sector study of essential oils in nepal_gtz_presentation_oct 1, 2010

Essential Oils Sector Study in Nepal: y pA Detailed Study of Anthopogon, J i d Wi t E ti lJuniper and Wintergreen Essential

OilsOils

Presentation ByyKhilendra GurungO t b October 1, 2010

BackgroundGTZ is launching the Capacity Building for Bio Trade (CBBT) project aiming to strengthen bio t d l t d iti i N ltrade related capacities in NepalIdentified essential oil sector as the potential sector to promote in international market in sector to promote in international market in collaboration with the stakeholders of NepalConducting the Sector Study “Essential Oils” in Conducting the Sector Study Essential Oils in Nepal in order to achieve the in‐depth information on the supply potential and marketing activities pp y p gselecting Wintergreen, Juniper and Anthopogon oils

ObjectivesTo conduct the assessment of the supply side of the “Essential Oil” sector in Nepal for the selected oilsTo study the marketing activities for the y gselected essential oilsTo conduct the marketing barrier analysis To conduct the marketing barrier analysis for the essential oilsTo recommend CBBT for the appropriate To recommend CBBT for the appropriate interventions for the promotion of essential oils sector in Nepal oils sector in Nepal

MethodologyLiterature review and compilation of the Literature review and compilation of the related documentsThe relevant documents such as the reports, presearch articles, legal/policy related documents, export related documents were collected and reviewedreviewedDiscussion with Essential oils exporters The major producers and exporters of essential oils The major producers and exporters of essential oils based in Kathmandu was visitedFormal as well as informal interaction was conducted with them regarding the supply side of the selected essential oils, marketing status and the barrier they are facing in this sector the barrier they are facing in this sector

MethodologyInteraction with quality testing bodiesInteraction with quality testing bodiesQuality testing laboratories such as HPPCL, NPRL at DPR Natural Products Laboratory at (NAST) at DPR, Natural Products Laboratory at (NAST), Nepal Forensic Laboratories, NDRL, DFTQC laboratories etc were visitedDiscussion was carried out regarding the available testing services and their planning to launch further tests as per the requisite for export of essential oilsOther private laboratories were consulted via telephone and e‐mail

MethodologyField visit to distillation unit sites Field visit to distillation unit sites Distillation unit sites at various locations of D l kh d Si dh l h k di t i t Dolakha and Sindhupalchok districts were visited to verify the supply chain of raw

t i l l d ti it d materials, annual production capacity and the current production of the selected

ti l il essential oils Consultations and meetings were organized with the distillation unit managers and raw material collectors of each unit to collect their perceptions for the promotion of essential oils

Habitat and distribution b d d b fHabitat and distribution of Wintergreen

Distributed throughout Nepal at 1200‐2800m on rocky hill sides in forested areasWintergreen is naturally distributed in the hilly 29 districts y 9Parts used: Leaves and aerial partsAverage yield of Wintergreen oil is 0 7% Average yield of Wintergreen oil is 0.7% commercially

Habitat and distribution Habitat and distribution of Juniper Juniperus communis: Distributed throughout Nepal at 3300‐4600m in open, rocky places in alpine regions Juniperus indica: Distributed throughout Nepal at 3 00 4 00m on open slopes forests shrubberies3700‐4500m on open slopes, forests, shrubberiesJuniperus recurva: Distributed throughout Nepal at 3600‐4600m in open rocky places in alpine regions3600 4600m in open, rocky places in alpine regionsJuniper in Nepal is naturally distributed in 22 high mountainous districts Parts used: needle and berriesAverage yield of Juniper needle oil is 0.8% and Juniper berry oil is 0.3% in commercial scale

Habitat and distribution Habitat and distribution of AnthopogonDistributed throughout Nepal at 3500‐5100m on open, moist alpine regionsIn Nepal, Anthopogon is naturally distributed in 19 high mountainous ddistricts Parts used: leaves and aerial partsAverage yield of Anthopogon oil is 0.3% commerciallyy

Existing management of distillation unitsdistillation units

Distillation unit buys raw materials from the resourceful CFUGs in their respective districtsCFUGs in their respective districtsThe distillation units are operated either by cooperatives or by enterprises managed by community groups or by individualThe purchasing section carries out the procurement of raw materials containers and other necessary equipmentsmaterials, containers and other necessary equipmentsThe receiving section does the record keeping and storage of the raw materials and other accessoriesManager conducts the agreement with CFUGs, manages the daily operation of the unit, agreement with buyers and transports essential oils up to the buyer’s destinations transports essential oils up to the buyer s destinations

