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Study and Analysis of Dairy Value Chain in Nepal

Study and Analysis of Dairy Value


Chain in Nepal

Published By:

Kisankalagi Unnat Biu-Bijan Karyakram (KUBK-ISFP)


Tilottama Municipality-3, Janakinagar
Rupandehi, Nepal

Technical Consultation with

MountDigit Technology (P.) Ltd.


Dhobighat, Lalitpur-3, Nepal

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Study and Analysis of Dairy Value Chain in Nepal

Publication detail

Publisher

Kisankalagi Unnat Biu-bijan Karyakram (KUBK-ISFP)

Tilottama -3, Janakinagar, Rupandehi

Nepal

PUBLICATION DETAIL (REPRINT)


Publication No: 03-Guideline-2015-KUBK/ISFP
August, 2015

© KUBK-ISFP

All right reserved. No Part of this publication reproduced without prior permission of the publisher

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Study and Analysis of Dairy Value Chain in Nepal

Foreword
The study and analysis of dairy value chain was accomplished
by MountDigit Technology (P) Ltd., a consultancy firm based in
Kathmandu for KUBK Programme Districts with the major objectives
of making detailed mapping of value chains and description of
chain performance and identifying key intervention areas to harness
the potentiality and improve the sector’s performance. The study
was made using primary source of information from the field supported by available
secondary source of information followed by validation of the information. The report
includes the information on i) dairy value chain system at regional level focusing at
KUBK Programme Districts, ii) challenges on dairy animal management at household
levels taking account of constraints for production and supply of milk and milk
products in the existing dairy value system. Based on these, the study has suggested
and recommended appropriate strategies for programme management. I believe that the
report findings would contribute in developing strategic programme and interventions
for improving the dairy productivity and market linkages. The report would be very
useful for livestock component in making appropriate and effective intervention in dairy
sector improvement.
I thank Dr. Sharan Pandey, then component officer for initiating and facilitating the
work. The support from Dr. Pradip Paudel, component officer and Mr. Hum Kant
Pandey, component staff for the study is appreciated. I thank MountDigit Technology
(P) Ltd. for accomplishing the task in time. The component two (Small holder Livestock
Commercialization) Coordinator support for coordinating in completing the task at the
later part is highly appreciated. I thank my colleagues (coordinators, officers and staff)
and Heifer International for their inputs to the study. I am grateful to the Ministry of
Agriculture and Development (MOAD) for their support and guidance for the work.
Similarly, I sincerely thank IFAD for its support. The support from several personnel,
particularly those who provided inputs at the validation and the inception workshop is
greatly acknowledged. Lastly I thank all the personnel within and outside KUBK for
their support for the work.

Laxman Prasad Paudel


Programme Manager
Kisankalagi Unnat Biu-Bijan Karyakram (KUBK-ISFP)

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Study and Analysis of Dairy Value Chain in Nepal

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Study and Analysis of Dairy Value Chain in Nepal

Contents

Executive Summary.........................................................................................................................................9
Chapter 1: Introduction................................................................................................................................12
1.1 Background and Purpose of the study.......................................................................................................12
1.2 Scope, objectives, and limitations of the study..........................................................................................13
1.2.1 Scope of the study...........................................................................................................................................13
1.2.2 Objectives.......................................................................................................................................................13
1.2.3 Limitations of the study..................................................................................................................................14
1.3 Methodology..............................................................................................................................................14
1.3.1 Sampling and field survey...............................................................................................................................14
1.3.2 Organization of field survey............................................................................................................................15
1.3.3 Focus Group Discussion (FGD).....................................................................................................................15
1.3.4 Key Informant Interview (KII).......................................................................................................................15
1.3.5 Service providers mapping.............................................................................................................................15
1.3.6 Data collection................................................................................................................................................16
1.3.7 SWOT Analysis..............................................................................................................................................16
1.3.8 Data analysis and reporting.............................................................................................................................16
1.3.9 Value chain mapping.......................................................................................................................................16
1.3.10 Validation workshop.....................................................................................................................................16
Chapter 2: Socioeconomic Perspectives and Value Chain Actors.............................................................17
2.1 Socioeconomic Perspectives of Dairy sub sector in Nepal........................................................................17
2.2 An Overview of Dairy Sector in Nepal......................................................................................................18
2.3 Dairy production and marketing system....................................................................................................20
2.4 Value chain Stakeholders...........................................................................................................................24
2.4.1 Public Sector...................................................................................................................................................24
2.4.2 Cooperatives...................................................................................................................................................26
2.4.3 Private Dairy Actors........................................................................................................................................26
2.5 Supply chain framework and Milk flow channels within the Value System.............................................27
2.6 Gender and Social inclusion in Dairy Value Chain...................................................................................29
Chapter 3: Survey Findings..........................................................................................................................31
3.1 Household sojourn.....................................................................................................................................31
3.2 Job status ...................................................................................................................................................31
3.3 Land holding..............................................................................................................................................32
3.4 Household livestock holding......................................................................................................................32
3.5 Cost of production......................................................................................................................................34
3.5.1 Animal health cost...........................................................................................................................................34
3.5.2 Feed given to different categories of animals.................................................................................................35
3.5.3 Amount of concentrate feed to the animals and their different sources..........................................................35
3.5.4 Start of commercial farms...............................................................................................................................36
3.5.5 Farmers acquiring training on dairy production.............................................................................................37

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Study and Analysis of Dairy Value Chain in Nepal

3.6 Service facilitate to the farmers by different agencies and their constraints.............................................37
3.7 Performance of cattle and buffalo across survey.......................................................................................38
3.8 Informal marketing channel.......................................................................................................................39
3.9 Management of production cost:...............................................................................................................40
3.10 Annual expenses on dairy cattle/Buffalo head.........................................................................................41
3.11 Cost of milk production in two clusters of KUBK..................................................................................41
3.12 Milk collection.........................................................................................................................................42
3.12.1 Mode of transport by collectors....................................................................................................................42
3.12.2 Examination of milk at collection centres....................................................................................................42
3.12.3 Income and expenditure of milk collectors at local scale.............................................................................43
3.13 Milk Processing.......................................................................................................................................43
3.13.1Dairy Milk processor.....................................................................................................................................43
3.14 Consumer’s perception of milk and milk products..................................................................................45
3.14.1 Consumes purchasing capacity.....................................................................................................................45
3.14.2 Consumer’s satisfaction on milk price and quality and milk inspection......................................................46
Chapter 4: Market System and Marketing Network Development for Promotion of Dairy Value Chain.....47
4.1 Background................................................................................................................................................47
4.2 Major value chain actors and their associated problems across the survey sites.......................................48
4.2.1 Retailing and local consumptions...................................................................................................................48
4.2.2 Milk processors...............................................................................................................................................48
4.2.3 Milk Collectors...............................................................................................................................................49
4.2.4 Input supply....................................................................................................................................................49
4.2.5 Enabling environment.....................................................................................................................................49
4.2.6 Vertical linkages..............................................................................................................................................49
4.2.7 Horizontal linkages.........................................................................................................................................49
4.2.8 Value chain mapping.......................................................................................................................................50
4.3 Milk supply chain in study road corridors.................................................................................................52
4.4 Major Value chain functions and Gaps of value chain players..................................................................53
Chapter 5: SWOT Analysis, Competitiveness and Market Based Solutions for Dairy Value Chain in
KUBK Programme Districts.........................................................................................................................56
8.1 Strengths....................................................................................................................................................56
8.2 Weaknesses................................................................................................................................................56
8.3 Opportunities..............................................................................................................................................56
8.4 Threats........................................................................................................................................................57
8.5 Interventions for market based solutions for development of dairy value chain in KUBK Programme districts..59
Chapter 6: Conclusive Recommendations...................................................................................................63

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Study and Analysis of Dairy Value Chain in Nepal

LIST OF TABLES
Table 1: Trend of Milk production in Nepal (2004/05-2013/14):.................................................................. 22
Table 2: Estimated population of milking animal and milk production......................................................... 22
Table 3: Estimated demand and supply situation for fluid milk (liter/day) in Nepal..................................... 23
Table 4: Import and Export of the Milk and Milk products........................................................................... 24
Table 5: Public institutions Supporting Dairy Value Chains in Nepal........................................................... 24
Table 6: Milk supply scheme, MPCCs and Chilling Centers under DDC..................................................... 25
Table 7: Dairy cooperative status in Project district...................................................................................... 26
Table 8: Private dairy actors and their role in Nepal..................................................................................... 27
Table 9: Gender role in livestock farm activities........................................................................................... 30
Table 10: Roughages given to different categories of animal across different survey sites........................... 35
Table 11: Amount of feed and concentrate feed to the animals..................................................................... 36
Table 12: Access of farmers to service providers in survey sites of KUBK.................................................. 38
Table 13: Cost of cattle and buffalo under different circumstances............................................................... 40
Table 14: Cost of production of one dairy buffalo/cattle on the basis of district........................................... 41
Table 15: Differences on cost of production per liter of milk across the survey sites................................... 42
Table 16: Income sources of milk processors/retailers and major traditional milk products......................... 44
Table 17: Financial statement of processors.................................................................................................. 45
Table 18: Consumer’s income and expenditure capacity............................................................................... 46
Table 19: Local and regional markets for milk and milk products for KUBK programme districts.............. 53
Table 20: Major value chain functions, actors and gap and recommended intervention............................... 53
Table 21: Dairy production related SWOT analysis across the survey sites in KUBK programme districts.58
Table 22: Challenges, risks and problems in dairy sub-sector and market based solutions and intervention
strategies at each actor’s level....................................................................................................... 60

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Study and Analysis of Dairy Value Chain in Nepal

LIST OF FIGURES

Figure1: Socioeconomic Impact of Dairy Farming....................................................................................... 17


Figure 2: Dairy production and Marketing System....................................................................................... 21
Figure3: Integrated supply chain framework for dairy sector....................................................................... 28
Figure 4: Formal and informal flow of the raw milk in Nepal...................................................................... 29
Figure 5: Distribution of age group of family members across the survey sites........................................... 31
Figure 6: Contribution of different income resources to HH livelihoods in KUBK survey sites.................. 32
Figure 7: Household holdings of different categories of land across the survey sites................................... 32
Figure 8: Categories of livestock kept by farmers in KUBK survey sites..................................................... 33
Figure 9: Distribution of cattle population in KUBK survey sites................................................................ 33
Figure 10: Categories of buffaloes kept by farmers in KUBK survey sites.................................................. 34
Figure 11: Cost of animal health incurred to different categories of animals................................................ 34
Figure 12: Expected number of dairy animals chosen by farmers for large scale production....................... 37
Figure 13: Types of trainings acquired by farmers over last few years......................................................... 37
Figure 14: List of service providers across survey sites................................................................................ 38
Figure 15: Performance of cattle and buffalo across survey sites................................................................. 39
Figure 16: Average amount of milk utilized informally in KUBK programme districts............................... 40
Figure 17: Management of production cost of animals by farmers............................................................... 41
Figure 18: Mode of milk transportation by collectors................................................................................... 42
Figure 19: Income and expenditures of milk collectors in survey areas........................................................ 43
Figure 20: Share of different milk products after processing as responded by processors............................ 44
Figure 21: Dairy marketing channel in KUBK programme districts............................................................. 48

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Study and Analysis of Dairy Value Chain in Nepal

Abbreviations and Acronyms

ADB/ Agriculture Development Bank/Nepal


ADS Agriculture Development Strategy (20 Years Vision, Nepal)
AEC Agro Enterprise Centre
AFEC Agriculture, Forestry and Environment Committee
AGDP Agricultural Gross Domestic Product
BLS Business Literacy School
CAESC Community Agricultural Extension Service Centers
CC Chilling Centre
CCI Chamber of Commerce and Industry
CDCAN Dairy Cooperatives Association Limited Nepal
COP Cost of Production
CoP Code of Practice
DADO District Agriculture Development Office
DANIDA Danish International Development Association
DDC District Development Committee
DDC Dairy Development Corporation
DLS Department of Livestock Service
DLSO District Livestock Services Office
DoA Department of Agriculture
DoLP Department of Livestock Production
DVCS Dairy Value Chain System
FAO Food and Agriculture Organization of the United Nations

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Study and Analysis of Dairy Value Chain in Nepal

FGD Focus Group Discussion


FLE Farmers led experiments
FNCCI Federation of Nepalese Chambers of Commerce and Industry
GESI Gender and Social Inclusion
GoN Government of Nepal
GVCM Global Value Chain Mapping
HH Household
HIN Heifer International Nepal
HVAP High Value Agriculture Project
HVC High value commodity
I/NGO National/International Non-governmental Organization
IFAD International Fund for Agriculture Development
KII Key Informant Interview
Kisankalagi Unnat Biu-Bijan Karyakram /Improved Seed for Farmers
KUBK/ISFP
Programme
l Liter
LRP Local Resource Person
LSP Local Service Provider
LVC Low value commodity
MEA Meat Entrepreneurs Association
MOAD Ministry of Agriculture Development, Nepal
MoFSc Ministry of Forest and Soil Conservation
MPCC Milk Producers Cooperative Collection Centres
MSS Milk Supply Scheme

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Study and Analysis of Dairy Value Chain in Nepal

Mt. Metric Ton


NACCFL Nepal Agriculture Cooperatives Central Federation Limited
NDDB National Dairy Development Board
NFC Nepal Food Corporation
NPR. Nepalese Rupee
PACT Project for Commercial Agriculture and Trade
PRA Participatory Rural Appraisal
QQT Quality Quantity and Time
RGBB Regional Gramin Bikash Bank
RMS Rapid Market Survey
SC/SSC Livestock Service Centres / Sub-service Centres
SFDB Small Farmers Development Bank
SPSS Statistical Package for Social Science
SWOT Strengths, Weaknesses, Opportunities and Threats
TOR Terms of Reference
VAHW Village Animal Health Worker
VC Value Chain
VCA Value Chain Analysis
VCI Value Chain Integration
VDC Village Development Committee

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Study and Analysis of Dairy Value Chain in Nepal

Executive Summary

Smallholder Livestock Development component of the KUBK-ISFP wishes to improve productivity of


smallholders’ livestock through expanded and strengthened livestock and veterinary services presuming
livestock are the key assets for poorer farm households, particularly among women, dalits and indigenous
people residing in the KUBK-ISFP programme districts. The major intervention strategies under the Improving
Dairy Productivity sub component are: (i) Improved nutrition management, (ii) breed improvement through
expanded Artificial Insemination and breeding bull Services, and (iii) support Dairy business development.
Dairy production in Nepal is one of the growing economic sectors, in the recent years, and is playing an
important role to increase household level income in rural areas, mainly by increasing employment opportunities
and establishing rural-urban linkages through milk and milk product as well as industrial products trade. In
this connection, this study provides snapshots about the existing dairy value chain system at regional level
focusing on the KUBK-ISFP programme districts including national perspectives. This study identified present
challenges on dairy animal management at household levels taking account of bottlenecks for production and
supply of milk and milk products in the existing dairy value system and suggested appropriate strategies to
the programme management for the smooth and effective implementation of the programme activities for
improving dairy productivity and market linkages.

