Lessons

NEPAL: High Mountain Agribusiness and Livelihood Improvement Project

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Lessons

Consolidation of production pockets to produce economies of scale is necessary to attract mainstream market players and enable small producers to participate in agricultural value chains on a sustained basis.

The initial stabilization and subsequent growth and sustainability of small agribusinesses depend largely on producers’ ability to integrate with mainstream market players. This requires consolidated production pockets to provide a consistent supply of produce, as required by the market. The scattered distribution of project grants, driven by principles of equity, was unable to capitalize on this. Local pressures related to the equitable distribution of grants and the pressure to meet disbursement targets likely led to agribusiness approvals being driven by a first-come-first-served principle rather than actual innovation, business ability, and alignment to value chains. Otherwise, production pockets could have been developed, leading to economies of scale to attract mainstream market players. Agribusinesses that have survived are those that have found a local market for their produce.

Project Cycle Stage: 
Preparation
Implementation

In-depth market analysis, product aggregation, and strong producer-buyer relationships will enable better market penetration.

While initial cash flow analyses forecast demand based on a preliminary market analysis, the forecasts did not hold true in many cases. The price volatility of some products like swertia proved to be devastating to farmers. In many cases, lack of product aggregation resulted in lack of market penetration beyond the immediate local market. Produce such as raw milk and fresh vegetables were found to have penetrated the local market, and in many instances even changed consumer behavior (e.g., increased demand for broccoli and kiwi, which are not traditionally consumed in Nepal). On the other hand, the demand for pork was found to have stagnated to levels of local demand, and entrepreneurs were unable to supply distant markets in bigger cities. This may be attributed to weak producer–buyer relationships, which the project failed to broker effectively. The project could have benefitted from in-depth market analysis for specific products.

Project Cycle Stage: 
Preparation
Implementation

Poor connectivity of project areas and inadequate skills and experience in key project staff can make project supervision and attainment of results challenging.

This project was spread across 10 districts with poor connectivity. While most of the project investments occurred along road corridors, the project management unit (PMU) based in Kathmandu, could not adequately supervise the teams in the project districts. A quick look at project accomplishments revealed that the return on investment of livestock-related investments fared better than those for non-livestock related. This might be because the PMU had more experienced livestock staff, so decisions related to livestock may have been better than for non-livestock investments.

Project Cycle Stage: 
Implementation

Size could limit the profitability of project investments.

Standards were set under this project to control the misuse of grants, mostly by curtailing the size of investments. While this made the investments “safer,” it may have compromised profitability.

Project Cycle Stage: 
Preparation
Implementation

It is ineffective to leave the screening of applications for project grant funding to local institutions that may come under immense pressure from local communities and politicians.

The pressure to approve the numerous applications received superseded purely business considerations even though the grant assessment committees evaluated business proposals independently. The initial screening of proposals and the identification of genuine proponents were left to local institutions, which proved to be ineffective, as district officials and district-based staff are under immense pressure from local communities and politicians.

Project Cycle Stage: 
Preparation
Implementation

An ineffective communication strategy can create misconceptions and undue expectations from projects.

Many local politicians perceived that this project was designed to benefit the rich and not poorest farmers. This was a misconception. The project design focused on financing agribusinesses with a potential of creating employment for the poorest farmers, who on their own, would be unable to rise above subsistence farming, as studies have shown. This could have been communicated better.

Project Cycle Stage: 
Preparation
Implementation

Business incubation requires time.

To sustain their businesses, startup entrepreneurs need support in the form of more robust business plans (which include analysis on market-related sensitivities), and verified and secured supply lines (either existing or established along the value chain) with processors and retailers who source from them. This requires a longer-term engagement with beneficiaries.

Project Cycle Stage: 
Preparation
Implementation

Considering Nepal’s rural economies and their social construct, it will be prudent for gender targets to aim for gradual gains on women’s empowerment.

While the project was effective in meeting all its gender equality and social inclusion targets, in several cases, the men of the household continued to take the main role of managing the agribusinesses, while the women tended to their traditional household chores. The inclusion of women, therefore, seems to have been driven by the project’s gender targets. This reveals that in the existing context of rural economies and their social construct, it is difficult for women to completely take on new responsibilities. This transformation will be gradual for most women rather than a dramatic reversal of household gender roles within one project cycle.  Considering this, it would be prudent for gender targets to aim for gradual gains on women’s empowerment.

Project Cycle Stage: 
Preparation
Implementation

Targeting disadvantaged groups can lead to positive outcomes toward social inclusion.

