Final Report. Artemis Great Kindrochit Quadrathlon (AGKQ) Title of Project: Spicing Up the Deal-Cardamom and Ginger. (September, 2008-August, 2010)

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1 Final Report Artemis Great Kindrochit Quadrathlon (AGKQ) Title of Project: Spicing Up the Deal-Cardamom and Ginger (September, 2008-August, 2010) Project Location: Nepal, Eastern Region, Mechi and Koshi Hills COUNTRY CONTACT HEADQUARTERS CONTACT PROJECT SUMMARY Country Director: Josh DeWald Director, Agricultural Livelihoods: Keith Polo Start Date September, 2008 Deputy Director: Sanjay Karki Program Officer: Jenny Hanley End Date August, 2010 Report Date September, 2010 Grant Amount 109,727

2 Table of Contents Pages 1. EXECUTIVE SUMMARY PROJECT DELIVERABLES 6 3. DESCRIPTION OF ACTIVITIES Activities to improve production system Initiatives in cardamom Cardamom disease management Technical support in primary processing functions Initiatives in ginger Ginger disease management Technical support on improved practices Mentoring on ginger seed bank Activities to improve value chain initiatives Exposure visits and cross visits Value chain workshops Strengthening information through IEC, MIS and media Value chain governance Development of code of conduct Registration of farmers group and consolidation of farmers groups into cooperatives Marketing plan Collective planning Business planning Steps towards cardamom grade standardization Product handling and diversification Post-harvest handling techniques Access to finance Project management DPAC meetings Public audits Monitoring and Evaluation CHALLENGES Political unrest Disease management in cardamom Rapport building between farmers and traders Limited geographical coverage Conventional practices Remoteness Government policy and investment LESSON LEARNED Improved variety of seed led to a higher production Disease management in ginger Appropriate technology Seed resource center Cardamom plantation Grading The benefits of linking agriculture work with microfinance work Targeting SUSTAINABILITY Cooperative outreach 19 Mercy Corps - Nepal - 2 -

3 6.2 Engagement of trade associations Post grant plan STRENGTH, LIMITATIONS, OPPORTUNITIES & THREATS (SLOT) ANALYSIS BUDGET NARRATIVE. 20 Annex 1: A success story Annex 2: Photos on ginger and cardamom activities. 22 Annex 3: Final evaluation report List of Tables Pages Table 1: Overall data comparison- Cardamom Table 2: Overall data comparison- Ginger Mercy Corps - Nepal - 3 -

4 List of Acronyms AGKQ CaGi CDC CoC DADO DDC DCCI DPAC EAF GBP IEC LCEAN LCS LDO M&E MIS NGPTA NGO(s) NPR NUBL PCCI PPCP VDC(s) SLOT Artemis Great Kindrochit Quadrathlon Cardamom and Ginger Cardamom Development Centre Code of Conduct District Agriculture Development Office (Officer) District Development Committee District Chambers of Commerce and Industry District Project Advisory Committee Expanding Access to Finance Great Britain Pound Information, Education and Communication Large Cardamom Entrepreneur s Association of Nepal Low Cost Storage Local Development Office (Officer) Monitoring and Evaluation Market Information System Nepal Ginger Producers and Traders Association Non Government Organizations Nepalese Rupees Nirdhan Utthan Bank Limited Panchthar Chambers of Commerce and Industry Panchthar Premium Cardamom Project Village Development Committees Strength, Limitation, Opportunity, and Threat Mercy Corps - Nepal - 4 -

5 1. EXECUTIVE SUMMARY The agriculture sector provides employment for more than 70% of Nepal s economically active population. However, traditional cultivation practices, a subsistence orientation, a lack of knowledge of improved technology, and the use of low yielding planting materials have resulted in low productivity with limited commercial success. The cultivation of high-value spice crops such as cardamom and ginger has been increasing in Nepal, particularly on marginal lands. Unfortunately, farmers have received relatively low prices for their products from intermediaries due to inferior product quality and undifferentiated marketing strategies. These challenges have been aggravated by remoteness, social exclusion, lack of access to information, and disorganisation across the entire cardamom and ginger industries. In response to these challenges, and following up on the successful implementation of privately funded cardamom and ginger pilot projects (Panchthar Premium Cardamom Project, July 2007 September 2008, and Spicing Up the Deal: Ginger, May 2008 April 2009), Mercy Corps deployed Artemis Great Kindrochit Quadrathlon (AGKQ) funding in support of a two-year follow on project of slightly larger scale, called Spicing Up the Deal: Cardamom and Ginger, or CaGi (September 2008 August 2010). CaGi was initially designed as a cardamom project (initially called Spicing Up the Deal: Cardamom), but later was increased in scope to include ginger as well. The project was implemented in Panchthar, Ilam and Dhankuta districts, with complementary value chain coordination activities also carried out in Jhapa district. The project was also complemented further by the Expanding Access to Finance project (Whole Planet Foundation, September 2008 August 2011), which facilitated linkages between CaGi beneficiary farmers groups and Nirdhan Utthan Bank Limited (NUBL), a microfinance institution. This effectively functioned as co-financing for the AGKQ-supported initiative, with both CaGi and Expanding Access to Finance combining to achieve greater impact for smallholder farmers in Nepal s Eastern hills. Under the project, 15 Village Development Committees 1 (VDCs) were selected for project interventions in three districts, namely Panchthar (8 VDCs), Ilam (5 VDCs), and Dhankuta (2VDCs). These VDCs were selected according to agreed upon criteria determined by various stakeholders in the districts, including: a) agro-climatic potential for production of cardamom and ginger; b)representation of potential beneficiaries from among historically disadvantaged groups (Janajati 2 and Dalit 3 ); c) potential for participation of women, marginalised groups, and smallholder farmers in production and marketing; d) underserved areas where other agencies had not worked before; and, e) potential for marketing crops via established Eastern Nepal market channels. A total of 948 smallholder farming households (containing approximately 6,150 people) were 1 Administrative boundary in Nepal Settlements (villages), Wards, VDCs, Ilakas, Districts, Municipality, Zones, Region 2 Certain ethnic groups within the Tibeto-Burman ethnic group category, which are considered to have been historically disadvantaged. 3 Previously the untouchable caste group within the Hindu caste system. While this system has now been outlawed, the legacy of historical exclusion persists. Mercy Corps - Nepal - 5 -