Participatory Rural Appraisal tools and methods including household level questionnaire survey methods was
followed for this study in the purposively selected VDCs with market proximity along the road corridors. This
survey covered 12 VDCs and almost 300 respondents. Dairy producers (farmers/private firm), members of
the cooperatives involved in the dairy activity, milk collectors/vendors, local level milk produces and dairy
service providers were the respondents of the survey. The key findings of the study have been comprehended
into the following points.
• In KUBK programme districts, proportions of youngsters (aged between 16-59 years) is high, therefore
dairy business observed as a viable option for them, because agriculture and livestock activities were
main sources of income for their family. It is notable that almost one third of farm families earned from
livestock, whilst average size of the land holding was hardly more than half hectares. The growth of
secondary business and labor sector was marginal in the study sites.
• There were about one third of cattle and about half of buffaloes in milking condition across the survey
sites. The average proportion of dairy animals (cattle/buffaloes and their heifers) was almost 50%.
• Farmers argued that the health maintenance cost of buffalo was rather higher than cattle. Likewise,
the average quantity of roughage given to the milking animal was about 35 Kg/day including dry and
green components, while that of only about 25 kg for the dry animals.
• Average quantity of the concentrate (maize and wheat bran) given to buffaloes was about 2 Kg/day and
the cost range of the concentrates was NPR 26-30 /Kg. .
• Service provisioning and creation of enabling environment in long run is the major lacking phenomena
observed for dairy development in the KUBK-ISFP programme districts. However, locally available
agro-vets and VAHWs are prime sorts of service providers in the villages, but only less than 50% of
respondents have received their services. The major concern of the service providers is the distant and
dispersible farming communities and their catchment area was much larger than their capacity in terms
of logistics support.

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Study and Analysis of Dairy Value Chain in Nepal

• In the study site, almost 86% of farmers were raising buffaloes, 14% were raising cattle and 12%
were raising both buffalo and cow for milk production. The most preferred genotypes for cattle was
Jeysey×local cattle crossbreds, and for buffaloes the crossbreds of the Murrah with local breeds. On
an average household consumed 2 l of milk/ day.
• Milk production was quite low in Rolpa, Rukum and Salyan as compared to Gulmi, Arghakhachi
and Pyuthan. Average milk production per household from buffalo was 2.5 l/day across the survey
site, while average potential productivity of the buffalo was 4.41/day. The maximum lactation period
observed for buffalo was nine months only and the peak milk producing period was only 5-6 months
that clearly indicated that the productivity of the buffalo can be improved through breed and nutritional
management activities. In the sample survey areas, households produced on an average 7 l of milk/day
from cattle against its production potential 10-14 l/day (especially for Jersey). The average fresh milk
available for sale from cattle was about 6 l/day across the survey sites. The average milking duration of
cattle was 6-8 months only. About 65% of farmers managed feed, forage and labor at household level
from their own source while nature of the dairy farm was subsistent. During survey, we learned that
41% of farmers engaging in the dairy activity wish to increase their size of farm keeping more than 3
dairy animals, if support services for dairying are available without difficulties (see strategic areas of
interventions in chapter 5 in detail).
• Farmers adopted traditional technology for processing milk and common processed products from
milk at household level are yoghurt, butter, khoya and Ghee. Mostly fresh liquid milk was sold in the
local markets (hotel/restaurants, tea shop, sweet shop, and local collectors) and used for tea, making
sweets and also sold directly to consumers. About 100-200 lit. of milk/day (depending on the volume of
collection) only from Gulmi and Arghakhanchi district respectively exported to the market/collection
centres outside the districts in peak milking season( June-September).
• There was rather similar milk price for winter and rainy season. Live animal trade was the income
opportunities for farmers. However, the trade volume was too small and the cost of selling one dry
cattle or buffalo was about 9-10 times smaller than the purchase price for milking purpose. The results
of survey revealed that labor cost was almost 1/3rd cheaper in dairy pockets while shed depreciation
cost, shed construction cost, cost of initial stock and animal health were much higher in pocket areas
than the non-pocket districts. Average cost of production was NPR. 43/l of fresh liquid milk. The price
of processed milk products in locale was much higher than the fresh milk per unit, while ghee and
paneer costs was about 560-600 per kg., and the yoghurt cost being about 72 NPR/ kg. Yoghurt was
the most frequently processed dairy product in general. Milk processors might earn almost one third
of the total investment in KUBK program areas (observations from 13 processors), and almost 60%
processors were trained in milk products processing which were locally saleable, supported by DLSO
and other NGOs and INGOs.
• As expected (none of KUBK programme districts are food secured), the household food consumption
cost in KUBK districts was about 65% of the total investment in a year and it was about 1056 l milk/
year (N= 74) by a family in general, for which the milk consumption per day could be around 230 ml/
day, which was higher than the national per capita consumption of 167 ml/day.
• In general, there was a weak linkage among the dairy value chain actors. The cost of production was
about 62% of its value for a liter of milk in farmer’s conditions. Profit share among the value chain
actors as total profit of the value addition function was 23% for farmers, 18% for collectors, 23%
for chilling/ distributors and that of 36% for retailers/ distributors. But, the trader’s efficiency (sum

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Study and Analysis of Dairy Value Chain in Nepal

of collectors, chilling/ distribution and retailers/processors) was almost 82% and that indicated the
unequal trade margin in between the producers and traders.
• Failure of conception in cattle, long calving duration of buffaloes and feed shortage in winter and early
summer, and subsistence nature of milk production were distinguished the major drawbacks of dairy
value chain in KUBK programme districts.
• Promotional activities on feeding and nutrition and utilization of forage and provision of AI services
were recommended in short run (see chapter conclusive recommendations). While in long term,
breeding management and promotion of cold chains for milk and milk products preservations have
been suggested to promote dairying in larger scale in KUBK programme districts.

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 1: Introduction
1.1 Background and Purpose of the study
The Improved Seeds for Farmers Programme (ISFP) is being implemented by the Ministry of the Agricultural
Development to promote inclusive, competitive and sustainable agricultural growth to contribute overall eco-
nomic growth in the programme districts. Financial assistance for the ISFP programme is provided by IFAD
in both loan and grant with counterpart funding of government of Nepal as a matching fund. The Heifer Inter-
national is a co-financer as well as implementing partner of the programme and other implementing patterns
are AEC, SFDB and NACCFL. The total Programme cost is US $ 59.7 million including beneficiaries' contri-
butions (US $10.9 million). The development objective of the programme is to improve household incomes
through sustainable market driven productivity improvements with the ambition of scaling up an agriculture
led growth model. Fundamentally, the Programme wishes to support two key constraints of agriculture sector
hampering productivity: (i) the improvement of certified seeds (cereals and vegetables) and (ii) improvement
of smallholder livestock (goats and dairy animals).

In this regard, the Component 2: Smallholder Livestock Development focuses on the Livestock sector special-
ly goat and dairy animals and wishes to improve productivity of smallholders’ goat and dairy animals through
expanded and strengthened livestock and veterinary services and capacity building activities Fundamentally,
the KUBK-ISFP programme presumed that goats are a key asset for poorer farm households, particularly
among women, dalits and indigenous people residing in the KUBK-ISFP programme districts. Despite their
widespread distribution, earnings in Nepal from livestock production are low and dairy production has seen
an expansion, but still lacks support in the formation of commercial supply chains. The major intervention
strategies under sub component -Improving Dairy Productivity are: (i) Improved nutrition management for
dairy cattle (ii) breed improvement through expanded Artificial Insemination and breeding bull Services, and
(iii) support Dairy business development through marketing linkages and establishing milk chilling centers.

Principally, access to organized market is critical factor in hindering the continuation and scale-up of dairy
farm businesses in Nepal. Furthermore, additional value chain functions and associated enterprises potential
are not adequately explored and exploited so that the overall chain performance is competitive. The low pro-
ductivity of milking animals, high cost of production and sub-optimal efficiency in operation of dairy industry
are increasing the per-unit cost of milk in the market – resulting in-efficient value chain performance. There-
fore, the dairy value chain study was designed to support dairy related business in the programme districts
by: (i) identifying present challenges on dairy animal management at household levels, (ii) analysis of the
present bottlenecks of the milk and milk product marketing through value chain approach concentrating on
value chain functions and its actors, and (iii) to suggest appropriate strategies to the programme management
for the smooth and effective implementation of the programme activities.

1
Rukum, Salyan, Rolpa, Pyuthan, Arghakhanchi and Gulmi
2
KUBK- ISFP, 2012, Design Completion Report

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Study and Analysis of Dairy Value Chain in Nepal

1.2 Scope, objectives, and limitations of the study


1.2.1 Scope of the study
The study covers all components of dairy value chain in the national context and analyzed and documented
the existing major dairy value chains in operation in Nepal considering different eco-zones and production
systems. The study also identified different production systems by herd size, species, breed, geography,
resource base and derives cost of production in different systems, and tracing the existing value chain map
in details. It generated necessary primary data employing different tools and techniques required to address
specific objectives such as farm survey, visits and focal group discussion. Furthermore, available secondary
information from different sources were collected, collated, and triangulated and verified through series
of stakeholder consultation, workshops and KIIs as per the need. This study was conducted from national
perspective and explained adequately the sector’s existing performance and potential. In addition, key areas
of intervention for its VC up-gradation identified at different layers/stages.

1.2.2 Objectives
The broader objectives of the study is to review and document national level information on dairy sub-
sector to understand the input-output, demand-supply of milk and milk market system and carry out detailed
mapping of value chains and description of chain performance as well as identify the key intervention areas
to harness the potentiality and improve the sector’s performance. The specific terms of reference for the
study are as follows;
• Describe the socio-economic aspect within dairy sub-sector in Nepal.
• Analyze current demand and supply systems/situation of milk of Nepal with strong linkage with the
present milk market scenario of KUBK programme district.
• Make projection of milk demand and supply situation in Nepal for the next 10 years considering past
trends and likely increment in future demands. Consider income elasticity in the analysis.
• Trace the existing major milk value chain maps operating in the country considering different possible
perspectives,
• Calculate the detailed cost of production at farm level by species, geographical area and production
systems. Identify through sample survey the least cost of production models by systems. Make strategic
recommendations for reducing cost of production at the farm level
• Conduct SWOT analysis of current dairy sub-sector/value chain in Nepal and compare with emerging
import oriented value chains and make appropriate policy level and strategic recommendations.
• Disaggregate and analyze dairy value chain operations from gender perspectives and make appropriate
strategic recommendations for ensuring women’s empowerment and their entrepreneurship development.
• Calculate value additions across the chain, delineate and analyze marketing margin and share at different
stages of marketing channel – from farmer to end consumer.
• Identify opportunities for potential dairy value chain enterprise development along the strategic road
corridors and their catchment areas of KUBK districts.
• Examine/analyze the access to business development services situation in across different dairy value
chain function/enterprises at all tiers of the vertical linkage (production to consumption). Identify gaps
and make concrete recommendations to fill these gaps through government and private sector.
• Carry out critical assessment of current market system, infrastructure, and services and make
recommendations for their improvement targeting improved system for better dairy value chain
performance.

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Study and Analysis of Dairy Value Chain in Nepal

• Identify appropriate interventions that KUBK should focus on for increasing sectors performance at
micro, meso and macro level.
• Carry out critical assessment of current market system, infrastructure, services and also Conduct SWOT
analysis, analyze production pattern of dairy value chain sub sector in KUBK programme districts and
link it with national Figure and make appropriate suggestion for intervention of livestock programme
in KUBK districts for the further improvement of dairy sector in Nepal.

1.2.3 Limitations of the study


Since this study covered only few VDCs of the respective programme districts that are concentrated to road
corridor and are potential pocket areas for the future. Household information obtained based on data on recall
of the respondents, because rural farmers usually do not record/document the activities formally.

1.3 Methodology
Participatory Rural Appraisal (PRA) and questionnaire survey methods (designed by non-random sampling
method across selected pocket VDCs and closed market centres) were adopted for data collection. Consultation
meeting, Focus Group Discussion, and Key Informant survey was added to verify and validate the information.

1.3.1 Sampling and field survey


The survey covered a total of 300 samples. The survey included dairy farmers and dairy entrepreneurs, Milk
collectors, Wholesaling/chilling centers, Local milk Retailers/processors and consumers. The details of the
samples and respondents are provided below.
• A total of 12 VDCs (2 VDCs from each district) was selected from the KUBK-ISFP Programme
districts purposively considering the road and market proximity and potential villages for dairy
production with the consultation of DLSOs.
• Dairy farmers in the selected VDCs (10 from each VDC) were identified and survey questionnaire
were administered for 120 dairy farmers
• Consumer residing nearby market centers were identified from the selected VDCs and survey
questionnaire administered for 90 consumers (15 consumers from each districts)
• The questionnaire survey covered 30 milk collectors (5 from each district ) and 13 local milk processors
(Salayan-1, Pyuthan-4, Rolpa-2, Rukum- 3 and Arghakhanchi- 3)
• The Milk wholesalers/chilling centres were identified and most of them were included in the survey
(up to 5 upon availability per district).
• Most of the retailers were included in the survey (up to 5 upon availability per district).

1.3.2 Organization of field survey


• Survey questionnaire and check list for the focus group discussion and key Informant were prepared
and circulated for feedback.
• Final questionnaire and checklist were prepared after the reception of the feedback from the programme
management
• Enumerators were trained and survey questionnaires were pretested and finalized. The questionnaire
was first pre-tested at Narapani VDC of Arghakhachi district and necessary amendments were made
for ease of data collection.
• Survey were conducted with the guidance of Team leader in the project districts

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Study and Analysis of Dairy Value Chain in Nepal

• Focus group discussion and Key informant survey were conducted with the relevant stakeholders.
• The value chain actors identified in each district level FGD (2-5 or more dairy value chain actors) were
purposively selected from each district and interviewed.

1.3.3 Focus Group Discussion (FGD)


One focus group discussion per survey site (district level together with each actor of dairy value chain) was
conducted to verify the information collected through the surveys and report on indicators that can’t be done
through direct surveys. Similarly, one co-operative and two farmer’s groups (based on the project sub sector-
dairy) interviewed in each selected VDC as mentioned earlier for reporting on institutional aspects of dairy
production and marketing in the KUBK programme districts

1.3.4 Key Informant Interview (KII)


A total of 12 Key Informant Interviews (2 in each district) was conducted to know their relevant concern for
the improvement of dairy value chain through KUBK livestock improvement programme in each district and
collect relevant information

1.3.5 Service providers mapping


Key private and public service providers was listed and interviewed. The study team were able to describe the
number of active service providers, service offered by various clients and their activities in KUBK districts.

1.3.6 Data collection


Both primary and secondary data were used for this study. Primary data were collected from field survey using
the semi-structured questionnaire and other PRA tools and methods too. Secondary data and information were
collected from the authorized sources. Some of these sources were Ministry of Agricultural Development;
Department of Livestock Services; Central Bureau of Statistics; and Web search (www.moad.gov.np; www.
mof.gov.np: www.cbs.gov.np; and www.npc.gov.np).

1.3.7 SWOT Analysis


The Strength-weakness analysis was carried out among the actors in each programme district. The basic
information was obtained from DLSO and farmers, consumers and milk retailers. Hence, the value chain
baseline study took use of proven data collection and analysis tools and techniques to make possible descriptive
estimation of value addition at each actors level project by extrapolating the information obtained from field
surveys.

