Oil
NTFP/Essential Oils
14 Rainbow Trout Fish Rainbow
Trout
Fish
15 Feed (poultry) Feed
16 Meat Processing Goat /Meat
Processing
Meat
17 Milk (dairy) Milk and Dairy
18 Poultry Poultry
19 Large
Cardamom
Large Cardamom
20 Tea Tea
21 Instant Noodles
22 Tomato
Total 19 7 16 11
Agribusiness Innovation Center in Nepal: Report
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The following are the comparative advantages of Nepal common to the 11 value
chains:
Varied geographical and climatic conditions, from the plains of the northern
Indian subcontinent to the Himalayas and its unique mountain ecosystem that
make the production of a wide variety of agricultural crops possible.
Production by small holder farmers, who by default use natural and organic
farming methods, which causes supply constraints, but which can be an
advantage as developed countries shift more and more to organic and clean
food and for climate change impacts.
A large domestic market and labor force, with a population of 26 million people,
growing annually by 1.4 percent.17
A widely acknowledged trainable work force.
Comparatively cheaper wages than in other countries. The average wage for
unskilled labor generally ranges from $2.49 per day.
The government has acknowledged these value chains as priorities and is
supporting them with favorable policy measures.
Agreements with the India, China, and European countries that ensure access to
their markets for Nepalese products.
A summary for each of the 11 key value chains identified is presented below and
additional information is available in Annex 7.
Tea 4.1.1
Nepal produces 115,432 tons of green leaves of tea, including 3.2 million kilograms of
Orthodox Tea production, of which 15 percent is exported and of which 85 percent is
sold in Kolkata, India. World tea consumption is increasing, as is the market for organic,
fair trade, and value-added products, such as specialty, blended, and flavored teas,
for which the flavor and aroma of Nepalese tea is an advantage. The Himalayan Tea
Producers Cooperative Limited (HIMCOOP) has 19 processing factories and is one of
the major associations for the sector, along with National Tea and Coffee Development
Board Nepal, Nepal Tea Association, Nepal Tea Planter Association, Himalayan
Orthodox Tea Planters Association, and the Himalayan Orthodox Tea Producers
Association-Nepal. Major donor projects and programs working in this sector are CADP,
PACT, NEAT, ADO, SNV, GiZ, USAID and NTCDB.
The government provides a number of incentives to encourage the industry:
exemptions for land ceiling18; land registration fees and land revenue leasing (up to 75
percent) up to 50 years; capital grants for irrigation subsidies on organic certification
17http://census.gov.np/ 18Ceiling refers to maximum amount of land permitted to use for farming under a single entity.
Agribusiness Innovation Center in Nepal: Report
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(reimbursement of the expenses toward organic certification); and cash incentive for
exports (2 to 4 percent, depending upon the value addition of the product).
There are several constraints that hinder the growth of the sector. There is a shortage of
qualified technical manpower, such as tea tasters, in the processing factories. Most
technical manpower comes from Darjeeling, India at high rates. Other obstacles
include inconsistent quality, lack of standard international certification (such as ISO,
HACCP, organic, fair trade), and high import duties on packaging materials, such as
chest or paper. The VAT refund process for exported goods is difficult and there is a
serious problem in accreditation of quarantine checks done in Nepal.
Coffee 4.1.2
Despite high prices fetched by Nepali coffee in the international market, export
volumes have not increased significantly. As per the NTCDB, production of coffee in the
fiscal year 2011/12 was 153 tons of which 279,762 kilograms were exported. In the same
period, 31,326 kilograms were imported. Fourteen coffee processors are members of
National Tea Coffee Development Board-Nepal, the apex body for the coffee sector.
Development organizations working for promotion and commercialization of coffee in
Nepal are PACT, iDE, WI, EIG, Li-Bird, AEC, ADO, USAID. Coffee is not the only focus of
these organizations and the resources allocated for the coffee sector are
comparatively less than some other sectors, such as cereal crops and vegetables. Key
stakeholder groups in the coffee sector are Coffee Producers’ Groups (CPGs), District
Coffee Producers Association, Nepal Coffee Producers Association (NCPA), and the
National Tea and Coffee Development Board.
One of the major constraints to increased export is low production volumes.
The government is keen on developing Nepali coffee brand in the country and has
approved the Nepali Coffee Logo (brand) and awarded rights to three traders that
meet the set standards. Other main challenges are insufficient technical services, poor
infrastructure for post-harvest handling, insufficient transportation facilities, and low-
quality inputs. Nepal exports coffee beans mostly to Korea, Japan, the United States,
and some European countries.
Honey 4.1.3
The total number of beehives in Nepal is estimated to be 140,850 with the potential to
produce 13,650 tons of honey per year. However, the total production of honey at
present is estimated to be only about 1,500 tons per year19. At present, there are eight
major honey processing and exporting companies in the country.
19P. Pandey. 2009. Market Access of Nepalese Honey AEC/FNCCI, Kathmandu.
Agribusiness Innovation Center in Nepal: Report
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Some of the key donor organizations/projects working in the honey value chain are
MEDEP, PACT, GiZ, ICIMOD, AEC, ADO, USAID, and World Bank funding various projects.
There is only one association for honey: the Federation of Nepal Beekeepers and
Cooperative (FNBK), which is supported by a GiZ project, INCLUDE.
Nepali honey could benefit from international market demand, if appropriate measures
are taken and programs are available to strengthen this subsector. One of the main
issues to be addressed in Nepali honey sector is the stringent sanitary and phytosanitary
standards set by importing countries, such as Residue Monitoring Plan and Hazard
Analysis Critical Control Point (HACCP) certification required by EU, Grannotoxin free by
South Korea, Prevention Food Adulteration (PFA) Rules, and standards by India, other
U.S. and Japanese standards, along with CODEX. As a raw commodity, without unique
branding and differentiation, Nepali honey is not competitive in terms of international
market prices.
The total annual domestic demand for honey is estimated to be about 300 to 350 tons.
Gandaki Bee Concern, a leading private honey production and processing company
in Nepal, calculates that if honey consumption increased by 0.1 kilograms per capita
then the total demand for honey in the domestic market would be about 2,500 tons per
year.20
Quality control and inadequate infrastructure constrain growth of the industry, including
poor storage, lack of quality monitoring and control, inadequate laboratory facilities,
and poor institutional mechanisms for ensuring quality and standards. In the absence of
these facilities, it is difficult to tap specialty markets, where better pricing is offered for
niche products, such as Nepali honey. Policy related constraints compound the
problems, including inadequate policies and poor implementation of existing laws and
regulations in relation to pesticide monitoring and control, veterinary drug
administration, and import and export of honey (assurance of safety and hygiene,
import duties, VAT and local taxes, and insurance). All of these problems cause
difficulties with SPS measures and international agreements.21
Ginger 4.1.4
Nepal is the fifth largest producer and the 15th largest exporter of ginger in the world,
producing 216,289 tons from 19,081 hectares, with a yield of 11.34 tons per hectare.22
The NEAT activity (USAID-funded project) identified 43 entrepreneurs, including
producers, exporters and processors, in the mid-western and eastern regions. The main
20 http://www.gandakibee.com.np/markets.htm. 21 GIZ. 2008. Honey in Nepal Approach, Strategy and Intervention for Subsector Promotion. Kathmandu. 22Full Bright Consultancy Private Ltd. 2008. Product Chain Study: Ginger. Final Report. Biratnagar, Nepal:
CADP.
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projects, donors and international nongovernmental organizations (INGOs) in this sector
are MEDEP, CADP, PACT, GiZ, NEAT, PA, EIG, MC, AEC, ADO, and USAID.
The Nepal Ginger Producers and Traders Association and the Turmeric and Ginger
Producer Peasants' Association are the key associations working in this subsector. The
market for ginger is expanding with increasing use by Ayurveda pharmaceutical
industries in Nepal and India. More than 80 percent of the total production is exported
to India, the only export destination of fresh and dried ginger produced in Nepal.
Initiatives, such as the Ginger and Spice Development Program, have commenced,
providing technical services to farmers through the DoA. The government emphasizes
ginger as a priority for commercialization by its processing (as sutho-dry ginger) in its
Agriculture Perspective Plan (APP) through research and development activities.
As support to APP, the government in its Three-year Interim plan (2011-13) has targeted
commercialization of agriculture products, such as ginger, with special attention given
through promotion of cooperatives, irrigation supply, agriculture roads, agriculture
credit, research and technology dissemination, rural electrification, and development
of market mechanism to increase production and productivity and increase investment
of the private sector (P28, Government of Nepal). The major constraints in the ginger
sector include low-quality sutho production, farmers’ lack awareness about ginger
processing technology, and intermittent listing of ginger as a restricted import item by
India.
Large Cardamom 4.1.5
With a yield of 0.44 kg/ha, Nepal produces a total of 5,517 tons of cardamom annually.
Nepal is the world’s largest producer of large cardamom, with an annual production
exceeding 5.2 thousand tons and production is expected to increase annually.23
According to Mercy Corps, cardamom is produced and processed by over 70,000
households in the East of Nepal (420,000 people) and ranks consistently in the top 12
export commodities of the country and contributes an annual average of $20 million to
the national economy, including $12 million in export earnings.
During the study, four processing industries were identified in this subsector for which the
major associations are the Nepal Cardamom Producers' Association, Cardamom
Development Center, and the Large Cardamom Entrepreneurs Association of Nepal
(LCEAN). Projects and organizations such as CADP, PACT, NEAT, ADO, SNV, USAID, and
NTCDB are the major working entities in this subsector.
The government has promoted development of the subsector, making it a priority
commodity in APP, by establishing a Cardamom Development Centre in Fikkal, Illam,
23Stoep G.A, U. R Pokharel, M. Rajbhandari, K. D. Bibek Shrestha. 2010, Enhancing Competitiveness of
Nepal’s Large Cardamom Value Chain. Kathmandu: SNV.
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and subsidizing sapling costs and interest rates for producers. The major constraints are
insufficient access to facilities, such as irrigation, drying furnaces, credit facilities, and
storage and transportation system. In addition, adoption of technology for processing is
low with insufficient technology transfer and low levels of research and development.
Floriculture 4.1.6
The floriculture sector is gradually emerging as an attractive segment with the
establishment of some flower showrooms in the capital city. There is a growing demand
for cut flowers in the country and the market is expanding to such cities as Biratnagar,
Dharan, Pokhara, and Chitwan. Export of cut flowers and related items was worth NRs
20,874,000 in 2010/11 and NRs 191,453,039in 2011/12. In fiscal year 2010/11, Nepal
imported about NRs 9,23,000 worth of cut flowers and related materials, which
increased to NRs 11,182,468 in fiscal year 2011/12.
According to The Agriculture Statistics Division, by fiscal year 2010/11, 86 flower
showrooms were established in the country. There are more than 600 nurseries and 635
firms and individuals estimated to be operating in floriculture subsector. However, the
number of producers is still not calculated. Updated data from Floriculture Association
Nepal reveal that as of March 2013, floriculture farming is carried out in 36 districts of the
country, covering 120 hectares of land in different geographical locations. The
investment in the sector is about NRs 4 billion and the yearly transactions amount to NRs
405 million. The sector is achieving a growth rate of 10 to 15 percent annually in terms of
commercial transactions. Recognizing the importance and economic contribution of
the floriculture subsector, the government has endorsed the Floriculture Promotion
Policy 2012.
Potato 4.1.7
The state of potato production in the country is 2,508,044 tons with a productivity of
13,735 kilograms per hectare.24 Potatoes are cultivated in all zones of the country.
Demand for potato is increasing, with per capita consumption of 51 kilograms per
annum, which almost double what it was in 1990 (FAO 2008). Nepali potato seeds have
a high demand in Bangladesh and India, where a limited amount is currently exported.
The major projects and donors working in this subsector are CADP, PACT, MC, ADO, and
EU.
Constraints include insufficient inputs to farmers such as irrigation, fertilizers, credit,
quality seed, and seed varieties. At the processing level, inadequate processing
companies and activities have been identified. Although clear records on potato
processors are not available, a total of 136 snacks and vegetable processing
24Full Bright Consultancy Private Ltd. 2008. Product Chain Study: Potato, Final Report, CADP, Biratnagar,
Nepal.
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companies of different levels are registered in DFTQC, which may be processing potato
related items. The Nepal Potato Producer Peasants' Association is the only association
working in this subsector.
Milk and Dairy 4.1.8
Livestock is an essential activity for Nepali farmers—important for manure, milk, meat,
and religious purposes. The total milk production of the country is about 1.5 million tons.
The annual growth of internal consumption of milk is about 8 percent, but production is
increasing at only 3 percent. Nepal imports milk and its various products to meet
demand from Asia, Europe, North America, and Australia. According to AEC/ FNCCI,
the demand for milk is expected to double in 15 to 20 years. The Nepal Dairy
Association is the apex body for milk processors with 76 members. FAO’s study of Nepal
in 2010 25 revealed that 54,040 tons of milk was collected in the country by processing
plants, among which 2,776 tons were used for cheese production. The same report also
stated that the number of dairies corresponding to their processing capacity is as
follows:
Table 9: Number of Nepal dairies, size and processing capacity
Size liters/day Numberof Dairies
Large 30,001 3
Medium 10,001 to 30,000 6
Small 1,000 to 10,000 26
Cottage Below 1,000 215
The major milk products of the country are milk powder, buttermilk, curdled milk, cream,
cheese, ghee, ice cream, and other sweet products.26
Some of the major organizations working in the milk and dairy subsector are MEDEP,
PACT, GiZ, MASF, iDE, PA, Forward, AEC, DLS, USAID, and DFID. The important
associations of this subsector are the Association of Livestock Farming Nepal, Nepal Milk
Producer Farmers Association, Veterinary Chemist and Druggist Association of Nepal
(VECDAN), Nepal Dairy Association, and Central Dairy Cooperative Union.
The Dairy Development Policy 2064 (2008) guides the overall development of the dairy
sector. The policy incorporates the Agriculture Perspective Plan (APP, 1995-2015),
25Food and Agriculture Organization of the United Nations. 2010. Dairy Sector Study of Nepal. Kathmandu:
FAO. 26Ibid, page 80.
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National Agriculture Policy, 2061, National Milk Marketing and Strategy Study, 2001, and
Agriculture Business Promotion Policy, 2063. It aims to develop the dairy sector
commercially and competitively for national economic development.
Stock raised in Nepal is mostly local, which by default means they have lower milk
production capacity than improved breeds. In addition, the quality of feed and fodder,
along with proper animal health services, are not available to most farmers, which
further limits productivity. Lack of competent manpower and access to markets have
been major challenges in this subsector. Private dairies lack appropriate technical
manpower. Regular training and assessment is required for increasing and
strengthening the productivity of the subsector.
Meat 4.1.9
The total number of sheep and goats reared in the country is 9,991,520, producing
55,531 tons of meat annually. There are 17 large meat processors that produce a
variety of meat products and operate at different business scales. According to the
Third Livestock Development Project 1999, everyday nearly 5.5 tons of meat are
processed, producing sausage, salami, 'momo'27, chicken cuts, smoked, and dried
meat.
Table 10: Net Meat Production
Meat Net Production (Mt)
Years
Categories 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11
Buffalo 124848 127495 130791 133600 138953 142040 147031 151209 156627 162213 167868
Mutton 2856 2823 2792 2779 2744 2737 2747 2725 2711 2691 2722
Goat 37769 38584 39664 40540 41698 42820 44933 46570 48472 49851 52809
Pig 15239 15594 15626 15389 15724 15773 16035 16453 16992 17066 17923
Chicken 13259 14118 14756 15881 15461 15605 16126 16712 16662 16527 36085
Duck 287 281 270 223 237 230 233 231 226 225 218
Total 194258 198895 203899 208412 214817 219205 227105 233900 241690 248573 277625
Source: Department of Livestock Services, 2011.
Demand for goat meat has been increasing, as a result of the growth in population,
urbanization, growing income levels, and a desire to shift consumption to quality animal
products. Goat meat is regarded as a highly priced elastic product and there are
opportunities for niche marketing of hygienic and high-quality goat meat, initially for the
domestic market and later to regional markets.28 A large number of “momo”
27Momo is a traditional Nepali food consisting of minced or chopped meat, heavily spiced, and wrapped
in a light pasty casing. It is served with an array of spicy sauces. It is eaten as a snack food or an entire
meal. 28Heifer-Nepal. 2012. A Study on Goat Value Chain in Nepal. Kathmandu.
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restaurants and street sellers are found in the cities. Momos are also an important
restaurant menu item. An estimated 40 percent of the buffalo meat is processed into
momo, along with a significant proportion of chicken and goat meat.29 Another
traditional form of processing meat is drying, either by sun or smoking.
Obstacles include undercapitalized markets, poor physical infrastructure, policies that
do not encourage increasing goat numbers (such as restrictions on communal forest
areas, which restricts the number of livestock that can be kept), and high transportation
costs.
The Agriculture Perspective Plan (APP, 1995–2015) considers livestock sector growth as
crucial to meet its AGDP growth and poverty alleviation objectives. APP targets
accelerating the annual growth rate of the livestock sector to 6.1 percent from 2.9
percent, in order to increase the livestock contribution from 31 percent to 45 percent by
the end of APP plan period. The contribution of the livestock sector to the national GDP
is about 18 percent. Dairy is the most important livestock component, contributing the
most to the AGDP (62.7 percent of the total livestock sector contribution), followed by
meat (32.4 percent) and eggs (5.0 percent).30
The major associations in this sector are the Association of Livestock Farming Nepal,
Nepal Feed Industries Association, and Veterinary Chemist and Druggist Association of
Nepal (VECDAN). A large number of projects and organizations are engaged in
strengthening the sector: PACT, HIMALI, WUPAP, EIG, PA, Forward, Li-Bird, AEC, ADO and
Heifer International-Nepal.
Fish 4.1.10
With a yield of 3,702 kg/ha, 26,941tons of fish are produced from a water surface area
of 26,036 hectares.31 Even though information on production of fish and its productivity
is available, the number of farmers and processors is not reported at any level, because
the fishery subsector is included as part of the agriculture sector as a whole.
The Nepal Fish Farmers' Association is the only association in this subsector. With the
huge unmet and growing domestic demand for fish and related products,
commercialization of this sector has potential for growth and to substitute imports. The
major organizations, projects and donors working in the sector are PACT, EIG, Forward,
CEAPRED, ANEP, IDE, ADO, USAID, and WF.
29Poudel. 2010. Market-led Quality Meat Production and Processing. UNFAO: Kathmandu. 30CLDP 2008. 31Lotus Intellect Pvt. Ltd. 2006. Subsector Analysis of Fish In Banke, Bardiya and Kailali, Kathmandu.
Agribusiness Innovation Center in Nepal: Report
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The main challenges are inadequate production knowledge, underdeveloped market
systems, and inadequate input supply. As large numbers of farmers are engaged,
particularly in the southern plains of the country. This subsector offers potential for
growth and improvement in rural livelihoods, particularly when it comes to rainbow
trout, regarding which Nepal could be competitive with India, and specialty niche
products.
Nontimber Forest Products and Essential Oils 4.1.11
With its unique geography, Nepal has diverse ecosystems and a variety of nontimber
forest Products (NTFPs). According to the Department of Forest and Soil Conservation,
2,171,522.3 kilograms of NTFP products were collected, with revenues of more than
$245,000. Among the collected NTFP products, the important revenue generating
species listed in the annual report by Department of Plant Resources are Himalayan Ye,
Loth Salla, Khoto Salla, Angeli, and Khayer.
There are 108 processors in this subsector, although only 31 of them are under Nepal
Herbs and Herbal Products Association (NEHHPA).The processors in the NTFP value chain
range from small to large. The small processors produce cosmetic products and
essential oil and supply them to the local market, whereas the large producers mainly
export commodities.
Essential oil and related products are
the most important types of products
processed.32 The major essential oils
produced include dementholized oil,
eucalyptus oil, mentha arvensis oil,
anthopogon oil, artemisia oil, juniper
berry oil, spikenard oil, valerian oil,
wintergreen oil, Zanthoxylum oil, and
massage oil.
Other products include handmade
paper, morel, herbs, Ayurveda herbal
teas, organic teas, sorbet (juice) herbal
drinks, Ayurveda cream, cosmetics,
neem soaps, and mentha products.
Key organizations working in the NTFP
sector are MEDEP, PACT, HVAP, WUPAP,
GiZ, EIG, iDE, PA, ICIMOD, Forward,
ANSAB, AEC, JABAN, FDO, FECOFUN,
32Poudel, K.L. 2007. Trade Potentiality and Ecological Analysis of NTFPs in Himalayan Kingdom of Nepal.
Kathmandu.
Examples of Products Exported
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USAID, DFID, and WWF. The important associations in this subsector are Nepal Forest
Industry Association, JadiButi Entrepreneurs Association of Nepal (JABAN), and Nepal
Herbs and Herbal Products Association (NEHHPA). The funding in this subsector consists
of $18.9 million by HVAP.
Nepal has been exporting about 90 percent of NTFPs in raw form, mostly to India where
it is processed into essential oils and used in manufacturing medicines and cosmetic
products. Huge potential exists for domestic processing as Nepal imports processed oils
and items produced from the exported raw products.33A study conducted by FNCCI
titled “Wholesale Market Assessment-NTFP” showed that Nepalese NTFP processors are
unable to run processing plants year round because of a shortage of raw materials,
which mainly results from the lack of wholesale collection systems. According to a study
conducted by ANSAB, the employment that could be generated by this subsector is
estimated to be 26,550,000 man days for local people, which is an equivalent of six
months or 180 days a year for 147,550 persons.34
The government has identified about 30 species of NTFP species in its plan. The species
prioritized are atis root, emblic myrobalan, common walnut, Persian walnut, bannut
tree, picrorhiza, morel, tinospora chireta, tagetes, spikenard, linchen, Nepali piper,
toothache tree, cinnamomum leaves and bark, fragrant wintergreen, neem tree,
Indian lilac, Himalayan rhubarb, rockfoil, salep long pepper, monks hood (aconite), the
sweet flag, deltoid yam, Indian madder, Chinese caterpillar fungus, soapnut, may
apple, Himalayan ye, Nepali sassafras, Indian valerian, Wild Asparagus Rauwolfia,
Serpent wood and Serpentine.
With reference to the 30 prioritized species above, only about 10 species are viable for
commercial production, following analysis of each against 17 criteria for Terai, mid-hill,
and high mountain regions of Nepal. The quantitative criteria used in the study were
market price, past annual export quantity records of Department of Forestry (DoF),
average annual export as per Indian Trade Centre (ITC) Tanakpur, annual industrial
demand in Kathmandu, and royalty of the species as percentage of market price.35
The qualitative criteria used were ease of cultivation (propagation, domestication, and
tissue culture), parts used in trade, bulkiness in transportation, range of distribution
(horizontal and vertical), threat category/conservation status, legal framework for
protection (CITES, government of Nepal), availability of local processing (existing)
techniques, regeneration/ rotation periods, ethnobotanic importance, potentiality of
33Pyakurel, D. and A. Baniya. 2010. NTFPs: Impetus for Conservation and Livelihood Support in Nepal.
Kathmandu: WWF. 34http://www.google.com.np/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCgQFjAA&
url=http%3A%2F%2Fwww.nepjol.info%2Findex.php%2FBANKO%2Farticle%2Fdownload%2F4803%2F3994&ei=H
FYCUajSKMmsrAeL5oCIBA&usg=AFQjCNGM7mNH7g8gSSZM4oVb_lwmlujgQw&bvm=bv.41524429,d.bmk 35Keshari, V. 2007. Promotion and Trade of Tropical NTFPs in Central Terai of Nepal. Kathmandu.
Agribusiness Innovation Center in Nepal: Report
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further processing for value addition, social acceptance for promotion, and possibilities
of quality improvement. The result of the study indicates that Amala, chamomile, Pipala
and mentha are the priority species for Terai and Siwalik regions; Timur, Tejpat, Chiraito
and Ritha for mid-hills; Sugandhawal, Padamchal, Jatamansi, and Bisjara for high-
mountain, for commercial exploitation with private investors.
