ministry of land management, agriculture and cooperatives

Ministry of Land Management, Agriculture and Cooperatives

Gandaki Province, Pokhara

[The Title Page - The first page should give the name of the document, the firm’s name, and the names of

all those involved in developing the plan. Dating the plan so that you can remember when it was

developed or updated is also important.]

Business Plan Sweet Mandarin Value Chain Development in the Hills of Gandaki Province

Pokhara

August 2020

Template Business Plan

TABLE OF CONTENTS

EXECUTIVE SUMMARY........................................................................................................................ 1

A. OVERVIEW AND OBJECTIVES ...................................................................................................... 3

A. 6. SITUATIONAL ANALYSIS ..................................................................................................................... 4 A. 7. CONSTRAINTS AND OPPORTUNITIES ..................................................................................................... 6 A. 8. OBJECTIVE OF THE BUSINESS PLAN ....................................................................................................... 8 A. 9. THE KEY ACTIVITIES WILL INCLUDE ........................................................................................................ 9

B. PRODUCTS AND SERVICES .......................................................................................................... 9

B. 3. CITRUS FRUITS ............................................................................................................................... 10 B. 4. CITRUS SAPLINGS ............................................................................................................................ 11

C. MARKETING PLAN.................................................................................................................... 12

C.10. TARGET MARKET ............................................................................................................................ 12 C.11. MARKETING STRATEGY .................................................................................................................... 13 C.12. PRICING STRATEGY ......................................................................................................................... 13 C.13. MARKET SITUATION ANALYSIS........................................................................................................... 13 C.14. MARKETING .................................................................................................................................. 14 C.15. PRODUCT PROMOTION .................................................................................................................... 16 C.16. SALES FORECAST ............................................................................................................................. 17 C.17. MARKETING PLAN ........................................................................................................................... 17

D. PRODUCTION PLAN .................................................................................................................. 17

D.3. LOCATION OF OUR BUSINESS ............................................................................................................. 19

E. MANAGEMENT AND ORGANIZATION ....................................................................................... 20

E.3. HUMAN RESOURCES ....................................................................................................................... 20 E.4. ORGANIZATIONAL CHART ................................................................................................................. 21

F. FINANCIAL PLAN ...................................................................................................................... 21

F.1. ORCHARD ESTABLISHMENT COSTS ...................................................................................................... 22 F.2. SCREEN HOUSE CONSTRUCTION COST ................................................................................................. 22 F.3. CONSTRUCTION OF SHED, STORE HOUSE, COLLECTION FACILITY AND OFFICE ROOM ..................................... 22 F.4. PRODUCTION AND POSTPRODUCTION RELATED FARM EQUIPMENT ........................................................... 22 F.5. DEPRECIATION OF EQUIPMENT AND FACILITIES..................................................................................... 22 F.6. FINANCING COSTS .......................................................................................................................... 23 F.7. ANNUAL PRODUCTION COSTS ........................................................................................................... 23 F.8. INCOME ........................................................................................................................................ 23 F.9. FINANCIAL VIABILITY OF THE PROJECT ................................................................................................. 24

G. CONCLUSION ........................................................................................................................... 25


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Executive Summary

Introduction/Background. Transformation of subsistence-based agriculture into a commercial one through diversification and widespread realization of comparative advantage of high value commodities is the key strategy of agriculture development in Nepal. Commercialization of agriculture sector and realization of competitive/comparative advantage of high value agriculture produce will result in import substitution and export promotion. The agriculture sector policies have emphasized on commercial production of high value cash crops such as citrus as the high value priority crop for the mid-hills areas of the country. The Plan has stressed need for increased market access of agricultural products in order to increase farmers' incomes, consumption level, and thus reduction in poverty at the farm level. Nepalese farmers, particularly those in hill regions, are increasingly improving their knowledge in production, postharvest and marketing of horticultural crops. Continuing the trend of replacing the imports and taking greater advantage of seasonal opportunities for penetration of national markets is critical for maintaining and increasing current growth rates of horticultural crops in the country. A rapid marketing appraisal conducted in Gandaki Province revealed that substantial portion of the market demand is being met by importing from outside of the province, although there have been proven opportunities to increase the supply of mandarin fruits from local production. However, the study also indicated that there are number of constraints towards realizing the existing opportunities. The constraints are (i) capacity of the value chain actors and support providers, (ii) unavailability of quality saplings for the establishment of new orchards, (iii) poor orchard management practices and lack of access to new technologies and management practices (iv) primary producers’ easy access to inputs, output markets, and finance, (v) inadequate development of rural infrastructure, and (vi) lack of value adding agribusiness enterprises. The producers were found not aware of the potentials of raising their income through post-harvest loss reduction. In order to minimize these losses, more emphasis has to be placed on developing improved techniques on postharvest operations, marketing management and providing training to the producers and traders. Training is required on optimum harvesting dates based on parameters such as development of skin color and total soluble solid and total acidity of the fruit juice. The improved methods of harvesting (use of ladders, clippers and cloth bags instead of sticks) and grading based on shape and size of the fruits will be

[The Executive Summary is located in the front of the document but is the last task in writing a Business Plan. Write this when the other sections of the BP are finished. It is an overall summary of your business objectives and how you plan to accomplish them in the prescribed time period.]

[The Executive Summary is a brief outline of the company's purpose and goals; and should be fit on one or two pages, a good Summary includes: (i) a brief description of products and services, (ii) a summary of objectives, (iii) a concise description of the market, (iv) a high-level justification for viability (including a quick look at your competition and your

competitive advantage), (v) a snapshot of growth potential, and (vi) an overview of funding requirements.]


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introduced. Assessment of physical and intrinsic parameters of citrus fruits to optimize harvesting followed by introduction of grading systems may lead to better price to the producers and quality fruits to the consumers. Also, export possibilities will be enhanced due to uniformity in quality and size. Development of appropriate packaging materials for transportation and storage of citrus may lead to reduction in postharvest losses by over 25%. Due to lack of marketing infrastructures and facilities at collection points, fruits are often collected and handled either in open area at the roadside or in cattle sheds of the farmers. Physical loss during storage at collection center is around 10% and more during transportation to markets to 5-15%. Various studies also indicate that market information is lacking and the local traders and collectors were dependent on informal market information sources while the farmers have little access to meaningful market information. In view of existing opportunity and constraints in mandarin value chain, the proposed business aims to increase the supply of sweet mandarin in the markets of Gandaki Province and encourage export to other adjoining provinces (Province 5 and Province 3). Orange Producers Multipurpose Cooperative Ltd. (OPMC) was established in 2015 with a vision to support smallholder orange growers in scaling up production and linking production with the regional and national markets. It is a market- and customer-driven farmers’ cooperative committed to augmenting the value of our shareholder farmers’ agriculture production. The cooperative has more than 350 affiliated farmers (also shareholders of this cooperative) who are involved in the production of orange at semi-commercial scale. The OPMC since its establishment is engaged in supplying inputs, organizing capacity building activities (training) in production technologies, providing micro-credit service to the shareholder farmers, and facilitate marketing. The Cooperative has substantial experience in working with farmers and also developed linkage with wholesale buyers of citrus/orange fruits both for fresh marketing and processing. The last General Assembly of the OPMC has endorsed the idea of upgrading of its business activities by establishing vertically integrated model of orange value chain operation that will serve the regional and national markets with good quality orange fruits. We intend to increase the market share and replace part of the import in the target markets. Currently, the farmers are not well-organized, the productivity is very low (around 5-6 mt/ha), high incidence of disease and pest due to improper orchard management practices, poor postharvest management and small volume of marketable surplus. This has resulted in poor return and discourage farmers to invest into scaling up /upgrading production system. The core business model includes – (i) Production and supply of high quality/disease free grafted orange saplings, (ii) support existing orange growers in scaling up production and support new farmers in establishing orange orchards, (iii) product aggregation and postharvest management (cleaning/grading/packaging), (iv) supply to wholesale buyers. Our analysis of the sub-sector indicate that it has tremendous growth opportunities and import substitution potentialities. The initiated business will also be helpful in increasing farmers income by at least 50%. The primary objective is to accomplish sector performance, while steadfastly remaining a profit-making entity in all our management strategies.


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The proposed initiative will promote commercial production of sweet mandarin in selected pocket areas of Kaski, Tanahun, Parbat, and Myagdi districts in Gandaki Province of Nepal. It is aimed at (i) increasing supply by establishing new orchards, and upgrading existing orchards by adopting improved management practices (ii) improving availability of good quality planting material by establishing new screen house (iii) disseminating improved practices of orchard management, (iv) improving post-harvest practices and value addition, and (vi) improving market access of the orchard holders.

The proposed business will be implemented with the perspective to pilot value chain wide upgrading that will directly benefit the small and medium scale farmers and other value chain stakeholders (traders, processors) in the selected four districts.

Funding Requirements. Total Initial Fixed Investment requirements estimated NPR 80.3 million; of which, NPR 24.1 million is bank financed and the remaining Rs 56.2 million is promoters’ equity. The financial analysis indicated that IRR of the business is 21% and the NPV at 10% discount rate is NPR 73,947,000. The business is profitable because IRR is greater than the opportunity cost of capital.