1.3.8 Data analysis and reporting


Various data collected through desk research, and field survey were compiled, processed and analyzed to
generate meaningful information regarding the major interventions for dairy value chain and analysis of
KUBK areas. Data collected through household survey was cleaned, coded and compiled and entered in
Stata/R/SPSS/Excel software (when appropriate) to prepare fairly clear database.
Descriptive statistics, growth rate, reasoning and other qualitative as well as quantitative methods were used
for data analysis to generate meaningful information and precise value chain map/graph/table chart were
prepared incorporating/delivering the clear data details on each and every aspects of the study.

18
Study and Analysis of Dairy Value Chain in Nepal

1.3.9 Value chain mapping


Value chain map was produced from the average pricing information obtained from different value chain
actors across the survey sites.

1.3.10 Validation workshop


Inception validation workshop was followed by final questionnaire pre field training and a final validation
workshop before submitting the final reports in order to incorporate the comments of experts from the
representatives of different agencies.

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 2: Socioeconomic Perspectives and Value Chain Actors


2. 1 Socioeconomic Perspectives of Dairy sub sector in Nepal
Agriculture sector is playing vital role in Nepal’s economic growth by contributing more than one third of the
total GDP as well as its significant contribution to avail employment opportunities to the entire rural farmer
communities and food and nutritional security. However, the production of this sector is generally affected
by unpredictable (favourable/unfavourable) climatic conditions, resulting in the fluctuation of GDP thereby
affecting overall economic growth and average growth rate of this sector in the last 10 years period has
remained at 3.2 %3.
Among the Agriculture sub sectors, the livestock sub sector is a basic component of
the farming systems in rural Nepal. This sub sector contributes about 12.8% to the
total national gross domestic product (GDP) and 31.5% to the agricultural GDP4.
Animals and animal by-products keep economic value such as animal sale, milk cash, fertilizer, draught,
and biogas and broadly speaking, it has socio-economic importance as summarized in Figure 1. There is
predominance of small holder production system and milk and milk and milk products especially ghee are
immediate sources of income for smallholder farmers. At present, nearly 950000 farm families are engaged
in milk production and 86,600 families are organized by 1732 dairy cooperatives. In the fiscal year 2013/14
a total of 1,697,760 metric tons of milk and milk products is produced in Nepal. Therefore, prioritizing the
production and marketing of milk and milk products is essential to generate job opportunities as well as local
economic growth. Figure 1 represents the social and economic impact of dairy farming in Nepal.

Figure1: Socioeconomic Impact of Dairy Farming5

3
Economic survey 2013/2014, Ministry of Finance, Singh Durbar, Kathmandu, Nepal.
4
Jabbar, M. A.; Saleem, M. A. M.; Tulachan, P. M. (2002) Smallholder Dairy in Mixed Farming Systems of the Hindu Kush-Himalayas,
Centre for Resources and Environmental Studies (CREST).
5
Adapted and revised from Chaudhary, B. and Upadhyaya, M., 2013, Economic Journal of Development, Issues Vol. 15 & 16 No 1-2.

20
Study and Analysis of Dairy Value Chain in Nepal

Traditionally, livestock has been reared by smallholders as a form of savings rather than a source of income.
Smallholders contribute more than 80% to total milk production in Nepal; however, they are still marginalized
in all economic respects. Dairying has been recognized as an instrument of social and economic empowerment
and a proven path for inclusive economic growth for poor, especially women. In Nepal dairying is one of the
important sectors and a stimulator of rural economic growth. Poverty reduction and economic growth through
dairying have mainly been achieved by channeling urban wealth to rural communities in exchange of milk
and milk products, creating employment opportunities across dairy value chain enterprises (input supplies and
services, production functions, milk collection and transport, storage, processing, production of diversified
products and their distribution and sale).

Increased production and access to milk and milk products have directly contributed to improving food and
nutrition security of the farm families. The per capita availability of the milk is about 61.0 liters of milk/annum
in the country which is less than that of the FAO recommended (a minimum consumption of 92 liters of milk
per person per year). The figure for Nepal is 58 liters per year6. Clearly, there is a huge unmet demand for milk
and milk-related products in Nepal. Even at this low level of consumption, there is a daily requirement of 8.2
million liters of milk in Nepal. With increased population and changing food habits, demand for milk and milk
products has been growing at a rate of 4 percent per annum.

Arguably, increased household earnings of smallholders can only be realized if animals are treated as a source
of income by providing better nutrition and genetic potential. This aspect would be addressed by establishing
district level livestock markets which would also form the nucleus for additional value-added activities with
the participation of private sector in livestock related infrastructure such as milk collection centers and milk
processing units.

In spite of tremendous opportunity for income and growth at micro, meso and macro level through dairy
sub-sector, the underlying constraints for sector’s poor performance has not been properly and adequately
addressed yet. Therefore, KUBK has planned to conduct a comprehensive study on Dairy Value Chain for
identifying key strategic interventions to improve the dairy value chain performance in the country in general
and programme districts in particular.

2.2 An Overview of Dairy Sector in Nepal


Organized dairy development efforts in Nepal began in fifties with the financial and technical assistance
of Food and Agriculture Organization (FAO). The FAO initiatives focused on the establishment of a Yak
cheese factory in Langtang of Rasuwa district. Moreover, the bilateral assistance from the governments of
Switzerland, New Zealand and Denmark had made remarkable contribution to the Nepalese dairy development
initiatives. In 1954, a Dairy Development Section was established under the Department of Agriculture (DoA)
and also a small-scale milk processing plant was started in Tusal, a village of Kavre district. In 1955, a Dairy
Development Commission was formed. It is notable that, The First Five Year Plan (1956-61) realized a need
of modern dairy industry in the country and a Central Dairy Plant, with an average milk processing capacity
of 500 liters/hr was established in Lainchaur with the financial assistance from New Zealand and technical
assistance from FAO in 1956. The Kharipati milk processing plant, Bhaktapur and two cheese factories under

6
TOR, Dairy Value Chain Study, KUBK-ISFP, Nepal and http://www.ekantipur.com/the-kathmandu-post/2014/09/30/related_articles/
the-milky-way/268162.html

21
Study and Analysis of Dairy Value Chain in Nepal

the Department of Agriculture were established and started processing of milk and marketing of milk and milk
products started in late fifties and a Cheese Production and Supply Scheme was established7.

Dairy Development Corporation (DDC) was established under corporation Act in 1964. DDC started
functioning from 1969. The National Dairy Development Board (NDDB) was established as an apex body
to oversee that dairy sector in the country in 1992. The DANNIDA Support Project funded by the Royal
Danish Government supported to prepare and implement Ten Year Dairy Development Plan (1990-2000) and
strengthened NDDB.

The DDC is the pioneer organization in dairy development in Nepal, a fully government authorized corporation.
It is still one of the major value chain players in the milk market and handles about half of the total milk
marketed in the formal sector.

Private investment in dairy industry is increasing over the years and remarkable dairy industries (e.g. Sita
Ram Dairy, Nepal Dairy, Sujal Dairy) were established. It is believed that in past two decades private dairy
industries have captured nearly half of the total formal milk market. However, such private dairy industries
are concentrated their operations in city centers only. Two milk powder plants are established with the install
capacity to utilize nearly 200 thousand liter milk per day through the private investment (Chitwan Dairy P.
Ltd. and Sujal Dairy)8.

At present, a large number of dairy cooperatives are engaged in the milk collection and chilling in the rural areas
and some dairy cooperatives have already started to milk processing and marketing near by the city areas (e.g.
Bhadrakali Dairy Cooperatives, Bhadrakali; Nawajyoti, Nawalparasi; Annapurna Cooperatives, Gitanagar)
in small scale. Such dairy cooperatives are constrained to establish large scale milk processing plants due to
limited investment and technical capacity. These cooperatives are organized in Milk Producers’ Associations.
The history of dairy cooperatives dates back to the First Five Year Plan (1956-61) when the dairy cooperatives
were formed in Tusal Village of Kavre district. However, the dairy cooperatives became more effective only
after December 1981, when DDC initiated the milk producer’s oriented programme by encouraging the farmers
to form their own Milk Producers’ Associations (MPAs) along the lines of cooperative principles9.

The public-private partnership strategy promoted by the Government of Nepal is able to induce expansion of
milk collection networks, raising awareness in hygienic milk production, products diversifications, improving
keeping quality of milk and strengthening management capabilities of dairy cooperatives and private dairies
(small and medium scale).

2.3 Dairy production and marketing system


Livestock have been an integral part of the smallholder crop-livestock production systems that dominate
Nepalese agriculture. The Dairy production systems of Nepal can be categorized as semi-subsistence to
market oriented production systems. However, large volume of the milk produced in the hills of the Nepal is
not traded and almost more than 90% of the production is used at household level. In these systems, livestock
have been performing multiple functions including utilization of low quality feeds such as crop residues
7
FAO, 2010 Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.
8
FAO, 2010 Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.
9
FAO, 2010. Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.

22
Study and Analysis of Dairy Value Chain in Nepal

and other byproducts to produce high quality nutritious food (milk and meat) for human consumption,
draught power and manure for crop production and hides and skins for local manufacturing industries and
for export. Most of the farmers are keeping low productive dairy animals. However, crossbreeding with
Jersey and Holstein Friesian cattle and Murrah buffaloes are main breeds of dairy animals respectively of
cattle and buffalo encouraged to grow through breed improvement activities in the country. In the fiscal year
2013/2014 a total of 1,700,073 million liter of is produced in the country, of which almost 69% of the total
milk production is shared by buffalo milk. Average annual growth rate of the milk production is only 3.26%
in the period between 2004/05-2013/14 (Table 1), whilst the annual growth of internal consumption of milk
is about 8%. 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 be doubled in the next 15 to 20
years to come10.

10
infoDev , 2013, Promoting Agribusiness Innovation In Nepal: Feasibility Assessment for an Agribusiness Innovation Center,
Information for Development Program (infoDev)/The World Bank

23
Study and Analysis of Dairy Value Chain in Nepal

Figure 2: Dairy production and Marketing System11

There is seasonal fluctuation in milk production and collection which affects supply of pasteurized milk in the
market (flush season; August-September to January-February; lean season; rest of the months). It is realized that
there is wide variations in the quality of milk and milk products in the market and regulatory mechanism is not
efficient. However, the “Code of Practice (CoP) for Dairy Industry” was approved by the Government of Nepal
in 2005. Some studies claimed that about “50% of the milk produced in Nepal is consumed by the milk producing
farmers themselves. The remaining half of the milk is distributed as follows: 15% supplied by the organized
sector, 25 percent goes into production traditional milk and milk-related products like milk, yoghurt, hard cheese,
milk solids, butter and other products, and 10% is supplied by the informal sector operating in various urban
centers”.12 The summary of production and marketing system and its characteristics are presented in Figure 2.

11
Adapted from Jabbar, M. A., 2010, Policy Barriers for Dairy Value Chain Development in Bangladesh with a Focus on the North
West Region, Strengthening the Dairy Value Chain in Bangladesh. CARE Bangladesh.
12
http://www.ekantipur.com/the-kathmandu-post/2014/09/30/related_articles/the-milky-way/268162.html

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Study and Analysis of Dairy Value Chain in Nepal

It is expected that a total of 950,000 families are engaged in dairy sector of Nepal for growing some 2,370,350
number of milking animals. Undeniably, dairy sector has a prominent rural-urban linkage and the rural dairy
sector is able the harness a sum of some NPR 9 billion from urban to rural areas every year13. However, value
addition of the milk is awfully low and almost 90 percent of the milk is traded in raw. Therefore, there are ample
opportunities for adding value with product diversification from fluid to solid milk products.

Table 1: Trend of Milk production in Nepal (2004/05-2013/14):


% Share in Total Production Annual
Cow milk Buffalo milk Total
Year Growth
(mill. liter) (mill. liter) (mill. liter) Cow Milk Buffalo Milk
Rate (%)
2004/05 379637 894591 1274228 29.79 70.21  
2005/06 385290 926850 1312140 29.36 70.64 2.98
2006/07 392791 958603 1351394 29.07 70.93 2.99
2007/08 400950 987780 1388730 28.87 71.13 2.76
2008/09 413919 1031500 1445419 28.64 71.36 4.08
2009/10 429030 1066867 1495897 28.68 71.32 3.49
2010/11 447185 1109325 1556510 28.73 71.27 4.05
2011/12 468913 1153838 1622751 28.90 71.10 4.26
2012/13 492379 1188433 1680812 29.29 70.71 3.58
2013/14 532300 1167773 1700073 31.31 68.69 1.15
10 Year Average 440306 1065663 1505970     3.26
Source: Various issues of Statistical Information on Nepalese Agriculture, (Ministry of Agricultural Development).

Table 2: Estimated population of milking animal and milk production


Milking Total Annual Cow Total milk
Milking cow Buffalo milk
Year buffalo milk production production
( number) (mil. Liter)
(number) (mill. Liter) (mill. Liter)
2014/15 1026024 1404793 501033 1218674 1719707
2015/16 1038720 1437943 512570 1249479 1762049
2016/17 1051416 1471093 524107 1280284 1804391
2017/18 1064112 1504243 535644 1311089 1846733
2018/19 1076808 1537393 547181 1341894 1889075
2019/20 1089504 1570543 558718 1372699 1931417
2020/21 1102200 1603693 570255 1403504 1973759
2021/22 1114896 1636843 581792 1434309 2016101
2022/23 1127592 1669993 593329 1465114 2058443
2023/24 1140288 1703143 604866 1495919 2100785
Source: Consultants estimation from 17 years’ time series data (Projection based on least square method.)

13
http://www.ekantipur.com/the-kathmandu-post/2014/09/30/related_articles/the-milky-way/268162.html.

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Study and Analysis of Dairy Value Chain in Nepal

It has been estimated that there is annual growth of around 11% in milk and products demand mainly in the
urban city centers due to population growth and migration (9%) and increase consumption (2%)14. In the
past, the dairy farmers had faced an acute problem of milk holidays (days in the week in which milk were not
purchased from the farmers by the formal sector for processing during flush season). Now the dairy industries
are facing short supply of fluid milk and their industries are running far below their actual capacity. The
demand for milk in the formal markets exceeds to the supply situation mainly due to recent establishment of
Solid Milk Plant (SMP) from private sector. As livestock products are income elastic, it can be speculated that
the demand for dairy products in the country further accelerates once when the economic development started
and stabilized.

Table 3: Estimated demand and supply situation for fluid milk (liter/day) in Nepal
Flush Season Lean Season
Sector
Demand Supply Surplus/deficit Demand Supply Surplus/deficit
Public 225000 235000 +10000 225000 125000 -100000
Private 650000 425000 -225000 650000 300000 -350000
Source: Consultants estimation from DDC data.

About 16% of the total production is processed and/or marketed through formal channel. A preliminary
estimate reveals that there is shortage of about 500,000 liters of fluid milk/day in the urban areas. Part of
it is met through imports. Nepal has relatively larger livestock holdings/area of land compared with other
Asian countries15. Both APP and ADS has given high priority for dairy development. However there is huge
investment gap. Small and scattered animal holdings; low milk yield/animal; lack of basic infrastructure;
inadequate skills in milk handling and milk hygiene leading to poor quality of milk; insignificant dairy plants
and small scale of operation in milk processing and its product diversification; lack of capital investment even
from private sector; low and non-remunerative producer prices; inadequate animal health care and breeding
services and lack of professional management systems are hindering the growth of this sub-sector.