Technological support for oil extraction, private sector involvement, product
certification, international NGOs and NGOs coordination, and research and
development are all needed to help this subsector grow. The constraints for this
subsector include poor infrastructure, lack of commercial farming, and SPS issues.
Moreover, there are few processing companies, minimal quantities are processed, and
the bulk is exported in raw form.
The NTIS emphasizes activities related to product development and technology, market
access, institutional and human resource development, and improvement of the
business environment. The major actions planned for strengthening the processing
segment are technology for oil extraction, provision of a national laboratory, a public-
private partnership (PPP), internationally recognized product certificates, promotion of
better packaging materials, such as certified aluminum containers, and
encouragement of the private sector.
4.2 Donor Value Chain Mapping
Many stakeholders, including donors and government agencies, are undertaking
important work to improve value chains and are helping to add value to agribusiness
entrepreneurs (see Figure 13 below). Indeed, most donor-funded programs in Nepal
focus exclusively on value-chain development. More details are provided in Annex 3.
Table 11: Donor Mapping Based on Value Chains
SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
1 ADB Banana Cardamom Ginger Mango Orange Potato Tea Vegetables (Tomato, Onion, and Cabbage)
CADP Commercial Agriculture Investment and Management: (a) Assist small and marginal farmers to develop or participate in income-generating agricultural activities and undertake more commercial activities, (b) strengthen stakeholders (farmers, traders, and processors) already partly engaged in commercial agriculture to become fully commercial and be eligible for CAA membership. Market Information Dissemination: Assist farmer groups through partner with NGOs and district agriculture development offices to systemize and replicate group or cooperative-based information systems. Capacity Enhancement (of project partners, including DDCs, NGOs, Department of Agriculture district staff and CAA district branch staff): Basic market development
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SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
training on post-harvest, marketing, market-chain improvement, primary process methods, product handling, and agribusiness.
Livestock HIMALI Economic growth. Environmental sustainability. Private sector development. Gender equity. Poverty reduction and inclusive growth. Climate change.
36
2 AusAid Livestock, Forestry, Off-season Vegetables and Crops
WUPAP Focus on poverty alleviation through a rights-based approach, by promoting the formation of grassroots level organizations to empower the participants to mobilize their natural, physical, and financial resources to harness external resources and obtain social justice.
37
NTFP, Honey Bee Medicinal and Aromatic Plant (MAP)
ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships38 Honey Bee Facilitate and strengthen networks of beekeeping organizations; help communities to learn the art and craft of beekeeping; promote modern beekeeping approaches; and explore the prospects of marketing and business development, including value chains.
3 BMZ, German Government
Fruit and Vegetables (through riverbed farming), and Medicinal and Aromatic Plants (including
GIZ Include Support the production, processing, and marketing of products in the selected value chains.
39
36http://www.adb.org/projects/37292-042/main 37http://www.wupap.gov.np/About 38http://www.icimod.org/?q=392
39http://www.includenepal.org/projectdetail-promoting-value-chains-and-the-local-business-envi
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SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
ginger). Honey, Milk.
4 CIDA Honey Bee Medicinal and Aromatic Plant (MAP), NTFP
ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities, involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships40 Honey Bee Facilitate and strengthen networks of beekeeping organizations; help communities to learn the art and craft of beekeeping; promote modern beekeeping approaches; and explore the prospects of marketing and business development, including value chains.
Forestry Livestock Off-season Vegetables and Crops
WUPAP Focus on poverty alleviation through a rights-based approach, by promoting the formation of grassroots level organizations to empower the participants to mobilize their natural, physical, and financial resources to harness external resources and obtain social justice.
41
5 DFID Dairy Vegetables
MASF / iDE Nepal / Practical Action
Develop appropriate access to services and inputs for women smallholder dairy farmers to decrease their drudgery, which provides more time for other income generating activities, increases opportunities to engage effectively with market actors and provides increased incomes that can be used for household benefit. Further, a wide variety of opportunities for livelihoods have emerged from the dairy sector, such as supporting small and micro-enterprises in rural areas, which will provide employment opportunities to the poor.
42
European Union
Fish, Vegetables, Maize
Agriculture and Nutrition Extension Project (ANEP) /iDE/ World Fish/CIMMYT/ Save the Children
The project seeks to sustainably raise agricultural productivity and promote effective market linkages to improve the nutrition of poor rural and urban households.
40http://www.icimod.org/?q=392
41http://www.wupap.gov.np/About 42http://practicalaction.org/region_nepal_masf_project
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SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
6 UNDP Honey Bee, Medicinal and Aromatic Plant (MAP) NTFP
ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships43 Honey Bee Facilitating and strengthening networks of beekeeping organizations; helping communities to learn the art and craft of beekeeping; promoting modern beekeeping approaches; and exploring the prospects of marketing and business development including value chains
Forestry Livestock Off-season Vegetables and Crops
WUPAP Focus on poverty alleviation through a rights-based approach, by promoting the formation of grassroots level organizations to empower the participants to mobilize their natural, physical, and financial resources to harness external resources and obtain social justice.
44
NTFP (bamboo basket and furniture, tapari, allo rope and twine, and pine charcoal)
MEDEP Entrepreneurship development, human resources development, capacity building in marketing for micro enterprises.
7 IFAD Maize Hill Maize Research Program (HMRP) CYMMIT
Strengthening seed dissemination channels, developing market links and ensuring the decentralized seed quality assurance system and developing more new maize varieties as the demand remains high
45
Fruits, Medicinal, and Aromatic Plants, Livestock NTFP
HVAP/ SNV Integrate the rural poor, especially women and marginal groups in high-value agriculture, and NTFP/MAP value chains and markets, and improve income, employment opportunities, and ability to respond to market demand and opportunities based on marketing agreements with private agribusiness. Development of value chain of selected commodities.
46
43http://www.icimod.org/?q=392
44http://www.wupap.gov.np/About 45http://www.swiss-cooperation.admin.ch/nepal/en/Home/Hill_Maize_Research_Project_HMRP_Phase_4 46http://www.hvap.gov.np/content.php?id=110
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SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
Products, Vegetables
8 The World Bank
Seeds, Vegetables, Coffee, Ginger, Potato, Floriculture, Honey, Mushroom, Oilseed, (mustard and ground nuts) Fruits (citrus, banana, papaya, and mango) Lentil, Herbs, Fish, Feed, Milk Processing, Dairy Processing, Poultry
Project for Agriculture Commercialization and Trade (PACT )
Improve the competitiveness of smallholder farmers and the agribusiness sector in selected commodity: a) helping farmer groups and cooperatives engage in profitable market-oriented production and improved access to markets through the provision of technology and information services and critical public infrastructure and linkages to agribusiness. b) creating and strengthening industrywide partnerships along the value chain, thus forging linkages between producers, traders, processors, and other stakeholders. c) reducing existing obstacles to agriculture and food trade, thereby increasing the ability of farmers and agribusiness to respond to sanitary and phytosanitory (SPS) measures and food-quality standards to meet domestic and international market requirement.
9 USAID Lentils Vegetables Ginger and Orthodox-Tea
Nepal Economic and Trade (NEAT)
Program on value chain development and strengthening.
High-value Vegetable Production (including crops or non-timber forest products such as chamomile and lemon grass), Fisheries Goat-rearing
Education for Income Generation (EIG)
Program on value chain development and strengthening, focusing on smallholder producers and youth.
Ginger Cardamom
Mercy Corps Program on value-chain development and strengthening, focusing on smallholder producers.
Agribusiness Innovation Center in Nepal: Report
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SN Donors Value Chains
Projects / International
NGOs
Major Activities and / or Objectives (Related to Value Chain)
Potato
This analysis indicates that value chain development, while important, is not a gap with
significant opportunities for the AIC. If the AIC focuses on value chain development in
one or more value chains, it runs the risk of competing with existing initiatives. Indeed, if
the AIC does this, it may miss the main opportunity—which is to lever the work of other
donors and Nepalese government agencies and help entrepreneurs with market
development, financing, and business management capabilities, all of which are
common impediments to growth. The AIC plans to coordinate closely with the wealth
of donor programs focused on value-chain development, complement their work, assist
pioneering processing enterprises, and help ensure a solid supply of quality raw
materials for processing. Each program works at the farmer level and it is this group that
will supply the processors on which the AIC will focus. This mutually complementary
relationship offers an opportunity to properly network growers with processors and
markets, all the while ensuring quality inputs are used to produce competitive, legally
compliant, finished products and developing the market for such products.
Almost all of the selected value chains incur major constraints, such as a lack of
infrastructure, limited number of processing companies, shortage of skilled manpower,
and insufficient research and technology development. In addition, exporters face
difficulties maintaining the necessary quality and standards of processed products to
satisfy market needs. This is largely because of a lack of an accredited laboratory within
the country and difficulties to acquire certification from overseas. At the policy level,
the lack of taxation and other incentives for export and local level taxation (mainly
local taxes by Village Development Communities VDCs) impede price competitiveness.
4.3 The Focus of the AIC
In Nepal, only a limited number of value adding companies with growth potential exist
in any one value chain. This means it will be difficult for the AIC to achieve the
necessary critical mass of 20 to 30 companies to underpin a viable business model, if
only one value chain is the focus. As well as input and supply problems with which
donors and government agencies are helping), processing companies all need
additional help with market development and financing problems. These difficulties
with market development and financing may provide a more fruitful focus for the AIC
than any one value chain. The AIC can have more impact by helping entrepreneurs to
overcome these barriers and levering the work of other donors and agencies, than by
focusing on a more limited number of value chains. In all value chains, the main
potential is with specialty niche products targeted at growing domestic and export
Agribusiness Innovation Center in Nepal: Report
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markets in which Nepal can be competitive, rather than less differentiated commodity
based markets.
Figure 5: Enabling the Development of Innovative Sustainable Agribusiness Sector in Nepal
From the earlier analysis, the following conclusions can be drawn:
a) No one value chain represents a sufficient quantity of growth potential entrepreneurs
to warrant a focused incubation model. Therefore, a broader model that works
across subsectors is proposed. There is strong interest from agribusiness entrepreneurs
Traditional food
processing
technologies
New
processing
technologies versus
Improvements in design &
controls
New raw materials
ingredients New
processes
Improved
Product Quality
Reduced
Energy
& Waste
Improved
Manufacturing
Performance
Reduced
Energy
& Waste
New
Products
Improved competitiveness / market differentiation
Safety Sustainability Nutrition & Wellbeing
Agribusiness Innovation Center in Nepal: Report
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across sectors in an agribusiness incubation service offering. The analysis indicates
that a sufficient pipeline of growth-oriented or growth-potential enterprises can be
secured to enable cost-effective implementation of an agribusiness incubation
model that targets enterprises from a broader selection of value chains.
b) While the market opportunities are promising, even these selected value chains
face significant challenges that cannot be addressed by an agribusiness incubation
service offering alone. Infrastructure constraints, poorly coordinated value chains,
input and supply problems, and limited access to finance for growth all generally
impede agribusiness development. These problems have been recognized and
many donors and Nepalese Government agencies are now working to overcome
value chain bottlenecks. The timing may be opportune to complement their work
by addressing the business level impediments faced by agro-processors.
c) Some interesting cross-cutting market opportunities were identified, notably in the
areas of packaging, processing and branding, traceability, and logistics. It is
recommended that the AIC encourages and enables the start-up and growth of
innovative enterprises in such areas.
d) Because of the challenging operating
environment, it is recommended to primarily
target existing enterprises with growth potential,
while leaving room for some start-up support.
e) Across the dominant value chains of Nepal, one
resonating challenge experienced by most
existing entrepreneurs is the development of the
domestic, regional, and international markets.
Food processing entrepreneurs struggle to
understand the opportunities for the domestic,
regional and international distribution, the
industry standards associated with each target
demographic, and the logistical constraints that
require addressing.
For entrepreneurs interested in pursuing a
domestic market, the distribution choices are
extremely limited. Apart from managing their
own distribution with their own trucks, sales team, and regional warehouses,
Nepalese entrepreneurs are left with two options: the market system or partnering
with a large processor, such as Dabour, and using their distribution channels. The
market is a complex network of regional, informal markets that complete with an
extensive infrastructure of traders, brokers, wholesalers, local, and regional
Example of Products in Local
Supermarket
Agribusiness Innovation Center in Nepal: Report
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transportation companies. It is perhaps one of the most underutilized opportunities
for Nepalese value-added food processors. Most Nepalese food processing
entrepreneurs get too focused on the larger, international markets—most notably
the EU markets, while ignoring the domestic and regional market opportunities. In
Kathmandu alone, there are more than 10 large supermarkets (five of them
Bhatbhetani), that could be suitable for many products.
In international markets, Nepalese entrepreneurs face stiff competition and simply
cannot compete in many value chains because of the high cost of transportation
that occur as result of Nepal being a landlocked country, where exports have to go
by road to Kolkata, India or by airfreight. Entrepreneurs have few options and
encounter high transportation costs and significant, sometimes unpredictable, time-
to-market delays. More readily addressable factors affecting the competitiveness
of Nepalese entrepreneurs are the lack of quality packaging (which must be
imported), the lack of acceptable laboratory and standards analysis (products must
be shipped internationally for analysis), and tax and other incentives for agri-
products export.
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5 Target Clients
5.1 Nepalese Agribusiness Entrepreneurs Landscape
Food processing SMEs with value-added niche products are the primary target clients
for the AIC. This industry is at a nascent stage in Nepal, with 90 percent of enterprises
below the small industry level according to the Nepalese scale.47
The total number of food processing industries registered at DFTQC is 1,877, as outlined
in the figure below.
Table 12: Licensed Food Industries in Nepal until FY 2012/2013
Serial
Number
Product Number of
Industries
1 Rice, Flour & Pulse processing (Mills) 238
2 Spice 229
3 Processed / Mineral water 217
4 Fat and Oil 202
5 Fruit and Vegetable Processing 178
6 Bakery 172
7 Snacks 146
8 Dairy 133
9 Tea and Coffee 100
10 Confectionery 65
11 Noodle 38
12 Biscuit 17
13 Sugar 14
14 Honey 12
15 Health Food 7
16 Meat Processing and Handling 6
17 Chura (Bitten Rice) 1
18 Ice and Ice Cream 1
19 Maize Grit 1
20 Soya Products (Grit, Nugget, and others) 3
21 Miscellaneous Products and Others 97
Total 1877 Source: DFTQC 2013.
The comparatively larger value adding enterprises are in herbs processing, livestock, fish
and poultry, vegetable and fruit, tea, coffee, and diary.
47The Industrial Enterprise Act, 1992 (prevailing act) defines small industries are those with less than NPR 30
million fixed capital and medium is between NPR 30 to 100 million fixed capital investment.
Agribusiness Innovation Center in Nepal: Report
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Department of Industry (DOI) data show 214 medium-size or larger agriculture and
forest-based industries, including food processing, with fixed capital investment more
than NPR 30 million (see Annex Nepal agro-based industry data).
Table 13: Department of Industry Registered Agro-based Industries
(More than NPR 30 million fixed capital investment)
S.
No.
Agriculture & Agro based Industry
Category
No. of
Industries Remarks
1 General Agro Business / Industry 5
2 Herbal Medicine / Herbs Processing 15 Ayurbedic medicine
3 Ginger Processing 1
4 Tissue Culture 1
5 Livestock, Fish and Poultry (Bird) 19
6 Silk / Rabbit (yarn and fabric) 2
7 Floriculture 3
8 Tree Plantation 4
9 Sugarcane farming 1
10 Seed 2
11 Cardamom 1
12 Vegetable and Fruit 34 Including drying and processing
13 Bamboo 1
14 Fertilizer / Bio-fertilizer 3
15 Coffee and Tea 74
16 Cold Storage 3
17 Cotton 1
18 Diary 15
19 Essential Oil 4
20 Animal feed 2
21 Fruit processing 6
22 Honey 1
23 Meat processing 1
24 Mushroom processing 3
25 Oil & Vegetable Ghee 7
26 Cereals & Pulse 3
27 Saw Mill / Wood Processing 1
28 Starch 1
Total 214
Source: Department of Industry, January 2013 (Categorized from long list of agro-industries).
Comparing the DFTQC and DOI data shows 1,663 industries (1877 minus 214) are small
industries with agriculture and forest-based food products registered at the DFTQC. This
indicates a pool of 1,600 potential AIC clients. However, only a small percentage,
Agribusiness Innovation Center in Nepal: Report
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typically from 3 percent to 10 percent, will be growth oriented,48 meaning the pool for
the AIC is more in the order of between 48 and 160 enterprises.
Given the low level of existing entrepreneurship in the country, a pre-incubation phase
focused on entrepreneurship awareness and development should be incorporated in
the model. Through these activities, network partners would support start-up
organizations not yet ready for participation in the AIC.
5.2 Nepalese Agribusiness SMEs Needs
SME Barriers 5.2.1
The AIC will need to address the many challenges agribusiness entrepreneurs face.
Technology: Absence of suitable technology for post-harvesting and processing.
Technologies used for processing of agro-food or medicinal herbs and essential oils are
often too small scale to generate a critical mass for commercial returns. Appropriate
technologies for simple post harvesting technologies, such as grading and packaging,
are lacking. There is a dearth of companies using good production technologies and
inadequate transfer of knowledge/skills for use of available technologies.
Market access: Limited access to markets, most often with no direct contact with end
users of the produce.
Agriculture commodities, medicinal herbs, and essential oils are sold through traders
located at trading centers. Producers have very limited access to other buyers for their
produce. Focus group participants noted these problems: politics in the marketplace;
limited information about the market and consumer as mostly they deal with mediators;
limited knowledge about suppliers and production process of producers; limited
marketing skills; dynamics of market players, which are difficult to understand and
influence, and difficulty penetrating markets.
48Research indicates that only 10 percent of new enterprises grow and that only 3 percent achieve
dynamic growth. For example: the Global Entrepreneurship Monitor (2004), page 13 “Only 3 per cent of all
start-ups qualify as businesses with high potential.” Scott Shane, The Illusions of Entrepreneurship: The Costly
Myths That Entrepreneurs, Investors, and Policy Makers Live By, 2008: “Only 30% of start-ups live past 10
years; fewer than 10% grow, and just 3% grow substantially”. For many reasons across the globe most
businesses are micro and small and do not grow. They still play an important role in economies and
employing people, but incubation is not the tool to use to support them.
Agribusiness Innovation Center in Nepal: Report
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Production volume: Economies of scale are inadequate to produce the volumes of
production and processing to access larger markets.
Cultivation and collection of agriculture crops, livestock, and medicinal plants are
fragmented and practiced on a small scale, which does not provide enough volume
for processing to be viable. The majority of farmers or collectors are smallholders, which
limits use of technologies and possibilities for value adding. Furthermore, the majority of
producers are at a subsistence level and lack commercial orientation.
Infrastructure Lack of infrastructure such as road networks and access to power due to
scattered settlements
Good roads, transportation facilities, storage facilities, market centers, and power
shortages are further impediments for the growth of the agriculture sector. Nepal has
one of the lowest road densities among landlocked countries. Investment in
infrastructure and basic services has not been cost effective because of the very
nature of scattered settlements in hills and mountainous regions. These impediments
have hindered competitiveness of the sector.
Communication: Communication is vital for timely transaction of commodities.
Poor communication systems, lack of information, and communication technology
availability have limited growth potential of the agriculture, herbs, and medicinal plants
sectors.
Research and development: The agriculture sector has suffered, to some extent,
because of the insufficient research and development initiatives.
Inadequate resources and capacity of existing research and development institutions
make it difficult to provide useful and economically viable solutions/innovations to
farmers. National research institutions, such as NARC, do not have refined
commercialization strategies, or dedicated Technology Transfer Office (TTO) functions
to transfer technology and knowledge for adaptation by producers.
Political instability: Political instability has created an unstable macro-economy.
The government’s rules and regulations are not implemented effectively, even when
policies are investment friendly.
Subsistence Agriculture
Agriculture in Nepal is predominant at the subsistence level. Commercialization is a
relatively new phenomenon in this sector.
Lab testing and quality certification
Suitable facilities are not always available or of adequate standard in Nepal, in which
case companies have to go to external international agencies, for instance, organic
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certification, certification for nutritional features, or certification for testing extracted
essential oils as required by buyers.
Gaps in Service Provision to SMEs 5.2.2
The main service gap for SMEs is practical support to help enterprises to grow; as the
Global Entrepreneurship monitor points out, this will only ever be a small minority of all
enterprises.49 MEDEP and other business development services (BDS) providers focus on
micro enterprise development, for self-employment and income supplementation,
although their strategies going forward are for sustainability and helping businesses to
scale up. The potential for business incubation with MSMEs is what can be termed “post
micro-business” support, to help selected entrepreneurs with realistic growth aspirations.
Business training is not a major gap, although it can always be improved and often has
unrealistic expectations that training will lead to successful businesses, with some
stakeholders thinking of business incubation as a training program. Practical support
and understanding that entrepreneurs learn best on the job from other entrepreneurs
are needed. Two quotes from stakeholder consultations encapsulate this gap:
“Lack of mentorship… everyone craves advice and mentoring and no one gets it.”
“Business helping business in a dynamic environment is what is needed.”
This study reinforces findings from the 2004 Helvetas Study,50 which concluded:
“In Nepal, with the largely rural population and widespread rural poverty, most
enterprise development activity is targeted at the development of micro businesses in
rural areas, with the aim of providing direct and immediate poverty alleviation.
Research undertaken by the International Labour Organization (ILO) and UNDP has
concluded that a problem exists in that businesses are not growing past the micro
stage, hence the “growth trap”51. This conclusion was reinforced in our consultations.
The main gap that exists in terms of enterprise development services is to assist and
foster enterprise growth, which is where international experience has found incubators
49Global entrepreneurship Monitor (GEM) 2004 estimates about 3 percent of start-ups are those with high
growth potential. 50 2004. “Overcoming the Growth Trap, Business Incubator Pre-conditions and Potential in Nepal, with more
specific consideration of Birgunj and Dhangadhi, as examples of large and middle towns”, prepared for
Helvetas by BTEC Inc and CREEDA Projects. 51The “growth trap” is identified in the UNDP ILO Report on Micro and Small Enterprise Policy Review in
Nepal, 2003, page iii. The “growth trap” is a set of conditions that impede or stop the growth of micro and
small businesses, in terms of productivity and income.
Agribusiness Innovation Center in Nepal: Report
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have the best impact. There are more cost effective and suitable interventions, such as
Business Development Services, for those enterprises which, for whatever reason, do not
want to or cannot grow. With regard to micro-enterprise initiatives, which incubators
should complement rather than duplicate, the focus proposed may best be considered
as “post-micro.” This implies targeting the services at the micro to small business
transition and focusing on helping the percentage that want to grow and become
larger, as well as new businesses that have the potential and aspiration to grow and
become small and medium, or even large businesses. The focus groups showed that
market awareness access and sales are important areas in which enterprises need
help, especially for agro-processors.
SME Needs 5.2.3
With infoDev funding, Information Technology Professional Forum (ITPF) conducted a
comprehensive feasibility study in 2005. This study involved a survey of 110 MSMEs,
selected by random sampling in six industrial cities in all the development regions other
than the far western region. For these MSMEs, marketing and product distribution
assistance, finding available space and infrastructure, accounting and financial
management, and access to financial assistance, process and inventory management
and assistance with product design and testing were the major supports sought. Lack of
marketing information, inability to frame proper marketing plans, not having proper
technical know-how, inability to adapt to the changes in the business environment, and
lack of adequate financial management skill were considered to be the main reasons
why most of the businesses fail during their initial years of establishment. The interviews
found that 62 percent of the sample used support services to improve their
performance, 69 percent are willing to pay for the services of a support organization,
and 75 percent wanted to grow further, indicating good demand for business
incubation from existing businesses.
Entrepreneurs in infoDev’s focus groups were enthusiastic about the possibility for an
AIC and ranked the services needed as the following:
1. Market
2. Enhanced technology and associated information
3. Finance
The services focus group participants want from an incubator include the following:
Marketing and sales
o Networking
o Market information
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o Narrowing the gap between producers and consumers
o How to take products to market
o How to sell services
o Service / online marketing platform
Technology transfer, especially for existing SMEs who want grow and are
interested in sharing proven technology within country, partnering with other
SMEs for technology and know-how.
