promoting agribusiness innovation in...

PROMOTING AGRIBUSINESS INNOVATION IN NEPAL

Creating Jobs through Agribusiness Innovation

Feas ibi l i t y Assessment for an Agr ibusiness I nnovat ion Center

PROMOTING

AGRIBUSINESS INNOVATION

IN NEPAL

Feasibility Assessment for an Agribusiness

Innovation Center

Prepared by infoDev

Contributing Authors: Shashi Bhattarai, Neeraj Nepali, Jim Thaller, Anushka

Thewarapperuma, Julian Webb

Agribusiness Innovation Center in Nepal: Draft Report

i

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©2013 Information for Development Program (infoDev)/The World Bank

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Washington DC 20433

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Email: [email protected]

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To cite this publication:

PROMOTING AGRIBUSINESS INNOVATION IN NEPAL: Feasibility Assessment for an Agribusiness

Innovation Center. 2013. infoDev, Finance and Private Sector Development Department.

Washington, DC: World Bank.

Agribusiness Innovation Center in Nepal: Report

ii

List of Abbreviations and Acronyms

ABI-ICRISAT - Agri-Business Incubator at International Crops Research Institute for

the Semi-Arid Tropics

ADB - Asian Development Bank

ADB/N - Agriculture Development Bank, Nepal

ADO - Agriculture Development Office

ADS - Agriculture Development Strategy (of Nepal Government)

AEC - Agro Enterprise Centre

AEPZ - Agro-Export Promotion Zone

AfT - Aid for Trade

AGDP - Agriculture Gross Domestic Product

AIC - Agribusiness Innovation Center

ALFN - Association of Livestock Farming Nepal

ANEP - Agriculture Nutrition Extension Project

ANSAB - Asia Network for Sustainable Agriculture and Bio-resources

APIN - Asia Pacific Incubator Network (of infoDev)

APP - Agriculture Perspective Plan

AusAid - Australian Aid Agency

B2B - Business to Business

BDS - Business Development Services

BFIs - Bank and Financial Institutes

BI - Business Incubation

BIC - Business Incubation Center

BIIN - Business Incubation Initiative in Nepal

BIP - Business Incubation Program (of DCSI)

BMO - Business Membership Organization

BMZ - German Federal Ministry for Economic Cooperation & Development

BO2 - Business Oxygen, SME Venture Fund

CAA - Commercial Agriculture Alliance

CAF - Commercial Agriculture Fund

CADP - Commercial Agriculture Development Project (Financed By ADB)

CARD - Centre for Applied Research and Development (of IOE, TU)

CBO - Community-based Organization

CCIs - Chamber of Commerce and Industries

CDCU - Central Dairy Cooperative Union

CEAPRED - Centre for Environmental & Agriculture Policy Research, Extension

and Development

CENTEV-UFV in Brazil – Technological Centre of Regional Development of Vicosa

CEO - Chief Executive Officer

CFUG -Community Forestry User Groups

CIDA - Canadian International Development Agency

CNI - Confederation of Nepalese Industries

CODEX - International Food Standards

COP - Cost of Production

CPG’s - Coffee Producers’ Groups

CSIDB - Cottage and Small Industrial Development Board

CSITC - Cottage and Small Industry Training Centre

CTEVT - Centre for Technical Education and Vocational Training


iii

CV - Curriculum Vitae

DADO - District Agriculture Development Office

DCCIs – District Cooperatives

DCPA - District Coffee Producers Association

DCSI - Department of Cottage and Small Industry, Government of Nepal

DDC - District Development Committee

DFID - Department for International Development (of British Gov.)

DFTQC - Department of Food Technology and Quality Control

DLS - Department of Livestock, Nepal

DOI - Department of Industry, Government of Nepal

E4N - Entrepreneurs for Nepal

EDP - Enterprise Development Program

EIG - Education for Income generation (USAID Program)

EU - European Union

FAO - Food and Agriculture Organization

FECOFUN - Federation of Community Forestry Users - Nepal

FGD - Focused Group Discussion

FDO - Forestry Development Office

FMC - Fund Management Committee

FNBK - Nepal Beekeepers and Cooperative

FNCCI - Federation of Nepal Chamber of Commerce and Industries

FNCSI - Federation of National Cottage and Small Industries

FNMEG - Federation of Nepalese Micro Enterprise Group

MORMIN - Ministry of Foreign Affairs (of Finland)

FORWARD - Forum for Rural Welfare and Agriculture Reform for Development

FWEAN - Federation of Women Entrepreneurs Association of Nepal

FY - Fiscal Year

GDP - Gross Domestic Product

GEM - Global Entrepreneurship Monitor

GIZ - German Technical Cooperation (former GTZ)

GoN - Government of Nepal

GTP - Growth and Transformation Plan

GTZ - German Technical Cooperation

HACCP - Monitoring Plan and Hazard Analysis Critical Control Point

HIMALI - High Mountain Agribusiness and Livelihood Improvement Project

HIMCOOP - Himalayan Tea Producers Cooperatives Limited

HIN - Heifer International—Nepal

HVAC - Heating, Ventilating, and Air Conditioning

HVAP - High Value Agriculture Project in Hill and Mountain Areas

IAA-IBP - Inculcator for Agribusiness & Agroforestry, Bogor, Indonesia

ICIMOD - International Centre for Integrated Mountain Development

ICT - Information and Communication Technology

IDA - International Development Association (of the World Bank)

IDE - International Development Enterprise

IEDI - Industrial Enterprise Development Institute

IFAD - International Fund for Agriculture Development

IFC - International Finance Corporation (of The World Bank group)

IIN - Incubator Initiative Nepal

ILO - International Labour Organization


iv

INCLUDE - The Inclusive Development of the Economy Programme (GIZ)

infoDev - Information for Development (of The World Bank Group)

INGO - International Nongovernment Organization

IOE - Institute of Engineering (of Tribhuvan University)

IP - Intellectual Property

IPO - Initial Public Offering

ISO – International Organization of Standardization

IT & BPO – Information Technology and Business Process Outsourcing

ITC - Indian Trade Centre

ITPF - Information Technology Professional Forum

JABAN -Jaributi Association of Nepal

KPAs - Key Performance Areas

KU - Kathmandu University

KUBIC - Kathmandu University Business Incubation Centre

KUSOM - Kathmandu University School of Management

LCEAN - Large Cardamom Entrepreneurs Association of Nepal

LH - Lotus Holdings

LI-BIRD - Local Initiatives for Biodiversity, Research and Development

LIFDC - Low Income Food Deficit Country

MAP - Medicinal and Aromatic Plant

MBA - Masters in Business Administration

MC - Marcy Croups

MCC - Morang Chamber of Commerce

ME - Micro-enterprise

MEDEP - Micro Enterprise Development Program

MFIs - Micro Finance Institutions

MMA - Morang Merchant Association

MOAD - Ministry of Agricultural Development

MoCS - Ministry of Commerce and Supplies

MOEST - Ministry of Environment, Science and Technology

MOF - Ministry of Finance

MOLD - Ministry of Local Development

MPCs - Meat and Poultry Companies

MPFS - Master Plan for Forest Sector

MSFP - Multi Stakeholder Forestry Program

NARC - National Agriculture Research Council

NARDF - National Agricultural Research and Development Fund

NAST - Nepal Academy of Science and Technology

NBA - Nepal Bankers Association

NBF - Nepal Business Forum

NBI - National Business Initiatives

NBIA - National Business Incubation Association

NBSM - Nepal Bureau of Standard and Metrology (GON, MOI)

NCC – Nepal Chamber of Commerce

NCPA - Nepal Coffee Producers Association ()

NDA - Nepal Diary Association

NDSP - National Development Strategy Paper

NEAT - Nepal Economic Agriculture and Trade (USAID Project)

NEF - Nepal Economic Forum


v

NEHHPA - Nepal Herbs and Herbal Products Association

NFOSTA - Nepal Food Scientists and Technologist’s Association

NgCCI - Nepaljung Chamber of Commerce and Industry

NGPTA - Nepal Ginger Producer and Traders Association

NIDC - Nepal Industrial Development Corporation

NIMBUS - NIMBUS Holding (Private Agriculture-based Industrial Holding)

NLBIC - Nepal Lotus Business Incubator Centre

NMPFA - Nepal Milk Producer Farmers Association

NNN - Nepal NTFP Network

NPC - National Planning Commission

NPEDC - National Productivity and Economic Development Centre

NRB - Nepal Rastra Bank (Central Bank of Nepal)

NRs./Rs. /NPR - Nepalese Rupees

NTCDB - National Tea and Coffee Development Board

NTCDB - Nepal Tea Coffee Development Board

NTFP - Nontimber Forest Products

NTIS - Nepal Trade Integration Strategy

NYBF - Nepal Youth Business Foundation

NYEF - Nepalese Young Entrepreneurs’ Forum

NYEF - Nepal Youth Entrepreneurs Forum

ODOP - One District One Product

OECD - Organisation for Economic Co-operation and Development

OVOP - One Village One Product (of AEC / FNCCI)

PA - Practical Action

PA Nepal - Practical Action Nepal (British NGO)

PAC – Practical Action Consulting

PAC Nepal - Practical Action Consulting Nepal (Consulting wing PA Nepal)

PACT - Project for Agriculture Commercialization and Trade

PAF - Poverty Alleviation Fund

PFA - Prevention Food Adulteration

PPP - Public-Private Partnership

PR - Public Relations

R&D - Research and Development

RECAST - Research Centre for Applied Science and Technology

RMFDC - Rural Micro Finance Development Corporation

ROI - Return on Investment

RTA - Regional Trade Agreement

SAARC - South Asian Association for Regional Cooperation

SABAL - Sustainable Agri. with Bazar for Advancing the Livelihoods

SAS-N - Society of Agriculture Scientists Nepal

SAWTEE - South Asia Watch on Trade, Economics & Environment

SDC - Swiss Development Corporation

SEAM-N - Strengthening of Environmental Administration and Management

at the Local Level in Nepal

SEZP - Special Economic Zone Project

SEZs - Special Economic Zones

SME - Small and Medium Enterprise

SMEDP - Small and Micro Enterprise Development Project

SMEs/MEs - Small and Medium Enterprises / Micro-enterprises


vi

SNV - Netherlands Development Organization

SP - Selling Price

SWOT - Strength, Weakness, Opportunity & Threat

TA - Technical Assistance

TBI - Technology Business Incubator

TBT - Technical Barriers for Trade

TEIs - Tartary Education Institutions

TOR - Terms of References

TOT - Trainings of Trainers

TPC - Trade Promotion Centre

TTO - Technology Transfer Office

TU - Tribhuvan University

UKAid - United Kingdom Aid (DFID)

UN - United Nations

UNCTAD - United Nations Conference on Trade and Development

UNDP - United Nations Development Programme

USAID - U. S. Agency for International Development

USD - U. S. Dollars

USF - Udhayami Seed Fund

VAT - Value Added Tax

VDC - Village Development Committee

VECDAN - Veterinary Chemist & Druggist Association of Nepal

VIOTH - Vaidya's Organization of Industries and Trading Houses

WB - World Bank

WF - World Fish

WEAN - Women Entrepreneurs Association of Nepal

WEAN Cooperatives - Women Entrepreneurs Association of Nepal Cooperatives

WI - Winrock International

WUPAP - Western Uplands Poverty Alleviation Project

WWF - World Wildlife Fund

YES - Young Entrepreneurs Summit

YSESEF - Youth and Small Enterprise Self-Employment Fund


vii

Table of Contents

1 Executive Summary .................................................................................................... 1

1.1 Objective .................................................................................................................. 1

1.2 Project Beneficiaries ................................................................................................ 1

1.3 Project Rationale ..................................................................................................... 1

1.4 Poverty in Nepal ...................................................................................................... 2

1.5 Feasibility Study Methodology ............................................................................... 3

1.6 Proposed Areas of Focus ........................................................................................ 4

1.7 Services of the AIC .................................................................................................. 7

1.8 Limits of the AIC ....................................................................................................... 9

1.9 Critical Success Factors .......................................................................................... 9

1.10 Implementation of the AIC .................................................................................. 10

1.11 The Role of infoDev ............................................................................................... 14

1.12 Impacts ................................................................................................................... 14

1.13 Budget Requirements ........................................................................................... 14

2 The Concept of Agribusiness Innovation Center—AIC .......................................... 16

2.1 Accelerating Agribusiness Development through Innovation ........................ 16

2.2 Agribusiness Innovation Centers.......................................................................... 16

3 The AIC Feasibility and Business Plan Process ........................................................ 19

3.1 The Process ............................................................................................................. 19

3.2 Agribusiness Stakeholders in Nepal ..................................................................... 23

3.3 Policy Support for Agribusiness Incubation in Nepal ........................................ 28

4 Focusing on Value Addition ..................................................................................... 30

4.1 Value Chains with Market Potential .................................................................... 30

4.1.1 Tea ................................................................................................................... 34

4.1.2 Coffee ............................................................................................................. 35

4.1.3 Honey .............................................................................................................. 35

4.1.4 Ginger ............................................................................................................. 36

4.1.5 Large Cardamom ......................................................................................... 37

4.1.6 Floriculture ...................................................................................................... 38

4.1.7 Potato ............................................................................................................. 38

4.1.8 Milk and Dairy ................................................................................................ 39

4.1.9 Meat ................................................................................................................ 40

4.1.10 Fish ................................................................................................................... 41

4.1.11 Nontimber Forest Products and Essential Oils ............................................ 42

4.2 Donor Value Chain Mapping .............................................................................. 44

4.3 The Focus of the AIC ............................................................................................. 49

5 Target Clients ............................................................................................................. 53

5.1 Nepalese Agribusiness Entrepreneurs Landscape ............................................ 53

5.2 Nepalese Agribusiness SMEs Needs .................................................................... 55

5.2.1 SME Barriers ..................................................................................................... 55

5.2.2 Gaps in Service Provision to SMEs ............................................................... 57

5.2.3 SME Needs ...................................................................................................... 58

5.3 Entrepreneur Pipelines—Feeder Channels and Complementary

Organizations .................................................................................................................. 59

5.4 The Market for Business Incubation ..................................................................... 62

5.4.1 Client Targets ................................................................................................. 64

6 Business Model .......................................................................................................... 67


viii

6.1 Selecting Clients .................................................................................................... 67

6.2 AIC Service Portfolio .............................................................................................. 68

6.2.1 Payment for Services ..................................................................................... 69

6.2.2 Market and Technical Knowledge ............................................................. 70

6.2.3 Advisory Services and Networking .............................................................. 70

6.2.4 Innovation Acceleration Platform ............................................................... 71

6.2.5 Access to Facilities and Locations: Hub and Satellites ............................ 71

6.2.6 Access to Finance ......................................................................................... 73

6.3 A Multistakeholder Networking Approach ........................................................ 74

7 Institutional and Governance Arrangements ......................................................... 78

7.1 Mission, Vision, and Strategic Objectives ........................................................... 78

7.2 Ownership, Governance, and Management ................................................... 80

7.2.1 Options ............................................................................................................ 81

7.2.2 Roles of Stakeholders .................................................................................... 85

7.2.3 Role of the AIC Board and Management ................................................. 91

7.3 Selecting the AIC Host Institution ......................................................................... 92

7.3.1 Expression of Interest ..................................................................................... 92

7.4 AIC Personnel ......................................................................................................... 93

8 Implementation Requirements ................................................................................ 97

8.1 Facility and Infrastructure Requirements ............................................................ 97

8.1.1 Access to Testing Facilities ........................................................................... 97

8.1.2 Access to Relevant Technology .................................................................. 97

8.1.3 Access to Packaging .................................................................................... 97

8.1.4 Pre-incubation ............................................................................................... 97

8.1.5 Location .......................................................................................................... 98

9 Financial Plan ............................................................................................................ 99

9.1 Budget ................................................................................................................... 100

9.2 Sustainability ......................................................................................................... 101

9.2.1 Royalty .......................................................................................................... 103

9.2.2 Equity ............................................................................................................. 104

9.2.3 Incubation Fee ............................................................................................. 104

9.2.4 Finance Brokerage ...................................................................................... 104

9.2.5 Other Revenue ............................................................................................ 104

9.3 Financing Plan ...................................................................................................... 105

10 Results and Impacts ................................................................................................ 106

10.1 Outcomes ............................................................................................................. 107

10.2 Social and Economic Impact ............................................................................ 108

10.3 Monitoring and Evaluation ................................................................................. 109

11 Conclusions ............................................................................................................. 110

12 Annexes ................................................................................................................... 111

Annex 1: Stakeholder Support ................................................................................. 111

Annex 2: Conclusions of InfoDev Global Good Practices Assessment on

Agribusiness Incubation ........................................................................................... 116

Annex 3: Nepalese Agribusiness Donor Mapping ............................................... 119

Annex 4: Nepalese Agri-based and Food Industry Information ......................... 120

Annex 5: Institutional Arrangement of Business Incubators in Nepal—Operating,

Closed, and Planned .................................................................................................. 126

Annex 6: Value Chain Maps .................................................................................... 127


ix

Tea Value Chain Map................................................................................ 127

Coffee Value Chain Map.......................................................................... 128

Honey Value Chain Map .......................................................................... 129

Ginger Value Chain Map .......................................................................... 130

Cardamom Value Chain Map ................................................................. 131

Potato Value Chain Map .......................................................................... 132

Milk and Diary Value Chain Map ............................................................. 133

Meat Value Chain Map ............................................................................ 134

Fish Value Chain Map ................................................................................ 135

NTFP and Essential Oil Value Chain Map ................................................ 136

Floriculture Value Chain Map ................................................................... 137

Annex 7: Phasing of Enterprise Support ................................................................. 138

Annex 8: AIC’s Prospective Clients ......................................................................... 140

Annex 9: Setting a Royalty Fee ............................................................................... 144

Annex 10: Job and Tax Impacts ................................................................................ 145

Annex 11: Profile of Key Partner Institutions .............................................................. 146

Annex 12: DFTQC Pilot Plant Renovation and Cost ................................................ 152

Annex 13: Preparedness to Pay for Services ............................................................ 153

Annex 14: Learning from Previous Business Incubation Efforts ............................... 155


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List of Figures

Figure 1: AIC Services ............................................................................................................ 17

Figure 2: Nepalese AIC Feasibility Assessment Process .................................................... 19

Figure 3: Composition of Stakeholders Consulted ............................................................ 20

Figure 4: Nepal AIC Feasibility Assessment and Business Planning Methodology ........ 22

Figure 5: Enabling the Development of Innovative Sustainable Agribusiness Sector in

Nepal ....................................................................................................................................... 50

Figure 6: Feeder Channels ................................................................................................... 60

Figure 7: Positioning Nepalese Agribusiness SMEs for Growth ......................................... 68

Figure 8: AIC Operation: Hub and Satellite ........................................................................ 72

Figure 9: AIC Organization Structure ................................................................................... 84

Figure 10: Budget Overview ............................................................................................... 101

Figure 11: Tea Value Chain ............................................................................................... 127

Figure 12: Coffee Value Chain .......................................................................................... 128

Figure 13: Honey Value Chain ........................................................................................... 129

Figure 14: Ginger Value Chain .......................................................................................... 130

Figure 15: Cardamom Value Chain .................................................................................. 131

Figure 16: Potato Value Chain ........................................................................................... 132

Figure 17: Milk and Diary Value Chain .............................................................................. 133

Figure 18: Meat Value Chain ............................................................................................. 134

Figure 19: Fish Value Chain ................................................................................................ 135

Figure 20: NTFP and Essential Oil Value Chain ................................................................. 136

Figure 21: Floriculture Value Chain.................................................................................... 137

Figure 22: Phasing of Support to be Provided to AIC Cilents ........................................ 138

List of Tables

Table 1: Benefit Potential of Value Chains ........................................................................... 3

Table 2: Key Value Chains with Potential for Enterprise Growth ....................................... 4

Table 3: Nepal AIC Service Offering ..................................................................................... 8

Table 4: Nepalese AIC Annual Expenses When Established ........................................... 12

Table 5: AIC Revenue Generation Scheme for the First Six Years of Implementation . 13

Table 6: Nepalese Agribusiness Stakeholder Mapping .................................................... 25

Table 7: Nepal Agribusiness Business Innovation / Incubation Ecosystem Gap Matrix26

Table 8: List of Priority Value Chain ..................................................................................... 33

Table 9: Number of Nepal dairies, size and processing capacity .................................. 39

Table 10: Net Meat Production ........................................................................................... 40

Table 11: Donor Mapping Based on Value Chains .......................................................... 44

Table 12: Licensed Food Industries in Nepal until FY 2012/2013 ...................................... 53

Table 13: Department of Industry Registered Agro-based Industries ............................. 54

Table 14: Feeder Channels .................................................................................................. 61

Table 15: Selected Agribusiness Projects under MOAD .................................................. 65

Table 16: Client Targets ......................................................................................................... 66


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Table 17: Nepal AIC Service Portfolio ................................................................................. 69

Table 18: Potential Collaborating Agencies, Projects and Programs ............................ 75

Table 19: Organizational Arrangement for Nepal AIC ..................................................... 81

Table 20: AIC Host Organization Options ........................................................................... 81

Table 21: Key Stakeholders and their Roles—Network for AIC ........................................ 89

Table 22: AIC Staffing Requirement (at full capacity) ..................................................... 95

Table 23: Budget Summary ................................................................................................ 101

Table 24: AIC Annual Expenses when Established .......................................................... 102

Table 25: AIC Revenue Generation for the First Six years of Implementation ............ 103

Table 26: Nepalese AIC Financing Required (over a four-year period) ...................... 105

Table 27: Aniticipated Impact from AIC .......................................................................... 107

Table 28: Stake Holders Consulted .................................................................................... 111

Table 29: Studied Agribusiness Incubators’ Quantifiable Outputs................................ 117

Table 30: Nepalese Donor Mapping ................................................................................ 119

Table 31: Categorized List of Licensed Food and Beverage Industries in Nepal until FY

2012/2013 .............................................................................................................................. 120

Table 32: Licensed by DFTQC Central Office .................................................................. 121

Table 33: Food Industries Registered at DFTQC, Kathmandu by Fiscal Year .............. 121

Table 34: Food Industries Licensed by DFTQC Biratnagar Regional Office (Eastern

Nepal) ................................................................................................................................... 122

Table 35: Food Industries Licensed by DFTQC Hetauda Regional Office (Central

Region of Nepal) ................................................................................................................. 123

Table 36: Licensed by DFTQC Bhairhawa Regional Office (Western Nepal) .............. 123

Table 37: Licensed by DFTQC Nepalganj Regional Office (Midwestern Region, Nepal)

................................................................................................................................................ 124

Table 38: Licensed by DFTQC Dhangadi Regional Office (Far Western Nepal) ........ 124

Table 39: Alcoholic Beverage Industry in Different Parts of Nepal (As of 2012/13) .... 124

Table 40: Agro-based Industries with more than NPR 30 Million Fixed Capital

Investment ............................................................................................................................ 125

Table 41: Nepalese AIC Target Clients Categorization .................................................. 140

Table 42: Deal Flow of AIC’s Enterprises ........................................................................... 141

Table 43: Combined Turnover of AIC’s Client Enterprises .............................................. 142

1

1 Executive Summary

1.1 Objective

This report examines the feasibility of an Agribusiness Innovation Center (AIC) in the

agro-processing sector in Nepal and proposes a sustainable business model.

The proposed AIC will foster and accelerate the growth of Nepal’s agro-processing

sector, thereby helping to commercialize agricultural production, increase

agricultural incomes, and reduce poverty. It builds upon infoDev’s earlier efforts to

develop and expand business incubation in Nepal. Lessons gathered are from

various agribusiness incubators (see the Global Good Practices Assessment on

Agribusiness Incubation1) and similar feasibility assessments carried out in Ethiopia,

Mozambique, Senegal, and Tanzania.

The AIC will contribute toward this objective by identifying innovative growth-

oriented entrepreneurs who are pursuing business opportunities based on post-

harvest value addition of agricultural commodities. It will provide these

entrepreneurs with a holistic service offering that accelerates their growth and

increases their sustainability. In the process of doing so, the AIC will engage all

stakeholders along the value chain, thus strengthening the innovation and

entrepreneurship ecosystem affecting the start-up and growth of innovative

agribusiness enterprises. Relatedly, the AIC will strive to have a demonstration or

catalytic effect, encouraging a new generation of entrepreneurs to enter, grow,

and advance the industry.

1.2 Project Beneficiaries

The AIC will have three groups of beneficiaries.

The direct beneficiaries include high growth potential agribusiness

entrepreneurs and small businesses.

The indirect beneficiaries are smallholder farmers that supply raw materials to

enterprises and tangential service providers, such as logistical support

providers and packaging services, who will benefit from the increased

demand for their services.

Associated beneficiaries include PACT and other agencies supporting the

commercialization of agriculture, whose clients involved in agro-processing

will receive additional support from the AIC.

1.3 Project Rationale

Subsistence agriculture with traditional farming practices predominates in Nepal,

resulting in widespread underemployment and poor use of resources. According to

1infoDev. 2011. Growing Food, Products, and Businesses: Apply Business Incubation to Agribusiness SMEs.

Washington, DC: World Bank. http://www.infodev.org/en/Publication.1139.html


2

the Nepal Economic Survey 2011/12, only 1,766,000 hectares out of a total of

2,641,000 hectares of arable land have been irrigated.

Agricultural production (typically without any processing), accounts for nearly 26

percent of total exports, mostly to India, although the majority of Nepalese farmers

are subsistence farmers, who do not export surplus production. Moreover, Nepal is a

mountainous country, in which there are numerous pockets of food-deficit areas,

because surpluses are more easily directed to India than to remote mountain

regions within Nepal, which have transport difficulties.

The major food crops grown in Nepal are paddy, wheat, maize, barley, millet, and

pulses. Sugarcane, potatoes, oil seeds, jute, tobacco, fruits, vegetables, honey, tea

coffee and cotton, mushroom, and floriculture are the main high value cash crops.

Animal products (including milk, meat, eggs, fish, and wool) are produced in the

country also.

Nepal expects growth in the agriculture sector. In the current fiscal year (2012/13),

paddy production is expected to increase by 2.3 percent and maize by 5.4 percent.

Similarly, the production of wheat, millet, barley, and buckwheat is expected to

increase by 5.9, 4.1, 14.9, and 13.3 percent, respectively. Despite significant livestock

numbers and an expected record rise in milk production of 4.6 percent to 1,623,000

MT,2 production does not meet the demand from local consumers.

1.4 Poverty in Nepal

Poverty poses a serious problem for Nepal. The Nepal Economic Survey (20011/12)

conducted by Ministry of Finance estimates that 25.2 percent of the population is still

living below the poverty line, defined as an average annual income of Rs. 19,261,

down from 41.76 percent in 1995/96. However, there are significant differences

between urban and rural areas. The urban population living below the poverty line

was 21.55 percent in FY 1995/96, which fell to 9.55 percent in FY 2003/04, but which

rose to 15.46 percent in FY 2009/10, according to the Nepal Living Standard Survey

(III).3

Poverty in rural areas has shown gradual improvement, even though it is still higher

than in urban areas. In FY 1995/96, the rural population living below the poverty line

was 43.27 percent, which fell to 34.62 percent in FY 2003/04 and 27.43 percent in FY

2009/10. According to the Nepal Life Standard Survey III (2011/12), the Gini Index,

which depicts income inequality, declined to 0.33 percent, meaning there has been

a decline in income inequality.

The Food and Agriculture Organization of the United Nations (FAO)4 lists Nepal as a

Low-Income Food-Deficit Country (LIFDC). The key contributing factors are poverty,

2 Government of Nepal. National Economic Survey-Nepal 2011/12. 3 Nepal Living Standard Survey-II, 2003/04. 4http://www.fao.org/countryprofiles/lifdc.asp


3

uncontrolled urbanization, and associated use of agricultural land in accessible

lowland areas for real estate development and shortages of manpower in the

uplands. Furthermore, climatic factors, poor agricultural facilities, poor agricultural

inputs, and malpractices, such as inappropriate cultivation patterns and pesticide

use, have contributed to declining agriculture productivity.

Agricultural development is the foundation for food security and sustainable

economic development in Nepal, because it is the major source of income and

employment for most Nepalese and because of the key role it plays in the

economy. As such, the government has made agricultural development a priority,

recognizing the importance of agricultural commercialization for economic

development.

1.5 Feasibility Study Methodology

Agribusiness incubation—defined as the provision of a holistic service offering to

growth-potential small and medium enterprises (SMEs)—can either focus on one or a

few subsectors or value chains, or on a broader model that assists any growth-

potential agribusiness enterprises. The choice of model depends in large part on the

local market conditions as assessed against the parameters outlined in the table

below.

Table 1: Benefit Potential of Value Chains

Indicator Specific Questions

Scalable Production Potential (with

comparative advantage)

Are there agricultural subsectors and value

chains with known comparative advantage

that offer sufficient production of adequate

quality within economic reach of processors,

and can this be increased (if required) to

facilitate beneficiation expansion?

Geographically Clustered Growth

Entrepreneur Capacity

Do growth entrepreneurs exist or can they be

developed or recruited to ensure the growth of

beneficiation activities within a suitable

geographic cluster? What do they need to

access and develop opportunities? Are there

gaps in these areas and can an AIC offer

solutions?

Access to Finance

Does suitable and accessible funding exist or

can it be facilitated, for development, research

and development (R&D), commercialization,

and expansion?

Clear, Ready Stakeholders (including

industry leverage)

Are there strong stakeholders that are, or can

be, active in supporting the value chain? Can

they positively affect the likelihood of

implementation?

Scalable, Accessible, and Viable

Markets

Can markets be identified that are scalable,

accessible, and viable now and in the future?


4

Infrastructure and Regulatory Constraints

Is there sufficient infrastructure available and

does the regulatory environment provide

incentives for entrepreneurs to take advantage

of the value addition opportunity?

A significant part of the feasibility assessment entailed analyzing the Nepalese

market against these parameters, building upon earlier incubator feasibility studies

for Nepal, using a methodology that involved a combination of desk research to

review literature on agribusiness in Nepal, consulting with stakeholders and

agribusiness entrepreneurs, and learning from infoDev’s initial work in agribusiness in

Sub-Saharan Africa. Individual meetings were held with 67 public and private

stakeholders and entrepreneurs. The inception workshop involved 25 people and

the stakeholder consultation workshop involved more than 70 people from multiple

organizations. The work was undertaken in the second half of 2012.

1.6 Proposed Areas of Focus

Table 2: Key Value Chains with Potential for Enterprise Growth

Coffee:

Despite high prices fetched by Nepali coffee in the international market, export volumes

have not increased significantly. As per the National Tea Coffee Development Board

(NTCDB), production of coffee in the fiscal year 2011/12 was 153 tons5, of which 279,762

kilograms were exported. In the same period, 31,326 kilograms were imported. The

government of Nepal is keen on developing a Nepali coffee brand in the country and

has approved the Nepali Coffee Logo (brand) and awarded rights to three traders that

meet the set standards. Fourteen coffee processors are the members of NTCDB-Nepal,

the apex body for the coffee sector. Development organizations working for promotion

and commercialization of coffee in Nepal are Project for Agriculture Commercialization

and Trade (PACT), International Development Enterprise (iDE), Winrock International (WI),

Education for Income Generation (EIG), Local Initiatives for Biodiversity, Research and

Development (Li-Bird), Agro Enterprise Centre (AEC), Agriculture Development Office

(ADO), U.S. Agency for International Development (USAID).

Fish:

From water surface area of 26,036 hectares, 26,941 tons of fish are produced per annum.

With huge unmet and growing domestic demand for fish and related products,

commercialization of this sector has potential for growth and for import substitution.

Although the exact number is not known, a large number of farmers are engaged in fish

production, particularly in the southern plains of the country and the subsector offers

potential for growth and improvement in rural livelihoods. The major organizations,

projects and donors working in the sector are PACT, EIG, Forum for Rural Welfare and

Agriculture Reform for Development (Forward), Centre for Environmental & Agriculture

Policy Research, Extension and Development (CEAPRED), Agriculture Nutrition Extension

Project (ANEP), iDE, ADO, USAID, and World Fish (WF).

Floriculture:

There is a growing demand for cut flowers in the country. By FY 2010/11, 86 flower

showrooms had been established in the country and more than 600 nurseries have been

established. About 635 firms and individuals are directly engaged in this subsector out of

5 “Ton” in this document refers to metric tons. Its abbreviation is “t.”


5

which only 467 are members6 with Floriculture Association of Nepal FAN. The sector

currently displays a growth rate of 10 to 15 percent annually.

Ginger:

Nepal is the fifth largest producer and the 15th largest exporter of ginger in the world,

producing 216,289 tons from 19,081 hectares. The market for ginger is expanding with

increasing use by ayurveda pharmaceutical industries in Nepal and India. More than 80

percent of the total production is exported to India, the only export destination of fresh

and dried ginger produced in Nepal. Initiatives such as the Ginger and Spice

Development Program have commenced, providing technical services to farmers

through Department of Agriculture with the government of Nepal emphasizing ginger as

a priority for commercialization. Forty-three entrepreneurs, including producers, exporters

and processors, were identified by the NEAT activity (USAID funded Project) in the mid-

western and eastern regions. The main projects, donors, and nongovernmental

organizations (NGOs) in this sector are Micro Enterprise Development Program (MEDEP),

Comercial Agriculture Development Project (CADP), PACT, German Technical

Cooperation (GiZ), NEAT, PA, EIG, Marcy Croups (MC), AEC, ADO, and USAID.

Honey:

Nepal has the potential to produce more than 10,000 tons of honey per year. However,

the total production of honey at present is estimated to be about 1,500 tons per year.

Nepali honey could benefit from international market demand, if appropriate measures

are taken and programs are available to strengthen the sector. One of the leading

honey companies calculates that if honey consumption increased by 0.1 kilogram per

capita then total demand for honey in the domestic market would be about 2,500 tons

per year. At present, there are eight major honey processing and exporting companies in

the country. Some of the key donor organizations/projects working in the honey value

chain are MEDEP, PACT, GiZ, International Centre for Integrated Mountain Development

(ICIMOD), AEC, ADO, USAID, and World Bank through various projects.