The import and export Scenario of the milk and milk products for the period 2009-2013 is provided in Table
4. Nepal imports milk powder, milk and cream, condensed milk, chocolates, Ghee; Buttermilk, curdled milk
and cream, Cheese, Ice cream etc. The major importing countries for milk and milk products are India, USA,
Denmark, Malaysia, Thailand, Singapore, Italy, Germany, the Netherlands, New Zealand and Australia. In the
Year 2013, value of imported milk and Milk products accounts NPR. 1,095,673,933.

14
NDDB, 2011, Annual Report, National Dairy Development Board.
15
TOR, Dairy Value Chain Study, KUBK-ISFP, Rupandehi

26
Study and Analysis of Dairy Value Chain in Nepal

Table 4: Import and Export of the Milk and Milk products


Export
Import
Year
Amount ( kg) Value ( NPR) Amount( Kg) Value( NPR)
2009 627692 103853344 6555346 1179363584
2010 672556 142948542 7364686 866669807
2011 581652 151929701 12762730 992086699
2012 551826 172807134 11150982 1098703624
2013 484913 159779276 5975471 1095673933
Source: Nepal Foreign Trade Statistics, 2013 (www.tepc.gov.np).

2.4 Value chain Stakeholders


2.4.1 Public Sector
Formal public extension organization- a Dairy Development Section under the Department of Agriculture was
established in 1954. The recent DLS was a major service provider and works as a formal public extension
organization for livestock development. DLS holds the technical authority for overall livestock development
in Nepal.

There are several organizations that support the dairy sub-sector in Nepal. The list of national level institutions
supporting for policy and regulation and their responsibilities are presented in Table 5.

Table 5: Public institutions Supporting Dairy Value Chains in Nepal

Organization Role
Policy development, monitoring and evaluation
Ministry of Agriculture Development
and facilitation
Ministry of Finance Tax, customs and other duty related activities
Assist GoN in formulating national level dairy
development policies and plans, develop dairy
industries, find remedies to problems relating to
livestock development and animal health sector for
National Dairy Development Board
dairy development, maintain coordination among the
public and private dairies, carry out dairy development
related high level studies and research works, and make
arrangements for fodder and pasture resources
Research on dairy product diversification,
NARC reducing cost of production of milk, and gap
filling on flush and lean season milk production
Programme design especially training and
Department of Livestock Services
promotion packages for quality milk production
Specifying quality control services, determination,
Dept. of Food Technology and Quality Control
monitoring and quality control of dairy products

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Study and Analysis of Dairy Value Chain in Nepal

Organization Role
Facilitate to establish dairy product companies/
Ministry of Industry, Commerce and Supply industries, facilitation especially in importing machine
and instruments.
Dairy business promotion and diversification of
Dairy Development Corporation
dairy products
Government Resources Centers Supply of source breeds and semen
Extension services for livestock development including
District Livestock Service Office and its networks
dairy sector

Table 6: Milk supply scheme, MPCCs and Chilling Centers under DDC
S.N. Scheme MPCCs Chilling Center District Covered
1 Kathmandu milk supply scheme 281 30 7
2 Biratnagar Milk supply scheme 126 11 4
3 Hetauda Milk supply scheme 167 8 3
4 Lumbini Milk supply scheme 63 6 4
5 Nepaljung Milk supply scheme 40 3 4
6 Milk product supply scheme 49 14 8
Total 791 63 34
Source: official website of DDC (http://www.dairydev.com.np/list/Collection/5/0/0)

DDC is the pioneer public sector dairy entity and it operates 6 milk supply schemes (MSS) throughout the
country. DDC was created in July 1969 under the Corporation Act of 1964 and now it is the large milk market
player of the country. DDC still accounts for more than 50% percent share of the formal market of the overall
supply of the milk in the country. DDC collects milks through its collection points called Chilling centers
and Milk Producers Cooperative Collection Centers (MPCCs). The collection network under different Milk
Supply Schemes of DDC is presented in Table 6. Chilling Centers (CC) and Milk Producers Cooperative
collection centers established under the Milk Supply Schemes is in operation across the country for chilling
the milk collected from the Milk Producers Cooperative collection centers. DDC’s milk collection network
exists in 34 districts, where 63 milk chilling centers and nearly 800 MPCSs are in operation.

28
Study and Analysis of Dairy Value Chain in Nepal

2.4.2 Cooperatives
Rural based dairy cooperatives as well as multipurpose cooperatives are also playing vital role in milk
production, collection and marketing. These cooperatives are involved in the processing of the diversified milk
products, collection, chilling and distribution of milk; and supply of wheat bran. There are dairy cooperative
in Nepal which accounts 5.55 percent of total number of cooperatives in Nepal. The DDC has linked 791
Milk Producers Cooperative Collection Centers (MPCCs) in its link. Similarly, Private dairy industries for
instances, Sujal Dairy also collects milk from the rural based dairy cooperatives. The main function of these
MPCSs is to collect milk from the farmers (both the members as well as non-members), test it for quality,
transport it for selling to the nearest milk chilling centers/milk processing plants of DDC and/or private
dairies; receive payment for the milk from them; and distribute the payment to the individual milk supplier
farmers. Apart from milk collection business some of the MPCSs have also started the operation of milk
chilling vats; and milk processing for producing various dairy products.

The dairy cooperatives in Nepal have adopted a three - tier system of which the MPCSs are the first-tier
primary level cooperatives, in the second tier, MPCSs in different districts have formed district level District
Milk Producers’ Cooperative Unions (DMPCUs), which are registered under Cooperative Act as district level
bodies. The main objective is to support the increased production and processing of milk and milk products
and to contribute to the financial and social up-liftment of the rural milk producers. In the third tier, the MPCSs
and DMPCUs have formed Central Dairy Cooperative Association Limited Nepal (CDCAN). CDCAN is a
national level tertiary organization of all the milk producers' cooperatives at primary and secondary levels and
aims to bring increased economic benefits to milk producers and to contribute to make the country self-reliant
in clean and high-quality milk and related products16.

Table 7: Dairy cooperative status in Project district


District Number of dairy cooperative
Rukum 3
Salyan 5
Rolpa 0
Pyuthan 2
Arghakhanchi 0
Gulmi 10
Total 20

2.4.3 Private Dairy Actors


It is advocated that the private sector started to involve in the dairy-processing sector from late 1970s with
very small-scale operations in Kathmandu. The pace of private investment is considerably increasing recently
in dairy and feed industries. Similarly, many local level private agrovets/paravets and veterinary services
providers are also playing considerable role in the dairy value chain through input supply (feed, equipments,
medicines, vet services etc.).

16
FAO, 2010. Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.

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Study and Analysis of Dairy Value Chain in Nepal

Table 8: Private dairy actors and their role in Nepal


S.N. Actors Role
Milk processing, Value addition through product
1 Milk Processor/traders
diversification and distribution
2 Agro-vets Medicine and production input supply
3 Private Veterinary Services Veterinary Service Supply and Artificial insemination
4 Milk Collectors Bulking of the milks and transportation to chilling centers
5 Informal traders Informal traders supply improved or cross breed
6 Feed companies Production and distribution of animal feeds
7 I/NGOs Technical Support services for dairy business
Public/Private Bank & financial
8 Financing for Dairy production and Marketing activities
institution
9 Other input providers Supply of the required inputs for dairy production and marketing
Wholesalers and Retailers of dairy Distribution of the processed milk and milk products to the
10
products consumers.

Recently, the Prominent among the private dairies with modern milk processing facilities are Nepal Dairy,
Himalaya Dairy, Sitaram Dairy, Anmol Dairy, Kathmandu Dairy, Adhunik Dairy etc in Kathmandu Valley;
Sujal Dairy in Pokhara Valley, and Kamdhenu Dairy in Sunsari. These dairies produce pasteurized milk
and other dairy products such as yoghurt, ice-cream, butter, ghee and others. Besides, there are many small
scale mechanized dairies and numerous cottage type dairies handling limited quantity of milk for producing
different milk products particularly pasteurized milk, ghee, ice cream and yoghurt. Similarly, the private
entrepreneurs have also been involved in producing cheese in the mid and high mountain regions from dairy
cattle and yak milk.

2.5 Supply chain framework and Milk flow channels within the Value System
A dairy supply chain framework describes the system of organizations, people engaged in the milk and milk
product production, production and marketing activities, information, and resources involved in moving a
dairy product or service from supplier to customer. Therefore, supply chain management is the oversight of
materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to
retailer to consumer. Supply chain management involves coordinating and integrating these flows both within
and among market players. The integrated Supply chain frame work of dairy sector is presented in Figure 3.

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Study and Analysis of Dairy Value Chain in Nepal

Figure3: Integrated supply chain framework for dairy sector

In Nepal, a formal and informal channel for Milk and milk products are existing. Fundamentally, dairy industry
is said to be a process from “Grass to Glass” which passes through different channels involving various actors.
It means flow of the products from producers to the consumers. The formal channel of raw milk to the milk
processing plants as well as informal trading of raw milk is summarized in Figure 4.

31
Study and Analysis of Dairy Value Chain in Nepal

Producers
( Farmers & Private Dairy
Farms)

Formal Milk Contractor/


Trading Middleman

Household Informal Milk


Consumption Trading

DDC Milk Chilling


Centres
Individual Contractors/
Farmers Middleman DDC Milk
Processing
Plant
Milk Producers
Collection/Chilling
Centres
Individual Private Milk
household Processing
Cooperative
Plant
Managed Milk
Collection Centres
Tea Shop

Private Dairy Milk


Sweet Shop Collection Centres

Figure 4: Formal and informal flow of the raw milk in Nepal

2.6 Gender and Social inclusion in Dairy Value Chain


Access to economic opportunities generated from the development of dairy value chain system for women;
socially excluded groups (Dalit, Janajati and indigenous people); poor farmers/producers and people residing
in the geographically remote regions and support services for them within entire dairy value chain system
is critical. Inclusion of the women and socially excluded people in the different stages of dairy value chain
system (DVCS) such as production, processing/value addition, and marketing may facilitate sustainable
development of societies’ economic growth. Mainstreaming of GESI in the DVCS requires developing
Value chain programs that support gender equity goals. Dairy Value chain programmes designed with GESI
principles can encompass social inclusion, competitiveness and gender equity and lead to poverty reduction.
This process helps KUBK-ISFP programme to achieve its GESI targets and supports IFAD policy on GESI.
Thus, KUBK-ISFP programme should need to take consideration on: (i) understand men’s and women’s roles
and relationships in the chain, (ii) foster equitable participation of women and inclusion of excluded groups of
the society; (iii) address the distinctive needs of women and excluded peoples; (iv) support them for economic
advancement, (v) Promote GESI equitable market-driven solutions; (vi) Design equitable benefit-sharing

32
Study and Analysis of Dairy Value Chain in Nepal

mechanisms that fits to the GESI approach and (vii) include leader of the society in defining the “problem”
and the solution.
As we know, Nepal is a multi-ethnical nation with diverse religious and cultural traditions and in Nepal milk
and its products particularly, yoghurt and ghee has both religious and cultural value in the Nepalese society.
However, the social exclusion of some of the so called scheduled castes/Dalits in the dairy cooperatives in
rural areas has been still found as one of the constraints in value creation. Milk produced by these scheduled
and untouchable castes in the rural areas has not yet been bought by some of the dairy cooperatives and even
in the local village shops17. The fact as described previously is also true in the rural area of the KUBK-ISFP
programme districts.
Nepalese society mostly being the patriarchal, role of women is given less importance in decision making
and economic matters. Our study is also comparable with the previous studies on gender issues in the sense
that women are involved in most of the difficult but non cashable farm activities: (i) forage collection and
transportation, (ii) cleaning the gutter and sheds; (iii) feeding animals, (iv) milking dairy animal, and (v)
selling milk in the local shop or bringing milk in the collection centre near by the house (very rare), whereas
men are involved in relatively easier and attractive tasks of the livestock activities such as milking animals
and selling of milk. The role of gender in KUBK-ISFP district is summarized in Table 9.

Table 9: Gender role in livestock farm activities


Farm Activities Role performed by Remarks
Animal Purchase Men
Forage Collection and Transportation Men & women Mostly women and overload of work
Cleaning the gutter and sheds Men & women Mostly women and overload of work
Feeding animals Men & women Mostly women and overload of work
Milking dairy animal Men & women Mostly men
Selling Milk and milk products Men & women Mostly men
Decision Making Men & women Mostly men, women are rarely involved
Access to income received from dairy Men & women Mostly men
Milk collection Men Mostly men, women rarely involved
Milk transportation from collection centers Men Mostly men, women rarely involved
Source: Focus Group Discussion.

17
FAO, 2010. Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 3: Survey Findings

This chapter represents the summary findings from the field sample survey across the KUBK programme districts.

3.1 Household sojourn


The average family size across the survey household was 6.93 in KUBK programme districts. Maximum
number of family members was in between working group of 16-59 years. These members would be the key
members who take care of dairy animals such as cattle and buffalo. Males were predominant members in less
than 16 and between 16-59 age groups. While females were more predominant while in more than 59 years.
Following chart depicts the composition of family member by age.

Figure 5: Distribution of age group of family members across the survey sites

3.2 Job status


Almost 90% respondents had certain jobs across the survey sites. Moreover, agriculture (almost 30% HHs)
and livestock (35% HH) was the predominant source of family income for many households (Figure 6).

Figure 6: Contribution of different income resources to HH livelihoods in KUBK survey sites

3.3 Land holding


The average land holding per family was about 13 ropanies and for which the irrigated land was less than
half of the total land holdings for some families. Likewise for some families, there was almost 7 ropanies of
unirrigated land (Figure7).

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Study and Analysis of Dairy Value Chain in Nepal

Figure 7: Household holdings of different categories of land across the survey sites

3.4 Household livestock holding


Average number of livestock per household was about 8 across the survey sites. Out of which, half of them
was goats, {almost 4 goats per HH}. There were 2 cattle and or buffaloes with a very marginal number of
sheep. Almost half of the total average livestock population was covered by the goats and sheep. There was
poor livestock holdings on an average across the survey sites, and was observed 7% mortality annually. The
milking cattle were almost 1/3rd of the total cattle population. However, the milking buffaloes were almost half
of total population (Figures 8, 9 and 10).

Figure 8: Categories of livestock kept by farmers in KUBK survey sites.

Figure 9: Distribution of cattle population in KUBK survey sites

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Study and Analysis of Dairy Value Chain in Nepal

Figure 10: Categories of buffaloes kept by farmers in KUBK survey sites

3.5 Cost of production


3.5.1 Animal health cost
About 2100 NPR. was invested by farmers for treating and feeding the feedmix and other vitamins. The
anmal halth cost of bufaflo was almost one third more than cattle. However, other animlas such as sheep
and goats were less comptitive to animal health cost (Figure11).

Figure 11: Cost of animal health incurred to different categories of animals

About 2100 NPR. was invested by farmers for treating and feeding the feedmix and other vitamins to livestock.
The health cost of bufaflo was almost one third more than cattle. However, other animals such as sheep and
goats were found less comptitive to cattle and buffalo. Out of 45 farmers rearing cattle, only 32 (66.7 %) of
the farmers had incurred some cost on health of animals and rest 16 (33.3 %) of the farmers did not spend any
money on animal health cost. Similarly, out of 105 farmers rearing buffalo, only 73 (73.3 %) of the farmers
had incurred some costs on health of animals and rest 32 (30. 5%) of the farmers had not spent any money on
health cost of buffalo. In addition, out of 70 farmers rearing other animals such as goat and sheep, 50 farmers
had spent money on health cost of animals and rest does not.