Quality certification assistance, for example, organic certification, acid-free
certification, nutritional certification, health and safety certification, and others.
A user-friendly environment
Energy supply (24 hours)
Some agribusinesses have specific technology requirements, such as cool
storage, distillation technology, preservation technology, or packaging
technology.
The consultative workshop reinforced these conclusions, identifying the following priority
services for the AIC:
Marketing and information systems
Technological support
Mentoring
Inputs, such as certification or quality standards
Credit facilities (finance)
Advocacy for a conducive environment
Policy information
Facilitation for registration of businesses
5.3 Entrepreneur Pipelines—Feeder Channels and Complementary Organizations
Feeder channels are important to help an incubator identify and access growth
oriented agribusiness clients and to institute mechanisms whereby business incubation
complements other agribusiness development activity. Incubation needs to work with a
wide range of complementary organizations, which can refer suitable entrepreneurs to
the incubator, as outlined conceptually in the diagram below.
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Figure 6: Feeder Channels
The “funnel” above will be crucial, recognizing that business incubation needs a critical
mass of 20 or more growth-oriented business clients under business incubation to
underpin a sustainability model and that business incubation works in phases, from pre-
incubation through business incubation to post-business incubation.
Accordingly, working with other organizations as feeder channels for clients, around
pre-business incubation and to back up loans and other financial investments made to
micro, small, and medium enterprises (MSMEs) will be an essential aspect of the Business
Incubator Framework.
A number of entrepreneur pipelines were identified as feeder channels that can be
“tapped” for the business incubator, which are summarized below.
‘Physical’
Business
Incubation
Analysis and
signposting
Individuals and
Ideas
New and Existing
Enterprises
Other
Business
Support
Further growth
‘Virtual’
Business
Incubation
‘Recycled’
Growth Potential in
Nepal
Feeder channels: PACT, CAA, BDS, Universities,
Networks +++
To deliver entrepreneurs to the incubator
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Table 14: Feeder Channels
Type of Organization Organization
Tertiary Institutions Agriculture and Forestry University
Kathmandu University
Tribhuvan University
Industry Associations and
Business Networks
FNCCI
*AEC, the agricultural wing of the FNCCI
The Nepalese Young Entrepreneurs’
Forum (NYEF)
Nepal Youth Business Foundation (NYBF)
Federation of Nepal Cottage and Small
Industries (FNCSI)
Samriddhi, The Prosperity Foundation
Arthalaya –School of Economics and
Entrepreneurship
Change Fusion
Entrepreneurs for Nepal
WEAN Cooperatives
Financial Institutions Banks, via the Bankers Association
IFC’s SME Ventures Fund Business Oxygen
Business Development
Initiatives
Micro-Enterprise Development Program
(MEDEP)
Lead International
Commercial Agriculture Development
Project (CADP)
Commercial Agriculture Alliance (CAA)
Project for Agriculture Commercialization
and Trade (PACT)
International Development Enterprises
(IDE-Nepal)
Nepal Education Agriculture and Trade
(NEAT)
Other Organizations International Centre for Integrated
Mountain Development, ICIMOD
*AEC/FNCCI has been implementing a One Village One Product (OVOP) program
since 2006, as a public-private partnership. The overall objectives are to alleviate
poverty in local communities and benefit local people through entrepreneurship
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development. Specific objectives include the following: (i) develop local products and
to add value according to market demand, using local people’s skills; (ii) develop
competitive products with export potential; (iii) alleviate local community poverty and
help enhance economic development; and (iv) develop and to promote the branding
of the product
Anticipating successful outcomes of OVOP, AIC expects to link with agribusiness
champions from across the country, who may seek support to scale up their businesses,
such as agriculture processing industries. Initially implemented in 22 villages in 22
districts, the OVOP has been extended to all 75 districts of Nepal as One District One
Product (ODOP) since 2012. Out of 75 ODOP, 62 districts are identified as agriculture
and NTFP based product districts.
5.4 The Market for Business Incubation
In summary, the AIC will not be value chain specific and will focus on viable firms in
competitive value chains that add value by food processing and post-harvest
processing primarily, but also with value added input supplies. The AIC’s clients are likely
to be the emerging leaders and pioneers in the value chains in which they operate.
They are likely to become role models for others in the future.
The market has a number of important features:
Entrepreneurial people with growth potential. Only those proponents with
entrepreneurial characteristics or teams and which have growth potential will be
selected.
Existing or new processors. Existing small, micro and medium-size companies will
be assisted, as well as new start businesses. Pre-incubation will be used, working
with partners such as universities, to nurture the future demand and agribusiness
entrepreneurship rates.
As outlined earlier, the AIC will focus on a range of competitive value chains
rather than one specific value chain.
Accordingly, the market for the AIC comprises a number of segments.
Growth-oriented SMEs
At least initially, the main market segment for the AIC will be existing small and medium
agribusinesses, with turnovers in the order of between $100,000 and $600,000 per
annum and which have the potential to achieve annual growth in sales of 30 year or
more per annum. These businesses will come from BDS services, such as MEDEP, business
organizations, such as FNCSI, agribusiness development initiatives, such as PACT, and
CAA and networks, such as Entrepreneurs for Nepal, noting only a small percentage of
small and micro businesses either want to or has the capacity to follow a growth path.
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Many micro businesses are motivated by income supplementation, rather than growing
a business.
Graduating Students
Across the globe, the work of graduate students is difficult to incubate, because fresh
graduates do not have real world experience, knowledge of markets, and private
sector disciplines. IADB research into dynamic companies in Asia and Latin America
(those that scale and grow significantly, defined as those between three and 10 years
old and which increased their workforce to between 15 and 300, and which are the
target for incubation) show that these companies are started by people in their thirties
following experience working in corporations or SMEs.52
While students sometimes develop business “projects” as a part of their studies, these
projects are often “very difficult to commercialize.” Nonetheless, some students do
successfully start and grow businesses; for example, a successful meat processing
venture started by a recent graduate.
If graduates can get a job, then this is often a better path in the short to medium term
since starting a business is far harder than finding a job (if jobs exist to be found). Both
KU and TU share this understanding. TU noted that 60 percent of their graduates go to
further study and KU noted that most of their graduates get jobs “relatively easily.”
Many graduates try to go overseas. Nonetheless, both KU and TU are interested in
business incubation, especially pre-incubation, which can bear fruit immediately after
graduation or in the future after work experience.
Researchers Commercializing Research
With only limited R&D budgets and no technology transfer organizations in place,
researchers doing commercializing research are only a small segment in the short to
medium term, but this segment may grow in the future.
Financial Institution Clients
Business incubation can lever and mitigate the risk for banks and other investors. The
bankers association can offer to promote the business incubator to its member
commercial banks, so that they can refer suitable loan clients. The incubator should
work closely with the special financing facility, Business Oxygen, currently being
established by IFC Ventures and implemented by the Bank of Kathmandu and Beed
Management, with the associated training product, Business Edge, being implemented
by Lead international.
Fresh New Start Businesses
This is the traditional market for business incubation in developed countries and is also a
part of the market in Nepal. These people may come via feeder channels, such as
52Inter-American Development Bank. 2002. Entrepreneurship in Emerging Economies: The Creation and
Development of New Firms in Latin America and East Asia.
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entrepreneurs for Nepal, from industry, the general community, and other varied
sources. Many are expected
to be in employment before
starting their business.
Client Targets 5.4.1
Clearly there is a strong
demand for AIC services
from agribusinesses in a
number of sectors, which
can underpin AIC demand,
investment, and impact
assumptions.
Successful business
incubators need a critical
mass of at least 20 growth-
oriented entrepreneurs,
either based onsite or off-
site, to underpin a viable
and self-sustainable business
model and to foster peer-to
-peer learning and
exchange. It is impossible to
quantify all of the demand
that may exist. Insights can
be gained from the number
of food processing
businesses summarized earlier (see MOI and DFTQC data in Section 5.1), the number of
clients in various ongoing agribusiness projects by government, summarized below in
Figure 19, from the entrepreneur and stakeholder consultations and growing demand
for processed, healthy and organic food at the leading supermarkets in Kathmandu.
Potential Client Example
Housewife turned Entrepreneur, Hajuri Bista of Navaras Pickle
Hajuri Bista started her pickle business soon after
completing her training with an initial investment of Rs
20,000 ($230) to tap the unmet market demand for
Nepali pickle. She is a successful and proud owner of a
well-established brand for preserved food and pickle in
Nepal, known as “Navaras.” Started from her own
kitchen, with income of Rs 30,000 ($350) in first three
years, now she earns more than ten million rupees
($110,000) annually and employs 15 people full time.
The expansion of business took place after her husband
complained about the smell of pickle inside the home
and suggested she expand production outside, for
which she chose a small shed behind her house.
Ms. Bista received guidance from co-operatives and
professional organizations. Her sound handling of
employees and maintaining of quality have significantly
contributed to her success. Ms. Bista is planning to
expand her market domestically as well as overseas, but
is facing tough competition with Indian products. Based on: http://e4nepal.com/entrepreneur-2/hajuribista/
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Table 15: Selected Agribusiness Projects under MOAD
Project Duration Major Activities
Number of Clients being Served
Amount of
Assistance
(US$)
Partner
Commercial
Agriculture
Development Project
(CADP)
2007–13 Commercialization of agriculture
CAA.
Clients: 267 (133 nongrant recipients)
18,000,000 ADB
Project for Agricultural
Commercialization
and Trade (PACT)
2009–15 Agriculture and rural business
development; Support for sanitary and
phytosanitary facilities and good
quality management.
Clients: 539
10,500,000 World
Bank
High Value
Agriculture Project in
Hill and Mountain
Area (HVAP)
2009–
present
To integrate into the local rural
economy through initiatives that
develops small businesses and increase
trade by building the capacity of rural
institutions.
Clients: 13, 500 Households
18,900,000 IFAD &
others
High Mountain Agri-
Business and
Livelihood
Improvement
(HIMALI) Project
2011–17 To reduce poverty in highland areas, by
improving income, employment
opportunities, and the nutritional status
of poor farm families and women in
particular; and by increasing the
productivity of the livestock subsector.
Clients:
The Project impact indicators include:
Additional $20 million of gross
production value per year of
agricultural products
Additional 7,500 jobs created by
participating enterprises
Additional $6.4 million in wages by
2017
20,000,000 ADB
Raising Incomes of
Small and Medium
Farmers Project
2011–17 Reduce the market and business risks
for small and medium farmers who
diversify into high-value commodities
(HVCs) in 10 districts of Nepal's Mid-
Western Development Region and Far-
Western Development Region.
Clients:
20,100,000 ADB
Nepal Economic,
Agriculture and Trade
Activity (NEAT)
2011–14 To foster a conducive business
environment for private sector-led
growth, encourage competitiveness
and exports in selected agriculture and
nonagriculture commodities or services,
initially targeting lentils, ginger,
orthodox tea, and vegetables.
Clients: 50,000 Household
30,000,000 USAID
Source: IFAD 2012: Design Completion Report, Crops and Livestock Accelerated Productivity Programme.
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Reinforcing conclusions from stakeholder
consultations, the demand is spread across
many sectors and a multisector approach,
within the agribusiness arena, is warranted,
rather than focusing on a particular value
chain. This levers the work of other donors,
who focus on specific value chains.
The incubator has been designed to work
with up to 30 clients because of the
demand for incubation, the need to be
very selective and develop a critical mass
of clients under incubation, and the need to
underpin a sustainability model without
being too optimistic given the political
situation. In addition, the AIC will assist early
stage clients with development and proof
of concept, which will build future deal flow.
Table 16: Client Targets
Year Yr1 Yr2 Yr3 Yr4 Yr5
Clients
End of Year 10 20 30 30 30
New Clients 10 10 10 10 10
Graduated Clients 0 0 10 10 10
Accumulated by Year 10 20 30 40 50
More information on client targets is in Annex 7.
Potential Client Example
Karnali Organic from Jumla, Nepal
Karnali was officially registered as a
private company in 2010, but has
been operating for 10 years
producing 2,000 kilograms of niche
honey-based products (a variety of
balm, wild honey).
All products are sold in
Kathmandu/Nepal with more than 75
percent to expats who often take it to
their home countries as a souvenir.
No direct exporting has been
undertaken to date. Karnali uses a
broker to reach the farmers, but plans
to deal with farmers itself. It needs to
resolve the issues of direct exporting
and the business plans to expand.
Assistance with export marketing,
certification, collection
management, and growth finance
will help the business to grow.
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6 Business Model
6.1 Selecting Clients
As discussed, the highest impact and likelihood of sustainability of the AIC can be
achieved by targeting enterprises that demonstrate some understanding of market
demand, target the local and regional markets, and have access to a minimum level
of equipment. The enterprises, thus, have a foundation that positions them for growth
into new markets or products.
A detailed selection process will need to be prepared in order to select the enterprises.
While this will be the mandate of the management team of AIC during the start-up
phase, a number of points are pertinent:
1. Enterprises need to have a growth focus.
2. Entrepreneurs need to demonstrate strong entrepreneurial traits that can be
assessed through psychological testing.
3. Enterprises have a track record indicating success and will demonstrate
competitive advantages in some ways.
4. The market potential of enterprises will need to be good to allow growth
activities.
5. The enterprise should be fundable either via direct commercial loan, or through
a seed fund raised to support selected enterprises or with their own resources.
Selection will follow a process of application, assessment, review, and capacity
building. Finally, a selection panel will assess the merits of each enterprise. This panel will
include representation from a financial institution, as well as a professional with sufficient
market knowledge in the specific product market to assess the product’s market
potential.
Successful enterprises will be required to formally and legally commit to the conditions
of service, including payment regimes and conditions as set out by the AIC.
Selecting high growth enterprises is as much an art as a science, combining judgments
about the entrepreneurial character of the people involved and the history and
potential of the business in the market place. At least initially, the AIC will focus on
enterprises with an annual turnover in the order of between $100,000 and $600,000,
which have the capability to achieve annual growth in turnover of 30 percent per
annum for the anticipated three-year incubation period and after incubation has
ceased. These revenue figures underpin the financial sustainability model.
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6.2 AIC Service Portfolio
There is adequate demand from growth-oriented agribusinesses to justify the
development of the AIC as a new model for promoting the growth of a competitive
value adding agribusiness sector in Nepal. The AIC is a targeted effort to accelerate
the growth of a domestic value-adding sector, focusing on value chains that have a
demonstrated potential and initially working with existing enterprises, although fresh
new start enterprises will be encouraged and supported over time. The benefit will flow
beyond the companies supported, which will demonstrate what can be achieved by
market and technology development. The situation should catalyze others in the
agribusiness sector to do the same. This, in turn, will lead to significant job creation in the
processing sector and beyond (studies indicate that for every job created in
processing, the multiplier effect in the economy is 2.85), as well as increases in income
at the processing and farmer levels. The projected impact of the AIC is discussed in
further detail later in the report.
The AIC will provide clients with a comprehensive service offering designed to position
them for growth into new markets and products.
NEW
MA
RK
ET
Support new market
access
Expand new
product markets
EX
ISTI
NG
MA
RK
ET
Strengthen
product/market
position
Encourage new
products
EXISTING PRODUCT
NEW PRODUCT
Figure 7: Positioning Nepalese Agribusiness SMEs for Growth
As a part of the implementation, especially in the first preparatory year, services will
need to be tailored to clients in each of the small, medium, and large business
categories. As businesses grow, their needs and capabilities will change. More
information on how services can be tailored to the varied needs of micro, small,
medium, and large companies with phases of support is in Annex 6.
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The AIC services will respond to the needs, following areas of the portfolio and delivered
with network partners:
1. Business management advice
2. Market development and access, along with domestic, local, and regional
branding and compliance
3. Business advice and capability development, including pre-incubation
4. Financing brokerage for seed, as well as for growth, finance
5. Access to office, meeting, promotion, and testing facilities
These streams of services encompass business coaching, market research, marketing
and procurement facilitation, technology identification, facilitation, and training and
financial services. These services will provide clients with a comprehensive tailored
offering designed to position them for growth in existing and new markets.
In addition, the AIC will play an active role in promoting successful introductions and
marketing and technology innovations in order to stimulate broader take-up by other
emerging agro-processors. It will also actively communicate policy and regulatory
constraints faced by high-growth potential value adding processors to government
officials, financing constraints to the financial sector, and skills and research needs to
academia and research institutes. In this way, the AIC will help strengthen the overall
innovation and entrepreneurship ecosystem affecting the ability of the entrepreneur to
succeed in the marketplace. The service portfolio of AIC Nepal graphically presented in
the following figure.
Table 17: Nepal AIC Service Portfolio
Payment for Services 6.2.1
Awareness and pre-incubation services (involving workshops and advice to prospective
AIC clients prior to the rigorous selection process) will largely be at no or only minimal
cost. Once clients are selected, they will pay for the business support, which will be
tailored to their unique needs on a case-by-case basis, by way of success sharing
Technical Knowledge
•Market Research and Intellegence
•Business Training
•Technical Training
•Industry Seminars
Advisary Services Networking
•Advisory and Coaching
•Mentors
•Value Chain Partner Facilitation
•Networking Events
Innovation Acceleration
Platform
•Competitions
•Ideation and Prototyping Events
•Acceleration Events
•Collobaration Platforms
Access to Facilities
•Compliance & Certification
•Early Processiong Space
•Working Space / Hot Desking
•Product Showcasing
Access to Finance
•Investment Facilitation
•Linking to Matching Grants
•Connecting to Risk Capital Funds
•Brokerage for Growth Funding
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arrangements (see Financial Section 9.2 for more information) and payment for use of
office and other infrastructure services.
Market and Technical Knowledge 6.2.2
Any initiative focused on enabling the growth of agribusiness enterprises must start with
market and technical knowledge, which includes business and technical training,
industry seminars, and market development. The AIC needs to invest in developing
internal market development capacity—an area that is generally deficient in Nepal.
The AIC will do the following:
Help companies gain agribusiness knowledge through technical and business
training and industry seminars
Assist companies with exploiting existing domestic markets, helping them to
navigate and put in place distributions systems
Assist export-ready companies to exploit international markets, navigating
complex and limited export pathways
Help companies to identify, target, and test new markets and new products
Facilitate access to available packaging and address the deficiencies in the
packaging options available, including copacking arrangements for the
international market
Help companies with market research to assess opportunities and to position
themselves in the market, with current and new high-value products
Help enterprises in identifying and accessing inputs and supplies
Facilitate procurement of common commodities in bulk for resale to processors
Help companies to identify, target, and conclude sales deals in more lucrative
markets
Facilitate trade show activities
Advisory Services and Networking 6.2.3
The advisory and networking portfolio includes mentoring, coaching, and advice on
business management, technical, and regulatory issues. Specific service offerings
include value chain partner facilitation and networking. Although AIC staff will provide
the core advice, the AIC will need to create a strong mentoring, coaching, and partner
network where external capability exists. The AIC will do the following:
Provide focused support in accounting, business strategy, sales, market
development, and other aspects of business management. This support will be
provided by internal staff and outsourcing to specified experts.
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Negotiate and facilitate access to specialized equipment for new product
development and testing.
Facilitate processing technology improvements, hygiene improvements,
standardization, testing, and access to the latest processing knowledge.
Access to packaging facilities, standards, and labeling for both local and
international markets.
Create a network of support organizations that will be able to support
entrepreneurs in areas such as registration, regulatory compliance, sector
development, advocacy, R&D linkages, North-South linkages, financing,
packaging, testing, and certification and network support.
Work with local institutions to identify and meet local standards and with local
consumers to identify standards that must be met.
Innovation Acceleration Platform 6.2.4
This portfolio will be focusing on generating a critical mass of clients for the AIC. It will
emphasize working with network institutions to lever and conduct competitions,
ideation and prototyping events, acceleration events, and collaboration events. It
needs to use the existing network and ecosystem in Nepal with organizations, such as
e4Nepal, Biruwa Venture, and BIP.
Access to Facilities and Locations: Hub and Satellites 6.2.5
The AIC will operate nationally, with a hub in Kathmandu (the largest urban center and
market in Nepal) and satellites, levering partners’ facilities and services, initially in
Nepalgunj in the west, a regional center for NFTP industries and Birattnagar in the east,
a hub for horticulture. Other satellite locations may emerge over time, on the basis of
demand for AIC services from clients and interested local stakeholders, such as Pokara,
to capitalize on anticipated increased trade with Tibet. From these sites, outreach
services will be provided to support entrepreneurs in their own locations, as well as
supporting entrepreneurs who locate in the AIC facilities, or drop in to make use of the
services. The AIC will commence with the hub in Kathmandu, followed by the satellites
in Year 2. Once the hub is established, final decisions on satellite locations will be made.
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Figure 8: AIC Operation: Hub and Satellite
The AIC hub in Kathmandu must be based in an area that is good for business, close to
regulators of food products, and with proximity to agribusiness entrepreneurs, business
mentors, and knowledge centers (R&D). The AIC satellite locations are governed by
proximity to a critical mass of agribusiness entrepreneurs, access to logistics and access
to procurement of raw materials, and processing and packaging infrastructure
AIC will not invest in processing or testing facilities and equipment. Instead it will partner
with the institutions whose infrastructure and facilities can be shared. The AIC will focus
on existing processors initially, who already have processing facilities of one form or
another, which may be improved and expanded with business support and financing.
In the future, partner facilities for new start businesses will be used. Renovation of the
DFTQC’s pilot plant is accounted for in the budget in the third year, to provide testing
space for new processing businesses. When renovated, this facility will be managed by
DFTQC, a key partner of the AIC.
To support entrepreneurs with market development, a product and technology
showcase will be established in the AIC facility in Kathmandu. The showcase will also be
a base from which to help entrepreneurs navigate the complicated market systems,
which many entrepreneurs do not understand, for both marketing of products and
sourcing supplies.
The AIC will broker and facilitate access to testing and certification facilities, as well as
packaging facilities, both in Nepal and internationally, levering partners and networks.
For instance, copacking arrangements will be facilitated on- and offshore, so producers
can outsource or export in bulk and have their products packed under their own label
in existing copacking facilities. The AIC will facilitate access to partners testing
laboratories in Nepal and where they are not available, follow existing practice and
Central Hub
Kathmandu
East Satellite
Biratnagar West Satellite
Nepalgunj
Agribusiness
Champions
NARC
DFTQC
ICIMOD
AEC / FNCCI
CAA
MMA
+++
+++
NgCCI
JABAN
+++
+++
Agribusiness Innovation Center
Agribusiness Feeder Channels and Service Providers
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facilitate international access, for instance, to Indian facilities, until such a time as they
are available in Nepal.
The AIC’s office facilities in Kathmandu will provide five offices, hot desking space
(online workstations), meeting spaces, reception, and other business center facilities for
entrepreneurs, who can use them on a permanent or drop in basis. Moreover, this will
serve as a co-creation space for networking and pre-incubation to help aspiring
agribusiness entrepreneurs develop viable and competitive plans.
On this basis, the AIC will provide access to facilities as follows:
A product and technology demonstration center will be made available at the
AIC’s Kathmandu premises.
The AIC will link with DFTQC and local institutions to facilitate access to testing
and laboratory facilities and where these are not available in Nepal, to
international facilities.
The AIC will offer offices, meeting rooms, and shared office equipment for
entrepreneurs.
Early stage processing space will be provided for the start-ups at the premises of
DFTQC.
Access to Finance 6.2.6
Finance is a key constraint for growth. It is critical that the AIC can offer financial
services to its clients. This significant gap needs to be surmounted for enterprise to scale
and grow. The AIC will work intensively with clients making them “finance ready” and
then actively facilitate investment from a range of sources:
A $14 million SME venture fund, Business Oxygen, has just been launched with the
support of the IFC and the World Bank, in partnership with a local private bank,
the Bank of Kathmandu, and Beed Management of Nepal. This is the first of its
kind in Nepal. Even though the fund is not sector focused, it is a timely initiative to
access nonconventional finance to simulate the growth of agribusiness.
