Coffee production status in Nepal: (2013/14) Unit: ha, metric ton (MT)

Cost of certification of organic coffee is about Rs.318,

000
Minimum support price for coffee green beans:

At present, more than 65% of Nepalese coffee is exported especially to Japan, Europe and
USA and 35% of the total product is processed and supplied in the domestic market. Nepal
exports only super quality green bean to overseas markets. There are not established
marketing channels for selling Nepalese coffee in the international market. Majority of the
coffee is exported in the international arenas through personal contact of the traders rather
than institutionalized exporting mechanism and thus there is uncertain market and reasonable
price to the Nepalese coffee.
Processing of coffee:

Green beans should be processed to display its aromatic and flavour characteristics. This
processing is called coffee roasting and consists of heating coffee beans that transforms the
physical and chemical properties of the green beans and turns them into roasted coffee beans.
Finally, coffee is ground and brewed for consumption as a hot or cold beverage. Brewing
includes the use of a dip brewer, an espresso machine, a French press or a vacuum pot,
among other methods. Coffee may be further processed to make instant coffee, which only
requires adding water to consume.

Encourage and promote cooperative farming. i) Consider insurance as also a tool for risk
management for farmers and make provision for soft interest rate not exceeding 7% with a
grace period of more than 5 years. The Agricultural Development Bank loan provision
prevailing currently is only for a limited activities and the interest rate is also very high at 1318%, compared to the normal rate charged by other banks which ranges between 911%. In
the absence of low interest loan and insurance schemes, farmers are compelled to early
picking in order to pay back the money borrowed from local money lenders with high interest
rates. Sometimes the interest rate is noticed to be as high as up to 100%. Similarly, crop
insurance scheme should also be established .
Different stages of the value/cost addition in the value chain

Production stage: Coffee farmers produce ripe cherry coffee and sell it to the pulper
operators at a wholesale price of NRs. 25 per Kg. Coffee farmers are satisfied with
this price as their cost of production is about Rs 10 per Kg. However, it will be the
responsibility of coffee farmers to bring ripe cherry to the pulper operators.
Pulping stage: This is the most important stage of coffee bean production which is
directly concerned with the quality of final product i.e. green beans. Major activities
in the process of bean production are carried out at this stage. The activities are
sorting, water soaking, pulping, fermentation, washing and drying. The pulper
operators purchase ripe cherry at Rs 25 per Kg and sell parchment beans to the
collectors at Rs. 145 per Kg. The conversion ratio of ripe cherry to parchment is 4.5
to 1 The cost involved at this stage mainly constitutes the labor wages involved in the

different operations like pulping, fermentation, washing, during etc. The total cost for
all these operations is calculated at Rs. 13 per Kg. of the parchment.
Collection stage: Collectors, who are also the pulp operators in some cases, collect
coffee from the pulper operators at Rs. 145 per Kg and sell to the
processors/marketers at Rs. 160 per Kg. The major expenses of the collectors are
transportation, local taxes, salaries etc. The risk factor associated with the collectors
is generally the loss during transportation.
Processing/marketing stage: Processors/marketers usually have very good
background linkages. Yet, the impact of value addition is very prominent.
Processing/marketing cost varies between 16 to 20% of the parchment bean cost. The
processors/marketers sell parchment in the domestic market at Rs. 275 per Kg. The
processors/marketers are involved in processing and packaging of coffee in different
size packages, but mostly in 1 Kg pack, and put label according to their respective
brand. Other activities performed at this stage are domestic marketing and export etc.
Export stage: Coffee is exported from Nepal to the overseas countries on a regular
basis. And the volume of export is slowly picking up. Coffee is exported mostly on
fob Calcutta basis. However, some exporters also export by air. Huge amount of extra
cost has to be borne in sending the coffee to Calcutta from Kathmandu. The extra
cost involved in export is due to the movement of the fumigated container from
Calcutta to Kathmandu and back, cost of ventilated container and detention charge.
Which have increased the export cost significantly. The export price of green bean,
on an average is quoted at Rs. 292 per Kg.