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Study and Analysis of Dairy Value Chain in Nepal

3.5.2 Feed given to different categories of animals


The average green fodder given for an average household livestock numbers was almost 150 kg (excluding
goat). However, for some households the value was only about 100 kg/day. Almost 50% households purchased
green fodders nearly 32 kg per day (Table 10). The average roughage given to one milk animals was almost
35 kg per day. While for dry animals it was only about 25 kg.

Table 10: Roughages given to different categories of animal across different survey sites
S.N Items N Mean (Kg)
1 Per day feed green fodder (total) 120 148.3
2 Green fodder given to animals per day per household 25 95.6
3 Per day green fodder purchased 61 31.9
4 Roughages given to milk animals 112 35.2
5 Roughages given to dry animal 110 22.4
6 Roughages given to calves 79 10.2
7 Roughages given to others 82 7.0

3.5.3 Amount of concentrate feed to the animals and their different sources
The concentrate feed given to cattle per day was about 1.80 kg per day for dairy buffaloes which was almost
two times higher than that of cattle. The concentrates given to heifers per day was almost half a kg per day
and to goats was nearly 100 g/day (Table 11).

Table 11: Amount of feed and concentrate feed to the animals


No of
Animals Particulars observation Mean (Kg)
Buffalo
Concentrate to buffaloes /day 42 1.80
Concentrate to buffalo from household production 105 540.05
Concentrate to buffalo purchased 65 132.31
Purchased price of concentrate to buffalo (NPR). 76 26.20
Cattle
Concentrate to cattle from household production 34 225.65
Concentrate to cattle purchased 31 180.23
Price of purchased concentrate to cattle (NPR) 36 29.33
Heifers
Concentrate to heifers from household production 30 83.25
Concentrate to heifers purchased 21 71.86
Purchased price of concentrate to heifers (NPR) 21 28.10
Other animals (sheep/goats)
Concentrate to other animal from household production 44 66.00
Concentrate to other animal purchased 26 45.81
Price of concentrate to other animals (NPR) 31 26.74
Source: Field survey, 2015.

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Study and Analysis of Dairy Value Chain in Nepal

3.5.4 Start of commercial farms


Most of the farmers were not interested to raise more than one cattle and buffalo on the existing conditions.
Though, there was certain responds near dairy pocket areas mainly in Arghakhachi, Pyuthan and Gulmi.
However 40% of them were positive on improvement in commercial scale, and almost 10% farmers were
positive on building high commercial scale farms. For promotion of dairy farming in commercial scale, there
needs specific motivational training programmes in KUBK programme districts (Figure 12).

Figure 12: Expected number of dairy animals chosen by farmers for large scale production

On asking question to establish a small dairy, almost 80% farmers responded to invest from their own family
savings to start the dairy

3.5.5 Farmers acquiring training on dairy production


About 70% farmers were partially trained for managing small dairy farms in survey sites from different
agencies. Almost 82% of them received formal trainings, while about 10% the rests were having informal
trainings or self-trained. Out of 86 farmers, 70 farmers (82%) had taken formal training on livestock production
and management; while 8 (9%) farmers had taken informal training and rest 8 farmers (9%) were self-trained
(Figure13 and 14).

Figure 13: Types of trainings acquired by farmers over last few years.

3.6 Service facilitate to the farmers by different agencies and their constraints
There were limited animal management services provided by different service providers. Out of 120
respondents 38 (32%) of the farmers benefitted from service of DLSO, while 82 (68%) of the farmers did not
have service of DLSO. Likewise, less than 16% of producers had been supported by vet-doctors. Likewise,

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Study and Analysis of Dairy Value Chain in Nepal

the government AI service was for only 18% of the farmers. However, there were local agro-vets providing
services to about half of the farmers surveyed, while only 40% farmers had received services from VAHWs
(Figure14 and further details in Table 12).

Figure 14: List of service providers across survey sites

The main reason of lower coverage of government and private vet doctor’s services was due to long distance
(Table 12).

Table 12: Access of farmers to service providers in survey sites of KUBK


S.N.  Items N Mean
1 DLSO distance (m) 83 22797.61
2 How many times you received services from DLSO 75 3.57
3 Private vet services distance 58 1099.43
4 Times private vet service provided (number ) 27 4.15
5 Distance to AI center of government (m) 70 3644.51
6 Times year round AI service 32 3.22
7 Distance to private AI (m) 27 1673.78
8 Distance of agro-vet (m) 57 4857.89
9 Times service by DLSO (number) 73 3.89
10 Times services by private AI (number) 2 3.00
11 VAHW distance ( m) 15 1296.13
12 Times services provided by VAHW 49 2.98

3.7 Performance of cattle and buffalo across survey


There was slight fluctuation in milk yield between rainy season and winter season. Out of 120 sample
household surveyed, rainy season milk yield upto7.3 liters/ dairy animal was found higher than winter season
up to 6.5 l/ dairy animal. The reason behind rainy season milk yield higher than winter season might be due
to availability of green fodder in large amount than in winter season.

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Study and Analysis of Dairy Value Chain in Nepal

Figure 15: Performance of cattle and buffalo across survey sites

The average household milk production from buffalo was 4 liters/ day in the surveyed district. Out of 120
household surveyed 103 (85.8%) of the household rear buffalo for milk production. Similarly, the average
household milk production from cattle was 6 liter /day. Thirty one (25.8%) of the household rear cattle for
milk production and 14 (11.6 %) of the household rear both type of animals for milk production. The total
milk yield per household was 9 liter/ day for some households among which 6 liters was sold in the market
and 2 liter was used as household consumption and rest 1l for yoghurt making.

On an average the average lactation length for buffalo was maximum of 9 months with peak yield lasted
for 5-6 months and production of 592 l of milk. Likewise, the peak lactation length for cattle was about 6-8
months with a production of 609 l /lactation.

3.8 Informal marketing channel


Regarding informal marketing channel, the average quantity of buffalo milk consumed by villagers were 6
l. Villagers either used it for home consumption or villager shop used it for making tea, curd and other items
and sold to consumers. Total number of farmers supplying milk to villagers were 36 (34.9%) and average
sold price was NPR. 53. Similarly, average quantity of buffalo milk consumed by sweet shops was 1.8 liters.
Only, three (2.92%) farmers sold their milk to sweetshop and the price of milk was NPR.44. Accordingly, the
average milk consumed by collector was 4.6 liters. Collectors were the largest receiver of buffalo milk from
farmers as 43 (41.8%) of the farmers gave their milk to collectors. Average price of milk given by collector
was NPR. 41.84.

In a similar way, chilling center on an average receive 9.2 liters of buffalo milk from farmers but the number
of farmers benefitted from chilling center were just 6 (5.2%) at the time of survey. The average chilling
center price was maximum of the above as it was NPR. 54. People were forced to give their milk to other
marketing channel as there were limited chilling center (special case of Pyuthan) and there were districts
where there was no chilling center. While, 15% of the farmers used buffalo milk only for home consumption.
The common trends of chilling were observed in Gulmi, Arghakhachi and Pyuthan respectively. The detail of
milk consumption by the local informal process has been shown in Figure 16.

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Study and Analysis of Dairy Value Chain in Nepal

Figure 16: Average amount of milk utilized informally in KUBK programme districts

There were almost 25% respondents selling the culled cattle 2 per year. The average cattle keeping duration
was almost 7 months in a year for milking. The dry and culled cattle at the end of season may cost around
7000 NPR on sale. However, there was less than 2 buffaloes culled and raised almost 5 and half months raised
for milking. The price of buffalo when sold after milking was almost 4 times expensive than cattle.

Table 13: Cost of cattle and buffalo under different circumstances


 Particulars N Mean
Live cattle trade (No./year/HHs) 38 1.8
Cattle purchase price /household (NPR.) 35 51737.0
Cattle keeping duration/ household (years) 39 6.6
Cattle keeping cost/ household (NPR.) 38 50493
Cattle sold price (NPR) of dry condition 39 3756
Live buffalo trade (No./year/HHs) 104 1.4
Buffalo purchase price (NPR) for milk 102 53635
Buffalo keeping duration (years) 103 5.4
Buffalo keeping cost (NPR.) 103 53029
Buffalo sold price (NPR.) of dry condition 103 27781

3.9 Management of production cost:


Almost 65% farmers usually managed the dairy production cost by their own resources, though it was for a
small farm. The detail of cost of management bear by the smaller dairy farmers across survey sites has been
summarized in Figure 17.

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Study and Analysis of Dairy Value Chain in Nepal

Figure 17: Management of production cost of animals by farmers

3.10 Annual expenses on dairy cattle/Buffalo head


The following table shows the annual expenses of rearing one dairy cattle or buffalo for which the cost of
production was incurred mostly from the cost of feeding by about 45%, labour cost (26%) followed by stock
price (16%).The details of annual expenses of raising one dairy buffalo/cattle across the sample survey sites
has been presented in the following table 14.

Table 14: Cost of production of one dairy buffalo/cattle on the basis of district
Shed Instrument Labour Stock Health Total
Districts Electricity Feed
cost cost cost purchase cost Expenses
Gulmi 10257 2105 31481 468 16629 10490 42049 113,553
Pyuthan 4312 644 18478 505 12400 900 25331 62,570
Argakhachi 19233 1387 28472 745 34871 6700 89925 181,084
Salyan 3110 1510 29428 515 14379 985 41036 90,983
Rukum 4300 544 31481 430 14204 880 45241 97,081
Rolpa 5990 883 21216 410 4882 1078 24824 59,282
Note: cost in NPR.

3.11 Cost of milk production in two clusters of KUBK


Major problems of farmers included availability of quality breeds, fodder and forage problems, health, lack
of milk collection centers with transportation, chilling center and market price information and spread in both
value chain developing and value chain developed districts. However, the average cost of production might be
similar which suggests the possibilities of extension of dairy value chain activities in value chain developing
districts. The details of cost of production of per liter of milk across the value chain developed and developing
areas has been calculated in the following table 15.

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Study and Analysis of Dairy Value Chain in Nepal

Table 15: Differences on cost of production per liter of milk across the survey sites
Value chain of milk in Gulmi Value chain of milk in Rukum
clusters cluster
S.N  Particular Items Cost of each items Share of each Cost of each item Share of each
( in NPR) item (%) (in NPR.) item (%)
Sample size 120 120 120 120
1 Shed Depreciation cost 4.72 11.32 2.41 5.44
2 Depreciation cost of instrument 0.47 1.13 0.52 1.17
3 Labour cost 8.96 21.50 14.75 33.32
4 Electricity cost 0.19 0.46 0.24 0.54
5 Cost of stock 7.3 17.51 5.82 13.15
6 Animal Health cost 2.06 4.94 0.53 1.20
7 Cost of concentrate 17.98 43.14 20 45.18
 Total 41.68 100.00 44.27 100.00
Note: according to ToR value chain priority districts namely Gulmi, Arghakhachi and Pyuthan, value chain to be developed
districts namely Rolpa, Rukum and Salyan).

3.12 Milk collection


3.12.1 Mode of transport by collectors
Most of the collectors used bike for collection of milk 24 (80%), followed by bus 3 (10%), Mini truck 1 (3.3
%), walking 1 (3.3 %) and 1 (3.3%) used either of means of transportation for collection of milk, as farmers
supply the milk directly to collector shop (Figure 18).

Figure 18: Mode of milk transportation by collectors

3.12.2 Examination of milk at collection centres


Collectors during collection of milk use lactometers to identify the fat and SNF. In addition, they used lactometer
reading as an indicator to fix the price of milk. Out of 30 collectors studied, 28 (93%) used lactometer, while
very few (2) collectors (6.66%) did not feel to use any instrument to check quality of milk. However, fat and
SNF may not be the good method for price transparency.

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Study and Analysis of Dairy Value Chain in Nepal

3.12.3 Income and expenditure of milk collectors at local scale


Dairy milk collection was identified both formal and informal in KUBK programme districts. The formal
and informal, semiformal networks has been given in Figure19 in the proceeding chapter. The net profit
of a milk collector was estimated to be about 60000 NPR /month as recorded in this study from a daily
transaction of 45-50 l/day.

Figure 19: Income and expenditures of milk collectors in survey areas

3.13 Milk Processing


This sub-chapter mainly describes the local milk processing and major milk products in KUBK programme
districts. The major information sources for this chapter was deduced from Gulmi, Arghakhachi and Pyuthan
districts of Nepal because of relatively developed value chain in comparison to Salyan, Rukum and Rolpa. In
general, milk processing was mainly implied to the production of traditional products and to some extent the
cold products such as ice-cream and kulphi etc. Processing was mainly implied to the traditional products and
to some extent butter and ice- cream in KUBK programme districts.

3.13.1 Dairy Milk processor


The milk processors earned better from selling of milk products instead of the fresh milk. However, larger
volume of milk was not available for milk products. Nearly 60% of the income of the milk processors came
from milk products (Table 16). The highest purchasing price was for ghee and paneer (560-600 NPR/Kg)
across the project sites followed by Khoya (NPR. 450 /Kg; detail in Table 16).

Table 16: Income sources of milk processors/retailers and major traditional milk products
Particulars No of frequency Value
Subset A: Price/income
Income source milk (%) 13 42.30
Income source milk products (%) 13 57.69
Daily milk collection (l) 13 122
Sold price of fresh milk (NPR) 13 69
Subset B: Major milk products (Price in NPR.)
Price of Ghee/Kg 8 585
Price of Paneer/Kg 5 568

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Study and Analysis of Dairy Value Chain in Nepal

Particulars No of frequency Value


Price of Khoya/Kg 1 450
Price of yoghurt/Kg 6 72
Price of Ice-cream/Kg 2 250
Price of kulphi/Kg 2 200
Traditional milk processing was learned by the study team as the important business in KUBK programme
districts. The highest processing share was responded to yoghurt, while for ghee it was only 8%. The share of
each milk product during milk processing has been shown in Figure 20.

Figure 20: Share of different milk products after processing as responded by processors

Being milk processing in small scale, the income from this business was also smaller. On an average of
13 milk processors, study team identified that the net income of a milk processor was only about 19000
NPR. Though average milk processed per day was only 2l by the processors. The financial statement of milk
processors has been shown in table 17.

Table 17: Financial statement of processors


S.N  Financial Factors No of processors Average in NPR.
1 Gross monthly income 13 48,338.46
2 Gross monthly cost 13 33,053.85
3 Net monthly income 13 18,784.62
4 Monthly marketing cost 13 2,688.462
Source: Field survey, 2015.

More than 60% of the processors were investing from their reserves for milk processing, whilst only 23%
of them were using the banks for establishing their shops. Most of the processors had taken training by
District Livestock Service Office (DLSO). While, some processors had taken training through National and
International Non-Governmental Organizations (I/NGOs). Major problems of milk processors were lack of
continuous cold storage due to power cut, transportation problems due to roads and processing equipment’s.
Most of the processors find market small enough to market large amounts of dairy products to earn enough
income. However, the production volume was much smaller due to unavailability and seasonality of milk
production and the cold storage problems. Consumers also commented on their quality and storage conditions
poor.