Though the return from investment in orange orchard looks attractive. The gestation period is relatively high and it involves some amount of risk. The productivity of orange- orchard depends much on the natural factors like weather condition, soil type and annual maintenance practices such as adequate application of manure, fertilizer, plant protection measures, irrigation, etc. Financial analysis was made to examine the profitability of investment and the finding shows high return to the investment. The finding of the analysis is given below.

1 Payback period 8.06 yrs 2 Net present value of the business (at 10%) NPR 73,947,000 3 Benefit cost ratio 1.76 4 Internal rate of return 21%

A. Overview and Objectives

Background

Nepal is uniquely situated for citrus production and big consuming markets are open to Nepal

just across the border. Furthermore, citrus is one of the most commercialized HVCs in Nepal.

Mid-hill areas across the country are suitable for citrus cultivation. The area under traditional

[Describe your subsector (in brief) and how your business fit into it. This section is important to analyze the industry and determine the firm’s relative position in terms of competitive advantages. Describe the intended work; its impact and outcomes; key feature of the business, nature, constraints to be addressed, opportunity to be harnessed; current status of the business; availability of raw material, value adding opportunity, benefit to farmers and other value chain actors; market of the product, size of the market; growth potential, impact in income generation and employment] [Some questions that should be addressed are - (i) Where is the operation located? (ii) How and when did the operation begin? (iii) How is the farm currently operating? (iv) What is the general productivity, management, situation of the

farm? (v) What are general practices of the operation? (i.e., conservation, environmental, tillage, marketing, risk).]


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crops like maize are being converted into orange orchards in areas where there is reasonable

access to road and market. Citrus are in big demand for fresh consumption as well as

processed products such as jam, jelly, juice and squash.

National scenario. The total productive area under citrus fruits is 46,328 ha (2017) with total production of 239,773 Mt. The average productivity is low at 9.7 Mt./ha. The average annual growth rate for area and production is 7.2% and 4.9% respectively. However, there is negative growth rate for productivity. The current production is consumed at local and regional markets. The supply to national wholesale market is limited to peak harvesting season and quite a substantial portion of the demand is being met by importing from India and which is increasing in the recent years (Kinno variety). Government strategy. Transformation of subsistence-based agriculture into a commercial one through diversification and widespread realization of comparative advantage of high value commodities is the key strategy of agriculture development in Nepal. Commercialization of agriculture sector and realization of competitive/comparative advantage of high value agriculture produce is expected to result in import substitution and export promotion. The agriculture sector policies have emphasized on commercial production of high value cash crops such as citrus in the mid-hills areas of the country. The Plan has stressed need for increased market access of agricultural products in order to increase farmers' incomes, consumption level, and thus reduction in poverty at the farm level. Nepalese farmers, particularly those in hill regions, are increasingly improving their knowledge in production, postharvest and marketing of horticultural crops. Continuing the trend of replacing the imports and taking greater advantage of seasonal opportunities for penetration of Indian nearby markets is critical for maintaining and increasing current growth rates of horticultural crops in the country.

A. 1. Situational Analysis

Our financial analysis results indicate that the intervention in mandarin value chain upgrading is highly viable in terms of return. Small and medium scale farmers, traders, processors, wholesalers and retailers will also benefit from this business initiative. As women are increasingly involved in agriculture activities including postharvest and marketing activities, the intervention will also benefit women farmers in improving their livelihood and incomes.

Market situation. Most orange is traded in fresh form. A rough estimation indicates that more

than 98 percent of the production is traded as fresh and less than 2 percent is used in

processing (Juice, Squash etc.). Most of the processing industries in Nepal import raw

materials (fruit pulp) and export juice.

The estimated annual consumption in Gandaki Province is 11,395 Mt., of which, 8,387 Mt. is consumed in urban areas. The total transaction in the visited road corridors area was around 17,274 Mt. The survey findings indicate poor performance of local supply chain in terms of quantity, quality and packing material (needed for longer distances) causing high losses. The study team surveyed 23 markets and the average transaction of citrus in these surveyed markets was 2.8 Mt. per day. (Wholesale market – 16.1 Mt/day; retail market – 0.96 Mt/day; haatbajar – 0.1 Mt/day; and collection center – 0.38Mt./day in average). The growers generally sell their produce to local collector, wholesalers or the contractors. In the case of


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contractor, the harvesting and marketing is managed by the buyer. The contractors are either bigger farmers or the local traders, who have successfully established backward linkage with suppliers and forward linkage with wholesale buyers. Production and supply situation. Mandarin growing area in Gandaki Province is situated along the key road corridor areas and possess big opportunity to increase its supply to high end market such as Pokhara, but also has the opportunity to diversify its market such as Provinces 5 and 3. The demand is very high for both fresh and value-added products. The current market demand for fresh mandarin is around 17,274 MT (in Gandaki Province) on annual basis. The national consumption of fresh fruits is around 119,412 MT (calculated based on per capita household consumption in year 20161). Furthermore, with the increasing number of middle-class population and urbanization in Nepal and more importantly changing food habit (increasing fruit and vegetable consumption) will impact in substantial growth in market demand in medium and long term. The average annual growth rate for area and production is 7.2% and 4.9% respectively. The current production is consumed at local and regional markets. The supply to national wholesale market is limited to peak harvesting season and quite a substantial portion of demand is being met by importing from India and in recent years it has been drastically increasing (of Kinno variety). The local supply is not improving in the recent years. The MOALD data for last 5 years indicates that the production has stagnated; on the other hand, the import has been steadily increasing. The Department of Customs data shows that the import has increased from 18,670.1 Mt. in 2012 to 119,838.2 Mt in 2018 (DOC, 2018). During the period 2009 – 2016, the average annual import growth for citrus fruit was 18.6% by volume and 32.6% by value. The export figures are small compared to import. Nevertheless, Nepal exports substantial quantity of juice (various including citrus juice) to India. In 2017/18, Nepal exported juice for NPR 4,760.9 million; of which NPR 730 million was citrus fruit juice (DOC, 2018). Production situation in Gandaki province. Gandaki Province is one of the biggest citrus

growing area in Nepal. Besides Manang and Mustang, all other districts from province 4

produce citrus fruits. Table 2 presents area, production and productivity of citrus in Province

4. Gorkha, Lamjung, and Syangja are some of the well-known mandarin orange producing

districts and preferred in the markets. In 2016/17, a total of 55,589 Mt. of citrus was produced

in Province 4 from 6,603 ha of land. The productivity is very low at 8.4 Mt/ha. The interaction

with producer in Myagdi district indicated that farmers are diversifying from traditional crops

to oranges in the remote rural municipalities, where, the road/market access has improved

in the recent years.

Table 1: Citrus production area, production, and yield; province 4

2012/2013 2013/2014 2014/2015 2015/2016 2016/2017

Area, ha 7,015 6,731.5 6,338.5 6,859 6,603

Production, Mt. 61,212 54,591.2 53,659 55,626 55,589

1Calculated based on the CBS data on annual household survey and population census projection


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Yield, Mt./ha 8.7 8.1 8.5 8.1 8.4

Production pocket areas.

The key pocket areas in Province 4 include: -

Districts Pocket Areas

Gorkha

Barpak Sulikot RM 8; Arughat 9; Agirkot 4; Gorakha UM 4, 5;

Tanahu Ghiring 3, 5; Byash 9; Syangja PutaliBazzar UM 8; Walign UM 2, 10, 12; Galyang UM 5, 6, 7, 11; Andhikhola

RM 6; Chapakot UM 5; Bheerkot UM 8; Kaski Annapurna 8; Parbat Kushma UM 10, 11; Jaljala RM 7,9; Modi RM 5; Mahashila RM 1,2,5; Painu

RM 3, 1, 6,7; Phalebas UM, 9; Bihadi 5; Baglung Galkot UM 3; Nisikhola RM 1, 2, 4; Lamjung Rainas UM 1, 9; Sundarbajar UM 1;

A. 2. Constraints and Opportunities

A rapid market appraisal conducted in Gandaki Province revealed that substantial portion of the market demand is being met by importing from outside of the province, although there have been proven opportunities to increase the supply of mandarin fruits from local production. The study also indicated that there are number of constraints towards realizing the existing opportunities. The constraints are (i) capacity of the value chain actors and support providers, (ii) unavailability of quality saplings for the establishment of new orchards, (iii) poor orchard management practices and lack of access to new technologies and management practices (iv) primary producers’ easy access to inputs, output markets, and finance, (v) inadequate development of rural infrastructure, and (vi) lack of value adding agribusiness enterprises. Further, the producers are not found aware of the potentials of raising their income through postharvest loss reduction. In order to minimize these losses, more emphasis has to be placed on developing improved techniques on postharvest operations and marketing management and providing training to the producers and traders. Training is required on optimum harvesting dates based on parameters such as development of skin color and total soluble solid and total acidity of the fruit juice. The improved methods of harvesting (use of ladders, clippers and cloth bags instead of sticks) and grading based on shape and size of the fruits should be introduced. Assessment of physical and intrinsic parameters of citrus fruits to optimize harvesting followed by introduction of grading systems may lead to better price to the cultivators and quality fruits to the consumers. Also, export possibilities will be enhanced due to uniformity in quality and size. Development of appropriate packaging materials for transportation and storage of citrus may lead to reduction in post-harvest losses by over 25 %. Due to the lack of marketing infrastructures and facilities at collection points, fruits are often collected and handled either in open area at the roadside or in cattle sheds of the farmers.