.Cost addition at different levels, including profit:

At farmers level: At farmers level there will be on an average an additional cost of

Rs 15 on the cost of production which is calculated to be about Rs 10 per Kg. And
this brings the farmers ripe cherry selling price at Rs. 25 per Kg. By providing
training on efficient management and subsidy on irrigation, equipment and pulping
and hulling machines the cost of production could be reduced to at least by 20%.
Similarly, as the profit margin of 150 % at the farmers level is quite high as
compared to other levels, this margin needs to be brought down to a maximum of
100% level through mutual discussions and consensus.

At farmers level Av. Rs 15

At pulper operators level Av. Rs 32
At collectors level Av. Rs 15
At processors /marketers level Av. Rs 115
At export level Av. Rs 17

At pulper operators level: The cost addition at this level is Rs 32 per Kg. By the
establishment of the pulping units with higher pulping capacity, say 200Kg per hour,
the cost addition at this level can be reduced at least by 50% as it would facilitate in
enhancing productivity as well as in reducing the labor cost. The capacity of the
present pulping machine is between 70 to 80 Kg per hour only. The pulp operators

sell the parchment to the collectors at Rs. 145 per Kg. At collectors level: Value
addition at the collectors level is Rs 15 and the selling price of parchment is set at Rs.
160 per Kg. The activities involved at this level are mainly storage and
transportation. At present there does not appear to have any scope to reduce the cost
at this level. At processors/marketers level: At processors/marketers level there is an
addition of Rs 115 per Kg of the green beans, consequently making the selling price
of green beans at Rs. 275 per Kg in the domestic market. By providing subsidy to
replace the existing hulling units by the improved ones, the sorting cost can be
reduced by at least 60% (from Rs 6 per Kg to Rs 2 per Kg) and also the damage
percentage could be reduced to 1% from the existing 4% level. At export level: Value
addition at the export level is Rs 17 per Kg due to the addition of the extra cost in
export operations. The fob Calcutta export price of the green bean, on an average
comes to be around Rs. 292 per Kg. Therefore, by launching training programs on
efficient management system and by providing the needed development schemes/
subsidies on the establishment of pulping and hulling centers with improved
machines and container fumigation unit, irrigation, transportation, electricity etc. as
well as making the quality storage facilities available and having own air cooled
container, the retail price of Nepalese green coffee in the domestic market has a
possibility to be brought down to Rs. 229 per Kg. Correspondingly, the fob Calcutta
price can also be reduced to Rs 240 per Kg.
Conclusion: Coffee is one of the few products that have direct impact on the economy of
rural people. Its development contributes significantly in poverty alleviation process of the
country. Specially the people of mid-hill areas will be more benefited because the variety of
coffee that is grown in Nepal thrives well and better suited in the areas lying between 30006000 ft. Coffee is grown in marginal land as a subsidiary crop with minimal level of inputs
and hence the productivity level is very low in Nepal. As a consequence of low productivity
the cost of production is high affecting both the competitive strength and income to the
farmers.
For the last few years the farmers have been keener in coffee farming and have expressed
their concern and interest in this crop. They are clearly expressing that if technical and
financial support are easily available they are even prepared to go for a large-scale farming.
Coincidently, the private sector is also expressing its interests to invest in largescale farming
It is, therefore, high and right time to explore this opportunity and develop coffee in Nepal
from the long-term perspective. The government must develop a long term package program,
like 5 years Special Coffee Development Program, which should be framed in a way that
each and every stakeholder along the value chain are involved and make their fruitful
contributions. This program must include a pocket package concept (50-100 ha) with
adequate incentives and subsidies in production, and processing and the marketing aspects. In
addition to this, the program must incorporate trainings and skill development schemes on a
regular basis so that the pulper operators / processors gain in-depth knowledge about the
coffee quality, pulping machine, processing methods as this would eventually assists them to
effectively add value to the final products to satisfy their clients or the consumers.
For the enhancement of competitive strength in coffee, commercialization of farming is
essential. But, commercialization must also be adopted and practiced in inputs and service
deliveries along with production, processing and marketing along the line of the agribusiness development.

The most critical aspects realized by all the stakeholders at the moment are the absence of
reliable and guaranteed market. Therefore, some steps are needed to be considered
immediately in order that markets are identified that are reliable and sustainable from the
long- term perspective.
Although Nepal has the potentiality in producing very good quality coffee but due to the
poor farm management practices, among others it is not yet in the peak quality point. Farmers
must be encouraged to grow quality coffee by developing a mechanism to give premium to
good quality and refusing to purchase the sub-standard coffee beans.