International Food Policy Research Institute (IFPRI) in collaboration with the Ministry of Agricultural Development, Government of Nepal, and Institute for Integrated Development Studies (IIDS), and Federation of the Nepal Chambers of Commerce and Industries (FNCCI), organized a two day workshop on ‘Best Practices in Contract Farming: Challenges and Opportunities in Nepal’ on 10-11 February 2015 in Kathmandu, Nepal. IFPRI is engaged in Policy Reform Initiative in Nepal with overall goal to reform agriculture sector for accelerating agricultural growth and enhancing farm incomes. In view of large number of smallholdings in Nepal, contract farming is envisaged as one of the strategies to increase their incomes by linking them with remunerative domestic and global markets. At present, contract farming in Nepal is at its infancy and needs to be popularized. This would require enabling polices and appropriate institutional arrangements. The main aim of the workshop is to learn lessons from the best practices in neighboring countries to address the multi-faceted challenges and opportunities in promoting and up scaling pro-smallholder contract farming in Nepal.

1. Contract Farming in Ginger: Implications for
Smallholders in Nepal
Anjani Kumar
International Food Policy Research Institute
IFPRI-South Asia Regional Office, New Delhi
B D Pant
D B Shakya
Madhab Karkee
IIDS-IFPRI, Kathmandu

2. International Food Policy Research Institute
 The food marketing system in South Asia is undergoing a transformation.
 Rising per capita income, urbanization, increasing market liberalization and
globalization of the food economy are attributed to spur this transformation.
 Consumption baskets are changing in favour of high value commodities and
integrated food supply chains have emerged as one of the fastest growing and
most visible market phenomenon in India in the recent years.
 The increasing dietary diversification accompanied by growing concern for
food safety and quality are accelerating this transformation in food marketing
system.
 Traditional marketing channels with ad-hoc sales are being replaced albeit
slowly by coordinated links between farmers, processors, retailers and others in
the value chain.
Background

3. International Food Policy Research Institute
 Different models of LFTM
 Co-operatives,
 Farmers Producers Organizations (FPO),
 Farmer Producer Companies (FPC), and
 Contract Farming etc.
 These models improve efficiency in production and marketing
 Speeding up commercialization of agriculture
 Tremendous opportunities for enhancing social welfare
 Challenges for smallholder and marginal farmers

4. International Food Policy Research Institute
 Challenges to smallholders
 small-scale enterprise,
 low marketable surplus,
 weak technical capacity,
 lack of capital,
 high vulnerability to risks and
 inability to comply with emerging stringent food safety and quality
standards,
 Fight a multi-pronged battle
 capacitating the smallholders,
 creating conditions to standup to the competitive externalities
 ensuring viable business opportunities for all stakeholders along the value
chain.

5. International Food Policy Research Institute
Ginger in agricultural economy of Nepal
Time-period
% share in
GCA
% share in
VOP
% share in
agricultural
exports (value
terms)
TE 1987-88 0.04 0.47 5.84
TE 1991-92 0.08 0.94 9.32
TE 2001-02 0.19 1.74 6.99
TE 2011-12 0.36 3.05 2.67
Source: FAOSTAT (2014)

6. International Food Policy Research Institute
Area, Production and Yield of ginger in Nepal
Time-
period
Area
('000 ha)
Production ('000
tons)
Yield (tons/ha)
TE 1987 1.4 13.3 9.3
TE 1991 3.4 31.7 9.4
TE 2001 8.7 80.4 9.2
TE 2012 19.1 227.4 11.9
Source: FAOSTAT (2014)

7. International Food Policy Research Institute
Trade of ginger in Nepal
(constant prices 2005 US$)
Time-period
Export Import
tons 000 US$ tons 000 US$
TE 1987 2087 3540 5 5
TE 1991 2461 3270 0 0
TE 2001 8050 3014 554 601
TE 2011 24785 4872 5814 2445
Source: FAOSTAT (2014)

8. International Food Policy Research Institute
Questions
 Whether the contract farming is inclusive in Nepal?
 Whether contract farming is more efficient?
 Whether the contract farming promote good agricultural practices?
 What are factors inducing farmers to participate in contract farming?
 What are the key challenges?