Matching grant facilities through programs, such as PACT and CADP
Linking with the angel investors, such as Fortune Cookies, and interested
prospective agriculture-based angel investors
Bank financing
The initial strategy is to facilitate and broker finance from these and other existing
sources. Financiers will benefit in terms of better prepared applicants, the due diligence
undertaken by the AIC with its clients, and then the intensive support provided to
clients, which will mitigate the risk financiers take. Should facilitating finance prove
inadequate for the needs of client companies, the AIC may need to consider
establishing a dedicated early stage fund. Alternatively, the AIC could start a
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dedicated fund itself from the outset, which would need additional investment likely to
be in the order of $3 million over a six-year period to allow for funding of $600,000 per
year.
As well as PACT’s matching grant system, NARDF is an early stage fund the AIC could
target. NARDF is an institution for implementing competitive grants in agricultural
research and development. The main function and mandate of NARDF is to seek or
demand proposals from governmental and nongovernmental organizations, including
academic or educational institutions and the private sector, who are interested in
contributing to the agricultural research and development of Nepal. NARDF focuses on
output-oriented work, aiming to deliver measurable results within a maximum of a three-
year period, in support of national objectives and priorities defined in government
policy documents. The government’s budget for NARDF for FY 2010/11 was around
$766,700. The range of grant is NPR 1 to 3 million (up to around $35,000).53
The following are some priority research topics from the 2012/13 call for proposal
cycle:
Agrotourism
Linking farmers into market, including ICT
Food safety and quality improvement system
Agricultural and livestock market research impact study
Production, processing, storage, and marketing of improved seeds
Promotion of quality products for export
Small agriculture and livestock business promotion
Value-addition technologies in fish and meat production
Production, processing, and marketing of spice crops
6.3 A Multistakeholder Networking Approach
The AIC aims to help growth enterprises to expand and accordingly needs to support
entrepreneurs in value chains with the best potential. It is important to help these
enterprises surmount the challenges they face. Many stakeholders, including donors
and government agencies, are undertaking important work to improve value chains
and are helping to add value to agribusiness entrepreneurs (see table 13). Indeed,
most donor-funded programs in Nepal focus exclusively on value-chain development.
The AIC is designed to fill gaps and not to compete with the existing business
development services or value chain development work. Instead, the AIC will work
closely with these organizations.
53http://www.nardf.org.np and NARDF, Project Completion Report, June 2012 Annual Progress Report,
MOAD, 2011.
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Entrepreneurship has not been a major part of the Nepalese mentality up to this point.
The challenges of getting quality education, information, access to facilities, and
financing are most often too daunting for recent graduates. Despite this, there has
been a recent surge of entrepreneurs in the food service sector, with new restaurants
popping up all over major metropolitan areas, such as Kathmandu, Pokhara, and
Biratnagar. However, food processing entrepreneurs are still few and far between in
Nepal. It is important for the sustainability of the AIC to implement pre-incubation
programs, via strong partnerships, for entrepreneur development, for which funds have
been allocated for the AIC operations to institute and refine appropriate programs.
University programs in Nepal do not offer entrepreneurship courses, except in Masters in
Business Administrative (MBAs) and certain Master’s program, with limited success. It is
recommended that the AIC conduct a streamlined outreach program with interested
universities and technical and vocational training institutions focused on food
processing and others promoting entrepreneurship, to fill the pipeline of the incubator
with new and emerging entrepreneurs. It is expected that these programs will continue
after the first five-year period in which they are funded by the AIC. In this time, a critical
mass of new entrepreneurs will have been generated and the programs will become
self-sustaining in their host institution.
The opportunity identified is for the AIC to focus on the common challenges faced by
entrepreneurs, revolving around market development, financing, and business
management capabilities. None the less, the AIC’s success will depend somewhat on
how it levers and works with wider networks. Several institutions, government agencies,
business associations, projects and programs, and INGOs are well positioned to
become collaborators, details of which were presented in the stakeholder mapping in
the earlier section. The following are key institutions with whom the AIC needs to partner
and cooperate.
Table 18: Potential Collaborating Agencies, Projects and Programs
KEY INSTITUTIONS ACTIVITIES AND COLLABORATION
Government:
PACT, MOAD
Activities
Ownership and internalization of AIC Feasibility Study and its
recommendations
Implementation of AIC
Funding for establishment and operation of AIC until it becomes self-
sustained
Planning and preparation of exit from AIC at the time when PACT is
phased out
Collaboration
Supporting matching grants made by PACT to processing enterprises
Key infrastructure and knowledge sharing partners for AIC
Government:
MOI / DCSI / BIP
Activities
Policy and process support in implementation and operation of AIC
Representation at strategic advisory committee
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KEY INSTITUTIONS ACTIVITIES AND COLLABORATION
Collaboration
Linking incubatees to AIC for further growth orientation of BIP
agribusiness clients
Experience sharing and facilitating to AIC client
Pre-incubating services (DCSI-BIP)
Partners:
DFTQC
NARC
ICIMOD
CAA
Activities
Involvement in creating AIC as an institution
Infrastructure and knowledge sharing partners
Eastern regional partner for AIC satellite in Biratnagar (CAA)
Collaboration
Certification and quality assurance
Lab sharing and sourcing of technical mentoring
Knowledge creation and sharing
Technology research, development, and demonstration
Utilization of Knowledge Park at Godavari as needed by AIC client
Establishment and operation of Biratnagar Satellite of AIC (CAA)
Deal flow
Universities:
Tribhuvan,
Kathmandu,
Pokhara, Purbanchal
Activities
Running academic programs relating to food processing, agriculture,
post-harvest technology, horticulture, diary, agriculture engineering,
and livestock
MBA programs, running entrepreneurs lab as well
Industry internship
Entrepreneurship promotion
Participation in Local Innovation Competition (Locus by IOE)
Lab facility, research, and innovation with scope to commercialize
Possible Collaboration
Source of innovative entrepreneurs, mentors, and technology experts
Practical training options on entrepreneurship
Pre-incubation and business-focused research
Laboratory, research, and development access
Established
Entrepreneurs:
Agribusiness
Champions,
Investors, and
Successful
Entrepreneurs
(Pool of Champions
and Investors)
Activities
Running successful agriculture and other business ventures
Partnership in creation of AIC as an nonprofit sharing company
Formation of pool of agribusiness champions and angel investors
Collaboration area
Support to run AIC as business entities
Sending representatives to AIC board
Peer review of champions representing in Board of AIC
Sourcing of industry and business mentors
Business Member
Organizations
FNCCI / AEC / FNCSI
/ NCC
Activities
Focused support through commodity associations, business
promotion, lobbying, entrepreneurship promotion, and facilitation
(NBI, NYEF, and others)
Collaboration
Identification and recommendation of partner for West Nepal,
Nepaljung satellite of AIC
Deal flow and incubation of their growth oriented agribusiness
entrepreneurs
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KEY INSTITUTIONS ACTIVITIES AND COLLABORATION
Feeder Channels:
Biruwa Ventures,
E4Nepal, Samridhi,
ChangeFusion Nepal
Activities
Entrepreneurship promotion, pre-incubation, angel network
Collaboration
Sourcing of clients
Experience sharing on running of an incubator
Women’s
Organizations FWEAN
Activities
Entrepreneurship promotion, pre-incubation
Collaboration
Sourcing of clients
Incubation of their growth-oriented women agribusiness
entrepreneurs
There are significant issues regarding the level of women’s empowerment in the
agricultural sector. In Nepal, women have traditionally been excluded from formal
processes and structures and lack access to market information, technologies, and
productive inputs. Many women also lack the confidence to pursue a business-growth
path. However, women play an important role in agriculture and women entrepreneurs
are becoming more organized through umbrella organizations. For instance, FWEAN
has established a brand for processed foods, such as pickles and spices. FNCCI and
NYEF are collaborating with FWEAN and other partners to organize the first National
Women Entrepreneurs’ Summit and a public Mela (local trade fair) in 2013 in
Kathmandu. This provides an opportunity for the AIC to work with these organizations to
support women agribusiness entrepreneurs to facilitate peer learning among women
entrepreneurs and to sensitize men and women to the potential of women-led
enterprises.
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7 Institutional and Governance Arrangements
InfoDev’s experience in the area of business and technology incubators indicates a)
that the governance framework is critical and b) that a public-private partnership offers
the highest likelihood for success. In a public-private model, government (which has a
public good role), academia (which has a teaching, research, and often a
commercialization focus), and the private sector (which has a profit motive) all work
together to advance each of their own interests and collectively contribute to growth.
The AIC model, unlike many others, is designed for cost recovery and so it must be
driven in a “Public Mission/Private Management” model. To operate as a trusted,
transparent business in its own right and to achieve financial sustainability, the AIC must
be governed with arrangements that allow private salaries to be paid (which allows fast
management decision making to capture business opportunities) and with flexible
systems to accommodate changes in the business environment. These features should
minimize public sector bureaucracy and maximize the ability to develop trust with the
entrepreneurs supported.
7.1 Mission, Vision, and Strategic Objectives
The study team developed the following provisional vision, mission, and statements
about objectives following consultations with key stakeholders and potential partners.
Vision
Our vision is to be a leader in the creation, growth, and success of notable Nepali post-
harvest processing agribusiness companies.
Mission Statement
The Agribusiness Innovation Center will identify and develop high-growth sustainable
enterprises in agribusiness and other agriculture related growth sectors that will realize
the socioeconomic potential of Nepal through the provision of value added
professional business services, physical facilities, and business linkages to local and
international markets and finance.
Objectives
1. To establish a fully functioning agribusiness incubation environment in Nepal by
January 2014.
2. On average to graduate 10 enterprises per year after an initial four year
establishment period.
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3. To increase turnover of these enterprises (and therefore through success sharing
the business incubation environment itself) by an average of 30 percent each
year for three years.
4. To utilize funding through PACT of $4 million to establish the AIC.
Value Proposition
The AIC’s value proposition is the following:
Its understanding of agribusiness entrepreneurs, business, and business growth
Its capacity to identify and support products with high growth potential in
priority value chains
Its ability to tailor and provide relevant and effective agribusiness growth
services
Its active facilitation of linkages among stakeholders and other business entities,
including the financial sector
Its ability to help grow companies and contribute to socioeconomic
development of Nepal in a more sustainable manner.
Competitive Edge
The agribusiness incubator’s competitive edge comes from its unique ability to
collaborate with and attract high quality growth clients and provide them with value
services and linkages that offer an above average chance of success.
It will do this by:
Becoming a credible agribusiness growth entity that is able to command interest
and respect
Providing high quality accommodation to resident clients at market related
prices and an integrated outreach service to support nonresident clients
Ensuring services are high quality, available, and professionally delivered
Creating an agribusiness growth network with other credible institutions,
including government, intergovernmental, agri-research, financial, market
facing, and business-support organizations
Growing agribusinesses to levels that both satisfy the needs of entrepreneurs
and act as a reference and stimulus for other entrepreneurs
Ensuring independence from any vested interest and developing trust with its
clients
Supporting the socioeconomic development aspirations of Nepal
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Positioning Statement
The Agribusiness Innovation Center is positioned to help entrepreneurs to accelerate
the growth of their agribusiness.
7.2 Ownership, Governance, and Management
To succeed in its mission and to provide tangible value to entrepreneurs, the AIC host
institution needs the following characteristics:
Capabilities to build and manage complex organizations, including strong
internal governance frameworks and a track record of fiduciary responsibility
and accountability.
Proven ability to attract and build a strong team of individuals for project
implementation.
Understanding of the needs of agribusiness SMEs in Nepal or similar contexts,
including experience evaluating agribusiness technologies and incubating early-
stage businesses.
Strong local and international links with potential partners’ agribusiness firms,
investors, technical and business experts, policy experts, and leading research
and development organizations.
Ability to leverage existing and additional sources of funding, both cash and in-
kind, such as space, equipment, and staff.
Ability to implement and maintain procurement and financial management
processes and a comprehensive M&E strategy.
Ability to operate as an entrepreneurial business entity, paying private sector
salaries and working for the best interests of clients as a trusted service provider.
An understanding that while the AIC must operate as a business and aims to
cover its costs, independent financial self-sustainability will be a challenge. Even
if self-sustainable is unlikely to ever be profitable, it should not be seen as a
source of financial return for the organizations involved. Any eventual profits
should be re-invested in the business, to improve and expand services, rather
than being paid out as dividends. The return needs to be understood in terms of
socioeconomic benefit, rather than financial returns.
The organizational arrangement needed in the Nepalese context is summarized as
follows.
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Table 19: Organizational Arrangement for Nepal AIC
At the same time, the AIC institution has the opportunity to leverage PACT activities:
Increasing the value added in selected value chains
Strengthening the system of standards and food quality management
Promoting agribusiness management and innovation
Options 7.2.1
A number of options need to be considered in determining the best institutional
arrangements for the AIC. The strengths and weaknesses of each are summarized in the
table below.
Table 20: AIC Host Organization Options
Option Strength Weakness
Existing business member
organization
Business and industry links
Credibility
Influence
Private sector approach
May have valuable
complementary services
May not be seen as
independent of vested
interest
May not be trusted to work
for AIC clients interests, as
opposed to the
organization’s members
interests
Private Agribusiness
company
Proven entrepreneurship
and private sector
Interest may be too narrow,
focusing on the particular
• Autonomous
• Flexible Independent
• Operating as a business
• Entrepreneurs helping entrepreneurs
Innovative & Entreprenerual
• By entrepreneurs
• By stakeholders Trusted
• Highly capable and experienced HR
• Private sector salaries Capable
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approach
Knowledge of agribusiness
area in which the company
operates.
May not be seen as
independent of the
companies private interests
by AIC clients.
University Knowledge
Resources
May have difficulty
operating the AIC as an
entrepreneurial business
organization, paying
salaries with minimal
bureaucracy.
Government Policy influence
Resources
May have difficulty
operating the AIC as an
entrepreneurial business
organization, paying
salaries with minimal
bureaucracy.
NGO May have valuable
complementary services.
May be trusted as an
honest service provider
working for the interest of
clients.
May not be business
oriented or entrepreneurial.
May not have the
necessary business and
industry linkages.
May only have micro-
business development
expertise, which is not the
same as helping growth
oriented entrepreneurs.
New organization Can start with a “clean
slate” as a demonstrably
independent and
autonomous entity.
Focused on the AIC alone.
Can represent a
consortium of existing
organizations.
Un proven
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Arguably, the best arrangement for the management and governance of the AIC is for
a new independent and autonomous organization, drawing together existing
organizations in a consortium, to involve their strengths and mitigate their respective
weaknesses. In the end, any consortium for the AIC needs to comprise people and
organizations who have a common ethos, who trust each other and who can work
together cooperatively for the benefit of the AIC.
At the stakeholder consultative workshop, the stakeholders agreed, particularly from
PACT and MoAD, that the AIC should be managed via PACT by the private sector, at
least initially with a nonprofit structure, to draw together a consortium, for which
majority ownership should be with interested private actors. There is an understanding
that the role of government is facilitative; that is, the government should provide
financial, policy, and business environment support, while the AIC should work like a
business and become a permanent entity beyond the PACT project.
The CAA has a relevant nonprofit company structure, which may be a model for the
legal form of the AIC, but it works as a network institution, providing services to its
members, rather than to clients who are not members. This is an important distinction,
because the AIC is designed to provide services to clients, not to the members who
come together to host the AIC.
The AIC has some similarities to private consulting companies who provide strategic
and operational advice to companies, but is significantly different in that payment for
services will largely be by way of sharing in the clients’ success, rather than by payment
of fees. The relationship with the clients has subtle but important differences. It is more
akin to a mentoring relationship, rather than the traditional consultant-client
relationship. Consulting firms will have important roles in assisting the AIC, as service
providers to the clients.
Whatever host organization or consortium is selected, it cannot involve all the interested
stakeholders, without making governance overly cumbersome and bureaucratic.
Accordingly, a Strategic Advisory Committee is proposed, to draw together a wider
group of interested stakeholders, so they can learn from the AIC to provide strategic
and other advice without being involved in governance arrangements and work for
broader ecosystem improvements.
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In summary, the following institutional arrangement is proposed.
Figure 9: AIC Organization Structure
Should a new organization be formed, drawing together a consortium of interested
organizations and agribusiness entrepreneurs, then a new “company not-distributing
profits” is proposed,54 with a consortium of members as the owners, joined on the board
by independent directors. Over time the company could transition to a profit-making
structure, if this is warranted. The organization should be set up in such a way that it will
provide appropriate community involvement, with built in accountability and
transparency at all organizational levels. Under Nepali law, a nonprofit distributing
company needs five members.
The governance of the AIC must allow the center to function as a business. This is well
understood by the entrepreneurs consulted; who also know it is much easier said than
done. All too often business member association involvement is perceived to be the
way to create such an environment; however, initiatives along these lines have not
been as successful as expected; something that the business community has
accepted.
54A company defined by Clause 166 of the Companies Act 2063. This style of company is akin to a
Company Limited by Guarantee under British derived law, a 501C3 company under U.S. law.
PACT Steering Committee
PACT Project Director, AIC
Subproject Manager, AIC
Implementation Committee
AIC
AIC Host Company
&Consortium Members
AIC Board
AIC
Strategic Advisory
Committee
Agribusiness Innovation Center
Management
AIC Client Selection
Committee
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Within this structure, the board plays a pivotal role and must be manageable and
workable. To that end, it is recommended that the board be kept to a maximum of
seven members, the majority of whom are from the private sector.
A purely representative board need to be considered with caution, especially for a
service that has to operate as a business. Representatives may not have the
appropriate commitment, or background, and may simply be on the board because
they have been told to, or to improve their CV. If board members are not wholly
committed or business minded, then they may make poor decisions or avoid hard
decisions. For similar reasons, public institutional stakeholders and their representatives
can at times be “difficult,” if the institution’s priorities or key personnel change. This can
be mitigated by strong private sector directors, one of whom may be the chair of the
board. The credibility of the board directors will be critical for success in levering private
investment for clients. AIC clients and Investors want to trust who is responsible for their
funds or for supporting the companies in which they invest. However, the board cannot
and should not become too involved in the day-to-day management of the AIC or
micromanage.
Roles of Stakeholders 7.2.2
PACT
PACT Steering Committee (during PACT’s existence as a project in MoAD)
Strategic Advisory Committee (MoAD after phasing out of PACT)
PACT – AIC Subproject management Team
PACT funding for AIC made to AIC host institution
Agribusiness Entrepreneurs
Individual successful agribusiness entrepreneurs, or larger corporations in the sector,
interested in promotion and investment in innovative agribusiness will play an important
role, possibly as mentors and advisors to AIC clients, as consortium members (should a
new organization be involved), as directors of the board, or as investors in AIC clients.
AIC Host Institution
The host institution may draw together a consortium of public institutions, private
agribusiness entrepreneurs, other service providers, and knowledge institutions.
Role: Own the incubator, appointment of board of directors, provision of services to
clients.
Board of Directors
Role: Governance of the incubator—oversee the operations of the incubator.
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Strategic Advisory Committee
Role: Strategic advice to the consortium and the board, although with no involvement
in the governance chain, learning about incubation, overall strategic development of
the Innovation, and Entrepreneurship Ecosystem.
Comprising:
Government Ministries
o Ministry of Agriculture Development
o Ministry of Industry
o Ministry of Commerce and Supplies
Chambers of Commerce
o AEC / FNCCI
o FNCSI
o FWEAN
o NCC
Donors, including ABD and World Bank
Other Interested universities
o All universities running agriculture, forestry, engineering (industrial and
processing), and business administration programs
o Tribhuvan, Kathmandu, Pokhara, Purbanchal
BDS Providers
o BEED Management
o Samriddhi
o Change Fusion
o Biruwa Ventures
o Other private/professional companies
The Strategic Advisory Committee would be serviced by the AIC, provided with regular
information and meet together, perhaps once or twice per year, to both provide
strategic advice and learn about incubation. To help maintain information flows and
engagement, the committee could be offered an observer position at specified board
meetings.
Client Selection Committee
Role: To select clients for incubation, on advice and recommendation from
management, according to stringent entry criteria.
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Comprising:
Board of Directors representatives
Calling in external assistance as and when additional sectoral or technical
knowledge is required
SME Venture Fund Representation—IFC nominee or Business Oxygen Fund
Manager)
Management Team
Knowledge Partners: Infrastructure / Knowledge Sharing Institutions
Role: Provision of infrastructure, information, and knowledge for clients on terms
managed by the institutions, which will be key players in the AIC’s network.
Comprising:
NARC
DFTQC
ICIMOD
Screened Qualified Service Providers
Role: Provision of intensive business support services to clients, with management
controlling which service providers are referred to on a case-by-case basis.
Comprising:
Business development service providers and specialist consultants
Banks
Accountants
Lawyers
IT Specialists / Mobile App champs
Other Service Providers
Satellite Partners for AIC
Role: To serve as the local center for the AIC, for their respective geographic regions.
They will mobilize their existing office logistics and human resources for the incubator
and will nominate people to be trained by the incubator to operate as regional AIC
focal persons. Functions of the regional satellite AIC will be guided by a mutual
agreement between the AIC and respective partner organization. The AIC may
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compensate for resources used by the partner organizations for the operation of
satellite AIC.
Potential partners for the satellites:
East
o Commercial Agricultural Alliance (CAA), Biratnagar
CAA, a nonprofit sharing company located in Biratnagaris responsible for
managing the Commercial Agriculture Fund (CAF), the cost-sharing grant
facility of CADP.
o Morang Merchant Association (MMA), Biratnagar
MMA, established in 1951, is a founding member of FNCCI and is the leading
BMO of eastern Nepal, located at Biratnagar, Morang district of Nepal.
West
o Nepalgunj Chamber of Commerce and Industry, NCCI, Nepalgunj
NCCI is the leading BMO of the midwest, located in Nepalgunj, the major
NTFP trading hub of Nepal.
o Jaributi Association of Nepal (JABAN)
JABAN is a medicinal herbs producers association of Nepal with
approximately 25 members who process and export herbs.
Satellites will evolve and may be established in Pokara and other locations where there
is demand from clients and local stakeholders interested in establishing satellite centers.
The respective roles of stakeholders are outlined further in the table below, noting the
plan is still evolving and roles may change as and when a host institution or consortium
is selected.
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Table 21: Key Stakeholders and their Roles—Network for AIC
Key Stakeholder Roles
Government
Ministry of Agriculture
Development (MOAD)
PACT
Implementing Body for AIC
Sponsor / Sourcing of operational grant to AIC
Matching grant / Feeder Channel / Regional offices / Pre-incubation
Monitoring and Evaluation of operation of AIC
Strategic Advisory Committee member
NARC Infrastructure, Knowledge and Technical Support Partner
Knowledge and R&D
Department of Food
Technology and
Quality Control
(DFTQC)
Infrastructure Sharing / Quality Certification / Knowledge and
Technical Support Partner
Compliance, standards, and certification
Ministry of Industry, BIP
(DOI/DCSI/IEDI)
Strategic Advisory Committee Member
Pre-incubation at the DCSI Incubator
Deal flow pipe line
Responsible for the government’s business incubation policy
Ministry of Commerce
& Supplies
Strategic Advisory Committee member
Facilitation for international Business, WTO facilitation, NTIS
Trade and Export
Promotion Center
Strategic Advisory Committee member
International market facilitation
International Institutions
ICIMOD Knowledge Partner
Sharing knowledge
Best utilization of Knowledge Park, creating win-win situation
Private Sector
Key Industry Players
Fortune Cookie
NIMBUS
Srinagar Agro Farm
Gandaki Bee
Fleur Himalayan
Bhatbhateni
VIOTH
Strategic Advisory Committee Members
Deal flow pipe line: via networks and people who approach them
for investment or support
Provision of services to clients:
Early-stage investment (angel investment) for incubator
clients, when they are “investment ready”
A source of business mentors
International linkages
Market for clients
AIC Regional Partners
CAA / Morang
Chamber of
Commerce and
Industry
Possible Partner for Biratnagar Satellite Center
Deal flow pipeline / feeder channel / district offices
Mobilize internal resources for AIC
Promotion of entrepreneurship and AIC
Operating as AIC satellite in the eastern region
Nepaljung Chamber
of Commerce and
Industry / JABAN/IDE
Possible partner for Nepalgunj Satellite Center
Deal flow pipeline: feeder channel for rural technology innovation
Provision of services to clients:
Working closely with AIC Nepaljung to help promote the
incubation, provide sourcing of clients, and provide facilities
and services
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Key Stakeholder Roles
Universities & Public R&D
Universities
Tribhuvan
Kathmandu
Pokhara
Purbanchal
Agriculture & Forestry
Strategic Advisory Committee or Service Provider
Deal flow pipeline: A source of new entrepreneurs from the university
community (graduating students, faculty, and alumni)
Provision of services to clients:
Interns to work with clients of the AIC and to enhance their
learning experience
Consulting service for SMEs
Business management training
Pre-incubation for students
NAST
(autonomous body
within Ministry of
Science and
Technology)
Strategic Advisory Committee
Deal flow pipeline: realistically only in the future once it has sorted
out their TTO function and have R&D to commercialize with spin out
companies suitable for agribusiness incubation.