6 targeted; 72 farmers groups were formed or strengthened, and five cooperatives were formed or supported. Project activities were implemented in partnership with Sri Srijana Youth Club, a local NGO in Panchthar; the Sri Srijana Farmers Cooperative in Panchthar; the Gautam Buddha Farmers Cooperative in Ilam; the Large Cardamom Entrepreneurs Association of Nepal (LCEAN); Nepal Ginger Producers and Traders Association (NGPTA); District Agriculture Development Offices (DADO); and, the Cardamom Development Centre (CDC). The interventions of the project primarily focused at the production and trade levels. At the production level, the project worked with farmers groups to strengthen organisational capacity; improve business skills; improve technical practices in the areas of varietal selection, cultivation, disease management, and post-harvest handling; and, forge links with traders, wholesalers and exporters by facilitating collective marketing, information sharing, and contract farming. The project also worked with farmers groups to improve primary processing functions, such as grading, drying, and low cost storage; and, to improve inputs such as low fibre ginger seeds, disease/ pest management inputs, and financial services inputs. At the trade level, the project facilitated interaction between stakeholders at different levels of the value chain, including farmers, traders, wholesalers, exporters, government representatives, local and national media, and NGOs. These interactions were aimed at improving negotiation, coordination and communication between these value chain actors. The project also supported advocacy for improved trade conditions (particularly reduced taxation and reduced pressure by identity-based groups), standardised grades, improved sales practices, and improved links with key export markets. The report is divided into eight sections: 1) executive summary, 2) project deliverables, 3) description of activities, 4) challenges, 5) lesson learned, 6) sustainability, 7) SLOT (Strength, Limitations, Opportunities and Threats) analysis, and 8) budget narrative 2. PROJECT DELIVERABLES Project Goal: Increase income and well-being amongst smallholder cardamom and ginger farmers in the Eastern hills of Nepal Objectives: To improve profitability from cardamom and ginger farming through increased productivity and improved product quality. To improve terms of trade for farmers through organisational capacity, market leverage and financial management, To improve the enabling environment for cardamom and ginger sector growth. Outputs: Increased understanding of cardamom and ginger diseases, with transfer of disease management knowledge to farmers. Mercy Corps - Nepal - 6 -

7 Higher quality cardamom through improved drying and grading. Increased productivity and quality of ginger through improved seed and better production, harvest and transportation practices. Demonstration and replication of cost effective storage, which can maintain weight, store seed, and allow farmers to hold their produce to take advantage of market price fluctuations. Increased farmers' knowledge of production, harvest and sales "best practices" in cardamom and ginger through training and cross-visits. Farmers groups linked to technical production advice beyond the project itself. Improved farmers group organisational and governance capacity. Improved terms of trade between farmers and traders, and improved bargaining power for famers. Improved business and financial management practices for farmers groups. Improved access to credit, focusing on women. Improved information sharing about the cardamom and ginger sectors. Creation of grading standards for cardamom that are acceptable to both farmers and traders. Outcomes (Impacts): Increased profitability for cardamom and ginger farmers. Increased access to financial services for cardamom and ginger farming households, leading to strengthened ginger and cardamom livelihoods strategies, reduced household debt (because microfinance loans are much cheaper than commonly used informal lending services), and diversified livelihoods strategies (because loan capital is used not only for cardamom and ginger farming, but also for additional crops, livestock, and petty trade). Improved ginger productivity (increased yields per land unit, and increased crop: seed ratio). Improved ginger and cardamom crop management. Formed, registered, and dynamic farmers groups, linked to higher-level farmers cooperatives. Strengthened commodity associations, which create enhanced business opportunities for value chain actors beyond the scope of the project itself. 3. DESCRIPTION OF ACTIVITIES The project intervened at both the farmers level and the traders level, carrying out activities to improve production systems and strengthen value chains. 3.1 Activities to improve production systems During the project period, the following activities were carried out: Mercy Corps - Nepal - 7 -