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Study and Analysis of Dairy Value Chain in Nepal

3.14 Consumer’s perception of milk and milk products


This sub-chapter illustrates the consumer’s perception on use of milk and milk products in the KUBK
programme districts. Most of the consumers bought fresh milk for household consumption. Generally they
used milk for feeding their children, for making tea and curd. When asked to consumers about their suggestion,
they stressed on improving the quality of milk and reduce adulteration in milk and reduce the price of milk.
To improve the quality of fresh milk supply, they gave their opinion on regular monitoring to improve the
quality of milk.

3.14.1 Consumes purchasing capacity


It was estimated that the consumers purchasing capacity across the market centers was good. About 63% of
the total expense was for food items where milk and milk products were the important components. The milk
consumption per family was around 1000 l, while the per capita milk consumption was about 240 ml/day, an
average value better than the national per capita consumption (Table 18).

Table 18: Consumer’s income and expenditure capacity


Items N Values
Monthly Income, NPR. 74 30919
Household expenses on food items (%) 74 63 %
Household expenses on non-food items (%) 74 38 %
Milk Consumption/year 74 1056
Buying source shops, Kg/day 74 2.69
Average local price/Kg 74 56-70
Milk consumption/ per person 74 232 ml
Source: Field survey, 2015.

3.14.2 Consumer’s satisfaction on milk price and quality and milk inspection
About 80% consumers were satisfied on market milk price. Likewise, about 65% of the consumers were
positive on quality of local milk, however, they do not know the adulteration substances except water, whilst
almost one third of them were neutral (they do not comment) and the least 4% consumers commented that
the milk was sometimes with spoilt odor and with much of water adulterated. In KUBK project sites, the
milk selling practice was traditional and was done without labeling as had been responded by almost 97%
respondents, and there was no any process about the certifications for consumers health regarding the nutrient
composition and its origin i.e. cattle or buffalo.

In the survey, most of the consumers 49 (66%) were neutral about the quality of the dairy inspection, 12 (16%)
of the consumers found role of dairy inspector the worst, 10 (14%) of the consumers found the role of dairy
inspector very worst and 3 (4%) of the consumers found the role the best. Most of the consumers bought fresh
milk for household consumption. Generally they used milk for feeding their children, for making tea and curd.
When asked to consumers about their suggestion, they stressed on improving the quality of milk and reduce
adulteration in milk and reduce the price of milk. To improve the quality of fresh milk supply, they give their
opinion on regular monitoring to improve the quality of milk.

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 4: Market System and Marketing Network Development


for Promotion of Dairy Value Chain
4.1 Background
Marketing channel is found established mainly based on road corridors and proximity of the growing towns/
cities and collection centers. Mostly the marketing system was observed informal/semi-formal, while little
formal chain was found developed in Gulmi district. The observable channels of the milk and milk products
to the consumers in the KUBK project sites has been presented in the Figure 21. The Figure shows almost a
developing nature of the milk value chain.

It was noticed that the milk produced in the districts were almost consumed in the market center and
headquarters while in Gulmi, the milk was collected and chilled before distribution. The major milk products
were ghee and curd while at processing mainly at rainy season. A larger scale dairy would survive with the
stable market with the benefit sharing by farmers and also by the without much affecting the consumers price.
For which a much lower cost of production could be expected with the function of enabling environment. The
service providers can be regarded as the value chain enablers. Raw and fresh milk consumption dominated
the local market, while there were some kinds of consumption of sweets prepared from milk. Yoghurt as
fermented product was available across the densely populated urban areas as another milk product, while
other sweets were less frequent.

There was huge growth potential of dairy production and marketing in survey sites, this is because of the food
market and dairy markets in particular are increased in a wide variety of forms. Moreover, rapidly urbanized
centers and the demand of milk and milk products thereof are the newest trends. Likewise, as the remittance
increased there would be the increase of variety of consumers and utilization of expectedly large volume of
milk and milk products.

Figure 21: Dairy marketing channel in KUBK programme districts

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Study and Analysis of Dairy Value Chain in Nepal

4.2 Major value chain actors and their associated problems across the survey sites
As shown in value chain map, there were up to five different actors identified across the survey areas in KUBK
programme districts. The value chain functions had been slowly growing so there was more needs and gaps
between the actors and those have to be strengthened. The research team identified a large gap between the
producers and collectors/chilling in major dairy producing districts such as Arghakhachi, Gulmi and Pyuthan.
On time collection and delivery of milk to chilling of milk and transparent pricing system remained a major
problem. The upgrading of collection centers/chilling centers are the better opportunities for promoting value
chain. It is important for farmers that they can deliver milk on time with price satisfaction.

4.2.1 Retailing and local consumptions


The consumers sometimes received milk either of two ways directly from milk vending producers or from
retailing shops/ teashops etc. or formally from the chilling centers directly. The smaller processors i.e. the
sweet shops followed the same process to obtain the milk for preparation of milk products. To reduce the
consumer price, firstly the reduction of production cost should be prioritized and then the labour cost of
transportation in small scale and delivery cost in a greater scale for a large volume of milk. The price for
yoghurt was higher than the fresh milk in general, though milk production and consumption volume both are
too small.

4.2.2 Milk processors


The common milk processors had multiple products in general. Some processors also made an annual contract
with farmers for provision of milk. It seems that the summer season milk was a bit cheaper, which was
produced in larger volume than winter with a nominal high price. This makes a little advantage to processors
but might risk the benefits of farmers. The only way to reduce the higher milk price is to provide the farmers
for forage production and AI services. Moreover, the major problem of small scale producers were small
quality of milk and their compromise on milk adulteration and quality, which might have forced them to run
the sweet producing business under-capacity.
4.2.3 Milk Collectors
Milk collection was playing intermediary role for farmers for marketing. However, its role was temporary
during the major season of milking than permanent. When few farmers collect milk of low quality, it was
making the whole composite low quality. Milk spoilage was a major problem during milk collection. Producers
did not have the cooling facilities for storage so that might bring the problems in future too. Moreover, shortage
of large scale milk volume is another problem for transportation with tankers. Similar to other actors farmers/
producers have to be improvised the multiple steps that can upgrade the production and quality for markets.
4.2.4 Input supply
As in other sectors of agriculture, the input supply remained a major problem of scaling up dairy farmers to
commercial scale. Though, there was an opportunity that the uplands can be promoted to highly nutritious
forage land and cultivated low lands for winter forage crops.

4.2.5 Enabling environment


Encouraging private sector is another important activity to promote milk production and value chain
development in long run. And involvement of teaching, research and extension agencies might create the
favourable conditions. Similarly, the geography suitable policy changes could bring the favourable steps in
dairy value chain development in KUBK programme districts.

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Study and Analysis of Dairy Value Chain in Nepal

4.2.6 Vertical linkages


When considered for dairy sub-sector value chain, vertical linkages marginally exists occasionally between
traders and farmers as traders they often support producers in lending feed to the producers at village level in
the pocket areas, whereas traders pay back the sum once milk is sold. However, in general when looked from
districts perspectives, there is still a poor and un-organized vertical linkage between producers and traders in
terms of price transparency (same price for cattle and buffalo even though buffalo milk with higher fat) and
sometimes in milk collection not really punctual. Farmers are forced to take similar prices both in flush and
lean season. DDC had fixed price for many locations but, farmers in KUBK have been found poorly benefited
from pricing facilities.

4.2.7 Horizontal linkages


It was well observed that at the producers' level where there are various dairy keepers' groups in all district
pocket areas. Members of dairy farming groups would talk, decide and share about the status of production for
a better marketing and profit, but such scenario are poorly established. Thus, farmers are not well benefitting
from horizontal linkages which would otherwise help them generate economies of scale that would improve
their efficiency of production and bargaining power with the traders. At the traders level they are scattered and
less united for further promotion of business. Though, farmer’s group formation and cooperatives have been
considered as the initial stages of commercial dairying in KUBK programme districts.

4.2.8 Value chain mapping


The detail of mapping of value chain of fresh milk in KUBK programme districts has been presented in
Figure 22. It was realized that the farmers cost of production was about 62% and farmers share only 23%
of the profits along the value chain. The average production price was 43 NPR. Moreover, the consumer’s
retail price was found upto 69 NPR. In overall, the traders marketing efficiency was higher in the entire chain
observed. In general, the collectors, chilling and distributors and the retailers/ processors were tagged as
traders in this survey for value chain map drawing purpose.

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Study and Analysis of Dairy Value Chain in Nepal

50
Study and Analysis of Dairy Value Chain in Nepal

4.3 Milk supply chain in study road corridors


At the current state, transport/supply of milk produced was found a major problem to connect the local farmers
to the national market For instance, bigger milk collectors such as DDC has its collection centre in Dang,
however has no collection centre yet in the KUBK programme districts. When milk collected from Rukum,
the average price of milk could be increased by 8 NPR to the average collection price of DDC (information
from DDC, Nepalgunj). This would be the reason that the local producers had been forced to produce less and
their sale was limited to the local markets respectively in the KUBK programme districts. However, adequate
milk supply is in commercial scale in Gulmi than any other KUBK programme districts. However, when
production is in large scale, DDC and other milk collectors can access there.

Figure 23: Potential milk supply chain in Study sites

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Study and Analysis of Dairy Value Chain in Nepal

The study showed that most of the potential commercial milk producers were concentrated along the road
corridors. Flow of milk directly occurred from the farmer in most cases. Farmers sold the milk directly to the
costumer in their vicinity and remaining to the local market. Local market actors were HHs, Hotel/ restaurants
and collectors, and cooperatives. Though there was scope and potentiality of flow milk from direct farmers
and local market to regional market, little and insignificant amount of milk was transported to the regional
markets. The major local and regional market and condition of market situation in study area has been shown
in Table 19.

Table 19: Local and regional markets for milk and milk products for KUBK programme districts
Means of
S.N Study road corridor Local markets Regional markets transportation

Khalanga, Musikot, Salyan Khalanga, Dang (Ghorahi and


1 Rukum – Salyan Tharmare, Srinagar Tulsipur)
Libang, Sattale, Sulichaur, Khungri, Bhaluwang, Dang In local market-
2 Rolpa-Pyuthan by bikes, bicycle
Khalanga, Bagdula, Bijuwar
and on foot.
3 Gulmi Resunaga, Tamghash, Ridi Palpa and Butwal For regional
market by bus
Sandhikharka, Narpani, Thada, Argha, Kapilvastu and
4 Arghakhanchi Pali Butwal
Source: Field survey, 2015

4.4 Major Value chain functions and Gaps of value chain players.
Important value chain functions performed by several players at different stages of value chain, problems
faced in performing activities with major gap in players and intervention needed to overcome these gaps is
presented in Table 20.

Table 20: Major value chain functions, actors and gap and recommended intervention
Present Major Gap in
Functions Activities Players Intervention
Problems Players
Low productive
capacity of
Herd
Farmers animals,
management, Lack in livestock Gradual replacement of
(small, large) & disease
feeding and management; traditional herds with
Production Private infected
reproduction and technological improved and high yielding
firm and Small economy
management know how breed, capacity enhancement
cooperatives of scale and
Milking
higher cost of
production

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Study and Analysis of Dairy Value Chain in Nepal

Present Major Gap in


Functions Activities Players Intervention
Problems Players
Identification and introduction
of appropriate analysis
Quality Lower volume Lack in quality
technique, products labeling
Collection analysis, Producers/ of production, analysis, grading of
packaging and storage
and storage collection of collectors problems in milk,, grading and
methods,
milk, grading cooperatives chilling and packaging methods;
Separate pricing for cattle and
and storage storage, Low offer price
buffalo milk/products,
Introduction of Efficient MIS
Low volume of
Pasteurization, small and milk available Lack in technical
Introduction of appropriate
product large scale for processing, know how
Processing equipment’s, capacity and
diversification dairy inadequate and about product
skills enhancement
Storage cooperative in appropriate diversification,
equipment’s
Trading
Bulking
without Sorting, grading
Capacity building,
Collection , Local considering and appropriate
a. Local Provision of storage facility,
transport and collectors the quality packaging ,
level Services for testing milk
storage /Traders of product in storage facility for
adulteration
terms of fact, temporary storage
SNF content
Lacks in
efficient
Regional
transportation High transportation Dialogue and cooperation with
b. Regional transportation collectors
means and cost, transport company
/Traders
problem with
local levies
No auction market
Depends in Nepal and Nepal
on Indian has no access to
Wholesaler
contractor/ international auction
and national
buyers, Market market), Policy dialogue to have access
a. Export traders
requirements Certification about in auction markets
Large dairy
declaration, market requirements
DDC
etc.) Can’t compete with
Indian product with
Marketing respect to price
Higher demand
Private and
as compared to
governmental Product diversification
supply
dairy Cooperation and exploration
b. Sale in Poor product No or less Linkage
Cooperatives of possible domestic markets
Domestic diversification with flavored value
Farmers for flavored and other new
Market Variation in added products
milk products such as cheese,
milk supply
milk drinks, chocolates etc.
during lean and
flush season

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 5: SWOT Analysis, Competitiveness and Market Based


Solutions for Dairy Value Chain in KUBK Programme Districts
This chapter represents the analysis of strengths, weakness, opportunities and threats of dairy production and
value chain development in KUBK programme districts. The detail of the SWOT analysis has been presented
in Table 11. The major highlights of SWOT analysis has been presented into the following subheads:

8.1 Strengths
 Good climatic condition to promote dairy animals. Jersey crossbreds with cattle and Murrah crossbreds
with local buffalo already adopted by farmers for milk production.
 Sufficient amount of green fodder to animals through nearby forest and fodder trees.
 Reasonable price of milk to farmers.
 Milk is accepted animal food by all kinds of religions, and almost groups of people.
 Service facilities by DLSO and other NGO and INGO’s is increasing through other service and
programmes.
 Start of AI programme by the government.
 Establishment of chilling centers and promotion of collection centers.
 Traditional knowledge of farmers on livestock production and management due to longer experience
and passing of knowledge to their descendants.

8.2 Weaknesses
 High cost of production of milk per liter. Production is small scale.
 Lack of improved forage and fodder trees and long dry spell and long winters.
 Lack of improved breeds, and breeds recommended to local.
 High price of concentrate due to longer distance transportation, KUBK districts are food insufficient
districts themselves.
 Small market capacity to absorb all the produced milk.
 Long transportation routes due to undulated topography and scattered settlement.
 Low technical knowledge of farmers on livestock production and management.
 Subsistence type of livestock farming.
 Low technical knowledge to milk collectors and processors on value addition of milk products.
 Lack of veterinary doctors and technician in appropriate amount to provide facilities to remote
village of the country.

8.3 Opportunities
 High demand of milk in the country and shortage of larger amount of milk to major milk processing
factories. KUBK programme districts can be well linked to national corridors of milk collection.
 New employment opportunities can be created across the value chain activities.
 High amount of remittance amount entering in to the country to start business.
 Government is expanding AI service.
 Established service providers and Universities.

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Study and Analysis of Dairy Value Chain in Nepal

8.4 Threats
 Frequent outbreak of major disease like Foot and Mouth disease.
 High prevalence of clinical and subclinical mastitis in farmer’s herds.
 Frequent occurrence of natural calamities like flooding, landslide and earthquake.
 Larger no of vendors and middle man in milk value chain and farmers are receiving lower price and
consumers higher price.
 Land size is too small for larger scale dairy and it is fragmented and perhaps abandoned also.

The study team performed further a competitive SWOT analysis related to dairy production and marketing.
Strengths and weaknesses used to address the internal factors governing the dairy sub-sector, while opportuni-
ties and threats referred to indicate the external factors in the business environment. The table below provides
details of competitive analysis of dairy sub-sector in KUBK programme districts (Table 21).