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Physical losses during storage at collection center is around 10% and more during transportation to markets (5-15%). Various studies also indicate that market information is lacking and the local traders and collectors were dependent on informal market information sources while the farmers have little access to meaningful market information.

Key constraints

Despite the enormous economic benefits that can be generated from citrus cultivation in mid-hill areas, the production/supply is not growing due to many agronomic, socio-economic and marketing problems and constraints.

Lack of quality saplings. The quality and availability of saplings is one of the issues at the production level. Most of the saplings are produced by private nurseries, and many of them have limited capacity and lack infrastructure needed to produce saplings of reasonable quality. Pre-harvest contract buyers are the key players in citrus trading. Most part of marketable

surplus is traded through these intermediaries. As the storage premises are not available, the

harvest is sold immediately, which results in uneven supply; during the pick harvesting

season, the market is flooded with local production; whereas, during early and late season

the market arrival is dominated by import mainly from India due to the lack of local supply.

The issues are also related to procurement and payment arrangement between producers

and buyers. In general, the price spread is high resulting in high consumer price and relatively

underpriced for producers. Harvesting, aggregation and packaging practices result in high

postharvest losses.

Dialogue with citrus growers particularly orange growers and other stakeholders including the technocrats, processors and traders has identified various issues and constraints relating to commercial development and promotion of orange fruit in the project districts and some of the major issues are listed as below:

- Production centers are fragmented and scattered that complicates the aggregation and quality management; high cost for product aggregation

- Collection centers are not properly organized and equipped with necessary

infrastructure and information.

- High production cost resulting from high inputs price

- Packages of appropriate production and post-production technology are lacking

- There is lack of coordinated research and extension activities at the field level.

- Inadequate production and postharvest infrastructure

- High transportation cost (from production area to market)

- Lack of access to credit

- High incidence of disease and pest; citrus decline issue; poor orchard management Increasing supply of S. mandarin (import) from India at highly competitive prices and citrus decline are the key threat for Nepali orange growers.


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Key opportunities

The demand for orange is very high compared to the current level of domestic supply as significant part of the demand is being met by importing from India. There exists a big scope to expand the production and supply of citrus fruits. The potentials for citrus value chain development is listed hereunder.

- The availability of highly suitable geo-climatic conditions of the mid-hills is very

favorable for quality citrus production with unique quality and seasonal advantage in

the sub-continent

- Traditional skill and knowledge in growing this crop. The farmers are interested to

increase the area under orange cultivation due to high demand of citrus product in

the markets

- Improving road network and communication facilities has developed market access

- Government has categorized orange as a high value crop in mid-hills of Nepal and

policy supports are available to actors.

- National Citrus Fruit Development Program under Department of Agriculture has been

providing the technical services

The priority would be to improve the availability of good quality planting material of appropriate variety (the demand for citrus saplings is in increasing trend). Improved orchard management, efficient irrigation and fertilization practices, integrated disease and pest management practices, proper harvesting practices and losses reducing technology, are the key areas of production and productivity improvement. In the post production aspect, the support could focus on standardization and grading, efficient product aggregation and innovative procurement system, and development of value adding market infrastructure. Past learning indicate that infrastructure developed in isolation does not function. In addition, appropriate institutional solution among and across the value chain actors (horizontal and vertical linkages) are required. Storage facilities, promotion of new technologies such as ripening management (delaying or forcing ripening), pulp and juice production, packaging, product diversification and branding are some of the key areas for postproduction improvement. Innovative and agribusiness-led product aggregation, procurement and payment system will encourage farmers to invest on to scaling up and adoption of new production technology.

A. 3. Objective of the business plan

The overall objective of this undertaking is to increase production and productivity of citrus fruits by improving the management of existing orchards and establish new orchards covering nearly 75 (own) and 50 Ha farmers in Parbat districts of Gandaki Province. The specific objectives are:

1. Establish mandarin sapling (grafted) production facility (aphid protected screen house) with the capacity of at least 5,000 grafted saplings per year,


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2. Establish new orchard - 75 ha of mandarin orange orchard (starting from year 1 to year 4);

3. Support smallholder farmers in establishing sweet mandarin orchard in 50 ha; 4. Improve orchard management in 250 Ha (50 ha own existing orchard and 200 ha

smallholder orchards); 5. Training, orientation and on-the-spot coaching on sweet mandarin production,

postharvest management, value addition, and marketing to service providers, and value chain actors.

6. Establishment of Multi-stakeholder Platform of value chain actors to improve linkage, coordination among the primary VC actors and facilitate joint action towards value chain development of sweet mandarin.

A. 4. The key activities will include

• Establishment of Nursery for the production of disease-free saplings • Establishment of new orchards • Wider diffusion of orchard management practices including tree management,

nutrient management, and disease and pest management • Processing and value addition of graded out and under size fruits • Operationalization of multi-stakeholder platform of Citrus VC actors

B. Products and Services

We are committed to provide variety of products and services to primary producers focusing on sweet mandarin value chain upgrading. Our targeted markets are Pokhara, Kathmandu and Butwal. Since consumers in those market demand better quality products at highly competitive price, we will focus on providing differentiated and quality products at competitive prices. We are planning to undertake variety of strategy to improve of efficiency and supply in very competitive price. Our strategies include:

- Adopt improved production technology and achieve higher productivity that will meaningfully reduce our cost of production;

[In this section describe your product(s) and/or service(s). Remember that differentiating your product may be an important aspect of your marketing strategy. While this is difficult to do with a commodity, it’s not impossible. For example, maybe you operate an organic citrus farm in an attempt to extract higher market prices. These types of efforts should be included here as part of your marketing efforts. If you plan to sell a commodity item and the key to your success lies in, say, competitive pricing, you probably don't need to provide significant product detail. Or if you plan to sell a commodity readily available in a variety of outlets, the key to your business may not be the commodity itself but your ability to market in a more cost-effective way than your competition. But if you're creating a new product (or service),

make sure you thoroughly explain the nature of the product, its uses, and its value, etc -- otherwise your readers will not have enough information to evaluate your business.] Some questions that should be addressed are -

What are the capabilities of my business? What products do I produce? How can I profitably afford to produce for this market? Do your products have competitive advantages compared with other suppliers? Do you have any disadvantages

that you need to overcome? Is your operating cost low enough to gain reasonable margin? Do you have /will have enough product to ensure uninterrupted supply?


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- Adopt harvesting and postharvest practices that will reduce the losses at the level of harvesting and postharvest;

- Organize effective and efficient product collection system - Establish and operate cool storage facility (max up to 3 months with capacity around

100 mt) As per our estimate the combination of above strategy/actions will improve our efficiency by reducing the cost of production by at least 10%, and bringing down the postharvest losses by at least 50% (from the current level). This will give up competitive edge over other suppliers and will increase our margin by at least 10%. We will have competitive/comparative advantage in the regional markets (Pokhara and Butwal) and we will also successfully compete in the national market (Kathmandu) both with domestic supply and imported products. Our competitive advantage with the import also due to the supply season. Our interaction with the key buyers and our understanding of the target markets requirements in terms of volume and quality indicate that we will have enough products to supply for 4 months continuously during main season and late season.

B. 1. Citrus Fruits

Production of Citrus fruits – upgrading of existing Cooperative owned/operated orchard. At present, we have 50 Ha of orchard under sweet mandarin in Parbat district. This orchard is 12 years old orchard and the productivity is quite low at around 10 mt/ha. We are working on it to upgrade the orchard by adopting more improved management practices including irrigation, soil nutrient and disease and pest management, fruit trees training and pruning, etc. Our target will be to increase productivity at least by 20% (on gradual basis). Production of Citrus fruits - establishment of new orchard. The company will establish 75 ha of citrus orchard in Parbat districts. We have identified suitable area and are planning to lease the land on long-term basis. Preliminary negotiation with the land owner has been completed. In addition, the cooperative will support farmers to establish new orchard in 50 ha. A total of 200 small and medium sized farmers in Parbat will be supported under a long-term supply contract/buy-back arrangements. Production of Citrus fruits - upgrading of existing orchards. The Cooperative will work with small, medium and big citrus growers (500 citrus growers) to upgrade their orchards by adopting better orchard management technology/practices (training pruning, soil nutrient management, irrigation, disease and pest management, harvesting and postharvest management). A total of 200 ha of existing orchard will be serviced under this arrangement and the orchards owners will be assisted in adopting new/improved technology/practices. It is expected that this activity will increase output by up to 20% from the current output level. Product aggregation and postharvest management. Our product will come from two different sources – (i) production from own orchard and (ii) from out-grower suppliers. We will establish and operate reasonably equipped collection points in the supplying areas. The supply collected will be immediately forwarded to our main center; where, the products will be subjected to cleaning, grading and packaging; and which will subsequently be supplied to


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our buyers. We may keep the product in our cool storage facility for some time to regulate the supply.