8 3.1.1 Initiatives in Cardamom Cardamom disease management Cardamom farmers in Nepal have been cultivating the crop since seedlings were first brought across the border from Sikkim, India years ago. In the early stages of cultivation, no diseases were evident in cardamom. However, more recently, disease has become a major threat to cardamom-based livelihoods in the Eastern hills of Nepal. In partial response to this, the project conducted disease management trainings at the farmers level. Farmers were recommended to minimise these viral diseases through practicing clean culture, and to manage fungal disease through the use of organic fungicides. Additionally, the project established four demonstration plots in coordination with Cardamom Development Centre (CDC), Ilam, which is a Government of Nepal agency. The demonstration plots were meant to demonstrate clean culture practices for farmers, including preparation of fields, pre-treatment of seed, and regular monitoring of the health of plants. The demonstration plots were located in Kolbung, Harkate, Pashupatinagar, and the CDC Centre in Ilam. Out of the four plots, three demonstration plots were managed by farmers groups, while one plot was managed by CDC. The project conducted cross visit for representatives of cardamom farmers group and cooperatives members from Panchthar district to these demonstration plots. The preliminary results from these demonstration plots showed increased yield and reduced disease prevalence. These good practices have been shared with other cardamom farmers group, who have committed to applying the techniques in their fields. Similarly, an intern hired from Rampur Agriculture University, Chitwan, conducted an assignment under a project related to isolating and treating rhizome rot in cardamom. In addition to the disease management activities described above, eleven people were also trained on input usage (pesticides/fungicides/seeds), input sourcing, and fieldbased disease management extension service provision. These farmers will continue supplying disease management inputs and providing embedded advisory services now that the project has ended Technical support in primary processing functions Two cardamom farmers groups in Panchthar district were technically supported to adopt four improved double drum driers (a pilot improved drier that reduces fuel wood usage while increasing cardamom quality). Similarly, the project also supported five cardamom farmers groups to repair five driers in the district. Farmers used these double drum driers to produce improved cardamom, but the drier trials had mixed results, which is why the project reduced its emphasis on promoting double drum driers over time. The driers were found to produce higher quality (better tasting, higher weight, more attractively coloured) cardamom, leading to higher market prices. At the same time, it was evident that these driers required a high quantity of fuel wood during preheating (even though less fuel wood was required once the driers were hot), and that the cardamom produced on these driers could be stored only for a short period of time due to higher moisture content as compared to traditional drying methods. There were Mercy Corps - Nepal - 8 -

9 also problems faced with the collective management of driers. While Mercy Corps will continue researching improved cardamom driers, it is likely that these will not be double drum driers but rather low-cost, household level improved driers. Similarly, the project introduced and distributed 40 improved cardamom grading sieves to farmers group as part of improving primary processing functions. Farmers were capacitated through training in using such grading sieves. After grading, farmers received a higher price for graded cardamom as compared to non-graded cardamom. Farmers received a price difference of NPR 2,000 in sales price per 40 kilograms between graded and non-graded cardamom. The final evaluation report also illustrated that the majority of the farmers (60%) practiced grading during the project period, that more farmers intend to adopt grading practices in the future, and that traders feel they are receiving better quality cardamom as compared to the cardamom they were receiving before the project. Please refer Annex 3, the final evaluation report, for details Initiatives in Ginger Ginger disease management Rhizome rot, a fungal disease, is very common in ginger. Beside this, a bacterial disease is also increasingly prevalent in ginger crops. To tackle these diseases, project staff and partners conducted trainings on ginger disease management for farmers, which were followed by field demonstrations. Farmers were recommended to treat fungal diseases with organic fungicides called Trichoderma powder, and to treat bacterial diseases with Streptocycline/ Bacteriomycin. IEC (information, education and communication) materials were developed and disseminated to farmers. This led to increased ability among farmers to identify and treat diseases. The final evaluation report also showed that around 90% of farmers were using disease management techniques in their fields, resulting in increased productivity and income. Therefore, the project was successful in improving disease management in ginger Technical support on improved practices The project conducted trainings on improved ginger farming techniques. Farmers were introduced to improved production techniques such as weeding, mulching, drainage, bedding, inter-cropping, varietal selection, mother seed harvesting, and the application of water and manure. During the project period, eleven trainings were conducted on ginger plantation techniques and low cost storage techniques, reaching over 470 people directly. Trainees were later mobilised to conduct field-based demonstration trainings for their peers in the field. With the knowledge gained through subsequent trainings and field demonstrations, farmers increased yields substantially. Furthermore, throughout the project period, 75 low cost storage units (5 units in the first year followed by the replication of 70 units in the second year) were built by farmers and cooperatives with a combined storage capacity of 23,950 kilograms in Panchthar, Illam and Dhankuta districts. By adopting this technology, farmers were able to increase their profit by 37% per kilogram of fresh ginger. Evaluation results also showed that 70% of farmers were using improved low cost storage techniques introduced by the project Mentoring on ginger seed banking Mercy Corps - Nepal - 9 -