Large Cardamom:

Nepal is the world’s largest producer of large cardamom, with annual production

exceeding 5.2 thousand tons, which is expected to increase annually. Cardamom is

produced and processed by over 70,000 households in the East of Nepal. It ranks

consistently in the top 12 export commodities of the country and contributes on average

an annual $20 million7 to the national economy, including $12 million in export earnings.

During the study, four processing industries were identified. Projects and organizations

such as CADP, PACT, NEAT, ADO, Netherlands Development Organization (SNV), USAID,

and NTCDB are the major working entities in this subsector.

Meat:

With a total number of 9,991,520 sheep and goats reared in the country, Nepal produces

55,531tons of meat annually. There are 17 large meat processors in the country, who

produce a variety of meat products, including sausage, salami, chicken cuts, and

“momo.” Demand for meat has been increasing, as a result of the growth in population,

urbanization, growing income levels, and a desire to shift consumption to quality animal

products. A large number of projects and organizations are engaged in strengthening

the sector: PACT, High Mountain Agribusiness and Livelihood Improvement Project

(HIMALI), Western uplands Poverty Alleviation Project (WUPAP), Education for Income

Generation (EIG), Practical Action (PA), Forward, Li-Bird, AEC, ADO and Heifer

International-Nepal (HIN).

Milk and Dairy:

6FAN, March 2013 updated data. 7 All dollar amounts are U.S. dollars unless otherwise indicated.


6

Livestock is one of the essential activities for Nepali farmers, important for manure, milk,

meat, and religious purposes. The total milk production of the country is about 1.5 million

tons. The annual growth of internal consumption of milk is about 8 percent, but

production is increasing at only 3 percent. The major milk products of the country are milk

powder, buttermilk, curdled milk, cream, cheese, ghee, ice cream, and other sweet

products. The Nepal Dairy Association is the apex body for milk processors with 76

members. According to the study conducted by FAO, Nepal in 2010 reported the

following dairies: three large, six medium, 26 small, and 215 cottage-industry level. Some

of the major organization working in the milk and dairy subsector are MEDEP, PACT, GiZ,

Market Access for Smallholder Farmers (MASF), iDE, PA, Forward, AEC, Department of

Livestock, Nepal (DLS), USAID and Department for International Development (DFID).

NTFP and Essential Oils:

With its unique geography, Nepal is rich in biological resources and possesses a diverse

variety of nontimber forest products (NTFPs). About 2,171,522 kilograms of NTFP products

are collected, with revenues of more than $245,000. There are 108 processors in the NTFP

value chain range from small to large, but only 31 of them are under Nepal Herbs and

Herbal Products Association (NEHHPA). The small processors produce cosmetic products

and essential oils and supply them to the local market; whereas, the large producers

mainly export unprocessed commodities. Essential oil and related products and the most

important types of products processed, including dementholized oil, eucalyptus oil,

mentha arvensis oil, anthopogon oil, artemisia oil, juniper berry oil, spikenard oil, valerian

oil, wintergreen oil, Zanthoxylum oil, and massage oil. Other products include handmade

paper, morel, herbs, ayurveda herbal teas, organic teas, sorbet (juice) herbal drinks,

ayurveda cream, cosmetics, neem soaps, and mentha products. However, Nepal

exports about 90 percent of NTFPs in raw form, mostly to India where it is processed into

essential oils and used in manufacturing medicines and cosmetic products. Key

organizations working in the NTFP sector are MEDEP, PACT, HVAP, WUPAP, GiZ, EIG, iDE,

PA, ICIMOD, Forward, ANSAB, AEC, JABAN, Forestry Development Office (FDO),

Federation of Community Forestry Users - Nepal (FECOFUN), USAID, DFID and World

Wildlife Fund (WWF).

Potato:

The state of potato production in the country is 2,508,044 tons with a productivity of

13,735 kilograms per hectares. Potatoes are cultivated in all zones of the country.

Demand for potato is increasing in Nepal and Nepali potato seeds have a high demand

in Bangladesh and India, to where a limited amount is exported at the moment.

Although clear records on potato processors are not available, a total of 136 snack and

vegetable processing companies of different levels are registered in Department of Food

Technology and Quality Control (DFTQC), which may be processing potato related items.

The major projects and donors working in this subsector are CADP, PACT, MC, ADO, and

EU.

Tea:

Nepal produces 115,432 tons of green leaves of tea, including 3.2 million kilograms of

Orthodox Tea, of which15 percent is exported and of which 85 percent is sold in Kolkata.

World tea consumption is increasing, as is the market for organic, fair trade, and value

added products, such as specialty, blended, and flavored teas, for which the flavor and

aroma of Nepalese tea is an advantage. The Himalayan Tea Producers Cooperative

Limited (HIMCOOP) has 19 processing factories and major donor projects. Programs

working in this sector are CADP, PACT, NEAT, ADO, SNV, GiZ, USAID, and NTCDB.


7

The analysis discovered the following:

a. No one value chain represents a sufficient quantity of growth-oriented

entrepreneurs to warrant a focused incubation model. Therefore, a broader

model that works across subsectors and value chains is proposed.

b. While the market opportunities outlined in Figure 2 are promising, even these

value chains face significant challenges, which many donors and Nepalese

government agencies have recognized and are now working to overcome

value chain bottlenecks. The timing for the AIC is thus opportune to

complement this work by addressing the business-level impediments faced by

agro-processors.

c. The analysis identified some interesting cross-cutting market opportunities in

the areas of branding, certification and compliance, packaging, recycling,

dryer innovation, traceability, and logistics. Therefore, the AIC should

encourage and enable the start-up and growth of innovative enterprises in

these areas.

d. The AIC will target existing agro-processing enterprises to accelerate and

realize their growth potential, while leaving room for some start-up support.

This is being done because of the challenging operating environment and

the desire to achieve results quickly.

e. Across the dominant value chains of Nepal, the resonating challenge

experienced by most existing entrepreneurs is the development of domestic,

regional, and international markets. Food processing entrepreneurs struggle

to understand the opportunities in both domestic and international markets,

distribution options, the industry standards associated with each target

demographic, and the logistical constraints, all of which the AIC needs to

address.

1.7 Services of the AIC

Traditionally support to entrepreneurs in Nepal has been characterized by support

for micro-enterprise development and training, with almost no tangible support for

growing firms past the micro stage. Things are changing with agribusiness

commercialization services, through such programs as the matching grant program

from PACT and similar CADP and CAA programs. Nonetheless, a gap still exists,

encapsulated with three quotes from infoDev’s earlier stakeholder consultations:

“Lack of mentorship…everyone craves advice and mentoring and no

one gets it.”

“Business helping business in a dynamic environment is what is needed.”

“Too much training about business from people who have never done business.”


8

Without exception, agribusiness entrepreneurs and participants in focus groups were

enthusiastic about the need for business incubation. Most agribusiness entrepreneurs

need help with marketing, accessing new markets, networking, branding, and

compliance, along with finance. They commonly stress the need for a dynamic

environment that engenders trust, courage, fairness, and motivation, without

bureaucratic hassles.

The needs of entrepreneurs, along with value chain analysis, underpin the AIC

service offering as outlined in the table below:

Table 3: Nepal AIC Service Offering

As illustrated in the table, the AIC will provide entrepreneurs with a comprehensive

service offering that will facilitate access to markets, advice, finance, and facilities.

The AIC will add value to the PACT service offering by providing tailor-made services

addressing the needs of Nepalese agribusiness SMEs, furthering the matching grants

offered by PACT, and as a service that will continue beyond PACT, based on

revenues from the companies assisted.

The services revolve around the following:

Agribusiness market development

o Market access and information

o Branding and labeling

o Certification and compliance (nutritional analysis plus)

o High-value niche markets

Technology

o Suitable technology for post harvesting and processing

o Product design and testing

o Packaging technology

Finance

o Assessing readiness

o Seed capital / matching grants

o Finance for growth

Technical Knowledge

•Market Research and Intellegence

•Business Training

•Technical Training

•Industry Seminars

Advisary Services Networking

•Advisory and Coaching

•Mentors

•Value Chain Partner Facilitation

•Networking Events

Innovation Acceleration

Platform

•Competitions

•Ideation and Prototyping Events

•Acceleration Events

•Collobaration Platforms

Access to Facilities

•Compliance & Certification

•Early Processiong Space

•Working Space / Hot Desking

•Product Showcasing

Access to Finance

•Investment Facilitation

•Linking to Matching Grants

•Connecting to Risk Capital Funds

•Brokerage for Growth Funding


9

Management support

o Infrastructure—office space, product showcasing, and early processing

o Human resources management

o Accounting, legal, compliance, and networking

The AIC will provide support to incubatees in partnership with relevant stakeholders,

avoiding duplication by complementing and levering their services and addressing

service level gaps. It will focus its support services toward expanding domestic and

international market opportunities for companies operating in value chains with

potential. It will emphasize supporting the activities of PACT and its clients (the

primary sponsor of the AIC). The AIC will work with similar organizations and their

clients, such as the CAA, the AEC, donor programs, and micro-enterprise

development providers.

1.8 Limits of the AIC

Awareness and preincuabtion services (involving workshops and advice to

prospective AIC clients prior to the rigorous selection process) will largely be at no or

only minimal cost. Once clients are selected, they will pay for the business support,

which will be tailored to their unique needs on a case-by-case basis, by way of

success sharing arrangements, whereby they pay for the support out of increased

sales, increased business value and investment in the business, and payment for use

of office and other infrastructure services.

The AIC will not directly meet these barriers to the growth of agribusiness enterprises:

the development of the primary agriculture sector, a system of supply chain

facilities, storage facilities, transport logistics, and a reliable energy supply.

The AIC will seek to overcome these particular challenges by working with allied

organizations, such as Federation of Nepal Chamber of Commerce and Industries

(FNCCI), Federation of National Cottage and Small Industries (FNCSI), AEC and

government agencies. In addition, partnerships will be developed with the many

donor programs that are focused on value-chain development, thereby leveraging

their work.

1.9 Critical Success Factors

As revealed in Growing Food, Products and Businesses8, there are a number of

critical success factors for an intervention of this kind: 1) helping clients manage risk;

2) understanding the details of the value chain; 3) maintaining a broader goal of

demonstrating innovative business propositions so as to stimulate broader sector

take-up; 4) adapting the focus and business model of the incubator; 5) proactively

identifying and promoting higher value market opportunities; and 6) designing and

8 Global assessment carried out by infoDev to understand the impact and lessons from agribusiness

incubators and innovation centers available at: http://www.infodev.org/en/Article.800.html.


10

operating the business incubator in line with good practice, including ensuring a

strong selection process that identifies and cultivates innovative, growth-oriented

entrepreneurs, and developing strong partnerships with the public and private

sector.

The AIC needs the following to fulfill these success factors: 1) staff with extensive

experience in the agribusiness sector and in particular in market development, 2) a

strong capital structure, and 3) a governance framework that allows the

management to operate the AIC in a businesslike manner.

1.10 Implementation of the AIC

Institutional Framework

infoDev with its knowledge and lessons from similar initiatives elsewhere will provide

guidance to local implementers. The AIC is intended to be an autonomous self-

sustaining entity, which will be locally owned and operated as a business in a new

nonprofit-sharing structure, under private sector leadership and with public sector

sponsorship from PACT and the Ministry of Agricultural Development (MoAD). The

tailor-made agribusiness service offering requires a key stakeholder partnership

(Public Private Partnership [PPP]) with additional mechanisms to involve stakeholders

as advisors and service providers. Key government partners include the MOAD

(PACT), Ministry of Industry (MOI; DCSI), NARC, and DFTQC, in addition to

agribusiness entrepreneurs and private sector organizations. PACT, supported by

infoDev, will lead the process to select an implementing institution or consortium and

asssit with operational funding and funding for technical assistance. The

implementation agency will then need to manage the AIC so it becomes an

autonomous and independent self-sustaining organization.

Location

The AIC will operate nationally, with a hub in Kathmandu, the largest urban center

and market in Nepal, and satellites, levering partners’ facilities and services, in

Nepalgunj in the West, a regional center for NFTP industries, and Birattnagar in the

east, a hub for horticulture. From these sites, outreach services will be provided to

support entrepreneurs in their own locations, as well as supporting entrepreneurs

who locate in the AIC facilities, or drop in to make use of the services.

The AIC hub in Kathmandu must be based in an area that is conducive for business,

close to regulators of food products, and with proximity to agribusiness

entrepreneurs, business mentors, and knowledge centers (R&D). The AIC satellite

center locations need proximity to a critical mass of agribusiness entrepreneurs,

access to logistics, and access to procurement of raw materials, processing, and

packaging infrastructure. The AIC will commence with the hub in Kathmandu


11

followed by satellites in the east at Biratnagar and in the west at Nepalgunj in Year 2,

after the hub has is established.


12

Business Model

The AIC aims for financial self-sufficiency with a number of payment options

addressing the needs of agribusinesses at different stages of development. The AIC

revenue model includes success sharing, finance facilitation, and fees from services.

The success sharing model will align incentives of management with clients, by way

of payment arrangements, whereby entrepreneurs only pay if they either increase

their sales or the company value, or by securing external finance, with AIC

assistance. Options include a 5 to 7 percent royalty on an increase in gross sales for

three to four years or AIC equity in the client company ranging from 5 to 7 percent

and success fees for helping secure finance.

Success sharing will only suit some companies. Others will prefer to pay service fees

for their incubation or training. The AIC will have offices and other facilities such as

meeting rooms, hot desks, office facilities, and a processing facility within its network

for use by clients, for which rent and user pay charges will be levied.

Expectations of Sustainability

The model seeks to achieve 100 percent financial sustainability within four years.

After the initial ramp up period, costs are in the order of $970,000 per annum, in the

following categories:

Table 4: Nepalese AIC Annual Expenses When Established

Expenses

Personnel—Administrative 152,600

Client Services 399,000

Overheads 116,900

Building Services 161,640

Provision for Doubtful Debt 97,593

Depreciation 46,427

Total Expenses 974,160

The cost recovery model is justified by the capacity and willingness of the target

enterprises to pay to the AIC for services.

The agribusiness entrepreneur focus group discussions found that some prefer to pay

at full cost and others preferred payment by way of either a small percentage of

equity, or with a royalty levied on the increase in their sales for a period. The

consultative workshop outcomes showed preference for payment in terms of a

share of revenues and consultation fees.

This implies the AIC should offer options. Businesses at different stages will have

various capacity and potential. For instance, an existing business may find it very

complicated to give up equity, but may be prepared to pay for services at full cost

at the time, or enter into a royalty agreement. A newer business may be in a position

to give up some equity, but may not have the funds to pay for support.


13

Noting further refinement of the flexible model, the revenue projected for the first six

years, excluding grants, is summarized in the table below.

Table 5: AIC Revenue Generation Scheme for the First Six Years of Implementation

Year Yr1 Yr2 Yr3 Yr4 Yr5 Yr6

Income

Rent 5,375 10,750 16,125 16,125 16,125 16,125

Incubation Fee 62,497 124,994 187,491 187,491 187,491 187,491

Royalty 187,212 456,273 749,966 749,966 749,966 749,966

Finance Brokerage 22,350 22,350 22,350 22,350 22,350 22,350

Total Income 277,435 614,367 975,932 975,932 975,932 975,932

With four main revenue options, the model has flexibility, for review and adaptation

as the AIC is implemented. Despite positive responses in the agribusiness

entrepreneur survey, payment for services is not the norm in Nepal and paradigms

need to change. Benefits may need to be demonstrated with carefully selected

clients in the first year to show the advantages.

Selecting Clients

The AIC will particularly emphasize networking, engaging, and working

collaboratively with PACT, CAA, chambers of commerce, private stakeholders’

associations and private business development service providers in order to not only

identify, but also select and support AIC client enterprises. A detailed selection

process will need to be prepared in order to select the enterprises. A number of

points are pertinent:

1. Enterprises will need to have a growth focus.

2. Entrepreneurs will need to demonstrate strong entrepreneurial traits, including

leadership and innovation.

3. Enterprises will have a track record indicating success and will demonstrate

competitive advantages in some ways.

4. The market potential of enterprises will need to be positive to allow for growth

activities.

5. The enterprise will not need external financing and be fundable.

Selection will follow a process of application, assessment, review, and capacity

building. Finally, a selection panel will assess the merits of each enterprise. This panel

will include representation from a financial institution, for which Business Oxygen9 is

recommended, as well as a professional with sufficient market knowledge in the

specific product market to assess the market potential of the product.

9A $14 million SME venture fund, Business Oxygen, has just been launched with the support of the IFC

and the World Bank, in partnership with a local private bank, the Bank of Kathmandu, and Beed

Management of Nepal.


14

Successful enterprises will be required to formally and legally commit to the

conditions of service, including payment regimes and conditions.

The initial focus of the selection will be on existing firms to help them grow, although

not to the exclusion of new businesses, which will become a more important target

in future years. New businesses will piggyback on the experience of pre-incubation

programs to develop competitive and viable business propositions. This approach

will enable the AIC to more quickly create a set of “demonstration clients” to show

the tangible benefits to other future clients and that payment for services is

worthwhile for the entrepreneur.

1.11 The Role of infoDev

At the planning and implementation stage, infoDev views its role as providing the

technical guidance to plan, resource, and operate the AIC successfully. InfoDev will

draw on its decade-long experience in setting up business incubators and

innovation centers, its agribusiness incubation training program, and its international

network of innovation and entrepreneurship professionals across 107 countries. With

a strong commitment to building local institutional capacity, infoDev will harness its

experience to guide the board and the AIC manager through important milestones,

such as developing a governance framework, client selection processes, service

design and execution, marketing, and monitoring and evaluation. In order to ensure

sustainability and adequate local capacity, infoDev typically remains engaged for a

three to five-year period, gradually scaling down its support as the capacity of the

local team and partners increases.

1.12 Impacts

Once the AIC is up and running, it is projected that 10 new agribusinesses will be

supported per annum with a total of 30 clients under incubation at any one time

once the AIC is fully established. With 100 clients over a 10-year period, 50

graduates, and with 30 percent revenue growth per annum, preliminary modeling

indicates that over a 10-year period the AIC will create 3,024 direct jobs and 8,649

indirect jobs in 100 companies with an increased turnover of more than $27 million

and payment of $2 million in taxes

Smallholder farmers produce most of Nepal’s primary production. The initiative is

expected to significantly affect the incomes of small-holder farmers, the suppliers to

agribusinesses (in terms of reliability), steady prices, and increased sales. Young

people comprise the bulk of Nepal’s new entrepreneurs and the AIC will directly

benefit those involved in agro-processing.

1.13 Budget Requirements

The AIC is designed to become 100 percent financially sustainable after four years

defined as covering the ongoing operating expenses of the AIC, including

depreciation, through earned revenues. A flexible revenue model is proposed in


15

which sustainability may be enhanced once various revenue options are tested. An

initial investment of $4 million will be needed as start-up capital in order to achieve

this objective.

The financing required to initiate the AIC will be provided for the first four years, with

income generated during this period being banked. The front-loading of the

external investment allows the management to focus on the development of the

AIC. It also allows the model to be changed, if it becomes clear after two years that

the income generation targets are not likely to be met, or that one revenue option is

preferred to another, or a flexible combination is required. This approach allows

changes to be made before the AIC has to generate income in later years.

The income generating component for the initiative is a mix of royalty fees on

turnover, equity, pay-as-you-go fees (incubation fee) and finance brokerage fees.

This accommodates a mixed portfolio of clients at varying stages of development.


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2 The Concept of Agribusiness Innovation Center—AIC

2.1 Accelerating Agribusiness Development through Innovation

According to the World Bank, “the potential of agricultural growth to reduce

poverty is four times greater than the potential of growth from other sectors.” The

2008 World Development Report outlined how investments in agribusiness produce

significant multiplier effects through their forward and backward linkages,

generating demand for agricultural products and associated inputs and services

and creating on and off-farm employment. Interventions that can unleash this

potential can have a tremendous impact on poverty.

Many developing countries have not turned their vast comparative advantage in

agriculture into a competitive advantage in value-added processed products. They

have subsequently lost out on income generation and job creation opportunities

that this value addition opportunity offers. Tanzania, for example, exports raw

cashew nuts and imports processed cashew nuts. Senegal’s retailers stock only a

handful of locally manufactured food products—preferring imported products,

despite Senegal’s extensive horticulture industry and rich culinary traditions.

Reaching such development goals as job creation and inclusive growth in

agriculture will require a greater focus on supporting growth-oriented entrepreneurs

engaged in downstream business activities (such as processing) to develop

competitive enterprises to link effectively into productive value chains.

InfoDev seeks to advance new approaches to accelerating the growth of

innovative, technology-enabled agro-processing enterprises, while creating

powerful demonstration cases that illustrate how engagement of farmer

associations, industry, financiers, and government in creating innovation and

market-driven shared value can catalyze the green growth of an inclusive and job

creating, competitive agro-processing sector.

2.2 2.2 Agribusiness Innovation Centers

InfoDev is piloting the concept of an AIC as a mechanism to increase the

competitiveness and growth of pioneering innovative growth-oriented small or

medium agro-processing enterprises that have the potential to become an industry

leaders. These SMEs would translate product, process and business model innovation

into improved products and larger market share in existing markets or entry into new

markets and development of new products for existing or new markets.

The AICs are unique from the perspective of their target clientele, their business

model, and the holistic service offering. Although the AICS are tailored to the

specific needs and characteristics of the target market, they generally provide the

following services:


17

Figure 1: AIC Services

Over the past decade, infoDev has accumulated a range of lessons about enabling

the start-up and growth of high growth potential enterprises in developing countries.

Its recent global assessment: Growing Food, Products and Businesses,10 revealed a

number of critical success factors for an intervention similar to an AIC (the

conclusions of the global study are available online):

Help clients manage risk: Agribusiness is inherently risky, because of its reliance

on farming (which is susceptible to such environmental risks as flood, drought,

and pests) and perishable products. Critical to the success of an AIC is to help

agro-processors manage these risks

above and beyond the business

challenges that any enterprise faces

in any industry.

Understand the characteristics of the

value chain: The agribusiness value

chain can be long with critical

dependencies between each

element in the chain. The AIC must

understand the state and dynamics

of the value chain to assist the agro-

processing enterprise in being

successful. The World Bank has found

in its review of agribusiness

investments that a strong focus on a

few crosscutting issues, locations, or

10

The global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and

innovation center is available at http://www.infodev.org/en/Article.800.html.

Agribusiness entrepreneur networks,

competitions and fairs

Financial management skills and access to appropriate financing products

Technology information, training and technology access

Business center, mentoring and coaching

and assistance with navigating regulatory requirements, standards and compliance

Market information, marketing skills and market linkages backwards and forwards in the value chain

Agribusiness

Innovation Centers

Market Linkages

Finance

Technology

Business Services

Networks

Results from Agribusiness

Incubation

Fundación Chile:

Initial investment: $50 million

Entrepreneurs’ sales: $425 million

IAA-IPB, Indonesia:

Initial investment: $300,000

Entrepreneurs’ sales: $8 million


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value chains with an established comparative advantage and strong market

prospects provides an opportunity to “pilot difficult reforms, demonstrate

success, and learn from those efforts in scaling up the program.” infoDev has,

therefore, sought to pro-actively identify a few initial focus areas for each

AIC.

Proactively identify and promote higher value market opportunities: The

agribusiness sector is complex and plagued by information asymmetries that

often prevent enterprises from recognizing high-value business opportunities.

An important role of the AIC is to help the enterprise gain access to relevant

market information.

Maintain a broader goal of demonstrating innovative business propositions:

The desired catalytic effect of an intervention of an AIC does not necessarily

happen without a deliberate, tangible effort. Specific programs must be

designed for this purpose.

Design and operate business incubation in line with good practice.

Business incubation good practices include the following, regardless of sector:

o Ensuring a strong selection process that identifies and cultivates

innovative, growth-oriented entrepreneurs.

o Developing strong partnerships with the public and private sector.

o Locating the AIC in a geographic location that is attractive to the target

clientele. The World Bank’s review of agribusiness investments collaborates

this lesson: “Locations with revealed competitive advantage and proven

investor demand should be preferred over attempts to initiate new

industries in new areas.”

o Ensuring that the AIC manager and service provider have entrepreneurial,

and preferably industry, knowledge and that these staff members have

incentives that align with the desired outcomes and impacts of the AIC.

o Obtaining a strong capital structure.

o Putting in place a governance framework that allows the management to

operate the AIC in a businesslike manner.

o Continuously adapting the focus and business model of the incubator in

line with evolving market conditions.

infoDev has sought to address each of these factors in the design of the AICs.


19

3 The AIC Feasibility and Business Plan Process

3.1 The Process

The feasibility study for establishing an AIC in Nepal builds on earlier studies,

recommendations, and observations made through infoDev’s activities in Nepal

since mid of 2010. These included a study and report for Enabling the Growth of

Innovative SMEs in Nepal through Business Incubation (2011); a series of capacity

building activities, and an observation tour. Observations on previous incubation

attempts in Nepal are provided in Annex 14. The AIC feasibility assessment was

conducted in close collaboration with PACT to foster a strong commitment to lasting

impact, sustainability, and local ownership. The work was undertaken in the last six

months of 2012 and early 2013.

The earlier infoDev study, Enabling the Growth of Innovative SMEs in Nepal through

Business Incubation (2011), which focused primarily on information and

communication technology (ICT) but also agribusiness and NTFP in the eastern and

western parts of Nepal, served as the starting point for this study. However, the

learning involved and incorporated in the current study, reaches back to 2001, as

shown in the diagram below, drawing upon earlier lessons, entrepreneur surveys,

studies, and capacity building efforts, conducted by infoDev and other local

stakeholders.

Figure 2: Nepalese AIC Feasibility Assessment Process

The key activities for the AIC Study involved are the following:

Inception Workshop

The inception workshop was organized with the key stakeholders to brief them on

business incubation, infoDev, earlier work in Nepal, and the scope of work. It was

also done for initial feedback.

The feedback from the workshop informed detailed work developing the business

model and institutional arrangements for the AIC and helped frame the wider

stakeholder consultation workshop.


20

Meetings with Stakeholders and Understanding Local Situation

One-to-one meetings were held with 67 public and private stakeholders, including

government representatives, business member organizations, leading agribusiness

entrepreneurs, leading super market operators, and emerging food processors.

Figure 3: Composition of Stakeholders Consulted

See Annex 9 for the detailed list.

The meeting gathered important information regarding:

Agribusiness challenges

Opportunities for agribusiness

Gaps in services to agribusiness entrepreneurs

Entrepreneur needs and potential services portfolio

Foci of the AIC and services needed to address entrepreneur needs

The AIC business model

Networks and the role of the AIC

Institutional arrangements and governance

Stakeholder Consultation Workshop

A multistakeholder workshop attended by more than 70 entrepreneurs, government

officials and other key stakeholders discussed the preliminary findings. Following

group work, the workshop provided important feedback and endorsement

regarding the AIC and included questions for discussion.

The following are questions regarding the involvement of the network of

stakeholders:

Which organizations need to be involved?

What role should they play?


21

How do entrepreneurs overcome barriers in the business environment?

The following are questions regarding institutional arrangements:

How should the AIC be structured to ensure that it operates as an

entrepreneurial business?

How will it reach self-sustainability with revenues from clients?

What can and cannot work in Nepal?

Business model:

What are the revenue options to underpin sustainability?

How will entrepreneurs prefer to pay for the support?

o Large enterprises

o SME enterprises

What works or does not work in Nepal?

The following are questions regarding services and service providers:

What services do growth oriented agribusinesses need?

Who in the network is best suited to provide them?

What are the main service gaps where the AIC should focus?

22

The feasibility assessment and business planning methodology is outlined in the diagram below.

Figure 4: Nepal AIC Feasibility Assessment and Business Planning Methodology

•Review of the agriculture & agribusiness sectors and value chains that offer opportunities for growth enterprises.

Value Chain Analysis

•Identification of stakeholders affecting the success of agribusiness entrepreneurs

Stakeholder Identification

• Workshops and interviews -to validate selection of value chains and identify barriers to SME start-up and growth

Stakeholder Consultation

•Interviews to map existing service offerings and planned initiatives

Gap Analysis •Data gathering to create business model, evaluate locations, principal partners/hosts, etc

Business Modeling

•Feedback from local stakeholders

• Review and inputs from international expert group

Stakeholder Consultation

Partner

Identification


23

The main government agencies

most relevant to the AIC include

the following:

Ministry of Agricultural

Development and PACT

Nepal Agriculture Research

Council

Ministry of Industry, DCSI / BIP

DFTQC

PACT is a key government of Nepal

initiative established with the

assistance of the World Bank to

foster commercialization of

agriculture.

DFTQC is the lead government

agency for licensing of food

processing industries.

MOI / DCSI / BIP is the lead

government agency for promoting

business incubation in Nepal.

The process of the AIC feasibility assessment started with a literature review to identify

agricultural subsectors and value chains for which Nepal has a comparative

advantage. The team examined the market opportunities associated with these

products and the quality of the products to narrow down the selection of the subsector

and value chains of focus. Stakeholders agreed that the AIC in Nepal should focus on a

range of agricultural and NTFP value chains, rather than just one or two.

The needs of agribusiness entrepreneurs and the service offering available to them

were examined to understand the gaps in the market, derive a potential service

offering, and map potential partners. Upon deriving a draft service offering, a business

model was developed and verified.

The output of this process is a well-motivated business model for the AIC and the

identification of a range of offerings that are tailored to the needs and market

opportunities of growth-oriented agribusiness entrepreneurs in Nepal.

3.2 Agribusiness Stakeholders in Nepal

A diverse set of stakeholders is involved in

agribusiness in Nepal, both from the public and

private sectors. Their interventions target different

sectors, value chains, and value chain segments.

The AIC’s implementation approach will be to

engage all actors, affecting the ability of its target

clients to succeed and to partner with

organizations that have key competencies

required to serve these clients effectively. The AIC

will seek to complement existing initiatives and

strengthen the innovation and entrepreneurship

ecosystem required for innovative, growth-

oriented enterprises to thrive.


24

PACT is a key gover -

nment initiative estab

-lished with the assista-

nce of the World Bank

to foster commercial-

ization of agriculture.

The objective of PACT

is to improve the

competitiveness of

smallholder farmers

and the agribusiness

sector in selected

commodity value

chains, mainly vege-

tables, fish, ginger,

coffee, floriculture,

and horticulture in 25

districts supported by

the project.

PACT plans to

achieve the objective

by (i) helping farmer

groups and

cooperatives engage

in profitable market-oriented production and improved access to markets through the

provision of technology and information services and critical public infrastructure and

linkages to agribusiness, ii) creating and strengthening industry-wide partnerships along

the value chain, thus forging linkages among producers, traders, processors, and other

stakeholders, and (iii) reducing existing obstacles to agriculture and food trade thereby

increasing the ability of farmers and agribusiness to respond to sanitary and

phytosanitory (SPS) measures and food-quality standards to meet domestic and

international market requirements.

The main components of PACT are Component 1: Agriculture and Rural Business

Development and Component 2: Support for Sanitary and Phytosanitary Facilities and

Food Quality Management.

The Commercial Agriculture Development Project (CADP) is an Asian Development

Bank (ADB) project with relevance to agribusiness incubation. In September 2006, CADP

created the Commercial Agriculture Alliance (CAA) as a permanent institution, a not-

for-profit-sharing company, with its head office in Biratnagar, in the Morang district of

PACT—Key Components

Component 1: Agriculture and Rural Business Development

This component helps agro-enterprises, commodity associations,

cooperatives, registered farmer groups and organizations, and

technology and service providers to engage actively in the

development of commodity value chains by partially financing

demand-driven investment proposals through competitive matching

grants. The component also supports investments aimed at creating

viable enterprise-based farmer institutions that are linked to other value

chain participants and are actively engaged with the markets. The

specific activities under this component are the following:

Preinvestment and advisory support

Direct financing of approved subproject proposals in technology,

information, and market infrastructure support

Agribusiness development through partial financing of demand-

driven investment proposals

Component 2: Support for Sanitary and Phytosanitary Facilities and Food

Quality Management.

This component aims to strengthen the efficiency and effectiveness of

sanitary and phytosanitory services in order to reduce existing obstacles

to agricultural and food trade. It also aims to support the private sector’s

efforts to gain market advantage through improved food quality

management.


25

eastern Nepal. CAA is responsible for implementation of “Commercial Agriculture

Investment and Management," which is one of five outputs of CADP. CAA manages

the Commercial Agriculture Fund (CAF), which is a cost-sharing grant facility of CADP.

The total budget for CAA is $15 million, including $8 million for CAF (2007–2013). The CAF

facility is available to CAA general members and the DDCs to strengthen market-chain

activities and develop linkages within the market chain. CAA is interested in partnering

with the AIC for the proposed Biratnagar satellite center.

The AIC aims to complement and build upon PACT activities and reinforce CAA

activities, as the CADP will be phased out by the end of FY 2013.

A quick overview of the key agribusiness stakeholders in Nepal is provided in the table

below. Further details on the existing agribusiness support initiatives in the country are

provided in Annex 3 as donor mapping.

