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  • 11/16/2017

    1

    Value Chain

    Analysis and Dairy

    Development in

    Nepal Satish Joshi,

    Professor, Department of Ag. Food and Resource Economics,

    Nanda Joshi, Director of International Program for College of Veterinary Medicine and

    Department of Animal Science,

    Value Chain Approach

    The value chain approach is

    distinctive in

    i) The scope used in analyzing an

    industry

    ii)Considerations in designing and

    implementing interventions.

    Value Chain Approach

    Value Chain Analysis

    � A market system perspective (Considering the entire value chain from input supply-production to end market)

    � Focus on end markets

    � Value chain governance

    � The nature of relationships

    Value Chain Intervention

    � Facilitating changes in participant behavior

    � Transforming relationships

    � Targeting leverage points

    � Empowering the private sector

    � Learning and Adaptive Management

    NEPAL: Is dairy a good value-

    chain to intervene?

    � Does market demand exist for a given or improved product? YES

    � Is there is potential to apply/adopt available/improved knowledge and technology? YES

    � Are resources, capacities, infrastructure, and raw materials available and can be used more efficiently? YES.

    � Are there are real or potential competitive advantages in the production/processing of the good? YES (perishability, processing, scale economies, end market distance)

    � Does it help alleviate poverty, gender inequity? YES

    � Does it promote local capabilities and employment? YES

    � Is it sustainable??

    � Is it a government priority and are funding/partnerships available??

    Simplest Local value chain

    Producer Consumer

    Formal Value Chain for large Volume Commercial Supply

    � Milk Producers

    � Milk collectors (Milk Producer Cooperative Societies

    :MPCS)

    � Milk Chilling Centers

    � Milk Processing Facilities (Dairies)

    � Milk Marketing Organization

    � Milk/Product Distribution

    � Milk Retailers

    � Consumers

    � Transporters

  • 11/16/2017

    2

    Other value chain

    Milk

    Producer

    • WATER

    • Quality animals

    • AI

    • Feed

    • Animal health services

    • Labor

    • Credit

    • Land

    • Supplies (Cleaning, etc)

    Complementary

    VCs

    • Meat VC • Ag Crop VC

    • Hort Crop VC

    End Market

    � Nepal is currently milk deficit and deficit is growing (consumption of ~60kg/capita compared to WHO recommendation of ~90kg)

    � Strategic market alternatives

    � Export

    � Feed urban demand (Import or increase national output)

    � Grow local systems

    � No inherent projected cost advantage to aim to be low cost producer/exporter: Exception is specialty products like yak cheese: Export is not a good choice?

    � What is the strategic choice among 2&3?

    Value Chain Organization

    � What is the potential/real value added at each stage?

    � Who captures the value?

    � Producer Co-operatives (Producers:-Development

    goal)

    � Private companies (Shareholders/promoters)

    � Government (tax payers?)

    � Consumer cooperatives (consumers)

    � NEPAL Milk Value chain is a mix

    NEPAL Milk Value Chain

    � Milk Producers (private)

    � Milk Producer Cooperative Societies (~ 1750 MPCS)

    � District CMPUs (36) – Mainly provide producer services

    � Central Dairy Coop Association of Nepal (CDCAN)

    � Milk Chilling Centers (MPCS/DDC/Private)

    � Milk Processing Facilities (DDC/Private/MPCS)

    � Government DDC- 31 districts, 55 chilling centers, 225KLD processing, Cheese plants

    � Private dairies 250+, 3 large(30KL+) 6 medium (10-30KL),

    � Milk Marketing Organization

    � DDC operates 7 Milk Supply Schemes(MSS) and one Milk Product supply scheme

    � Milk/Product Distribution

    � DDC , Private, informal

    � Milk Retailers (DDC booths, Private dairies, Retailers, informal hawkers)

    � Consumers

    Other Dairy Development

    Agencies � National Dairy Development Board(NDDB)- Policy

    � Dept. of Livestock Services (DLS)- livestock development and animal

    health

    � 999 Service/sub-service centers at village level with Village Animal Health

    Workers (VAHW)

    � National Livestock Breeding Centre (NLBC)

    � Dept. of Food Technology and Quality Control (DFTQC)-food and feed

    quality regulation

    � Dept. of Cooperatives (DoC)- monitoring coops

    � National Cooperative Development Board (NCDB)- coop promotion

    Value Chain Governance

    � Strategy formulation, coherence, coordination and value capture and investment

    � Value Addition? DDC- Reported Loss of ~Rs 106 and Rs 135 Million last two years (Kathmandu and Biratnagar profitable?)

    � Farmers milk production cost was Rs. 48.8 per liter including Rs. 42 per liter in case of cow and Rs.56 per liter in case of buffalo.

    � Retail Milk sale price was Rs 55/L

    � Producer farmers, cooperatives, processing industries and retailers are getting 57%, 7%, 34% and 2% respectively of the consumers price for processed and packaged fluid milk in the formal sector. (@55/kg final price farmer gets around Rs 31.50?)

    � Neither farmers nor DDC are making money?

    � No Net Value Addition? Not economically sustainable?

    � But private dairies are offering higher price for milk?! Private value chain efficiency high?

  • 11/16/2017

    3

    Opportunities

    � Widely distributed buffalo and cattle

    population

    � Growing milk production

    � Growing demand especially in urban areas

    � Robust private sector (around urban

    areas)

    � Widespread MPCU, DDC and other

    infrastructure and organizations

    � Donor Interest?

  • 11/16/2017

    4

    Trouble Spots

    � Mixed ownership in value chain

    � Large variation in MPCS performance? Mainly agent for

    milk sales –no systematic representation up the VC

    � Role conflict between agencies (DDC, NDDB, DLS etc)?

    � Payment delays –Cashflow management

    � Milk Quality (Code of Practice implementation?)

    � Feed shortage

    � Low animal productivity

    � Animal health and disease

    � Animal marketing systems (heifers, Haat Bazaars for buffaloes)

    � Lack of trained human resources for value chain

    functions

    What is needed?

    � Clear strategy (Geographically distinct?)

    � Promoting improved local subsistence systems?

    � In remote, mountain districts

    � Economies of scope rather than scale (coupled Hort-Crop systems)

    � Improving productivity and inputs

    � Strengthen MPCS as coordination and input service providers

    � Seasonality and Reverse milk supply during lean seasons

    � Processing surplus into stable high value products (e.g ghee)

    � Human Capacity Development in local MPCS management

    Promoting longer rural-urban

    value chains?

    � Clear coordination strategy- Who is the boss? Farmer-

    Govt- Private investor?

    � Farmer representation (or ownership) up the value chain

    � Demand pull vs supply push strategy?

    � Clear end market focus and segmentation (liquid milk, products, specialty cheeses?)

    � Strong umbrella brand development

    � Improving value chain efficiency

    � Broad based Human capacity development starting with

    MPCS strengthening and across value chain functions

  • 11/16/2017

    5

    Conclusion

    � Dairy development is a promising pathway to food

    security and development in Nepal

    � Nepal has made significant progress in dairy development

    � But weaknesses and barriers inhibit sustainability

    � Value Chain Approach can help in designing clear strategies and interventions