10 The project initially sourced and distributed high quality, low fibre ginger seed to farmers groups, on the condition that farmers would repay these seeds (in cash or in kind) to higher level cooperatives (via their farmers groups) after the harvest in a seed banking arrangement, allowing the seed to be loaned out to a larger group of farmers the following season. As per seed banking guidelines, this seed was provided to additional farmers, allowing project benefits to expand over time. In general, seed return practices, and the quality of returned seed, was found to be highly satisfactory. However, some areas for improvement were identified in the Ilam district, where farmers harvested ginger early due to heavy rains, resulting in lower seed quality. Three ginger seed banks were operational in all three working districts; these were managed by farmers cooperatives under seed banking policies, and incorporated both pre-existing seed rotation systems and new systems formed under the project. During the project period, farmers received 22,237 kilograms (12,177 Kilograms in 2009 and 10,060 Kilograms in 2010) of low fibre ginger seed through farmers group networks linked to project-facilitated, cooperative-run seed banking arrangements. In 2010, farmers groups were able to re-distribute 26,645 kilograms of low-fibre ginger seed that had been returned by farmers via seed banking arrangements from the previous season, meaning that farmers groups were able to bank and redistribute 14,468 kilograms seed in addition to the 12,177 Kilograms provided by the project in Activities to strengthen value chains The following activities were carried out during the project period: Exposure visits and cross visits The project facilitated an exposure visit for staff to various agricultural market centres in Delhi, India, which is the primary market for Nepali cardamom and ginger crops. The visit allowed the team to learn about the market standards and demand cycles. The visit also allowed the team to build rapport with trade associations in India, both to form initial trade relationships on behalf of Nepali trade associations and to understand the organisational structure of Indian associations. The team visited three markets - Kharibaoli wholesale market for cardamom; Azadpur and Okhla Mandi wholesale markets for fresh ginger; and, various retail outlets. Similarly, the project organised cross visit for the members of LCEAN, Gautam Buddha ginger producer cooperative, farmers and staff to Palpa district in Western Nepal. The visiting members learned and observed different cultivation practices adopted by the farmers, and discussed different marketing systems and channels available to Nepali farmers. Likewise, representatives from the farmers groups and cooperatives also visited the State Department of Agriculture, Spice Board of India, and Indian Cardamom Research Centre in Sikkim, and observed different development activities to improve cardamom cultivation practices, disease management and varietal selection on the other side of the border. Finally, the project facilitated a visit to agriculture and horticulture markets in Chengdu, China for two local traders and exporters of ginger. The team learned and observed market systems and ginger processing techniques. Mercy Corps - Nepal

11 3.2.2 Value Chain Workshops The project facilitated a series of workshops at the Birtamod (market hub) level, involving key governmental and non-governmental stakeholders, traders, farmers, exporters, and cooperatives. The workshops identified technical and institutional issues and challenges facing the cardamom and ginger sub-sectors, and created action plans to address these issues and challenges. Workshops were also organised in each working district, involving District Agriculture Development Offices (DADO), District Chambers of Commerce and Industry, trade association representatives, farmers, and cooperatives. These workshops formed linkages between farmers, buyers, and service providers. Similarly, meetings between farmers and traders were organised in all three working districts, allowing participants to understand problems faced by the other party, and allowed sales agreements to be brokered Strengthening information through MIS, IEC and media Supported by the project, the Panchthar Chamber of Commerce and Industry (PCCI) worked on a Market Information System (MIS) to provide timely market information to farmers and buyers. Mercy Corps supported these efforts with equipment inputs and MIS design support. To strengthen and aid in the promotion of cardamom and ginger value chains, the project developed IEC and promotional materials related to disease management and cultivation practices, seed varieties, and grades, and these were disseminated widely to different value chain actors. The project also attracted issues-based media attention from various print media outlets, as well as from the BBC s Nepali service Information on project related information was also shared through visibility boards, which were mounted in every community in which project activities were implemented. Both media coverage and visibility boards served as an important vehicle in generating knowledge and understanding of the project, and of promoting cardamom and ginger as regional cash crops Value chain governance Both LCEAN (Large Cardamom Entrepreneur s Association of Nepal) and NGPTA (Nepal Ginger Producers and Traders Association) were encouraged by the project to lobby for policy change regarding taxation and quarantine at the Indian boarder. The project also supported LCEAN in establishing new branches in seven cardamom producing districts in Eastern Nepal, which is allowing the association to improve sales linkages between farmers and traders and disseminate information regarding grading standards and production practices Development of Code of Conduct (CoC): The development of a Code of Conduct at the farmers level was initiated during this project period. The Code of Conduct supports high quality production and ethical sales by helping to establish standards in the areas of sustainable production (environmentally sustainable farming practices), quality improvement and traceability, grading, and other issues. Over the period, the process of formulating a parallel Code of Mercy Corps - Nepal