Table 6: Nepalese Agribusiness Stakeholder Mapping

Agribusiness Entrepreneurship—Stakeholders and Ecosystem in Nepal

Government of

Nepal / Policy

Ministry of Agriculture Development (MOAD), Ministry of Industries (MoI), Ministry of

Commerce and Supplies (MoCS), Ministry of Science and Technology (MoST),

Department of Food Technology and Quality Control (DFTQC), Department of

Cottage and Small Industries (DCSI), Industrial Enterprise Development Institute

(IEDI), Industry Policy 2010, NTIS 2010, Industrial Enterprise Act (draft), Business

Incubation Program – DCSI, Agriculture Perspective Plan 1995, Agriculture

Development Strategy (ADS), Master Plan for Forest Sector (MPFS), Forest Act 1993,

Forest Rules 1995, National Conservation Strategy (1983), Annual Budgets

Donors /

Bilateral /

Multilateral

World Bank, Asian Development Bank, UNDP, FAO, International Fund for

Agriculture Development (IFAD), Finland, DFID, SDC, USAID

R & D Institutes

Nepal Agricultural Research Center (NARC), Nepal Agriculture Research Fund

(NARF)

International Center for Integrated Mountain Development (ICIMOD)

Business and

Professional

Communities

Federation of Nepalese Chamber of Commerce and Industries (FNCCI),

Federation of Nepalese Cottage and Small Industries (FNCSI), Confederation of

Nepalese Industries (CNI), Agriculture Enterprise Center (AEC-FNCCI), Nepal

Chamber of Commerce (NCC), Nepal Youth Entrepreneurs Forum (NYEF), Nepal

Bankers Association (NBA) , Nepal Business Initiatives, Nepal Economic Forum – NEF

Nepal Food Scientists and Technologists Association (NEFOSTA), Society of

Agricultural Scientists Nepal (SAS-N), Nepal Veterinary Association, Nepal Herbs

and Herbal Products Association, Jadibuti Entrepreneurs Association, Nepal

Foresters’ Association (NFA), Nepal NTFP Network (NNN)

University /

Academia

Agriculture and Forestry University, Kathmandu University, Tribhuvan University,

Pokhara University, Purbanchal University, Business Schools – KUSOM, Ace Institute

of Management, South Asian Institute of Management

Institute of Agriculture and Animal Sciences, Institute of Food Technology, Institute

of Forestry, Technology and Innovation Management Program – Tribhuvan

University

Innovation /

Entrepreneurship

/ Incubation

Agriculture Enterprise Centre (AEC), Business Incubation Program (BIP – GON),

Biruwa Venture Pvt. Ltd.


26

Agribusiness Entrepreneurship—Stakeholders and Ecosystem in Nepal

Industries

Sujal Diary / Foods, Shreenagar Agro Farm, NIMBUS Holdings, Gorkha Aurved

Company, Gandaki Honey, The Organic Village, Herbs Processing and Production

Ltd, Nepal Ayurved Centre Ltd – Baidhyakhana, Bhatbhateni – Supermarket

INGOs, Informal

Groups

Agriculture Enterprise Center (AEC), International Development Enterprise (IDE),

Winrock International, ICIMOD, World Wildlife Fund, The Netherlands Development

Organization (SNV), Forum for Rural Women Ardency Development (FORWARD),

Center for Environmental and Agriculture Policy Research, Extension and

Development (CEAPRED), Asia Network for Sustainable Agriculture and

Bioresources (ANSAB), Local Initiatives for Biodiversity, Research and Development

(LI-BIRD)

Sambridhi – The Prosperity Foundation, Change Fusion Nepal (Social

Entrepreneurship Bazzar, Youth Action Fund Program, Social Entrepreneurship

Award), Entrepreneurs for Nepal – E4N, Udhayami Seed Fund – USF, Kalpasala

(IOE), NIMBUS Young Entrepreneurs Summit (YES 2012), Entrepreneurs Lab – KUSOM

Projects /

Programs

Project for Agriculture Commercialization – PACT (WB), Commercial Agriculture

Development Project - CADP - Commercial Agriculture Alliance – CAA (ADB), High

Mountain Agribusiness and Livelihood Improvement Project – HIMALI (ADB), High

Value Agriculture Project in Hill and Mountain Areas – HVAP (IFAD/SNV/AEC), Micro

Enterprise Development Program – MEDEP (GON/UNDP), Nepal Economic

Agriculture and Trade - NEAT (USAID), OVOP – AEC

Consulting /

Training

Beed Management, Lead International, Practical Action Consulting, Business Age,

Lotus BizPort, Future Now, Panos, Saadhya

Funding and

Financiers

SME Venture Capital, Bank of Kathmandu, National Agricultural Research and

Development Fund; Youth and Small Enterprise Self-Employment Fund – MOF,

FNCCI (YSESEF), Micro, Cottage and Small Industry Development Fund,

International The World Bank, IFC, infoDev, Asia Pacific Incubator Network (APIN)

The following table plots the various stakeholder types noted above against business

development stages and notes the main gaps.

Table 7: Nepal Agribusiness Business Innovation / Incubation Ecosystem Gap Matrix

Stakeholder

Domain

Agribusiness Development Stages

R&D and Idea

Development

Demonstration

and Development

Micro-enterprise

Development

Scale Up

and Growth

Commercial

Government

Agencies

MOAD, DOA, MOI, DCSI, DFTQC, NARC

Focused on poverty alleviation, facilitating

smallholders, producers & farmers, commercialization

at producers level

Wealth creation, processing entrepreneurs

development, agribusiness promotion, growth

orientation, innovation, competitiveness enhancement

R & D Institutes

NARC, ICIMOD, NARF

Technical expertise, lab facilities,

knowledgebase, fund

Innovation & IP, commercial

technology transfer, budget

Universities

Academia

Agriculture and forestry, Tribhuvan,

Kathmandu, Pokhara, and

Purbanchal University

Student projects, innovation, lab, knowledgebase,

technocrats


27

Stakeholder

Domain

Agribusiness Development Stages

R&D and Idea

Development

Demonstration

and Development

Micro-enterprise

Development

Scale Up

and Growth

Commercial

Entrepreneurship, innovation, commercialization

Professional

Communities

NEFOSTA, Society of Agricultural Scientists Nepal (SAS-N),

Nepal Veterinary Association

Technical expertise, knowledge base

Innovation and entrepreneurship promotion

Business

Communities

FNCCI, FNCSI, CNI, NCC, CCIs, NBI, NYEF

B2B Linkage, business promotion, lobbying, policy

influence

Program design, reach to critical mass, over

politicized, continuity of projects

INGOs

Informal

Groups

AEC, IDE, ICIMOD, CEAPRED, ANSAB, LI-BIRD, Sambridhi – The Prosperity

Foundation, Birewa Venture, Change Fusion Nepal (Social

Entrepreneurship Bazzar, Youth Action Fund Program, Social

Entrepreneurship Award), Entrepreneurs for Nepal (E4N), Udhayami Seed

Fund – USF, Kalpasala (IOE), NIMBUS Young Entrepreneurs Summit (YES

2012), Entrepreneurs Lab - KUSOM

Innovation and entrepreneurship promotion and facilitation

Critical mass—scale up and growth

Projects

Programs

PACT, CADP, HIMALI, NEAT, HVAP, MEDEP, OVOP

Donor support—value chain development—B2B

linkages—potential for growth orientation

Innovation - growth orientation—up-scale

commercialization, focused on small holders and

producers

Consulting /

Business /

Enterprise

Development

Services

IEDI, CSIDB, Beed Management, Lead

International, PAC, Business Age, Lotus BizPort,

Future Now, Panos, Saadhya, Center for Business

Development, Birewa Venture

Business development consulting services

Focus on start-ups—Young entrepreneurs—

Comprehensive Service Packages—Growth—

Limited access—Affordability

Agribusiness

Promotion,

Innovation

and

Incubation

AEC-FNCCI, IDE, CAA, BIP—GON,

Birewa Venture, Change Fusion

Nepal, Sambridhi

Commitments—Resources

(though limited)

Growth orientation—not to the

scale—Strategic partnership

Financiers

MFIs – Savings and Credit Cooperatives,

Agriculture Development Bank, Bank of

Kathmandu, Commercial Banks

Micro finance, BFIs - Physical Collateral focused

Business Oxygen, the IFC—Bank of Kathmandu:

SME Venture Fund—very early stage

Growth finance—Angels Network, Other Private

Venture funds

LEGEND Institutions Capacity/Strength Gap/Shortcomings


28

3.3 Policy Support for Agribusiness Incubation in Nepal

The Industry Policy 2010, Agribusiness Policy 2006 and Draft Industrial Enterprise Act 2011

are the specific provisions relevant to the AIC and business incubation. The policies and

proposed acts will facilitate the AIC’s operation.

The Agriculture Development Strategy (ADS), Policy Option Report11 paragraph 64, 65,

459, 511, 529, 548, 564, 575 and 582 highlight agribusiness innovation and incubation.

Agribusiness Promotion Policy 2006

The Agro-Business Promotion Policy was formulated in 2006 (2063 BS) to transform

subsistence-oriented and dispersed agricultural production systems into modern,

sustainable, competitive, and commercial production systems. The policy intends to

reduce poverty through agriculture commercialization, along with import substitution

and export enhancement.

The specific objectives of the Agribusiness Promotion Policy are the following:

To help market-oriented competitive agricultural production

To develop agro-industry to contribute to national and international market

development

To contribute to poverty alleviation by agriculture commercialization

Industry Policy 2010

The government of Nepal instituted a policy for business incubation, under the new

Industrial Policy, for implementation by the Department of Industry, with which the

Department of Cottage and Small Industry is to be merged.

The gist of the Industrial Policy 2010 for Business Incubation is the following:

11.20 Business incubation services will be operated for agriculture and nontimber

forest products and technology related enterprises, in collaboration with private

sector apex bodies, including the Federation of Nepalese Cottage and Small

Industries, Federation of Nepalese Chamber of Commerce and Industries and

National Micro Entrepreneur Group.

11.21 Business incubation services will be provisioned to attract creative,

innovative youth, and women into micro, cottage, and small enterprises.

11.22 To support graduated business incubates to run their businesses, angel fund

and venture capital fund will be provisioned to create employment

opportunities.

11 ADB 7762-NEP. 2013. Policy Options Report. Technical Assistance for the Preparation of the Agricultural

Development Strategy. Asian Development Bank.


29

Draft of Industrial Enterprises Act 201112

The proposed Industrial Enterprise Act, which will replace the existing Act of 1992 and is

posted at the FNCCI’s website for comments and suggestions, has the following two

provisions relating to the Business Incubation.

Business Incubation Centers are to be classified as service industries.

There will not be any tax to industries established within Business Incubation

Centers (Clause 21, i).

12Source: http://www.fncci.org.np/downloads.php, in Nepali, accessed April 16, 2013.


30

4 Focusing on Value Addition

Agriculture accounts for more than one third of Nepal’s GDP (35.1 percent), more than

3.6 percent of its export revenue, and 67 percent of jobs.13 Furthermore, the Nepal

Labor Force Survey Report 2008 estimates that 84.3 percent of employed women work

in the agricultural and forestry sector. Nepal benefits from varied geographical and

climatic conditions that make the production of a wide variety of agricultural products

possible—from a large domestic market of 27 million people, as well as from its proximity

to northern India and the Tibetan part of China, which represents a market of more

than 16414 and 2.915 million respectively of potential customers for agricultural products

produced in Nepal.

Given the importance of the sector to the economy and people’s livelihoods, the

government of Nepal has made agriculture a key priority in the country’s Growth and

Transformation Plan (GTP), in which it gives priority to agro-processing, SME growth,

increasing the capacity of women, and job creation. The government has prioritized 19

value chains from different sectors for commercialization, including agriculture, service,

and industrial sectors under its Nepal Trade policy (2009) and Nepal Trade Integration

Strategy (2010) reports as listed in section 4.1.

In line with the government’s priorities, the AIC has been designed to accelerate the

growth of an indigenous agro-processing sector. By enabling the start-up and growth of

value-adding agribusinesses, Nepal should move up the agricultural value chain,

capturing a larger share of income for local businesses and small-holder farmers, and

creating more jobs.

4.1 Value Chains with Market Potential

The AIC is to focus on value addition through post-harvest processing of agriculture

products, for which Nepal has a comparative advantage and significant growth

potential. In order to select value chains of focus for the AIC’s intervention; several of

them have been studied in depth. All of them demonstrate the following:

Supply-side problems in terms of both quantity and quality, along with issues

other stakeholders are addressing and which processors are overcoming

themselves.

Increasing domestic, regional, and international market demand.

There are only a limited number of processors in any specific value chain and a

need for more to address the increasing market demand.

Poor marketing and management capabilities.

13Ministry of Agriculture and Cooperatives, 2012. 14http://en.wikipedia.org/wiki/List_of_regions_of_India. 15http://tibetanyouthcongress.org/facts-about-tibet/.


31

A priority for local stakeholders.

The Nepal Trade Integration Strategy (NTIS) 201016 study shows that Nepal has

comparative advantages in agriculture and agro-processing, medicinal herbs and

essential oils, hydro-power generation, and service-based industries, especially tourism

and ICT. An ADB study of 130 countries, which assessed the level of opportunity the

country has in terms of product upgrading and growth, ranked Nepal second in South

Asia. The study stated that from 2001 to 2007, Nepal had a diversified export base with

an export basket of around 100 products in which it had a comparative advantage.

Ranked 33rd out of 130 countries, the report reaffirmed that the Nepali economy has

considerable opportunities to tap into export driven growth. NTIS has identified the

following 19 products as those with the best potential for export, out of which seven are

agro-based.

Agro-food

Large cardamom

*Ginger

*Honey

Lentils

*Tea

Instant noodles

*Medicinal herbs and essential oils

Crafts and Industrial Goods

Handmade paper

Silver jewelry

Iron and steel products

Pashmina products

Wool products

Services

*Tourism

Labor services

* Information Technology and Business Process Outsourcing (IT & BPO)

Health

16Government of Nepal, Ministry of Commerce and Supplies, 2010. Nepal Trade Integration Strategy 2010.


32

Education

Engineering

*Hydro-electricity

Note: * indicates most viable business from the list, as per views of experts and entrepreneurs.

The value chains on which PACT focuses are seeds, vegetables, coffee, ginger, potato,

floriculture, honey, mushroom, oilseed (mustard and ground nuts), fruits (citrus, banana,

papaya, and mango), lentil, herbs, fish, feed, milk processing, dairy processing, and

poultry. The project is designed to achieve the target by helping farmer groups and

cooperatives engage in profitable market-oriented production, creating and

strengthening industrywide partnerships along the value chains. It also seeks to reduce

existing obstacles to agriculture and food trade. In addition, it has provisions for

technology and information services and critical public infrastructure and linkages to

agribusiness.

Eleven key value chains (or value chain groupings) with potential for enterprise growth

by way of post-harvest and food processing were identified and analyzed in-depth as

those with the best potential for the AIC. These 11 value chains were selected on the

basis of their potential for AIC purpose and common priority of NTIS, PACT and

FNCCI/AEC, as described below.

1. Coffee

2. Fish

3. Floriculture

4. Ginger

5. Honey

6. Large cardamom

7. Meat

8. Milk and dairy

9. NTFP and essential oils

10. Potato

11. Tea


33

The following table lists the value chains selected for the AIC alongside those on which

PACT, NTIS, and FNCCI’s AEC focus.

Table 8: List of Priority Value Chain

SN PACT NTIS FNCCI/AEC Selected for AIC Study

1 Seeds

2 Vegetables

3 Coffee Coffee Coffee

4 Ginger Ginger Ginger Ginger

5 Potato Potato Potato

6 Floriculture

7 Honey Honey Honey Honey

8 Mushroom

9 Onion

10 Oil Seeds

(mustard, sun

flower, groundnut)

11 Fruits

(citrus, banana,

papaya, mango)

Junar

12 Floriculture Orchid Floriculture

13 Herbs Medicinal

Herbs/Essential

Oil

NTFP

Essential Oil

NTFP/Essential Oils

14 Rainbow Trout Fish Rainbow

Trout

Fish

15 Feed (poultry) Feed

16 Meat Processing Goat /Meat

Processing

Meat

17 Milk (dairy) Milk and Dairy

18 Poultry Poultry

19 Large

Cardamom

Large Cardamom

20 Tea Tea

21 Instant Noodles

22 Tomato

Total 19 7 16 11


34

The following are the comparative advantages of Nepal common to the 11 value

chains:

Varied geographical and climatic conditions, from the plains of the northern

Indian subcontinent to the Himalayas and its unique mountain ecosystem that

make the production of a wide variety of agricultural crops possible.

Production by small holder farmers, who by default use natural and organic

farming methods, which causes supply constraints, but which can be an

advantage as developed countries shift more and more to organic and clean

food and for climate change impacts.

A large domestic market and labor force, with a population of 26 million people,

growing annually by 1.4 percent.17

A widely acknowledged trainable work force.

Comparatively cheaper wages than in other countries. The average wage for

unskilled labor generally ranges from $2.49 per day.

The government has acknowledged these value chains as priorities and is

supporting them with favorable policy measures.

Agreements with the India, China, and European countries that ensure access to

their markets for Nepalese products.

A summary for each of the 11 key value chains identified is presented below and

additional information is available in Annex 7.

Tea 4.1.1

Nepal produces 115,432 tons of green leaves of tea, including 3.2 million kilograms of

Orthodox Tea production, of which 15 percent is exported and of which 85 percent is

sold in Kolkata, India. World tea consumption is increasing, as is the market for organic,

fair trade, and value-added products, such as specialty, blended, and flavored teas,

for which the flavor and aroma of Nepalese tea is an advantage. The Himalayan Tea

Producers Cooperative Limited (HIMCOOP) has 19 processing factories and is one of

the major associations for the sector, along with National Tea and Coffee Development

Board Nepal, Nepal Tea Association, Nepal Tea Planter Association, Himalayan

Orthodox Tea Planters Association, and the Himalayan Orthodox Tea Producers

Association-Nepal. Major donor projects and programs working in this sector are CADP,

PACT, NEAT, ADO, SNV, GiZ, USAID and NTCDB.

The government provides a number of incentives to encourage the industry:

exemptions for land ceiling18; land registration fees and land revenue leasing (up to 75

percent) up to 50 years; capital grants for irrigation subsidies on organic certification

17http://census.gov.np/ 18Ceiling refers to maximum amount of land permitted to use for farming under a single entity.


35

(reimbursement of the expenses toward organic certification); and cash incentive for

exports (2 to 4 percent, depending upon the value addition of the product).

There are several constraints that hinder the growth of the sector. There is a shortage of

qualified technical manpower, such as tea tasters, in the processing factories. Most

technical manpower comes from Darjeeling, India at high rates. Other obstacles

include inconsistent quality, lack of standard international certification (such as ISO,

HACCP, organic, fair trade), and high import duties on packaging materials, such as

chest or paper. The VAT refund process for exported goods is difficult and there is a

serious problem in accreditation of quarantine checks done in Nepal.

Coffee 4.1.2

Despite high prices fetched by Nepali coffee in the international market, export

volumes have not increased significantly. As per the NTCDB, production of coffee in the

fiscal year 2011/12 was 153 tons of which 279,762 kilograms were exported. In the same

period, 31,326 kilograms were imported. Fourteen coffee processors are members of

National Tea Coffee Development Board-Nepal, the apex body for the coffee sector.

Development organizations working for promotion and commercialization of coffee in

Nepal are PACT, iDE, WI, EIG, Li-Bird, AEC, ADO, USAID. Coffee is not the only focus of

these organizations and the resources allocated for the coffee sector are

comparatively less than some other sectors, such as cereal crops and vegetables. Key

stakeholder groups in the coffee sector are Coffee Producers’ Groups (CPGs), District

Coffee Producers Association, Nepal Coffee Producers Association (NCPA), and the

National Tea and Coffee Development Board.

One of the major constraints to increased export is low production volumes.

The government is keen on developing Nepali coffee brand in the country and has

approved the Nepali Coffee Logo (brand) and awarded rights to three traders that

meet the set standards. Other main challenges are insufficient technical services, poor

infrastructure for post-harvest handling, insufficient transportation facilities, and low-

quality inputs. Nepal exports coffee beans mostly to Korea, Japan, the United States,

and some European countries.

Honey 4.1.3

The total number of beehives in Nepal is estimated to be 140,850 with the potential to

produce 13,650 tons of honey per year. However, the total production of honey at

present is estimated to be only about 1,500 tons per year19. At present, there are eight

major honey processing and exporting companies in the country.

19P. Pandey. 2009. Market Access of Nepalese Honey AEC/FNCCI, Kathmandu.


36

Some of the key donor organizations/projects working in the honey value chain are

MEDEP, PACT, GiZ, ICIMOD, AEC, ADO, USAID, and World Bank funding various projects.

There is only one association for honey: the Federation of Nepal Beekeepers and

Cooperative (FNBK), which is supported by a GiZ project, INCLUDE.

Nepali honey could benefit from international market demand, if appropriate measures

are taken and programs are available to strengthen this subsector. One of the main

issues to be addressed in Nepali honey sector is the stringent sanitary and phytosanitary

standards set by importing countries, such as Residue Monitoring Plan and Hazard

Analysis Critical Control Point (HACCP) certification required by EU, Grannotoxin free by

South Korea, Prevention Food Adulteration (PFA) Rules, and standards by India, other

U.S. and Japanese standards, along with CODEX. As a raw commodity, without unique

branding and differentiation, Nepali honey is not competitive in terms of international

market prices.

The total annual domestic demand for honey is estimated to be about 300 to 350 tons.

Gandaki Bee Concern, a leading private honey production and processing company

in Nepal, calculates that if honey consumption increased by 0.1 kilograms per capita

then the total demand for honey in the domestic market would be about 2,500 tons per

year.20

Quality control and inadequate infrastructure constrain growth of the industry, including

poor storage, lack of quality monitoring and control, inadequate laboratory facilities,

and poor institutional mechanisms for ensuring quality and standards. In the absence of

these facilities, it is difficult to tap specialty markets, where better pricing is offered for

niche products, such as Nepali honey. Policy related constraints compound the

problems, including inadequate policies and poor implementation of existing laws and

regulations in relation to pesticide monitoring and control, veterinary drug

administration, and import and export of honey (assurance of safety and hygiene,

import duties, VAT and local taxes, and insurance). All of these problems cause

difficulties with SPS measures and international agreements.21

Ginger 4.1.4

Nepal is the fifth largest producer and the 15th largest exporter of ginger in the world,

producing 216,289 tons from 19,081 hectares, with a yield of 11.34 tons per hectare.22

The NEAT activity (USAID-funded project) identified 43 entrepreneurs, including

producers, exporters and processors, in the mid-western and eastern regions. The main

20 http://www.gandakibee.com.np/markets.htm. 21 GIZ. 2008. Honey in Nepal Approach, Strategy and Intervention for Subsector Promotion. Kathmandu. 22Full Bright Consultancy Private Ltd. 2008. Product Chain Study: Ginger. Final Report. Biratnagar, Nepal:

CADP.


37

projects, donors and international nongovernmental organizations (INGOs) in this sector

are MEDEP, CADP, PACT, GiZ, NEAT, PA, EIG, MC, AEC, ADO, and USAID.

The Nepal Ginger Producers and Traders Association and the Turmeric and Ginger

Producer Peasants' Association are the key associations working in this subsector. The

market for ginger is expanding with increasing use by Ayurveda pharmaceutical

industries in Nepal and India. More than 80 percent of the total production is exported

to India, the only export destination of fresh and dried ginger produced in Nepal.

Initiatives, such as the Ginger and Spice Development Program, have commenced,

providing technical services to farmers through the DoA. The government emphasizes

ginger as a priority for commercialization by its processing (as sutho-dry ginger) in its

Agriculture Perspective Plan (APP) through research and development activities.

As support to APP, the government in its Three-year Interim plan (2011-13) has targeted

commercialization of agriculture products, such as ginger, with special attention given

through promotion of cooperatives, irrigation supply, agriculture roads, agriculture

credit, research and technology dissemination, rural electrification, and development

of market mechanism to increase production and productivity and increase investment

of the private sector (P28, Government of Nepal). The major constraints in the ginger

sector include low-quality sutho production, farmers’ lack awareness about ginger

processing technology, and intermittent listing of ginger as a restricted import item by

India.

Large Cardamom 4.1.5

With a yield of 0.44 kg/ha, Nepal produces a total of 5,517 tons of cardamom annually.

Nepal is the world’s largest producer of large cardamom, with an annual production

exceeding 5.2 thousand tons and production is expected to increase annually.23

According to Mercy Corps, cardamom is produced and processed by over 70,000

households in the East of Nepal (420,000 people) and ranks consistently in the top 12

export commodities of the country and contributes an annual average of $20 million to

the national economy, including $12 million in export earnings.

During the study, four processing industries were identified in this subsector for which the

major associations are the Nepal Cardamom Producers' Association, Cardamom

Development Center, and the Large Cardamom Entrepreneurs Association of Nepal

(LCEAN). Projects and organizations such as CADP, PACT, NEAT, ADO, SNV, USAID, and

NTCDB are the major working entities in this subsector.

The government has promoted development of the subsector, making it a priority

commodity in APP, by establishing a Cardamom Development Centre in Fikkal, Illam,

23Stoep G.A, U. R Pokharel, M. Rajbhandari, K. D. Bibek Shrestha. 2010, Enhancing Competitiveness of

Nepal’s Large Cardamom Value Chain. Kathmandu: SNV.


38

and subsidizing sapling costs and interest rates for producers. The major constraints are

insufficient access to facilities, such as irrigation, drying furnaces, credit facilities, and

storage and transportation system. In addition, adoption of technology for processing is

low with insufficient technology transfer and low levels of research and development.

Floriculture 4.1.6

The floriculture sector is gradually emerging as an attractive segment with the

establishment of some flower showrooms in the capital city. There is a growing demand

for cut flowers in the country and the market is expanding to such cities as Biratnagar,

Dharan, Pokhara, and Chitwan. Export of cut flowers and related items was worth NRs

20,874,000 in 2010/11 and NRs 191,453,039in 2011/12. In fiscal year 2010/11, Nepal

imported about NRs 9,23,000 worth of cut flowers and related materials, which

increased to NRs 11,182,468 in fiscal year 2011/12.

According to The Agriculture Statistics Division, by fiscal year 2010/11, 86 flower

showrooms were established in the country. There are more than 600 nurseries and 635

firms and individuals estimated to be operating in floriculture subsector. However, the

number of producers is still not calculated. Updated data from Floriculture Association

Nepal reveal that as of March 2013, floriculture farming is carried out in 36 districts of the

country, covering 120 hectares of land in different geographical locations. The

investment in the sector is about NRs 4 billion and the yearly transactions amount to NRs

405 million. The sector is achieving a growth rate of 10 to 15 percent annually in terms of

commercial transactions. Recognizing the importance and economic contribution of

the floriculture subsector, the government has endorsed the Floriculture Promotion

Policy 2012.

Potato 4.1.7

The state of potato production in the country is 2,508,044 tons with a productivity of

13,735 kilograms per hectare.24 Potatoes are cultivated in all zones of the country.

Demand for potato is increasing, with per capita consumption of 51 kilograms per

annum, which almost double what it was in 1990 (FAO 2008). Nepali potato seeds have

a high demand in Bangladesh and India, where a limited amount is currently exported.

The major projects and donors working in this subsector are CADP, PACT, MC, ADO, and

EU.

Constraints include insufficient inputs to farmers such as irrigation, fertilizers, credit,

quality seed, and seed varieties. At the processing level, inadequate processing

companies and activities have been identified. Although clear records on potato

processors are not available, a total of 136 snacks and vegetable processing

24Full Bright Consultancy Private Ltd. 2008. Product Chain Study: Potato, Final Report, CADP, Biratnagar,

Nepal.


39

companies of different levels are registered in DFTQC, which may be processing potato

related items. The Nepal Potato Producer Peasants' Association is the only association

working in this subsector.

Milk and Dairy 4.1.8

Livestock is an essential activity for Nepali farmers—important for manure, milk, meat,

and religious purposes. The total milk production of the country is about 1.5 million tons.

The annual growth of internal consumption of milk is about 8 percent, but production is

increasing at only 3 percent. Nepal imports milk and its various products to meet

demand from Asia, Europe, North America, and Australia. According to AEC/ FNCCI,

the demand for milk is expected to double in 15 to 20 years. The Nepal Dairy

Association is the apex body for milk processors with 76 members. FAO’s study of Nepal

in 2010 25 revealed that 54,040 tons of milk was collected in the country by processing

plants, among which 2,776 tons were used for cheese production. The same report also

stated that the number of dairies corresponding to their processing capacity is as

follows:

Table 9: Number of Nepal dairies, size and processing capacity

Size liters/day Numberof Dairies

Large 30,001 3

Medium 10,001 to 30,000 6

Small 1,000 to 10,000 26

Cottage Below 1,000 215

The major milk products of the country are milk powder, buttermilk, curdled milk, cream,

cheese, ghee, ice cream, and other sweet products.26

Some of the major organizations working in the milk and dairy subsector are MEDEP,

PACT, GiZ, MASF, iDE, PA, Forward, AEC, DLS, USAID, and DFID. The important

associations of this subsector are the Association of Livestock Farming Nepal, Nepal Milk

Producer Farmers Association, Veterinary Chemist and Druggist Association of Nepal

(VECDAN), Nepal Dairy Association, and Central Dairy Cooperative Union.

The Dairy Development Policy 2064 (2008) guides the overall development of the dairy

sector. The policy incorporates the Agriculture Perspective Plan (APP, 1995-2015),

25Food and Agriculture Organization of the United Nations. 2010. Dairy Sector Study of Nepal. Kathmandu:

FAO. 26Ibid, page 80.


40

National Agriculture Policy, 2061, National Milk Marketing and Strategy Study, 2001, and

Agriculture Business Promotion Policy, 2063. It aims to develop the dairy sector

commercially and competitively for national economic development.

Stock raised in Nepal is mostly local, which by default means they have lower milk

production capacity than improved breeds. In addition, the quality of feed and fodder,

along with proper animal health services, are not available to most farmers, which

further limits productivity. Lack of competent manpower and access to markets have

been major challenges in this subsector. Private dairies lack appropriate technical

manpower. Regular training and assessment is required for increasing and

strengthening the productivity of the subsector.

Meat 4.1.9

The total number of sheep and goats reared in the country is 9,991,520, producing

55,531 tons of meat annually. There are 17 large meat processors that produce a

variety of meat products and operate at different business scales. According to the

Third Livestock Development Project 1999, everyday nearly 5.5 tons of meat are

processed, producing sausage, salami, 'momo'27, chicken cuts, smoked, and dried

meat.

Table 10: Net Meat Production

Meat Net Production (Mt)

Years

Categories 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Buffalo 124848 127495 130791 133600 138953 142040 147031 151209 156627 162213 167868

Mutton 2856 2823 2792 2779 2744 2737 2747 2725 2711 2691 2722

Goat 37769 38584 39664 40540 41698 42820 44933 46570 48472 49851 52809

Pig 15239 15594 15626 15389 15724 15773 16035 16453 16992 17066 17923

Chicken 13259 14118 14756 15881 15461 15605 16126 16712 16662 16527 36085

Duck 287 281 270 223 237 230 233 231 226 225 218

Total 194258 198895 203899 208412 214817 219205 227105 233900 241690 248573 277625

Source: Department of Livestock Services, 2011.

Demand for goat meat has been increasing, as a result of the growth in population,

urbanization, growing income levels, and a desire to shift consumption to quality animal

products. Goat meat is regarded as a highly priced elastic product and there are

opportunities for niche marketing of hygienic and high-quality goat meat, initially for the

domestic market and later to regional markets.28 A large number of “momo”

27Momo is a traditional Nepali food consisting of minced or chopped meat, heavily spiced, and wrapped

in a light pasty casing. It is served with an array of spicy sauces. It is eaten as a snack food or an entire

meal. 28Heifer-Nepal. 2012. A Study on Goat Value Chain in Nepal. Kathmandu.


41

restaurants and street sellers are found in the cities. Momos are also an important

restaurant menu item. An estimated 40 percent of the buffalo meat is processed into

momo, along with a significant proportion of chicken and goat meat.29 Another

traditional form of processing meat is drying, either by sun or smoking.

Obstacles include undercapitalized markets, poor physical infrastructure, policies that

do not encourage increasing goat numbers (such as restrictions on communal forest

areas, which restricts the number of livestock that can be kept), and high transportation

costs.

The Agriculture Perspective Plan (APP, 1995–2015) considers livestock sector growth as

crucial to meet its AGDP growth and poverty alleviation objectives. APP targets

accelerating the annual growth rate of the livestock sector to 6.1 percent from 2.9

percent, in order to increase the livestock contribution from 31 percent to 45 percent by

the end of APP plan period. The contribution of the livestock sector to the national GDP

is about 18 percent. Dairy is the most important livestock component, contributing the

most to the AGDP (62.7 percent of the total livestock sector contribution), followed by

meat (32.4 percent) and eggs (5.0 percent).30

The major associations in this sector are the Association of Livestock Farming Nepal,

Nepal Feed Industries Association, and Veterinary Chemist and Druggist Association of

Nepal (VECDAN). A large number of projects and organizations are engaged in

strengthening the sector: PACT, HIMALI, WUPAP, EIG, PA, Forward, Li-Bird, AEC, ADO and

Heifer International-Nepal.

Fish 4.1.10

With a yield of 3,702 kg/ha, 26,941tons of fish are produced from a water surface area

of 26,036 hectares.31 Even though information on production of fish and its productivity

is available, the number of farmers and processors is not reported at any level, because

the fishery subsector is included as part of the agriculture sector as a whole.

The Nepal Fish Farmers' Association is the only association in this subsector. With the

huge unmet and growing domestic demand for fish and related products,

commercialization of this sector has potential for growth and to substitute imports. The

major organizations, projects and donors working in the sector are PACT, EIG, Forward,

CEAPRED, ANEP, IDE, ADO, USAID, and WF.

29Poudel. 2010. Market-led Quality Meat Production and Processing. UNFAO: Kathmandu. 30CLDP 2008. 31Lotus Intellect Pvt. Ltd. 2006. Subsector Analysis of Fish In Banke, Bardiya and Kailali, Kathmandu.


42

The main challenges are inadequate production knowledge, underdeveloped market

systems, and inadequate input supply. As large numbers of farmers are engaged,

particularly in the southern plains of the country. This subsector offers potential for

growth and improvement in rural livelihoods, particularly when it comes to rainbow

trout, regarding which Nepal could be competitive with India, and specialty niche

products.

Nontimber Forest Products and Essential Oils 4.1.11

With its unique geography, Nepal has diverse ecosystems and a variety of nontimber

forest Products (NTFPs). According to the Department of Forest and Soil Conservation,

2,171,522.3 kilograms of NTFP products were collected, with revenues of more than

$245,000. Among the collected NTFP products, the important revenue generating

species listed in the annual report by Department of Plant Resources are Himalayan Ye,

Loth Salla, Khoto Salla, Angeli, and Khayer.

There are 108 processors in this subsector, although only 31 of them are under Nepal

Herbs and Herbal Products Association (NEHHPA).The processors in the NTFP value chain

range from small to large. The small processors produce cosmetic products and

essential oil and supply them to the local market, whereas the large producers mainly

export commodities.

