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October, 2002 |
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Rural |
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Agro-based industries
Technology & Market The
primary source of the machinery, equipment, and tools used by the
agro-enterprises in Nepal is India. Over 77 percent of the firms in the
sample obtained their main processing technology from India. By
comparison, only about 16 percent of the firms obtained important
processing technology manufactured in Nepal. The primary purchasers of
Nepali manufactured equipment tend to be small processors, whereas large
and medium firms in the sample are the main purchasers of high
technology equipment from such countries as Japan, the EU, and the
United States. The majority of the
machinery, equipment and tools used by the business in the sample is
between 2 and 10 years of age. The level of technology used by large
firms appears for the most part to be older than that employed by small
and medium size processors. One-third of the large firms are using and
maintaining technology that is more than 10 years of age, whereas 30
percent of small businesses are using technology that is less than 2
years old. Overall, two-third of
agro-enterprises reported having problems with their machinery,
equipment and tools. Technology problems are reported most frequently
(79 percent) by small businesses than by large and medium size firms.
The main problem with technology for the agro-enterprises, regardless of
size, is related to insufficient spare part availability and a lack of
maintenance services. Other problems include the lack of working capital
and outdated policies and laws. Raw material supplies The three main sources of
supply for raw materials for agro-processors in Nepal are small private
farms of less than 5 hectares in size, and domestic and international
goods traders. The source of supply varies considerably depending on the
size of the business. The main source of supply for small
agro-enterprises is small private farmers, followed by traders of
domestic goods. By contrast, large processors are less dependent on
supplies from small farmers. Since they need to accumulate larger
quantities of products, often from multiple sources, large business rely
more on importers, and domestic traders and agents that have the network
and are better able to assemble bigger quantities of quality raw
materials needed by the processors. Regardless of size, the
agro-enterprises do not source their raw materials from one or two
suppliers, but rather purchase product from numerous sellers. This is
probably due to spot market purchasing from the low cost supplier, the
low level of contracting in agriculture in Nepal, and the need to obtain
considerable quantity which one or two suppliers are unable to assemble
by themselves. Contracting between
producers and the processors, or between traders and the processors
occurs infrequently in the agro-industrial sector. Overall, only about
14 percent or purchases for the processor’s main raw materials are
obtained through contracting arrangements. When it is used, contracting
is often undertaken as a means of securing raw material supplies, and
may include as part of the terms of the contract price or quantity
guarantees and access to agricultural inputs. Somewhat surprisingly,
contracting is used more frequently by small and medium size firms than
by large firms. When they are used in Nepal, the contracts are usually
only for the provision of the raw materials, and do not generally
include access to inputs, credit, or technical advice. Agro-processors obtain
most of their raw material from suppliers – mainly farmers, traders,
and agents – located in Nepal. On average, agro-enterprises travel a
distance of 130 Km to obtain their local raw material supplies. Large
businesses travel on average over 200 Km from their main processing
facility to purchase raw materials. Small agro-enterprises, by contrast,
purchase their raw materials from suppliers that are on average less
than 90 Km away. For the remainder of the businesses, nearly 19 percent
primarily obtain their main raw materials from India, and about 9
percent from other countries. The country of supply for the raw material
varies somewhat depending on the size of the business. Small firms
obtain a large share of their raw materials from domestic suppliers than
large firms which increasingly turn to India and other countries for
their raw material needs. Obtaining access to
sufficient supplies of raw materials is not without its problems in
Nepal. The problems generally fall into two broad areas: transport
problems, and problems related to raw material availability. On the
transport side, the main problems are related to long delays in the
delivery of raw materials, and the high price of transportation. The
high cost of transport is particularly a problem for small and medium
size businesses. Despite the longer distances, larger firms seem to be
better able to keep transportation prices down because of their ability
to negotiate quantity discounts, among other factors. Insufficient supplies of
raw materials are a major problem for agro-enterprises in Nepal.
Overall, 74 percent of agro-processors have problems in obtaining access
to raw material supplies. The main supply problems are related to the
high variability of raw material prices, insufficient quantities, late
and uncertain delivery, and the poor quality of the raw materials that
are available. Together, these supply problems make it extremely
difficult for the firms to effectively and efficiently manage their
processing business. The type and severity of
the supply problems differ somewhat based on the size of the firm. Like
the sector overall, the main supply problems for small businesses are
related to poor quality of raw materials, price variability, late
deliveries, and unavailability of raw material. Large firms also have
supply problems related to inadequate supplies, generally high price and
the high variability of raw material prices. Problems associated with
poor quality and late delivery are less acute. The agro-enterprises in
the sample identified four areas where government action could help to
reduce problems related to the supply for raw materials and other
materials used by the business. The areas for action include improving
credit availability in order to facilitate the accumulation of product,
upgrading road and other transport, storage and communication
infrastructure, streamlining and enforcing existing regulations, and
liberalizing the policy environment. Both small and large enterprises
identify taking measures to improve credit availability as the top
priority for action by government. Marketing Activities Agro-enterprises sell
their products to a variety of customers. The main customers for their
products are traders at both the national and local level, foreign
enterprises located in Nepal, and households. Small agro-enterprises
tend to sell their products primarily to national and local traders, and
households. Large firms sell primarily to national traders and foreign
enterprise. For about 15 percent of the large firms, their products are
exported to their main customers, primarily in India. Traders that sell at the
national level are among the most important customers for the
agro-processing businesses since 1997/98. Foreign enterprises in Nepal
have also become increasingly important customers for agro-businesses
since 1997/98, particularly for the large businesses. Although a number
of large firms export their products and services, these direct sales
abroad have not been a primary area of growth as yet. Overall, about 84 percent
of agro-enterprise customers are located in Nepal. Goods are typically
transported over 185 Km, on average, from the processor’s door to
customers. Large firms, in particular, travel long distance (over 350
Km, on average) to sell their products to customers within Nepal.