Specific targets set for the participation of the indigenous people in the project area, the Janajatis, were met ─ 46% of supported agribusinesses were owned by Janajatis and 50% of training participants were Janajatis, 47% of them women.  Attainment of these targets led to positive outcomes toward social inclusion.

Project Cycle Stage: 
Preparation
Implementation

Community environmental awareness can be effectively advanced by making it a mandatory due diligence requirement.

This project’s mandatory environmental due diligence requirement in screening agribusiness proposals was an effective mechanism to raise environmental awareness in the project districts.

Project Cycle Stage: 
Preparation
Implementation
Background

In 2011, about 80% of Nepal’s population lived in the rural areas, where poverty rates were higher than in urban areas.  The growth of agriculture, which comprised the predominant source of rural income and livelihood, was constrained by lack of value chain integration, as rural farmers were mostly subsistence farmers. The limited growth in agriculture was most adversely affecting the high mountain districts that were the least developed compared to the hills and terai districts.  To help address the situation, the Asian Development Bank (ADB) approved a $20 million grant for the High Mountain Agribusiness and Livelihood Improvement Project in March 2011.

The project intended to leverage private investment in agribusiness development in 10 mountain districts to improve the livelihoods of mountain people.  Its envisaged impact was increased incomes in selected high mountain areas.  Its intended outcome was mountain agribusinesses are commercially viable in selected high mountain districts. The project’s expected impact and outcome were to be achieved through 3 outputs: (i) an increased number of mountain agribusinesses making use of agribusiness grants, (ii) mountain agribusinesses have knowledge of and access to improved production technologies and value addition, and (iii) effective project management at the central and district levels.

The project, the first large-scale intervention to finance agriculture value chains in Nepal’s remote mountain regions, was implemented over 7 years without major implementation issues. At completion, it achieved most of its output targets.  A total of 640 agribusinesses, 19% of them fully owned by women and 46% belonging to the Janajatis indigenous people, were financed by the project.  Livestock trails were also funded, and so were better-quality grass seeds that enhanced the grazing quality of alpine pastures.

Almost 12,000 people received training related to agriculture value chains and livestock health, climate-smart horticultural practices, and agribusiness development. The project has thus laid the foundation for entrepreneurial development among mountain communities, who were hitherto largely dependent on tourism or subsistence farming for sustenance. Many of the agribusiness investments made by the project have had a demonstrative effect on these communities, and replication can be seen across the project districts. About 45% of trainees were women and 50% were from disadvantaged groups.  Furthermore, the project upgraded 5 key agricultural research and development stations and 56 district offices and service stations to improve service delivery to farmers in the project districts.

Despite having delivered most of its output targets, the project fell short of achieving its outcome target of no less than 15% per annum return on investment (ROI) by 2017. In 2019, the total weighted ROI came up to only 14%.  The project ROI target proved to be ambitious, as realizing positive cash flows from new agribusinesses takes time. Similarly, the target of $6.4 million in wages by 2017 was ambitious. Although the project created almost 12,000 jobs, compared to the target of 7,500 jobs, it resulted in wages of only $2.4 million.

Nevertheless, the project’s demonstrative effect and highly inclusive approach are likely to have positive impacts on the changing mountain economies of Nepal’s highlands and pave the way for further agriculture value chain development. The experience from the project has built confidence among several other development partners investing in mountain agribusinesses, prompting them to expand operations in the mountains by building on the lessons from this and similar agriculture value chain projects. Several initiatives financed under the project have been welcomed by the government and development partners as models for Nepal’ mountain areas. For instance, the private large-scale high-density apple farm in Manang district has become an important resource center from where similar farming technology is spreading across Nepal’s apple growing regions.

The Ministry of Agriculture and Livestock Development was the project executing agency, and the Department of Livestock Services the implementing agency.

Project Information
Project Name: 
High Mountain Agribusiness and Livelihood Improvement Project
Report Date: 
June, 2020
Main Sector: 
Agriculture, Natural Resources, and Rural Development
Country: 
Nepal
Project Number: 
37292-042
Report Type: 
PCR
Project/Modality: 
Project grant
Themes: 
Environmentally Sustainable growth
Inclusive Economic Growth
Gender Equity and Mainstreaming
Private Sector Development
SDG: 
Goal 2: Zero Hunger
Goal 10: Reduced Inequalities
Goal 12: Responsible Production and Consumption
Sub Sector: 
Agro-industry, marketing, and trade
Loan Number: 
G0248
Source of Funding: 
COL/ADF
Date Approved: 
24 February 2011
Report Rating: 
Successful

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