Business Member Organizations (BMOs)
AEC/FNCCI Strategic Advisory Committee
Identification of partner for Western Satellite of AIC and potentially
for other satellite centers
Deal flow pipeline—via networks / regional chambers / ODOP /
feeder channel / pre-incubation
Service providers via membership
Market and supply channels via their membership
Finance-matching grant, value chain information
FNCSI Strategic Advisory Committee
Deal flow pipeline—via networks / regional chambers / feeder
channel
Other Network, NGOs and BDS
MEDEP / INGOs (iDE,
Practical Action,
Winrock International
...
Strategic Advisory Committee or Service Provider
Deal flow pipeline: referring their best growth oriented clients for
incubation / facilitation
Pre-incubation and awareness services—in agribusiness incubation
jargon their BDS services can be considered in this way
Biruwa Ventures
E4Nepal
Sambridhi, The
Prosperity Foundation
ChangeFusion Nepal
Deal flow pipeline
Promotion of entrepreneurship
Provision of services to clients:
Pre-incubation
A source of business mentors
Entrepreneurs network
NEFOSTA Deal flow pipeline—via networks
Service providers via members, including:
Source of food technologists and scientists
A source of business mentors
Market and supply channels via their members
National Banking
Training Institute (NBTI)
Feeder channel for mentors from banking sector / maintaining pool
of trainers
Beed Management in
conjunction with Bank
of Kathmandu and
IFC’s SME Ventures
Strategic Advisory Committee and Client Selection Committee
Deal flow pipeline—referral of suitable people who apply for their
finance, levering IFC SME Venture Fund ($10 million)
Provision of services to clients:
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Key Stakeholder Roles
Finance, with a special arrangement with the incubator
Lead International Strategic Advisory Committee
Deal flow pipeline: levering Business Edge, for which they have a
license with the IFC, noting details are not finalized yet.
Provision of services to clients:
Business Edge training for suitable clients
Nepal Bankers
Association
Strategic Advisory Committee
Advocacy to banks: both to refer suitable loan clients for incubation
and to consider special loan mechanisms for clients referred by the
business incubator.
Practical Action
Consulting, Nepal
Country Office
Deal flow pipeline: potential feeder channel for rural technology
innovation.
More information on the key partners, namely DFTQC, CAA, NARC, NARCDF, and
ICIMNOD is in Annex 9.
Role of the AIC Board and Management 7.2.3
In the context of the structure proposed above, the board should be responsible for the
following:
Strategic planning and future directions
Approval of the business plan prepared and submitted by management
Approval of strategic, financial, and high-level operational policies
Financial oversight
Hiring and firing the CEO/Manager, who is then responsible for hiring and firing
other staff
Monitoring and assessment of management performance
Supervision of management, with a special relationship between the chair of the
board and the CEO/Manager
Promotion of the AIC
Obtaining the necessary resources for the AIC
The board must give management the room and delegation to manage the AIC as a
business, within an approved policy framework, and avoid micro-management (that is,
directly getting involved in day-to-day management itself.)
To manage any potential conflicts, management must have the right to control exactly
which service provider helps a client for whatever purpose. While the intent is that the
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host institution or consortium can be service providers, management must manage this,
without undue pressure from the Board.
7.3 Selecting the AIC Host Institution
Selection of the host institution, or consortium of institutions, for the AIC will be by a
public Expression of Interest (EOI) process, to pick the preferred host institution(s),
followed by a full Request for Proposal from the chosen institution. This process
recognizes the critical importance of selecting the right sort of organization(s) and
allows like-minded people and organizations to come together voluntarily, without
prejudging the merits of particular organizations and at the same time using a
transparent process to determine which organizations are committed and interested
and the best fit for the AIC.
Expression of Interest 7.3.1
The Expression of Interest (EOI) will be guided by a terms of reference, selection criteria,
and associated procedures. InfoDev will work with PACT to prepare the EOI terms of
reference and selection criteria. PACT will manage the EOI process. Following a review
of the EOIs submitted, five candidates will be selected by an evaluation committee
comprising:
1 x MoAD Joint Secretary
1 x NPC representative
1 x FNCCI’s AEC, if they are not involved in an EOI
1 x DFTQC
1 x PACT Under-Secretary
1 x PACT Technical Support Group
1 x infoDev local consultant
The final selection committee will interview the five candidates selected, which will rank
the five and then invite the top rank bidder to submit a full proposal, against a formal
Request for Proposal (RFP). At this stage, PACT will assist the selected bidder to prepare
their proposal and hone the team involved. PACT will evaluate the full RFP, if necessary
involving the full committee. If it is acceptable, PACT will proceed to contract
negotiations for implementation. If the process fails with the selected bidder then it will
be recommenced with the next ranked bidder.
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The final selection committee will comprise:
Secretary for MoAD
1x Joint Secretary MoAD
1 x Joint Secretary Ministry of Finance
1 x Joint Secretary NPC
1 x Joint Secretary MoI
1 x potential incubate nominated by the Secretary MoAD
1 x FNCCI AEC Executive Director, if not involved in any of the bids
1 x Member Secretary PACT
1 x IFC
1 x infoDev international consultant
The World Bank is expected as an observer.
7.4 AIC Personnel
The caliber of the first and subsequent managers for AIC will be critical for success. The
main capabilities to be sought in the CEO/Manager is dynamic leadership and
agribusiness entrepreneurial experience. The CEO/Manager will need the ability to gain
trust and credibility with clients and stakeholders, to add tangible value to clients
businesses and manage the AIC as a business in its own right. The CEO/Manager will
lead a small management team and outsourced service provision that will need to
comprise a balance of marketing, accounting, and finance and business development
experience, with domain knowledge in agribusiness.
In general terms some key issues to address with the first and subsequent AIC Managers
will be the following:
Intimate knowledge and experience of entrepreneurship and agribusiness, with
experience in growing food processing companies.
Ability to help existing agribusiness ventures to grow and stimulate start-ups.
The credibility they are able to generate, particularly with potential agribusiness
clients, investors, and stakeholders.
A private sector orientation and the ability to manage the AIC as a business.
Excellent interpersonal skills.
Excellent business counseling and facilitation skills.
A high tolerance for ambiguity and flexibility. There are many contradictory
aspects to the manager’s role, such as being a business counselor, mentor,
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investor, land lord, and debt collector. One has to be responsible to the clients in
terms of helping them grow their business, to the board in terms of managing the
AIC business, and to investors who have invested in the AIC client.
Above average commitment to the project, preparedness to achieve
outcomes, and willingness to work longer than average hours.
Achievement driven.
Confidence, passion, and enthusiasm.
Empathy with clients and the ability to engender trust and confidence with
clients and investors.
Agribusiness market development experience and skills.
Networking skills.
To provide the necessary intensity of support to clients and to achieve the incubator’s
own revenue and business targets, eight management staff has been allocated in the
budget complemented by provision for AIC to pay for business development services
for its clients.
1. Manager/CEO—A very high caliber person with international agribusiness market
development experience, an international hire, or equivalent Nepalese national.
2. Agribusiness Advisors—Two advisors with agribusiness market development
experience, focused on working with clients and who are likely to have been
involved with an agribusiness on a growth path. One would be employed from
the outset and the second in the second year to help work with clients in satellite
centers.
3. Outreach/Business Development Officer—Focused on awareness building, pre-
incubation, critical mass creation, public relations, and expansion of the network
of the AIC.
4. ICT Officer—Utilization of full potential of ICT, including mobile technology, for be
best of AIC and its client, networking with ICT partners as needed.
5. Administration and Accounts Officer—Handle the AIC financial management
and guide clients in the AIC Hub, as well as at the satellite centers.
6. Agribusiness Officers and Secretary—For AIC satellites in East and West, to be
employed in Year 2.
7. AIC Secretary, Accounts and Administration Assistant, and Messengers—Support
staff for the management of AIC, as well as its client companies.
8. Total staff 14 to be phased in as the AIC hub is established in Year 1 and the
satellites are established in Year 2.
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The following is a summary of overall staffing requirement for the AIC when at full
capacity:
Table 22: AIC Staffing Requirement (at full capacity)
AIC Hub in Kathmandu Positions
Manager/CEO High caliber in agribusiness market development
Agribusiness Adviser 1 Agribusiness market development focused on AIC Hub
Agribusiness Adviser 2 Agribusiness market development focused on satellite
centers, to be employed in the second year
Outreach Officer Awareness / critical mass creation, public relations
ICT Officer AIC and client companies
AIC Secretary Institute secretary, client service
Admin and Accounts
Officer AIC and client companies
Account and
Administrative Assistants AIC and client companies (Two number)
Office Assistant/
Messenger AIC and client companies
Satellite Centers Positions
Agribusiness Officers Two positions, one each for east and west, starting from
second year
Secretaries Two position, one each for east and west, starting from
second year
Cleaning Outsourced
Security Outsourced
The three critical staff members for the AIC are experienced senior people with solid
agribusiness market development experience, one with international experience,
perspectives, and linkages, and the other two with local experience perspectives and
linkages. The CEO needs to have international agribusiness market development
expertise and may need to be hired internationally, if a suitably experienced high
caliber Nepali cannot be found, either domestically, or from the Nepali diaspora. The
CEO needs support from administrative, analytic, communications, and back office
personnel, and agribusiness advisors for lower-level business development work.
When the AIC is at full capacity with 30 clients serviced from the hub and satellites, the
center will achieve a good ratio of 1:7 for staff who work with clients to the number of
clients, to provide the intensive support required, in particular from the CEO, two
agribusiness market development staff (Agribusiness Advisors), and outreach officer.
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No matter how skilled the management team is they will never have all the knowledge,
networks, skills, or time required. The staff needs to be supported by a flexible consulting
and mentoring budget, to bring in specialist experts and mentors to work with the
entrepreneurs at the hub, as well as satellites, for which a budget of $4,600 per client
per year has been provisioned. This includes processing and packaging expertise to
help clients. Research has shown that when incubators operate in this way, rather than
trying to do everything themselves, they are likely to be more successful and more likely
to lever venture capital.
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8 Implementation Requirements
With the recommendation to implement the AIC via PACT, implementation will be the
PACT’s responsibility. This section addresses key implementation elements for the PACT.
8.1 Facility and Infrastructure Requirements
Access to Testing Facilities 8.1.1
Agribusiness entrepreneurs need access to testing facilities and laboratories, through
brokering relationships, rather than setting up dedicated facilities. Commonly
companies have testing done in India or Europe in the absence of local facilities and
services. DFTQC facilities and services will be used, as well as international facilities, for
services and facilities not currently available at DFTQC.
AIC clients may need access to technology testing facilities, for which there may be
some overlap—for instance, for testing the safety of water purification technologies.
Renovation of the DFTQC’s pilot plant is accounted for in the budget in the third year,
to provide pilot processing space for new processing businesses, along with the basic
generic equipment needed. When renovated, this facility will be managed by DFTQC,
a key partner of the AIC. Details of the work and costing are in Annex 10.
Access to Relevant Technology 8.1.2
Technology information, development, and transfer are other important elements of
the AIC. In implementing this track, the AIC will need to address the needs of food
manufacturing and processing companies in any databases and services that broker
access to appropriate technology.
Access to Packaging 8.1.3
Access to packaging in Nepal is an impediment for food processors, who have limited
options in Nepal. Advocacy for the development of the packaging industry and
brokering relationships in Nepal and abroad are needed. Establishing and working with
a solid network of copackers, who will package a manufacturer's product in the
manufacturer's brand, is a priority as a part of implementation. The specialist staff
referred to earlier, especially the one with international experience, should have
adequate knowledge as to what is required and about the networks. Specialist
consultants can provide this information.
Pre-incubation 8.1.4
To develop a pipeline of future clients, the AIC needs to develop pre-incubation
programs with universities and other incubators and training institutions, enhancing
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existing entrepreneurship development activity. The AIC has a budget for working in this
area with universities and chambers of commerce.
Location 8.1.5
The AIC hub is to be located in Kathmandu with the two satellites in Nepaljung in the
west and Biratnagar in the east established in the second year. The AIC will not offer
processing facilities for clients to use. Instead it will work with clients in their own facilities,
help clients develop their own facilities, and broker relationships to make use of any
existing facilities, including helping DTFQC to renovate its old pilot plant so that AIC
clients can use it. The AIC hub will primarily offer offices, meeting rooms, hot desking,
showcasing facilities, and communication facilities. It needs to be in a good
commercial location in Kathmandu, appropriate for showcasing to international clients
and close to the DFTQC regulatory center for certification and approval of products.
The budget allows for renting appropriate facilities. Virtual services will be provided to
client companies located beyond hub and satellite facilities, for which communications
and travel need is budgeted.
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9 Financial Plan
The AIC is designed to become financially sustainable after four years. Sustainable is
defined as covering the ongoing operating expenses of the AIC, including
depreciation, through earned revenues. A flexible revenue model is proposed in which
sustainability may be enhanced once various revenue options are tested. An initial
investment of $4 million will be needed as start-up capital in order to achieve this
objective.
The financing required to initiate the AIC will be provided for the first five years, with
income generated during this period being banked. The front-loading of the external
investment allows the management to focus on the AIC’s development. It also allows
the model to be changed, if it becomes clear after two years that the income
generation targets are not likely to be met, or that one revenue option is preferred to
another, or a flexible combination is required. Changes can be made before the AIC
has to generate its own income in later years.
The income generating component for the initiative is a mix of royalty fees on turnover,
equity, pay-as-you-go fees (incubation fee), and finance brokerage fees. This
accommodates a mixed portfolio of clients at varying stages of development, initially
existing SMEs with turnovers in the order of between $140,000 and $640,000 and with the
potential to increase sales by 30 percent per year, for the anticipated three-year
incubation period and then after incubation. Fresh new start companies will be
included over time, once the AIC has an established portfolio of existing SME clients.
The model involves the following:
Royalty of 7 percent fee on the increase in a client’s turnover per year for one
three-year period, anticipating that 80 percent of clients will choose this option.
The royalty fee is set against income needs of the AIC and the ability of the
clients to pay. Modeling an increase in turnover of 30 percent per year, a
decrease in the cost of sales of 10 percent, and a decrease in overheads of 10
percent, as a result of the intensive support provided (or a similar increase in the
gross profit by achieving better prices) indicate the net profit exceeds pre-
support net profits after payment of a 7 percent fee. The rationale is that support
will improve financial well-being while the client is in the AIC (even with a royalty
fee) and that upon leaving, the client will reap full benefits. More detailed
information on the royalty arrangement proposed and the benefit to the
companies is in Annex 8.
Equity of 5 percent, anticipating 0 percent of clients chooses this option at this
stage, with a focus on existing companies who will not want to give up equity.
Along similar lines to the royalty rationale, improved revenues and profitability will
lead to growing company value. While no revenue is budgeted at this stage, it
will be an option in future years, especially for fresh new start companies.
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Incubation fee of $31,249 per year, anticipating 20 percent of clients choose this
option, which is applicable mostly to larger firms. The fee is commensurate with
the average royalty paid by the firms choosing the royalty option and with the
same average increase in sales and margins should be affordable.
Finance brokerage of between 5 and 2.5 percent on finance raised, anticipating
50 percent of clients are assisted to secure finance from $50,000 to $500,000.
Agribusiness entrepreneurs acknowledge the need to pay for services and the
stakeholder consultation workshop supported the options, noting the need to change
paradigms and take clients on a learning curve. This reinforced earlier work by infoDev
assessing the demand for agribusiness and ICT incubation, for which the preparedness
to pay results are summarized in Annex 13. However, the workshop noted trust and
accounting are likely to be challenges and suggested they be addressed by
accounting transparency and follow up activities. The AIC may need to undertake
accounting for some of its clients and needs to lead by example, demonstrating its own
transparency and trust.
By offering payment options, the model is flexible and adaptable. The income figures
factor in that only 90 percent of the funds will be collected given that failures and
improper activities will occur (a bad debt ratio of 10 percent).
The figures provided below are all expressed in U.S. dollars and depend on successful
negotiation of funding and partnership arrangements.
9.1 Budget
The number of staff will increase progressively with the number of clients supported,
starting with seven staff in year 1 to reach 13 staff in year 3, which will mean working on
a standard of one professional staff member for seven to eight clients. In budgeting,
staff directly working with clients are allocated to client services (mentoring and
advisory), with the remainder allocated to administrative personnel and overheads.
An allocation for communications and marketing expenses is essential, as the
awareness level in Nepal is very low. A monitoring and evaluation scheme is critical to
ensure the success of such an initiative, which needs to be embedded within the job
profile of assigned personnel.
The budget overview provided below, includes phone, Internet, ICT support and
website development, postage, photocopying, stationery, printing, outreach motor
vehicle expenses, advertising and public relations, accounting, audit and legal,
insurances, functions and launch, staff training, travel, subscriptions and library, and
implementation support.
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Figure 10: Budget Overview
Table 23: Budget Summary
Category Yr1 Yr2 Yr3 Yr4 Yr5 Total % of
Budget
Staffing and
Overheads 212,300 261,100 269,500 269,500 269,500
1,281,900 25%
Mentoring and
Advisory 357,000 431,000 477,000 477,000 377,000
2,119,000 42%
Building Rent and
Services 135,040 160,840 160,840 160,840 160,840
778,400 15%
Depreciation and
Provisions 71,170 61,437 141,020 141,020 141,020
555,666 11%
Implementation
Support 61,789 68,333 63,514 63,514 56,514
313,664 6%
Totals by Year 837,299 982,710 1,111,873 1,111,873 1,004,873
5,048,629
9.2 Sustainability
The model seeks to achieve financial sustainability after four years of operation. It will
probably not make significant profits and financial self-sustainability will not be easy.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1 2 3 4 5
Budget by Category for First Five Years
Implementation support
Depreciation and provisions
Building rent and services
Mentoring and advisory
staffing and overheads
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Covering operating costs is the aim and any profits made should be reinvested to
improve and expand operations, rather than paid out in dividends. After the initial ramp
up period costs are in the order of $970,000 per year, in the following categories:
Table 24: AIC Annual Expenses when Established
Year Year 6
Expenses
Personnel—Administrative 152,600
Client Services 399,000
Overheads 116,900
Building Services 161,640
Provision for Doubtful Debt 97,593
Depreciation 46,427
Total Expenses 974,160
The cost recovery model is justified by the capacity and willingness of the target
enterprises to pay to the AIC for services.
The agribusiness entrepreneur focus group discussions found that some prefer to pay at
full cost and others preferred payment by way of either a small percentage of equity,
or with a royalty levied on the increase in their sales for a period. The consultative
workshop preferred payment in terms of a share of revenues and consultation fees.
This implies the AIC should offer options. Businesses at different stages will have various
capacity and potential. For instance, an existing business may find it very complicated
to give up equity, but may be prepared to pay for services at full cost at the time, or
enter into a royalty agreement. A newer business may be in a position to give up some
equity, but may not have the funds to pay for support.
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Noting further refinement of the flexible model, the revenue projected for the first six
years, excluding grants, is summarized in the table below.
Table 25: AIC Revenue Generation for the First Six years of Implementation
Year Yr1 Yr2 Yr3 Yr4 Yr5 Yr6
Income
Rent 5,375 10,750 16,125 16,125 16,125 16,125
Incubation Fee 62,497 124,994 187,491 187,491 187,491 187,491
Royalty 187,212 456,273 749,966 749,966 749,966 749,966
Finance Brokerage 22,350 22,350 22,350 22,350 22,350 22,350
Total Income 277,435 614,367 975,932 975,932 975,932 975,932
With four main revenue options, the model has flexibility for review and adaptation as
the AIC is implemented. Despite positive responses in the agribusiness entrepreneur
survey, payment for services is not the norm and paradigms need to change. Benefits
may need to be demonstrated first in taking clients on a learning journey. The model
can accommodate this, in that no revenue is anticipated in the first year of
establishment, during which carefully selected clients should be supported to
demonstrate the benefits. Furthermore, all costs are grant funded for the first five years,
when revenues will be banked, giving time to progressively refine the model, based on
annual reviews of performance.
Royalty 9.2.1
If all clients pay with 7 percent of their monthly turnover then the AIC would be 100
percent self-sustainable by the end of Year 6, with annual royalty revenues in the order
of $750,000 per year. If the royalty is set at 6 percent then the AIC would be 91 percent
self-sustainable and at 55, 78 percent self-sustainable. The model is very sensitive to the
royalty rate. In implementing the model, varying rates for companies at different stages
should be considered, with smaller and newer companies possibly paying a higher rate
than larger and older companies.
Initially the AIC will focus on existing SMEs with annual turnovers in the order of between
$140,000 and $640,000 and with the potential to increase sales by at least 30 percent
per year for the anticipated three-year incubation period and after incubation. As well
as helping to increase sales, the AIC expects to improve gross profit margins so that
even paying royalty fees, the business makes more profit during the incubation period
when royalties apply. Annex 8 provides more detailed information on the royalty
arrangement proposed and the benefit to the companies.
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Equity 9.2.2
If instead of a royalty on sales, clients were to pay with 6 percent of their equity then
the AIC would only be 46 percent self-sustainable by the end of year 6, because it
takes far longer to realize returns, For equity to deliver 100 percent self-sustainability then
a small number of outlier clients would need to be astoundingly successful. Further
modeling of this option needs to be undertaken if it is to be implemented in full or in
part.
Incubation Fee 9.2.3
Only a small percentage of the larger and more established clients would have the
capacity and interest in paying for support with fees at the time. Modeling assumes 20
percent, generating annual revenue of $187,000. As the fee is set according to the
average royalty paid ($31,249 or $2,604 per month), to cover the same level of support
as for other clients, the sensitivity is the same as for the royalty option. The AIC expects
to both increase sales and profit margins so that the enterprise can pay these fees and
still make a higher profit than before incubation. Given the need for holistic support, an
incubation fee is preferable to charging consulting fees for each component of
assistance, although this may be another option, albeit more complicated.
Finance Brokerage 9.2.4
Brokering finance of between $50,000 and $500,000 with fees of between 5 percent
and 2.5 percent generates only $22,000 of revenue per year, assuming the AIC helps 50
percent of clients succeed with finance raising. However, where equity investment is
involved (as will be the case with the AIC’s investment fund, at least in part) then
additional revenue can be expected over time, sharing in the success of the equity
investment made by the AIC. This has not been modeled.
Other Revenue 9.2.5
Other revenue possibilities exist but have not been modeled at this stage. They include
the following:
Training, for which revenue potential largely depends on how much is
outsourced to other providers, in which case margins are likely to be low.
Strategically outsourcing may be an important way to lever and involve partners.
Sponsorship, from corporations interested in supporting the agribusiness sector as
a part of their corporate social responsibility programs.
Rental of hot desk services, meeting rooms, and other facilities in the AIC
premises.
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9.3 Financing Plan
The financing required over a four-year period is a total of just more than $4 million.
