AN ORGANIZATION STUDY ON NEPAL FOOD CORPORATION

Submitted in partial fulfillment of the requirements for Masters of Business Administration (MBA)

By

PRAKRITI KOIRALA Register No 1011301106 Batch of 2011-2013

SONA COLLEGE OF TECHNOLOGY Affiliated to Anna University of Technology, Coimbatore

SALEM 636 005 JULY 2012

SONA COLLEGE OF TECHNOLOGY SALEM 636 005

PROJECT WORK

JULY 2012
This is to certify that the project entitled

AN ORGANISATIONAL STUDY OF NEPAL FOOD CORPORATION

is the bonafide record of project work done by

PRAKRITI KOIRALA Register No: 1011301106

of MBA during the year 2011-2013.

_______________
Project Guide

_________________
Head of the Department

Submitted for the Project Viva-Voce examination held on _______________.

___________________ Internal Examiner

__________________ External Examiner

ACKNOWLEDGEMENT This project entitled deposit collection and its challenges in agricultural development bank limited:present scenariohas been prepared in the partial fulfillment for the masters of business administrationunder the supervision of Mr. Velusamy my Mentor for guiding me through this entire
process. This paper has grown and has been enriched with the contributions of many, and I am grateful to them all. Especially, to Mr.Velusamy, my Mentor for guiding me through this entire process. His encouragement, knowledge and inputs have been invaluable. I have been motivated and challenged and hopefully, as a result, become a better researcher through this experience. I would also like to express my gratitude to our Director (CORRECT), whose comments have always been detailed and insightful, highlighting areas which I have often overlooked. I am also thankful to Mr. Hari Narayan Shah, General Manager, NFC for his patience, insights and willingness to discuss ideas, point out the obvious and provide me with support, whenever it was required. I would also like to thank Mr. Shiva Bhattrai, Planning Division chief for his support and encouragement as I undertook my field work in HEAD OFFICE. I remain indebted to the officials of the NFC, especially to all the department sections, who were generous with their time and were willing to share their data and experiences.

Prakriti Koirala

DECLARATION

I Register No of 2011-2013, a full time bonafide student of first year of Master of Business Administration (MBA) Programme of Sona college of Technology (An Autonomous Institution). I hereby certify that this project work carried out by me at the report submitted in partial fulfillment of the requirements of the programme is an original work of mine under the guidance of the faculty and is not based or reproduced from any existing work of any other person or on any earlier work undertaken at any other time or for any other purpose, and has not been submitted anywhere else at any time.

(Students Signature) Date:

(Faculty Signature) Date:

Table of contents

Contents
Acknowledgement Declaration Certification by the Industry List of Figures List of Maps List of Acronyms Abstract Chapter 1 Introduction 1.1.Introduction of the Study 1.2.Introduction of Nepal Food Corporation Chapter 2 Main Theme Of Project

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Chapter 3 Food Economy of Nepal: Changing Dynamics and the Nepal Food Corporation Error! Bookmark not defined. 3.1. Food availability: Production and international tradeError! Bookmark not defined. 3.2. Food Trade and Aid: A growing dependenceError! Bookmark not defined. 3.2. Access to Foodgrains: Role of NFC Error! Bookmark not defined. Chapter 4 Institutional Reforms within NFC: Representation of an Efficient Market Hypothesis Error! Bookmark not defined. 4.1. The beginnings of public food distribution: 1951Error! Bookmark not defined. 4.2. Emergence of the NFC: 1974 Error! Bookmark not defined. 4.3. Expansion period: 1974 late 1980s Error! Bookmark not defined. 4.4. Onset of targeting: Late 1980s Error! Bookmark not defined. 4.5. Re-structuring of the NFC: From 1999 onwardsError! Bookmark not defined. Chapter 5 NFC's Dual Dilemma: Maintaining Social Objectives and Profitability Error! Bookmark not defined. 5.1. NFC supply: Subsidized program in remote areasError! Bookmark not defined.

5.2. NFC supply: Commercial sales in non-remote districtsError! Bookmark not defined. Chapter 6 Suggestions and Conclusion Appendix defined. References
Chapter 3:

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Analysis, Interpretation and Findings.

3:1 3:2 3:3 3:4 3:5 3:6 3:7 3:8 3:9 3:10 3:11
Chapter 4: Chapter 5: Chapter6:

Planning Policy Property Management Policy Sales and Distribution Policy Shortage Evaluation and Clearance Policy Internal Audit and Inspection Policy Public Procurement Policy Procurement Policy Quality Control Policy Human Resource Policy Law Policy Finance Policy
Suggestions and Conclusion Bibliography Annexure