Distillation unit’s materialsBoth M/S as well as S/S distillation units are employed for the processing of selected essential il i N l oils in Nepal

In Taplejung, Dolakha and Rasuwa, the processing enterprises have installed S/S distillation unitsenterprises have installed S/S distillation unitsIn other districts, M/S distillation units are in operation operation, S/S distillation unit is efficient in fuel wood consumption distillation time yield % of essential consumption, distillation time, yield % of essential oils, quality of essential oils, etcThe capacity of the distillation units ranges from The capacity of the distillation units ranges from 1000L, 2000L & 2400L capacity

Process of the selected essential oils supply chainoils supply chain

Buyers sign yearly buying agreement with supplier for specified quantities of essential oilsp qSupplier places order to distillation units for necessary quantities of essential oils

ll h h fDistillation units have agreement with CFUGs for necessary quantities of raw materialsCFUG verifies quantities are within their levels of CFUG verifies quantities are within their levels of sustainable collection, and then collectors collect raw materialCFUG provides release permits with consensus from DFORaw materials are collected CFUG members/collectors and delivers to the distillation units delivers to the distillation units

Process of the selected essential oils supply chain contdoils supply chain contd.

Distillation units produce necessary quantities of l l d lessential oils and store separately

Supplier takes possession of specified essential oils, alerts buyers of its availabilityalerts buyers of its availabilitySupplier arrange dispatch of specified essential oils to buyersbuyersAlternatively, the distillation enterprises distill the essential oils and approach to Kathmandu based buyers/exporters without buying agreement The Kathmandu based buyers then contact domestic

d l i i l b f k iconsumers and also international buyers for marketing

Current supply channel of selected essential oilsessential oils

Distillation units owned by DMC, community shareholders and also individual in Dolakha distills shareholders and also individual in Dolakha distills Wintergreen, Juniper and Anthopogon oils from the raw materials collected from various CFUGs located in diff i f D l khdifferent sites of DolakhaDistillation units owned by community shareholders and individual in Sindhupalchok Ramechhap and individual in Sindhupalchok, Ramechhap, Okhaldhunga, Makwanpur, Rasuwa, Parbat, Taplejung and other parts of Nepal process Wintergreen, Juniper p p p g pand Anthopogon oils from raw materials collected from CFUGs in the respective locations of the districts

Current supply channel of selected essential oilsessential oils

HBTL buys major portion (almost 90%) of the i l il d d b DMC d h essential oils produced by DMC and other

enterprises on the basis of the annual buying agreementagreementOther retailers and exporters based in Kathmandu buys the remaining portion (about 10%) of the buys the remaining portion (about 10%) of the essential oilsThe essential oils thus received by the Kathmandu The essential oils thus received by the Kathmandu based buyers then does the post filtration, re‐packaged and warehouse for marketing in domestic and international markets

Current supply situation of selected essential oilsselected essential oils

Supply situation of Wintergreen oilAltogether 21 processing units of Wintergreen oil Altogether 21 processing units of Wintergreen oil established and operating in Dolakha (15 units), Sindhupalchok, Okhaldhunga, Makwanpur, Sindhupalchok, Okhaldhunga, Makwanpur, Rasuwa and Parbat districts of NepalCurrent production of Wintergreen oil in Nepal is p g pabout 3500kg oil per year Total production capacity of Wintergreen oil by p p y g ythe currently operating distillation units is projected to about 5000kg per year as per the

l b l f l availability of raw materials


Supply situation of Juniper oilAround 8 distillation units are working for the Around 8 distillation units are working for the production of Juniper oil in NepalThe distillation units are located basically in Dolakha(5 units), Sindhupalchok, Ramechhap (Solukhumbu) and Taplejung districtsTotal production of Juniper needle oil to about 1500kg Total production of Juniper needle oil to about 1500kg per year Total production capacity of Juniper needle oil in those

d d b kproduction sites is estimated about 2500kg per year on the basis of the availability of raw materialsNo production of Juniper berry oil in commercial scale No production of Juniper berry oil in commercial scale in Nepal to till date


Supply situation of Anthopogon oilThere are 7 distillation enterprises established and operating to process A th il i D l kh ( it ) Anthopogon oil in Dolakha (4 units), Ramechhap and Taplejung districts A l d ti f A th il i Annual production of Anthopogon oil is about 250kg per year O th b i f th il bilit f On the basis of the availability of raw materials, the total production capacity of Anthopogon oil is approximately 450kg per Anthopogon oil is approximately 450kg per year

Potential sites for the processing of selected essential oilsof selected essential oils