Essential oil and related products are

the most important types of products

processed.32 The major essential oils

produced include dementholized oil,

eucalyptus oil, mentha arvensis oil,

anthopogon oil, artemisia oil, juniper

berry oil, spikenard oil, valerian oil,

wintergreen oil, Zanthoxylum oil, and

massage oil.

Other products include handmade

paper, morel, herbs, Ayurveda herbal

teas, organic teas, sorbet (juice) herbal

drinks, Ayurveda cream, cosmetics,

neem soaps, and mentha products.

Key organizations working in the NTFP

sector are MEDEP, PACT, HVAP, WUPAP,

GiZ, EIG, iDE, PA, ICIMOD, Forward,

ANSAB, AEC, JABAN, FDO, FECOFUN,

32Poudel, K.L. 2007. Trade Potentiality and Ecological Analysis of NTFPs in Himalayan Kingdom of Nepal.

Kathmandu.

Examples of Products Exported


43

USAID, DFID, and WWF. The important associations in this subsector are Nepal Forest

Industry Association, JadiButi Entrepreneurs Association of Nepal (JABAN), and Nepal

Herbs and Herbal Products Association (NEHHPA). The funding in this subsector consists

of $18.9 million by HVAP.

Nepal has been exporting about 90 percent of NTFPs in raw form, mostly to India where

it is processed into essential oils and used in manufacturing medicines and cosmetic

products. Huge potential exists for domestic processing as Nepal imports processed oils

and items produced from the exported raw products.33A study conducted by FNCCI

titled “Wholesale Market Assessment-NTFP” showed that Nepalese NTFP processors are

unable to run processing plants year round because of a shortage of raw materials,

which mainly results from the lack of wholesale collection systems. According to a study

conducted by ANSAB, the employment that could be generated by this subsector is

estimated to be 26,550,000 man days for local people, which is an equivalent of six

months or 180 days a year for 147,550 persons.34

The government has identified about 30 species of NTFP species in its plan. The species

prioritized are atis root, emblic myrobalan, common walnut, Persian walnut, bannut

tree, picrorhiza, morel, tinospora chireta, tagetes, spikenard, linchen, Nepali piper,

toothache tree, cinnamomum leaves and bark, fragrant wintergreen, neem tree,

Indian lilac, Himalayan rhubarb, rockfoil, salep long pepper, monks hood (aconite), the

sweet flag, deltoid yam, Indian madder, Chinese caterpillar fungus, soapnut, may

apple, Himalayan ye, Nepali sassafras, Indian valerian, Wild Asparagus Rauwolfia,

Serpent wood and Serpentine.

With reference to the 30 prioritized species above, only about 10 species are viable for

commercial production, following analysis of each against 17 criteria for Terai, mid-hill,

and high mountain regions of Nepal. The quantitative criteria used in the study were

market price, past annual export quantity records of Department of Forestry (DoF),

average annual export as per Indian Trade Centre (ITC) Tanakpur, annual industrial

demand in Kathmandu, and royalty of the species as percentage of market price.35

The qualitative criteria used were ease of cultivation (propagation, domestication, and

tissue culture), parts used in trade, bulkiness in transportation, range of distribution

(horizontal and vertical), threat category/conservation status, legal framework for

protection (CITES, government of Nepal), availability of local processing (existing)

techniques, regeneration/ rotation periods, ethnobotanic importance, potentiality of

33Pyakurel, D. and A. Baniya. 2010. NTFPs: Impetus for Conservation and Livelihood Support in Nepal.

Kathmandu: WWF. 34http://www.google.com.np/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCgQFjAA&

url=http%3A%2F%2Fwww.nepjol.info%2Findex.php%2FBANKO%2Farticle%2Fdownload%2F4803%2F3994&ei=H

FYCUajSKMmsrAeL5oCIBA&usg=AFQjCNGM7mNH7g8gSSZM4oVb_lwmlujgQw&bvm=bv.41524429,d.bmk 35Keshari, V. 2007. Promotion and Trade of Tropical NTFPs in Central Terai of Nepal. Kathmandu.


44

further processing for value addition, social acceptance for promotion, and possibilities

of quality improvement. The result of the study indicates that Amala, chamomile, Pipala

and mentha are the priority species for Terai and Siwalik regions; Timur, Tejpat, Chiraito

and Ritha for mid-hills; Sugandhawal, Padamchal, Jatamansi, and Bisjara for high-

mountain, for commercial exploitation with private investors.

Technological support for oil extraction, private sector involvement, product

certification, international NGOs and NGOs coordination, and research and

development are all needed to help this subsector grow. The constraints for this

subsector include poor infrastructure, lack of commercial farming, and SPS issues.

Moreover, there are few processing companies, minimal quantities are processed, and

the bulk is exported in raw form.

The NTIS emphasizes activities related to product development and technology, market

access, institutional and human resource development, and improvement of the

business environment. The major actions planned for strengthening the processing

segment are technology for oil extraction, provision of a national laboratory, a public-

private partnership (PPP), internationally recognized product certificates, promotion of

better packaging materials, such as certified aluminum containers, and

encouragement of the private sector.

4.2 Donor Value Chain Mapping

Many stakeholders, including donors and government agencies, are undertaking

important work to improve value chains and are helping to add value to agribusiness

entrepreneurs (see Figure 13 below). Indeed, most donor-funded programs in Nepal

focus exclusively on value-chain development. More details are provided in Annex 3.

Table 11: Donor Mapping Based on Value Chains

SN Donors Value Chains

Projects / International

NGOs

Major Activities and / or Objectives (Related to Value Chain)

1 ADB Banana Cardamom Ginger Mango Orange Potato Tea Vegetables (Tomato, Onion, and Cabbage)

CADP Commercial Agriculture Investment and Management: (a) Assist small and marginal farmers to develop or participate in income-generating agricultural activities and undertake more commercial activities, (b) strengthen stakeholders (farmers, traders, and processors) already partly engaged in commercial agriculture to become fully commercial and be eligible for CAA membership. Market Information Dissemination: Assist farmer groups through partner with NGOs and district agriculture development offices to systemize and replicate group or cooperative-based information systems. Capacity Enhancement (of project partners, including DDCs, NGOs, Department of Agriculture district staff and CAA district branch staff): Basic market development


45



NGOs


training on post-harvest, marketing, market-chain improvement, primary process methods, product handling, and agribusiness.

Livestock HIMALI Economic growth. Environmental sustainability. Private sector development. Gender equity. Poverty reduction and inclusive growth. Climate change.

36

2 AusAid Livestock, Forestry, Off-season Vegetables and Crops

WUPAP Focus on poverty alleviation through a rights-based approach, by promoting the formation of grassroots level organizations to empower the participants to mobilize their natural, physical, and financial resources to harness external resources and obtain social justice.

37

NTFP, Honey Bee Medicinal and Aromatic Plant (MAP)

ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships38 Honey Bee Facilitate and strengthen networks of beekeeping organizations; help communities to learn the art and craft of beekeeping; promote modern beekeeping approaches; and explore the prospects of marketing and business development, including value chains.

3 BMZ, German Government

Fruit and Vegetables (through riverbed farming), and Medicinal and Aromatic Plants (including

GIZ Include Support the production, processing, and marketing of products in the selected value chains.

39

36http://www.adb.org/projects/37292-042/main 37http://www.wupap.gov.np/About 38http://www.icimod.org/?q=392

39http://www.includenepal.org/projectdetail-promoting-value-chains-and-the-local-business-envi


46



NGOs


ginger). Honey, Milk.

4 CIDA Honey Bee Medicinal and Aromatic Plant (MAP), NTFP

ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities, involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships40 Honey Bee Facilitate and strengthen networks of beekeeping organizations; help communities to learn the art and craft of beekeeping; promote modern beekeeping approaches; and explore the prospects of marketing and business development, including value chains.

Forestry Livestock Off-season Vegetables and Crops


41

5 DFID Dairy Vegetables

MASF / iDE Nepal / Practical Action

Develop appropriate access to services and inputs for women smallholder dairy farmers to decrease their drudgery, which provides more time for other income generating activities, increases opportunities to engage effectively with market actors and provides increased incomes that can be used for household benefit. Further, a wide variety of opportunities for livelihoods have emerged from the dairy sector, such as supporting small and micro-enterprises in rural areas, which will provide employment opportunities to the poor.

42

European Union

Fish, Vegetables, Maize

Agriculture and Nutrition Extension Project (ANEP) /iDE/ World Fish/CIMMYT/ Save the Children

The project seeks to sustainably raise agricultural productivity and promote effective market linkages to improve the nutrition of poor rural and urban households.

40http://www.icimod.org/?q=392

41http://www.wupap.gov.np/About 42http://practicalaction.org/region_nepal_masf_project


47



NGOs


6 UNDP Honey Bee, Medicinal and Aromatic Plant (MAP) NTFP

ICIMOD Increase incomes of MAP producers by 20 percent by designing local, national, and regional interventions through critical assessment of community needs, information, and the knowledge and resource base of the medicinal herbs sector in needy countries. To develop or strengthen three improved supply chains for herbal commodities involving collectors, cultivators, and producers to better access national, regional, and international markets. To promote enabling policies, institutions, and market infrastructure to increase private sector investment by 25 percent and set up quality standards and protocols to develop model public-private-civil society partnerships43 Honey Bee Facilitating and strengthening networks of beekeeping organizations; helping communities to learn the art and craft of beekeeping; promoting modern beekeeping approaches; and exploring the prospects of marketing and business development including value chains

Forestry Livestock Off-season Vegetables and Crops


44

NTFP (bamboo basket and furniture, tapari, allo rope and twine, and pine charcoal)

MEDEP Entrepreneurship development, human resources development, capacity building in marketing for micro enterprises.

7 IFAD Maize Hill Maize Research Program (HMRP) CYMMIT

Strengthening seed dissemination channels, developing market links and ensuring the decentralized seed quality assurance system and developing more new maize varieties as the demand remains high

45

Fruits, Medicinal, and Aromatic Plants, Livestock NTFP

HVAP/ SNV Integrate the rural poor, especially women and marginal groups in high-value agriculture, and NTFP/MAP value chains and markets, and improve income, employment opportunities, and ability to respond to market demand and opportunities based on marketing agreements with private agribusiness. Development of value chain of selected commodities.

46

43http://www.icimod.org/?q=392

44http://www.wupap.gov.np/About 45http://www.swiss-cooperation.admin.ch/nepal/en/Home/Hill_Maize_Research_Project_HMRP_Phase_4 46http://www.hvap.gov.np/content.php?id=110


48



NGOs


Products, Vegetables

8 The World Bank

Seeds, Vegetables, Coffee, Ginger, Potato, Floriculture, Honey, Mushroom, Oilseed, (mustard and ground nuts) Fruits (citrus, banana, papaya, and mango) Lentil, Herbs, Fish, Feed, Milk Processing, Dairy Processing, Poultry

Project for Agriculture Commercialization and Trade (PACT )

Improve the competitiveness of smallholder farmers and the agribusiness sector in selected commodity: a) helping farmer groups and cooperatives engage in profitable market-oriented production and improved access to markets through the provision of technology and information services and critical public infrastructure and linkages to agribusiness. b) creating and strengthening industrywide partnerships along the value chain, thus forging linkages between producers, traders, processors, and other stakeholders. c) reducing existing obstacles to agriculture and food trade, thereby increasing the ability of farmers and agribusiness to respond to sanitary and phytosanitory (SPS) measures and food-quality standards to meet domestic and international market requirement.

9 USAID Lentils Vegetables Ginger and Orthodox-Tea

Nepal Economic and Trade (NEAT)

Program on value chain development and strengthening.

High-value Vegetable Production (including crops or non-timber forest products such as chamomile and lemon grass), Fisheries Goat-rearing

Education for Income Generation (EIG)

Program on value chain development and strengthening, focusing on smallholder producers and youth.

Ginger Cardamom

Mercy Corps Program on value-chain development and strengthening, focusing on smallholder producers.


49



NGOs


Potato

This analysis indicates that value chain development, while important, is not a gap with

significant opportunities for the AIC. If the AIC focuses on value chain development in

one or more value chains, it runs the risk of competing with existing initiatives. Indeed, if

the AIC does this, it may miss the main opportunity—which is to lever the work of other

donors and Nepalese government agencies and help entrepreneurs with market

development, financing, and business management capabilities, all of which are

common impediments to growth. The AIC plans to coordinate closely with the wealth

of donor programs focused on value-chain development, complement their work, assist

pioneering processing enterprises, and help ensure a solid supply of quality raw

materials for processing. Each program works at the farmer level and it is this group that

will supply the processors on which the AIC will focus. This mutually complementary

relationship offers an opportunity to properly network growers with processors and

markets, all the while ensuring quality inputs are used to produce competitive, legally

compliant, finished products and developing the market for such products.

Almost all of the selected value chains incur major constraints, such as a lack of

infrastructure, limited number of processing companies, shortage of skilled manpower,

and insufficient research and technology development. In addition, exporters face

difficulties maintaining the necessary quality and standards of processed products to

satisfy market needs. This is largely because of a lack of an accredited laboratory within

the country and difficulties to acquire certification from overseas. At the policy level,

the lack of taxation and other incentives for export and local level taxation (mainly

local taxes by Village Development Communities VDCs) impede price competitiveness.

4.3 The Focus of the AIC

In Nepal, only a limited number of value adding companies with growth potential exist

in any one value chain. This means it will be difficult for the AIC to achieve the

necessary critical mass of 20 to 30 companies to underpin a viable business model, if

only one value chain is the focus. As well as input and supply problems with which

donors and government agencies are helping), processing companies all need

additional help with market development and financing problems. These difficulties

with market development and financing may provide a more fruitful focus for the AIC

than any one value chain. The AIC can have more impact by helping entrepreneurs to

overcome these barriers and levering the work of other donors and agencies, than by

focusing on a more limited number of value chains. In all value chains, the main

potential is with specialty niche products targeted at growing domestic and export


50

markets in which Nepal can be competitive, rather than less differentiated commodity

based markets.

Figure 5: Enabling the Development of Innovative Sustainable Agribusiness Sector in Nepal

From the earlier analysis, the following conclusions can be drawn:

a) No one value chain represents a sufficient quantity of growth potential entrepreneurs

to warrant a focused incubation model. Therefore, a broader model that works

across subsectors is proposed. There is strong interest from agribusiness entrepreneurs

Traditional food

processing

technologies

New

processing

technologies versus

Improvements in design &

controls

New raw materials

ingredients New

processes

Improved

Product Quality

Reduced

Energy

& Waste

Improved

Manufacturing

Performance

Reduced

Energy

& Waste

New

Products

Improved competitiveness / market differentiation

Safety Sustainability Nutrition & Wellbeing


51

across sectors in an agribusiness incubation service offering. The analysis indicates

that a sufficient pipeline of growth-oriented or growth-potential enterprises can be

secured to enable cost-effective implementation of an agribusiness incubation

model that targets enterprises from a broader selection of value chains.

b) While the market opportunities are promising, even these selected value chains

face significant challenges that cannot be addressed by an agribusiness incubation

service offering alone. Infrastructure constraints, poorly coordinated value chains,

input and supply problems, and limited access to finance for growth all generally

impede agribusiness development. These problems have been recognized and

many donors and Nepalese Government agencies are now working to overcome

value chain bottlenecks. The timing may be opportune to complement their work

by addressing the business level impediments faced by agro-processors.

c) Some interesting cross-cutting market opportunities were identified, notably in the

areas of packaging, processing and branding, traceability, and logistics. It is

recommended that the AIC encourages and enables the start-up and growth of

innovative enterprises in such areas.

d) Because of the challenging operating

environment, it is recommended to primarily

target existing enterprises with growth potential,

while leaving room for some start-up support.

e) Across the dominant value chains of Nepal, one

resonating challenge experienced by most

existing entrepreneurs is the development of the

domestic, regional, and international markets.

Food processing entrepreneurs struggle to

understand the opportunities for the domestic,

regional and international distribution, the

industry standards associated with each target

demographic, and the logistical constraints that

require addressing.

For entrepreneurs interested in pursuing a

domestic market, the distribution choices are

extremely limited. Apart from managing their

own distribution with their own trucks, sales team, and regional warehouses,

Nepalese entrepreneurs are left with two options: the market system or partnering

with a large processor, such as Dabour, and using their distribution channels. The

market is a complex network of regional, informal markets that complete with an

extensive infrastructure of traders, brokers, wholesalers, local, and regional

Example of Products in Local

Supermarket


52

transportation companies. It is perhaps one of the most underutilized opportunities

for Nepalese value-added food processors. Most Nepalese food processing

entrepreneurs get too focused on the larger, international markets—most notably

the EU markets, while ignoring the domestic and regional market opportunities. In

Kathmandu alone, there are more than 10 large supermarkets (five of them

Bhatbhetani), that could be suitable for many products.

In international markets, Nepalese entrepreneurs face stiff competition and simply

cannot compete in many value chains because of the high cost of transportation

that occur as result of Nepal being a landlocked country, where exports have to go

by road to Kolkata, India or by airfreight. Entrepreneurs have few options and

encounter high transportation costs and significant, sometimes unpredictable, time-

to-market delays. More readily addressable factors affecting the competitiveness

of Nepalese entrepreneurs are the lack of quality packaging (which must be

imported), the lack of acceptable laboratory and standards analysis (products must

be shipped internationally for analysis), and tax and other incentives for agri-

products export.


53

5 Target Clients

5.1 Nepalese Agribusiness Entrepreneurs Landscape

Food processing SMEs with value-added niche products are the primary target clients

for the AIC. This industry is at a nascent stage in Nepal, with 90 percent of enterprises

below the small industry level according to the Nepalese scale.47

The total number of food processing industries registered at DFTQC is 1,877, as outlined

in the figure below.

Table 12: Licensed Food Industries in Nepal until FY 2012/2013

Serial

Number

Product Number of

Industries

1 Rice, Flour & Pulse processing (Mills) 238

2 Spice 229

3 Processed / Mineral water 217

4 Fat and Oil 202

5 Fruit and Vegetable Processing 178

6 Bakery 172

7 Snacks 146

8 Dairy 133

9 Tea and Coffee 100

10 Confectionery 65

11 Noodle 38

12 Biscuit 17

13 Sugar 14

14 Honey 12

15 Health Food 7

16 Meat Processing and Handling 6

17 Chura (Bitten Rice) 1

18 Ice and Ice Cream 1

19 Maize Grit 1

20 Soya Products (Grit, Nugget, and others) 3

21 Miscellaneous Products and Others 97

Total 1877 Source: DFTQC 2013.

The comparatively larger value adding enterprises are in herbs processing, livestock, fish

and poultry, vegetable and fruit, tea, coffee, and diary.

47The Industrial Enterprise Act, 1992 (prevailing act) defines small industries are those with less than NPR 30

million fixed capital and medium is between NPR 30 to 100 million fixed capital investment.


54

Department of Industry (DOI) data show 214 medium-size or larger agriculture and

forest-based industries, including food processing, with fixed capital investment more

than NPR 30 million (see Annex Nepal agro-based industry data).

Table 13: Department of Industry Registered Agro-based Industries

(More than NPR 30 million fixed capital investment)

S.

No.

Agriculture & Agro based Industry

Category

No. of

Industries Remarks

1 General Agro Business / Industry 5

2 Herbal Medicine / Herbs Processing 15 Ayurbedic medicine

3 Ginger Processing 1

4 Tissue Culture 1

5 Livestock, Fish and Poultry (Bird) 19

6 Silk / Rabbit (yarn and fabric) 2

7 Floriculture 3

8 Tree Plantation 4

9 Sugarcane farming 1

10 Seed 2

11 Cardamom 1

12 Vegetable and Fruit 34 Including drying and processing

13 Bamboo 1

14 Fertilizer / Bio-fertilizer 3

15 Coffee and Tea 74

16 Cold Storage 3

17 Cotton 1

18 Diary 15

19 Essential Oil 4

20 Animal feed 2

21 Fruit processing 6

22 Honey 1

23 Meat processing 1

24 Mushroom processing 3

25 Oil & Vegetable Ghee 7

26 Cereals & Pulse 3

27 Saw Mill / Wood Processing 1

28 Starch 1

Total 214

Source: Department of Industry, January 2013 (Categorized from long list of agro-industries).

Comparing the DFTQC and DOI data shows 1,663 industries (1877 minus 214) are small

industries with agriculture and forest-based food products registered at the DFTQC. This

indicates a pool of 1,600 potential AIC clients. However, only a small percentage,


55

typically from 3 percent to 10 percent, will be growth oriented,48 meaning the pool for

the AIC is more in the order of between 48 and 160 enterprises.

Given the low level of existing entrepreneurship in the country, a pre-incubation phase

focused on entrepreneurship awareness and development should be incorporated in

the model. Through these activities, network partners would support start-up

organizations not yet ready for participation in the AIC.

5.2 Nepalese Agribusiness SMEs Needs

SME Barriers 5.2.1

The AIC will need to address the many challenges agribusiness entrepreneurs face.

Technology: Absence of suitable technology for post-harvesting and processing.

Technologies used for processing of agro-food or medicinal herbs and essential oils are

often too small scale to generate a critical mass for commercial returns. Appropriate

technologies for simple post harvesting technologies, such as grading and packaging,

are lacking. There is a dearth of companies using good production technologies and

inadequate transfer of knowledge/skills for use of available technologies.

Market access: Limited access to markets, most often with no direct contact with end

users of the produce.

Agriculture commodities, medicinal herbs, and essential oils are sold through traders

located at trading centers. Producers have very limited access to other buyers for their

produce. Focus group participants noted these problems: politics in the marketplace;

limited information about the market and consumer as mostly they deal with mediators;

limited knowledge about suppliers and production process of producers; limited

marketing skills; dynamics of market players, which are difficult to understand and

influence, and difficulty penetrating markets.

48Research indicates that only 10 percent of new enterprises grow and that only 3 percent achieve

dynamic growth. For example: the Global Entrepreneurship Monitor (2004), page 13 “Only 3 per cent of all

start-ups qualify as businesses with high potential.” Scott Shane, The Illusions of Entrepreneurship: The Costly

Myths That Entrepreneurs, Investors, and Policy Makers Live By, 2008: “Only 30% of start-ups live past 10

years; fewer than 10% grow, and just 3% grow substantially”. For many reasons across the globe most

businesses are micro and small and do not grow. They still play an important role in economies and

employing people, but incubation is not the tool to use to support them.


56

Production volume: Economies of scale are inadequate to produce the volumes of

production and processing to access larger markets.

Cultivation and collection of agriculture crops, livestock, and medicinal plants are

fragmented and practiced on a small scale, which does not provide enough volume

for processing to be viable. The majority of farmers or collectors are smallholders, which

limits use of technologies and possibilities for value adding. Furthermore, the majority of

producers are at a subsistence level and lack commercial orientation.

Infrastructure Lack of infrastructure such as road networks and access to power due to

scattered settlements

Good roads, transportation facilities, storage facilities, market centers, and power

shortages are further impediments for the growth of the agriculture sector. Nepal has

one of the lowest road densities among landlocked countries. Investment in

infrastructure and basic services has not been cost effective because of the very

nature of scattered settlements in hills and mountainous regions. These impediments

have hindered competitiveness of the sector.

Communication: Communication is vital for timely transaction of commodities.

Poor communication systems, lack of information, and communication technology

availability have limited growth potential of the agriculture, herbs, and medicinal plants

sectors.

Research and development: The agriculture sector has suffered, to some extent,

because of the insufficient research and development initiatives.

Inadequate resources and capacity of existing research and development institutions

make it difficult to provide useful and economically viable solutions/innovations to

farmers. National research institutions, such as NARC, do not have refined

commercialization strategies, or dedicated Technology Transfer Office (TTO) functions

to transfer technology and knowledge for adaptation by producers.

Political instability: Political instability has created an unstable macro-economy.

The government’s rules and regulations are not implemented effectively, even when

policies are investment friendly.

Subsistence Agriculture

Agriculture in Nepal is predominant at the subsistence level. Commercialization is a

relatively new phenomenon in this sector.

Lab testing and quality certification

Suitable facilities are not always available or of adequate standard in Nepal, in which

case companies have to go to external international agencies, for instance, organic


57

certification, certification for nutritional features, or certification for testing extracted

essential oils as required by buyers.

Gaps in Service Provision to SMEs 5.2.2

The main service gap for SMEs is practical support to help enterprises to grow; as the

Global Entrepreneurship monitor points out, this will only ever be a small minority of all

enterprises.49 MEDEP and other business development services (BDS) providers focus on

micro enterprise development, for self-employment and income supplementation,

although their strategies going forward are for sustainability and helping businesses to

scale up. The potential for business incubation with MSMEs is what can be termed “post

micro-business” support, to help selected entrepreneurs with realistic growth aspirations.

Business training is not a major gap, although it can always be improved and often has

unrealistic expectations that training will lead to successful businesses, with some

stakeholders thinking of business incubation as a training program. Practical support

and understanding that entrepreneurs learn best on the job from other entrepreneurs

are needed. Two quotes from stakeholder consultations encapsulate this gap:

“Lack of mentorship… everyone craves advice and mentoring and no one gets it.”

“Business helping business in a dynamic environment is what is needed.”

This study reinforces findings from the 2004 Helvetas Study,50 which concluded:

“In Nepal, with the largely rural population and widespread rural poverty, most

enterprise development activity is targeted at the development of micro businesses in

rural areas, with the aim of providing direct and immediate poverty alleviation.

Research undertaken by the International Labour Organization (ILO) and UNDP has

concluded that a problem exists in that businesses are not growing past the micro

stage, hence the “growth trap”51. This conclusion was reinforced in our consultations.

The main gap that exists in terms of enterprise development services is to assist and

foster enterprise growth, which is where international experience has found incubators

49Global entrepreneurship Monitor (GEM) 2004 estimates about 3 percent of start-ups are those with high

growth potential. 50 2004. “Overcoming the Growth Trap, Business Incubator Pre-conditions and Potential in Nepal, with more

specific consideration of Birgunj and Dhangadhi, as examples of large and middle towns”, prepared for

Helvetas by BTEC Inc and CREEDA Projects. 51The “growth trap” is identified in the UNDP ILO Report on Micro and Small Enterprise Policy Review in

Nepal, 2003, page iii. The “growth trap” is a set of conditions that impede or stop the growth of micro and

small businesses, in terms of productivity and income.


58

have the best impact. There are more cost effective and suitable interventions, such as

Business Development Services, for those enterprises which, for whatever reason, do not

want to or cannot grow. With regard to micro-enterprise initiatives, which incubators

should complement rather than duplicate, the focus proposed may best be considered

as “post-micro.” This implies targeting the services at the micro to small business

transition and focusing on helping the percentage that want to grow and become

larger, as well as new businesses that have the potential and aspiration to grow and

become small and medium, or even large businesses. The focus groups showed that

market awareness access and sales are important areas in which enterprises need

help, especially for agro-processors.

SME Needs 5.2.3

With infoDev funding, Information Technology Professional Forum (ITPF) conducted a

comprehensive feasibility study in 2005. This study involved a survey of 110 MSMEs,

selected by random sampling in six industrial cities in all the development regions other

than the far western region. For these MSMEs, marketing and product distribution

assistance, finding available space and infrastructure, accounting and financial

management, and access to financial assistance, process and inventory management

and assistance with product design and testing were the major supports sought. Lack of

marketing information, inability to frame proper marketing plans, not having proper

technical know-how, inability to adapt to the changes in the business environment, and

lack of adequate financial management skill were considered to be the main reasons

why most of the businesses fail during their initial years of establishment. The interviews

found that 62 percent of the sample used support services to improve their

performance, 69 percent are willing to pay for the services of a support organization,

and 75 percent wanted to grow further, indicating good demand for business

incubation from existing businesses.

Entrepreneurs in infoDev’s focus groups were enthusiastic about the possibility for an

AIC and ranked the services needed as the following:

1. Market

2. Enhanced technology and associated information

3. Finance

The services focus group participants want from an incubator include the following:

Marketing and sales

o Networking

o Market information


59

o Narrowing the gap between producers and consumers

o How to take products to market

o How to sell services

o Service / online marketing platform

Technology transfer, especially for existing SMEs who want grow and are

interested in sharing proven technology within country, partnering with other

SMEs for technology and know-how.

Quality certification assistance, for example, organic certification, acid-free

certification, nutritional certification, health and safety certification, and others.

A user-friendly environment

Energy supply (24 hours)

Some agribusinesses have specific technology requirements, such as cool

storage, distillation technology, preservation technology, or packaging

technology.

The consultative workshop reinforced these conclusions, identifying the following priority

services for the AIC:

Marketing and information systems

Technological support

Mentoring

Inputs, such as certification or quality standards

Credit facilities (finance)

Advocacy for a conducive environment

Policy information

Facilitation for registration of businesses

5.3 Entrepreneur Pipelines—Feeder Channels and Complementary Organizations

Feeder channels are important to help an incubator identify and access growth

oriented agribusiness clients and to institute mechanisms whereby business incubation

complements other agribusiness development activity. Incubation needs to work with a

wide range of complementary organizations, which can refer suitable entrepreneurs to

the incubator, as outlined conceptually in the diagram below.


60

Figure 6: Feeder Channels

The “funnel” above will be crucial, recognizing that business incubation needs a critical

mass of 20 or more growth-oriented business clients under business incubation to

underpin a sustainability model and that business incubation works in phases, from pre-

incubation through business incubation to post-business incubation.

Accordingly, working with other organizations as feeder channels for clients, around

pre-business incubation and to back up loans and other financial investments made to

micro, small, and medium enterprises (MSMEs) will be an essential aspect of the Business

Incubator Framework.

A number of entrepreneur pipelines were identified as feeder channels that can be

“tapped” for the business incubator, which are summarized below.

‘Physical’

Business

Incubation

Analysis and

signposting

Individuals and

Ideas

New and Existing

Enterprises

Other

Business

Support

Further growth

‘Virtual’

Business

Incubation

‘Recycled’

Growth Potential in

Nepal

Feeder channels: PACT, CAA, BDS, Universities,

Networks +++

To deliver entrepreneurs to the incubator


61

Table 14: Feeder Channels

Type of Organization Organization

Tertiary Institutions Agriculture and Forestry University

Kathmandu University

Tribhuvan University

Industry Associations and

Business Networks

FNCCI

*AEC, the agricultural wing of the FNCCI

The Nepalese Young Entrepreneurs’

Forum (NYEF)

Nepal Youth Business Foundation (NYBF)

Federation of Nepal Cottage and Small

Industries (FNCSI)

Samriddhi, The Prosperity Foundation

Arthalaya –School of Economics and

Entrepreneurship

Change Fusion

Entrepreneurs for Nepal

WEAN Cooperatives

Financial Institutions Banks, via the Bankers Association

IFC’s SME Ventures Fund Business Oxygen

Business Development

Initiatives

Micro-Enterprise Development Program

(MEDEP)

Lead International

Commercial Agriculture Development

Project (CADP)

Commercial Agriculture Alliance (CAA)

Project for Agriculture Commercialization

and Trade (PACT)

International Development Enterprises

(IDE-Nepal)

Nepal Education Agriculture and Trade

(NEAT)

Other Organizations International Centre for Integrated

Mountain Development, ICIMOD

*AEC/FNCCI has been implementing a One Village One Product (OVOP) program

since 2006, as a public-private partnership. The overall objectives are to alleviate

poverty in local communities and benefit local people through entrepreneurship


62

development. Specific objectives include the following: (i) develop local products and

to add value according to market demand, using local people’s skills; (ii) develop

competitive products with export potential; (iii) alleviate local community poverty and

help enhance economic development; and (iv) develop and to promote the branding

of the product

Anticipating successful outcomes of OVOP, AIC expects to link with agribusiness

champions from across the country, who may seek support to scale up their businesses,

such as agriculture processing industries. Initially implemented in 22 villages in 22

districts, the OVOP has been extended to all 75 districts of Nepal as One District One

Product (ODOP) since 2012. Out of 75 ODOP, 62 districts are identified as agriculture

and NTFP based product districts.

5.4 The Market for Business Incubation

In summary, the AIC will not be value chain specific and will focus on viable firms in

competitive value chains that add value by food processing and post-harvest

processing primarily, but also with value added input supplies. The AIC’s clients are likely

to be the emerging leaders and pioneers in the value chains in which they operate.

They are likely to become role models for others in the future.

The market has a number of important features:

Entrepreneurial people with growth potential. Only those proponents with

entrepreneurial characteristics or teams and which have growth potential will be

selected.

Existing or new processors. Existing small, micro and medium-size companies will

be assisted, as well as new start businesses. Pre-incubation will be used, working

with partners such as universities, to nurture the future demand and agribusiness

entrepreneurship rates.

As outlined earlier, the AIC will focus on a range of competitive value chains

rather than one specific value chain.

Accordingly, the market for the AIC comprises a number of segments.

Growth-oriented SMEs

At least initially, the main market segment for the AIC will be existing small and medium

agribusinesses, with turnovers in the order of between $100,000 and $600,000 per

annum and which have the potential to achieve annual growth in sales of 30 year or

more per annum. These businesses will come from BDS services, such as MEDEP, business

organizations, such as FNCSI, agribusiness development initiatives, such as PACT, and

CAA and networks, such as Entrepreneurs for Nepal, noting only a small percentage of

small and micro businesses either want to or has the capacity to follow a growth path.


63

Many micro businesses are motivated by income supplementation, rather than growing

a business.

Graduating Students

Across the globe, the work of graduate students is difficult to incubate, because fresh

graduates do not have real world experience, knowledge of markets, and private

sector disciplines. IADB research into dynamic companies in Asia and Latin America

(those that scale and grow significantly, defined as those between three and 10 years

old and which increased their workforce to between 15 and 300, and which are the

target for incubation) show that these companies are started by people in their thirties

following experience working in corporations or SMEs.52

While students sometimes develop business “projects” as a part of their studies, these

projects are often “very difficult to commercialize.” Nonetheless, some students do

successfully start and grow businesses; for example, a successful meat processing

venture started by a recent graduate.

