Commercial Agriculture Development Project Final Report

1 NEPAL Commercial Agriculture Development Project ADB TA 3949-NEP Final Report Volume 1: Main Report November 2003 Prepared for His Majesty s Government of Nepal (Ministry of Agriculture and Cooperatives) and the Asian Development Bank by ANZDEC Limited, New Zealand in association with Agrifood Consulting International LLC Consolidated Management Services Nepal (P) Limited ANZDEC Limited in association with ACI and CMS Final Report Volume 1: Main Report i ADB TA 3949-NEP: Commercial Agriculture Development Project CURRENCY EQUIVALENTS (as of [day / month / year]) Currency Unit Nepali Rupees (Rs.)

2 US$ Rs. ABBREVIATIONS ADB Asian Development Bank ADBN Agriculture Development Bank of Nepal AEC Agro-Enterprise Center AICC Agricultural Information and Communication Center AMIS Agriculture Market Information Service APP Agriculture Perspective Plan AREP Agriculture Research and Extension Project ASC Agriculture Service Centre ASPR Agriculture Sector Performance Review CAA Commercial Agriculture Alliance CAB Commercial Agriculture Board CACGF Commercial Agriculture Credit Guarantee Fund CACGS

3 Commercial Agriculture Credit Guarantee Scheme CADP Commercial Agriculture Development Project CAF Commercial Agriculture Fund CAN Commercial Agriculture Network CAS Commercial Agriculture Secretariat CCI Chamber of Commerce and Industry CIM Chamber of Commerce at Morang CIP International Potato Center (Centro Internacional De La Papa) DADO District Agriculture Development Office DDC District Development Committee DfiD Department for International Development DG Director General DICGC Deposit Insurance and Credit Guarantee Corporation DOA Department of Agriculture DOLIDAR Department of Local Infrastructure Development and Agriculture RoadsDRCs domestic resource costs EA Executing Agency EDR Eastern Development Region EIA Environment Impact Assessment EIRR Economic Internal Rate of Return GDI Gender Development Index GDP Gross

4 Domestic Product GTZ German Agency for Technical Cooperation ha Hectare HDR Human Development Report HMGN His Majesty's Government of Nepal HOTPA Himalayan Orthodox Tea Producers Association HVC High Value Crops IA Implementation Agency ICDCA Institutional Capacity Development for Commercial Agriculture IEE Initial Environmental Examination IPM Integrated Pest Management ANZDEC Limited in association with ACI and CMS ii Final Report Volume 1: Main Report ADB TA 3949-NEP: Commercial Agriculture Development Project IPNM Integrated Plant Nutrient Management LDO Local Development Officers LSGA Local Self Governance Act M&E Monitoring and Evaluation MDD Marketing Development Directorate MFI Micro Finance Institution MOAC Ministry of Agriculture and Cooperatives MOF Ministry of Finance MTEF Medium Term Expenditure Framework NARC Nepal Agriculture Research Council NARDF Nepal Agriculture and Research Development Fund NGO(s) Non-Government Organization(s)

5 NPC National Planning Commission NPCs nominal protection coefficients NPV Net Present Value NRB Nepal Rastra Bank NRs Nepalese Rupees PCU Project Coordination Unit PERC Public Expenditure Review Commission PIU Project Implementation Unit PRA Participatory Rural Appraisal PRSP Poverty Reduction Strategy Paper R&D Research and Development RAD Regional Agriculture Directorate RATC Regional Agricultural Training C enter Rs. Nepali Rupees SMAC Social Mobilization for Agricultural Commercialization SME Small and Medium Enterprise SPG Seed Producers Group TA Technical Assistance TOR Terms of Reference WDO Women Development Offices WTO World Trade Organization WUO Water Users Organization WEIGHTS AND MEASURES Km kilometer Kg kilogram ha

6 Hectare NOTES (i) The fiscal year (FY) of the Government and its agencies ends on 15th July. FY before a calendar year denotes the year in which the fiscal year ends, , FY2000 ends on 15th July 2000. (ii) In this Report , "$" refers to US dollars ANZDEC Limited in association with ACI and CMS Final Report Volume 1: Main Report iii ADB TA 3949-NEP: Commercial Agriculture Development Project CONTENTS Project PROPOSAL SUMMARY 1I. The Proposal 1II Rationale: Sector Performance, Problems and Opportunities 1 III The Proposed Project 8IV Project Benefits, Impacts and Issues 21 EXECUTIVE SUMMARY i VOLUME ONE MAIN Report I INTRODUCTION 1A.

7 TA Objectives and Scope 1B. Background 3C. Policy Context 4D. Methodology and Approach 9E. Sources of Information 12 II SECTOR PERFORMANCE AND KEY ISSUES 21A. Introduction 21B. Sector Performance 21C. Concepts of Commercialization 42D. Factors Driving Commercialization and their Current Status 44E. Partnerships and Linkages in Commercial Agriculture 53F. Summary and Implication of Social Survey 54G. Factors of Success of Commercialization in the EDR 57H.

8 The Core Problem for Commercialization of Agriculture in the EDR 58I. Conclusions 61 III THE PROPOSED PROJECTS 64A. Introduction 64B. Basic Assumptions of the Project 64C. Overview of the Project 67D. Components: Rationale, Outputs and Institutional Framework 69E. Implementation Arrangements 96 IV COSTS, BENEFITS AND IMPACTS 111A. Introduction 111B. Financial and Economic Analysis 111C. Poverty Reduction Impacts 114D. Social and Gender Development Impacts 116E.

9 Environmental Impacts 122F. Assumptions and Risks 124 REFERENCES 126 ANZDEC Limited in association with ACI and CMS iv Final Report Volume 1: Main Report ADB TA 3949-NEP: Commercial Agriculture Development Project TABLES Project Proposal Summary Tables 1 Cost Estimates 142 Financing Plan 14 Executive Summary Tables 1 Example of Proposals Suitable for Submission to the Board xvi2 Financing Plan xx3 Components by Financiers xx4 Costs and Benefits of the Main Components of the CADP xxi5 Poverty Impact Ratio for the Total Project xxiiiMain Report Tables Main Features of EDR Districts Value of Crop Production in Project

10 Districts by Crop Type Share of Development Regions in the Total Overseas Exports, 1990/91 to 1999/00 Exports of HVC Products through Biratnagar (Morang) Plant Quarantine Checkpoint Exports of HVC Products through Khakarbhitta (Jhapa) Plant Quarantine Checkpoint NPC and DRC for Selected Commodities Cost of Production and Income Potential Variability of Prices of Commodities Over Time by Locations Variability of Prices of Fruits and Vegetables Over Time by Locations Major HVCs Preferred by Wellbeing Group in PRA Districts Summary of Lessons of Main Projects related to Commercial Agriculture in the EDR Different Degrees of Agricultural Commercialization Possible Commercial Agriculture Network Members Investment Budget for the