Potential sites of Wintergreen oil processingP k VDC G khProk VDC, GorkhaChaurikharka, Takshindu, Jubing VDCs of S l kh bSolukhumbuGhyangphedi VDC of Nuwakot H l b VDC f Si dh l h k Helambu VDC of Sindhupalchok Potential sites for Anthopogon oil processingBargaun, Kharpunath and Rodikot VDCs of Humla Patrasi VDC of Jumla

Potential sites for the processing of selected essential oilsof selected essential oils

Potential sites of Juniper needle/berry oil processing processing Samagaun VDC, Gorkha for Juniper needle oilGhode Mahadev, Tamti and Patrasi VDCs of Jumla for , JJuniper needle oilTamti and Patrasi VDCs of Jumla for Juniper berry oilBargaun VDC of Humla for Juniper berry and needle oilsNar and Pisang VDCs of Manang for Juniper needle and berry oilsMarpha VDC of Mustang for Juniper needle and berry Marpha VDC of Mustang for Juniper needle and berry oils

Current markets of the selected essential oilsessential oils

Majority of the selected essential oils produced t d hil titi are exported, while some quantities are

consumed in domestic market as wellM k l i f Wi ilMarket analysis of Wintergreen oila. Domestic marketIt is estimated that about 20% (about 700kg) of the total production of Wintergreen oil in

l d d kNepal is consumed in domestic market per yearHBTL is the major supplier of Wintergreen oil to domestic market


b. International marketOf the total production of Wintergreen oil in Nepal about Of the total production of Wintergreen oil in Nepal about 71% (about 2500kg) are exported mainly to EU and US based markets per year directly or via India based exporters

f l f l f l bOut of total export of Wintergreen oil from Nepal, about 20% (500kg) are directly exported by HBTL per yearHBTL sells about 48% (1200kg) of Wintergreen oil to HBTL sells about 48% (1200kg) of Wintergreen oil to Kathmandu based companies/exporters, who then exports upon the receiptRemaining 32% (about 800kg) Wintergreen oil is supplied by the village level producers from various districts to Kathmandu based companies/exporters which are p / pultimately exported


Market analysis of Juniper oila. Domestic marketAbout 7% (around 100kg) of the total production of Juniper needle oil is estimated to be consumed in domestic market per yearHBTL li h j i f J i il i HBTL supplies the major portion of Juniper oil in domestic marketb I t ti l k tb. International marketAbout 47% (about 700kg) of total production of Juniper needle oil is exported per year Juniper needle oil is exported per year


Major export markets for Juniper needle oil are EU, US d I diand India

HBTL exports about 29% (near about 200kg) of the total export quantity of Juniper needle oil per yearp q y J p p yHBTL also supplies about 400kg of Juniper needle oil per year to exporters of Nepal who then supplies to export markets comprising about 57% of the total export markets, comprising about 57% of the total exportRemaining 100kg of Juniper needle oil is supplied by g g J p pp yvillage level producers to exporters per year, which comprises about 14% of the total exportExporters also revealed that there is a demand for Exporters also revealed that there is a demand for Juniper berry oil in EU markets


Market analysis of Anthopogon oila. Domestic marketa. Domestic marketThe domestic consumption for Anthopogon oil is minimalAbout 4% (10kg) of the total production of Anthopogon oil is marketed domestically per yearHBTL is the only supplier for Anthopogon oil to HBTL is the only supplier for Anthopogon oil to domestic marketb. International marketMajority is exported mainly to EU and US based marketsAbout 80% (200kg) of the total production of About 80% (200kg) of the total production of Anthopogon oil is exported per year


HBTL directly exports about 25kg Anthopogon oil per year contributing 25% of the total export from Nepalyear, contributing 25% of the total export from NepalThe remaining 75% (150kg) of the total export are done by other exporters of Kathmanduy pHBTL also supplies about 75kg of Anthopogon oil to other exporters per year which covers almost 50% of the volume supplied by other Kathmandu based exportersA i t l k A th il i li d b Approximately 75kg Anthopogon oil is supplied by village level producers to exporters of Kathmandu per year which is 50% of the export volume done by the y 5 p yother exporters

Major exporters of selected essential oilsessential oils

Altogether 11 companies have been identified as the major exporters of the selected essential oils in Nepal:Aarya AromaChaudhary Biosys (Nepal) Pvt. LtdGorkha Exim Pvt LtdGorkha Exim Pvt. LtdHerbs Production and Processing Co. LtdHimalayan Bio Trade Pvt. LtdyKhaptar Aroma IndustriesMale' International Pvt. LtdN t l P d t I d t iNatural Products IndustriesNatural Resource Industries Pvt. LtdShambhala Herbal and Aromatic Industry Pvt. LtdyUnique Himalayan Herbs International Pvt. Ltd