CHAPTER:1 INTRODUCTION

1.1.Introduction of the Study

One of the most fundamental challenges facing the Nepalese state is how to meet the basic food requirements of its people. It is a social responsibility, an economic necessity and a political imperative that has long remained a central concern for policy makers. Faced with a multitude of constraints ranging from low agricultural production and productivity, a burgeoning population, increased reliance on foreign imports, and shrinking foreign reserves planners and policy makers have been confronted with an overwhelming problem, which they are struggling to overcome. This paper is a study of one specific state agency the Nepal Food Corporation (NFC) - which was established as the state's main instrument to address the growing food insecurity in remote areas. This is a welfare measure designed to sell subsidized food grains, primarily coarse rice, to food deficit districts to ensure availability and fair prices to rural consumers. In addition, the corporation also acts as an instrument to influence grain prices in urban settings, hold stocks for emergencies and manage food aid from donor agencies. Presently, the distributional network of the subsidized program extends over 54 Sales Depot; with the system handling over 25,643 MT of grains in 2011, the equivalent of 15.5 percent of the total national deficit. Since its establishment in 1974, the NFC has under gone two extensive restructuring processes that were implemented in the early 1990s and later in 1998/99. The publically stated goals of these measures were to make the distributional system more- "efficient" and "effective"; with the dominant interpretation of its failings highlighting leakages and the "inefficiency" of the corporation, vis--vis the private sector, as the main reasons for change. Subsequently, the solutions advocated and implemented included a shift towards "geographical targeting" and a "quasi-privatization" system of functioning; which has resulted in the NFC being pushed into two paths a social program that supplies subsidized grains to remote areas and a commercial aspect that seeks to offset the losses of the welfare program by selling grains at commercial prices in non-remote areas. The aim of this study is to examine these outcomes in detail, but, by first unpacking the dynamics that have conditioned their development. It seeks to do so by locating the NFC and its evolution within the boarder context of national political and economic changes since 1951. Primarily, because the reform measures coincided with unprecedented changes, as the country progressed towards multi-party democracy and policy makers left state-led development ideologies to move on to market led systems. The analytical position that I have adopted is that state policies are embedded within social, political and economic environments; and that to understand these policies and outcomes one has to unravel the dynamics that have influenced its creation. As such, there are two levels of inquiry: the preliminary and basic objective is to gain an understanding of how the NFC, its structure and institutions, have evolved. The objective is not to simply document the changes, but also to offer analysis and trace the processes that have led to their development. Building upon this understanding, the study then seeks to examine the consequences, chiefly how the NFC is functioning. My project here is that - the politics of representation of the problem within the NFC is what has been driving its institutional evolution, rather than measures to rectify the problems themselves. This has inevitably affected its operations and led to failings on its part to provide assistance to its intended beneficiaries. What I hope to show is that these reform processes were based upon the filtering and diagnosis of the corporation's deficiencies by experts who sought to prescribe market efficient solutions. Their aim was to push for the reduction of public spending and the minimization of the state's intervention in foodgrain markets and distribution. These transitions, within the NFC, were however far from smooth. There were internal as well as externally points of struggle over the direction and design of its structure

and institutions. As a result, the NFC found itself having to shape and re-shape according to dominant discourses and their national/local interpretations. Three decades onwards, these processes have led the NFC to become fragmented. Unable to forgo its social objectives, it has now also been pushed towards seeking alternative avenues to become profitable. As such, these dual and often contradictory objectives, within the institution, have led to confusion, resulting in both sets of goals not being fulfilled. More significantly, for the rural households these reform measures have resulted in the curtailing of the subsidized foodgrain program without mitigating access barriers; forcing many to become more reliant on market mechanisms, in a climate where food production is already decreasing and prices are rising.

1.2.Introduction About the Corporation

Nepal Food Corporation was set up on 2, December, 1974 having its first District Office at Kathmandu (CORRECTION)- and headquarters at Kathmandu with the government investment of about 99 Crore. It is one of the largest corporations in Nepal and probably the largest supply chain management. It operates through 8 zonal offices, 1 Modern Rice Mill, 58 Sales Depot. Each year, Nepal Food Corporation purchases roughly 15-20 per cent of Nepal's wheat output and 12-15 per cent of its rice output. The purchases are made from the farmers at the rates declared by the Government of Nepal. This rate is called as MSP (Minimum support Price). There is no limit for procurement in terms of volume; any quantity can be procured by NFC provided the stock satisfies FAQ (Fair Average Quality) specifications with respect to NFC. The stocks are transported throughout Nepal and issued to the Government nominees at the rates declared by the Govt of Nepal for further distribution under the Public Distribution System (PDS) for the consumption of the People. (NFC itself does not directly distribute any stock under PDS and its operations end at the exit of the stock from its depots). The difference between the purchase price and sale price, along with internal costs, are reimbursed by the Union Government in the form of Food Subsidy. At present the annual subsidy is around (CORRECT) $10 billion. NFC by itself is not a Decision making authority; it does not decide anything about the MSP, Imports or Exports. It just implements the decisions made by the Ministry of Food and Ministry of Agriculture.

The Nepal Food Corporation was setup under the Food Corporation Act (CORRECT)1964, in order to fulfill following objectives of the Food Policy:

Effective price support operations for safeguarding the interests of the farmers. Distribution of food grains throughout the country for public distribution system. Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food security

In its 38 years of service to the nation, NFC has played a significant role in Nepal's success in transforming the crisis management oriented food security into a stable security system. NFC's Objectives are:

To provide farmers remunerative prices. To make food grains available at reasonable prices, particularly to vulnerable section of the society. To maintain buffer stocks as measure of Food Security. To intervene in market for price stabilization.

1.3. Review of Literature

Chapter 2: Main Theme Of Project

2.1. Objective of the Study