Spicing Up the Deal: Strengthening Cardamom and Ginger Value Chains - - PowerPoint PPT Presentation

Spicing Up the Deal: Strengthening Cardamom and Ginger Value Chains in Eastern Nepal through Private Sector Partnerships

Presentation: Innovation Asia-Pacific Symposium, Theme 4 6 May 2009 Authors: Sanjay Karki (lead), Josh DeWald (presenter), Keith Polo

Purpose and Outline of the Presentation Purpose: Case study of an attempt to introduce private sector

• rganizations into spice commodity value chains in Eastern Nepal
• 1. Value chain selection through the lenses of ‘high impact

commodities’ and ‘economic corridors’

• 2. Introduction of new private sector actors in the value chain
• 3. Activities at four value chain levels
• 4. Example: cardamom grading
• 5. Results, challenges and areas for improvement

High Impact Commodity Selection

• A concept utilized in various countries worldwide – in counterpoint to

‘high value’ commodities - due to past pitfalls (two common pitfalls: 1) high market margins, low farmer profit; 2) or, high farmer absorption capacity, low market demand)

• Defines a set of country-specific criteria for commodity selection that

considers three factors:

• Total number of smallholder farmers growing the crop
• Profit potential per land unit for both prime lands and marginal lands
• Significance of the commodity to the national economy, as defined by

annual export earnings and/ or total estimated annual contribution to the national economy

• Ability to have positive impact on environmental sustainability
• Ability to incorporate traditionally disadvantaged groups into

production and/ or processing

Economic Corridor Lens - Cardamom

Economic Corridor Lens - Ginger

Introducing Private Sector Partners to Address Gaps

• Existing local stakeholders: Chambers of Commerce and

Industry; SACCOs; Farmers Groups and Cooperatives; NGOs; Government Agencies

• New Partner (Large Cardamom Entrepreneurs Association of

Nepal; Nepal Ginger Producers and Traders Association) – trade associations: formed or strengthened commodity-specific trade associations to foster industry-wide leverage through key exporters or traders

• New Partner (Nirdhan Utthan Bank, Ltd.) – financial services:

facilitated expansion of MFI into the hills to offset partially the dadani system with SRG model-based agricultural and non- agricultural loan products

Trade Associations

Facilitator

• Formed (LCEAN) or

strengthened (NGPTA) association

• Linked associations to farmers,

traders, and government agencies

• Served as witness to initial

transactions between association members and farmers groups

• Built end market awareness for

association members Associations

• Advocated with pressure groups

to reduce informal taxation

• Advocated with government

agencies for increased attention/ inputs (eg., disease management, customs regulations)

• Linked with FNCCI
• Worked with value chain

stakeholders to modify trade practices (eg., Fawa system) Main challenge of partnership: Outreach

Why a MFI Partner?

Micro-Finance Institution (MFI) Partner

Facilitator

• Provided incentive for MFI to

expand into target areas

• Helped MFI modify SRG

savings and loan model for farmers groups (farmer cash flow analysis; business planning)

• Linked MFI to farmers groups,

where necessary or appropriate MFI

• Provided loan capital
• Modified group outreach and

lending for farmers groups

• Introduced strong vulnerability

targeting criteria

• Built capacity of target groups to

receive and handle loans

• Required compulsory savings

Main challenge of partnership: Sparsely populated areas (can be overcome to some extent through wholesale loans); Female-only lending policies

Activities

Value Chain Level Activities Partners

Inputs Production Primary Processing Markets & Policy Quality Seed Banks (Ginger) Financial Services Improve Business and Technical Practices of Farmers Groups Grading, Drying, Sorting, Post-Harvest Handling Forward Contracts; Market Research & Linkages; Advocacy for disease research, improved processing and against Fawa system, informal taxation, etc. Seed Coops, Private Nurseries, DADOs, Nirdhan Utthan Bank, Ltd. Farmers Groups, CDC, DADOs Input suppliers, farmers groups, trade associations, CCI Trade Associations, with select farmers and Gov’t reps

Example – Cardamom Grading

Before

• Mid-2007: no standardized cardamom grading practices exist in Eastern

Nepal

• All pods bulked together and shipped to India, where grading took place
• No differentiated price for higher-grade large cardamom

After

• Standard grades agreed upon in consultative process, and grading cards

distributed to farmers and traders, via LCEAN, throughout target districts

• Grading sieves developed with input suppliers; access to seives facilitated

for farmers groups

• Two differentiated grades sold, resulting in price differentials of 10 - 25

NPR/ kilogram (5% - 13% increase) during the December 2008 sales season Example

• In Sankhuwasabha, no grading currently exists; good quality cardamom is

sold for an average of 188/ kg., vs. 205/ kg. for higher grade cardamom in Panchthar district, although Sankuwasabha cardamom is of generally better quality

Results, Challenges, and Areas for Improvement

Results

• 25% - 60% profit increase per ropani for 3,000 + farmers involved in the pilot

phase (July 2007 – March 2009)

• 75% - 90% traditionally disadvantaged groups involved in pilot interventions

Challenges

• “Donation” expectations
• Farmer group entry point (disease management, graders, forward contracts)
• Building trust among value chain actors
• Overcoming suspicion of new actors introduced to value chains

Areas for Improvement

• Reconcile a more systemic market-system strengthening approach with the fact

that export markets are often controlled by informal, relationship-based trade networks

• Begin working with Federated Cooperatives, where feasible
• Strengthen BDS for SMEs at input supplier level, and, through this, farmer

demand for processing inputs

• Integrate financial and technical service provision