Mandatory requirements for essential oils exportessential oils export

Mandatory documentation requirement Obligatory for the customs clearance in Nepal as well as in the buyer’s destinations These documents are also the basic requirements of the buyers :Certificate of industry registration/export firmTax: Permanent Account Number (PAN) or VAT registration

ificertificateCommercial invoice Packing listsP t tifi t L tt f C dit (L/C) Ad P t Payment certificate: Letter of Credit (L/C) or Advance Payment Certificate (APC) Certificate of originGeneralized System of Preference (GSP) form or form AGeneralized System of Preference (GSP) form or form AMeans of transportation and routeMaterial safety data sheet (MSDS)Recommendation letter to Customs (Mandatory for Nepal customs Recommendation letter to Customs (Mandatory for Nepal customs only)

Quality tests requirements of buyersbuyers

WHO certificationQuality tests are required for the compliance of WHO Q y q pcertification, mostly required by the overseas buyers:Determination of foreign matter: NPRL, HPPCLThin layer chromatography: NPRL, HPPCLDetermination of Pesticides residue: NBSM, NESS, CEMAT ENPHOCEMAT, ENPHODetermination of arsenic and heavy metals: NBSM, NESS CEMAT ENPHONESS, CEMAT, ENPHOAntimicrobial tests: MPL, CEMAT, NAST, NPRLDetermination of radioactive contamination: NBSM Determination of radioactive contamination: NBSM, NESS, CEMAT, ENPHO


Test for the preparation of technical data sheet The quality tests for each item of essential oils need to q ybe conducted prior sampling to buyers and export markets (TDS)h l l dThe quality tests include:

Organoleptic properties: NPRL, HPPCL, FDC, MPL, NESSNESSPhysical properties: NPRL, HPPCL, FDC, MPL, NESS, DFTQCDFTQCChemical properties: NPRL, HPPCL, FDC, MPL, NESSGC‐MS: Water Engineering and Training Centre P. Ltdg g g


Test for identifying the marker compoundThe tests required for identifying pure chemicals in q y g pessential oils :Structure: NASTMelting point: NPRL HPPCL FDC MPL NESSMelting point: NPRL, HPPCL, FDC, MPL, NESSBoiling point: NPRL, HPPCL, FDC, MPL, NESSSolubility: NPRL, HPPCL, FDC, MPL, NESSyUltraviolet and Visible Spectrophotometry (UV‐VIS): NPRL, FDC, MPL, NESSIR (Infrared Spectrophotometry): NPRL FDCIR (Infrared Spectrophotometry): NPRL, FDCNuclear Magnetic Resonance Spectroscopy (NMR): Not availableMS (Mass Spectrometry): Water Engineering and Training Centre P. Ltd


Material safety data sheetMSDS required as accordance to the European MSDS required as accordance to the European Commission (EC) Legislation Directive 91/155/EEC & 2001/58/EC or OSHA: CFR 1910: 1200 (US) with 5 9 ( )delivered goods, for entry to EU and US markets Only basic tests have been done for the essential oil produced in Nepal and only limited literature based information are available to fulfill the MSDS f i l il of essential oils Obligatory 16‐point information system template f MSDS h t d dfor MSDS sheets are needed

General requirements of buyers

W h i Warehousing Separate warehouse should be pdesignated for storing essential oilsWell covered and closed with shutter Well‐covered and closed with shutter doors and there should not be any h f f bi d i d chance of entry of birds, insects and verminSeparate record for regularly cleaning and inspection to avoid residue and inspection to avoid residue contamination

General requirements of buyers

Quality In terms of the product quality, Nepali essential oils p q y pare recognized as the highest quality oils in international marketsA f h h l l l l d Aspects of high level quality include: Timeliness and an ability to meet deadlines, T bili f d Traceability of a product, Compliance with industry standards, L b li d k i th t i l d ll ti t Labeling and packaging that includes all pertinent information, Environmental and social integrityEnvironmental and social integrityOverall customer satisfaction

General requirements of buyersProduct quality control The producer/exporter should adhere to the principles set out in the WHO Guidelines on Good Agricultural set out in the WHO Guidelines on Good Agricultural and Collection Practices (GACP) Should follow WHO Good Manufacturing Practices ( )(GMP)

Packaging Packaging Using permitted containers such as glass, stainless steel, epoxy coated drums, food grade HDPE and p y galuminum Should be clean, unused and strong enough to protect the products during transport and storagethe products during transport and storage