B. 2. Citrus saplings

Grafted citrus saplings. Availability of quality saplings is one of the key issues. We will establish and operate a screen house facility with the objective to produce grafted and disease-free saplings. The total capacity of the facility will be 5,000 saplings per year. Currently in Nepal, there are no organized supplier of grafted saplings and hence, there is no competition in the market. The major market of our product/saplings is citrus growing districts within Province 5 and Gandaki Province. We are also planning to work with government research and development institutions in the production and marketing of grafted samplings. Very stringent quality control procedures will be established and followed over the whole period of sapling production and its transportation. Our focus will be to ensure that the high quality and healthy saplings reach the farmers field. The following is a breakdown of anticipated fresh products and farm gate wholesale price – Fresh fruits

Grade A quality fresh mandarin – NPR 65 per KG Grade B quality fresh mandarin – NPR 55 per KG Grade C quality fresh mandarin – NPR 35 per KG Grafted Saplings

We will produce grafted and disease-free saplings in our well protected screen house. The following is a breakdown of anticipated grafted saplings with price – 2.5-year-old grafted sampling prepared for long distance transportation: NPR 500 per sapling 2.5 years old grafted sampling for short distance transportation: NPR 300 per sapling 1.5 years old seedling prepared for long distance – NPR.200 1.5 years old seedling prepared for short distance – NPR.150


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C. Marketing Plan

C.1. Target Market

Market for fresh fruits. There exists substantial market demand for fresh mandarin fruits and the capacity of current supply is limited and substantial part of the demand is being met by importing from outside of the Province. We will supply well graded fruits. Grade A and Grade B will be supplied to Pokhara, Butwal and Bhairahaba at the initial stage; however, at the later stage will start supplying to Kathmandu. The Grade C fruits will be mainly supplied to less remunerative rural and road head markets of Kaski, Tanahu and Lamjung districts and to local processors. Short and medium term. Our primary target market is Pokhara. We are in contact with three wholesale buyers who are willing to buy most of our product (orange fruits). We are planning to supply ‘Grade A’ type. We intend to substitute at 10% of the import (from other province or from international markets). Of the total marketable volume, around 50% will be supplied to Pokhara market alone and of the rest, 30% will be supplied to Butwal/Bharahaba market and 20% to Kathmandu. Medium and long term. Starting from year six, we will have big marketable volume and by year 10 our supply capacity will reach the maximum (i.e. more than 2500 mt). In medium term, we will start diversifying our market. In the beginning, we start with mid-western and far-western market places (Nepalgunj, Kailali, Kanchanpur). As per our current understanding these markets are not well served and the supply is lagging behind the demand. The local production in mid- and far-west is very limited and the prices are quite high compared to other areas of Nepal. As our supply capacity increases, we gradually expand our market to Province 2 as well.

[Here, you should describe any marketing opportunities you foresee and how you plan to take advantage of those opportunities. What advertising or promotional programs will you undertake? How will you distribute

your product? You should have clearly defined targets; e.g. “We will market at least 5000 mt. of Grade A

orange each year.” You may also want to set targets for number of markets, market share in each of the target

market, or any other specific targets that you might use to determine whether your firm has been successful

in marketing.

[It is also important to design risk mitigation measures in advance. For example, you may want to manage

risks associated with input and output prices (You may choose for fixed price contract with your buyers (lock-

in price) in advance? Or you may opt for processing during the period when the price is very low if you have

buyer for that processed product. Or You may develop storage facility to hold product for longer duration,

until the price goes up in the end market and etc.]

Some questions that should be addressed are - 1. Who are my customers and what do they want?

2. Why would customers buy my products?

3. What market advantages do I have?

4. How will I distribute my products to the customer?

5. Who is my competitor and what are they up to?

6. What price can I charge for my product and for how long?

7. What is my long-term business and marketing goals?

8. What is the size of your target market? Whether, the demand - growing, stable, or falling (market

trends)?

9. Can I produce/supply differentiated product, if yes, how can it be possible in cost-effective way?

10. Do the consumer value my product and how much can they pay for my product or service?


13

C.2. Marketing Strategy

There are three types of suppliers in our target markets (Pokhara, Butwal, and Bhairahaba) – (i) Local suppliers (from within the province 4). The capacity of local suppliers is limited and they lack scale required by the market. The supply channels are poorly organized and lack efficiency. Our strategy will be to achieve scale supply the product at very competitive price. We do not consider these suppliers as our competitors. (ii) Suppliers from other provinces. There are some bigger actors from other provinces (especially province 5) involved in suppling these markets. In case of Pokhara market at least, half of our supply enters Pokhara market, where we have proven advantage over these suppliers due to lower cost for aggregation and transportation. In the mid- and long term, we will be working to further increase our share in this market. However, in case of Butwal and Bhairahaba, these suppliers are quite competitive. Our strategy in these markets will be to supply quality fruits targeting those consumers who value quality products and ready to pay higher price. We will also work on branding and promotion to penetrate this segment of the market and we expect to supply at least 30% of our total transaction. (iii) Importers. The domestic supply is very limited during early and late season and the importers especially focus such window of opportunities. Generally, the price is rewarding during this season due to lack of supply. We are planning to supply late season market and around 10% of our annual transaction will take place during this season. There will be some additional costs for storage and postharvest management, however, we will benefit from higher prices prevailing during this season. Our cost – benefit analysis indicate that the margins are higher compared to main season. The margins are lower during main supply season due to stress selling by the local suppliers.

C.3. Pricing Strategy

Our strategy is to improve the supply chain efficiency - adoption of out-grower scheme, more efficient aggregation system, bulk marketing, skillful human resources – in combination will reduce our cost of doing business and improve our standing in the market. Our understanding of the market indicates that the market price of fruits (especially the oranges) highly depend on the market arrival and our approach will be to compete in our target market by keeping the costs low as far as possible and supply the produce in highly competitive price.

C.4. Market situation Analysis

Consumption. The estimated annual consumption is 11,395 Mt., of which, 8,387 Mt. is consumed in urban areas. The total transaction in the key road corridor areas was around 17,274 Mt. Marketing Practice. The cursory study findings indicate poor performance of local value chain, primarily the supply side. Our study included 23 markets and the average transaction of citrus in these surveyed markets was 2.8 Mt. per day. (wholesale market – 16.1 Mt./day; retail market – 0.96 Mt./day; haatbajar – 0.1 Mt./day; and collection center – 0.38Mt./day in average). The growers generally sell their produce to local collectors, wholesalers or the contract buyers. In case of orchard contractors, the harvesting and marketing is managed by


14

the contractors. The contractors are either bigger farmers or the local traders from the same area, who have strong backward linkage with suppliers and forward linkage with wholesale buyers. Local supply and import, export situation. The local supply is not growing in the recent years. The MOALD data for last 5 years indicates that the production has stagnated; on the other hand, the import has been steadily increasing. The Department of Customs data shows that the import has increased from 18,670.1 Mt. in 2012 to 119,838.2 Mt. in 2018 (DOC, 2018). During the period 2009 – 2016, the average annual import growth for citrus fruit was 18.6% by volume and 32.6% by value. The export figures are small compared to import. Nevertheless, Nepal exports substantial quantity of fruit juice (various including citrus juice) to India. In 2017/18, Nepal exported juice worth NPR 4,760.9 million; of which NPR 730 million was citrus fruit juice (DOC, 2018).

C.5. Marketing

a. Fresh fruits. At present, we have 50 Ha of orchard under sweet mandarin and the yearly supply is around 500 Mt of fruits to wholesale collectors. We have informal contractual arrangement with 5 buyers who buy all the harvest. Further, we are planning following activities – Existing orchard: We will further invest into our existing orchards especially in soil nutrient management, disease and pest management, irrigation, training and pruning of trees. Upgrading of the existing orchards will result in average 10% increase in productivity within year one and 15% in year two; and at least 20% increase in output starting from year 3. Table 2 presents the expected production from the existing orchards. Table 2: Planned supply from existing orchards owned by the firm (over 15 years period)

SN Description Quantity, Mt. Grade Supply

1 Year 0 500 Not graded 100% 500.00

2 Production from existing orchard – Year one

550.0

Grade A 30% 165.00

Grade B 60% 330.00 Grade C 10% 55.00

3 Production year two 575.0 Grade A 30% 172.50 Grade B 60% 345.00

Grade C 10% 57.50

4 Production year three and onward

600.0 Grade A 30% 180.00 Grade B 60% 360.00

Grade C 10% 60.00

New orchard: Additional 75 Ha of orchard will be established. It will take four years to complete the orchard establishment. No production is expected until year 3; and starting from year 4 to 9 – the production is expected to be around 35% of the production capacity (at least 15 Mt/Ha) and from year 9 to 15 production in full capacity.


15

Table 3: Estimated supply from new orchard (over 15 years period)

SN Description Quantity

Grade Supply

Name % of total prod.

Qty, Mt

1 Until year 3 No production

2 Production from existing orchard – from year 4 to 9

393.75

Grade A 25% 98.44

Grade B 60% 236.25

Grade C 15% 59.06

2 Production from year 10 to 15

1125

Grade A 35% 393.75

Grade B 55% 618.75

Grade C 10% 112.50

Total supply volume. Table 4 provide the estimated supply volume and revenue from year one to year 15. The total production reaches to more than 2000 Mt. in year 10. Table 4: Estimated annual supply volume (from own production)

Year Prod. from existing

orchard Prod. From new

orchard Total Prod.