If graduates can get a job, then this is often a better path in the short to medium term

since starting a business is far harder than finding a job (if jobs exist to be found). Both

KU and TU share this understanding. TU noted that 60 percent of their graduates go to

further study and KU noted that most of their graduates get jobs “relatively easily.”

Many graduates try to go overseas. Nonetheless, both KU and TU are interested in

business incubation, especially pre-incubation, which can bear fruit immediately after

graduation or in the future after work experience.

Researchers Commercializing Research

With only limited R&D budgets and no technology transfer organizations in place,

researchers doing commercializing research are only a small segment in the short to

medium term, but this segment may grow in the future.

Financial Institution Clients

Business incubation can lever and mitigate the risk for banks and other investors. The

bankers association can offer to promote the business incubator to its member

commercial banks, so that they can refer suitable loan clients. The incubator should

work closely with the special financing facility, Business Oxygen, currently being

established by IFC Ventures and implemented by the Bank of Kathmandu and Beed

Management, with the associated training product, Business Edge, being implemented

by Lead international.

Fresh New Start Businesses

This is the traditional market for business incubation in developed countries and is also a

part of the market in Nepal. These people may come via feeder channels, such as

52Inter-American Development Bank. 2002. Entrepreneurship in Emerging Economies: The Creation and

Development of New Firms in Latin America and East Asia.


64

entrepreneurs for Nepal, from industry, the general community, and other varied

sources. Many are expected

to be in employment before

starting their business.

Client Targets 5.4.1

Clearly there is a strong

demand for AIC services

from agribusinesses in a

number of sectors, which

can underpin AIC demand,

investment, and impact

assumptions.

Successful business

incubators need a critical

mass of at least 20 growth-

oriented entrepreneurs,

either based onsite or off-

site, to underpin a viable

and self-sustainable business

model and to foster peer-to

-peer learning and

exchange. It is impossible to

quantify all of the demand

that may exist. Insights can

be gained from the number

of food processing

businesses summarized earlier (see MOI and DFTQC data in Section 5.1), the number of

clients in various ongoing agribusiness projects by government, summarized below in

Figure 19, from the entrepreneur and stakeholder consultations and growing demand

for processed, healthy and organic food at the leading supermarkets in Kathmandu.

Potential Client Example

Housewife turned Entrepreneur, Hajuri Bista of Navaras Pickle

Hajuri Bista started her pickle business soon after

completing her training with an initial investment of Rs

20,000 ($230) to tap the unmet market demand for

Nepali pickle. She is a successful and proud owner of a

well-established brand for preserved food and pickle in

Nepal, known as “Navaras.” Started from her own

kitchen, with income of Rs 30,000 ($350) in first three

years, now she earns more than ten million rupees

($110,000) annually and employs 15 people full time.

The expansion of business took place after her husband

complained about the smell of pickle inside the home

and suggested she expand production outside, for

which she chose a small shed behind her house.

Ms. Bista received guidance from co-operatives and

professional organizations. Her sound handling of

employees and maintaining of quality have significantly

contributed to her success. Ms. Bista is planning to

expand her market domestically as well as overseas, but

is facing tough competition with Indian products. Based on: http://e4nepal.com/entrepreneur-2/hajuribista/


65

Table 15: Selected Agribusiness Projects under MOAD

Project Duration Major Activities

Number of Clients being Served

Amount of

Assistance

(US$)

Partner

Commercial

Agriculture

Development Project

(CADP)

2007–13 Commercialization of agriculture

CAA.

Clients: 267 (133 nongrant recipients)

18,000,000 ADB

Project for Agricultural

Commercialization

and Trade (PACT)

2009–15 Agriculture and rural business

development; Support for sanitary and

phytosanitary facilities and good

quality management.

Clients: 539

10,500,000 World

Bank

High Value

Agriculture Project in

Hill and Mountain

Area (HVAP)

2009–

present

To integrate into the local rural

economy through initiatives that

develops small businesses and increase

trade by building the capacity of rural

institutions.

Clients: 13, 500 Households

18,900,000 IFAD &

others

High Mountain Agri-

Business and

Livelihood

Improvement

(HIMALI) Project

2011–17 To reduce poverty in highland areas, by

improving income, employment

opportunities, and the nutritional status

of poor farm families and women in

particular; and by increasing the

productivity of the livestock subsector.

Clients:

The Project impact indicators include:

Additional $20 million of gross

production value per year of

agricultural products

Additional 7,500 jobs created by

participating enterprises

Additional $6.4 million in wages by

2017

20,000,000 ADB

Raising Incomes of

Small and Medium

Farmers Project

2011–17 Reduce the market and business risks

for small and medium farmers who

diversify into high-value commodities

(HVCs) in 10 districts of Nepal's Mid-

Western Development Region and Far-

Western Development Region.

Clients:

20,100,000 ADB

Nepal Economic,

Agriculture and Trade

Activity (NEAT)

2011–14 To foster a conducive business

environment for private sector-led

growth, encourage competitiveness

and exports in selected agriculture and

nonagriculture commodities or services,

initially targeting lentils, ginger,

orthodox tea, and vegetables.

Clients: 50,000 Household

30,000,000 USAID

Source: IFAD 2012: Design Completion Report, Crops and Livestock Accelerated Productivity Programme.


66

Reinforcing conclusions from stakeholder

consultations, the demand is spread across

many sectors and a multisector approach,

within the agribusiness arena, is warranted,

rather than focusing on a particular value

chain. This levers the work of other donors,

who focus on specific value chains.

The incubator has been designed to work

with up to 30 clients because of the

demand for incubation, the need to be

very selective and develop a critical mass

of clients under incubation, and the need to

underpin a sustainability model without

being too optimistic given the political

situation. In addition, the AIC will assist early

stage clients with development and proof

of concept, which will build future deal flow.

Table 16: Client Targets

Year Yr1 Yr2 Yr3 Yr4 Yr5

Clients

End of Year 10 20 30 30 30

New Clients 10 10 10 10 10

Graduated Clients 0 0 10 10 10

Accumulated by Year 10 20 30 40 50

More information on client targets is in Annex 7.

Potential Client Example

Karnali Organic from Jumla, Nepal

Karnali was officially registered as a

private company in 2010, but has

been operating for 10 years

producing 2,000 kilograms of niche

honey-based products (a variety of

balm, wild honey).

All products are sold in

Kathmandu/Nepal with more than 75

percent to expats who often take it to

their home countries as a souvenir.

No direct exporting has been

undertaken to date. Karnali uses a

broker to reach the farmers, but plans

to deal with farmers itself. It needs to

resolve the issues of direct exporting

and the business plans to expand.

Assistance with export marketing,

certification, collection

management, and growth finance

will help the business to grow.


67

6 Business Model

6.1 Selecting Clients

As discussed, the highest impact and likelihood of sustainability of the AIC can be

achieved by targeting enterprises that demonstrate some understanding of market

demand, target the local and regional markets, and have access to a minimum level

of equipment. The enterprises, thus, have a foundation that positions them for growth

into new markets or products.

A detailed selection process will need to be prepared in order to select the enterprises.

While this will be the mandate of the management team of AIC during the start-up

phase, a number of points are pertinent:

1. Enterprises need to have a growth focus.

2. Entrepreneurs need to demonstrate strong entrepreneurial traits that can be

assessed through psychological testing.

3. Enterprises have a track record indicating success and will demonstrate

competitive advantages in some ways.

4. The market potential of enterprises will need to be good to allow growth

activities.

5. The enterprise should be fundable either via direct commercial loan, or through

a seed fund raised to support selected enterprises or with their own resources.

Selection will follow a process of application, assessment, review, and capacity

building. Finally, a selection panel will assess the merits of each enterprise. This panel will

include representation from a financial institution, as well as a professional with sufficient

market knowledge in the specific product market to assess the product’s market

potential.

Successful enterprises will be required to formally and legally commit to the conditions

of service, including payment regimes and conditions as set out by the AIC.

Selecting high growth enterprises is as much an art as a science, combining judgments

about the entrepreneurial character of the people involved and the history and

potential of the business in the market place. At least initially, the AIC will focus on

enterprises with an annual turnover in the order of between $100,000 and $600,000,

which have the capability to achieve annual growth in turnover of 30 percent per

annum for the anticipated three-year incubation period and after incubation has

ceased. These revenue figures underpin the financial sustainability model.


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6.2 AIC Service Portfolio

There is adequate demand from growth-oriented agribusinesses to justify the

development of the AIC as a new model for promoting the growth of a competitive

value adding agribusiness sector in Nepal. The AIC is a targeted effort to accelerate

the growth of a domestic value-adding sector, focusing on value chains that have a

demonstrated potential and initially working with existing enterprises, although fresh

new start enterprises will be encouraged and supported over time. The benefit will flow

beyond the companies supported, which will demonstrate what can be achieved by

market and technology development. The situation should catalyze others in the

agribusiness sector to do the same. This, in turn, will lead to significant job creation in the

processing sector and beyond (studies indicate that for every job created in

processing, the multiplier effect in the economy is 2.85), as well as increases in income

at the processing and farmer levels. The projected impact of the AIC is discussed in

further detail later in the report.

The AIC will provide clients with a comprehensive service offering designed to position

them for growth into new markets and products.

NEW

MA

RK

ET

Support new market

access

Expand new

product markets

EX

ISTI

NG

MA

RK

ET

Strengthen

product/market

position

Encourage new

products

EXISTING PRODUCT

NEW PRODUCT

Figure 7: Positioning Nepalese Agribusiness SMEs for Growth

As a part of the implementation, especially in the first preparatory year, services will

need to be tailored to clients in each of the small, medium, and large business

categories. As businesses grow, their needs and capabilities will change. More

information on how services can be tailored to the varied needs of micro, small,

medium, and large companies with phases of support is in Annex 6.


69

The AIC services will respond to the needs, following areas of the portfolio and delivered

with network partners:

1. Business management advice

2. Market development and access, along with domestic, local, and regional

branding and compliance

3. Business advice and capability development, including pre-incubation

4. Financing brokerage for seed, as well as for growth, finance

5. Access to office, meeting, promotion, and testing facilities

These streams of services encompass business coaching, market research, marketing

and procurement facilitation, technology identification, facilitation, and training and

financial services. These services will provide clients with a comprehensive tailored

offering designed to position them for growth in existing and new markets.

In addition, the AIC will play an active role in promoting successful introductions and

marketing and technology innovations in order to stimulate broader take-up by other

emerging agro-processors. It will also actively communicate policy and regulatory

constraints faced by high-growth potential value adding processors to government

officials, financing constraints to the financial sector, and skills and research needs to

academia and research institutes. In this way, the AIC will help strengthen the overall

innovation and entrepreneurship ecosystem affecting the ability of the entrepreneur to

succeed in the marketplace. The service portfolio of AIC Nepal graphically presented in

the following figure.

Table 17: Nepal AIC Service Portfolio

Payment for Services 6.2.1

Awareness and pre-incubation services (involving workshops and advice to prospective

AIC clients prior to the rigorous selection process) will largely be at no or only minimal

cost. Once clients are selected, they will pay for the business support, which will be

tailored to their unique needs on a case-by-case basis, by way of success sharing

Technical Knowledge

•Market Research and Intellegence

•Business Training

•Technical Training

•Industry Seminars

Advisary Services Networking

•Advisory and Coaching

•Mentors

•Value Chain Partner Facilitation

•Networking Events

Innovation Acceleration

Platform

•Competitions

•Ideation and Prototyping Events

•Acceleration Events

•Collobaration Platforms

Access to Facilities

•Compliance & Certification

•Early Processiong Space

•Working Space / Hot Desking

•Product Showcasing

Access to Finance

•Investment Facilitation

•Linking to Matching Grants

•Connecting to Risk Capital Funds

•Brokerage for Growth Funding


70

arrangements (see Financial Section 9.2 for more information) and payment for use of

office and other infrastructure services.

Market and Technical Knowledge 6.2.2

Any initiative focused on enabling the growth of agribusiness enterprises must start with

market and technical knowledge, which includes business and technical training,

industry seminars, and market development. The AIC needs to invest in developing

internal market development capacity—an area that is generally deficient in Nepal.

The AIC will do the following:

Help companies gain agribusiness knowledge through technical and business

training and industry seminars

Assist companies with exploiting existing domestic markets, helping them to

navigate and put in place distributions systems

Assist export-ready companies to exploit international markets, navigating

complex and limited export pathways

Help companies to identify, target, and test new markets and new products

Facilitate access to available packaging and address the deficiencies in the

packaging options available, including copacking arrangements for the

international market

Help companies with market research to assess opportunities and to position

themselves in the market, with current and new high-value products

Help enterprises in identifying and accessing inputs and supplies

Facilitate procurement of common commodities in bulk for resale to processors

Help companies to identify, target, and conclude sales deals in more lucrative

markets

Facilitate trade show activities

Advisory Services and Networking 6.2.3

The advisory and networking portfolio includes mentoring, coaching, and advice on

business management, technical, and regulatory issues. Specific service offerings

include value chain partner facilitation and networking. Although AIC staff will provide

the core advice, the AIC will need to create a strong mentoring, coaching, and partner

network where external capability exists. The AIC will do the following:

Provide focused support in accounting, business strategy, sales, market

development, and other aspects of business management. This support will be

provided by internal staff and outsourcing to specified experts.


71

Negotiate and facilitate access to specialized equipment for new product

development and testing.

Facilitate processing technology improvements, hygiene improvements,

standardization, testing, and access to the latest processing knowledge.

Access to packaging facilities, standards, and labeling for both local and

international markets.

Create a network of support organizations that will be able to support

entrepreneurs in areas such as registration, regulatory compliance, sector

development, advocacy, R&D linkages, North-South linkages, financing,

packaging, testing, and certification and network support.

Work with local institutions to identify and meet local standards and with local

consumers to identify standards that must be met.

Innovation Acceleration Platform 6.2.4

This portfolio will be focusing on generating a critical mass of clients for the AIC. It will

emphasize working with network institutions to lever and conduct competitions,

ideation and prototyping events, acceleration events, and collaboration events. It

needs to use the existing network and ecosystem in Nepal with organizations, such as

e4Nepal, Biruwa Venture, and BIP.

Access to Facilities and Locations: Hub and Satellites 6.2.5

The AIC will operate nationally, with a hub in Kathmandu (the largest urban center and

market in Nepal) and satellites, levering partners’ facilities and services, initially in

Nepalgunj in the west, a regional center for NFTP industries and Birattnagar in the east,

a hub for horticulture. Other satellite locations may emerge over time, on the basis of

demand for AIC services from clients and interested local stakeholders, such as Pokara,

to capitalize on anticipated increased trade with Tibet. From these sites, outreach

services will be provided to support entrepreneurs in their own locations, as well as

supporting entrepreneurs who locate in the AIC facilities, or drop in to make use of the

services. The AIC will commence with the hub in Kathmandu, followed by the satellites

in Year 2. Once the hub is established, final decisions on satellite locations will be made.


72

Figure 8: AIC Operation: Hub and Satellite

The AIC hub in Kathmandu must be based in an area that is good for business, close to

regulators of food products, and with proximity to agribusiness entrepreneurs, business

mentors, and knowledge centers (R&D). The AIC satellite locations are governed by

proximity to a critical mass of agribusiness entrepreneurs, access to logistics and access

to procurement of raw materials, and processing and packaging infrastructure

AIC will not invest in processing or testing facilities and equipment. Instead it will partner

with the institutions whose infrastructure and facilities can be shared. The AIC will focus

on existing processors initially, who already have processing facilities of one form or

another, which may be improved and expanded with business support and financing.

In the future, partner facilities for new start businesses will be used. Renovation of the

DFTQC’s pilot plant is accounted for in the budget in the third year, to provide testing

space for new processing businesses. When renovated, this facility will be managed by

DFTQC, a key partner of the AIC.

To support entrepreneurs with market development, a product and technology

showcase will be established in the AIC facility in Kathmandu. The showcase will also be

a base from which to help entrepreneurs navigate the complicated market systems,

which many entrepreneurs do not understand, for both marketing of products and

sourcing supplies.

The AIC will broker and facilitate access to testing and certification facilities, as well as

packaging facilities, both in Nepal and internationally, levering partners and networks.

For instance, copacking arrangements will be facilitated on- and offshore, so producers

can outsource or export in bulk and have their products packed under their own label

in existing copacking facilities. The AIC will facilitate access to partners testing

laboratories in Nepal and where they are not available, follow existing practice and

Central Hub

Kathmandu

East Satellite

Biratnagar West Satellite

Nepalgunj

Agribusiness

Champions

NARC

DFTQC

ICIMOD

AEC / FNCCI

CAA

MMA

+++

+++

NgCCI

JABAN

+++

+++

Agribusiness Innovation Center

Agribusiness Feeder Channels and Service Providers


73

facilitate international access, for instance, to Indian facilities, until such a time as they

are available in Nepal.

The AIC’s office facilities in Kathmandu will provide five offices, hot desking space

(online workstations), meeting spaces, reception, and other business center facilities for

entrepreneurs, who can use them on a permanent or drop in basis. Moreover, this will

serve as a co-creation space for networking and pre-incubation to help aspiring

agribusiness entrepreneurs develop viable and competitive plans.

On this basis, the AIC will provide access to facilities as follows:

A product and technology demonstration center will be made available at the

AIC’s Kathmandu premises.

The AIC will link with DFTQC and local institutions to facilitate access to testing

and laboratory facilities and where these are not available in Nepal, to

international facilities.

The AIC will offer offices, meeting rooms, and shared office equipment for

entrepreneurs.

Early stage processing space will be provided for the start-ups at the premises of

DFTQC.

Access to Finance 6.2.6

Finance is a key constraint for growth. It is critical that the AIC can offer financial

services to its clients. This significant gap needs to be surmounted for enterprise to scale

and grow. The AIC will work intensively with clients making them “finance ready” and

then actively facilitate investment from a range of sources:

A $14 million SME venture fund, Business Oxygen, has just been launched with the

support of the IFC and the World Bank, in partnership with a local private bank,

the Bank of Kathmandu, and Beed Management of Nepal. This is the first of its

kind in Nepal. Even though the fund is not sector focused, it is a timely initiative to

access nonconventional finance to simulate the growth of agribusiness.

Matching grant facilities through programs, such as PACT and CADP

Linking with the angel investors, such as Fortune Cookies, and interested

prospective agriculture-based angel investors

Bank financing

The initial strategy is to facilitate and broker finance from these and other existing

sources. Financiers will benefit in terms of better prepared applicants, the due diligence

undertaken by the AIC with its clients, and then the intensive support provided to

clients, which will mitigate the risk financiers take. Should facilitating finance prove

inadequate for the needs of client companies, the AIC may need to consider

establishing a dedicated early stage fund. Alternatively, the AIC could start a


74

dedicated fund itself from the outset, which would need additional investment likely to

be in the order of $3 million over a six-year period to allow for funding of $600,000 per

year.

As well as PACT’s matching grant system, NARDF is an early stage fund the AIC could

target. NARDF is an institution for implementing competitive grants in agricultural

research and development. The main function and mandate of NARDF is to seek or

demand proposals from governmental and nongovernmental organizations, including

academic or educational institutions and the private sector, who are interested in

contributing to the agricultural research and development of Nepal. NARDF focuses on

output-oriented work, aiming to deliver measurable results within a maximum of a three-

year period, in support of national objectives and priorities defined in government

policy documents. The government’s budget for NARDF for FY 2010/11 was around

$766,700. The range of grant is NPR 1 to 3 million (up to around $35,000).53

The following are some priority research topics from the 2012/13 call for proposal

cycle:

Agrotourism

Linking farmers into market, including ICT

Food safety and quality improvement system

Agricultural and livestock market research impact study

Production, processing, storage, and marketing of improved seeds

Promotion of quality products for export

Small agriculture and livestock business promotion

Value-addition technologies in fish and meat production

Production, processing, and marketing of spice crops

6.3 A Multistakeholder Networking Approach

The AIC aims to help growth enterprises to expand and accordingly needs to support

entrepreneurs in value chains with the best potential. It is important to help these

enterprises surmount the challenges they face. Many stakeholders, including donors

and government agencies, are undertaking important work to improve value chains

and are helping to add value to agribusiness entrepreneurs (see table 13). Indeed,

most donor-funded programs in Nepal focus exclusively on value-chain development.

The AIC is designed to fill gaps and not to compete with the existing business

development services or value chain development work. Instead, the AIC will work

closely with these organizations.

53http://www.nardf.org.np and NARDF, Project Completion Report, June 2012 Annual Progress Report,

MOAD, 2011.


75

Entrepreneurship has not been a major part of the Nepalese mentality up to this point.

The challenges of getting quality education, information, access to facilities, and

financing are most often too daunting for recent graduates. Despite this, there has

been a recent surge of entrepreneurs in the food service sector, with new restaurants

popping up all over major metropolitan areas, such as Kathmandu, Pokhara, and

Biratnagar. However, food processing entrepreneurs are still few and far between in

Nepal. It is important for the sustainability of the AIC to implement pre-incubation

programs, via strong partnerships, for entrepreneur development, for which funds have

been allocated for the AIC operations to institute and refine appropriate programs.

University programs in Nepal do not offer entrepreneurship courses, except in Masters in

Business Administrative (MBAs) and certain Master’s program, with limited success. It is

recommended that the AIC conduct a streamlined outreach program with interested

universities and technical and vocational training institutions focused on food

processing and others promoting entrepreneurship, to fill the pipeline of the incubator

with new and emerging entrepreneurs. It is expected that these programs will continue

after the first five-year period in which they are funded by the AIC. In this time, a critical

mass of new entrepreneurs will have been generated and the programs will become

self-sustaining in their host institution.

The opportunity identified is for the AIC to focus on the common challenges faced by

entrepreneurs, revolving around market development, financing, and business

management capabilities. None the less, the AIC’s success will depend somewhat on

how it levers and works with wider networks. Several institutions, government agencies,

business associations, projects and programs, and INGOs are well positioned to

become collaborators, details of which were presented in the stakeholder mapping in

the earlier section. The following are key institutions with whom the AIC needs to partner

and cooperate.

Table 18: Potential Collaborating Agencies, Projects and Programs

KEY INSTITUTIONS ACTIVITIES AND COLLABORATION

Government:

PACT, MOAD

Activities

Ownership and internalization of AIC Feasibility Study and its

recommendations

Implementation of AIC

Funding for establishment and operation of AIC until it becomes self-

sustained

Planning and preparation of exit from AIC at the time when PACT is

phased out

Collaboration

Supporting matching grants made by PACT to processing enterprises

Key infrastructure and knowledge sharing partners for AIC

Government:

MOI / DCSI / BIP

Activities

Policy and process support in implementation and operation of AIC

Representation at strategic advisory committee


76


Collaboration

Linking incubatees to AIC for further growth orientation of BIP

agribusiness clients

Experience sharing and facilitating to AIC client

Pre-incubating services (DCSI-BIP)

Partners:

DFTQC

NARC

ICIMOD

CAA

Activities

Involvement in creating AIC as an institution

Infrastructure and knowledge sharing partners

Eastern regional partner for AIC satellite in Biratnagar (CAA)

Collaboration

Certification and quality assurance

Lab sharing and sourcing of technical mentoring

Knowledge creation and sharing

Technology research, development, and demonstration

Utilization of Knowledge Park at Godavari as needed by AIC client

Establishment and operation of Biratnagar Satellite of AIC (CAA)

Deal flow

Universities:

Tribhuvan,

Kathmandu,

Pokhara, Purbanchal

Activities

Running academic programs relating to food processing, agriculture,

post-harvest technology, horticulture, diary, agriculture engineering,

and livestock

MBA programs, running entrepreneurs lab as well

Industry internship

Entrepreneurship promotion

Participation in Local Innovation Competition (Locus by IOE)

Lab facility, research, and innovation with scope to commercialize

Possible Collaboration

Source of innovative entrepreneurs, mentors, and technology experts

Practical training options on entrepreneurship

Pre-incubation and business-focused research

Laboratory, research, and development access

Established

Entrepreneurs:

Agribusiness

Champions,

Investors, and

Successful

Entrepreneurs

(Pool of Champions

and Investors)

Activities

Running successful agriculture and other business ventures

Partnership in creation of AIC as an nonprofit sharing company

Formation of pool of agribusiness champions and angel investors

Collaboration area

Support to run AIC as business entities

Sending representatives to AIC board

Peer review of champions representing in Board of AIC

Sourcing of industry and business mentors

Business Member

Organizations

FNCCI / AEC / FNCSI

/ NCC

Activities

Focused support through commodity associations, business

promotion, lobbying, entrepreneurship promotion, and facilitation

(NBI, NYEF, and others)

Collaboration

Identification and recommendation of partner for West Nepal,

Nepaljung satellite of AIC

Deal flow and incubation of their growth oriented agribusiness

entrepreneurs


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Feeder Channels:

Biruwa Ventures,

E4Nepal, Samridhi,

ChangeFusion Nepal

Activities

Entrepreneurship promotion, pre-incubation, angel network

Collaboration

Sourcing of clients

Experience sharing on running of an incubator

Women’s

Organizations FWEAN

Activities

Entrepreneurship promotion, pre-incubation

Collaboration

Sourcing of clients

Incubation of their growth-oriented women agribusiness

entrepreneurs

There are significant issues regarding the level of women’s empowerment in the

agricultural sector. In Nepal, women have traditionally been excluded from formal

processes and structures and lack access to market information, technologies, and

productive inputs. Many women also lack the confidence to pursue a business-growth

path. However, women play an important role in agriculture and women entrepreneurs

are becoming more organized through umbrella organizations. For instance, FWEAN

has established a brand for processed foods, such as pickles and spices. FNCCI and

NYEF are collaborating with FWEAN and other partners to organize the first National

Women Entrepreneurs’ Summit and a public Mela (local trade fair) in 2013 in

Kathmandu. This provides an opportunity for the AIC to work with these organizations to

support women agribusiness entrepreneurs to facilitate peer learning among women

entrepreneurs and to sensitize men and women to the potential of women-led

enterprises.


78

7 Institutional and Governance Arrangements

InfoDev’s experience in the area of business and technology incubators indicates a)

that the governance framework is critical and b) that a public-private partnership offers

the highest likelihood for success. In a public-private model, government (which has a

public good role), academia (which has a teaching, research, and often a

commercialization focus), and the private sector (which has a profit motive) all work

together to advance each of their own interests and collectively contribute to growth.

The AIC model, unlike many others, is designed for cost recovery and so it must be

driven in a “Public Mission/Private Management” model. To operate as a trusted,

transparent business in its own right and to achieve financial sustainability, the AIC must

be governed with arrangements that allow private salaries to be paid (which allows fast

management decision making to capture business opportunities) and with flexible

systems to accommodate changes in the business environment. These features should

minimize public sector bureaucracy and maximize the ability to develop trust with the

entrepreneurs supported.

7.1 Mission, Vision, and Strategic Objectives

The study team developed the following provisional vision, mission, and statements

about objectives following consultations with key stakeholders and potential partners.

Vision

Our vision is to be a leader in the creation, growth, and success of notable Nepali post-

harvest processing agribusiness companies.

Mission Statement

The Agribusiness Innovation Center will identify and develop high-growth sustainable

enterprises in agribusiness and other agriculture related growth sectors that will realize

the socioeconomic potential of Nepal through the provision of value added

professional business services, physical facilities, and business linkages to local and

international markets and finance.

Objectives

1. To establish a fully functioning agribusiness incubation environment in Nepal by

January 2014.

2. On average to graduate 10 enterprises per year after an initial four year

establishment period.


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3. To increase turnover of these enterprises (and therefore through success sharing

the business incubation environment itself) by an average of 30 percent each

year for three years.

4. To utilize funding through PACT of $4 million to establish the AIC.

Value Proposition

The AIC’s value proposition is the following:

Its understanding of agribusiness entrepreneurs, business, and business growth

Its capacity to identify and support products with high growth potential in

priority value chains

Its ability to tailor and provide relevant and effective agribusiness growth

services

Its active facilitation of linkages among stakeholders and other business entities,

including the financial sector

Its ability to help grow companies and contribute to socioeconomic

development of Nepal in a more sustainable manner.

Competitive Edge

The agribusiness incubator’s competitive edge comes from its unique ability to

collaborate with and attract high quality growth clients and provide them with value

services and linkages that offer an above average chance of success.

It will do this by:

Becoming a credible agribusiness growth entity that is able to command interest

and respect

Providing high quality accommodation to resident clients at market related

prices and an integrated outreach service to support nonresident clients

Ensuring services are high quality, available, and professionally delivered

Creating an agribusiness growth network with other credible institutions,

including government, intergovernmental, agri-research, financial, market

facing, and business-support organizations

Growing agribusinesses to levels that both satisfy the needs of entrepreneurs

and act as a reference and stimulus for other entrepreneurs

Ensuring independence from any vested interest and developing trust with its

clients

Supporting the socioeconomic development aspirations of Nepal


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Positioning Statement

The Agribusiness Innovation Center is positioned to help entrepreneurs to accelerate

the growth of their agribusiness.

7.2 Ownership, Governance, and Management

To succeed in its mission and to provide tangible value to entrepreneurs, the AIC host

institution needs the following characteristics:

Capabilities to build and manage complex organizations, including strong

internal governance frameworks and a track record of fiduciary responsibility

and accountability.

Proven ability to attract and build a strong team of individuals for project

implementation.

Understanding of the needs of agribusiness SMEs in Nepal or similar contexts,

including experience evaluating agribusiness technologies and incubating early-

stage businesses.

Strong local and international links with potential partners’ agribusiness firms,

investors, technical and business experts, policy experts, and leading research

and development organizations.

Ability to leverage existing and additional sources of funding, both cash and in-

kind, such as space, equipment, and staff.

Ability to implement and maintain procurement and financial management

processes and a comprehensive M&E strategy.

Ability to operate as an entrepreneurial business entity, paying private sector

salaries and working for the best interests of clients as a trusted service provider.

An understanding that while the AIC must operate as a business and aims to

cover its costs, independent financial self-sustainability will be a challenge. Even

if self-sustainable is unlikely to ever be profitable, it should not be seen as a

source of financial return for the organizations involved. Any eventual profits

should be re-invested in the business, to improve and expand services, rather

than being paid out as dividends. The return needs to be understood in terms of

socioeconomic benefit, rather than financial returns.

The organizational arrangement needed in the Nepalese context is summarized as

follows.


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Table 19: Organizational Arrangement for Nepal AIC

At the same time, the AIC institution has the opportunity to leverage PACT activities:

Increasing the value added in selected value chains

Strengthening the system of standards and food quality management

Promoting agribusiness management and innovation

Options 7.2.1

A number of options need to be considered in determining the best institutional

arrangements for the AIC. The strengths and weaknesses of each are summarized in the

table below.

Table 20: AIC Host Organization Options

Option Strength Weakness

Existing business member

organization

Business and industry links

Credibility

Influence

Private sector approach

May have valuable

complementary services

May not be seen as

independent of vested

interest

May not be trusted to work

for AIC clients interests, as

opposed to the

organization’s members

interests

Private Agribusiness

company

Proven entrepreneurship

and private sector

Interest may be too narrow,

focusing on the particular

• Autonomous

• Flexible Independent

• Operating as a business

• Entrepreneurs helping entrepreneurs

Innovative & Entreprenerual

• By entrepreneurs

• By stakeholders Trusted

• Highly capable and experienced HR

• Private sector salaries Capable


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approach

Knowledge of agribusiness

area in which the company

operates.

May not be seen as

independent of the

companies private interests

by AIC clients.

University Knowledge

Resources

May have difficulty

operating the AIC as an

entrepreneurial business

organization, paying

salaries with minimal

bureaucracy.

Government Policy influence

Resources

May have difficulty

operating the AIC as an

entrepreneurial business

organization, paying

salaries with minimal

bureaucracy.

NGO May have valuable

complementary services.

May be trusted as an

honest service provider

working for the interest of

clients.

May not be business

oriented or entrepreneurial.

May not have the

necessary business and

industry linkages.

May only have micro-

business development

expertise, which is not the

same as helping growth

oriented entrepreneurs.

New organization Can start with a “clean

slate” as a demonstrably

independent and

autonomous entity.

Focused on the AIC alone.

Can represent a

consortium of existing

organizations.

Un proven


83

Arguably, the best arrangement for the management and governance of the AIC is for

a new independent and autonomous organization, drawing together existing

organizations in a consortium, to involve their strengths and mitigate their respective

weaknesses. In the end, any consortium for the AIC needs to comprise people and

organizations who have a common ethos, who trust each other and who can work

together cooperatively for the benefit of the AIC.

At the stakeholder consultative workshop, the stakeholders agreed, particularly from

PACT and MoAD, that the AIC should be managed via PACT by the private sector, at

least initially with a nonprofit structure, to draw together a consortium, for which

majority ownership should be with interested private actors. There is an understanding

that the role of government is facilitative; that is, the government should provide

financial, policy, and business environment support, while the AIC should work like a

business and become a permanent entity beyond the PACT project.

The CAA has a relevant nonprofit company structure, which may be a model for the

legal form of the AIC, but it works as a network institution, providing services to its

members, rather than to clients who are not members. This is an important distinction,

because the AIC is designed to provide services to clients, not to the members who

come together to host the AIC.

The AIC has some similarities to private consulting companies who provide strategic

and operational advice to companies, but is significantly different in that payment for

services will largely be by way of sharing in the clients’ success, rather than by payment

of fees. The relationship with the clients has subtle but important differences. It is more

akin to a mentoring relationship, rather than the traditional consultant-client

relationship. Consulting firms will have important roles in assisting the AIC, as service

providers to the clients.

Whatever host organization or consortium is selected, it cannot involve all the interested

stakeholders, without making governance overly cumbersome and bureaucratic.

Accordingly, a Strategic Advisory Committee is proposed, to draw together a wider

group of interested stakeholders, so they can learn from the AIC to provide strategic

and other advice without being involved in governance arrangements and work for

broader ecosystem improvements.


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In summary, the following institutional arrangement is proposed.

Figure 9: AIC Organization Structure

Should a new organization be formed, drawing together a consortium of interested

organizations and agribusiness entrepreneurs, then a new “company not-distributing

profits” is proposed,54 with a consortium of members as the owners, joined on the board

by independent directors. Over time the company could transition to a profit-making

structure, if this is warranted. The organization should be set up in such a way that it will

provide appropriate community involvement, with built in accountability and

transparency at all organizational levels. Under Nepali law, a nonprofit distributing

company needs five members.