12 Conduct for traders, via LCEAN and NGPTA, was also initiated. While these processes began during the project period, they require several additional months to finalise Registration of Farmer Groups, and Consolidation of Farmers Groups into Cooperatives The project supported the registration of new farmers groups, as well as the networking of these farmers groups into cooperatives. During the project period, 482 members from 16 farmers groups (12 from Panchthar and four from Illam districts) were merged into five cooperatives, three of which were established by the project and two of which were strengthened by the project. In addition to these five cooperatives, several other cooperatives (particularly in the Dhankuta district) are on the verge of being registered. These cooperatives provide both input supply and marketing channels for farmers groups. Four out of the five cooperatives also registered as savings and credit cooperatives and began disbursing loan to farmers during the project period. To date, 239 cooperative members have taken loans amounting to NPR 566,000 (GBP 6,835) from an equivalent amount of member savings. The cooperatives have also provided part time and full time jobs to members. All cooperatives were trained on business planning by the project, and all have applied some aspects of this training in their operations. Two cooperatives have collected produce from member farmers for bulk sales, reducing transactions costs and increasing sales prices Marketing plan Farmers typically sell their crops either through middlemen who come to remote villages to collect cash crops, or by individually carrying their products to market centres. In this way, farmers are forced to be price takers, with no real leverage or chance to bargain and receive a better price. Often times, this ends up being exploitative, with others making a profit from the farmer s product simply because the scale of each farmer is so small. In response to this, the project helped farmers groups and cooperatives to form marketing plans. During the project period, nine trainings were conducted for 200 participants to develop these plans Collective marketing To achieve economies of scale by working together, Mercy corps continued to support farmers on group based marketing in this project. During the project period, 14 trainings were conducted for both ginger and cardamom farmers groups, which benefitted over 290 participants. Groups practicing collective marketing were able to negotiate higher prices with buyers. However, there were several reasons that collective marketing practices were not used as widely as was originally hoped: first, cardamom prices soared much higher than usual due to disease-related supply shortages, causing cardamom traders to travel to more remote areas than usual and buy cardamom directly from farmers at good prices; similarly, ginger farmers generally sold directly to traders post-harvest due to individual household cash flow needs; finally, the fact that many farmers remain indebted to informal money lenders, to whom they repay their loans in kind (in crops), prohibits these farmers from participating in collective marketing. As a result, only an estimated 25% of ginger farmers sold through collective marketing systems due to market conditions at the time of harvest, while 61% of cardamom farmers sold through collective marketing systems. However, farmers are clearly Mercy Corps - Nepal

13 convinced that collective marketing does yield higher prices, and therefore this percentage is expected to increase over time as microfinance and cooperative-based lending replaces (or reduces) informal lending channels, and as farmers groups and cooperatives forge better links with buyers Business planning Farming in rural Nepal is not often regarded as a business enterprise. However, even for small farms, knowledge of costs and profits can help farmers manage their activities and make informed decisions. Over the project period, 29 trainings were conducted for both ginger and cardamom farmers groups and cooperatives, which benefited more than 790 participants, comprising both cooperative members and farmers. The participants learned about costs, profit, enterprise budgeting, record keeping and resource allocation, production and sale of farm products. Additionally, the business plan trainings built the capacity of farmers to better understand market dynamics, challenges, and market failures, and to cope with such issues. The goal of such training was to raise farmers awareness of the costs and benefits of different choices they make and to help them make informed decisions and act in a profit-maximising manner Steps towards cardamom grade standardisation Although more than 90% of the cardamom produced in Nepal is exported to other countries, no standard, universal grading system exists in the country. This not only affects the ability of farmers to bargain for higher prices, but also negatively impacts the ability of traders and exporters to obtain higher prices for higher quality products. While some farmers groups have attempted to introduce grades in the past, these have not been systematised at the value chain level, and therefore have had relatively little impact in terms of farm-gate prices. In response to this, Mercy Corps held joint meetings in all three districts with farmers, cooperatives, traders and associations on the standardisation of a universal grading system on cardamom in the country. While there are still some steps to be taken before the grades are universally recognised, the project contributed substantially to drafting, and building consensus around, proposed grades Product handling and diversification The project conducted preliminary trainings in Illam and Dhankuta districts for 20 and 22 ginger farmers, respectively, on some processing techniques (pickles, candy, dried ginger, waxed ginger, etc.) as a means of exposing farmers to potential value addition opportunities Post-harvest handling techniques The project focused on improving post-harvest handling techniques for ginger. Farmers learned techniques for washing, cleaning and packing ginger, replacing the use of sacks (which resulted in breakage, decay and disease) with plastic crates to reduce breakage. This improved packing (use of crates) alone resulted in increased sales prices of NPR 4/ kilogram for farmers. Mercy Corps - Nepal

14 Access to finance Access to finance, implemented through Nirdhan Utthan Bank Limited (NUBL) under a parallel project of Mercy Corps (Expanding Access to Finance), resulted in significant impacts for farmers groups. Farmers perceived that savings and loan products provided by NUBL allowed them to take loans at lower interest rates as compared to other microfinance institutions and informal lending channels. Farmers were also happy with the three to nine month repayment periods, which they perceived to be more appropriate for agriculture. Further, because microfinance was provided through a Self Reliant Group methodology, members also benefited by the 6% interest rate spread that was retained within the group 4. Members who took loans from NUBL invested the money to buy more ginger seeds and carry out other complementary income generating activities. If participating farming households had not had access to this facility, they would have had to borrow money from local informal money lenders or local business people at considerably higher interest rates, often having to commit to repaying these informal lenders in kind (in commodity) through the dadani system 5. As of mid-august 2010, 739 farmers from 44 farmers groups (22 cardamom, and 22 ginger) were enrolled in NUBL. Over the project period, close to 600 loan clients took loans amounting to NPR million (GBP 142,798) from NUBL. Repayment rate stands at 100% to date and over 98% of clients are women. 3.3 Project Management The following activities were carried out to enhance project management: DPAC meetings Strong and two-way coordination was maintained with local stakeholders such as government organisations and colleague agencies during the course of project implementation. A District level Project Advisory Committee (DPAC) was formed in each project district, comprised of Local Development Officers (LDO), District Agriculture Development Officers (DADO), and other stakeholders. These DPACs conducted monitoring visits, provided feedback, and helped to create an enabling environment for the project Public audits Periodic public audits were conducted at the community level. During the project period, 61 public audits were conducted in all three districts (Panchthar-38, Illam-24 and Dhankuta-4) facilitated by project staff. These described activities carried out, funds expended, and other public accountability issues. Feedback received from communities was incorporated into project implementation. 4 The Self Reliant Group (SRG) model allows the SRG to take a wholesale loan from the microfinance institution, set its own interest rate, and retain the spread between the MFI s interest rate and the group s internal interest rate for the benefit of the group. Most of the SRG s in the project area opted for a 6% interest rate spread, the funds from which they kept as additional group savings, loan and operating capital. 5 An informal lending practice common in rural agricultural communities in Nepal. Informal lenders provide loans to farmers at high interest rates (generally 60% per annum), and then accept repayment in the form of agricultural commodities, limiting the ability of farmers to sell their own commodities at market rates. Mercy Corps - Nepal

