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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
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.
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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
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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
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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
Executive Summary
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
1.2.2 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.
1.3 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.
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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.
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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
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.
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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.
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
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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).
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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
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Study and Analysis of Dairy Value Chain in Nepal
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.
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
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.
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
27
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.
16
FAO, 2010. Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.
29
Study and Analysis of Dairy Value Chain in Nepal
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.
30
Study and Analysis of Dairy Value Chain in Nepal
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)
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.
17
FAO, 2010. Dairy Sector Study of Nepal, Food and Agriculture Organization (FAO), Kathmandu, Nepal.
33
Study and Analysis of Dairy Value Chain in Nepal
This chapter represents the summary findings from the field sample survey across the KUBK programme districts.
Figure 5: Distribution of age group of family members across the survey sites
34
Study and Analysis of Dairy Value Chain in Nepal
Figure 7: Household holdings of different categories of land across the survey sites
35
Study and Analysis of Dairy Value Chain in Nepal
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.
36
Study and Analysis of Dairy Value Chain in Nepal
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).
37
Study and Analysis of Dairy Value Chain in Nepal
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
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,
38
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).
The main reason of lower coverage of government and private vet doctor’s services was due to long distance
(Table 12).
39
Study and Analysis of Dairy Value Chain in Nepal
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.
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.
40
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.
41
Study and Analysis of Dairy Value Chain in Nepal
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.
42
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).
43
Study and Analysis of Dairy Value Chain in Nepal
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
44
Study and Analysis of Dairy Value Chain in Nepal
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.
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.
45
Study and Analysis of Dairy Value Chain in Nepal
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.
46
Study and Analysis of Dairy Value Chain in Nepal
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.
47
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.
48
Study and Analysis of Dairy Value Chain in Nepal
49
Study and Analysis of Dairy Value Chain in Nepal
50
Study and Analysis of Dairy Value Chain in Nepal
51
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
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
52
Study and Analysis of Dairy Value Chain in Nepal
53
Study and Analysis of Dairy Value Chain in Nepal
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.
55
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
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
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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
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 2: Annual expenses of raising one buffalo/ cattle in survey sites (average of all districts)
Annex 3: Study and Analysis of dairy value chain in Nepal: Questionnaire and checklists
1. Name of Farmer/respondent ……
2. Address: VDC Ward District
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Study and Analysis of Dairy Value Chain in Nepal
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………………………..
6. Livestock ownerships
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
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Study and Analysis of Dairy Value Chain in Nepal
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.)
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Study and Analysis of Dairy Value Chain in Nepal
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)
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)
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Study and Analysis of Dairy Value Chain in Nepal
ii. Advances
iv. Bank
v. Others
b. Evening…………..
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Study and Analysis of Dairy Value Chain in Nepal
• 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
34. Add questions to determine milk adulteration issue at the farm level:
a. What is the Gross Income from this business? ___________
ii. Advances
iv. Bank
v. Others
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
b. Non-food items………..%
ii. Favourable
iii. Neutral
iv. Unfavourable
v. Very unfavourable
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
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Study and Analysis of Dairy Value Chain in Nepal
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………………
f.
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Study and Analysis of Dairy Value Chain in Nepal
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
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Study and Analysis of Dairy Value Chain in Nepal
v. No collateral available
vii. No access
viii. Others
ii. No
Are you aware of the requirement of the healthy milk production regard to markets and standards?
i. Yes
ii. No
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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
If yes, what are they and which organization does control it?
75