The governance of the AIC must allow the center to function as a business. This is well

understood by the entrepreneurs consulted; who also know it is much easier said than

done. All too often business member association involvement is perceived to be the

way to create such an environment; however, initiatives along these lines have not

been as successful as expected; something that the business community has

accepted.

54A company defined by Clause 166 of the Companies Act 2063. This style of company is akin to a

Company Limited by Guarantee under British derived law, a 501C3 company under U.S. law.

PACT Steering Committee

PACT Project Director, AIC

Subproject Manager, AIC

Implementation Committee

AIC

AIC Host Company

&Consortium Members

AIC Board

AIC

Strategic Advisory

Committee

Agribusiness Innovation Center

Management

AIC Client Selection

Committee


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Within this structure, the board plays a pivotal role and must be manageable and

workable. To that end, it is recommended that the board be kept to a maximum of

seven members, the majority of whom are from the private sector.

A purely representative board need to be considered with caution, especially for a

service that has to operate as a business. Representatives may not have the

appropriate commitment, or background, and may simply be on the board because

they have been told to, or to improve their CV. If board members are not wholly

committed or business minded, then they may make poor decisions or avoid hard

decisions. For similar reasons, public institutional stakeholders and their representatives

can at times be “difficult,” if the institution’s priorities or key personnel change. This can

be mitigated by strong private sector directors, one of whom may be the chair of the

board. The credibility of the board directors will be critical for success in levering private

investment for clients. AIC clients and Investors want to trust who is responsible for their

funds or for supporting the companies in which they invest. However, the board cannot

and should not become too involved in the day-to-day management of the AIC or

micromanage.

Roles of Stakeholders 7.2.2

PACT

PACT Steering Committee (during PACT’s existence as a project in MoAD)

Strategic Advisory Committee (MoAD after phasing out of PACT)

PACT – AIC Subproject management Team

PACT funding for AIC made to AIC host institution

Agribusiness Entrepreneurs

Individual successful agribusiness entrepreneurs, or larger corporations in the sector,

interested in promotion and investment in innovative agribusiness will play an important

role, possibly as mentors and advisors to AIC clients, as consortium members (should a

new organization be involved), as directors of the board, or as investors in AIC clients.

AIC Host Institution

The host institution may draw together a consortium of public institutions, private

agribusiness entrepreneurs, other service providers, and knowledge institutions.

Role: Own the incubator, appointment of board of directors, provision of services to

clients.

Board of Directors

Role: Governance of the incubator—oversee the operations of the incubator.


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Strategic Advisory Committee

Role: Strategic advice to the consortium and the board, although with no involvement

in the governance chain, learning about incubation, overall strategic development of

the Innovation, and Entrepreneurship Ecosystem.

Comprising:

Government Ministries

o Ministry of Agriculture Development

o Ministry of Industry

o Ministry of Commerce and Supplies

Chambers of Commerce

o AEC / FNCCI

o FNCSI

o FWEAN

o NCC

Donors, including ABD and World Bank

Other Interested universities

o All universities running agriculture, forestry, engineering (industrial and

processing), and business administration programs

o Tribhuvan, Kathmandu, Pokhara, Purbanchal

BDS Providers

o BEED Management

o Samriddhi

o Change Fusion

o Biruwa Ventures

o Other private/professional companies

The Strategic Advisory Committee would be serviced by the AIC, provided with regular

information and meet together, perhaps once or twice per year, to both provide

strategic advice and learn about incubation. To help maintain information flows and

engagement, the committee could be offered an observer position at specified board

meetings.

Client Selection Committee

Role: To select clients for incubation, on advice and recommendation from

management, according to stringent entry criteria.


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Comprising:

Board of Directors representatives

Calling in external assistance as and when additional sectoral or technical

knowledge is required

SME Venture Fund Representation—IFC nominee or Business Oxygen Fund

Manager)

Management Team

Knowledge Partners: Infrastructure / Knowledge Sharing Institutions

Role: Provision of infrastructure, information, and knowledge for clients on terms

managed by the institutions, which will be key players in the AIC’s network.

Comprising:

NARC

DFTQC

ICIMOD

Screened Qualified Service Providers

Role: Provision of intensive business support services to clients, with management

controlling which service providers are referred to on a case-by-case basis.

Comprising:

Business development service providers and specialist consultants

Banks

Accountants

Lawyers

IT Specialists / Mobile App champs

Other Service Providers

Satellite Partners for AIC

Role: To serve as the local center for the AIC, for their respective geographic regions.

They will mobilize their existing office logistics and human resources for the incubator

and will nominate people to be trained by the incubator to operate as regional AIC

focal persons. Functions of the regional satellite AIC will be guided by a mutual

agreement between the AIC and respective partner organization. The AIC may


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compensate for resources used by the partner organizations for the operation of

satellite AIC.

Potential partners for the satellites:

East

o Commercial Agricultural Alliance (CAA), Biratnagar

CAA, a nonprofit sharing company located in Biratnagaris responsible for

managing the Commercial Agriculture Fund (CAF), the cost-sharing grant

facility of CADP.

o Morang Merchant Association (MMA), Biratnagar

MMA, established in 1951, is a founding member of FNCCI and is the leading

BMO of eastern Nepal, located at Biratnagar, Morang district of Nepal.

West

o Nepalgunj Chamber of Commerce and Industry, NCCI, Nepalgunj

NCCI is the leading BMO of the midwest, located in Nepalgunj, the major

NTFP trading hub of Nepal.

o Jaributi Association of Nepal (JABAN)

JABAN is a medicinal herbs producers association of Nepal with

approximately 25 members who process and export herbs.

Satellites will evolve and may be established in Pokara and other locations where there

is demand from clients and local stakeholders interested in establishing satellite centers.

The respective roles of stakeholders are outlined further in the table below, noting the

plan is still evolving and roles may change as and when a host institution or consortium

is selected.


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Table 21: Key Stakeholders and their Roles—Network for AIC

Key Stakeholder Roles

Government

Ministry of Agriculture

Development (MOAD)

PACT

Implementing Body for AIC

Sponsor / Sourcing of operational grant to AIC

Matching grant / Feeder Channel / Regional offices / Pre-incubation

Monitoring and Evaluation of operation of AIC

Strategic Advisory Committee member

NARC Infrastructure, Knowledge and Technical Support Partner

Knowledge and R&D

Department of Food

Technology and

Quality Control

(DFTQC)

Infrastructure Sharing / Quality Certification / Knowledge and

Technical Support Partner

Compliance, standards, and certification

Ministry of Industry, BIP

(DOI/DCSI/IEDI)

Strategic Advisory Committee Member

Pre-incubation at the DCSI Incubator

Deal flow pipe line

Responsible for the government’s business incubation policy

Ministry of Commerce

& Supplies


Facilitation for international Business, WTO facilitation, NTIS

Trade and Export

Promotion Center


International market facilitation

International Institutions

ICIMOD Knowledge Partner

Sharing knowledge

Best utilization of Knowledge Park, creating win-win situation

Private Sector

Key Industry Players

Fortune Cookie

NIMBUS

Srinagar Agro Farm

Gandaki Bee

Fleur Himalayan

Bhatbhateni

VIOTH

Strategic Advisory Committee Members

Deal flow pipe line: via networks and people who approach them

for investment or support

Provision of services to clients:

Early-stage investment (angel investment) for incubator

clients, when they are “investment ready”

A source of business mentors

International linkages

Market for clients

AIC Regional Partners

CAA / Morang

Chamber of

Commerce and

Industry

Possible Partner for Biratnagar Satellite Center

Deal flow pipeline / feeder channel / district offices

Mobilize internal resources for AIC

Promotion of entrepreneurship and AIC

Operating as AIC satellite in the eastern region

Nepaljung Chamber

of Commerce and

Industry / JABAN/IDE

Possible partner for Nepalgunj Satellite Center

Deal flow pipeline: feeder channel for rural technology innovation


Working closely with AIC Nepaljung to help promote the

incubation, provide sourcing of clients, and provide facilities

and services


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Universities & Public R&D

Universities

Tribhuvan

Kathmandu

Pokhara

Purbanchal

Agriculture & Forestry

Strategic Advisory Committee or Service Provider

Deal flow pipeline: A source of new entrepreneurs from the university

community (graduating students, faculty, and alumni)


Interns to work with clients of the AIC and to enhance their

learning experience

Consulting service for SMEs

Business management training

Pre-incubation for students

NAST

(autonomous body

within Ministry of

Science and

Technology)


Deal flow pipeline: realistically only in the future once it has sorted

out their TTO function and have R&D to commercialize with spin out

companies suitable for agribusiness incubation.

Business Member Organizations (BMOs)

AEC/FNCCI Strategic Advisory Committee

Identification of partner for Western Satellite of AIC and potentially

for other satellite centers

Deal flow pipeline—via networks / regional chambers / ODOP /

feeder channel / pre-incubation

Service providers via membership

Market and supply channels via their membership

Finance-matching grant, value chain information

FNCSI Strategic Advisory Committee

Deal flow pipeline—via networks / regional chambers / feeder

channel

Other Network, NGOs and BDS

MEDEP / INGOs (iDE,

Practical Action,

Winrock International

...

Strategic Advisory Committee or Service Provider

Deal flow pipeline: referring their best growth oriented clients for

incubation / facilitation

Pre-incubation and awareness services—in agribusiness incubation

jargon their BDS services can be considered in this way

Biruwa Ventures

E4Nepal

Sambridhi, The

Prosperity Foundation

ChangeFusion Nepal

Deal flow pipeline

Promotion of entrepreneurship


Pre-incubation


Entrepreneurs network

NEFOSTA Deal flow pipeline—via networks

Service providers via members, including:

Source of food technologists and scientists


Market and supply channels via their members

National Banking

Training Institute (NBTI)

Feeder channel for mentors from banking sector / maintaining pool

of trainers

Beed Management in

conjunction with Bank

of Kathmandu and

IFC’s SME Ventures

Strategic Advisory Committee and Client Selection Committee

Deal flow pipeline—referral of suitable people who apply for their

finance, levering IFC SME Venture Fund ($10 million)



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Finance, with a special arrangement with the incubator

Lead International Strategic Advisory Committee

Deal flow pipeline: levering Business Edge, for which they have a

license with the IFC, noting details are not finalized yet.


Business Edge training for suitable clients

Nepal Bankers

Association


Advocacy to banks: both to refer suitable loan clients for incubation

and to consider special loan mechanisms for clients referred by the

business incubator.

Practical Action

Consulting, Nepal

Country Office

Deal flow pipeline: potential feeder channel for rural technology

innovation.

More information on the key partners, namely DFTQC, CAA, NARC, NARCDF, and

ICIMNOD is in Annex 9.

Role of the AIC Board and Management 7.2.3

In the context of the structure proposed above, the board should be responsible for the

following:

Strategic planning and future directions

Approval of the business plan prepared and submitted by management

Approval of strategic, financial, and high-level operational policies

Financial oversight

Hiring and firing the CEO/Manager, who is then responsible for hiring and firing

other staff

Monitoring and assessment of management performance

Supervision of management, with a special relationship between the chair of the

board and the CEO/Manager

Promotion of the AIC

Obtaining the necessary resources for the AIC

The board must give management the room and delegation to manage the AIC as a

business, within an approved policy framework, and avoid micro-management (that is,

directly getting involved in day-to-day management itself.)

To manage any potential conflicts, management must have the right to control exactly

which service provider helps a client for whatever purpose. While the intent is that the


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host institution or consortium can be service providers, management must manage this,

without undue pressure from the Board.

7.3 Selecting the AIC Host Institution

Selection of the host institution, or consortium of institutions, for the AIC will be by a

public Expression of Interest (EOI) process, to pick the preferred host institution(s),

followed by a full Request for Proposal from the chosen institution. This process

recognizes the critical importance of selecting the right sort of organization(s) and

allows like-minded people and organizations to come together voluntarily, without

prejudging the merits of particular organizations and at the same time using a

transparent process to determine which organizations are committed and interested

and the best fit for the AIC.

Expression of Interest 7.3.1

The Expression of Interest (EOI) will be guided by a terms of reference, selection criteria,

and associated procedures. InfoDev will work with PACT to prepare the EOI terms of

reference and selection criteria. PACT will manage the EOI process. Following a review

of the EOIs submitted, five candidates will be selected by an evaluation committee

comprising:

1 x MoAD Joint Secretary

1 x NPC representative

1 x FNCCI’s AEC, if they are not involved in an EOI

1 x DFTQC

1 x PACT Under-Secretary

1 x PACT Technical Support Group

1 x infoDev local consultant

The final selection committee will interview the five candidates selected, which will rank

the five and then invite the top rank bidder to submit a full proposal, against a formal

Request for Proposal (RFP). At this stage, PACT will assist the selected bidder to prepare

their proposal and hone the team involved. PACT will evaluate the full RFP, if necessary

involving the full committee. If it is acceptable, PACT will proceed to contract

negotiations for implementation. If the process fails with the selected bidder then it will

be recommenced with the next ranked bidder.


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The final selection committee will comprise:

Secretary for MoAD

1x Joint Secretary MoAD

1 x Joint Secretary Ministry of Finance

1 x Joint Secretary NPC

1 x Joint Secretary MoI

1 x potential incubate nominated by the Secretary MoAD

1 x FNCCI AEC Executive Director, if not involved in any of the bids

1 x Member Secretary PACT

1 x IFC

1 x infoDev international consultant

The World Bank is expected as an observer.

7.4 AIC Personnel

The caliber of the first and subsequent managers for AIC will be critical for success. The

main capabilities to be sought in the CEO/Manager is dynamic leadership and

agribusiness entrepreneurial experience. The CEO/Manager will need the ability to gain

trust and credibility with clients and stakeholders, to add tangible value to clients

businesses and manage the AIC as a business in its own right. The CEO/Manager will

lead a small management team and outsourced service provision that will need to

comprise a balance of marketing, accounting, and finance and business development

experience, with domain knowledge in agribusiness.

In general terms some key issues to address with the first and subsequent AIC Managers

will be the following:

Intimate knowledge and experience of entrepreneurship and agribusiness, with

experience in growing food processing companies.

Ability to help existing agribusiness ventures to grow and stimulate start-ups.

The credibility they are able to generate, particularly with potential agribusiness

clients, investors, and stakeholders.

A private sector orientation and the ability to manage the AIC as a business.

Excellent interpersonal skills.

Excellent business counseling and facilitation skills.

A high tolerance for ambiguity and flexibility. There are many contradictory

aspects to the manager’s role, such as being a business counselor, mentor,


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investor, land lord, and debt collector. One has to be responsible to the clients in

terms of helping them grow their business, to the board in terms of managing the

AIC business, and to investors who have invested in the AIC client.

Above average commitment to the project, preparedness to achieve

outcomes, and willingness to work longer than average hours.

Achievement driven.

Confidence, passion, and enthusiasm.

Empathy with clients and the ability to engender trust and confidence with

clients and investors.

Agribusiness market development experience and skills.

Networking skills.

To provide the necessary intensity of support to clients and to achieve the incubator’s

own revenue and business targets, eight management staff has been allocated in the

budget complemented by provision for AIC to pay for business development services

for its clients.

1. Manager/CEO—A very high caliber person with international agribusiness market

development experience, an international hire, or equivalent Nepalese national.

2. Agribusiness Advisors—Two advisors with agribusiness market development

experience, focused on working with clients and who are likely to have been

involved with an agribusiness on a growth path. One would be employed from

the outset and the second in the second year to help work with clients in satellite

centers.

3. Outreach/Business Development Officer—Focused on awareness building, pre-

incubation, critical mass creation, public relations, and expansion of the network

of the AIC.

4. ICT Officer—Utilization of full potential of ICT, including mobile technology, for be

best of AIC and its client, networking with ICT partners as needed.

5. Administration and Accounts Officer—Handle the AIC financial management

and guide clients in the AIC Hub, as well as at the satellite centers.

6. Agribusiness Officers and Secretary—For AIC satellites in East and West, to be

employed in Year 2.

7. AIC Secretary, Accounts and Administration Assistant, and Messengers—Support

staff for the management of AIC, as well as its client companies.

8. Total staff 14 to be phased in as the AIC hub is established in Year 1 and the

satellites are established in Year 2.


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The following is a summary of overall staffing requirement for the AIC when at full

capacity:

Table 22: AIC Staffing Requirement (at full capacity)

AIC Hub in Kathmandu Positions

Manager/CEO High caliber in agribusiness market development

Agribusiness Adviser 1 Agribusiness market development focused on AIC Hub

Agribusiness Adviser 2 Agribusiness market development focused on satellite

centers, to be employed in the second year

Outreach Officer Awareness / critical mass creation, public relations

ICT Officer AIC and client companies

AIC Secretary Institute secretary, client service

Admin and Accounts

Officer AIC and client companies

Account and

Administrative Assistants AIC and client companies (Two number)

Office Assistant/

Messenger AIC and client companies

Satellite Centers Positions

Agribusiness Officers Two positions, one each for east and west, starting from

second year

Secretaries Two position, one each for east and west, starting from

second year

Cleaning Outsourced

Security Outsourced

The three critical staff members for the AIC are experienced senior people with solid

agribusiness market development experience, one with international experience,

perspectives, and linkages, and the other two with local experience perspectives and

linkages. The CEO needs to have international agribusiness market development

expertise and may need to be hired internationally, if a suitably experienced high

caliber Nepali cannot be found, either domestically, or from the Nepali diaspora. The

CEO needs support from administrative, analytic, communications, and back office

personnel, and agribusiness advisors for lower-level business development work.

When the AIC is at full capacity with 30 clients serviced from the hub and satellites, the

center will achieve a good ratio of 1:7 for staff who work with clients to the number of

clients, to provide the intensive support required, in particular from the CEO, two

agribusiness market development staff (Agribusiness Advisors), and outreach officer.


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No matter how skilled the management team is they will never have all the knowledge,

networks, skills, or time required. The staff needs to be supported by a flexible consulting

and mentoring budget, to bring in specialist experts and mentors to work with the

entrepreneurs at the hub, as well as satellites, for which a budget of $4,600 per client

per year has been provisioned. This includes processing and packaging expertise to

help clients. Research has shown that when incubators operate in this way, rather than

trying to do everything themselves, they are likely to be more successful and more likely

to lever venture capital.


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8 Implementation Requirements

With the recommendation to implement the AIC via PACT, implementation will be the

PACT’s responsibility. This section addresses key implementation elements for the PACT.

8.1 Facility and Infrastructure Requirements

Access to Testing Facilities 8.1.1

Agribusiness entrepreneurs need access to testing facilities and laboratories, through

brokering relationships, rather than setting up dedicated facilities. Commonly

companies have testing done in India or Europe in the absence of local facilities and

services. DFTQC facilities and services will be used, as well as international facilities, for

services and facilities not currently available at DFTQC.

AIC clients may need access to technology testing facilities, for which there may be

some overlap—for instance, for testing the safety of water purification technologies.

Renovation of the DFTQC’s pilot plant is accounted for in the budget in the third year,

to provide pilot processing space for new processing businesses, along with the basic

generic equipment needed. When renovated, this facility will be managed by DFTQC,

a key partner of the AIC. Details of the work and costing are in Annex 10.

Access to Relevant Technology 8.1.2

Technology information, development, and transfer are other important elements of

the AIC. In implementing this track, the AIC will need to address the needs of food

manufacturing and processing companies in any databases and services that broker

access to appropriate technology.

Access to Packaging 8.1.3

Access to packaging in Nepal is an impediment for food processors, who have limited

options in Nepal. Advocacy for the development of the packaging industry and

brokering relationships in Nepal and abroad are needed. Establishing and working with

a solid network of copackers, who will package a manufacturer's product in the

manufacturer's brand, is a priority as a part of implementation. The specialist staff

referred to earlier, especially the one with international experience, should have

adequate knowledge as to what is required and about the networks. Specialist

consultants can provide this information.

Pre-incubation 8.1.4

To develop a pipeline of future clients, the AIC needs to develop pre-incubation

programs with universities and other incubators and training institutions, enhancing


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existing entrepreneurship development activity. The AIC has a budget for working in this

area with universities and chambers of commerce.

Location 8.1.5

The AIC hub is to be located in Kathmandu with the two satellites in Nepaljung in the

west and Biratnagar in the east established in the second year. The AIC will not offer

processing facilities for clients to use. Instead it will work with clients in their own facilities,

help clients develop their own facilities, and broker relationships to make use of any

existing facilities, including helping DTFQC to renovate its old pilot plant so that AIC

clients can use it. The AIC hub will primarily offer offices, meeting rooms, hot desking,

showcasing facilities, and communication facilities. It needs to be in a good

commercial location in Kathmandu, appropriate for showcasing to international clients

and close to the DFTQC regulatory center for certification and approval of products.

The budget allows for renting appropriate facilities. Virtual services will be provided to

client companies located beyond hub and satellite facilities, for which communications

and travel need is budgeted.


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9 Financial Plan

The AIC is designed to become financially sustainable after four years. Sustainable is

defined as covering the ongoing operating expenses of the AIC, including

depreciation, through earned revenues. A flexible revenue model is proposed in which

sustainability may be enhanced once various revenue options are tested. An initial

investment of $4 million will be needed as start-up capital in order to achieve this

objective.

The financing required to initiate the AIC will be provided for the first five years, with

income generated during this period being banked. The front-loading of the external

investment allows the management to focus on the AIC’s development. It also allows

the model to be changed, if it becomes clear after two years that the income

generation targets are not likely to be met, or that one revenue option is preferred to

another, or a flexible combination is required. Changes can be made before the AIC

has to generate its own income in later years.

The income generating component for the initiative is a mix of royalty fees on turnover,

equity, pay-as-you-go fees (incubation fee), and finance brokerage fees. This

accommodates a mixed portfolio of clients at varying stages of development, initially

existing SMEs with turnovers in the order of between $140,000 and $640,000 and with the

potential to increase sales by 30 percent per year, for the anticipated three-year

incubation period and then after incubation. Fresh new start companies will be

included over time, once the AIC has an established portfolio of existing SME clients.

The model involves the following:

Royalty of 7 percent fee on the increase in a client’s turnover per year for one

three-year period, anticipating that 80 percent of clients will choose this option.

The royalty fee is set against income needs of the AIC and the ability of the

clients to pay. Modeling an increase in turnover of 30 percent per year, a

decrease in the cost of sales of 10 percent, and a decrease in overheads of 10

percent, as a result of the intensive support provided (or a similar increase in the

gross profit by achieving better prices) indicate the net profit exceeds pre-

support net profits after payment of a 7 percent fee. The rationale is that support

will improve financial well-being while the client is in the AIC (even with a royalty

fee) and that upon leaving, the client will reap full benefits. More detailed

information on the royalty arrangement proposed and the benefit to the

companies is in Annex 8.

Equity of 5 percent, anticipating 0 percent of clients chooses this option at this

stage, with a focus on existing companies who will not want to give up equity.

Along similar lines to the royalty rationale, improved revenues and profitability will

lead to growing company value. While no revenue is budgeted at this stage, it

will be an option in future years, especially for fresh new start companies.


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Incubation fee of $31,249 per year, anticipating 20 percent of clients choose this

option, which is applicable mostly to larger firms. The fee is commensurate with

the average royalty paid by the firms choosing the royalty option and with the

same average increase in sales and margins should be affordable.

Finance brokerage of between 5 and 2.5 percent on finance raised, anticipating

50 percent of clients are assisted to secure finance from $50,000 to $500,000.

Agribusiness entrepreneurs acknowledge the need to pay for services and the

stakeholder consultation workshop supported the options, noting the need to change

paradigms and take clients on a learning curve. This reinforced earlier work by infoDev

assessing the demand for agribusiness and ICT incubation, for which the preparedness

to pay results are summarized in Annex 13. However, the workshop noted trust and

accounting are likely to be challenges and suggested they be addressed by

accounting transparency and follow up activities. The AIC may need to undertake

accounting for some of its clients and needs to lead by example, demonstrating its own

transparency and trust.

By offering payment options, the model is flexible and adaptable. The income figures

factor in that only 90 percent of the funds will be collected given that failures and

improper activities will occur (a bad debt ratio of 10 percent).

The figures provided below are all expressed in U.S. dollars and depend on successful

negotiation of funding and partnership arrangements.

9.1 Budget

The number of staff will increase progressively with the number of clients supported,

starting with seven staff in year 1 to reach 13 staff in year 3, which will mean working on

a standard of one professional staff member for seven to eight clients. In budgeting,

staff directly working with clients are allocated to client services (mentoring and

advisory), with the remainder allocated to administrative personnel and overheads.

An allocation for communications and marketing expenses is essential, as the

awareness level in Nepal is very low. A monitoring and evaluation scheme is critical to

ensure the success of such an initiative, which needs to be embedded within the job

profile of assigned personnel.

The budget overview provided below, includes phone, Internet, ICT support and

website development, postage, photocopying, stationery, printing, outreach motor

vehicle expenses, advertising and public relations, accounting, audit and legal,

insurances, functions and launch, staff training, travel, subscriptions and library, and

implementation support.


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Figure 10: Budget Overview

Table 23: Budget Summary

Category Yr1 Yr2 Yr3 Yr4 Yr5 Total % of

Budget

Staffing and

Overheads 212,300 261,100 269,500 269,500 269,500

1,281,900 25%

Mentoring and

Advisory 357,000 431,000 477,000 477,000 377,000

2,119,000 42%

Building Rent and

Services 135,040 160,840 160,840 160,840 160,840

778,400 15%

Depreciation and

Provisions 71,170 61,437 141,020 141,020 141,020

555,666 11%

Implementation

Support 61,789 68,333 63,514 63,514 56,514

313,664 6%

Totals by Year 837,299 982,710 1,111,873 1,111,873 1,004,873

5,048,629

9.2 Sustainability

The model seeks to achieve financial sustainability after four years of operation. It will

probably not make significant profits and financial self-sustainability will not be easy.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1 2 3 4 5

Budget by Category for First Five Years

Implementation support

Depreciation and provisions

Building rent and services

Mentoring and advisory

staffing and overheads


102

Covering operating costs is the aim and any profits made should be reinvested to

improve and expand operations, rather than paid out in dividends. After the initial ramp

up period costs are in the order of $970,000 per year, in the following categories:

Table 24: AIC Annual Expenses when Established

Year Year 6

Expenses

Personnel—Administrative 152,600

Client Services 399,000

Overheads 116,900

Building Services 161,640

Provision for Doubtful Debt 97,593

Depreciation 46,427

Total Expenses 974,160

The cost recovery model is justified by the capacity and willingness of the target

enterprises to pay to the AIC for services.

The agribusiness entrepreneur focus group discussions found that some prefer to pay at

full cost and others preferred payment by way of either a small percentage of equity,

or with a royalty levied on the increase in their sales for a period. The consultative

workshop preferred payment in terms of a share of revenues and consultation fees.

This implies the AIC should offer options. Businesses at different stages will have various

capacity and potential. For instance, an existing business may find it very complicated

to give up equity, but may be prepared to pay for services at full cost at the time, or

enter into a royalty agreement. A newer business may be in a position to give up some

equity, but may not have the funds to pay for support.


103

Noting further refinement of the flexible model, the revenue projected for the first six

years, excluding grants, is summarized in the table below.

Table 25: AIC Revenue Generation for the First Six years of Implementation

Year Yr1 Yr2 Yr3 Yr4 Yr5 Yr6

Income

Rent 5,375 10,750 16,125 16,125 16,125 16,125

Incubation Fee 62,497 124,994 187,491 187,491 187,491 187,491

Royalty 187,212 456,273 749,966 749,966 749,966 749,966

Finance Brokerage 22,350 22,350 22,350 22,350 22,350 22,350

Total Income 277,435 614,367 975,932 975,932 975,932 975,932

With four main revenue options, the model has flexibility for review and adaptation as

the AIC is implemented. Despite positive responses in the agribusiness entrepreneur

survey, payment for services is not the norm and paradigms need to change. Benefits

may need to be demonstrated first in taking clients on a learning journey. The model

can accommodate this, in that no revenue is anticipated in the first year of

establishment, during which carefully selected clients should be supported to

demonstrate the benefits. Furthermore, all costs are grant funded for the first five years,

when revenues will be banked, giving time to progressively refine the model, based on

annual reviews of performance.

Royalty 9.2.1

If all clients pay with 7 percent of their monthly turnover then the AIC would be 100

percent self-sustainable by the end of Year 6, with annual royalty revenues in the order

of $750,000 per year. If the royalty is set at 6 percent then the AIC would be 91 percent

self-sustainable and at 55, 78 percent self-sustainable. The model is very sensitive to the

royalty rate. In implementing the model, varying rates for companies at different stages

should be considered, with smaller and newer companies possibly paying a higher rate

than larger and older companies.

Initially the AIC will focus on existing SMEs with annual turnovers in the order of between

$140,000 and $640,000 and with the potential to increase sales by at least 30 percent

per year for the anticipated three-year incubation period and after incubation. As well

as helping to increase sales, the AIC expects to improve gross profit margins so that

even paying royalty fees, the business makes more profit during the incubation period

when royalties apply. Annex 8 provides more detailed information on the royalty

arrangement proposed and the benefit to the companies.


104

Equity 9.2.2

If instead of a royalty on sales, clients were to pay with 6 percent of their equity then

the AIC would only be 46 percent self-sustainable by the end of year 6, because it

takes far longer to realize returns, For equity to deliver 100 percent self-sustainability then

a small number of outlier clients would need to be astoundingly successful. Further

modeling of this option needs to be undertaken if it is to be implemented in full or in

part.

Incubation Fee 9.2.3

Only a small percentage of the larger and more established clients would have the

capacity and interest in paying for support with fees at the time. Modeling assumes 20

percent, generating annual revenue of $187,000. As the fee is set according to the

average royalty paid ($31,249 or $2,604 per month), to cover the same level of support

as for other clients, the sensitivity is the same as for the royalty option. The AIC expects

to both increase sales and profit margins so that the enterprise can pay these fees and

still make a higher profit than before incubation. Given the need for holistic support, an

incubation fee is preferable to charging consulting fees for each component of

assistance, although this may be another option, albeit more complicated.

Finance Brokerage 9.2.4

Brokering finance of between $50,000 and $500,000 with fees of between 5 percent

and 2.5 percent generates only $22,000 of revenue per year, assuming the AIC helps 50

percent of clients succeed with finance raising. However, where equity investment is

involved (as will be the case with the AIC’s investment fund, at least in part) then

additional revenue can be expected over time, sharing in the success of the equity

investment made by the AIC. This has not been modeled.

Other Revenue 9.2.5

Other revenue possibilities exist but have not been modeled at this stage. They include

the following:

Training, for which revenue potential largely depends on how much is

outsourced to other providers, in which case margins are likely to be low.

Strategically outsourcing may be an important way to lever and involve partners.

Sponsorship, from corporations interested in supporting the agribusiness sector as

a part of their corporate social responsibility programs.

Rental of hot desk services, meeting rooms, and other facilities in the AIC

premises.


105

9.3 Financing Plan

The financing required over a four-year period is a total of just more than $4 million.

Table 26: Nepalese AIC Financing Required (over a four-year period)

Subsidy required—Total 4,029,374

Subsidy required—Capital 316,610

Subsidy required—Operational 3,712,764

The financing required to initiate the AIC will be provided to cover all expenses for the

first four years, with income generated during this period banked. The front-loading of

the external investment allows the management to focus on the development of the

AIC. It also allows the model to be changed, if it becomes clear after two years that the

income generation targets are not likely to be met, or that one revenue options is

preferred to another, or a flexible combination is required. Changes can be made

before the AIC needs to rely on self-income generation in later years.


106

10 Results and Impacts

The AIC aims to advance the competitiveness of the agribusinesses sector in order to

increase growth, and thereby increase jobs and incomes.

With infoDev’s assistance, a detailed monitoring and evaluation framework will be

developed to measure performance (for instance, in relation to “progress made

toward the financial sustainability of the AIC”), outcomes (“the number of

entrepreneurs who have benefitted from the AIC”), and impacts, such as job creation

and increases in incomes. This will be done as a part of the AIC’s comprehensive

monitoring and evaluation plan. Broadly, the impacts of the AIC will be measured using

the following indicators:

The number of enterprises reached

The revenue growth of client enterprises

The number of jobs created by client enterprises

The number of indirect jobs created

The number of farmers impacted

The increase in farmers’ income

The reduction or prevention of climate impact of the client enterprises

In addition, indicators tracked by the overall PACT project will also be measured. These

include the following:

Improvement in quality standards of agribusinesses in the food industry

Number of samples submitted for analysis

Number of project beneficiaries who are female

Volume of marketable agriculture products


107

While the main impacts will flow from the clients selected for intensive support, many

more entrepreneurs will be assisted in incubation awareness and pre-incubation work

undertaken to identify, filter, and eventually select clients for the AIC. Even though they

are not formal AIC clients, these entrepreneurs will all receive benefit from the AIC. In

summary the main anticipated impacts over a 10-year period are the following:

Table 27: Aniticipated Impact from AIC

Indicator Measurement

Number of entrepreneurs assisted through awareness

and pre-incubation

3,300

Number of companies supported in intensive

incubation (3% of the above)

100

Increased revenue of companies supported $27 million

Increased taxes paid $2.5 million

Direct jobs created 3,024

Indirect jobs created 8,629

Number of small farmers benefiting (assuming 20 per

enterprise)

2,000

10.1 Outcomes

Over 10 years, the AIC will reach 3,300 entrepreneurs through workshops and other

general activities, out of which 100 enterprises will directly benefit from the intensive

services offered by the AIC. During a five-year period, 50 enterprises will benefit directly

from the intensive services. These entrepreneurs will increase sales, productivity, and

profitability by cutting waste, implementing quality controls, improving financial margins

and marketing, and maximizing processing times. Working with the various institutional

partners, innovations will be made to adopt new processing equipment that suits the

needs of entrepreneurs.