9. International Food Policy Research Institute
Participation of small holders in contract farming in
ginger
District Contract Non-contract
Arghakhanchi 58.3 58.8
Palpa 67.4 83.0
Pyuthan 63.5 63.1
All 62.7 64.7

10. International Food Policy Research Institute
Economics of cultivation of ginger for Contract and
Non-contract farmers in Nepal
S. No. Heads of Economics of cultivation Contract Non-Contract
1. Cost of cultivation (NPR/ha) 217036 217752
2. Cost of production (NPR/q) 2385 2399
3. Value of output (NPR/ha) 529599 439174
4. Yield (Kg/ha) 9102 9076
5. Price (NPR/q) 5819 4839
6. Return (NPR/ha) 312563 221422
7. Return (NPR/q) 3434 2440
8. Return/holding (NPR) 140370 97244

11. International Food Policy Research Institute
Percentage quantity of ginger sold by contract and
non-contract farmers to various buyers-types

12. International Food Policy Research Institute
Average quantity and price of ginger sold to buyer-
types
Average quantity of ginger sold to different
types of buyer-types Nepal (quintal)
Average price of ginger received from
various buyer-types Nepal (Rs/kg)

13. International Food Policy Research Institute
Mode of supply of ginger by sample contract-farmers
in Nepal (% of contract farmers)

14. International Food Policy Research Institute
Provision of services and measures for quality improvement
S. No.
Conditions of contract with contracting party
% of contract farmers
A. Related to Inputs:
1 Seed supply on credit by company 35.2
2
Extension for improved cultivation practices, including
mechanization 14.6
3 Extension for improved post-harvest practices 18.4
4 Supply of inputs on credit 15.3
7 Financial credit for operational purposes 9.2
8 Other services (please mention… 1.6
B. Related to Output and Prices:
9 Farmers have to wash/clean fresh ginger before supply 44.8
10 Farmers have to sort and grade fresh ginger before supply 28.6
11
Prices are fixed in advance for a stated quantity and quality of
produce 17.8
12
For sub-standard produce, either procurement does not take
place or a price lower than the fixed price is offered 27.3
13
Costs of credit and other services are adjusted in the final price
received by the farmer 2.9

15. International Food Policy Research Institute
Factors motivating farmers towards contract-farming
in Nepal
59.8
32.2
39.5
57.2
10.610.6
31.2
0
10
20
30
40
50
60
70
Selected options as % of no
of respondent farmers

16. International Food Policy Research Institute
The risks and challenges faced by contract-
farmers in contract deal in Nepal (%)
54.6
44.7
23.4 23.4
37.2
35.5
0
10
20
30
40
50
60
Selected options as % of no of
respondent farmers

17. International Food Policy Research Institute
Good Agricultural Practices followed in Ginger
cultivation
S. No. Good Agricultural Practices
GAPs followed (%)
Contract Non -contract
1.
Are your farm and premises clear of litter and waste to avoid establishing
a breeding ground for pests and diseases?
54.8 58.4
2.
Are the seeds treated with approved fungicides /pesticides, using
approved methods?
13.4 6.4
3.
Are treated seeds differentiated (by colour or otherwise) to avoid
accidental use in feed or food?
40.8 45.2
4.
Are seedlings, saplings, graft and buddings, cuttings procured from a
certified source?
7.5 3.2
5. Do you take preventive measures against pests and diseases? 29.3 16.0
6.
Is the water (used for irrigation/fertigation) potable or free from harmful
contaminants?
26.8 27.8
7.
Are you aware of common pests and diseases endemic to the area and
those that occurred on the crop during the past three crop seasons?
34.9 24.2
8.
Do you follow the suggested IPM practices for endemic pests and
diseases?
26.5 5.0
9.
Are prescribed maturity standards for the crops followed before
harvesting?
77.3 88.3
10.
Are all substandard produce and all waste materials kept away from the
graded produce and suitably disposed of?
69.8 75.8

18. International Food Policy Research Institute
Good Agricultural Practices followed in Ginger
cultivation
S. No. Good Agricultural Practices
GAPs followed (%)
Contract Non -contract
11. Do you use the produce containers exclusively for produce? 52.3 58.4
12.
Do you consider hygiene procedure while handling harvested produce
and produce packed and handled directly in the field, orchard or
greenhouse?
29.9 26.3
13.
Do you keep the collection/ storage /distribution point of field packed
produce in clean and hygienic conditions?
70.4 73.0
14.
Have the farm workers received basic instructions in hygiene before
handling produce?
44.2 46.6
15.
Do the farm workers implement the hygiene instructions for handling
produce?
45.5 47.3
16.
Are the packages properly labelled and coded for unique identification
and trace back?
13.7 16.4
17.
Do you control for temperature and humidity (where applicable) where
produce are packed and/or stored?
16.5 8.5
18.
Are the product store walls, floors and horizontal surfaces of any
storage, holding or reception facilities are cleaned and where
appropriate, are washed and insecticide treated prior to use?
20.2 21.7

19. International Food Policy Research Institute
Implications for smallholders
 CF seems to be inclusive
 can’t afford to be exclusive
 Enhancing income
 Improving access to technology, inputs, markets
and capital
 Improving adoption of good agricultural practices
 Offsetting risk & uncertainty
 to a great extent
 Governance, infrastructure and infusion of
competition is critical

20. International Food Policy Research Institute
Thank you