General requirements of buyersLabelling Labelling The label should contain clear and accurate information of the product as: N f d t Name of product, Botanical species, Date of production, Region of origin, Lot number, Name of certifier (if any) Name of certifier (if any), Volume of oil (net mass), Tare, G i ht ( ) Gross weight (gross mass), Drum number (for example drum 1 of 5), Certification body’s logo and Certification code number (if

ifi d)certified)

General requirements of buyersProduct certifications Product certifications Certification is a way of ensuring buyers that certain standards have been maintainedIn competitive market, certification may provide an advantage in consumer choice over the conventional marketchoice over the conventional marketFrom the marketing perspective, greater emphasis on Organic certification for essential oils and it has been proved to be a useful tool to approach international buyersThe well known Organic certification bodies in Nepal are ECOCERT (France) The well known Organic certification bodies in Nepal are ECOCERT (France), NASAA (Australia), OneCert (USA), SGS (Netherlands) and LACON GmbH (Germany) Different Organic standards need to be fulfilled for the access to various markets (EEC NOP JAS etc)markets (EEC, NOP, JAS, etc)There is also an established market in EU and US for the Fair trade certified essential oils over the conventional oils Some well known Fair trade certification bodies are FLO CERT (Germany), ECOCERT (France) and IMO (Institute of Marketecology Switzerland) ECOCERT (France) and IMO (Institute of Marketecology, Switzerland). In Nepal FLO CERT is the only certification body for Fair trade certification for the producers/traders/organizations and the productsSome environmentally conscious buyers also preferred FSC certified essential oils oils

Market barrier analysis1. Existing barriersDi t ib ti f t i l i t Distribution of raw materials in remote areas Lack of trained manpowerMultiple taxation systemL k f k i dLack of market price dataTransportation Difficulty to source packaging materials in domestic marketT i iTesting servicesSafety standards such as MSDS and REACH (Registration, Evaluation and Authorization of Chemicals)H h b i i tHarsh business environmentVolume demandLack of coordination between government agenciesK l d d i i i h bKnowledge gaps and communication with buyers2. Potential barriersVulnerability of raw materials

l f dDeclaration of new protected areasAvailability of manpower

Requirement for technology innovationinnovation

Improved cooking stoves p gImproved yield of oil Effi i l i h d Efficient cleaning methods Reduce the weight of packaging boxg p g gDomestication/semi domestication of aromatic plantsaromatic plants

RecommendationsForward linkage activitiesLink the essential oils exporters of Nepal with the E b d f ilit t i di th European buyers and facilitate in recommending the potential buyers about the supply scenario of essential oils of Nepalo s o epaReference marketing has been the effective tool and proved to be successfulAssist in preparation of TDS and MSDS Support in the preparation of promotional materials (such as brochure, product catalog, flex, documentary, etc) Financial support in the participation in international Financial support in the participation in international trade fairs, expos

RecommendationStrengthen backward linkageConduct the onsite training to collectors on the gresponsible harvesting practices of raw materials and the sanitary issues Distillation unit managers and workers have to be Distillation unit managers and workers have to be trained on:Sanitary issueyStandard quality control procedures for handling of essential oils P l f t f th ti di till ti Personal safety measures for the entire distillation process and transportation up to Kathmandu GMP procedures during handling, processing, storing p g g, p g, gand transportation of essential oils

Recommendation

Hardware supportImproved cooking stoves are to be introduced and replace the existing traditional stovesDistillation unit workers should be provided pwith necessary tools such as heat resistant gloves, goggles, boots, and set of clothes for g , g gg , ,personal safety measures

RecommendationNursery management and plantation of aromatic plants Establish multipurpose nursery for the management of seedlings and saplings of g g p gwild crafted aromatic plants near to their natural habitats, for the sustainability of raw , ymaterials After the seedlings or saplings attain the After the seedlings or saplings attain the required size/maturity, it can be planted in the community forest lands or in the the community forest lands or in the government managed forests

RecommendationA l h bl k l i i i l iAnnual harvestable stock analysis in potential sitesAnnual harvestable stock of Wintergreen leaves, Juniper needle and berries and Anthopogon leaves should be

d d ll b h dconducted in collaboration with concerned organizations, CFUGs and DFO of the concerned districts

Policy simplifications Exporters have to identify the policies, regulations and Exporters have to identify the policies, regulations and procedures that impede the essential oils marketing Exporters in collaboration with GTZ have to lobby government agencies to simplify the organizational and government agencies to simplify the organizational and procedural rules and regulations and to create the Conducive environment for the promotion of essential oils in international markets

Thank YouThank You

sector study of essential oils in nepal_gtz_presentation_oct 1, 2010

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