The AIC will promote the success of its clients broadly so they can generate a catalytic

effect, serving as role models for others to emulate. Innovations will also be made with

regards to product development, marketing the distribution models used by the

entrepreneurs involved. During infoDev’s interactions with them, most companies

agreed that while production and efficiency were major issues, so too were market

development and distribution models, which were often inadequate for the

entrepreneurs to effectively service their customer base. From small-scale, localized

distribution to partnering with large national and international distribution firms, the

innovations put forth in this area will have a tremendous impact on the entrepreneurs

and their ability to increase local, domestic, and international markets.

Finally, the public-private partnership model proposed will contribute to increased

dialogue and concrete common initiatives to further the overall agribusiness sector in

Nepal.


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10.2 Social and Economic Impact

The social impact of AIC interventions will be across the agribusiness sector, including to

farmers, ancillary, and supportive services. The impacts will be felt with women, youth,

and the unemployed or underemployed. Technical skills will make managerial staff

more marketable. In addition, improved quality control, product development, and

marketing will open new reliable markets to farmers and suppliers.

Employment creation is the most direct and easily recognized impact. With the growth

forecasts listed above, companies within the AIC program are expected to double

within the first three years of participation. The tables in Annex 8 and 10 show the

potential direct impact in terms of job, enterprise, and wealth creation. Over a ten-year

period, the AIC will directly support 100 sustainable growth-oriented enterprises. These

enterprises are expected to generate an additional $27 million in turnover and create

11,673 jobs over this period. In the first five years, 50 enterprises will be supported,

generating an expected additional $12 million in turnover and creating 5,188 jobs.

By more than doubling the output of SME producers, their input purchases should

double as well, thus having a significant impact on farmers’ incomes. Assuming each

of the 100 clients involves an average of 20 small holder farmers in their supply chains,

which may be overly conservative, then 2,000 small holder farmers will benefit.

An additional increase in the demand for ancillary products and supportive services is

also expected. These products and services include the following: glass, plastic and

cardboard packaging; graphic design services; printing; transportation services; animal

health services; and laboratory analysis. An increase in demand for these products and

services will directly impact the unemployment and underemployment of personnel in

each sector.

Government taxation gains are another critical area of economic impact. It is

estimated that tax revenue would increase government revenue by approximately $2.5

million in the first 10 years and $1.1 million in the first five years. If one includes the tax

revenues created from other enterprises that take up the technology and marketing

innovations demonstrated by the AIC, the impact on tax revenues will be even greater.


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10.3 Monitoring and Evaluation

The AIC will develop a comprehensive monitoring and evaluation framework, with

infoDev assistance and in line with the PACT project. It will track enterprise creation and

growth (including investment, employment, gender, and growth rates) and capacity

building and ecosystem impacts. In developing indicators, the following standard

indicators will be incorporated to track client performance over time:

Turnover per year

Export revenues per year

Investment per year

Direct and indirect jobs created

Company value


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11 Conclusions

The tremendous diversity of ecological zones in Nepal, from the plains to the mountains,

enables production of a wide variety of crops. Competitive market opportunities exist

for Nepali agricultural products: 11 key value chains (or value chain groupings) were

identified as having good potential for growth at this time: tea, coffee, honey, ginger,

large cardamom, lentil, potato, milk and dairy, meat, fish, and NTFP, including essential

oils. However, significant challenges remain. Most existing entrepreneurs will experience

the challenge of developing domestic and international markets and reaching growing

consumer markets, not only in Nepal, but also large adjacent markets in India and

China.

Many donors and government agencies are now working to overcome value chain

bottlenecks. The timing may be opportune to complement this work by addressing the

business-level impediments faced by agro-processors. The AIC seeks to contribute

toward the advancement of a competitive and sustainable agribusiness sector in

Nepal. It will provide high-growth potential small enterprises with a holistic service

offering, seeking to enable product, process, and business model innovation, thereby

accelerating their growth and job creation. The AIC will—in partnership with relevant

stakeholders—provide entrepreneurs with a comprehensive service offering that will

facilitate the access of Nepali agribusiness SMEs to markets, advice, finance, and

facilities.

The AIC is designed to become 100 percent financially sustainable after four years—

which is defined as covering the ongoing operating expenses of the AIC, including

depreciation, through earned revenues. A flexible revenue model is proposed in which

sustainability may be enhanced once various revenue options are tested. An initial

investment of $4 million will be needed as start-up capital in order to achieve this

objective. After the initial ramp-up period, costs are in the order of $970,000 per year to

implement the AIC.

The stakeholder engagement process has already built a strong coalition of partners,

led by PACT the main sponsor of the AIC, and has identified a pipeline of potential

incubatees that will allow the AIC to hit the ground running and produce tangible

impacts over the first six years. Pending the success and outcomes of the AIC’s

programs, its direction, scope, and scale (and business plan) will evolve over time with

guidance from a strong management team, board, and Strategic Advisory Committee.

Agribusiness-led growth has great potential to contribute to sustained economic

development by enabling the development of sustainable, innovative SMEs. The

complementarities with donors and the government’s existing programs are significant.

The suggested business model is ideal to develop a leading and world-class business

incubation program from which lessons learned can be applied globally.


111

12 Annexes

Annex 1: Stakeholder Support

InfoDev would like to acknowledge the following stakeholders for their, guidance,

support, and input throughout the conceptualization and development of this

assessment of Agribusiness Innovation Center in Nepal.

Table 28: Stake Holders Consulted

SN Name Designation Organization

Government

1 Mr. Jai Mukunda Khanal Secretary MOAD

2 Mr. Kirshna Gyawali Secretary MOI

3 Dr. Ganesh Raj Joshi Secretary MOAD (former)

4 Ms. Jiwan Prabha Lama Director General DFTQC

5 Mr. Purna Chandra Wasti Sr. Food Research Officer DFTQC

6 Mr. Nawaraj Dahal Chief DFTQC

Training and Pilot Plant Section

7 Mr. Bagendra S. Poudyal Director General DCSI

8 Mr. Narendra Baral Deputy Director General DCSI, Government of Nepal

9 Mr. Udaya Kumar Gupta Member Secretary Business Incubation Program

10 Ms. Raksha Aryal Enterprise Development Officer Business Incubation Program

11 Mr. Yogendra K. Karki Project Director PACT

12 Dr. Birendra B. Basnyat TSG/M&E Expert PACT

13 Mr. Ram Pd. Tulami Joint Secretary Chief Planning, MOAD

14 Mr. Laxman Bhattarai Joint Secretary MOI

15 Dr. Punaya P. Regmi Vice Chairman Youth & Small Business Self-

Employment Fund

16 Mr. Kalas R. Chaudhary Sr. Agro-economist MOAD


112


17 Dr. Hari P. S. Neupane Sr. Agro-economist CADP

18 Dr. Basant Thapa Deputy Team Leader CADP

19 Ms. Raksha Aryal Enterprise Dev. Officer BIP-DCSI

Research Institute and Academia

20 Dr. Dil Bahadur Gurung Executive Director NARC

21 Mr. Ram Babu Paneru Sr. Scientist NARC

22 Dr. Hira Kaji Maharjan Director NARC

23 Prof. Panna Thapa Dean, School of Science Kathmandu University

24 Dr. Bhola Thapa Dean, School of Engineering Kathmandu University

Private Sector

25 Mr. Suraj Vaidya President FNCCI

26 Mr. Suresh Pradhan President FNCSI

27 Ms. Anjana Tarmakar Vice President FNCSI

28 Mr. Satya N. Prajapati Treasurer FNCSI

29 Mr. Hem Kumar Rai Executive Director FNCSI

30 Mr. Pradip Maharjan CEO, AEC AEC/ FNCCI

31 Mr. Ashok K. Murarka Chairman CAA

32 Mr. Badri Narayan Chaudhari General Manager CAA

33 Dr. Jyoti Tandukar President ITPF

34 Mr. Ajay B. Pradhananga President / Managing Director NYEF / Fleur Himalaya Ltd.

35 Mr. Dileep Agrawal Director Fortune Cookie Ventures

36 Mr. Vidan Rana Founding Partner Biruwa Ventures Pvt. Ltd.

37 Mr. Abhinab Basnyat Founding Partner Biruwa Ventures Pvt. Ltd.

38 Mr. Satish C. Shrestha Managing Director Shreenagar Agro Farm

39 Mr. Min Bahadur Gurung Owner Bhatbhateni Supermarket


113


40 Mr. Dev Bahadur Gurung Executive Director

Owner

Gandaki International Pvt. Ltd.

(GIPL)

Gandaki Bee Concern

41 Mr. Leendert Van Den Bosch Senior Expert Netherlands Expert for GIPL

42 Mr. Prakesh Adhikari Owner Mt. Everest Honey Concern

43 Mr. Sanam Chitkar Owner N Agro Pvt. Ltd. (Client-Biruwa

Ventures)

44 Mr. Sujeev Shakya Chairperson Beed Management

45 Mr. Suman Rayamajhi CEO Beed Management

46 Mr. Bibhushan Bist Executive Director Young Innovation Pvt. Ltd. (YIPL)

47 Mr. Keshab Raj Sharma Entrepreneur Start-up Agribusiness from Dhading

48 Mr. Govind Ghimire President NEHHPA

49 Mr. Prakash Giri Director Buttabari Tea Pvt. Ltd.

50 Mr. Saurabh Jyoti Director Jyoti Group

51 Mr. Anand Bagaria Executive Director NIMBUS Group

52 Mr. Peter Thomson Director Aqua Feed Industry

53 Mr. Bijay Shrestha Managing Director Fish Feed Industry Pvt. Ltd

54 Mr. Surendra Shrestha Owner Mulchowk Restaurant

55 Mr. Niraj Shrestha Senior Program Officer

South Asian Watch on Trade

Economics and Environment

56 Mr. Suyash Khanal Director

Trade and Export Promotion Center

57 Mr. Bimal Nepal Director

Trade and Export Promotion Center

58 Mr. Basanta Raj Chitrakar Chief Agro Extension Program

Herbs Production and Processing Co.

Ltd


114


59 Mr. Tej Thapa Agriculture Program Manager

Mercy Corps

60 Mr. Pankaj Das Program Officer

Herbs and NTFP Coordination

Committee

61 Mr. Sanjib Chaudhary Communication Officer

The Netherlands Development

Organization

62 Mr. Pratap Rai Senior Monitoring and Reporting

Officer

Mercy Corps

63 Mr. Udaya Raj Chapagain President

Himalayan Orthodox Tea

Cooperative

64 Mr. John Taylor Marketing Manager

Himalayan Orthodox Tea Producers

Association

65 Mr J.B. Tamang

(Via telephone)

Program Coordinator

Floriculture Association of Nepal

66 Mr. Binod Acharya Coffee Development Officer

National Tea Coffee Development

Board Nepal

Development Projects/Organizations

67 Mr. Ramu Subedi Team Leader MSFP

68 Ms. Stuty Maskey Private Sector Promotion Officer MSFP

69 Dr. David Molden Director General ICIMOD

70 Ms. Anja M. Rasmussen Program Manager ICIMOD

71 Dr. Eklabya Sharma Director ICIMOD

72 Dr. Dyutiman Choudary Market & Enterprise Dev. Specialist ICIMOD

73 Dr. Dhrupad Choudary Program Manager ICIMOD


115


74 Ms. Nayna Shakya PPP and External Relations Officer ICIMOD

75 Mr. Samden Lama Sherpa Knowledge Park Manager ICIMOD

76 Dr. Luke Colavito Country Director IDE Nepal

77 Mr. Binod K. Mishra Program Director IDE Nepal

78 Dr. Laxman Pun National Program Manager MEDEP

79 Ms. Maushami Shrestha Country Manager Practical Action Consulting

80 Dr. Vasant Bikram Thapa Deputy Team Leader CADP

81 Dr. Hari Neupane Senior Agri Economist CADP

82 Dr. Dev Bhkta Shakya Agribusiness Expert USAID/NEAT

83 Mr. Kari Leppanen Deputy Chief Finland Embassy

84 Mr. Nabin Dahal Private Sector Development Advisor DFID

85 Ms. Anita Mahat Private Sector Development Advisor USAID

86 Dr. Gyatri Acharya TTL, PACT World Bank, Nepal

87 Dr. Purna B. Chhetry Rural Development Specialist The World Bank, Nepal

88 Mr. Arsalan Alfred M Ni Regional SME Ventures Coordinator IFC, Advisory Services in South Asia,

Bangladesh

89 Mr. Deep Karki Coordinator, SME Venture Fund IFC, The World Bank, Nepal

90 Ms. Anupa A Pant Operations Analyst, SEDF Advisory

Services in South Asia

IFC, The World Bank, Nepal


116

Annex 2: Conclusions of InfoDev Global Good Practices Assessment on

Agribusiness Incubation

In 2011, infoDev conducted a study of 10 agribusiness incubation programs located in

eight countries. The full study can be found at

http://www.infodev.org/en/Article.800.html. —which includes video documentaries of

incubation programs in the mountainside of Java, Indonesia, and rural South Africa, as

well as rural areas of Brazil, Chile, and Mexico.

Examples of the results generated by these programs include the following:

Fundación Chile has spearheaded the development of the salmon industry,

which in a span of just slightly more than 10 years has been able to grow by a

factor of 1,000 and contributed to $2.2 billion exports and more than 35,000 jobs.

The efforts of Technoserve in Mozambique and Fundación Jalisco in Mexico

have led to the upgrading of entire subsectors, such as poultry, cashew nuts,

and blueberries.

CENTEV-UFV in Brazil has developed a new model for commercialization of

agricultural research in Brazil. It has cultivated such successes as a biotechnology

business specializing in a fungus that protects plants from parasitic nematodes, a

product that could help reduce the yearly $100 billion losses in world agriculture.

Timbali Industrial Incubator in South Africa has transformed the life of poor

women into assertive entrepreneurs in the highly competitive flower business.

ABI-ICRISAT in India has supported the growth of successful biotech companies.

IAA-IPB in Indonesia has promoted the growth of zero-stage enterprises owned

by women into successful, competitive, and growing medium enterprises.

The table below provides a snapshot of the quantifiable outputs of these incubators vis-

à-vis the public investment in them. The age of the incubators and the vastly different

scale of investments must be taken into account when reviewing these results. It should

be noted that the “ROI” calculation does not take into account backward linkages—

that is, while the calculations would include a processor who increased his/her sales by

x, the increased income of the farmer who was able to sell more produce to the

processor has not been taken into account. It also does not take into account the

impact on “copycats,” which adopted the production practices that were

demonstrated and started or scaled their own businesses. Nevertheless, the calculations

provide some indication of what results are achievable.


117

Table 29: Studied Agribusiness Incubators’ Quantifiable Outputs

Incubator Graduates Average

Sales of

Enterprises

($ million)

Nr. of

Years the

Incubator

Has

Operated

Initial

Investment

in

Incubator

($ million)

Total Sales

of

Graduated

Enterprises

($ million)

“ROI”

Enterprise

Sales/ Initial

Investment in

Incubator

Fundación

Chile

85 5 30 50 425 2.3

CENTEV 24 2.5 16 0.7 60 60.4

Fundación

Jalisco

4 1.25 5 4 5 1.2

IAA-IPB 38 0.21 16 0.3 7.98 18.7

Timbali 140 0.03 8 2.8 4.2 1.3

Not all the programs reviewed have been equally successful. In one case, an incubator

focused on commercialization of domestic R&D had not yet achieved successful

market entry. The review of the 10 programs, therefore, provided powerful insights into

models that can be adopted, as well as factors that are critical to success.

It became evident that many viable models exist for agribusiness incubation. Selection

of a model depends on the stakeholders’ core objectives, combined with the unique

characteristics of the local business environment and the amount and nature of the

funding available to initiate the incubation activity. A commonality of the case studies

assessed in this report was that most were structured as public-private partnerships.

Beyond that, there were significant differences. The report identifies three types of

agribusiness incubators: (i) agribusiness sector/value chain incubators; (ii) agricultural

research commercialization incubators; and (iii) technology transfer incubators. Within

each type, there are significant differences in terms of public-private partnerships,

affiliations, target clients, business models, and organizational design.


118

Based on the literature review and the case studies conducted, it appears that the

success of agribusiness incubators in creating sustainable and competitive enterprises

relies upon six factors. These factors include the ability of the business incubator to

effectively do the following:

1. Help the entrepreneur manage the risks associated with an agribusiness

enterprise through a combination of technology, institutional, and networking

strategies.

2. Understand the value chain affecting the success of the enterprise and assisting

the enterprise with positioning itself in the value chain by linking farmers and

enterprises to meet the demand of consumers for stable, quality, and affordable

products.

3. Identify and demonstrate innovative business propositions so as to catalyze

broader sectoral take-up.

4. Adapt the focus and business model of the incubator, and strategically scaling it

up in response to market opportunities and market failures.

5. Promote pro-active business orientation that actively identifies market

opportunities.

6. Support incubation design basics: leadership with a business mindset and

excellent agricultural market knowledge (preferably with agribusiness

experience), a lean staff complemented by strong partnerships, an institutional

framework that provides sufficient flexibility allowing for learning by doing, strong

capital structure, and dense networks — including effective linkages with sector

leaders.


119

Annex 3: Nepalese Agribusiness Donor Mapping

As the following table shows, many donors have been addressing agriculture and

agribusiness value chain impediments in Nepal by supporting various projects.

Table 30: Nepalese Donor Mapping

SN Projects / INGOs Donors Commodities

1 MEDEP AusAid, UNDP, CIDA NTFP (Bamboo basket and

furniture, tapari, allo rope, and

twine and pine charcoal)

2 CADP ADB Ginger, tea, cardamom, banana,

mango, orange, potato,

vegetables (tomato, onion and

cabbage)

3 PACT The World Bank Seeds, vegetables, coffee, ginger,

potato, floriculture, honey,

mushroom, oilseed (mustard and

ground nuts), fruits (citrus, banana,

papaya, and mango), lentil, herbs,

fish, feed, milk processing, dairy

processing, poultry)

4 Hill Maize Research

Program (HMRP)

CYMMIT

IFAD Maize

5 HIMALI ADB Livestock

6 HVAP /SNV IFAD Vegetables, fruits, NTFPs, medicinal

and aromatic plants, and livestock

7 WUPAP AusAid, CIDA, UNDP Livestock, forestry, off-season

vegetables and crops

8 GIZ Include BMZ, German Government Honey, milk, fruit and vegetables

(through riverbed farming), and

medicinal and aromatic plants

(including ginger)

9 NEAT Activity USAID Lentils, vegetables, ginger, and

orthodox tea

10 MASF / IDE Nepal /

Practical Action

DFID, USAID Dairy, vegetables

11 EIG USAID High-value vegetable production

(including crops or NTFPs, such as

chamomile and lemon grass),

fisheries, and goat rearing

12 ICIMOD IFAD, USAID, CIDA, AusAid, UNDP NTFP, honey bee, medicinal and

aromatic plant (MAP)

13 CADP,

Mercy Corps

USAID, ADB Ginger, cardamom, potato


120

Annex 4: Nepalese Agri-based and Food Industry Information

Part I: Nepal Food Processing Industry Data: DFTQC, Government of Nepal

Table 31: Categorized List of Licensed Food and Beverage Industries in Nepal until FY 2012/2013

S.

No.

Product Number

of

Industries

Remarks

1 Rice, Flour & Pulse Processing (Mills) 238 Some biscuit industries are

included

2 Spice 229

3 Processed / Mineral Water 217

4 Fat and Oil 202


6 Bakery 172

7 Snacks 146

8 Dairy 133

9 Tea and Coffee 100

10 Confectionery 65

11 Noodle 38

12 Biscuit 17

13 Sugar 14

14 Honey 12

15 Health Food 7

16 Meat Processing and Handling 6 30+ industries should be in

operation

17 Chura (bitten rice) 1

18 Ice and Ice Cream 1

19 Maize Grit 1

20 Soya products (grit, nugget, and

others)

3

21 Miscellaneous Products and Others 97

Total 1877

Note: Industry scale as large, medium, small, and cottage are not classified in most of the

available record.


121

Breakdown of licensed food and beverage industries by various DFTQC offices in Nepal.

Table 32: Licensed by DFTQC Central Office

S. No. Product Total

Number

1 Snacks 104

2 Dairy 49

3 Bakery 124

4 Fats and Oils 91

5 Spice 97


7 Noodle 59

8 Flour 35

9 Tea and Coffee 75

10 Bottled / Processed / Mineral Water 158

11 Meat 4

12 Biscuit 8

13 Honey 9

14 Confectionery 26

15 Beverage 2

16 Sugar 1

17 Miscellaneous 11 Notes: 1) Information on industry category by scale of investment is not available. 2) All

large-scale industries and industries of Bagmati zone obtain license from DFTQC Central

Office. 3) Fruit and vegetable processing total 137 includes candy 47, juice 11, Jam 6,

pickle 62, and sauce 11.

Table 33: Food Industries Registered at DFTQC, Kathmandu by Fiscal Year

S.

No. Food

Industry

Category

Food Industries Registered at DFTQC, Kathmandu by Fiscal Year

Total 2012

/13

2011

/12

2010

/11

2009

/10

2008

/09

2007

/08

2006

/07

2005

/06

2004

/05

2003

/04

2002

/03

2001

/02

2000/

01

1 Snack Food 10 5 4 10 4 13 8 11 14 8 5 6 7 104

2 Diary 9 2 10 2 3 6 4 2 2 0 1 4 4 49

3 Bakery 27 5 6 5 2 6 22 8 15 6 10 4 8 124

4 Edible Oil 2 1 6 2 3 9 24 9 18 6 1 4 6 91

5 Spice

(Masala)

13 6 6 4 5 4 11 2 18 5 11 4 8 97

6 Candy (Paau) 6 0 3 4 6 3 1 8 12 0 0 3 0 46

7 Noodles 7 0 7 4 6 7 6 6 5 1 2 4 4 59

8 Flour 4 5 3 0 0 2 2 0 7 7 0 3 2 35

9 Tea / Coffee 5 3 5 3 4 7 9 1 8 1 11 10 8 75

10 Bottled Water 46 21 19 17 10 8 8 3 15 4 4 1 2 158

11 Meat 0 0 0 1 0 0 1 0 0 0 1 0 1 4

12 Pickle (Achar) 13 4 1 5 6 4 4 5 8 8 3 1 1 63

13 Jam 0 0 0 0 0 0 0 1 1 0 1 0 3 6


122

S.

No. Food

Industry

Category

Food Industries Registered at DFTQC, Kathmandu by Fiscal Year

Total 2012

/13

2011

/12

2010

/11

2009

/10

2008

/09

2007

/08

2006

/07

2005

/06

2004

/05

2003

/04

2002

/03

2001

/02

2000/

01

14 Juice 2 1 3 2 0 1 1 0 0 0 1 0 0 11

15 Biscuits 0 1 2 0 1 0 1 0 0 0 2 0 1 8

16 Honey 1 0 0 0 1 0 0 0 4 2 1 0 0 9

17 Confectionery 8 1 1 2 2 2 0 0 4 3 0 1 2 26

18 Salt 0 0 0 0 0 0 0 0 0 1 0 0 0 1

19 Beverage 0 0 0 0 0 1 0 0 1 0 0 0 0 2

20 Sauce 0 2 0 1 1 1 2 1 3 0 0 0 0 11

21 Sugar 0 0 0 0 0 0 0 0 0 0 0 0 1 1

22 Others 1 0 1 3 2 1 2 0 2 0 0 0 0 12

Total Food

Industry

154 57 77 65 56 75 106 57 137 52 54 45 58 993

Table 34: Food Industries Licensed by DFTQC Biratnagar Regional Office (Eastern Nepal)

S.

No.

Product Large

Scale

Medium

Scale

Small

Scale

Cottage

Scale

Total

1 Ice 0 0 1 0 1

2 Meat 0 0 1 0 1

3 Biscuit 0 0 2 0 2

4 Snacks 1 0 2 1 4

5 Confectionery 0 1 5 3 9

6 Rice Mill 0 1 6 0 7

7 Flour Mill 0 0 3 0 3

8 Fats and Oils 2 3 6 0 11

9 Rice and Oil Mill 0 0 1 1 2

10 Fruit and

Vegetable

0 0 6 5 11

11 Noodle 0 1 11 6 18

13 Dairy 1 1 8 0 10

14 Tea 1 2 9 1 13

15 Spice 0 0 9 7 16

16 Health Food 0 2 5 0 7

17 Bakery 0 0 6 11 17

18 Biscuit 0 0 3 0 3

19 Bottled Processed

/ Mineral water

0 0 14 0 14

20 Weaning Food 0 1 0 0 1

21 Unidentified 0 1 25 5 31

22 Ghee and oil Scale Unidentified Ghee 1, Other-1 2


123

Table 35: Food Industries Licensed by DFTQC Hetauda Regional Office (Central Region of Nepal)

S.

No.

Product Total

1 Milk and Milk Product 40

2 Fats and Oil Industries 64

3 Fruits and Vegetable 23

4 Spices Industries 81

5 Tea Packing Industries 10

6 Salt Industries 0

7 Cereal, Pulses, and their Products 146

8 Processed Drinking Water Industries 22

9 Sweets (sugar and sugary products) 13

10 Confectionery Industries 18

11 Other Industries 41 Note: Information on scale of individual industries is not available.

Table 36: Licensed by DFTQC Bhairhawa Regional Office (Western Nepal)

S.

No.

Product Large

Scale

Medium

Scale

Small

Scale

Cottage

Scale

Total

1 Confectionery 1 0 8 9

2 Rice Mill 0 0 4 4

3 Flour Mill 0 1 6 7

4 Fats and Oils 1 0 10 11

5 Snacks 0 1 16 3 20

6 Noodle 1 0 6 1 8

7 Spice 0 0 9 2 11

8 Bakery 0 0 7 3 10

9 Dairy 0 1 4 0 5

10 Processed Water 0 0 17 0 17

11 Biscuit 0 2 4 0 6

12 Honey 0 0 1 0 1

13 Fruit and

Vegetable

0 0 3 1 4

14 Cornflake 0 0 1 0 1

15 Tea 0 0 1 0 1

16 Maize Grit 0 0 1 0 1

17 Soya Grit 0 0 1 0 1

13 Meat 0 0 1 0 1

14 Others 0 0 3 0 3

15 Product Type

Not Identified

0 0 3 0 3

16 Industry Scale

Not Identified

Oil-1,Weaning Food-1, Instant Noodle-1 3


124

Table 37: Licensed by DFTQC Nepalganj Regional Office (Midwestern Region, Nepal)

S.

No.

Product Small Scale Cottage

Scale

Total

1 Bakery 6 15 21

2 Spice 2 21 23

3 Dairy 12 17 29

4 Rice 27 8 35

5 Oil 18 7 25

6 Noodle 3 6 9

7 Confectionery 3 0 3

8 Snacks 5 6 11

9 Fruit and Vegetable 0 4 4

10 Processed Water 4 2 6

11 Honey 0 2 2

12 Pulse 4 0 4

13 Ice and Ice Cream 0 5 5

14 Chiura (bitten rice) 1 0 1

15 Flour 1 1 2

16 Unidentified 32

17 Puffed Rice 1 0 1

18 Popcorn 0 1 1

19 Soya Nugget 2 0 2

20 Maseura (Vegetable

Nugget)

1 0 1

Table 38: Licensed by DFTQC Dhangadi Regional Office (Far Western Nepal)

S. No. Product Cottage Total

1 Noodle 1 1

2 Snacks 1 1

3 Fruit and Vegetable Processing 1 1

Table 39: Alcoholic Beverage Industry in Different Parts of Nepal (As of 2012/13)

Product Number Remarks

Liquor and Distilled

Spirit

52 Mostly medium and large industries

Beer 4 Beer industries are mostly large, located in central

and western region

Wine 6 Cottage and small industries

Total 62 Note:

Information on alcoholic beverage industry obtained by DFTQC from Inland Revenue Department,

Government of Nepal

Large scale—10 and medium scale—31 Industries, the rest are small and cottage scale.


125

Part II: Department of Industry (DOI, Government of Nepal) Registered Agro-based

Industries

Table 40: Agro-based Industries with more than NPR 30 Million Fixed Capital Investment

Source: Department of Industry, January 2013 (Categorized from long list of industries).

Note: 1) As per Industrial Enterprise Act, 1992, industries with fixed capital investment NPR 30 million or

above are medium-scale or above scale of industries. 2) According to the list received from DOI, eight

industries were fixed capital of less that NPR 30 million; however, they were in the list of above 30 million

capital investment agro-based industries.

S.

No.

Agriculture & Agro based Industry

Category

No. of

Industries Remarks

1 General Agro Business / Industry 5

2 Herbal Medicine / Herbs Processing 15 Ayurbedic medicine

3 Ginger Processing 1

4 Tissue Culture 1

5 Livestock, Fish and Poultry (Bird) 19

6 Silk / Rabbit (yarn and fabric) 2

7 Floriculture 3

8 Tree Plantation 4

9 Sugarcane farming 1

10 Seed 2

11 Cardamom 1

12 Vegetable and Fruit 34 Including drying and processing

13 Bamboo 1

14 Fertilizer / Bio-fertilizer 3

15 Coffee and Tea 74

16 Cold Storage 3

17 Cotton 1

18 Diary 15

19 Essential Oil 4

20 Animal feed 2

21 Fruit processing 6

22 Honey 1

23 Meat processing 1

24 Mushroom processing 3

25 Oil & Vegetable Ghee 7

26 Cereals & Pulse 3

27 Saw Mill / Wood Processing 1

28 Starch 1

Total 214


126

Annex 5: Institutional Arrangement of Business Incubators in Nepal—Operating,

Closed, and Planned

Business Incubators

Institutional Arrangement

Status / Lesson Learned

• PPP Board, Chaired by DG –

DCSI

• Board of Directors represented

by FNCCI, NAST, Professional

Societies, MOST

• Outsourced management, but

intermittent

• Operating on government’s budget

• Infrastructure provided by government

• Lacking in image building

• Weak networking

• Caught-up by government

bureaucracy

• Not happening as expected

• Private initiatives started from

early 2011

• Supported by networks of

E4Nepal, Sambridhi, The

Prosperity Foundation, Change

Fusion Nepal

• Where to focus? Business incubation or

venture investment

• Small scale

• Lack of infrastructure and budget

• Very committed, results yet to be seen

Fortune Cookie Ventures

• Private initiatives started from

early 2007

• Promoted by six leading IT

companies

• Focused on technology start-

ups

• Interest in venture investment in start-

ups

• Conflicting objective, business

incubation, or venture investment?

• Dormant but still interested to join

consortium of Incubator Operating

Institution

Lotus Business Incubator

• Private initiatives started in 2003

• Too early, very new to Nepal

• Lack of ecosystem and critical mass

• Some companies grew but NOT the

Business Incubation Company

• Out of Business

infoDev 2011 Feasibility

Study—ICT focused with a

satellite of agribusiness

Autonomous nonprofit sharing

company

Consortium of likeminded

institutions

Board is also represented by

members from feeder channels

Without direct control of

government and business

associations

Looking for funding for implementation

Perceived to start with ICT with

provision of extension to agribusiness

and NTFP sector

Accepted by wider stakeholders—

2011

Agribusiness Innovation

Center (AIC)

Public-private partnership

model

Led by entrepreneurs

Participated by public

institutions sharing infrastructure

and cost until it becomes self-

sustained

Accepted by PACT and key

stakeholders—November 2012


127

Annex 6: Value Chain Maps

Tea Value Chain Map

Traders

Saplings Adro-Vet

Services

NTCDB Offices, Farmers and

Farmers cooperatives

Small Tea

Processers

Medium and Large

processors

Actors/ Enablers

International Buyers

Retailers

Himcoop

Members: 19

International

ExportersLocal Wholesalers

DADO, SNV, SEAM-N,

DDC’s

AEC/ FNCCI, HOTPA,

HIMCOOP, SNV, TCF

MoAD, MoICS and

MoLD, NTCDB

Average Farm level price

Inorganic NRs 18/ Kg

Organic- NRs- 28/ Kg

NRs 3-5/Kg Commission

Average price

Organic NRs-52-53 Kg

Non Organic- Max NRs 28

Wholesale price

Inorganic- NRs 220/ Kg

Organic- NRs 390/Kg

Farmers

At Kolkatta

Inorganic About NRs 300/ Kg

Organic- NRs 500/Kg

Processes

Production and

Processing

Marketing and Sales

Input Supply

Around 90 % of total

production

Retailers

Figure 11: Tea Value Chain


128

Coffee Value Chain Map

Farmers

Saplings

Providers

Pulping Centers

Agents

Processors and Exporters

Roasters

International Wholesalers /Processors

WINROCK

HELTEVAS

NARC

MOAD/DADO

Organic Certifying

Organizations

Local

Wolesalers

Retailers

International

Wholesalers

Retailers

CTDS

NTCBD

WINROCK

HELVETAS

AEC

IDE

Organic Certifying

Organizations

Enablers / ActorsProcesses

Rs 10 Per Sapling

Rs 5 (subsidized)

Input

Production

process

Export and Sales

Fresh Cherry -Rs

35/Kg

Parchment -Rs

175/Kg

Green Beans:

800-900/Kg

About 60% of the green

beans are exported

Roasted Beans

15-20% expensive

compared to

Green beans

Total Export:

279762 kg

No of Registered

Processors: 14

Figure 12: Coffee Value Chain


129

Honey Value Chain Map

Bee Keepers

Input Suppliers

Bakeries/

Resturants

End Consumers

Processors/

Traders

Beekeeping

Group/

Association/

cooperative

Intermediaries

Departmental

Stores

Farmers getting NRs 95/Kg

MoAD, DoA

District Agriculture Offices

Honey Promotion Center

Bee Keeper's

Associations/ cooperatives

MEDEP/UNDP

API Net

Financial

Institutions

Ayurvedic

Companies

International

Wholesalers/

Traders

End

Consumers

Consumer price in Kathmandu is 250/kg

Through own channel

Identified

no of

processor:

8

Figure 13: Honey Value Chain

Note: Calculation partly based upon Value Chain Analysis of Honey (GIZ 2007).