15 3.3.3 Monitoring and evaluation Monitoring and Evaluation (M&E) activities were carried out to assess the progress and results of the project over time. Baseline and end-line studies for each year were conducted. The results are significant, including net profit differences of NPR 1,236,258 (GBP 10,844) between baseline and end line for cardamom and net profit differences of NPR 18,373,246 (GBP 161,169)* between baseline and end line for ginger for the first season within the project time period (because the second season s harvest will occur after the end of the project). Taken together, this means that the project has yielded a cost: benefit ratio of over 2.6:1 per season 6 (likely to be 5:2:1 for the total project period when the upcoming harvest is considered), even when benefits are viewed narrowly as farmer profits and additional value chain improvements, access to financial services, social mobilisation, and improved farmer-level organisation is not considered. There was a high difference between cardamom and ginger in terms of net profit margin, influenced by a prolonged dry season in the high-hills in 2009, affecting cardamom output, as well as by the continuing threat of disease, which resulted in over 50% reductions in cardamom yield. However, it is important to note that cardamom is already an extremely important and relatively profitable cash crop, and therefore the project has tried to protect this important livelihood strategy from disease and disorganisation while incrementally improving profits through grading, collective marketing and primary processing; significantly, the project was able to help farmers maintain and increase profit margins despite growing disease issues, which require higher-level response. In contrast, high impacts are more easily realised with ginger, because ginger farmers were receiving low yields and profits on small landholdings prior to the project intervention. Table 1: Overall Data Comparison-Cardamom Data Cultivat ion Area (Ropan i) Cardamo m Productio n (Kg) Quantity Sold (Kg) Avg Rate NPR/Kg Min Rate (NPR) Max Rate (NPR) Total Revenue (NPR) Total Cost of Productio n (NPR) Net Profit (NPR) Baselin e 2,441 47,233 47, ,633,903 3,395,988 5,237,91 5 Endlin e 2,919 30,767 30, ,019,32 3 5,545,150 6,474,17 3 Differe nce 478 (16,466) (16,466) ,385,420 2,149,162 1,236,25 8 Table 2: Overall Data Comparison-Ginger Data Cultivation Area (Ropani) Ginger Production (Kg) Quantity Sold (Kg) Avg Rate NPR/Kg Min Rate (NPR) Max Rate (NPR) Total Revenue (NPR) Total Cost of Production (NPR) Net Profit (NPR) Baseline , , ,689,767 3,276,000 4,413,767 Endline , , ,685,872 3,898,860 22,787,012 6 Calculated by dividing total profit increases for participating farmers by the total amount of grant money spent during the harvest year. Mercy Corps - Nepal

16 Difference , , (1) 20 18,996, ,860 18,373,246 Mercy Corps Nepal s Design, Monitoring & Evaluation team also conducted a final internal evaluation for the project using a Participatory Impact Assessment approach. Findings of the evaluation were positive and the project has proven to be successful in terms of efficiency, effectiveness and impact. The most significant impacts brought to ginger farmers were from low-cost storage, which ensured healthy seeds and allowed ginger seed to fetch a higher price when sold to other farmers; from the introduction of low fibre ginger seeds, which resulted in 85% yield increases; from improved disease management practices; from improved access to finance; and, from improved postharvest handling. The most significant impacts brought to cardamom farmers were through grading of cardamom, due to which they received a price differential of NPR 2,000 per 40 kilograms between graded and non-graded cardamom; from group formation, which allowed access to finance and information; and, from collective marketing, which increased bargaining power and reduced transactions costs. However, the evaluation also identified room for improvement, and these recommendations will be incorporated into future Mercy Corps cardamom and ginger work in Nepal. 4. CHALLENGES Challenges faced during the project period included: 4.1 Political unrest Throughout the project period, the political situation in Nepal remained unstable, which among other things resulted in periodic strikes that at times limited frequent mobility of the staff at field. Although these strikes required caution on the part of the project team, they lasted only for a few days and did not affect the production or sale of cardamom and ginger. Project information was continuously shared over telephone and via other informal means. 4.2 Disease management on cardamom Disease has become a major threat in cardamom, which ultimately affects the production and sales of farmers. The disease prevalence in cardamom has increased over time. In response to this, the project established demonstration plots and research was carried out. Though the result was satisfactory, this needs to be replicated and expanded on a larger scale among cardamom farmers, which will be extremely challenging and will require very significant financial resources. The disease threat, which is affecting over 70,000 households, requires a coordinated, large-scale response that must be led by the Government of Nepal with support from non-governmental organisations and the private sector, much like the response taking place in India. Unfortunately, this has yet to materialise in Nepal. 4.3 Rapport building between farmers and traders Though the project has faced difficulties on trust building between farmers and traders initially, this was overcome through representation of more farmers in trade associations, which in turn built a good rapport and strengthened the trade relationship between them. Mercy Corps - Nepal

