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 organizations 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 Associations - Formed (LCEAN) or - Advocated with pressure groups strengthened (NGPTA) to reduce informal taxation association - Advocated with government - Linked associations to farmers, agencies for increased traders, and government attention/ inputs (eg., disease agencies management, customs regulations) - Served as witness to initial transactions between - Linked with FNCCI association members and - Worked with value chain farmers groups stakeholders to modify trade practices (eg., Fawa system) - Built end market awareness for association members Main challenge of partnership: Outreach

Why a MFI Partner?

Micro-Finance Institution (MFI) Partner Facilitator MFI - Provided incentive for MFI to - Provided loan capital expand into target areas - Modified group outreach and - Helped MFI modify SRG lending for farmers groups savings and loan model for - Introduced strong vulnerability farmers groups (farmer cash targeting criteria flow analysis; business - Built capacity of target groups to planning) receive and handle loans - Linked MFI to farmers groups, - Required compulsory savings where necessary or appropriate 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 Quality Seed Banks Seed Coops, Inputs (Ginger) Private Nurseries, DADOs, Nirdhan Financial Services Utthan Bank, Ltd. Improve Business and Farmers Groups, Production Technical Practices of CDC, DADOs Farmers Groups Grading, Drying, Sorting, Input suppliers, Primary Post-Harvest Handling farmers groups, Processing trade associations, CCI Markets & Forward Contracts; Trade Policy Market Research & Associations, with Linkages; Advocacy for select farmers disease research, and Gov’t reps improved processing and against Fawa system, informal taxation, etc.

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