1 500.0 0.0 500.0

2 550.0 0.0 550.0

3 575.0 0.0 575.0

4 605.0 5.0 610.0

5 637.0 37.0 674.0

6 714.0 114.0 828.0

7 837.5 237.5 1075.0

8 1005.0 405.0 1410.0

9 1181.5 581.5 1763.0

10 1340.0 740.0 2080.0

11 1542.5 942.5 2485.0

12 1700.0 1100.0 2800.0

13 1725.0 1125.0 2850.0

14 1725.0 1125.0 2850.0

15 1725.0 1125.0 2850.0

The buyers. In case of fresh fruits, we will continue with the existing wholesale buyers. Currently, we have informal supply arrangement, however, we will enter into formal contractual arrangements with these buyers before upgrading our business. The details of the buyer are given in the table below -


16

Table 5: Contracted wholesale buyers of fresh fruits

SN Name of the buyer Market Remarks

1 Mr. Ramhari Shrestha Pokhara Formal supply contract will be signed at later stage 2 Mr. Madhusudhan Rai Pokhara

3 Mr. Bablu Shah Butwal

4 Ms. Binita Nepal Butwal

5 Ms. Laxmi Shreebastab Bhairahaba

b. Fruit Saplings/seedlings. By year 3, we will be producing around 5,000 saplings on annual basis. Until year 3 we will not be selling the produced saplings and starting from year 4 we will supply the sapling to farmers. The supply channels for fruit saplings are not well established. In many cases, the bulk buyers are government departments/offices, development projects/programs, I/NGOs, who generally support farmers in establishing new orchards. There are potential medium and big scale farmers willing to establish and/or expand their orchards. We will be working on establishing supply channel for fruit saplings and target small, medium and big orchard growers across Nepal. However, our main target market is Gandaki Province and Province 5 and Karnali Province. It is expected that 50% of saplings produced will be supplied to the farmers from Gandaki Province and the rest 50% will be marketed across the country, especially Province 5, 6, and 7 through government programs/projects, I/NGOs and nurseries from the respecting areas (starting from year 7). The cooperative will provide a leaflet to each buyer that will guide on how to properly handle the saplings while transporting. The leaflet will also include a detail description of the planting techniques and first 3 years of orchard management practices. Table 6: Sapling selling price, NPR per plant

SN Description Rate per sapling

1 3 years old grafted sampling prepared for long distance transportation

NPR 500

2 3 years old grafted sampling for short distance transportation

NPR 450

3 3 years old seedling prepared for long distance NPR - 200

4 3 years old seedling prepared for short distance NPR - 150

C.6. Product promotion

We will seek for the local advertising agencies to promote our products, especially the local FMs. The advertisement will be broadcasted three times a day for at least 3 months just before the orchard establishment season. We will also visit government departments, traders and farmer and inform about the saplings. In addition, we will establish a website that will include our activities, available products and services, quality of our products, prices, production sites, supply arrangements, contact details and etc. We will also take order from the web-based system. We will also utilize the social media for the advertisement of our products and services.


17

C.7. Sales forecast

Fresh fruits. We are in this business for last 10 years and understand the market; in addition, we have contractual arrangements with buyers functioning in the targeted markets. Our forecast for annual sale is as given below - Table 7: Sales forecast for fresh fruits

15 years sales forecast – Sweet mandarin in MT.

Year

Mandarin 1 2 3 4 5 to 9 10 to 15

Own Production 500 550 575 605 875 1626

Collection from the out- growers - old orchard 800 800 800 800 950 1250

Total collection and supply/sales 1300 1350 1375 1405 1825 2876

Grafted saplings. A total of 5,000 grafted mandarin saplings will be produced on annual basis. The nursery unit will be established 2 years earlier to orchard establishment. Until year 4 the output of the nursery will be utilized in establishment of own orchards. The supply to market will start from year 5. In the fifth year, we will review the demand situation of saplings and will plan the sapling production based on the demand. Our current analysis of the situation indicates that the demand for citrus saplings is substantially more than 5,000.

C.8. Marketing plan

Table 8 presents our marketing plan. The collection season starts from October and continues till January. Around 40% of the annual collection is expected to be in December. However, the cool storage facility will be utilized to check distress selling. Supply to contracted wholesaler buyers will start from October (in small volume) and will continue till March. The collected products will be cleaned, graded and packed before supplying them to buyers. Table 8: Production and supply plan

Service Months Total Quantity

J F M A M J J A S O N D

Harvesting of citrus fruits 550 to 1350 Mt.

Collection from out-growers 800 to 1250 Mt.

Supply to wholesale buyers 1350 to 2600 Mt.

D. Production Plan

Production. The quality and availability of saplings is one of the key issues at the production level. In the past, Ministry of Agriculture Development (MOAD) through District Agriculture Development Office (DADO) had been providing planting material in subsidized rate to farmers. Most of the saplings are produced by private nurseries, and many of them have

[Describe in general terms what activities, where those activities will be carried out, who will carry out,

participation, approach and methodology, timing, implementation, capacity building and technology transfer,

proposed activities’ and so…]


18

limited capacity and lack infrastructure needed to produce saplings of reasonable quality. The priority is to improve the availability of good quality planting material of appropriate variety (the demand for citrus saplings is in increasing trend). There exists enormous growth potentiality. Improved orchard management, efficient irrigation and fertilization practices, integrated disease and pest management practices, proper harvesting practices and losses reducing technology, are the key areas of production and productivity improvement. In postharvest aspect, standardization and grading, efficient product aggregation and innovative procurement system, and development of value adding market infrastructure are the key areas of improvement. Innovative and agribusiness-led product aggregation, procurement and payment system will encourage farmers to invest on to new technology and scaling up. Production upgrading. In the above context, our business will (i) upscale citrus fruits production and (ii) establish screen house nursery and produce quality citrus saplings. Since last 10 years we are in this business, and own a citrus farm with 100 ha mandarin orchard with annual production of around 800 Mt of fruits. The success of our citrus farm has encouraged us to further expand our business by increasing production area (by 500 ha), produce quality saplings (50,000 nos.), upgrade existing orchards, and establish and operationalize value chain platform. In this regard, we are planning following activities: Scale up production

Improve the orchard management practices in existing 50 ha – Installment of irrigation system in the orchard Soil nutrient management Disease and pest management Pruning of excess and dead branches Other orchard management practices

Establishment of mandarin orchard in 75 ha – (Parbat – 75 ha) Land clearance and development including terracing Construction of sheds, packaging room and storage in the respective area (low cost using

locally available materials) Development irrigation facilities Training to workers on orchard management, postharvest management Pit digging in 75 ha Procurement and transportation of saplings Procurement of equipment and tools (the equipment and tools will also be available to

general farmers in the area on custom hire basis)

Support farmers in the establishment of orchard in 50 ha – (Parbat – 50 ha) Provide embedded services to farmers including high quality saplings, production inputs,

technical services in orchard establishment Organize capacity building events – training, on the sport guidance/coaching, Support farmers in accessing financial services/products (increased access to finance)

Quality sapling production (Establishment of well-equipped nursery in 2000 sq. m) Development of nursery in 2000 sq. m (with irrigation, misting, temperature regulation,

ventilation and other facilities) Procurement of poly bags, plastic pots, nursery instruments and other accessories


19

Boring of shallow tube well, water filter, storage Development of shed and sapling packaging room and storage premise Selection of mother tree/plant for seed and scion Procurement of seed and scion Production of seedlings and grafted saplings Fencing of nursery compound

Capacity Building of Stakeholders

Training on orchard management

Farmers Field Days and orchard management campaign Visit to well managed orchards and discussion on the technology/practices) Campaign with the purpose to improve the OMP in farmers field (at the time when trees are

subject to training and pruning); Organization of Orange fair before harvesting (interaction among the farmers on practices

and development of backward and forward linkages and market matching exercise)

Assist farmers in adopting improve practices of harvest and postharvest (tools for harvesting, short term storage facilities, and grading shed)

Value addition, processing and marketing of orange improved

Support semi-processing at group level

Develop forward linkages for marketing of semi-processed products

Establish and operationalize multi-stakeholder platform of Citrus VC actors Disease and pest management. In controlling the disease and pest, we will follow Integrated Disease and Pest Management (IDPM) practices. Citrus decline is one of the key issues in Nepal and we will, from the very beginning, take all possible measures to check pest and diseases responsible for citrus decline. We will also consult related experts/specialist and service provider to keep our orchard in good health. Soil management. We will adopt Integrated Soil Management practice. We are planning to produce compost and vermin compost at our farm to fertilize our orchards. We will also use chemical fertilizers to maintain the soil fertility at the required level. Quality control. Our quality system will start right from use of best quality planting material, use of integrated management system (soil, disease and pest), adoption of appropriate harvesting practice, improved postharvest management including grading and packaging. We will establish quality tracing system for the fresh fruits supplied from our farm.