Table 26: Nepalese AIC Financing Required (over a four-year period)
Subsidy required—Total 4,029,374
Subsidy required—Capital 316,610
Subsidy required—Operational 3,712,764
The financing required to initiate the AIC will be provided to cover all expenses for the
first four years, with income generated during this period banked. The front-loading of
the external investment allows the management to focus on the development of the
AIC. It also allows the model to be changed, if it becomes clear after two years that the
income generation targets are not likely to be met, or that one revenue options is
preferred to another, or a flexible combination is required. Changes can be made
before the AIC needs to rely on self-income generation in later years.
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10 Results and Impacts
The AIC aims to advance the competitiveness of the agribusinesses sector in order to
increase growth, and thereby increase jobs and incomes.
With infoDev’s assistance, a detailed monitoring and evaluation framework will be
developed to measure performance (for instance, in relation to “progress made
toward the financial sustainability of the AIC”), outcomes (“the number of
entrepreneurs who have benefitted from the AIC”), and impacts, such as job creation
and increases in incomes. This will be done as a part of the AIC’s comprehensive
monitoring and evaluation plan. Broadly, the impacts of the AIC will be measured using
the following indicators:
The number of enterprises reached
The revenue growth of client enterprises
The number of jobs created by client enterprises
The number of indirect jobs created
The number of farmers impacted
The increase in farmers’ income
The reduction or prevention of climate impact of the client enterprises
In addition, indicators tracked by the overall PACT project will also be measured. These
include the following:
Improvement in quality standards of agribusinesses in the food industry
Number of samples submitted for analysis
Number of project beneficiaries who are female
Volume of marketable agriculture products
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While the main impacts will flow from the clients selected for intensive support, many
more entrepreneurs will be assisted in incubation awareness and pre-incubation work
undertaken to identify, filter, and eventually select clients for the AIC. Even though they
are not formal AIC clients, these entrepreneurs will all receive benefit from the AIC. In
summary the main anticipated impacts over a 10-year period are the following:
Table 27: Aniticipated Impact from AIC
Indicator Measurement
Number of entrepreneurs assisted through awareness
and pre-incubation
3,300
Number of companies supported in intensive
incubation (3% of the above)
100
Increased revenue of companies supported $27 million
Increased taxes paid $2.5 million
Direct jobs created 3,024
Indirect jobs created 8,629
Number of small farmers benefiting (assuming 20 per
enterprise)
2,000
10.1 Outcomes
Over 10 years, the AIC will reach 3,300 entrepreneurs through workshops and other
general activities, out of which 100 enterprises will directly benefit from the intensive
services offered by the AIC. During a five-year period, 50 enterprises will benefit directly
from the intensive services. These entrepreneurs will increase sales, productivity, and
profitability by cutting waste, implementing quality controls, improving financial margins
and marketing, and maximizing processing times. Working with the various institutional
partners, innovations will be made to adopt new processing equipment that suits the
needs of entrepreneurs.
The AIC will promote the success of its clients broadly so they can generate a catalytic
effect, serving as role models for others to emulate. Innovations will also be made with
regards to product development, marketing the distribution models used by the
entrepreneurs involved. During infoDev’s interactions with them, most companies
agreed that while production and efficiency were major issues, so too were market
development and distribution models, which were often inadequate for the
entrepreneurs to effectively service their customer base. From small-scale, localized
distribution to partnering with large national and international distribution firms, the
innovations put forth in this area will have a tremendous impact on the entrepreneurs
and their ability to increase local, domestic, and international markets.
Finally, the public-private partnership model proposed will contribute to increased
dialogue and concrete common initiatives to further the overall agribusiness sector in
Nepal.
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10.2 Social and Economic Impact
The social impact of AIC interventions will be across the agribusiness sector, including to
farmers, ancillary, and supportive services. The impacts will be felt with women, youth,
and the unemployed or underemployed. Technical skills will make managerial staff
more marketable. In addition, improved quality control, product development, and
marketing will open new reliable markets to farmers and suppliers.
Employment creation is the most direct and easily recognized impact. With the growth
forecasts listed above, companies within the AIC program are expected to double
within the first three years of participation. The tables in Annex 8 and 10 show the
potential direct impact in terms of job, enterprise, and wealth creation. Over a ten-year
period, the AIC will directly support 100 sustainable growth-oriented enterprises. These
enterprises are expected to generate an additional $27 million in turnover and create
11,673 jobs over this period. In the first five years, 50 enterprises will be supported,
generating an expected additional $12 million in turnover and creating 5,188 jobs.
By more than doubling the output of SME producers, their input purchases should
double as well, thus having a significant impact on farmers’ incomes. Assuming each
of the 100 clients involves an average of 20 small holder farmers in their supply chains,
which may be overly conservative, then 2,000 small holder farmers will benefit.
An additional increase in the demand for ancillary products and supportive services is
also expected. These products and services include the following: glass, plastic and
cardboard packaging; graphic design services; printing; transportation services; animal
health services; and laboratory analysis. An increase in demand for these products and
services will directly impact the unemployment and underemployment of personnel in
each sector.
Government taxation gains are another critical area of economic impact. It is
estimated that tax revenue would increase government revenue by approximately $2.5
million in the first 10 years and $1.1 million in the first five years. If one includes the tax
revenues created from other enterprises that take up the technology and marketing
innovations demonstrated by the AIC, the impact on tax revenues will be even greater.
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10.3 Monitoring and Evaluation
The AIC will develop a comprehensive monitoring and evaluation framework, with
infoDev assistance and in line with the PACT project. It will track enterprise creation and
growth (including investment, employment, gender, and growth rates) and capacity
building and ecosystem impacts. In developing indicators, the following standard
indicators will be incorporated to track client performance over time:
Turnover per year
Export revenues per year
Investment per year
Direct and indirect jobs created
Company value
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11 Conclusions
The tremendous diversity of ecological zones in Nepal, from the plains to the mountains,
enables production of a wide variety of crops. Competitive market opportunities exist
for Nepali agricultural products: 11 key value chains (or value chain groupings) were
identified as having good potential for growth at this time: tea, coffee, honey, ginger,
large cardamom, lentil, potato, milk and dairy, meat, fish, and NTFP, including essential
oils. However, significant challenges remain. Most existing entrepreneurs will experience
the challenge of developing domestic and international markets and reaching growing
consumer markets, not only in Nepal, but also large adjacent markets in India and
China.
Many donors and government agencies are now working to overcome value chain
bottlenecks. The timing may be opportune to complement this work by addressing the
business-level impediments faced by agro-processors. The AIC seeks to contribute
toward the advancement of a competitive and sustainable agribusiness sector in
Nepal. It will provide high-growth potential small enterprises with a holistic service
offering, seeking to enable product, process, and business model innovation, thereby
accelerating their growth and job creation. The AIC will—in partnership with relevant
stakeholders—provide entrepreneurs with a comprehensive service offering that will
facilitate the access of Nepali agribusiness SMEs to markets, advice, finance, and
facilities.
The AIC is designed to become 100 percent financially sustainable after four years—
which is defined as covering the ongoing operating expenses of the AIC, including
depreciation, through earned revenues. A flexible revenue model is proposed in which
sustainability may be enhanced once various revenue options are tested. An initial
investment of $4 million will be needed as start-up capital in order to achieve this
objective. After the initial ramp-up period, costs are in the order of $970,000 per year to
implement the AIC.
The stakeholder engagement process has already built a strong coalition of partners,
led by PACT the main sponsor of the AIC, and has identified a pipeline of potential
incubatees that will allow the AIC to hit the ground running and produce tangible
impacts over the first six years. Pending the success and outcomes of the AIC’s
programs, its direction, scope, and scale (and business plan) will evolve over time with
guidance from a strong management team, board, and Strategic Advisory Committee.
Agribusiness-led growth has great potential to contribute to sustained economic
development by enabling the development of sustainable, innovative SMEs. The
complementarities with donors and the government’s existing programs are significant.
The suggested business model is ideal to develop a leading and world-class business
incubation program from which lessons learned can be applied globally.
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12 Annexes
Annex 1: Stakeholder Support
InfoDev would like to acknowledge the following stakeholders for their, guidance,
support, and input throughout the conceptualization and development of this
assessment of Agribusiness Innovation Center in Nepal.
Table 28: Stake Holders Consulted
SN Name Designation Organization
Government
1 Mr. Jai Mukunda Khanal Secretary MOAD
2 Mr. Kirshna Gyawali Secretary MOI
3 Dr. Ganesh Raj Joshi Secretary MOAD (former)
4 Ms. Jiwan Prabha Lama Director General DFTQC
5 Mr. Purna Chandra Wasti Sr. Food Research Officer DFTQC
6 Mr. Nawaraj Dahal Chief DFTQC
Training and Pilot Plant Section
7 Mr. Bagendra S. Poudyal Director General DCSI
8 Mr. Narendra Baral Deputy Director General DCSI, Government of Nepal
9 Mr. Udaya Kumar Gupta Member Secretary Business Incubation Program
10 Ms. Raksha Aryal Enterprise Development Officer Business Incubation Program
11 Mr. Yogendra K. Karki Project Director PACT
12 Dr. Birendra B. Basnyat TSG/M&E Expert PACT
13 Mr. Ram Pd. Tulami Joint Secretary Chief Planning, MOAD
14 Mr. Laxman Bhattarai Joint Secretary MOI
15 Dr. Punaya P. Regmi Vice Chairman Youth & Small Business Self-
Employment Fund
16 Mr. Kalas R. Chaudhary Sr. Agro-economist MOAD
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SN Name Designation Organization
17 Dr. Hari P. S. Neupane Sr. Agro-economist CADP
18 Dr. Basant Thapa Deputy Team Leader CADP
19 Ms. Raksha Aryal Enterprise Dev. Officer BIP-DCSI
Research Institute and Academia
20 Dr. Dil Bahadur Gurung Executive Director NARC
21 Mr. Ram Babu Paneru Sr. Scientist NARC
22 Dr. Hira Kaji Maharjan Director NARC
23 Prof. Panna Thapa Dean, School of Science Kathmandu University
24 Dr. Bhola Thapa Dean, School of Engineering Kathmandu University
Private Sector
25 Mr. Suraj Vaidya President FNCCI
26 Mr. Suresh Pradhan President FNCSI
27 Ms. Anjana Tarmakar Vice President FNCSI
28 Mr. Satya N. Prajapati Treasurer FNCSI
29 Mr. Hem Kumar Rai Executive Director FNCSI
30 Mr. Pradip Maharjan CEO, AEC AEC/ FNCCI
31 Mr. Ashok K. Murarka Chairman CAA
32 Mr. Badri Narayan Chaudhari General Manager CAA
33 Dr. Jyoti Tandukar President ITPF
34 Mr. Ajay B. Pradhananga President / Managing Director NYEF / Fleur Himalaya Ltd.
35 Mr. Dileep Agrawal Director Fortune Cookie Ventures
36 Mr. Vidan Rana Founding Partner Biruwa Ventures Pvt. Ltd.
37 Mr. Abhinab Basnyat Founding Partner Biruwa Ventures Pvt. Ltd.
38 Mr. Satish C. Shrestha Managing Director Shreenagar Agro Farm
39 Mr. Min Bahadur Gurung Owner Bhatbhateni Supermarket
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SN Name Designation Organization
40 Mr. Dev Bahadur Gurung Executive Director
Owner
Gandaki International Pvt. Ltd.
(GIPL)
Gandaki Bee Concern
41 Mr. Leendert Van Den Bosch Senior Expert Netherlands Expert for GIPL
42 Mr. Prakesh Adhikari Owner Mt. Everest Honey Concern
43 Mr. Sanam Chitkar Owner N Agro Pvt. Ltd. (Client-Biruwa
Ventures)
44 Mr. Sujeev Shakya Chairperson Beed Management
45 Mr. Suman Rayamajhi CEO Beed Management
46 Mr. Bibhushan Bist Executive Director Young Innovation Pvt. Ltd. (YIPL)
47 Mr. Keshab Raj Sharma Entrepreneur Start-up Agribusiness from Dhading
48 Mr. Govind Ghimire President NEHHPA
49 Mr. Prakash Giri Director Buttabari Tea Pvt. Ltd.
50 Mr. Saurabh Jyoti Director Jyoti Group
51 Mr. Anand Bagaria Executive Director NIMBUS Group
52 Mr. Peter Thomson Director Aqua Feed Industry
53 Mr. Bijay Shrestha Managing Director Fish Feed Industry Pvt. Ltd
54 Mr. Surendra Shrestha Owner Mulchowk Restaurant
55 Mr. Niraj Shrestha Senior Program Officer
South Asian Watch on Trade
Economics and Environment
56 Mr. Suyash Khanal Director
Trade and Export Promotion Center
57 Mr. Bimal Nepal Director
Trade and Export Promotion Center
58 Mr. Basanta Raj Chitrakar Chief Agro Extension Program
Herbs Production and Processing Co.
Ltd
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SN Name Designation Organization
59 Mr. Tej Thapa Agriculture Program Manager
Mercy Corps
60 Mr. Pankaj Das Program Officer
Herbs and NTFP Coordination
Committee
61 Mr. Sanjib Chaudhary Communication Officer
The Netherlands Development
Organization
62 Mr. Pratap Rai Senior Monitoring and Reporting
Officer
Mercy Corps
63 Mr. Udaya Raj Chapagain President
Himalayan Orthodox Tea
Cooperative
64 Mr. John Taylor Marketing Manager
Himalayan Orthodox Tea Producers
Association
65 Mr J.B. Tamang
(Via telephone)
Program Coordinator
Floriculture Association of Nepal
66 Mr. Binod Acharya Coffee Development Officer
National Tea Coffee Development
Board Nepal
Development Projects/Organizations
67 Mr. Ramu Subedi Team Leader MSFP
68 Ms. Stuty Maskey Private Sector Promotion Officer MSFP
69 Dr. David Molden Director General ICIMOD
70 Ms. Anja M. Rasmussen Program Manager ICIMOD
71 Dr. Eklabya Sharma Director ICIMOD
72 Dr. Dyutiman Choudary Market & Enterprise Dev. Specialist ICIMOD
73 Dr. Dhrupad Choudary Program Manager ICIMOD
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SN Name Designation Organization
74 Ms. Nayna Shakya PPP and External Relations Officer ICIMOD
75 Mr. Samden Lama Sherpa Knowledge Park Manager ICIMOD
76 Dr. Luke Colavito Country Director IDE Nepal
77 Mr. Binod K. Mishra Program Director IDE Nepal
78 Dr. Laxman Pun National Program Manager MEDEP
79 Ms. Maushami Shrestha Country Manager Practical Action Consulting
80 Dr. Vasant Bikram Thapa Deputy Team Leader CADP
81 Dr. Hari Neupane Senior Agri Economist CADP
82 Dr. Dev Bhkta Shakya Agribusiness Expert USAID/NEAT
83 Mr. Kari Leppanen Deputy Chief Finland Embassy
84 Mr. Nabin Dahal Private Sector Development Advisor DFID
85 Ms. Anita Mahat Private Sector Development Advisor USAID
86 Dr. Gyatri Acharya TTL, PACT World Bank, Nepal
87 Dr. Purna B. Chhetry Rural Development Specialist The World Bank, Nepal
88 Mr. Arsalan Alfred M Ni Regional SME Ventures Coordinator IFC, Advisory Services in South Asia,
Bangladesh
89 Mr. Deep Karki Coordinator, SME Venture Fund IFC, The World Bank, Nepal
90 Ms. Anupa A Pant Operations Analyst, SEDF Advisory
Services in South Asia
IFC, The World Bank, Nepal
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Annex 2: Conclusions of InfoDev Global Good Practices Assessment on
Agribusiness Incubation
In 2011, infoDev conducted a study of 10 agribusiness incubation programs located in
eight countries. The full study can be found at
http://www.infodev.org/en/Article.800.html. —which includes video documentaries of
incubation programs in the mountainside of Java, Indonesia, and rural South Africa, as
well as rural areas of Brazil, Chile, and Mexico.
Examples of the results generated by these programs include the following:
Fundación Chile has spearheaded the development of the salmon industry,
which in a span of just slightly more than 10 years has been able to grow by a
factor of 1,000 and contributed to $2.2 billion exports and more than 35,000 jobs.
The efforts of Technoserve in Mozambique and Fundación Jalisco in Mexico
have led to the upgrading of entire subsectors, such as poultry, cashew nuts,
and blueberries.
CENTEV-UFV in Brazil has developed a new model for commercialization of
agricultural research in Brazil. It has cultivated such successes as a biotechnology
business specializing in a fungus that protects plants from parasitic nematodes, a
product that could help reduce the yearly $100 billion losses in world agriculture.
Timbali Industrial Incubator in South Africa has transformed the life of poor
women into assertive entrepreneurs in the highly competitive flower business.
ABI-ICRISAT in India has supported the growth of successful biotech companies.
IAA-IPB in Indonesia has promoted the growth of zero-stage enterprises owned
by women into successful, competitive, and growing medium enterprises.
The table below provides a snapshot of the quantifiable outputs of these incubators vis-
à-vis the public investment in them. The age of the incubators and the vastly different
scale of investments must be taken into account when reviewing these results. It should
be noted that the “ROI” calculation does not take into account backward linkages—
that is, while the calculations would include a processor who increased his/her sales by
x, the increased income of the farmer who was able to sell more produce to the
processor has not been taken into account. It also does not take into account the
impact on “copycats,” which adopted the production practices that were
demonstrated and started or scaled their own businesses. Nevertheless, the calculations
provide some indication of what results are achievable.
Agribusiness Innovation Center in Nepal: Report
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Table 29: Studied Agribusiness Incubators’ Quantifiable Outputs
Incubator Graduates Average
Sales of
Enterprises
($ million)
Nr. of
Years the
Incubator
Has
Operated
Initial
Investment
in
Incubator
($ million)
Total Sales
of
Graduated
Enterprises
($ million)
“ROI”
Enterprise
Sales/ Initial
Investment in
Incubator
Fundación
Chile
85 5 30 50 425 2.3
CENTEV 24 2.5 16 0.7 60 60.4
Fundación
Jalisco
4 1.25 5 4 5 1.2
IAA-IPB 38 0.21 16 0.3 7.98 18.7
Timbali 140 0.03 8 2.8 4.2 1.3
Not all the programs reviewed have been equally successful. In one case, an incubator
focused on commercialization of domestic R&D had not yet achieved successful
market entry. The review of the 10 programs, therefore, provided powerful insights into
models that can be adopted, as well as factors that are critical to success.
It became evident that many viable models exist for agribusiness incubation. Selection
of a model depends on the stakeholders’ core objectives, combined with the unique
characteristics of the local business environment and the amount and nature of the
funding available to initiate the incubation activity. A commonality of the case studies
assessed in this report was that most were structured as public-private partnerships.
Beyond that, there were significant differences. The report identifies three types of
agribusiness incubators: (i) agribusiness sector/value chain incubators; (ii) agricultural
research commercialization incubators; and (iii) technology transfer incubators. Within
each type, there are significant differences in terms of public-private partnerships,
affiliations, target clients, business models, and organizational design.
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Based on the literature review and the case studies conducted, it appears that the
success of agribusiness incubators in creating sustainable and competitive enterprises
relies upon six factors. These factors include the ability of the business incubator to
effectively do the following:
1. Help the entrepreneur manage the risks associated with an agribusiness
enterprise through a combination of technology, institutional, and networking
strategies.
2. Understand the value chain affecting the success of the enterprise and assisting
the enterprise with positioning itself in the value chain by linking farmers and
enterprises to meet the demand of consumers for stable, quality, and affordable
products.
3. Identify and demonstrate innovative business propositions so as to catalyze
broader sectoral take-up.
4. Adapt the focus and business model of the incubator, and strategically scaling it
up in response to market opportunities and market failures.
5. Promote pro-active business orientation that actively identifies market
opportunities.
6. Support incubation design basics: leadership with a business mindset and
excellent agricultural market knowledge (preferably with agribusiness
experience), a lean staff complemented by strong partnerships, an institutional
framework that provides sufficient flexibility allowing for learning by doing, strong
capital structure, and dense networks — including effective linkages with sector
leaders.
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Annex 3: Nepalese Agribusiness Donor Mapping
As the following table shows, many donors have been addressing agriculture and
agribusiness value chain impediments in Nepal by supporting various projects.
Table 30: Nepalese Donor Mapping
SN Projects / INGOs Donors Commodities
1 MEDEP AusAid, UNDP, CIDA NTFP (Bamboo basket and
furniture, tapari, allo rope, and
twine and pine charcoal)
2 CADP ADB Ginger, tea, cardamom, banana,
mango, orange, potato,
vegetables (tomato, onion and
cabbage)
3 PACT The World Bank Seeds, vegetables, coffee, ginger,
potato, floriculture, honey,
mushroom, oilseed (mustard and
ground nuts), fruits (citrus, banana,
papaya, and mango), lentil, herbs,
fish, feed, milk processing, dairy
processing, poultry)
4 Hill Maize Research
Program (HMRP)
CYMMIT
IFAD Maize
5 HIMALI ADB Livestock
6 HVAP /SNV IFAD Vegetables, fruits, NTFPs, medicinal
and aromatic plants, and livestock
7 WUPAP AusAid, CIDA, UNDP Livestock, forestry, off-season
vegetables and crops
8 GIZ Include BMZ, German Government Honey, milk, fruit and vegetables
(through riverbed farming), and
medicinal and aromatic plants
(including ginger)
9 NEAT Activity USAID Lentils, vegetables, ginger, and
orthodox tea
10 MASF / IDE Nepal /
Practical Action
DFID, USAID Dairy, vegetables
11 EIG USAID High-value vegetable production
(including crops or NTFPs, such as
chamomile and lemon grass),
fisheries, and goat rearing
12 ICIMOD IFAD, USAID, CIDA, AusAid, UNDP NTFP, honey bee, medicinal and
aromatic plant (MAP)
13 CADP,
Mercy Corps
USAID, ADB Ginger, cardamom, potato
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Annex 4: Nepalese Agri-based and Food Industry Information
Part I: Nepal Food Processing Industry Data: DFTQC, Government of Nepal
Table 31: Categorized List of Licensed Food and Beverage Industries in Nepal until FY 2012/2013
S.
No.
Product Number
of
Industries
Remarks
1 Rice, Flour & Pulse Processing (Mills) 238 Some biscuit industries are
included
2 Spice 229
3 Processed / Mineral Water 217
4 Fat and Oil 202
5 Fruit and Vegetable Processing 178
6 Bakery 172
7 Snacks 146
8 Dairy 133
9 Tea and Coffee 100
10 Confectionery 65
11 Noodle 38
12 Biscuit 17
13 Sugar 14
14 Honey 12
15 Health Food 7
16 Meat Processing and Handling 6 30+ industries should be in
operation
17 Chura (bitten rice) 1
18 Ice and Ice Cream 1
19 Maize Grit 1
20 Soya products (grit, nugget, and
others)
3
21 Miscellaneous Products and Others 97
Total 1877
Note: Industry scale as large, medium, small, and cottage are not classified in most of the
available record.
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Breakdown of licensed food and beverage industries by various DFTQC offices in Nepal.
Table 32: Licensed by DFTQC Central Office
S. No. Product Total
Number
1 Snacks 104
2 Dairy 49
3 Bakery 124
4 Fats and Oils 91
5 Spice 97
6 Fruit and Vegetable Processing 137
7 Noodle 59
8 Flour 35
9 Tea and Coffee 75
10 Bottled / Processed / Mineral Water 158
11 Meat 4
12 Biscuit 8
13 Honey 9
14 Confectionery 26
15 Beverage 2
16 Sugar 1
17 Miscellaneous 11 Notes: 1) Information on industry category by scale of investment is not available. 2) All
large-scale industries and industries of Bagmati zone obtain license from DFTQC Central
Office. 3) Fruit and vegetable processing total 137 includes candy 47, juice 11, Jam 6,
pickle 62, and sauce 11.
Table 33: Food Industries Registered at DFTQC, Kathmandu by Fiscal Year
S.