In general, agro-vets and related shops were established even in the remote areas. Producers’ group would
strengthen their activities for large scale of dealing whereas associations of traders (if developed) would pave
ways to regulate policies and to make input supply enabling environment. There are large number of buffalo
keeping groups/ milk producers, cooperatives across the KUBK programme districts. Likewise, the financial
institutions, farmers groups and other service providers such as HVAP, Heifer International etc. have been
operating their livestock development programmes in KUBK programme districts. However, there were enor-
mous number of weaknesses in input supply (Table 21).

In case of marketing, the local cooperatives had been established in most of the project districts with the in-
trusion of development banks that could provide supporting environment for the flow of capital investment to
establish the larger scale dairy farms and to establish the structures for dairy marketing. Moreover, developing
access to roads even to the remote areas’ would mean access to transport of production means as well as flow
of milk to the distant market at the big cities, where there are greater number of consumers. However, prob-
lems in milk pricing at farmers level was found one of the major drawbacks of production, while there was
also variation in quantities of milk collection during the lean and flush seasons.

There were also numbers of threats to promoting dairy value chain in the KUBK programme districts (Table
21). However, there were some opportunities existed, grabbing of which may promote commercial dairying
in the study sites e.g. growing market outlets and growing public interests on indigenous production etc.

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Study and Analysis of Dairy Value Chain in Nepal

Table 21: Dairy production related SWOT analysis across the survey sites in KUBK programme districts

STRENGTHS WEAKNESSES
Input supply: Input supply:
• Agro-vets are available in all district, • Limited farmer-preferred high productive breed
• Leader farmers and commercial farming groups choice
are existing • Inadequate improved breed marketing extensions.
• Community Forest User Groups (CFUG) are • Absence of facilities of AI in study area
playing positive roles for collection of fodder • Low coverage of DLSO/LSC in districts.
and grazing. • Poor quality of inputs in the major local markets.
• Cooperatives and banks (ADB/N, SFDB) as well • Lack of established dairy processing centres.
as other micro-financial institutions are working. • Lack of provision for winter feeding and not
• DLSO, KUBK/Heifer International Nepal, PACT enough fodder volume and quality even during
and HVAP and others are major technical service peak milk yield.
providers/ facilitators. • Poor facility of loan disbursement in the rural
areas

Production: Production:
• Orientation for commercial dairying. • Limited vet. Service markets/ center
• Service providers already in place • Lack of descript and high productive breeding
• Local level selection and crossbreeding practices bulls/ females.
introduced from extension agencies. • Lack of technical knowledge and skill (Training,
• Growing public interests on local production capacity)
• Available Grazing resources. • Diseases and pests e.g. FMD and ecto and endo-
parasites.
• Crossbreeding without performance record.

Marketing: Marketing:
• Growing cities and population. • Labeling and storage system (chilled) is not
• Growing consumers interests on diversified efficient at local processor level,
milk products • Less capacity of locally acting agencies
• Growing competitions between traders for input • Trade margin not equal (Vertical relationships of
supply producers and traders existing)
• Growing public interests on local production • Pricing system not transparent.
• Growing concern on safe milk/ milk products. • Transportation means undefined: no subsidy
• Local cooperatives are being established in or support on means of milk/live animal
most of the project districts with the intrusion transportation.
of development banks that could provide • Milk adulteration-poor quality milk products
prosperous and supporting environment for the • Milk price unstable during winter and summer.
flow of capital investment to the dairy production
and trading.
• Expanding road corridors even to the remote
rural areas

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Study and Analysis of Dairy Value Chain in Nepal

PPORTUNITIES THREATS
Enabling Environment (Policy & Institutions) • Youth migration (out-migration and low labor
• Establishment of AFEC18 (local policy frame) productive access among the study areas)
for pooling financial and other resources in • Failure of conception in Jersey/cattle crossbreeds,
VDC Committee. long breeding cycle of buffalo.
• Coordination and financial linkage with • Long distance markets
RGBB19 and SFDB20 for lending of loan in • Uncontrolled breeding.
group collateral scheme. • Lower performance of crossbreds at farmers input
• Coordination and linkage with different line levels.
agencies (DDC , DLSO, NARC , AFU , Enabling Environment (Policy & Institutions):
21 22 23

IAAS24, etc.) • Illegal taxing to many groups/traders especially


• Growing trade access to rural areas during transportation.
• Niche market available • No sufficient semen at AI centres to meet the
• Capitalizing market physical resources local demands.
• Growing market outlet hubs
• Growing public interests on indigenous
production

8.5 Interventions for market based solutions for development of dairy value chain in
KUBK Programme districts

Dairy in KUBK programme districts witnessed with high potentiality for scaling up the milk production but
introduction of high yielding crossbreds and other management options are pivotal. Findings from the sample
survey and review of secondary data revealed that dairying is a very potential business in value chain integra-
tion of six study districts. Table 22 represents the summarized challenges, risks and problems of each value
chain actors. Likewise, the intervention measures have been illustrated for market based solution of dairy
subsector in KUBK programme districts.

18
Agriculture, Forestry and Environment Committee
19
Regional GraminBikash Bank (RGBB)
20
Small Farmers Development Bank (SFDB)
21
District Development Committee
22
Nepal Agriculture Research Council and its stations
23
Agriculture and Forestry University, Rampur, Chitwan, Nepal
24
Institute of Agriculture and Animal Science/TU

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Study and Analysis of Dairy Value Chain in Nepal

Table 22: Challenges, risks and problems in dairy sub-sector and market based solutions and intervention
strategies at each actor’s level
Intervention strategies for market based
SN Market Chain Actors Challenges, Risk and Problems
solutions
• Capacity development for local feed
formulation and utilization of locally
Limited inputs and inputs are not available
available fodder and forages.
on time.
• Quality monitoring mechanism with
establishing feed quality centres among
Lack/poor inputs quality monitoring
lead producers, agro-vets, fertilizers dealers
mechanism
would be developed with direct supervision
of DDC, DADO and CCI.
Poor access to animal health service in
• Facilitate experienced and leader farmers
remote areas
(ELFs) to establish Bare Foot Agro-Vets in
remote areas
• Improve breed promotion at farm level (e.g.
Jersey) for crossbreeding.
• Coordinated research activities with line
Input suppliers (Agro-vets, agencies (NARC, DLS) and Universities
Cross breeding without performance
Cooperatives, Banks, Transport (AFU, IAAS/TU) for improved and locally
record
1. Association, Insurance Agents, adopted breed promotion at local level.
Leader Farmers, Resource • Improve farmer’s knowledge about
Centers) breed selection and record keeping so
as to identify the strategies for future
interventions.
• Access to financial services to the dairy
producers though promoting cooperative
financial services (local cooperatives)
• Link and coordinate with SFDB25 and
RGBB26 for providing loans.
• Coordinate farmers and women/dalits/
Poor financial services
nationalities in groups.
• Provide and develop the subsidized services
to the poor producers.
• Also promote revolving fund at the initial
stage to the poor producers and women/
dalits/nationalities in groups.

25
SFDB: Small Farmers Development Bank
26
RGBB: RegionalGraminBikash Bank

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Study and Analysis of Dairy Value Chain in Nepal

Intervention strategies for market based


SN Market Chain Actors Challenges, Risk and Problems
solutions
• Plantation of fodder trees/shrubs/herbs.
• Fodder preservation during winter and early
summer.
• Intervention of low cost feeding e.g. urea
molasses mineral block for dry animals,
Lower quality fodders/forages and fodder chopping, wilting etc.
traditional feeding systems • Fodder nursery needs to have established in
village level and promote fodders planting
in farm agro-forest system.
• Motivate farmers for utilization of barren
and abandoned lands with fodder plantation.
• Incorporate legume fodders to ensure
quality diet.
• Plan for support to individual producers
• Low volume of production in
and also in groups approach production
scattered form (settlements)
scheme would be developed
• Technical support to start of large scale
• Fragmentation of production
production (e.g. housing, fodder seed, AI
supply
etc.)
Dairy Producers
• Farmer friendly insurance scheme to be
established and promoted in collaboration
Road Corridors of:
with insurance agents
2. Gulmi
• Coordinate with DLSO/LSC, NARC, and
Argakhachi
High production risk (due to diseases and Universities to promote technical services.
Rolpa-Pyuthan
pest) • Effective mobilization of Village Animal
Salyan-Rukum)
Health Workers (VAHWs) and local service
providers.
• Facilitating agro-vets for import of quality
inputs.
• Package training on production and
management
• Establish scientific shed management
practices at local level though capacity
Less capacity of producers for commercial
building of farmers.
dairying
• Establish model farms for motivating
farmers
• Establish additional AI centres for
distribution of quality semen on time.
Establish FLEs as well as FtF network at
Poor coordination and technology transfer
district level for effective delivery of farmers’
among farmers
skill and knowledge at local level.
Provision of incentives frequently may
Lack of incentives influence farmers for large scale production
and entrepreneurships development
Lack of sufficient volume for large scale Facilitate the private sector to establish private
3. Processors
production dairy farm for larger scale supply.

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Study and Analysis of Dairy Value Chain in Nepal

Intervention strategies for market based


SN Market Chain Actors Challenges, Risk and Problems
solutions
Lack of market centers (Collection Centre • Support farmers for collective marketing
and utensils • Subsidy on transportation and provision of
Low farm gate price and price fluctuation milk utensils.
Poor transportation facility outside road • Data based market information system
corridors local market hubs would be established with coordination of
Difficult to compete the Indian milk and producers, market actors, CCI and DLSO.
products • Support producers for low cost of
Marketing margin high for traders production.
• Poor market information among • Market management committee would be
poor producers (Price, volume established for farmers groups.
Other Market Actors (Collector, demanded and place) • Market management trainings to the dairy
4. Regional Trader, Retailer/ • Inadequate knowledge of producers and groups.
Butchers) pricing and access to markets • Develop network and coordination among
• producers level key market actors (via. Workshop, periodic
Milk sale in contract meeting, mass media information as
well as mobile service etc. with ensuring
participation of farmers).
• Conduct business literacy school (BLS) at
Lack of coordination and linkage for
farm level
business meeting
Establish new pricing system accordingly
with milk protein and sugar irrespective of
milk fat and SNF for transparency.
• Advocate poor producers to establish and
take advantage of AFEC (Local Policy) and
implication advocacy and network to claim
15% annual VDC budget in agriculture
plan.
Lack of local policy for commercial
• Develop district level policy for
dairying and sustainable marketing
sustainability with coordination and
network
networking of key market chain actors/
stakeholders.
• Policy reform on breeding and feed
• Policy priorities for dairy processing
5. Policy Institutions
industry
• Facilitate micro-finance linkages with
producer groups for input procurements.
KUBK should collaborate with financial
institutions and develop a mechanism for
Poor coordination and linkage for better financing on dairying.
services and knowledge generation • Facilitate to establish Dairy Producers
Association at district level in coordination
with LSC, DLSO and District CCI.
• Facilitate government level dialogue for the
implementation of a trade friendly policy.

Sources: Field survey, 2015.

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Study and Analysis of Dairy Value Chain in Nepal

Chapter 6: Conclusive Recommendations


Study results revealed that the daily milk production in KUBK had been found in small scale and suffering
from many obstacles, were the major hindrance of the dairy value chain development. The household milk
consumption however, in these areas was better than the national average of per capita milk consumption,
as had been observed in household sample survey across the major potential dairy areas. For upgrading
dairying to a larger scale, firstly there is a dire need of improving farmer’s dairy capacity and needs. Farm-
ers need to improve the quality and quality status of milk, which however needs a strategy to motivate them
as dairy as a profitable business other than a subsistence thing. Being KUBK districts almost in the middle
hills, the shortage of feed is obvious. Farmers should be supported to low cost high quality feed and its
transportation, animal management technology and finance should be of the top priority.

1. Dairy farming needs a lot of resources to get the final product. To develop value chains in the mid hill con-
ditions of KUBK programme at current state of land holding: move from the small scale to larger scale,
starting with cattle crossbreds or buffaloes in 2-4 numbers may function well to initiate faster gain before
suggesting the larger herds and entire value chain margins.. At lower basins and riverine pasture areas
buffalo could sustain such business, while cattle crossbreds for high altitude and uplands.

2. The disease control mechanisms have to be developed, the most epidemics of FMD, black quarter, HS and
other economically important domestic animal diseases.

3. Moreover, farmers had to be given with the seasonal business plan according to their farm size and for a
designated milk production and supply.

4. The price competitiveness is not the priority of farmers but their cost of production can be reduced through
motivating for family farming with involvement of more family members and switching animals for for-
age based milk production system. That can help farmers to adopt better incentives from dairy farming
from the existing resource base. Moreover, feed and feeding management is of utmost importance in
short term. For long term, a gradual replacement of traditional herd by improved and high yielding breeds
would be desirable.

5. Likewise, processors need to begin for high quality and consistent products, facilities and storage and
packaging techniques for a better return both in short and long term.

6. In the short term, grant programmes according to the feeding resources and farm size could be a promo-
tional strategy to help value chain in a commercial scale. In the long run, it must be ensured to farmers
for high quality production that feed, breed and housing management activities can be well provided from
the concerned agencies. Moreover, building partnerships for no duplication of programs between the con-
cerned agencies are necessary. Mostly farmers to farmers programmes (FtF) can be enabled to facilitated
learning by doing and seeing as a medium term strategy.

7. Input suppliers should be facilitated for provision of high quality inputs and delivery on time on logical
price. Facilitating farmers for AI could be judiciary to get larger herds with animal’s in-milk. At the mo-
ment doubling the animal productive was almost instantly but at least, there was a chance of promoting

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Study and Analysis of Dairy Value Chain in Nepal

larger herds with more animals in milk if AI is facilitated. Because, study team identified that the buffaloes
had longer calving time and interval than cattle, and cattle crossbreds had a breeding failure (dryness)
problem might be associated to feed shortage and cattle. Contributing farmers for shed management and
stock animals would result positively for the success of dairy value chain. For that DLSO should be
strengthened to its full capacity and logistics with sufficient human resources to cover the command areas
of each SC or SSC as a long term strategy.

8. Producers, collectors and distributors can be provided with transportation utensils for maximum safely
and prevent the outside contact. Incentive systems for better quality milk on competitive basis could be
suggested around the collection centers. Moreover, farmers and collection/chilling centers could be facil-
itated for separate storage, transportation, packaging and labeling of cattle or buffalo milk. In this way,
consumers can get milk from their choice. Further, transparent pricing system for respective cattle and
buffalo milk could be promoted in the pocket areas collection centers. That might also inhibit the milk
adulteration.

9. Development of cold chain could also be advantageous for small milk producers to promote them into a
commercial farmer. Moreover, support to chilling logistics and increasing the numbers of chilling centres
might function positive to promote value chain in the small farming communities in the long run.

10. Milk quality and standard should be well checked and minimum local quality standards should be piloted
in the collection centers and the respective catchment areas in short term. Similarly, training of farmers
for cleaner production and quality maintenance could be beneficial to control the mass scale milk spoilage
during collection and transportation from the milk collection and chilling centers. In long run, appropriate
labeling, packaging, and storage methods as well as separate pricing for cattle and buffalo milk could be
practiced together with the facilities for avoiding milk adulteration.