Although their main customers are located in Nepal, over 30 percent of
the large businesses also sell their goods abroad, primarily in India. Many of the customers for
the agro-enterprises are not the final consumers. Many of the products
are either resold by wholesalers and retailers, or they may undergo
additional processing before being sold to the final consumer. Overall,
about 84 percent of the businesses in the sample have knowledge about
the final customer of their products. Of the firm that know the final
customers of their products, 67 percent sold indirectly to local
traders, 51.5 to national traders, and 31 percent to foreign
enterprises. Large businesses sold a large share to foreign enterprises
than small and medium size firms did. Many of the products sold
by agro-processors may be intermediate goods in the production of
another product. About 20 percent of the products that the businesses
sell are believed to be further processed before being sold to the final
customer. Goods sold to government agencies, local traders, and domestic
enterprises are usually not further transformed. More than 25 percent of
the goods sold to exporters, foreign enterprises, and national traders,
however, will undergo some type of additional processing before being
sold to the final consumer. Since 1997/98, when the
APP began being implemented, the customer mix for the agro-enterprises
has changed somewhat. Sales to government agencies, exporters, and
foreign enterprises have increased most dramatically, particularly for
large businesses. Foreign enterprises have become increasingly important
for small and medium size business as well. Sales to local traders,
however, have increased and they remain important customers,
particularly for medium size agro-processing firms. Agro-enterprises generally
believe that they have pretty good knowledge for the prices charged by
their direct customers. However, knowledge of prices charged by their
indirect customers is only spotty. Overall, about 70 percent of
agro-businesses have precise and 35 percent broadly correct price
information of the sales prices of their products charged by their
direct customers. Substantially fewer firms have good information on the
selling price of their products sold by indirect customers. Overall,
only about 22 percent of businesses have accurate information on
indirect customer sale prices, and nearly 60 percent have little or no
knowledge about the final sale price of indirect customers. Large
businesses tend to have somewhat better access to accurate sale price
information of their indirect customers than small and medium size
businesses, though most of these firms have at least a general idea
about the sale price of their products sold by indirect customers. The
general lack of knowledge of the final sale price of their products,
when coupled with limited information about the tastes and needs of the
final customers, retards the profit opportunities of the
agro-enterprises and their capacity to adapt constructively to market
requirements and changes. Besides a lack of accurate
price information, marketing of processed products is negatively
affected by a number of other factors. The main marketing problem,
identified by over 25 percent of agro-processors and by 30 percent of
large businesses, was related to inadequate information on markets and
marketing opportunities. Other marketing related problems affecting
agro-enterprises in Nepal include the relatively high price and poor
quality of their products, and the lack of financing to support the
purchase of raw materials and the sale of processed products. These
problems are particularly acute among small agro-enterprises in Nepal.
What information that is obtained by the agro-enterprises on improving
marketing activities is mainly obtained from the firms’ customers and
from the chamber of commerce. Since the reforms
introduced in 1997/98 with the Agriculture Perspective Plan (APP),
agro-enterprises have taken a number of actions to upgrade the products
and services that they provided to their customers. Over 50 percent of
the firms have introduced new products and/or redesigned their product
packaging. The main impetus for redesigning product packaging was to
help make the product more attractive to the consumer, as well as to
improve the shelf life, the quality and the taste of the product. Most
of the changes to the products and their packaging design have been
undertaken, with only a handful of businesses yet to finish the
implementation of planned improvements in product and packaging. The main competitions for
agro-processors are similar sized businesses located within their
district, followed by similar sized processors in other districts, and
importers or enterprises located in India. Other than foreign
enterprises, most of the businesses are Nepali owned and operated. Small
agro-enterprises compete principally against similar sized businesses,
particularly those located within their home country. As expected, large
firms compete primarily against similar size businesses located
throughout Nepal and in India. Overall, nearly 40 percent of their
competitors are located outside of Nepal. By contrast, only about 12
percent of the competitors of small and medium size agro-processors are
located outside of Nepal. (Based on Agriculture Sector Performance Review, Final Report, March 2002, prepared by ANZDEL Ltd. New Zealand for Ministry of Agriculture & Cooperatives, Nepal and Asian Development Bank.) |
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