No. Food
Industry
Category
Food Industries Registered at DFTQC, Kathmandu by Fiscal Year
Total 2012
/13
2011
/12
2010
/11
2009
/10
2008
/09
2007
/08
2006
/07
2005
/06
2004
/05
2003
/04
2002
/03
2001
/02
2000/
01
1 Snack Food 10 5 4 10 4 13 8 11 14 8 5 6 7 104
2 Diary 9 2 10 2 3 6 4 2 2 0 1 4 4 49
3 Bakery 27 5 6 5 2 6 22 8 15 6 10 4 8 124
4 Edible Oil 2 1 6 2 3 9 24 9 18 6 1 4 6 91
5 Spice
(Masala)
13 6 6 4 5 4 11 2 18 5 11 4 8 97
6 Candy (Paau) 6 0 3 4 6 3 1 8 12 0 0 3 0 46
7 Noodles 7 0 7 4 6 7 6 6 5 1 2 4 4 59
8 Flour 4 5 3 0 0 2 2 0 7 7 0 3 2 35
9 Tea / Coffee 5 3 5 3 4 7 9 1 8 1 11 10 8 75
10 Bottled Water 46 21 19 17 10 8 8 3 15 4 4 1 2 158
11 Meat 0 0 0 1 0 0 1 0 0 0 1 0 1 4
12 Pickle (Achar) 13 4 1 5 6 4 4 5 8 8 3 1 1 63
13 Jam 0 0 0 0 0 0 0 1 1 0 1 0 3 6
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S.
No. Food
Industry
Category
Food Industries Registered at DFTQC, Kathmandu by Fiscal Year
Total 2012
/13
2011
/12
2010
/11
2009
/10
2008
/09
2007
/08
2006
/07
2005
/06
2004
/05
2003
/04
2002
/03
2001
/02
2000/
01
14 Juice 2 1 3 2 0 1 1 0 0 0 1 0 0 11
15 Biscuits 0 1 2 0 1 0 1 0 0 0 2 0 1 8
16 Honey 1 0 0 0 1 0 0 0 4 2 1 0 0 9
17 Confectionery 8 1 1 2 2 2 0 0 4 3 0 1 2 26
18 Salt 0 0 0 0 0 0 0 0 0 1 0 0 0 1
19 Beverage 0 0 0 0 0 1 0 0 1 0 0 0 0 2
20 Sauce 0 2 0 1 1 1 2 1 3 0 0 0 0 11
21 Sugar 0 0 0 0 0 0 0 0 0 0 0 0 1 1
22 Others 1 0 1 3 2 1 2 0 2 0 0 0 0 12
Total Food
Industry
154 57 77 65 56 75 106 57 137 52 54 45 58 993
Table 34: Food Industries Licensed by DFTQC Biratnagar Regional Office (Eastern Nepal)
S.
No.
Product Large
Scale
Medium
Scale
Small
Scale
Cottage
Scale
Total
1 Ice 0 0 1 0 1
2 Meat 0 0 1 0 1
3 Biscuit 0 0 2 0 2
4 Snacks 1 0 2 1 4
5 Confectionery 0 1 5 3 9
6 Rice Mill 0 1 6 0 7
7 Flour Mill 0 0 3 0 3
8 Fats and Oils 2 3 6 0 11
9 Rice and Oil Mill 0 0 1 1 2
10 Fruit and
Vegetable
0 0 6 5 11
11 Noodle 0 1 11 6 18
13 Dairy 1 1 8 0 10
14 Tea 1 2 9 1 13
15 Spice 0 0 9 7 16
16 Health Food 0 2 5 0 7
17 Bakery 0 0 6 11 17
18 Biscuit 0 0 3 0 3
19 Bottled Processed
/ Mineral water
0 0 14 0 14
20 Weaning Food 0 1 0 0 1
21 Unidentified 0 1 25 5 31
22 Ghee and oil Scale Unidentified Ghee 1, Other-1 2
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Table 35: Food Industries Licensed by DFTQC Hetauda Regional Office (Central Region of Nepal)
S.
No.
Product Total
1 Milk and Milk Product 40
2 Fats and Oil Industries 64
3 Fruits and Vegetable 23
4 Spices Industries 81
5 Tea Packing Industries 10
6 Salt Industries 0
7 Cereal, Pulses, and their Products 146
8 Processed Drinking Water Industries 22
9 Sweets (sugar and sugary products) 13
10 Confectionery Industries 18
11 Other Industries 41 Note: Information on scale of individual industries is not available.
Table 36: Licensed by DFTQC Bhairhawa Regional Office (Western Nepal)
S.
No.
Product Large
Scale
Medium
Scale
Small
Scale
Cottage
Scale
Total
1 Confectionery 1 0 8 9
2 Rice Mill 0 0 4 4
3 Flour Mill 0 1 6 7
4 Fats and Oils 1 0 10 11
5 Snacks 0 1 16 3 20
6 Noodle 1 0 6 1 8
7 Spice 0 0 9 2 11
8 Bakery 0 0 7 3 10
9 Dairy 0 1 4 0 5
10 Processed Water 0 0 17 0 17
11 Biscuit 0 2 4 0 6
12 Honey 0 0 1 0 1
13 Fruit and
Vegetable
0 0 3 1 4
14 Cornflake 0 0 1 0 1
15 Tea 0 0 1 0 1
16 Maize Grit 0 0 1 0 1
17 Soya Grit 0 0 1 0 1
13 Meat 0 0 1 0 1
14 Others 0 0 3 0 3
15 Product Type
Not Identified
0 0 3 0 3
16 Industry Scale
Not Identified
Oil-1,Weaning Food-1, Instant Noodle-1 3
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Table 37: Licensed by DFTQC Nepalganj Regional Office (Midwestern Region, Nepal)
S.
No.
Product Small Scale Cottage
Scale
Total
1 Bakery 6 15 21
2 Spice 2 21 23
3 Dairy 12 17 29
4 Rice 27 8 35
5 Oil 18 7 25
6 Noodle 3 6 9
7 Confectionery 3 0 3
8 Snacks 5 6 11
9 Fruit and Vegetable 0 4 4
10 Processed Water 4 2 6
11 Honey 0 2 2
12 Pulse 4 0 4
13 Ice and Ice Cream 0 5 5
14 Chiura (bitten rice) 1 0 1
15 Flour 1 1 2
16 Unidentified 32
17 Puffed Rice 1 0 1
18 Popcorn 0 1 1
19 Soya Nugget 2 0 2
20 Maseura (Vegetable
Nugget)
1 0 1
Table 38: Licensed by DFTQC Dhangadi Regional Office (Far Western Nepal)
S. No. Product Cottage Total
1 Noodle 1 1
2 Snacks 1 1
3 Fruit and Vegetable Processing 1 1
Table 39: Alcoholic Beverage Industry in Different Parts of Nepal (As of 2012/13)
Product Number Remarks
Liquor and Distilled
Spirit
52 Mostly medium and large industries
Beer 4 Beer industries are mostly large, located in central
and western region
Wine 6 Cottage and small industries
Total 62 Note:
Information on alcoholic beverage industry obtained by DFTQC from Inland Revenue Department,
Government of Nepal
Large scale—10 and medium scale—31 Industries, the rest are small and cottage scale.
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Part II: Department of Industry (DOI, Government of Nepal) Registered Agro-based
Industries
Table 40: Agro-based Industries with more than NPR 30 Million Fixed Capital Investment
Source: Department of Industry, January 2013 (Categorized from long list of industries).
Note: 1) As per Industrial Enterprise Act, 1992, industries with fixed capital investment NPR 30 million or
above are medium-scale or above scale of industries. 2) According to the list received from DOI, eight
industries were fixed capital of less that NPR 30 million; however, they were in the list of above 30 million
capital investment agro-based industries.
S.
No.
Agriculture & Agro based Industry
Category
No. of
Industries Remarks
1 General Agro Business / Industry 5
2 Herbal Medicine / Herbs Processing 15 Ayurbedic medicine
3 Ginger Processing 1
4 Tissue Culture 1
5 Livestock, Fish and Poultry (Bird) 19
6 Silk / Rabbit (yarn and fabric) 2
7 Floriculture 3
8 Tree Plantation 4
9 Sugarcane farming 1
10 Seed 2
11 Cardamom 1
12 Vegetable and Fruit 34 Including drying and processing
13 Bamboo 1
14 Fertilizer / Bio-fertilizer 3
15 Coffee and Tea 74
16 Cold Storage 3
17 Cotton 1
18 Diary 15
19 Essential Oil 4
20 Animal feed 2
21 Fruit processing 6
22 Honey 1
23 Meat processing 1
24 Mushroom processing 3
25 Oil & Vegetable Ghee 7
26 Cereals & Pulse 3
27 Saw Mill / Wood Processing 1
28 Starch 1
Total 214
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Annex 5: Institutional Arrangement of Business Incubators in Nepal—Operating,
Closed, and Planned
Business Incubators
Institutional Arrangement
Status / Lesson Learned
• PPP Board, Chaired by DG –
DCSI
• Board of Directors represented
by FNCCI, NAST, Professional
Societies, MOST
• Outsourced management, but
intermittent
• Operating on government’s budget
• Infrastructure provided by government
• Lacking in image building
• Weak networking
• Caught-up by government
bureaucracy
• Not happening as expected
• Private initiatives started from
early 2011
• Supported by networks of
E4Nepal, Sambridhi, The
Prosperity Foundation, Change
Fusion Nepal
• Where to focus? Business incubation or
venture investment
• Small scale
• Lack of infrastructure and budget
• Very committed, results yet to be seen
Fortune Cookie Ventures
• Private initiatives started from
early 2007
• Promoted by six leading IT
companies
• Focused on technology start-
ups
• Interest in venture investment in start-
ups
• Conflicting objective, business
incubation, or venture investment?
• Dormant but still interested to join
consortium of Incubator Operating
Institution
Lotus Business Incubator
• Private initiatives started in 2003
• Too early, very new to Nepal
• Lack of ecosystem and critical mass
• Some companies grew but NOT the
Business Incubation Company
• Out of Business
infoDev 2011 Feasibility
Study—ICT focused with a
satellite of agribusiness
Autonomous nonprofit sharing
company
Consortium of likeminded
institutions
Board is also represented by
members from feeder channels
Without direct control of
government and business
associations
Looking for funding for implementation
Perceived to start with ICT with
provision of extension to agribusiness
and NTFP sector
Accepted by wider stakeholders—
2011
Agribusiness Innovation
Center (AIC)
Public-private partnership
model
Led by entrepreneurs
Participated by public
institutions sharing infrastructure
and cost until it becomes self-
sustained
Accepted by PACT and key
stakeholders—November 2012
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Annex 6: Value Chain Maps
Tea Value Chain Map
Traders
Saplings Adro-Vet
Services
NTCDB Offices, Farmers and
Farmers cooperatives
Small Tea
Processers
Medium and Large
processors
Actors/ Enablers
International Buyers
Retailers
Himcoop
Members: 19
International
ExportersLocal Wholesalers
DADO, SNV, SEAM-N,
DDC’s
AEC/ FNCCI, HOTPA,
HIMCOOP, SNV, TCF
MoAD, MoICS and
MoLD, NTCDB
Average Farm level price
Inorganic NRs 18/ Kg
Organic- NRs- 28/ Kg
NRs 3-5/Kg Commission
Average price
Organic NRs-52-53 Kg
Non Organic- Max NRs 28
Wholesale price
Inorganic- NRs 220/ Kg
Organic- NRs 390/Kg
Farmers
At Kolkatta
Inorganic About NRs 300/ Kg
Organic- NRs 500/Kg
Processes
Production and
Processing
Marketing and Sales
Input Supply
Around 90 % of total
production
Retailers
Figure 11: Tea Value Chain
Agribusiness Innovation Center in Nepal: Report
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Coffee Value Chain Map
Farmers
Saplings
Providers
Pulping Centers
Agents
Processors and Exporters
Roasters
International Wholesalers /Processors
WINROCK
HELTEVAS
NARC
MOAD/DADO
Organic Certifying
Organizations
Local
Wolesalers
Retailers
International
Wholesalers
Retailers
CTDS
NTCBD
WINROCK
HELVETAS
AEC
IDE
Organic Certifying
Organizations
Enablers / ActorsProcesses
Rs 10 Per Sapling
Rs 5 (subsidized)
Input
Production
process
Export and Sales
Fresh Cherry -Rs
35/Kg
Parchment -Rs
175/Kg
Green Beans:
800-900/Kg
About 60% of the green
beans are exported
Roasted Beans
15-20% expensive
compared to
Green beans
Total Export:
279762 kg
No of Registered
Processors: 14
Figure 12: Coffee Value Chain
Agribusiness Innovation Center in Nepal: Report
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Honey Value Chain Map
Bee Keepers
Input Suppliers
Bakeries/
Resturants
End Consumers
Processors/
Traders
Beekeeping
Group/
Association/
cooperative
Intermediaries
Departmental
Stores
Farmers getting NRs 95/Kg
MoAD, DoA
District Agriculture Offices
Honey Promotion Center
Bee Keeper's
Associations/ cooperatives
MEDEP/UNDP
API Net
Financial
Institutions
Ayurvedic
Companies
International
Wholesalers/
Traders
End
Consumers
Consumer price in Kathmandu is 250/kg
Through own channel
Identified
no of
processor:
8
Figure 13: Honey Value Chain
Note: Calculation partly based upon Value Chain Analysis of Honey (GIZ 2007).
Agribusiness Innovation Center in Nepal: Report
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Ginger Value Chain Map
Producers
Local CollectorRoad Head traders/
Vendors
Indian Commission
Agents
Indian Wholesaler
Retailer
Consumers
Local /Regional
Wholesaler
Consumers
Ginger and Cardamom
Development Section
(DOA), DADO, CADP,
Mercy Crops, PACT,
NGPTA
Fertilizers and
pesticides
Transportation
Service
Providers,
Financial
institutions
Retailer
Big Traders
<20% of productionAround 75-80%
43 entrepreneurs
(Including
Producers
exporters and
processors)
Figure 14: Ginger Value Chain
Agribusiness Innovation Center in Nepal: Report
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Cardamom Value Chain Map
Nurseries, Agro vet Services
Farmers CFU’s
Village Vendors-
NRs 210/Kg
Regional Traders/
Wholesalers
SP- NRs 225/Kg
Exporters
SP- NRs 250/Kg
Third Country’s
CollectorIndian Collector
Wholesaler wholeasler
Retail sellerRetail seller
consumersConsumers
Retail seller
Consumers
Farmers Group, VDC , DDC,
Cooperatives, DADO, PACT,
Large Cardamom Entrepreneurs
Association of Nepal, (LCEAN),
SEAM-N, Mercy Crops , Local
NGO’s, NARC
Banking and financial
institutions, Transportation
Service Providers
MoAD, MoICS and MoLD
Around 90 %
from where 8-9%
is directly to
Pakistan, UAE,
Afghanistan and
other Gulf
Countries
COP- NRs. 73.54 /Kg
NRs 195/Kg
District Traders
No of Processor:
4 as most part is
exported in raw
form
Calculations partly based upon CADP value chain report.
Figure 15: Cardamom Value Chain
Agribusiness Innovation Center in Nepal: Report
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Potato Value Chain Map
Seed and Agro vet Service Providers
Farmers
Expoters
Local VendorsDistrict Traders
Commission Agents
Regional/ National
Wholesaler
Retail sellerRetail seller
consumersConsumers
Retailers
Consumers
Farmers Group, , DDC,
Cooperatives, DADO,
PACT, CADP, NARC
Potato Development
Program, Potato
Research Program,
farmers group
cooperatives, Mercy
Crops
Banking and financial
institutions,
Transportation Service
Providers
DCCI’s, , Financial
Institution
Wholesaler
Processing
Industries
Figure 16: Potato Value Chain
Agribusiness Innovation Center in Nepal: Report
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Milk and Diary Value Chain Map
Farmers
Veterinary
Service
Providers
Animal
Feed
Providers
DDC Milk
Plant
End
Consumers
Contractor/
Middle men
Private
Dairy
MCC’s
DDC
MCC’sMPC’s
Tea Shop Sweet
Shop
Private
Dairy
Plants
Only around 10% of the supply passes through the formal channel
Informal Trading
Shops/
Outlets
End
Consumers
Nepal Dairy
Development Board
Dairy Development
Corporation
Nepal Dairy
Association
DFTQC
DoC
Department of
Livestock
Service
Milk Cooperatives
Financial institutions
Financial
Institutions,
Transport
Service
providers
Cheese
Factories
Cheese
Factories
Consemers
Indian
Wholesaler
/ Dairy
Consumer
Sales
Outlets
Inconsistent and Exported only during the flush season/ milk holidays period
76 Dairy Plants
Figure 17: Milk and Diary Value Chain
Agribusiness Innovation Center in Nepal: Report
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Meat Value Chain Map
Breed Providers
AgroVet, Fodder,
Forage, Seed
Suppliers
Co-opeartives
Farmers
Traders Traders
Processors/ Retailers (meat
shops/fresh house, slaughter slabs) (Type I and II)
Total Number 17
Household
Consumers
Institutional
Consumers
Input SupplyActors
Actors/ Enablers Processes
Veterinary Service
Providers, NGO’s.
Projects
Multipurpose
Cooperatives,
District Livestock
Services Office
Production and
Transporation
Processors
Consumers
Financial
Institutions,
Transport Service
Providers,
DFTQC,
Department of
Livestock Services
Entrepreneurs
Associations
International
Wholesalers/
Processors
Skin,
Fiber
and
other
Products
District Market
Via
Collectors
23-72%
5 -13%
40% of
the
district
market
23- 40%
From India
Wholesalers
Meat Import
*The above map is partly extracted from Heifer 2012, FAO 2010, and DAI/Winrock/IDE 2008.
Figure 18: Meat Value Chain
Agribusiness Innovation Center in Nepal: Report
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Fish Value Chain Map
Farmers, Natural Lake, Reservoir Contractors and Private Fish
Hatcheries
Fish Development
Centres
Agrovet and feed
providers
Haat BazaarOwn Village
Actors/Enablers Process
Marketing and
Transportation
Consumption
Production
Input Supply
Traders
National/
Regional
markets
Nearby
Market Center
80% 10%
Financial
Institutions,
Transportation
Service Providers,
Financial
Institutions,
Entrepreneurs
Associations
NARC, DADO, Fish
Development
Centers, NGOs,
Programs and
Projects
Import
From India
Input Providers
Small
holders
Supply
about
60%
Small
holders
Supply
about
30%
8 % of the total
Collections
India
2%
Partly based upon Lotus Intellect 2006.
Figure 19: Fish Value Chain
Agribusiness Innovation Center in Nepal: Report
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NTFP and Essential Oil Value Chain Map
Local Collectors /
CFUGFarmers
Regional Traders
Local traders
Commission
Agents Agents
Private Processing
Industries
wholeasler
Retail seller
End Users
IndiaThird Countries
Processing
Companies
DoA
DoF
FNCCI /Nepal
Chamber of
Commerce
Banking and
financial institutions
Transportation
Service Providers
JABAN
Input Suppliers
Government
Processing
Industries
About 90 % of the
NTFP collected
are exported to
India
ANSAB,
NTFP Network,
MEDEP
Individual
Collectors
90% of the total collection
10 % of the total collection
Industrial Users
Figure 20: NTFP and Essential Oil Value Chain
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Floriculture Value Chain Map
Input Suppliers
Cut flower seeds,
Plant Bulb,
Fertilizers,
Pesticides and
Manure
Cut Flower Farms Nurseries
Wholesalers
Number: around 5
(10% Service Charge)
Retailers
End Users
Institutional 60 and
Individual 40%
Processors
(Around 5)
(Rose oil , Dry
Rose etc)
Less than 15%
Vendors
Cut Flower
Exporters
Bulb and
Plant
Parts
Exporters
Enablers
About 95% of Cut flower
Seed imported from
European Countries
(Roughly around 20-25
Million Rs Per year)
Plant Bulb imported
from America and
Netherlands (Roughly
around 1 Billion Rs per
year)
Price Rs 450-
6500 per 1000
SeedsPrice Rs 2- 60
Per Bulb
USA, Australia and
Netherland
30% loss
during post
harvesting
Selling Price
2-30 Rs Per Stick
150-1500 Rs BunchMore than 85 %
Gulf (Mainly Qatar) ,
European Countries
About 80%
Export to Europe
Around 20%
36 District
120 Hectare
FAN, FNCCI/
AEC, TEPC
FAN, Laxmi
Bank,
NEPSEMAC,
HDD, DADO,
FDC
Cut Flower Import Scenario
90% in Festivals
and Big events,
10-20 % in normal days
Mainly from India
Processes
Marketing
and Sales
Production
Input
Supply
Figure 21: Floriculture Value Chain
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Annex 7: Phasing of Enterprise Support
Different types of support will be required, depending on the stage and targets of the
client enterprises. Below provides an overview of how support could be phased.
Figure 22: Phasing of Support to be Provided to AIC Cilents
Phase 1
Phase 1 support will strengthen current activities with existing products in present
markets. Incremental improvements, both technical and managerial, will be the key
focus in Phase 1. Improvements in procurement, processing technology, packaging,
and sales approaches could reduce costs, improve quality, and expand existing
markets and strengthen these enterprises for later phases.
Phase 1 support is seen as a “means to an end” in preparing Level 2 enterprises for
accelerated growth.
Phase 2—New Markets
Phase 2 would use the advances made in better procurement, additional equipment
availability, more hygienic and advanced processing, better quality packaging and
branding, and improved managerial capability to access new markets.
NEW
MA
RK
ET
EX
ISTI
NG
MA
RK
ET
EXISTING PRODUCT
NEW PRODUCT
PHASE 2: Support
new market access
PHASE 3: Expand
new product
markets
1
1
PHASE 1: Strengthen
product/market
position
PHASE 2:
Encourage new
products
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Phase 2 may progress very fast for some enterprises, but the test of competitiveness (as
a proxy for market acceptance of a good quality, available and well-priced product)
will be measured by the consistency of demand over time. Hence, this phase may also
run concurrently with Phase 1 in some enterprise contexts.
Phase 2—New Products
Phase 2 will mark the product expansion phase and will signal a stable enterprise with
adequate and constant income and with the resources and managerial skill to venture
into new products. New products will require investment in product development, test
marketing, packaging, and sales. This will be encouraged and supported in enterprises
that have the capability.
The AIC will facilitate access to packaging services both in Nepal and internationally,
because of the following reasons: new product development and testing require a
focus on both product and packaging; there is a definite lack of good packaging
options; and consumer perception is a critical decider of purchase interest.
Phase 2 activities may require a year of support to test reliability of test market
outcomes. From a managerial and business expansion perspective, this represents
adequate time for scale adjustment (for example, developing accounting or
distribution changes that keep pace with growth).
Phase 3
Phase 3 activities represent the pinnacle of new growth with new products expanding
into new markets. While these can be export markets, national distribution of new
products offers significant potential in Nepal in all the sectors under consideration by
the AIC.
Market expansion is a complex process, especially with new products as it taxes
general management and finance, logistics, and marketing in particular. It can be a
significant drain on resources and must be well managed. The AIC will offer support in
collaboration with partners, such as export promotion agencies, financiers, and logistics
linkages.
Phase 3 will begin in the third year for most companies and will be supported for at least
a year.
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Annex 8: AIC’s Prospective Clients
The financial plan was built on an expected 30 companies supported per year (from
year 3).
Three levels of client are anticipated:
Table 41: Nepalese AIC Target Clients Categorization
Level Business Category by Size Current *Average
Turnover Range
AIC Support
1 – New start and very small
micro businesses
– $0 to $ 3,000 per
year
– Pre-incubation
2 – Small and medium
businesses
– Up to$ 0.5 million
per year for small
and $ 0.5 to $ 1.5
million per year
for medium
– Incubation
3 – Large businesses – Above $1.5
million per year
– Incubation
* Turnover is calculated on the basis of the different level of business category as
defined by Industrial Policy 2010.
The levels may be segregated further as a part of the implementation, learning from
selected clients. Initially to hone the model and drive for revenues, the AIC will focus on
Level 2 and 3 clients.