17 4.4 Limited geographical coverage The project interventions were targeted and implemented in a limited cluster of communities given the relatively small project budget. This was effective, but meant that the project often received but could not fulfil requests for similar support from neighbouring communities. While some replication was noted among non-beneficiary farmers, these farmers can certainly benefit from additional support. 4.5 Conventional practices Before project implementation, farmers were following conventional methods of farming. In response to this, the project conducted frequent trainings regarding improved practices at the farmers level. While many farmers realised the benefits of these new practices, it takes time for these to be fully adopted. 4.6 Remoteness Some project areas were in very remote areas, with limited infrastructure and no road access. While this did not significantly limit the project, it did at times limit site accessibility and staff movements, particularly during the rainy season. 4.7 Government policy and investment The overall development of the cardamom and ginger industry continue to be hampered by a general lack of Government of Nepal attention and investment, despite the significant contribution of these crops to the Nepalese economy. 5. LESSONS LEARNED Lessons learned from project implementation include: 5.1 Improved variety of seed led to a higher production Before the intervention, farmers traditionally cultivated local ginger seed, which produced at a seed: crop ratio of 1:3 (three kilograms of fresh ginger harvested for every one kilogram of seed planted). Realizing this situation, Mercy Corps introduced an improved variety of ginger seed (low fibre ginger, which also has higher market demand and better value added processing potential). This new seed, together with improved farming practices (weeding, mulching, drainage etc), resulted in an average seed: crop ratio of 1:6, and in some places as high as 1: Disease management in ginger Disease management efforts for ginger were found to be more straightforward than disease management efforts for cardamom. It was learnt that ginger seed should be treated with antibacterial pesticides (Streptocycline/Bacteriomycin) to check bacterial rot, while compost should be treated with antifungal pesticides (Trichoderma powder) to check fungal rot before plantation which is often called as pre-treatment of seed. After Bruni (mother seed) harvesting and during disease prevalence in plants, rhizomes Mercy Corps - Nepal

18 should be soaked with organic antifungal or antibacterial agents. Following these practices led to healthy plant growth and reduced disease prevalence. 5.3 Appropriate technology As described above, the low cost storage technologies increased farmer-level storage ability (thereby reducing loss of seed weight and damage due to pests and disease), increased income, increased seed availability. The low cost storage units also proved to be highly replicable by beneficiary and non-beneficiary farmers. 5.4 Seed resource centre As described above, seed banking arrangements proved successful, although in the long run fully commercialised seed production and supply systems will be the ultimate solution. For this to happen, seed resource centres need to be created in each district. 5.5 Cardamom plantation A significant number of farmers were using rhizomes for cardamom plantation, which, due to the perennial nature of the crop, shortened the dormancy period and allowed harvest to begin after 3 years. However, the project demonstrated that planting seedlings instead of rhizomes is comparatively safer in terms of disease management, although the dormancy period before harvest is longer (5 years). It is therefore recommended that, given the threat of disease, seedling plantation be preferenced over rhizome plantation. 5.6 Grading Before project interventions, farmers used to sell cardamom directly to the traders after drying. There was no concept of grading of cardamom, resulting in a lack of differentiation between high quality and poor quality cardamom, leading to low farmgate prices. The project introduced grades and designed/ facilitated access to new graders, which increased farm-gate prices. It can be concluded that grading is a lowcost, easily replicable means of increasing profitability. 5.7 The benefits of linking agricultural work to microfinance work The links facilitated between the project and the parallel access to finance project yielded many benefits. In addition to livelihoods benefits for households (discussed above), microfinance institution group mobilisation methods strengthened farmers groups, improved financial literacy, and enhanced the participation/ financial ownership of women in spice crop production. The combination of financial and technical services was an effective combination for farming households. 5.8 Targeting The project achieved de facto high inclusion percentages for the poor and for disadvantaged groups due to its focus on remote parts of Eastern Nepal, and de facto high women s inclusion percentages due to the social dynamics of Eastern Nepal. While this is commendable, the project was found to deploy relatively less systematic targeting protocols as compared to other Mercy Corps Nepal projects, due to the commercial agricultural focus of the team. Mercy Corps Nepal is now in the process of standardising more systematic targeting practices across all projects. Mercy Corps - Nepal