130

Ginger Value Chain Map

Producers

Local CollectorRoad Head traders/

Vendors

Indian Commission

Agents

Indian Wholesaler

Retailer

Consumers

Local /Regional

Wholesaler

Consumers

Ginger and Cardamom

Development Section

(DOA), DADO, CADP,

Mercy Crops, PACT,

NGPTA

Fertilizers and

pesticides

Transportation

Service

Providers,

Financial

institutions

Retailer

Big Traders

<20% of productionAround 75-80%

43 entrepreneurs

(Including

Producers

exporters and

processors)

Figure 14: Ginger Value Chain


131

Cardamom Value Chain Map

Nurseries, Agro vet Services

Farmers CFU’s

Village Vendors-

NRs 210/Kg

Regional Traders/

Wholesalers

SP- NRs 225/Kg

Exporters

SP- NRs 250/Kg

Third Country’s

CollectorIndian Collector

Wholesaler wholeasler

Retail sellerRetail seller

consumersConsumers

Retail seller

Consumers

Farmers Group, VDC , DDC,

Cooperatives, DADO, PACT,

Large Cardamom Entrepreneurs

Association of Nepal, (LCEAN),

SEAM-N, Mercy Crops , Local

NGO’s, NARC

Banking and financial

institutions, Transportation

Service Providers

MoAD, MoICS and MoLD

Around 90 %

from where 8-9%

is directly to

Pakistan, UAE,

Afghanistan and

other Gulf

Countries

COP- NRs. 73.54 /Kg

NRs 195/Kg

District Traders

No of Processor:

4 as most part is

exported in raw

form

Calculations partly based upon CADP value chain report.

Figure 15: Cardamom Value Chain


132

Potato Value Chain Map

Seed and Agro vet Service Providers

Farmers

Expoters

Local VendorsDistrict Traders

Commission Agents

Regional/ National

Wholesaler

Retail sellerRetail seller

consumersConsumers

Retailers

Consumers

Farmers Group, , DDC,

Cooperatives, DADO,

PACT, CADP, NARC

Potato Development

Program, Potato

Research Program,

farmers group

cooperatives, Mercy

Crops

Banking and financial

institutions,

Transportation Service

Providers

DCCI’s, , Financial

Institution

Wholesaler

Processing

Industries

Figure 16: Potato Value Chain


133

Milk and Diary Value Chain Map

Farmers

Veterinary

Service

Providers

Animal

Feed

Providers

DDC Milk

Plant

End

Consumers

Contractor/

Middle men

Private

Dairy

MCC’s

DDC

MCC’sMPC’s

Tea Shop Sweet

Shop

Private

Dairy

Plants

Only around 10% of the supply passes through the formal channel

Informal Trading

Shops/

Outlets

End

Consumers

Nepal Dairy

Development Board

Dairy Development

Corporation

Nepal Dairy

Association

DFTQC

DoC

Department of

Livestock

Service

Milk Cooperatives

Financial institutions

Financial

Institutions,

Transport

Service

providers

Cheese

Factories

Cheese

Factories

Consemers

Indian

Wholesaler

/ Dairy

Consumer

Sales

Outlets

Inconsistent and Exported only during the flush season/ milk holidays period

76 Dairy Plants

Figure 17: Milk and Diary Value Chain


134

Meat Value Chain Map

Breed Providers

AgroVet, Fodder,

Forage, Seed

Suppliers

Co-opeartives

Farmers

Traders Traders

Processors/ Retailers (meat

shops/fresh house, slaughter slabs) (Type I and II)

Total Number 17

Household

Consumers

Institutional

Consumers

Input SupplyActors

Actors/ Enablers Processes

Veterinary Service

Providers, NGO’s.

Projects

Multipurpose

Cooperatives,

District Livestock

Services Office

Production and

Transporation

Processors

Consumers

Financial

Institutions,

Transport Service

Providers,

DFTQC,

Department of

Livestock Services

Entrepreneurs

Associations

International

Wholesalers/

Processors

Skin,

Fiber

and

other

Products

District Market

Via

Collectors

23-72%

5 -13%

40% of

the

district

market

23- 40%

From India

Wholesalers

Meat Import

*The above map is partly extracted from Heifer 2012, FAO 2010, and DAI/Winrock/IDE 2008.

Figure 18: Meat Value Chain


135

Fish Value Chain Map

Farmers, Natural Lake, Reservoir Contractors and Private Fish

Hatcheries

Fish Development

Centres

Agrovet and feed

providers

Haat BazaarOwn Village

Actors/Enablers Process

Marketing and

Transportation

Consumption

Production

Input Supply

Traders

National/

Regional

markets

Nearby

Market Center

80% 10%

Financial

Institutions,

Transportation

Service Providers,

Financial

Institutions,

Entrepreneurs

Associations

NARC, DADO, Fish

Development

Centers, NGOs,

Programs and

Projects

Import

From India

Input Providers

Small

holders

Supply

about

60%

Small

holders

Supply

about

30%

8 % of the total

Collections

India

2%

Partly based upon Lotus Intellect 2006.

Figure 19: Fish Value Chain


136

NTFP and Essential Oil Value Chain Map

Local Collectors /

CFUGFarmers

Regional Traders

Local traders

Commission

Agents Agents

Private Processing

Industries

wholeasler

Retail seller

End Users

IndiaThird Countries

Processing

Companies

DoA

DoF

FNCCI /Nepal

Chamber of

Commerce

Banking and

financial institutions

Transportation

Service Providers

JABAN

Input Suppliers

Government

Processing

Industries

About 90 % of the

NTFP collected

are exported to

India

ANSAB,

NTFP Network,

MEDEP

Individual

Collectors

90% of the total collection

10 % of the total collection

Industrial Users

Figure 20: NTFP and Essential Oil Value Chain


137

Floriculture Value Chain Map

Input Suppliers

Cut flower seeds,

Plant Bulb,

Fertilizers,

Pesticides and

Manure

Cut Flower Farms Nurseries

Wholesalers

Number: around 5

(10% Service Charge)

Retailers

End Users

Institutional 60 and

Individual 40%

Processors

(Around 5)

(Rose oil , Dry

Rose etc)

Less than 15%

Vendors

Cut Flower

Exporters

Bulb and

Plant

Parts

Exporters

Enablers

About 95% of Cut flower

Seed imported from

European Countries

(Roughly around 20-25

Million Rs Per year)

Plant Bulb imported

from America and

Netherlands (Roughly

around 1 Billion Rs per

year)

Price Rs 450-

6500 per 1000

SeedsPrice Rs 2- 60

Per Bulb

USA, Australia and

Netherland

30% loss

during post

harvesting

Selling Price

2-30 Rs Per Stick

150-1500 Rs BunchMore than 85 %

Gulf (Mainly Qatar) ,

European Countries

About 80%

Export to Europe

Around 20%

36 District

120 Hectare

FAN, FNCCI/

AEC, TEPC

FAN, Laxmi

Bank,

NEPSEMAC,

HDD, DADO,

FDC

Cut Flower Import Scenario

90% in Festivals

and Big events,

10-20 % in normal days

Mainly from India

Processes

Marketing

and Sales

Production

Input

Supply

Figure 21: Floriculture Value Chain


138

Annex 7: Phasing of Enterprise Support

Different types of support will be required, depending on the stage and targets of the

client enterprises. Below provides an overview of how support could be phased.

Figure 22: Phasing of Support to be Provided to AIC Cilents

Phase 1

Phase 1 support will strengthen current activities with existing products in present

markets. Incremental improvements, both technical and managerial, will be the key

focus in Phase 1. Improvements in procurement, processing technology, packaging,

and sales approaches could reduce costs, improve quality, and expand existing

markets and strengthen these enterprises for later phases.

Phase 1 support is seen as a “means to an end” in preparing Level 2 enterprises for

accelerated growth.

Phase 2—New Markets

Phase 2 would use the advances made in better procurement, additional equipment

availability, more hygienic and advanced processing, better quality packaging and

branding, and improved managerial capability to access new markets.

NEW

MA

RK

ET

EX

ISTI

NG

MA

RK

ET

EXISTING PRODUCT

NEW PRODUCT

PHASE 2: Support

new market access

PHASE 3: Expand

new product

markets

1

1

PHASE 1: Strengthen

product/market

position

PHASE 2:

Encourage new

products


139

Phase 2 may progress very fast for some enterprises, but the test of competitiveness (as

a proxy for market acceptance of a good quality, available and well-priced product)

will be measured by the consistency of demand over time. Hence, this phase may also

run concurrently with Phase 1 in some enterprise contexts.

Phase 2—New Products

Phase 2 will mark the product expansion phase and will signal a stable enterprise with

adequate and constant income and with the resources and managerial skill to venture

into new products. New products will require investment in product development, test

marketing, packaging, and sales. This will be encouraged and supported in enterprises

that have the capability.

The AIC will facilitate access to packaging services both in Nepal and internationally,

because of the following reasons: new product development and testing require a

focus on both product and packaging; there is a definite lack of good packaging

options; and consumer perception is a critical decider of purchase interest.

Phase 2 activities may require a year of support to test reliability of test market

outcomes. From a managerial and business expansion perspective, this represents

adequate time for scale adjustment (for example, developing accounting or

distribution changes that keep pace with growth).

Phase 3

Phase 3 activities represent the pinnacle of new growth with new products expanding

into new markets. While these can be export markets, national distribution of new

products offers significant potential in Nepal in all the sectors under consideration by

the AIC.

Market expansion is a complex process, especially with new products as it taxes

general management and finance, logistics, and marketing in particular. It can be a

significant drain on resources and must be well managed. The AIC will offer support in

collaboration with partners, such as export promotion agencies, financiers, and logistics

linkages.

Phase 3 will begin in the third year for most companies and will be supported for at least

a year.


140

Annex 8: AIC’s Prospective Clients

The financial plan was built on an expected 30 companies supported per year (from

year 3).

Three levels of client are anticipated:

Table 41: Nepalese AIC Target Clients Categorization

Level Business Category by Size Current *Average

Turnover Range

AIC Support

1 – New start and very small

micro businesses

– $0 to $ 3,000 per

year

– Pre-incubation

2 – Small and medium

businesses

– Up to$ 0.5 million

per year for small

and $ 0.5 to $ 1.5

million per year

for medium

– Incubation

3 – Large businesses – Above $1.5

million per year

– Incubation

* Turnover is calculated on the basis of the different level of business category as

defined by Industrial Policy 2010.

The levels may be segregated further as a part of the implementation, learning from

selected clients. Initially to hone the model and drive for revenues, the AIC will focus on

Level 2 and 3 clients.

The deal flow of Level 2 and 3 enterprises is captured in the table below, which

incorporates phases of support, three for level 2 clients and two for level 3 clients, which

have been described further in Annex 6:


141

Table 42: Deal Flow of AIC’s Enterprises

Companies enter the AIC for an average of three years, noting that services will be

tailored to the unique needs of each and every company with a case management

approach. Inevitably some companies will grow and progress faster than others.

On the assumption that Level 2 turnover increases by 1.5x in Phases 1 and 2

(combined); and 1.5x in Phase 3 and Level 3 turnover increases by 1.5x; the table below

captures the combined turnover of the supported enterprises.

CLIENT CUMULATIVE CLIENTS

LEVEL PHASE

Year

1

Year

2

Year

3

Year

4

Year

5

Year

6

Year

7

Year

8

Year

9

Year

10

2 1 6 6 6 6 6 6 6 6 6 6

2 2 6 6 6 6 6 6 6 6 6

2 3 0 0 6 6 6 6 6 6 6 6

3 2 4 4 4 4 4 4 4 4 4 4

3 3 4 8 8 8 8 8 8 8 8

TOTAL 10 20 30 30 30 30 30 30 30 30

NEW 10 10 10 10 10 10 10 10 10 10

CUMULATIVE 10 20 30 40 50 60 70 80 90 100


142

Table 43: Combined Turnover of AIC’s Client Enterprises

CLIENT COMBINED ENTERPRISE TURNOVER

LEVEL PHASE Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

2 1 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880 1127880

2 0 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244 1466244

3 0 0 1906117 1906117 1906117 1906117 1906117 1906117 1906117 1906117

3 2 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200 2215200

3 0 3338400 6676800 6676800 6676800 6676800 6676800 6676800 6676800 6676800

TOTAL 3343080 8147724 13392241 13392241 13392241 13392241 13392241 13392241 13392241 13392241


143

Clients will only agree to pay a royalty on their turnover, if the AIC confers tangible benefit in

terms of profit to the entrepreneur, by way of increasing turnover and by improving gross profit

margins and efficiency.

This is depicted in a simple example below, with two scenarios. This calculator highlights the

benefit of agreeing to pay a percent of turnover and demonstrates just how far the AIC can

go with the percent before it turns negative for the entrepreneur. A percent royalty and with

an increase in turnover means the entrepreneur pays a certain amount. Then with an assumed

gross profit and overhead margin, one can see whether the entrepreneur gains or loses with

the profit or loss they make. It appears gross profits are around 50 percent and overheads 18

percent, which are used as the basic assumptions.

With Scenario 1, assuming a turnover of $100, a 30 percent growth in turnover increases the

profit by $9.60, but incurs a royalty payment of $9.10 (at 7 percent of the increase in turnover)

with a net gain to the entrepreneur of only $0.50. This may not be enough to secure

entrepreneur engagement.

Scenario 2 assumes the AIC will improve both the gross profit margin and the overhead

percentage, resulting in a changed operating profit, because one assumes that not only will

the AIC intervention increase turnover, but it will also help the entrepreneur compete on value

and improve internal efficiencies. In this example, the net gain to the entrepreneur is $7.10. This

demonstrates how the AIC can charge what may seem to be a high percent of operating

profit without damaging the business.


144

Annex 9: Setting a Royalty Fee

SETTING A ROYALTY FEE

Royalty 7.00%

Growth in turnover 30.00%

COS% of turnover 50.00%

Overhead % of turnover 18.00%

SCENARIO 1. AN INCREASE IN TURNOVER WITH NO CHANGE IN GP or OP AS A % OF TURNOVER (i.e. increased turnover with no efficiency gain from intervention)

BEFORE AFTER Royalty fee

$ $ $

Turnover 100.00 130.00 9.10

Cost of Sales 50.00 65.00

GP 50.00 65.00

Overhead 18.00 23.40

OP 32.00 41.60

OP% of turnover 32.00% 32.00%

Royalty % of OP 0.22

Gain in OP ($) 9.60

Payment ($) 9.10

Nett gain ($) 0.50

Royalty of 7.00% and growth of 30.00% $0.50

SCENARIO 2. AN INCREASE IN TURNOVER WITH AN INCREASE IN GP and OP (i.e. some efficiency gain from intervention)

BEFORE AFTER Royalty fee

$ $ $

Turnover 100.00 130.00 9.10

Cost of Sales 50.00 58.50 COS decreased by 10% due to intervention

GP 50.00 71.50 1.43 Overheads decreased by 10% due to intervention

Overhead 18.00 23.30

OP 32.00 48.20

OP% of turnover 32.00% 37.08%

Royalty % of OP 0.19

Gain in OP ($) 16.20

Payment ($) 9.10

Nett gain ($) 7.10

Royalty of 7.00% and growth of 30.00% with a 10% 10%

decline in

overheads

confers

additional $7.10 profitdecrease in COS and

confers additional income of


145

Annex 10: Job and Tax Impacts

Assumptions

Tax rate: 25%

Taxable income is OP which is 37.08%

of

turnover

Indirect job factor 2.86

IMPACT OF COMPANIES

5 YEAR CYCLE IMPACT 10 YEAR IMPACT

CLIENT Turnover OP Tax Increased Jobs Turnover OP Tax

Increased

Jobs

LEVEL PHASE Increase Increase Increase

Per

Company Total Increase Increase Increase Total

2 1 1301400 482519 120630 5 150 2602800 965038.2 241260 300

2 1353456 501820 125455 3 72 3045276 1129095 282274 162

3 1319619.6 489274 122319 3 54 3518985.6 1304732 326183 144

3 2 2556000 947686 236922 4 80 5112000 1895372 473843 160

3 5392800 1999484 499871 3 84 13096800 4855890 1213973 204

11923276 4420784 1105196

27,375,861.60 2537532

440

Direct

jobs 970

Direct

jobs

1258

Indirect

jobs 2774

Indirect

jobs

1698 TOTAL 3744 TOTAL


146

Annex 11: Profile of Key Partner Institutions

Department of Food Technology and Quality Control

Department of Food Technology and Quality Control (DFTQC) is under the Ministry of

Agriculture Development (MOAD) of government of Nepal (GoN). It was established in

1961 as Department of Food and placed in Singh Durbar. Later in 1965 it was shifted to

the present location of Barbarmahal, Kathmandu. In 1966, the Department of Food

then was renamed as Food Research Laboratory. The laboratory later in 1980 was

again converted to Central Food Research Laboratory (CFRL) and known by this name

until it became Department of Food Technology and Quality Control (DFTQC) in 2000

under MOAD.

From the beginning of its establishment, DFQC played a role in laying down the

foundation for food quality control system, research, and development in the field of

food science, technology, and nutrition support program. As mandated by

government of Nepal, DFTQC is the apex organization responsible for the enforcement

of Food Act and Regulations. It has been working for the implementation of the Feed

Act and Regulations. Its main aim is to ensure and enhance the quality and safety of

food and feed products in the country. The department has a paramount role in

augmenting appropriate food processing and post-harvest techniques to promote

agribusinesses. DFTQC, which has been entrusted as CODEX contact point for Nepal for

more than three decades, has been given the role of National SPS Enquiry Point in 2004.

Nepal Agriculture Research Council

Nepal Agriculture Research Council (NARC) was established in 1991 as an autonomous

organization under "Nepal Agricultural Research Council Act - 1991" to conduct

agricultural research in the country to uplift the economic level of the people.

The objectives of NARC include the following:

To conduct qualitative studies and researches on different aspects of agriculture.

To identify the existing problems in agriculture and find out the solution.

To assist government in formulation of agricultural policies and strategies.

Functions and responsibilities of NARC are the following:

Conduct qualitative agricultural research required for national agricultural

policies

Prioritize studies and researches to be conducted

Provide research and consultancy services to the clients

Coordinate, monitor, and evaluate the agricultural research activities in Nepal

Document the research activities


147

The following are sources of financial resources for NARC:

Grants from the government of Nepal

Grants from national and international donor agencies and governments

Funds obtained from research or consultancy services

NARC’s Strategic Vision for Agricultural Research (2011–30)

Creating a New Vision for Agricultural Research. NARC’s vision is to tap institutional,

human, and financial resources from the government and a wider spectrum of

stakeholders—civil society, research centers, donors, and ultimately the private sector—

to move the system from agricultural research and development to agricultural

research for development.

NARC is also targeting the promotion of commercial agriculture by generating post-

harvest technologies that create value-added products from cereal crops, cash crops,

vegetables and fruits, livestock, poultry and fisheries; and their downstream processing

opportunities. By the same token, NARC is also giving attention to crops and

horticulture, livestock and fisheries, natural resources management and climate

change, biotechnology, outreach, technology, dissemination and extension, to the

problems and needs of its client in the input industries and service providers—such as,

farm machinery, irrigation equipment, agro-chemicals, and animal feed.

NARC is highly dependent on funds from the government. The government budget for

NARC was NPR 326 million in 1997/98 and NPR 510 million in 2008/09, an increase of 56

percent, in absolute terms. However, in relative terms it declined as core inflation

between those periods was about 100 percent. The share of NARC in national budget

also decreased substantially. In 1997/98 NARC’s share of the national and MOAD

budget was 0.53 percent and 14.40 percent, respectively. However, it had declined to

only 0.22 percent and 8.85 percent, respectively, in 2008/09 (Source NARC website).

Because of declining budgets, staff and administrative costs are consuming an ever-

increasing proportion of the NARC budget. Allocation for operational costs remained

between 22 to 34 percent of total budget and this ratio is declining over the years.

Largest year-to-year fluctuation is observed in capital budget ranging from 2 to 30

percent. Within the operational budget, about 28 percent is allocated for crops, 14

percent for horticulture, 20 percent for livestock, 7 percent for fisheries, and 30 percent

to multisector activities. Similarly, 5 percent of operational budget is allocated for the

high-hills, 65 percent for mid-hills and 30 percent for the Terai (plain part of Nepal).

Research projects are grouped into five areas: core research; technology

development; policy and socioeconomic; environmental science; new frontier/

exploratory research—climate change. The priorities of NARC research projects are

guided by the overall goal of poverty alleviation through broad based, inclusive and

sustainable agricultural growth.


148

The following are the priority issues:

Major food crops, such as rice, maize, wheat, and potato

Minor food crops, such as barley, buckwheat, millets, and amaranthus

Potential commercial crops, such as apple, citrus, mango, banana, and

vegetables

Cash crops, such as large cardamom, ginger, turmeric, and other spices

Industrial crops, such as tea, coffee, jute, sugarcane, cotton, sunflower, and

jatropha (bio-fuel)

Specialized commodities, such as sericulture, bee keeping, flower, mushroom,

and wool animals

High-value low volume commodities, such as saffron, yarshagumba, herbs, and

nontimber forest products

Fish, including cold water fish and warm water fish

Dairy animals, such as buffalo, cattle, and yak

Animals for meat production such as poultry, goats, sheep, buffalo and pigs

Power use in agriculture and agro-industries—draft animals, solar, biodiesel, and

farm waste utilization

Commercial Agriculture Alliance (CAA), Biratnagar

Commercial Agriculture Alliance (CAA) is a not-for-profit-sharing company established

in September 2006, with its head office in Biratnagar, Morang, Nepal. It is responsible for

implementation of "Commercial Agriculture Investment and Management," which is

one of five output of Asian Development Bank’s (ADB) CADP Project. CAA is managing

the Commercial Agriculture Fund (CAF), which is a cost-sharing grant facility. Total

budget for CAA is $15 million, including $8 million for CAF. The CAF facility is available to

CAA general members and the DDCs to strengthen market-chain activities and

develop linkages within the market chain.

Vision

Reduce poverty in the rural communities of 11 Eastern Development Region (EDR)

districts of Nepal, through equitable and sustainable commercialization of agriculture.


149

Objective

The commercial agricultural stakeholders must be engaged in agriculture-based

production, processing, or trading within the program districts of the region covered by

the company for at least two years with the motive of profit In the case of farmer

cooperatives or groups:

To manage commercial agriculture fund and provide support to its members

from the fund

To promote commercial agriculture in Nepal by developing an alliance between

the commercial agricultural stakeholders

To manage the Commercial Agriculture Fund and provide support to its

members from the fund.

To educate its members and other agricultural stakeholders about the

importance of market linkage on production, its sustainability, and multiplying

capacity

To conduct awareness program on intellectual property protection among the

members and support its members for the protection of intellectual property right

To enter into contract for value with any third party competent to enter into

contract

To establish branch office required for the fulfillment of the objectives of the

company

To engage in any other activities, which are ancillary to fulfill the above-

mentioned principal objectives

Output

1. Commercial agriculture investment and management

2. Inclusive development of stakeholders

3. Market information dissemination

4. Capacity enhancement of project partner

The National Agricultural Research and Development Fund

NARDF was established by a Cabinet decision on December 10, 2001, under Section 3

of the Working Fund Act, 1986. The Fund is comprised of money received from the

government's allocations and other sources approved by the Ministry of Finance.

NARDF is governed by a seven person Fund Management Committee (FMC), chaired

by the Secretary of the Ministry of Agricultural Development (MOAD). It is administered

and operated by the NARDF Secretariat. The head of the Secretariat is the Member

Secretary of the FMC. The Secretariat is supported by a Technical Subcommittee and

a panel, or list of peer reviewers. Awards are in the form of grants to successful

organizations or collaborative partnerships.


150

The Fund targets government, nongovernment, educational, private sector, civil

society, co-operative, and community-based organizations (CBO) involved in

agricultural research and development. It aims to encourage these organizations to

compete for partial or complete funding for project activities, which are designed to

promote the overall development of the agricultural sector. The government’s budget

for NARDF for FY 2010/11 was around $766,70055.

The NARDF is an institution for implementing a competitive grant system in agricultural

research and development. The main function and mandate of NARDF is to seek or

demand proposals from governmental and nongovernmental organization,

academic or educational institutions, private sector, civil society, and community

based organizations who are interested in contributing to the agricultural research

and development of Nepal. NARDF focuses on output-oriented work aiming to deliver

measurable results within a maximum of three-year period in support of national

objectives and priorities defined in government policy documents.

Since its establishment in the year 2001, NARDF has so far provided financial support

for the implementation of 162 research and development projects through various

implementing organizations or development partners. Out of these, 105 projects have

been completed so far under the first, second, third, fourth, fifth, and sixth calls. The

remaining 57 projects are still ongoing. For the 9th Call 221, project concept notes

have been received and are undergoing thorough selection procedures. From the

fifth call onwards, NARDF has introduced the Small Grants and Thesis Grants Program

under its funding umbrella, mainly targeting the grassroots-level local institutions and

post-graduate level research students, respectively. The range of research grant is NPR

1 to 3 million (except small and thesis grants). Some priority research topics during the

call for research proposal for the 2012/13 cycle included the following:56

Agrotourism

Linking farmers to the market, including ICT

Food safety and quality improvement system

Agricultural /livestock market research impact study

Production, processing, storage, and marketing of improved seeds

Promotion of quality products for export

Small agriculture / livestock business promotion

Value addition technologies in fish and meat production

Production, processing, and marketing of spice crops

International Centre for Integrated Mountain Development

55 Source: MOAD. 2011. Annual Progress Report. 56

Source: http://www.nardf.org.np and NARDF. June 2012. Project Completion Report.


151

The International Centre for Integrated Mountain Development (ICIMOD) is a regional

intergovernmental learning and knowledge sharing center serving the eight regional

member countries of the Hindu Kush Himalayas: Afghanistan, Bangladesh, Bhutan,

China, India, Myanmar, Nepal, and Pakistan. It is based in Kathmandu, Nepal.

Globalization and climate change have an increasing influence on the stability of

fragile mountain ecosystems and the livelihoods of mountain people. It aims to assist

mountain people to understand these changes, adapt to them, and make the most of

new opportunities, while addressing upstream-downstream issues.

ICIMOD is supporting regional transboundary programs through partnering with regional

institutions, facilitating the exchange of experience, and serving as a regional

knowledge hub. It strengthens networking among regional and global centers of

excellence. Overall, it is working to develop an economically and environmentally

sound mountain ecosystem to improve the living standards of mountain populations

and to sustain vital ecosystem services for the billions of people living downstream, now

and for the future.

ICIMOD Knowledge Park, Godavari: located on the southern slopes of the Kathmandu

Valley in Nepal, was set up in March 1993 after the generous provision of 30 hectares of

land by the government of Nepal. The site provides a practical venue for testing

sustainable technologies and farming practices and demonstrating them to the

region’s people—farmers, researchers, students, development practitioners, and civic

leaders—so they can develop the means to adapt to the impacts of change. The

knowledge park also serves as a repository for important biodiversity resources. Each

year the knowledge park attracts over 5,000 visitors.

At Godavari Knowledge Park activities are carried out in the following areas:

agriculture, livestock, and aquaculture; income generation; biodiversity conservation;

renewable energy technologies; water, vegetation, and soil management; training;

and community outreach. In 2012, ICIMOD developed a plan to enhance the park’s

activities and facilities. ICIMOD considers private-sector partnerships as an important

part of this strategy.


152

Annex 12: DFTQC Pilot Plant Renovation and Cost

The cost is calculated based on the unit area rate:

Area 493m2

The unit area refurbish / renovation cost = $250/m2 (NPR 2,000 / sq.ft.)

o The rate is 50 percent of new construction cost

The unite rate is estimated to cover the following costs:

Replacement of existing asbestos corrugated sheets by Corrugated Galvanized

Iron (CGI) sheet, utilizing the existing trusses

False ceiling

Good wall, floor, ceiling finishes

Good Manufacturing Practice (GMP) required interior finishes (floor with ceramic

tiles, wall and ceiling with washable paints, doors and windows with dust proof

shutters / replacement as needed)

Normal electrification and water supply system

The cost does not include the following generic plant equipment:

Heating, ventilating, and air conditioning (HVAC) system

Dedicated Power Generating Set (GenSet) for the pilot plant

High quantity water supply system (HQWSS)

Transformer for high voltage electricity connection (three-phase 440V

connection)

The estimated costs for generic plant equipment are the following:

HVAC: NPR 700,000

GenSet: NPR 1,800,000

HQWSS: NPR 1,000,000

Transformer: NPR 500,000

Total: NPR 4,000,000 equivalent $46,512 (which is about $47,000) (1 USD = 86 NPR)


153

Annex 13: Preparedness to Pay for Services

With infoDev funding, ITPF conducted a comprehensive feasibility study in 2005 for an

ICT and agribusiness incubator. This study involved a survey of 270 students, focusing on

those segments more likely to go into business, and to gauge the market from existing

businesses structured interviews with 110 MSMEs, selected by random sampling in 6

industrial cities in all the development regions, other than the far western region. Of

these, 86 percent were in involved in manufacturing and 12 percent in services.

Fresh graduates considered financial assistance the most important support required to

successfully operate and manage a business venture. MSMEs, however, ranked

marketing and production assistance above finance, which is arguably far more

realistic and in accord with experience elsewhere. Without prejudicing the interest and

needs of graduating students, it must be remembered that without experience they

may well not know exactly where they need the most help. Also perceived as

important were provision of business space and infrastructure, marketing assistance and

market linkages, education/training, and technical/management assistance. The

majority of those students who expressed interest were interested in paying for the

service of an organization that advises and assists them to start, sustain, and grow their

intended businesses. Management assistance and accessibility and use of ICT were

lower priorities, suggesting students are confident of their management ability and

exploiting ICT as a tool for successful business operation. They wanted an incubator to

be located in an accessible and convenient commercial area of the city.

In comparison to students, who are yet to venture into business, MSMEs expressed

different needs, as is to be expected. They sought support with marketing and product

distribution assistance, finding available space and infrastructure, accounting and

financial management, access to financial assistance, process and inventory

management, and assistance with product design and testing. Lack of marketing

information, inability to frame proper marketing plans, not having proper technical

know-how, inability to adapt to the changes in the business environment and lack of

adequate financial management skill were considered to be the main reasons why

most of the businesses fail during their initial years of establishment. The interviews found

that 62 percent of the sample have made use of support services to improve their

performance, 69 percent are willing to pay for the services of a support organization

and 75 percent wanted to grow further, indicating good demand for business

incubation from existing businesses. A significant number of the MSMEs are facing

problems (noting the interviews were conducted in 2005) that obstruct their growth and

the majority are prepared to pay for the services of an organization providing them with

support to improve their performance.

Focus groups with BIP clients and other entrepreneurs also explored willingness to pay. It

is always hard discussing payment for a service that does not exist, or for which only low

value models have been seen and without seeing a service with a high value

proposition. Broadly speaking, focus group participants want the incubator to be a

quasi partner, adding tangible value to their business and sharing in their success in one

way or another. In this context, despite variable responses, almost any model is


154

negotiable, assuming the incubator does offer excellent services. However, it appears

there is an overall preference, especially among the agribusinesses consulted, for no

upfront fees and payment by way of sharing in increased sales.

Comments noted include the following:

Incubatees should feel that the Business Incubator fee is not a cost, but the fee

paid should be seen as an investment, as one entrepreneur put it, “to pay 10,

you should earn 40.”

It should be worth paying.

Fee depends on services

Sharing of profit

No upfront payment, payment through increased revenue

Sharing of sales

Equity model is okay for new entrepreneurs, but not for operating SMEs

Partnership with BI

Any model negotiable

Entirely business–profit oriented center

Fee for services

The full report and survey results can be made available on request to infoDev.


155

Annex 14: Learning from Previous Business Incubation Efforts

Previous incubation efforts by the Department of Cottage and Small Industries, Lotus

Holdings, and Fortune Cookies provide useful lessons.

The DCSI business incubator was formed on the back of the ITPF feasibility study in 2005

by the Department of Cottage and Small Industries at their site at Tripureshwor in

Kathmandu. The Nepal Lotus Business Incubator Centre (NLBIC), an Initiative of Lotus

Holdings (LH)/ Lotus Opportunities (LO), was established in 2003, with a strategic

decision of the LH board to serve start-up companies with “finance plus” 57 assistance,

but the incubator failed. Six privates sector IT entrepreneurs formed Fortune Cookies as

a private initiative in 2006 to incubate new ideas. Two investments were made, which

did not bear fruit. Fortune Cookies did not work as envisaged and is now dormant.

The main lessons from these incubator initiatives are the following:

The DCSI is compromised in terms of its positioning and image by being a part of

government. As is understood by PACT and MOAD, business incubation should

not be run directly by government in Nepal—a lesson that is common to many

countries. An attempt to institute a private-sector approach, by outsourcing

management, was a step in the right direction, but did not work well and is never

as effective as outsourcing the entire business incubation function. The center is

still hampered by bureaucracy, operating under the guidance and supervision

of a board formed under the chairmanship of Director General of DCSI. None

the less, there is potential to work with the DCSI on the proper role for

government and implications for this and other incubators.

Incubation should run with a public-private partnership model and not as a

purely private or public venture and takes significant commitment.

Budgets need to be adequate. All three attempts were or are hampered by

inadequate budgets. Furthermore, private funding alone is inadequate to

operate and grow a business incubator, which takes too long to realize returns.

Investors do not benefit directly from incubation itself, but by investing in

incubates over the long term.

Service providers or advisors should have a seasoned entrepreneurial

background. The services of management graduates are not adequate to meet

incubatees’ needs.

Incubation needs to be the core business of the institution operating the

incubator, which needs a dedicated management team.

The skills and competence of the management team need to be developed, so

that the team members can meet the expectations of start-up companies,

particularly regarding marketing and financial needs.

57LH at its earlier stage believed that financial assistance, through equity financing, is the way to help new

business. Hence, LH invested equity in 14 companies, ranging from carpet factories, pashmina, handmade

paper, IT, management consulting, and infrastructure development.


156

The support systems need to be professional and comprehensive.

On its own, a focus on students and student projects will not deliver adequate

deal flow. While students are interested, it can be hard to convince them

incubation is not there to “steal their ideas” and often student projects are not

able to be commercialized.

Scale is important and having only four client firms is too small, as happened with

Lotus.

Return on investment and impact or results should be planned over the long

term and will not be significant in the short term.

A thorough feasibility study is important to design the incubator, as well as to

develop understanding about business incubation.

promoting agribusiness innovation in...

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