The deal flow of Level 2 and 3 enterprises is captured in the table below, which
incorporates phases of support, three for level 2 clients and two for level 3 clients, which
have been described further in Annex 6:
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Table 42: Deal Flow of AIC’s Enterprises
Companies enter the AIC for an average of three years, noting that services will be
tailored to the unique needs of each and every company with a case management
approach. Inevitably some companies will grow and progress faster than others.
On the assumption that Level 2 turnover increases by 1.5x in Phases 1 and 2
(combined); and 1.5x in Phase 3 and Level 3 turnover increases by 1.5x; the table below
captures the combined turnover of the supported enterprises.
CLIENT CUMULATIVE CLIENTS
LEVEL PHASE
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
2 1 6 6 6 6 6 6 6 6 6 6
2 2 6 6 6 6 6 6 6 6 6
2 3 0 0 6 6 6 6 6 6 6 6
3 2 4 4 4 4 4 4 4 4 4 4
3 3 4 8 8 8 8 8 8 8 8
TOTAL 10 20 30 30 30 30 30 30 30 30
NEW 10 10 10 10 10 10 10 10 10 10
CUMULATIVE 10 20 30 40 50 60 70 80 90 100
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Table 43: Combined Turnover of AIC’s Client Enterprises
CLIENT COMBINED ENTERPRISE TURNOVER
LEVEL PHASE Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2 1 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880
2 0 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244
3 0 0 1906117 1906117 1906117 1906117 1906117 1906117 1906117 1906117
3 2 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200
3 0 3338400 6676800 6676800 6676800 6676800 6676800 6676800 6676800 6676800
TOTAL 3343080 8147724 13392241 13392241 13392241 13392241 13392241 13392241 13392241 13392241
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Clients will only agree to pay a royalty on their turnover, if the AIC confers tangible benefit in
terms of profit to the entrepreneur, by way of increasing turnover and by improving gross profit
margins and efficiency.
This is depicted in a simple example below, with two scenarios. This calculator highlights the
benefit of agreeing to pay a percent of turnover and demonstrates just how far the AIC can
go with the percent before it turns negative for the entrepreneur. A percent royalty and with
an increase in turnover means the entrepreneur pays a certain amount. Then with an assumed
gross profit and overhead margin, one can see whether the entrepreneur gains or loses with
the profit or loss they make. It appears gross profits are around 50 percent and overheads 18
percent, which are used as the basic assumptions.
With Scenario 1, assuming a turnover of $100, a 30 percent growth in turnover increases the
profit by $9.60, but incurs a royalty payment of $9.10 (at 7 percent of the increase in turnover)
with a net gain to the entrepreneur of only $0.50. This may not be enough to secure
entrepreneur engagement.
Scenario 2 assumes the AIC will improve both the gross profit margin and the overhead
percentage, resulting in a changed operating profit, because one assumes that not only will
the AIC intervention increase turnover, but it will also help the entrepreneur compete on value
and improve internal efficiencies. In this example, the net gain to the entrepreneur is $7.10. This
demonstrates how the AIC can charge what may seem to be a high percent of operating
profit without damaging the business.
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Annex 9: Setting a Royalty Fee
SETTING A ROYALTY FEE
Royalty 7.00%
Growth in turnover 30.00%
COS% of turnover 50.00%
Overhead % of turnover 18.00%
SCENARIO 1. AN INCREASE IN TURNOVER WITH NO CHANGE IN GP or OP AS A % OF TURNOVER (i.e. increased turnover with no efficiency gain from intervention)
BEFORE AFTER Royalty fee
$ $ $
Turnover 100.00 130.00 9.10
Cost of Sales 50.00 65.00
GP 50.00 65.00
Overhead 18.00 23.40
OP 32.00 41.60
OP% of turnover 32.00% 32.00%
Royalty % of OP 0.22
Gain in OP ($) 9.60
Payment ($) 9.10
Nett gain ($) 0.50
Royalty of 7.00% and growth of 30.00% $0.50
SCENARIO 2. AN INCREASE IN TURNOVER WITH AN INCREASE IN GP and OP (i.e. some efficiency gain from intervention)
BEFORE AFTER Royalty fee
$ $ $
Turnover 100.00 130.00 9.10
Cost of Sales 50.00 58.50 COS decreased by 10% due to intervention
GP 50.00 71.50 1.43 Overheads decreased by 10% due to intervention
Overhead 18.00 23.30
OP 32.00 48.20
OP% of turnover 32.00% 37.08%
Royalty % of OP 0.19
Gain in OP ($) 16.20
Payment ($) 9.10
Nett gain ($) 7.10
Royalty of 7.00% and growth of 30.00% with a 10% 10%
decline in
overheads
confers
additional $7.10 profitdecrease in COS and
confers additional income of
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Annex 10: Job and Tax Impacts
Assumptions
Tax rate: 25%
Taxable income is OP which is 37.08%
of
turnover
Indirect job factor 2.86
IMPACT OF COMPANIES
5 YEAR CYCLE IMPACT 10 YEAR IMPACT
CLIENT Turnover OP Tax Increased Jobs Turnover OP Tax
Increased
Jobs
LEVEL PHASE Increase Increase Increase
Per
Company Total Increase Increase Increase Total
2 1 1301400 482519 120630 5 150 2602800 965038.2 241260 300
2 1353456 501820 125455 3 72 3045276 1129095 282274 162
3 1319619.6 489274 122319 3 54 3518985.6 1304732 326183 144
3 2 2556000 947686 236922 4 80 5112000 1895372 473843 160
3 5392800 1999484 499871 3 84 13096800 4855890 1213973 204
11923276 4420784 1105196
27,375,861.60 2537532
440
Direct
jobs 970
Direct
jobs
1258
Indirect
jobs 2774
Indirect
jobs
1698 TOTAL 3744 TOTAL
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Annex 11: Profile of Key Partner Institutions
Department of Food Technology and Quality Control
Department of Food Technology and Quality Control (DFTQC) is under the Ministry of
Agriculture Development (MOAD) of government of Nepal (GoN). It was established in
1961 as Department of Food and placed in Singh Durbar. Later in 1965 it was shifted to
the present location of Barbarmahal, Kathmandu. In 1966, the Department of Food
then was renamed as Food Research Laboratory. The laboratory later in 1980 was
again converted to Central Food Research Laboratory (CFRL) and known by this name
until it became Department of Food Technology and Quality Control (DFTQC) in 2000
under MOAD.
From the beginning of its establishment, DFQC played a role in laying down the
foundation for food quality control system, research, and development in the field of
food science, technology, and nutrition support program. As mandated by
government of Nepal, DFTQC is the apex organization responsible for the enforcement
of Food Act and Regulations. It has been working for the implementation of the Feed
Act and Regulations. Its main aim is to ensure and enhance the quality and safety of
food and feed products in the country. The department has a paramount role in
augmenting appropriate food processing and post-harvest techniques to promote
agribusinesses. DFTQC, which has been entrusted as CODEX contact point for Nepal for
more than three decades, has been given the role of National SPS Enquiry Point in 2004.
Nepal Agriculture Research Council
Nepal Agriculture Research Council (NARC) was established in 1991 as an autonomous
organization under "Nepal Agricultural Research Council Act - 1991" to conduct
agricultural research in the country to uplift the economic level of the people.
The objectives of NARC include the following:
To conduct qualitative studies and researches on different aspects of agriculture.
To identify the existing problems in agriculture and find out the solution.
To assist government in formulation of agricultural policies and strategies.
Functions and responsibilities of NARC are the following:
Conduct qualitative agricultural research required for national agricultural
policies
Prioritize studies and researches to be conducted
Provide research and consultancy services to the clients
Coordinate, monitor, and evaluate the agricultural research activities in Nepal
Document the research activities
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The following are sources of financial resources for NARC:
Grants from the government of Nepal
Grants from national and international donor agencies and governments
Funds obtained from research or consultancy services
NARC’s Strategic Vision for Agricultural Research (2011–30)
Creating a New Vision for Agricultural Research. NARC’s vision is to tap institutional,
human, and financial resources from the government and a wider spectrum of
stakeholders—civil society, research centers, donors, and ultimately the private sector—
to move the system from agricultural research and development to agricultural
research for development.
NARC is also targeting the promotion of commercial agriculture by generating post-
harvest technologies that create value-added products from cereal crops, cash crops,
vegetables and fruits, livestock, poultry and fisheries; and their downstream processing
opportunities. By the same token, NARC is also giving attention to crops and
horticulture, livestock and fisheries, natural resources management and climate
change, biotechnology, outreach, technology, dissemination and extension, to the
problems and needs of its client in the input industries and service providers—such as,
farm machinery, irrigation equipment, agro-chemicals, and animal feed.
NARC is highly dependent on funds from the government. The government budget for
NARC was NPR 326 million in 1997/98 and NPR 510 million in 2008/09, an increase of 56
percent, in absolute terms. However, in relative terms it declined as core inflation
between those periods was about 100 percent. The share of NARC in national budget
also decreased substantially. In 1997/98 NARC’s share of the national and MOAD
budget was 0.53 percent and 14.40 percent, respectively. However, it had declined to
only 0.22 percent and 8.85 percent, respectively, in 2008/09 (Source NARC website).
Because of declining budgets, staff and administrative costs are consuming an ever-
increasing proportion of the NARC budget. Allocation for operational costs remained
between 22 to 34 percent of total budget and this ratio is declining over the years.
Largest year-to-year fluctuation is observed in capital budget ranging from 2 to 30
percent. Within the operational budget, about 28 percent is allocated for crops, 14
percent for horticulture, 20 percent for livestock, 7 percent for fisheries, and 30 percent
to multisector activities. Similarly, 5 percent of operational budget is allocated for the
high-hills, 65 percent for mid-hills and 30 percent for the Terai (plain part of Nepal).
Research projects are grouped into five areas: core research; technology
development; policy and socioeconomic; environmental science; new frontier/
exploratory research—climate change. The priorities of NARC research projects are
guided by the overall goal of poverty alleviation through broad based, inclusive and
sustainable agricultural growth.
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The following are the priority issues:
Major food crops, such as rice, maize, wheat, and potato
Minor food crops, such as barley, buckwheat, millets, and amaranthus
Potential commercial crops, such as apple, citrus, mango, banana, and
vegetables
Cash crops, such as large cardamom, ginger, turmeric, and other spices
Industrial crops, such as tea, coffee, jute, sugarcane, cotton, sunflower, and
jatropha (bio-fuel)
Specialized commodities, such as sericulture, bee keeping, flower, mushroom,
and wool animals
High-value low volume commodities, such as saffron, yarshagumba, herbs, and
nontimber forest products
Fish, including cold water fish and warm water fish
Dairy animals, such as buffalo, cattle, and yak
Animals for meat production such as poultry, goats, sheep, buffalo and pigs
Power use in agriculture and agro-industries—draft animals, solar, biodiesel, and
farm waste utilization
Commercial Agriculture Alliance (CAA), Biratnagar
Commercial Agriculture Alliance (CAA) is a not-for-profit-sharing company established
in September 2006, with its head office in Biratnagar, Morang, Nepal. It is responsible for
implementation of "Commercial Agriculture Investment and Management," which is
one of five output of Asian Development Bank’s (ADB) CADP Project. CAA is managing
the Commercial Agriculture Fund (CAF), which is a cost-sharing grant facility. Total
budget for CAA is $15 million, including $8 million for CAF. The CAF facility is available to
CAA general members and the DDCs to strengthen market-chain activities and
develop linkages within the market chain.
Vision
Reduce poverty in the rural communities of 11 Eastern Development Region (EDR)
districts of Nepal, through equitable and sustainable commercialization of agriculture.
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Objective
The commercial agricultural stakeholders must be engaged in agriculture-based
production, processing, or trading within the program districts of the region covered by
the company for at least two years with the motive of profit In the case of farmer
cooperatives or groups:
To manage commercial agriculture fund and provide support to its members
from the fund
To promote commercial agriculture in Nepal by developing an alliance between
the commercial agricultural stakeholders
To manage the Commercial Agriculture Fund and provide support to its
members from the fund.
To educate its members and other agricultural stakeholders about the
importance of market linkage on production, its sustainability, and multiplying
capacity
To conduct awareness program on intellectual property protection among the
members and support its members for the protection of intellectual property right
To enter into contract for value with any third party competent to enter into
contract
To establish branch office required for the fulfillment of the objectives of the
company
To engage in any other activities, which are ancillary to fulfill the above-
mentioned principal objectives
Output
1. Commercial agriculture investment and management
2. Inclusive development of stakeholders
3. Market information dissemination
4. Capacity enhancement of project partner
The National Agricultural Research and Development Fund
NARDF was established by a Cabinet decision on December 10, 2001, under Section 3
of the Working Fund Act, 1986. The Fund is comprised of money received from the
government's allocations and other sources approved by the Ministry of Finance.
NARDF is governed by a seven person Fund Management Committee (FMC), chaired
by the Secretary of the Ministry of Agricultural Development (MOAD). It is administered
and operated by the NARDF Secretariat. The head of the Secretariat is the Member
Secretary of the FMC. The Secretariat is supported by a Technical Subcommittee and
a panel, or list of peer reviewers. Awards are in the form of grants to successful
organizations or collaborative partnerships.
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The Fund targets government, nongovernment, educational, private sector, civil
society, co-operative, and community-based organizations (CBO) involved in
agricultural research and development. It aims to encourage these organizations to
compete for partial or complete funding for project activities, which are designed to
promote the overall development of the agricultural sector. The government’s budget
for NARDF for FY 2010/11 was around $766,70055.
The NARDF is an institution for implementing a competitive grant system in agricultural
research and development. The main function and mandate of NARDF is to seek or
demand proposals from governmental and nongovernmental organization,
academic or educational institutions, private sector, civil society, and community
based organizations who are interested in contributing to the agricultural research
and development of Nepal. NARDF focuses on output-oriented work aiming to deliver
measurable results within a maximum of three-year period in support of national
objectives and priorities defined in government policy documents.
Since its establishment in the year 2001, NARDF has so far provided financial support
for the implementation of 162 research and development projects through various
implementing organizations or development partners. Out of these, 105 projects have
been completed so far under the first, second, third, fourth, fifth, and sixth calls. The
remaining 57 projects are still ongoing. For the 9th Call 221, project concept notes
have been received and are undergoing thorough selection procedures. From the
fifth call onwards, NARDF has introduced the Small Grants and Thesis Grants Program
under its funding umbrella, mainly targeting the grassroots-level local institutions and
post-graduate level research students, respectively. The range of research grant is NPR
1 to 3 million (except small and thesis grants). Some priority research topics during the
call for research proposal for the 2012/13 cycle included the following:56
Agrotourism
Linking farmers to the market, including ICT
Food safety and quality improvement system
Agricultural /livestock market research impact study
Production, processing, storage, and marketing of improved seeds
Promotion of quality products for export
Small agriculture / livestock business promotion
Value addition technologies in fish and meat production
Production, processing, and marketing of spice crops
International Centre for Integrated Mountain Development
55 Source: MOAD. 2011. Annual Progress Report. 56
Source: http://www.nardf.org.np and NARDF. June 2012. Project Completion Report.
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The International Centre for Integrated Mountain Development (ICIMOD) is a regional
intergovernmental learning and knowledge sharing center serving the eight regional
member countries of the Hindu Kush Himalayas: Afghanistan, Bangladesh, Bhutan,
China, India, Myanmar, Nepal, and Pakistan. It is based in Kathmandu, Nepal.
Globalization and climate change have an increasing influence on the stability of
fragile mountain ecosystems and the livelihoods of mountain people. It aims to assist
mountain people to understand these changes, adapt to them, and make the most of
new opportunities, while addressing upstream-downstream issues.
ICIMOD is supporting regional transboundary programs through partnering with regional
institutions, facilitating the exchange of experience, and serving as a regional
knowledge hub. It strengthens networking among regional and global centers of
excellence. Overall, it is working to develop an economically and environmentally
sound mountain ecosystem to improve the living standards of mountain populations
and to sustain vital ecosystem services for the billions of people living downstream, now
and for the future.
ICIMOD Knowledge Park, Godavari: located on the southern slopes of the Kathmandu
Valley in Nepal, was set up in March 1993 after the generous provision of 30 hectares of
land by the government of Nepal. The site provides a practical venue for testing
sustainable technologies and farming practices and demonstrating them to the
region’s people—farmers, researchers, students, development practitioners, and civic
leaders—so they can develop the means to adapt to the impacts of change. The
knowledge park also serves as a repository for important biodiversity resources. Each
year the knowledge park attracts over 5,000 visitors.
At Godavari Knowledge Park activities are carried out in the following areas:
agriculture, livestock, and aquaculture; income generation; biodiversity conservation;
renewable energy technologies; water, vegetation, and soil management; training;
and community outreach. In 2012, ICIMOD developed a plan to enhance the park’s
activities and facilities. ICIMOD considers private-sector partnerships as an important
part of this strategy.
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Annex 12: DFTQC Pilot Plant Renovation and Cost
The cost is calculated based on the unit area rate:
Area 493m2
The unit area refurbish / renovation cost = $250/m2 (NPR 2,000 / sq.ft.)
o The rate is 50 percent of new construction cost
The unite rate is estimated to cover the following costs:
Replacement of existing asbestos corrugated sheets by Corrugated Galvanized
Iron (CGI) sheet, utilizing the existing trusses
False ceiling
Good wall, floor, ceiling finishes
Good Manufacturing Practice (GMP) required interior finishes (floor with ceramic
tiles, wall and ceiling with washable paints, doors and windows with dust proof
shutters / replacement as needed)
Normal electrification and water supply system
The cost does not include the following generic plant equipment:
Heating, ventilating, and air conditioning (HVAC) system
Dedicated Power Generating Set (GenSet) for the pilot plant
High quantity water supply system (HQWSS)
Transformer for high voltage electricity connection (three-phase 440V
connection)
The estimated costs for generic plant equipment are the following:
HVAC: NPR 700,000
GenSet: NPR 1,800,000
HQWSS: NPR 1,000,000
Transformer: NPR 500,000
Total: NPR 4,000,000 equivalent $46,512 (which is about $47,000) (1 USD = 86 NPR)
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Annex 13: Preparedness to Pay for Services
With infoDev funding, ITPF conducted a comprehensive feasibility study in 2005 for an
ICT and agribusiness incubator. This study involved a survey of 270 students, focusing on
those segments more likely to go into business, and to gauge the market from existing
businesses structured interviews with 110 MSMEs, selected by random sampling in 6
industrial cities in all the development regions, other than the far western region. Of
these, 86 percent were in involved in manufacturing and 12 percent in services.
Fresh graduates considered financial assistance the most important support required to
successfully operate and manage a business venture. MSMEs, however, ranked
marketing and production assistance above finance, which is arguably far more
realistic and in accord with experience elsewhere. Without prejudicing the interest and
needs of graduating students, it must be remembered that without experience they
may well not know exactly where they need the most help. Also perceived as
important were provision of business space and infrastructure, marketing assistance and
market linkages, education/training, and technical/management assistance. The
majority of those students who expressed interest were interested in paying for the
service of an organization that advises and assists them to start, sustain, and grow their
intended businesses. Management assistance and accessibility and use of ICT were
lower priorities, suggesting students are confident of their management ability and
exploiting ICT as a tool for successful business operation. They wanted an incubator to
be located in an accessible and convenient commercial area of the city.
In comparison to students, who are yet to venture into business, MSMEs expressed
different needs, as is to be expected. They sought support with marketing and product
distribution assistance, finding available space and infrastructure, accounting and
financial management, access to financial assistance, process and inventory
management, and assistance with product design and testing. Lack of marketing
information, inability to frame proper marketing plans, not having proper technical
know-how, inability to adapt to the changes in the business environment and lack of
adequate financial management skill were considered to be the main reasons why
most of the businesses fail during their initial years of establishment. The interviews found
that 62 percent of the sample have made use of support services to improve their
performance, 69 percent are willing to pay for the services of a support organization
and 75 percent wanted to grow further, indicating good demand for business
incubation from existing businesses. A significant number of the MSMEs are facing
problems (noting the interviews were conducted in 2005) that obstruct their growth and
the majority are prepared to pay for the services of an organization providing them with
support to improve their performance.
Focus groups with BIP clients and other entrepreneurs also explored willingness to pay. It
is always hard discussing payment for a service that does not exist, or for which only low
value models have been seen and without seeing a service with a high value
proposition. Broadly speaking, focus group participants want the incubator to be a
quasi partner, adding tangible value to their business and sharing in their success in one
way or another. In this context, despite variable responses, almost any model is
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negotiable, assuming the incubator does offer excellent services. However, it appears
there is an overall preference, especially among the agribusinesses consulted, for no
upfront fees and payment by way of sharing in increased sales.
Comments noted include the following:
Incubatees should feel that the Business Incubator fee is not a cost, but the fee
paid should be seen as an investment, as one entrepreneur put it, “to pay 10,
you should earn 40.”
It should be worth paying.
Fee depends on services
Sharing of profit
No upfront payment, payment through increased revenue
Sharing of sales
Equity model is okay for new entrepreneurs, but not for operating SMEs
Partnership with BI
Any model negotiable
Entirely business–profit oriented center
Fee for services
The full report and survey results can be made available on request to infoDev.
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Annex 14: Learning from Previous Business Incubation Efforts
Previous incubation efforts by the Department of Cottage and Small Industries, Lotus
Holdings, and Fortune Cookies provide useful lessons.
The DCSI business incubator was formed on the back of the ITPF feasibility study in 2005
by the Department of Cottage and Small Industries at their site at Tripureshwor in
Kathmandu. The Nepal Lotus Business Incubator Centre (NLBIC), an Initiative of Lotus
Holdings (LH)/ Lotus Opportunities (LO), was established in 2003, with a strategic
decision of the LH board to serve start-up companies with “finance plus” 57 assistance,
but the incubator failed. Six privates sector IT entrepreneurs formed Fortune Cookies as
a private initiative in 2006 to incubate new ideas. Two investments were made, which
did not bear fruit. Fortune Cookies did not work as envisaged and is now dormant.
The main lessons from these incubator initiatives are the following:
The DCSI is compromised in terms of its positioning and image by being a part of
government. As is understood by PACT and MOAD, business incubation should
not be run directly by government in Nepal—a lesson that is common to many
countries. An attempt to institute a private-sector approach, by outsourcing
management, was a step in the right direction, but did not work well and is never
as effective as outsourcing the entire business incubation function. The center is
still hampered by bureaucracy, operating under the guidance and supervision
of a board formed under the chairmanship of Director General of DCSI. None
the less, there is potential to work with the DCSI on the proper role for
government and implications for this and other incubators.
Incubation should run with a public-private partnership model and not as a
purely private or public venture and takes significant commitment.
Budgets need to be adequate. All three attempts were or are hampered by
inadequate budgets. Furthermore, private funding alone is inadequate to
operate and grow a business incubator, which takes too long to realize returns.
Investors do not benefit directly from incubation itself, but by investing in
incubates over the long term.
Service providers or advisors should have a seasoned entrepreneurial
background. The services of management graduates are not adequate to meet
incubatees’ needs.
Incubation needs to be the core business of the institution operating the
incubator, which needs a dedicated management team.
The skills and competence of the management team need to be developed, so
that the team members can meet the expectations of start-up companies,
particularly regarding marketing and financial needs.
57LH at its earlier stage believed that financial assistance, through equity financing, is the way to help new
business. Hence, LH invested equity in 14 companies, ranging from carpet factories, pashmina, handmade
paper, IT, management consulting, and infrastructure development.
Agribusiness Innovation Center in Nepal: Report
156
The support systems need to be professional and comprehensive.
On its own, a focus on students and student projects will not deliver adequate
deal flow. While students are interested, it can be hard to convince them
incubation is not there to “steal their ideas” and often student projects are not
able to be commercialized.
Scale is important and having only four client firms is too small, as happened with
Lotus.
Return on investment and impact or results should be planned over the long
term and will not be significant in the short term.
A thorough feasibility study is important to design the incubator, as well as to
develop understanding about business incubation.
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