19 6. SUSTAINABILITY In addition to basic farmer and trader level profit increases, which are the greatest incentives for sustainability, the following factors will also contribute to project sustainability: 6.1 Cooperatives outreach Mercy Corps supported the formation, strengthening, and registration of five cooperatives, which so far have enrolled 482 members from 16 farmers groups have been enrolled into five cooperatives. There is also ample evidence that the number of farmers groups in these cooperatives, and the members of these farmers groups, are now continuing to increase of their own accord, and that several new cooperatives will soon be registered. Cooperatives are providing saving and loan products, marketing support, input support, and production advice to members, which is likely to continue since the cooperatives function as a for-profit business. 6.2 Engagement of trade associations The project featured key partnerships with two trade associations (LCEAN and NGPTA), which will continue to maintain a presence in producing and trading districts while brokering sales agreements between farmers and traders. The associations will also advocate for improved tax and trade conditions, benefiting all actors in the value chains. 6.3 Post grant plan Mercy Corps will continue CaGi-style activities in Eastern Nepal at least until October 2011, and possibly for a longer period of time, through support from the Nepali Diaspora Association. 7. SLOT (Strength, Limitations, Opportunity, and Threat) ANALYSIS A SLOT analysis of the project was also carried out at the farmers group level. A summary of the comments is provided below: Strengths Limitations VDCs selection, and group formation leading to access both technical and financial facilities Low cost storage of ginger at farmers level, a new practice and gave good result, Improved variety of seeds (low fibre ginger seed) provided to the farmers through seed banking arrangements Short project duration Limited resources (inputs, human) Disease management in cardamom was relatively weak Project timeframe did not allow for the uptake of improved cardamom cultivation practices. Mercy Corps - Nepal

20 Grading, a new practice introduced, and some graders provided to the farmers Improved practices (weeding, mulching, drainage, watering, disease management) through trainings, exposure visits (India, Sikkim, Illam) for staffs and farmers, Collective marketing Improved post handling techniques Formation of LCEAN and reactivation of NGTPA leading to strengthening of value chain actors Bridged the relationship between various value chain actors from farmers to traders and exporters, governmental to private and civic sectors, Successful in advocating for improved trade conditions for cardamom and ginger Business planning at farmers level, Marketing Plan at Cooperative level, Access to finance implemented under parallel project of Mercy Corps Formation of farmers groups and cooperatives. Opportunities Threats Farmers were encouraged by the project; activities were highly appreciated Both crops represent significant market opportunities Space for product diversification Increases in cooperatives members and evident Farmers are continuing to enroll with NUBL Opportunities to work with the government Political instability, leading to frequent strikes and blockades Drought and disease Degradation of soil quality Low availability of improved varieties of seeds and seedlings Lack of market access 8. BUDGET NARRATIVE The overall project was completed within budget, but project activity budget lines are significantly underspent, while staffing and operational budget lines are overspent. The reasons for this are three-fold: first, key project activities proved to require more staffing inputs (training, facilitation) than material inputs, since most material inputs were provided through market channels with significant beneficiary contributions, since improved driers (the most costly input) were later de-emphasised due to mixed results, and since low-cost solutions were emphasised; second, the linkages with microfinance institutions, which amount to project co-financing directly on behalf of beneficiaries in excess of GBP 140,000, meant that households could often access necessary material inputs (seed, etc.) in a more sustainable way rather than through project financing; and, third, the high costs of travel and social mobilisation in remote, geographically scattered hilly districts was underestimated. Mercy Corps - Nepal

21 Annex 1: A Success Story Improved agricultural practices led to better production Indira Rai (40) lives in the remote village of Zeal, Pashupatinagar ward # 9, in Illam district with her husband and three sons aged 21, 20 and 17. She used to follow traditional practices for cultivating ginger as a cash crop on her eight ropani (0.4 hectares) of land. She also cultivated maize, millet and potato as other seasonal crops. With the income she earned by selling these crops in the market, she would invest in her children s education and meet household needs. But, her production was low, she often found herself needing to borrow from money lenders to meet consumption needs for six months of the year, and she could not save money for the future. Indira knew that she had to do something proactive to improve her situation, so she volunteered to be the Chairperson of her local farmers group. While she was working in this capacity, Indira met an official from the Parkhribas agricultural research centre (a Government research centre), who advised her to contact Mercy Corps, an organisation known to be working with ginger promotion. Indira immediately organised this meeting, and this proved to be a turning point. Mercy Corps agreed to work in her community and Indira participated in various trainings on improved farming practices, low cost storage, disease management, and business planning. Later, she established her own Paribartan Ginger Group, comprising 17 members, nine male and eight female. Mercy Corps then helped to link this group to NUBL, a microfinance institution. When asked about the project s impacts on her, Indira said, Earlier, I used to plant local ginger seed in the field and in very close distance between the rows, thinking this would lead to better yields. I was also not aware of low cost storage techniques, and how these could lead to better quality seed, and I did not know about low fibre ginger seeds. After following improved practices, she was able to increase her yield by 60% in the first season alone. This increased her profit, and she was able to meet household needs for the full year while beginning to accumulate some savings. Inspired by these results, she has increased ginger production this season, planting 720 kilograms of low fibre ginger seed on eight ropani of land, which will likely yield at least 4.3 metric tons of fresh ginger, likely to earn Indira approximately NPR 150,000 (GBP 1,316) in income. Loans from NUBL are also helping Indira to continue investing in ginger production while diversifying into improved livestock production. Indira continues to encourage other farmers to follow improved techniques and has managed to form four more ginger groups in her community. Mercy Corps - Nepal

22 Annex 2: Photos on Ginger and Cardamom Activities Please refer Annex 3: Final evaluation report in a separate file attached herewith. Mercy Corps - Nepal