D.1. Location of our business

Fresh fruit production. In course of preparation of this business plan the promoters and experts visited the field and identified locations for new orchard establishment. We have access to 50 ha of land suitable for citrus growing in Parbat, quite near to our existing plantation and which is owned by the promoters of this enterprise. Moreover, we have identified locations in Kaski, Siangja, Lamjung, and Tanahu and planning to lease those land parcels for 25 years lease period. These lands are owned by the medium and big farmers, lack labor for regular maize-based cropping system and interested in giving it in long term hire. These landlords have migrated to urban areas and are not involved in commercial utilization of these land. There are many small-scale orchards in those area but according to the farmers


20

the productivity is low (around 8-10 MT/ha). It is expected that our intervention in those area will also benefit smallholder farmers with small-scale mandarin orchards.

Establishment of nursery. The nursery will be established in an isolated area (there is no citrus plantation in at least 20 Km radius, but with access to all weather road) of Kaski district. We have selected several location and planning to hire land for 25 years and negotiating for best deal.

Power requirements. All selected locations are connected to national grid. However, we will have a solar system in our nursery unit to ensure uninterrupted power supply.

Maintenance (farm equipment and tools, storehouse, packaging room and sheds, nursery screen house and

solar system). We have allotted 7% of the construction cost to maintenance. It is anticipated that our main maintenance costs will be the farm equipment and tools, nursery and equipment.

E. Management and Organization

E.1. Human Resources

A team of well experienced persons will be involved in the implementation of the business activities. The implementation team will consist of one manager (Mr. Binod Hamal), two field managers (one responsible for nursery unit and other for orchard unit). Mr. Simon Bhattari will head the orchard farm and Mr. Tara Barakoti will lead nursery unit. The details of the human resources and organization is presented below: Table 10: List of staff

SN Position Name

1 General Manager Mr.

2 Production Manager Mr.

2.1 out-grower unit manager Mr.

2.2Nursery unit manager Mr.

2.3 Farm unit manager Mr.

3 Marketing Manager Mr.

3.1 Collection and postharvest assistant Mr.

3.2 Supply and distribution assistant Mr.

4 Agriculture technician Mr.

5 Account officer Mr.

7 Driver TBN

8 Office assistant TBN

9 Part time support staff/driver TBN

[Here, take stock of the total managerial expertise used by the firm. What marketing-related special knowledge

do the managers possess? Is there one manager who has particular expertise in marketing? Thinking beyond

the organization is wise; those in agriculture production have other sources of knowledge that may exist

outside of the firm. For example, consultants may be available to provide information related to the current economic situation and outlook. Also, the government extension system and the private sector could provide

a great deal of information and data on agricultural prices and marketing.] [ One of the most important—yet most often overlooked—inputs is labor. The competency of your human

resources may dictate how successfully your business will perform.]


21

E.2. Organizational Chart

Figure xx presents the company organization chart that is tailored to successfully operate the

businesses. The team will be led by Mr. Gurung, TP, General Manager. The organization

consists of two department, (i) Production; which will be led by Mr. xxxxxx, Production

Manager; and (ii) Marketing; which will be led by Mr. xxxxxx, Marketing Manager. The

details are provided in organizational chart in Fig. xx.

Fig. xx: Organizational Chart of the organization

F. Financial Plan

General Manager

Driver Part time driver Office Assistant Account Officer

Farm Unit Manager Out-grower Unit

Manager

Agriculture Technician

Nursery Unit Manager

Production Manager

Part time support staff

Marketing Manager

Collection and postharvest assistant

Supply and distribution assistant

Most business plans include at least five basic reports or projections:

Balance Sheet: Describes the company cash position including assets, liabilities, shareholders, and earnings retained to fund future operations or to serve as funding for expansion and growth. It indicates the financial health of a business.

Income Statement: Also called a Profit and Loss statement, this report lists projected revenue and expenses. It shows whether a company will be profitable during a given time period.

Cash Flow Statement: A projection of cash receipts and expense payments. It shows how and when cash will flow through the business; without cash, payments (including salaries) cannot be made.

Operating Budget: A detailed breakdown of income and expenses; provides a guide for how the company will operate from a "dollar" point of view.

Break-Even Analysis: A projection of the revenue required to cover all fixed and variable expenses. Shows when, under specific conditions, a business can expect to become profitable.

[This section is the most crucial from a potential lender’s perspective. Here, you should tie together the details in the rest of the plan in terms of how they affect the firm’s financial performance. Ultimately, operating a business is about making money. Therefore, this section needs to allow the reader to assess where the firm is and

where it intends to go over the planning horizon. Although you should provide current and projected future (“pro forma”) financial statements with the plan, they might be best presented in an appendi x. This section should be mostly a verbal explanation of the business’s finances, with perhaps a few tables to highlight important information. Because this section is so important, especially if financing is being pursued, you may want to work with a business consultant, accountant, or other financial advisor to develop it .] [Here you should highlight the important points of your financial statements (income statement, balance sheet, and statement of cash flows). Focus on the positive aspects, while not i gnoring the negative. You do not want to

provide a potential lender with an impression that you are trying to hide information. ]


22

F.1. Orchard establishment costs

The plan intends to establish new orange orchards in 75 ha. (leased land). Our estimate indicates that the costs of orchard establishment in one hectare in NPR 250,000. The orchard will take 3 years of vegetative growing period and start fruiting from year 4 and continue to more than 20 years. (See annex for orchard establishment costs)

F.2. Screen house construction cost

We will develop a well-equipped screen house in the first year of project implementation. The total area of the screen house is 2000 sq. ft., and the total cost of screen house is estimated to be NPR 4.8 million. The optimal life of the screen house is 15 years, however, it will require major maintenance work every five year. The site for screen house construction has already been identified.

F.3. Construction of shed, cool store, collection facility and office room

The cooperative/firm will establish collection point (which include cool store facility, collection shed, weighing and packing room, and office room) in its land in Parbat district. The total construction work is estimated to cost around NPR 34.2 million, and which will be completed within first year of project implementation. In the same premise the company will also construct the screen house for sapling production. The optimal life of these infrastructure exceeds more than 25 years, however, for the purpose of financial analysis we have estimated 15 years of time frame.

F.4. Production and postproduction related farm equipment

The firm will procure farm and postharvest equipment for use in farm operation and in collection/marketing operations (including special vehicle transportation of packed orange). The total cost of such equipment is estimated to be around NPR 3.7 million.

F.5. Depreciation of Equipment and facilities

The costs of equipment depreciation accounts for purchase price, salvage value, and years of service (also called optimal life). The optimal life of all the machinery, equipment, vehicles, buildings, and screen house is assumed to be 15 years. The salvage value at the end of this period is (i) for building and machinery - 15% of the original cost, (ii) for screen house, and small tools - 5%, and (iii) in case of orange orchard - 25% of its original establishment costs (the orchard will generate substantial income far beyond 15 year).

For our purpose, the depreciated value (purchase price – salvage value) is split equally among the years of service of the equipment because after the first year of use, most machinery depreciates at a fairly consistent rate over the next 15 years (with typical use).


23

F.6. Financing Costs

It has been assumed that 60% of the initial price is covered by cash payment by the promoters, 40% will be financed (bank loan at 10%). It is also assumed that the loan will be paid back along the period of 10 years.

The cost to borrowing 40% of the financing was based on an average interest rate for agriculture loan with a ten-year repaying period.

Insurance: All the facilities and equipment and orchard will carry suitable insurance against accidental damage/losses. These annual costs have been set at 1% of the original costs of these facilities.

F.7. Annual Production costs

Production costs are comprised of two components, fixed costs and variable costs. Three assumptions were considered during calculation of the operating costs (OC), which are (1) The costs were calculated using the information collected from the interaction with stakeholders; (2) Inflation rates were ignored in the calculation; (3) The interest rate is equal to 10%.

(i) Fixed costs A fixed cost is one that does not change with an increase or decrease in sales or productivity and must be paid regardless of the company’s activity or performance. Fixed costs can help in achieving economies of scale, as when many of a company’s costs are fixed the company can make more profit per unit as it produces more units. In this system, fixed costs are spread out over the number of units produced, making production more efficient as production increases by reducing the average per-unit cost of production. Economies of scale can allow large companies to sell the same goods as smaller companies for lower prices. The fixed cost includes indirect labor, office overhead, depreciation, amortization of pre-operating expenses and etc. (Table included in annex). (ii) Variable costs The variable costs are direct costs needed in the operation of the businesses and which changes when the level of output alters. Variable costs depend on direct labor, fuel, oil, repair and maintenance costs and other costs resulting from the production, collection, marketing and provisioning of the services to farmers. These costs were calculated based on our previous records and interaction with producers, collectors and buyers of the products. The fuel and oil costs were estimated from consumption rate and multiplied by their respective prices. (The details of variable cost is presented in annex of this BP.

F.8. Income

(i) Income from sales of fresh apple The total marketable volume is estimated to be around 2,600 MT (see table xx in section C. 16. for details) of orange with the average selling price at farm gate is NPR 55/kg. (for the financial analysis purpose, the farm gate price has been fixed rate for all 15 years). The major income is generated out of fresh orange and nursery plants sales. The average annual revenue


24

from sales is estimated to be around NPR 35.0 million per year (average of year one to year 15). The details of assumptions leading to the income and expenditure are indicated in Annex and the statement of income and expenditure is given in Annex 7.