11. Quality standards with protein and fat irrespective of conventional SNF and fat based systems could be
established to demonstrate the pricing system, while in long term, a suitable policy has to be introduced
for milk and milk products marketing both for export and consumption in the domestic markets.

12. Training of farmers and processors for product diversification could also be promotional activities in order
to attract the new consumers instead of consumers of fresh milk.

13. For a better pricing system, the income and price elasticity of consumers have also to be considered in the
long run, though this is lacking in the present study.

14. Domestic markets can be promoted though consumer sensitive advertising programmes as a short term
strategy of marketing. However, efforts are necessary to keep the milk price to the consumer’s access.
In overall, the policy priorities have to be reconsidered for the development of dairy value chain. Where
resource base is poor such as in KUBK programme districts and facilitation of private sectors can boost
up the dairy sector development for the foreseeable future.

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Study and Analysis of Dairy Value Chain in Nepal

Annexes

Annex 1: Sample survey sites across the KUBK programme districts

SN KUBK Programme districts Survey sites


1 Arghakhachi Sandhikharka Na. Pa. 10, Narapani
2 Rukum Musikot6, Syalapakha-4
3 Gulmi Hardineta, Digam-3,5,8
4 Rolpa Liwang-2,6,8; Dharapani, Khumel-6, Gajul-3,6
5 Pyuthan Dharmabati-2, Bijuwar-2
6 Salyan SharadaNa.Pa. 1, Dhakadam-3, Sivarath-3

Annex 2: Annual expenses of raising one buffalo/ cattle in survey sites (average of all districts)

S.N Particulars Amount in Rs. Percentage on each items


1 Shed construction cost 4,260 9
2 Depreciation cost of instrument 553 1
3 Labour cost 12,492 26
4 Health cost 1,638 3.5
5 Cost of concentrate 20,904 44
6 Electricity cost 239 0.5
7 Cattle/buffalo stock 7,574 16
Total 47660 100

Annex 3: Study and Analysis of dairy value chain in Nepal: Questionnaire and checklists

Name of Enumerator: Date:

1. Name of Farmer/respondent ……
2. Address: VDC Ward District

Checklists and questionnaire for farmer’s household survey


3. Family Age composition:

Ages Male Female Total


Below 16
16-59
More than 60
Total members
Employment: Yes No

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Study and Analysis of Dairy Value Chain in Nepal

4. Last year’s household income resources

What is the major source of income? Give estimated % of income earned only.
Agriculture %
Livestock %
Labour: Tenant, daily wage, %
Business: Non-farm/off farm
%
enterprises
Others : (Service, Pension, Rents,
%
Remittance if any
5. Land Holding (in ropani): Irrigated …….. Unirrigated………………………………..
Under food crops……………………..Under fodder/agroforests………………………..

Roughages Produced on an estimation (kg) per year…………………………………..

6. Livestock ownerships

Herd No. Milking Dry Breed if any Mortal No.

Cattle
Male
Female
Young stock
Buffalo
Male
Female
Young stock
others
sheep
goat

7. During the last one year how much expenditures have you incurred on the treatment of your livestock?
a. Cattle:……………………………….
b. Buffalo:……………………………….
If any sheep, goat also……………………
And what are the major diseases and pests?.....................................................
8. In the household who takes care of the livestock (Feeding, grazing, milking, health)?
a) household-Women
b) Role of household-men
c) Role of hired herdsmen

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Study and Analysis of Dairy Value Chain in Nepal

9. Feeding per day per animal


a. Green fodder (kg)
b. Source
i. -Home grown:
ii. -Purchased: Average price per kg…………….
c. Roughages (kg/animal) Milking animals………………Dry animals……..
iii. Young stocks……….. Others (sheep/goat)……………….
d. Concentrates (per day)………………….

Home Produced Purchased


Types of Animals
Quantity (Kg) Quantity (Kg) Price/kg
Buffalo
Cows
Young stocks
Others
10. Explain drinking water facilities available in your farm: Yes No
, if yes…….
a. Water Source:
b. Frequency of watering to animals:
c. Distance to water source:
11. Veterinary/Livestock services information (Breeding and healthcare)
Veterinary/Livestock related In the last one year
If NO how far is
infrastructure available in the If YES place a how many times you
the nearest facility
village tick (√) have gotten their
situated (in Km)
services
DLSO
Private veterinary clinic/doctor
Government AI centre
Private AI technician
Village Animal Health Worker
(VAHW)
Local Veterinary Medicine Store
(agro-vets)

12. Milking performance of animals


Types of Animals Milk Production (Kg) Major lactation length (Name of Yield/Lactation
months) from-to
Buffalo
Cows
Others(sheep/
goat if any)

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Study and Analysis of Dairy Value Chain in Nepal

13. Quantification of household milk disposal


c. Average
f. Quantity
a. quantity of
b. Milk d. Fresh of processed g. Quantity of
Household fresh milk e. Quantity of fresh milk
sold milk sold on milk product processed milk
total milk consumed (Kg) processed into
(Kg) daily basis consumed at products sold
yield (Kg) at home
Home
(Kg)
Butter, Other
Price / Yogurt
Qty Ghee products
Kg (Kg)
(Kg) (Kg)

14. For milk amount sold: Source and price per kg.
Village/town Khoya, cheese, Milk Milk
Consumer shopkeeper or ghee makers collectors Plant-chilling Others
centres
Buffalo Milk Quantity (Kg)
Price/ Kg
Cow Milk Quantity (Kg)
Price/Kg

15. Assessment of demand and supply trends of different actors for the last year/ last lactation (informal and
semiformal market system)
Source of supply Volume Supplied Name of demand- Value unit Total val-
Year (Actor’s name) (l/kg) ing actor (NPR.) ue (NPR.)

Market niches ( e.g: Haat, local


trade fairs/festivals etc.)
Fluctuation in milk amount and prices
-Summer: milk kg …………… price………. NPR./Kg
-Winter: milk kg …………… price………. NPR./Kg

16. Production and disposal of milk products


Disposal
Product Production (kg)
Source Quantity (Kg) Price (NPR/Kg)
Butter
Ghee
Others (specify)

Mode of payment: Cash…………..% Credit……%

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Study and Analysis of Dairy Value Chain in Nepal

17. Disposal of surplus/culled livestock


a. Village
b. Roadside market
c. Cattle market
d. Average sale prices of category of animals i.e. culled and dry animals (follow herd structure table).

18. Rearing of dairy Livestock (live animal trade)


Types of animals and Purchase price Rearing Rearing Cost Sale Price
Numbers
breed (NPR) Period (NPR) (NPR)
Cattle ……..
Buffalo……….

19. Stock replenishment and production inputs


a. Family savings:

b. Borrowed from relatives/banks/co-operatives

c. specify others

20. Did you get training in dairy husbandry? Yes No , if yes what kinds of trainings,
Formal Informal self-acquired
Training needs and areas………….
21. Which farm size does your household own?
a) Single dairy cow or buffalo( mix farming)

b) 2 dairy cows of buffaloes ( mix farming with semi-formal market)

c) 2-4 dairy cows of buffaloes( mix and formal market)

d) 4-6 dairy cows of buffaloes( mix and medium dairy, semi-formal to formal)

e) More than 6 dairy cows and buffaloes( completely formal market system)

Please indicate us the production cost of your type of dairy farm.


Initial investment fixed and Number of
S.N. unit rate Total NPR.
variable cost items
1

Investment required per breeding tentatively …6-8…….years lifetime


2
breeding cycles assumed for commercial production

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Study and Analysis of Dairy Value Chain in Nepal

3. a. Fixed costs listing


b. Variable costs listing
a. Finance statement / loan interest if any

b. Income from dairy

Final cost per farm size


3 Total
22. Source of business financing%:
i. Self

ii. Advances

iii. Deferred payments

iv. Bank

v. Others

23. Business constraints……………..

Questionnaire: Milk products producer-collectors/wholesalers (Sweet shops etc.)

Name of the respondent: Address:…………………………


Education: Experience:
Family Age composition:
Ages Male Female Total
Below 16
16-59
More than 60
Total members

24. Daily milk collection


Producers:……………………. Liters and price per liter per day…………
Others…………………….
How much milk do you collect?
a. Morning………………

b. Evening…………..

25. Daily milk Disposals


a. Sale at own shop
b. Home delivery in village
c. Shopkeepers in town
d. Milk plant
e. Home consumption
f. Milk products making
g. Sale of milk products: yogurt….. Ice-cream….. Cheese…….. please specify the price/kg
h. Others………………………………liters and price/kg

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Study and Analysis of Dairy Value Chain in Nepal

26. Mode of transport


• Bicycle
• Motorbike
• Mini-truck
• Others
• How much time it takes to transport milk to final destination after its collection…………………
• How much distance covered…………………………..
27. How to determine milk adulteration issue at the farm level:
What methods do you employ to increase the lifetime of milk while its transportation e.g. Ice, Soda,
preservatives…
28. Income from business
a) What is the gross income from tis business…………………....
b) What is the gross expenditure of this business? .........................
c) What is the net income…………………………………....
d) Marketing cost (NPR. On daily volume):

Questionnaire- Local milk processors

Name of Respondent: ________________________Address: __________________________


Education: ……………..Experience…………….
Family Age composition:
Ages Male Female Total
Below 16
16-59
More than 60
Total members
29. Source of income: Milk……….% Milk products ……………%
30. Daily Milk Collection:
· Producers&&&liters & Price/liter
· Others (specify)&&&liters & Price/liter
31. Disposal of Milk Products:
Product: Khoya Ghee Cheese Others (specify)
• Sale source

• Quantity

• Price/kg

32. Conversion ratio from Milk: Khoya….%; ghee….%; cheese….%, others (specify)….%
33. Processing & Marketing Cost:

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Study and Analysis of Dairy Value Chain in Nepal

a. Man hours Fuels Packing Transport Others Total


b. Mode of Transport: Cycle…….Motor bike…….Mini truck….Others…..

34. Add questions to determine milk adulteration issue at the farm level:
a. What is the Gross Income from this business? ___________

b. What are the Gross Expenditures of this business? ________________

c. What is the net income _________

35. Source of Business Financing:


Self……..%, Advances……….%, Deferred payments……%, Bank…..%,Others…….%
36. Training in milk processing (products making) and marketing if any
37. Business Constraints:
38. Source of business financing%:
i. Self

ii. Advances

iii. Deferred payments

iv. Bank

v. Others

38. Training in milk/products marketing if any………..


39. Business constraints……………..

QUESTIONNAIRE: Consumer
Name of Respondent: ________________________Address: __________________________
Education: ……………..Experience…………….
40. Family size: Adult-male……….Female……Children: Male………..Female…………
Ages Male Female
Below 16 yrs
16-59 yrs.
More than 60 yrs.
41. Monthly Household Income; Rs…………..
42. Source of income
a. Services
b. Daily wages
c. Others (specify)

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Study and Analysis of Dairy Value Chain in Nepal

43. Household Expenditures


a. Food items …………..%

b. Non-food items………..%

44. Milk consumption………….Kg/yr


45. Buying source
Price/kg.
Buying source Quantity (l) Reason for Buying
(NPR)
Shopkeeper
Dairy market
Milk packs
Others (specify)
46. Are you satisfied with the current milk quality Yes…………No………….
47. Are you satisfied with the current milk price Yes……………No…………….
48. Any issues /suggestions for milk value chain
a……………………………………..
b…………………………………………
49. How do you rate the quality of milk in your area?
i. Very favourable

ii. Favourable

iii. Neutral

iv. Unfavourable

v. Very unfavourable

50. Is your produce certified and labelled?


i. Yes

ii. No

If yes which organization (please name the organization or company you know)
Local…..National………… International…………………..
51. Do you rate milk quality inspection and testing service of quality in your area?
i. Very favourable

ii. Favourable

iii. Neutral

iv. Unfavourable

v. Very unfavourable

Discussion checklist during FGD and SWOT analysis


a. What are the main problems farmers face as long as milk production and marketing is concerned

i. Animal health and diseases burdens


ii. Fodder availability/scarcity

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Study and Analysis of Dairy Value Chain in Nepal

iii. Milk hygiene/ quality problems( consumer response)


iv. Storage and transportation( infrastructure related needs)
b. What practical solutions could contribute to solve commercialization of dairy farming and marketing
in KUBK project areas? Local priorities (issues) from most prominent to general of economic
importance… as recommendations to us.

c. General issues and recommendations (specially seek opinion of local farmers also)
Major issues upon priorities Recommendations

Dairy production (value chain) training facilities available at village/town level YES…………….
NO………………

e. Training in marketing if any…..


Particular Commercial services availed Future needs

Trainings for farmers groups

Training for individuals/ emerging farmers

f.

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Study and Analysis of Dairy Value Chain in Nepal

f. Strengthening in terms of income enhancement and organizational strengthening


Strategy for strengthening in income enhancement and organi-
Activities Constraints/weakness
zational strengthening

g. Map the complete value chain of milk and by products


Interrelationship/information
Gender Name Functions/services
flow
Primary actors

Secondary actors

Facilitators

B. Checklists
SWOT ANALYSIS checklists during FGD for value chain of dairy sector in KUBK programme areas
Internal External
Production related Production related
Market related Market related
Socio-economics Socio-economics
Consumer consumer
Is there any milk dairy policy?
i. Yes

ii. No

How do you rate the general policy of the state in relation to promotion of dairy?
i. Very favourable

ii. Favourable

iii. Neutral

iv. Unfavourable

v. Very unfavourable

If any in detail for discussion.


C. Secondary Information review
o Dairy development policy and policy regulations in Nepal, general history of local, regional and
national dairy programs.
o Trends in milk production during last recent three years: Increasing Decreasing Same
o Trends in price during last recent three years: Increasing Decreasing Same
o Trends in livestock and dairy animals population

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Study and Analysis of Dairy Value Chain in Nepal

o District wise review/ regional literature search


o Constraints in livestock (milk) production
o Milk marketing constraints
D. Checklist value chain, marketing information (FGD/KII and onsite visit)
52. Average gross margin analysis of each market player (as an example)
Cost
Liters col- Sale price/liter Total value Income/ Gross
Market actors per liter
lected (NPR) (NPR) day Margin
(NPR)
Farmer (milk producer)
Village shop keeper
Khoya maker/de-creamer
Retailer
Chilling
Distributor
Consumer
Seasonal calendar of milk and milk products
o Seasonal appearance of diseases in buffaloes, cows, sheep, goat

E. Key Informant Interview (KII) special questions in pocket areas


Credit and finance: Have you ever obtained credit? Yes……. No…………
If credit not taken, give reasons for not obtaining (Rank):
i. No need to borrow

ii. Uncertain profits

iii. Mark up too high

iv. Complicated procedures

v. No collateral available

vi. Social reasons

vii. No access

viii. Others

Enabling Environment of use of credits


i. Yes

ii. No

Are you aware of the requirement of the healthy milk production regard to markets and standards?
i. Yes

ii. No

Which organization provides you information on milk standards?


GOs…………………..NGOs………………CBOs…………………….

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Study and Analysis of Dairy Value Chain in Nepal

Have they received messages in past from livestock extension staffs regarding
i. Animal management practices
ii. Improved fodder crops
iii. Diseases and vaccination

iv. Milk handling

v. Training of women farmers


Are there any quality standards regulated?
i. Yes
ii. No

If yes, what are they and which organization does control it?

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