F.9. Financial viability of the project

(i) Business appraisal method Return on investment, benefit – cost ratio, payback period, net present value, internal rate of return is commonly applied in the appraisal of the businesses and the same have been used in appraisal of this business plan. This appraisal is based on four assumptions, which are (1) All the devices are purchased with cash; (2) Operation technology is remaining unchanged throughout the project life; (3) Prices of all input and outputs are given and constant throughout the project life; and (4) Interest rate of 10% has been assumed for calculating BCR and NPV.

(ii) Benefit-cost ratio Benefit-cost ratio (B/C ratio) is defined as the ratio of benefits to costs (expressed either in present or annual worth). If the B/C ratio is greater than unity, then it will be economically accepted. B/C ratio = ∑ Present worth of Benefits (PWB)/ ∑ Present worth of costs (PWC)

(iii) Net present value The NPV is a scientific method of calculating the present value of cash flows, both inflows and outflows of an investment proposal, using a discount rate and subtracting the present value of outflows to get the net present value. NPV is calculated by using the following formula:

Net present value = ∑ Present worth of Benefits (PWB) ∑ Present worth of costs (PWC)

(iv) Internal rate of return The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does. Formula and Calculation for IRR. It is important for a business to look at the IRR as the plan for future growth and expansion. The formula and calculation used to determine this figure follows.

0 = 𝑁𝑃𝑉 =∑𝐶𝑡

(1 + 𝐼𝑅𝑅)𝑡

𝑇

𝑡=1

− 𝐶0

Where: Ct = Net cash inflow during the period t C0 = Total initial investment costs IRR = the internal rate of return T = The number of time periods


25

(vi)Payback period The payback refers to the time period within which the costs of investment can be covered by revenues. In other words, it is the length of time required for the stream of cash proceeds produced by an investment to equal the initial expenditure incurred. This can be computed by applying the following formula: Payback period = Investment (total initial, NPR)/Net benefit (NPR/yr.) (vii) Financial ratios The financial viability assessment is given separately. The outcome is summarized as below:

Net Present Value @ 10 % discounting factor = Rs. 73,947,000

Benefit - Cost Ratio = 1.76

Internal Rate Return = 21%.

Payback period = 8.06 years

G. Conclusion

The business includes production and supply of high quality/disease free grafted orange saplings, establishment of new orchards, upgrading of existing orchards (own), service to existing orange growers in scaling up production and support new farmers in establishing orange orchards (out-grower), product aggregation and postharvest management (cleaning/grading/packaging), and product marketing. Our analysis of the sub-sector indicate that the business has tremendous growth opportunities and import substitution potentialities. The initiated business will also be helpful in increasing farmer’s income by at least 50%. Further, the activity will also benefit other value chain stakeholders (traders, processors) in the selected four districts. The primary objective is to accomplish sub-sector performance, while steadfastly remaining a profit-making entity in all our management strategies. The business plan envisages a period of fifteen years; however, it will remain in business for a longer period. The total cost is estimated to be NPR 80.3 million; of which, NPR 24.1 million is bank financed and the remaining Rs 56.2 million is promoters’ equity. The financial analysis indicated that IRR of the business is 21% and the NPV at 10% discount rate is NPR 73,947,000. The business is profitable because IRR is greater than the opportunity cost of capital. Further, the cost benefit ratio (BCR) is 1.76.


26

Financial Analysis Sweet Mandarin


27

Annex-1

(Rs in '000)

SN Particulars Unit Rate Project years Total

per 1 2 3 4

unit Qnty Amnt Qnty Amnt Qnty Amnt Qnty Amnt Qnty Amnt

1 Land and Land development 150 450 1125

- Land (own) Ha 10 0 30 0 30 5 75 0

- Land development Ha 15.000 10 150 30 450 30 450 5 75 75 1125

2 Orchard Development 1576 5193 6574 3966 17309

- Plantation (initial) Ha 10 1576 30 4728 30 4728 5 788 75 11820

- Maintenance (initial) Ha 10 465 30 1846 30 3178 5 5489

3 Building and civil works 20250 7000 6000 1000 34250

3.1 Project support units

a. Office/Guest house, (1 unit, 1000 sqft each) Sqft 1.500 1000 1500 0 0 0 1000 1500

b. Staff quarters, (1 units, 1000 sqft each) Sqft 1.000 - - 1000 1000 - - - - 1000 1000

3.2 Fencing 50% of the area Rm 1.500 0 0 0 0 0 0 0 0 0

3.3 Collection/Market centers, (1 units, 2000 sqft

each)Sqft 0.700 1000 700 0 0 0 1000 700

3.4 Cool chamber (Cap.100mt) mt 75.000 150 11250 150 11250

3.5 Screen house for nursery Smt 2.400 2000 4800 2000 4800

3.6 Irrigation systems Ls 200.000 10 2000 30 6000 30 6000 5 1000 75 15000

4 Machinery & equipment 500 1500 1500 250 3750

For Orchard Establishment

- Farm tools and equipment Sets 50.000 10 500 30 1500 30 1500 5 250 75 3750

5 Furniture & fixtures 150 0 0 0 100

5.1 For Project Support Units Sets 25.000 2 50 50

5.2 For Collection/Market Centres Sets 25.000 4 100 100

6 Vehicles 0 0 0 0 0

For project support office/market centres

- Pickup vans Units 2500.000 0 0 0 - - - - 0 0

- Motor bikes Units 200.000 1 200 0 0 1 200

7Pre-operating expenses (Registration,

feasibility, engg. designs, etc.)Units 500.000 1 500 - - - - - - 1 500

TOTAL FIXED CAPITAL INVESTMENT 23126 14143 14074 5216 56559

TOTAL TERM LOAN (I) 6938 4243 4222 1565 16968

EQUITY 16188 9900 9852 3651 39591

INITIAL ANNUAL INVESTMENT PROGRAMME


28

Annex 2

A FIXED COST

(Rs in '000)

SN Particulars Unit Rate per Project years

unit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 Depreciation on 517 910 1312 1391 1436 1406 1406 1406 1406 1406 1031 1031 1031 1031 1031

- Orchard development, @2% 32 135 267 346 346 346 346 346 346 346 346 346 346 346 346

- Building and civil works, @2% 405 545 665 665 685 685 685 685 685 685 685 685 685 685 685

- Machinery & equipment, @10% 50 200 350 350 375 375 375 375 375 375

- Furniture & fixtures, @20% 30 30 30 30 30

- Vehicles, @10% 0 0 0 0 0 0 0 0 0 0

2 Amortisation of p/o cost, @10% 50 50 50 50 50 50 50 50 50 50 - - - - -

3 Insurance, 1% of investment 0 0 0 0 561 561 561 561 561 561 561 561 561 561 561

cost less land value

& p/o expenses

4 Indirect labour 960 960 960 1620 1740 1740 1740 1740 1740 1740 1740 1740 1740 1740 1740

- General Managers-1, @Rs.20000/month Nos. 240 240 240 240 240 240 240 240 240 240 240 240 240 240 240 240

- Production Manager-1, @Rs. 15000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120

- Out-grower Unit Manager-1, @Rs 10000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120

- Nursery Unit Manager-1, @Rs. 10000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120

- Farm Unit Manager-1, @Rs. 10000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120

- Marketing Manager-1, @Rs. 15000 Nos. 180 180 180 180 180 180 180 180 180 180 180 180 180

- Collection and Postharvest Assistant-1, @10000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120

- Supply and Distribution Assistant-1, @ 10000 Nos. 120 120 120 120 120 120 120 120 120 120 120 120 120

- Agricutlure Technician-1, @ Rs 20000 Nos. 240 240 240 240 240 240 240 240 240 240 240 240 240 240 240 240

- Orchard Supervisor-5, @Rs.10000/month Nos 120 120 120 120 120 120 120 120 120 120 120 120

- Accountant-1, @Rs.10000/month Nos 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120

- Drivers-2, @Rs.18000/month Nos 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

- Watchmen/Peons-1, @10000/month Nos 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120

5 Office overheads 67 67 67 72 79 87 96 105 116 128 140 154 170 187 205

- Stationery and others LS 2 2 2 2 2 2 2 3 3 3 4 4 4 5 5 6

- Communication LS 5 5 5 5 5 6 6 7 7 8 9 10 11 12 13 14

- Ad and promotion LS 5 - - - 5 6 6 7 7 8 9 10 11 12 13 14

- Auditing and legal services LS 50 50 50 50 50 55 61 67 73 81 89 97 107 118 130 143

- Miscellaneous LS 10 10 10 10 10 11 12 13 15 16 18 19 21 24 26 29

6 Interest on Term Loan (I & II) 855 1446 2039 2408 2408 2685 2747 2427 1538 0

TOTAL FIXED COST (A) 2449 3433 4428 5541 6274 6528 6599 6290 5411 3884 3472 3486 3502 3519 3537

ANNUAL OPERATING COST & EXPENSES


29

Annex 3

B VARIABLE COST

(Rs.in '000)

SN Particulars Unit Rate per Project years

unit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 Direct labour 700 700 700 700 2995 3170 3380 3465 3475 3475 3475 3475 3475 3475 3475

For orchard maintenance* - - - - 2295 2470 2680 2765 2775 2775 2775 2775 2775 2775 2775

For orchard maintenance (existing 50 ha) Ha 14.000 700 700 700 700 700 700 700 700 700 700 700 700 700 700 700

2 Utilities (fuel & electricity) 480 528 581 639 703 773 850 935 1029 1132 1245 1369 1506 1657 1823

For Orchard LS 480 528 581 639 703 773 850 935 1029 1132 1245 1369 1506 1657 1823

3 Repair & maintenance 425 625 685 685 685 685 685 685 685 685 685 685 685 685 685

- Building and civil works, @2% 405 545 545 545 545 545 545 545 545 545 545 545 545 545 545

- Vehicles, @4% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

- Machinery & equipment, @4% 20 80 140 140 140 140 140 140 140 140 140 140 140 140 140

4 Inputs and raw materials 300 300 300 300 1363 1312 1354 1414 1479 1547 1610 1644 1649 1649 1649

For orchard maintenance - - - - 1063 1012 1054 1114 1179 1247 1310 1344 1349 1349 1349

For orchard maintenance (existing 50 ha) Ha 6.000 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300

5 Interest on Term Loan II

TOTAL VARIABLE COST (B) 1905 2153 2266 2324 5746 5940 6269 6499 6668 6839 7015 7173 7315 7466 7632

TOTAL OPERATING COST (A+B) 4354 5586 6694 7865 12020 12468 12868 12789 12079 10723 10487 10659 10817 10985 11169

Annex 16

Annex 16


30

Annex-4

Capacity : 1225 Mt

Working days : 300 Days

Working hours : 8 Hours (Rs in '000)

SN Particulars Project years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

I Current assets:

A Inventory 2,932 3,180 3,293 4,016 8,126 8,328 8,666 8,905 9,084 9,267 9,456 9,628 9,786 9,953 10,138

1 Direct labour 700 700 700 700 2,995 3,170 3,380 3,465 3,475 3,475 3,475 3,475 3,475 3,475 3,475

2 Utilities 480 528 581 639 703 773 850 935 1,029 1,132 1,245 1,369 1,506 1,657 1,823

3 Repair and maintenance (var.) 425 625 685 685 685 685 685 685 685 685 685 685 685 685 685

4 Inputs and raw materials 300 300 300 300 1,363 1,312 1,354 1,414 1,479 1,547 1,610 1,644 1,649 1,649 1,649

5 Administrative overheads 1,027 1,027 1,027 1,692 2,380 2,388 2,396 2,406 2,417 2,428 2,441 2,455 2,470 2,487 2,506

B Cash in Hand (From V below) 2932 2880 2993 3716 6763 7016 7312 7491 7605 7720 7846 7984 8137 8304 8489

Total Current Assets (I) 5864 6060 6286 7732 14888 15344 15978 16397 16690 16987 17302 17613 17923 18258 18627

II Current liabilities

A Accounts Payable (3) 480 528 581 639 703 773 850 935 1029 1132 1245 1369 1506 1657 1823

III Working capital

A Net working capital (I-II) 5384 5532 5705 7093 14185 14570 15127 15461 15661 15855 16057 16243 16416 16601 16804

B Increase in working capital 5384 148 173 1388 7092 385 557 334 200 194 202 187 173 185 203

- Term Loan on working capital 1615 1660 1711 2128 4256 4371 4538 4638 4698 4757 4817 4873 4925 4980 5041

- Equity on working capital 3769 3872 3993 4965 9930 10199 10589 10823 10963 11099 11240 11370 11491 11621 11763

IV Calculation of cash requirement

A Operating cost 2932 3180 3293 4016 8126 8328 8666 8905 9084 9267 9456 9628 9786 9953 10138

B Raw Materials 0 300 300 300 1363 1312 1354 1414 1479 1547 1610 1644 1649 1649 1649

V Total Cash Balance (A-B) 2932 2880 2993 3716 6763 7016 7312 7491 7605 7720 7846 7984 8137 8304 8489

WORKING CAPITAL REQUIREMENT


31

Annex 5

(Rs in '000)

SN Particulars

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Area in ha-> 10 30 30 5 - - - - - - - - - -

Yield of orange, Mt/ha - 0.500 2.200 3.300 7.000 8.500 10.000 15.000 15.000 15.000 15.000 15.000 15.000

1 Expected production (New) 5 37 114 238 405 582 740 943 1100 1125 1125 1125

- First year plantation 5 22 33 70 85 100 150 150 150 150 150 150

- Second year - - - 15 66 99 210 255 300 450 450 450 450 450

- Third year 15 66 99 210 255 300 450 450 450 450

- Fourth year 3 11 17 35 43 50 75 75 75

2 Production from existing orchard (50ha) - 50 75 100 100 100 100 100 100 100 100 100 100 100 100

3 Citrus saplings

3 Total Fruit Production, in Mt 50 75 105 137 214 338 505 682 840 1043 1200 1225 1225 1225

4 Fruit Sales, @Rs.55000 per Mt 0 2750 4125 5775 7535 11770 18563 27775 37483 46200 57338 66000 67375 67375 67375

5 Income from Sapling sales (@250) 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250

6 Total Sales (fruits+saplings) 0 2750 4125 5775 8785 13020 19813 29025 38733 47450 58588 67250 68625 68625 68625

Project years

REVENUE CALCULATION


32

Annex 6

(Rs. in '000)

SN Prticulars Project years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A CASH INFLOW 0 2750 4125 5775 7535 11770 18563 27775 37483 46200 57338 66000 67375 67375 67375

1 Sales revenue 0 2750 4125 5775 7535 11770 18563 27775 37483 46200 57338 66000 67375 67375 67375

2 Salvage value - - - - - - - - - - - - - - -

B CASH OUTFLOW 26058 17323 17367 9232 8126 8328 8666 8905 9084 9267 9456 9628 9786 9953 10138

1 Fixed investment 23126 14143 14074 5216 - - - - - - - - - -

2 Operating expenses 2932 3180 3293 4016 8126 8328 8666 8905 9084 9267 9456 9628 9786 9953 10138

3 Tax - - - - - - - - - - - - - - -

C NET CASHFLOW (A-B) -26058 -14573 -13242 -3457 -591 3442 9897 18870 28399 36933 47882 56372 57589 57422 57237

(Before Financing)

D FINANCING

Loan (I & II) 8553 5903 5934 3693

Debt services (I & II)

- Interest 855 1446 2039 2408 2408 2685 2747 2427 1538 0

- Principal -2763 -619 3192 8895 15379 0

Net financing 7698 4457 3895 1285 355 -2065 -5938 -11322 -16917 0

E NET CASHFLOW (C+D) -18360 -10116 -9347 -2172 -236 1377 3959 7548 11482 36933 47882 56372 57589 57422 57237

(After financing)

CASH FLOW PROJECTION


33

Annex 7

SN Particulars Total

1 2 3 4 5 6 7 8 9 10

1 Loan 8553 5903 5934 3693 24083

2 Outstanding loan 8553 14456 20390 24083 24083 26846 27465 24274 15379 0

3 Current interest 855 1446 2039 2408 2408 2685 2747 2427 1538 0 18553

4 Repayment of

- Current Interest 855 1446 2039 2408 2408 2685 2747 2427 1538 0 18553

- Principal -2763 -619 3192 8895 15379 0 24083

5Repayement capacity,

(@60% of positive cashflow)-355 2065 5938 11322 17039

Project years

G r a c e p e r i o d


34

Annex 8

(Rs. in '000)

SN Particulars

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 Total benefit 0 2750 4125 5775 7535 11770 18563 27775 37483 46200 57338 66000 67375 67375 67375

2 Total cost 26058 17323 17367 9232 8126 8328 8666 8905 9084 9267 9456 9628 9786 9953 10138

3 Net benefit -26058 -14573 -13242 -3457 -591 3442 9897 18870 28399 36933 47882 56372 57589 57422 57237

4 Discount Factor at 10% 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 0.35 0.32 0.29 0.26 0.24

5 PV of benefit at 10% DF 0 2273 3099 3944 4679 6644 9526 12957 15896 17812 20097 21030 19516 17742 16129

6 PV of cost at 10% DF 23689 14317 13048 6306 5046 4701 4447 4154 3853 3573 3314 3068 2835 2621 2427

7 PV of net benefit at 10% DF -23689 -12044 -9949 -2361 -367 1943 5079 8803 12044 14239 16782 17962 16681 15121 13702

SN

A

B

C

Note : Financial indicators derived by Excel spreadsheet

Indicators Values

1.76

171344

97397

Project years

Benefit Cost Ratio (BCR)

Net Present Value at 10%

CALCULATION OF BCR, NPV and IRR

Internal Rate of Return (IRR)

73947

21%

- Sum of discounted costs

- Sum of discountd benefits


35

Annex-9

(Rs. in '000)

SN Year of Operation 1 2 3 4 5 6 7 8 9 10

1 Net Profit -4354 -2836 -2569 -2090 -3235 551 6944 16236 26654 36727

2Depreciation &

Amortisation567 960 1362 1441 1486 1456 1456 1456 1456 1456

3Profit before Dep. &

Amortization-4920 -3796 -3931 -3532 -4721 -905 5488 14780 25198 35271

4 Cumulative Profit -4920 -8717 -12647 -16179 -20900 -21805 -16317 -1537 23661 58932

Simple Pay Back Period = 8.06 Years

SIMPLE PAYBACK PERIOD

ministry of land management, agriculture and cooperatives

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