CONTRACT FARMING

IN NEPAL
I N T R O D U C I N G PAY- A S -Y O U - G O
WAT E R A C C E S S

In 2015, Nepal imported US$525.7 million worth of vegetables.1 Yet,

US$. 525.7 vegetable production capacity in 2009–2010 was 2.8 million metric
tons, which would be sufficient to meet national demand.2
Vegetables are mainly produced by smallholder farmers with less
million worth of vegetables than 0.5 hectares of land who rely on the private sector for
were imported in Nepal (2015). distribution.3 This situation leads to erratic supply due to poor crop
planning, surplus or deficit production especially in crops like
potatoes, and increased imports from India. Moreover, farmers are
completely dependent on age-old farming practices and weather
conditions, which result in lower productivity with implications for
farmers’ financial resilience.

Considering the challenges in the sector and focusing on providing a

market-led solution, SunFarmer Nepal—a solar-powered irrigation
solutions company with support from the UN Capital Development
The focus needs to be
Fund programme MM4P—developed a business plan that aims to
on the entire agricultural
enhance farmers’ income through contract farming of high-value
value chain.
crops under a co-owned company between SunFarmer and the
farmers. The business plan is based on the experience of SunFarmer
that indicates, to ensure sustainable business, the focus needs to be
on the entire agricultural value chain, with a pay-as-you-go irrigation
solution as one component of the value chain. To ensure crop quality
and to manage farming risk in the proposed model, SunFarmer
(through its contract farming company) will support the farmers at
all levels of the value chain.

123
SunFarmer Nepal, Market Research, 2016, Makwanpur, Research Report

Photo: IRRI Photos

To better understand market conditions in Nepal, SunFarmer conducted an initial market
research study on both the supply side and demand side that revealed the following:
SOLUTION
SUPPLY SIDE
PROPOSED
 Vegetable market gap of Nr196 billion (US$2 billion)4.
CONTRACT FARMING
 Lack of year-round irrigation for 40% of farmers in mid hills and high mountains. MODEL
 Majority of cultivable land is being for low profitability crops. 1. PRE-HARVEST
 Smallholder majority among farmers. To offer digital payment solutions to
acquire pay-as-you-go solar water
 Lack of access to quality agricultural inputs like seeds and fertilizers. pumps for farmers.

To develop an agri-market
intelligence system, including market
DEMAND SIDE (FARMERS) prices, weather and production data
from other locations as well as
modern farming techniques for
 Unmanaged production and dependency on traditional farming practices. off-season crop and vegetable
cultivation.
 Lack of information on production flow in the market.
 Need for safe transportation and logistical support to sell the produce in vegetable markets.

2. HARVEST
To set up centrally located
CHALLENGES TO SOLVE collection centres to purchase
produce from farmers.

To collect, grade and package

produce and pay farmers
through digital channels.
3. POST-HARVEST

1. 2. 3.
UNPLANNED CROP UNFAIR PRICING HIGH COST OF To transfer payments from SunFarmer
PRODUCTION MECHANISMS AGRICULTURAL TOOLS wallet to farmer wallet.
A farmer sells the Due to the high cost of a solar
The majority of To digitally secure transaction data
produce to a merchant water pump
smallholder farmers in for additional analysis and develop
at a minimal rate, who (US$900–US$7,000), SunFarmer
Nepal rely on age-old products and services that cater to
re-sells it to a wholesaler provided farmers an option to
practices that make
with a high mark-up. The pay for the system over 24 the needs of farmers.
production seasonal and
wholesaler finally sells months. Despite its initial
weather dependent.
the produce to a retailer success, the company is facing
Farmers incur huge
at a fixed rate, which is issues with client underwriting
losses because they
incorporated into the and payment collection.
simply lack knowledge
final higher price for the SunFarmer currently offers
of modern farming
customer. Without a leasing models whereby
techniques for
proper supply chain in farmers pay equal instalments
off-season crop and
place and a fair pricing for the solution. Despite these
vegetable cultivation
mechanism, the farmer schemes to bring down cost, a
needs.3
is paid very little while solar water pump is still
the end customer bears considered a luxury item
a higher price. instead of an investment by
farmers.

4
Exchange rate: Nr1 = US$0.0093 (Source: https://www.xe.com/currencyconverter/convert/ , 2018). Note: This rate was used throughout the document to provide United
States dollar equivalents for Nepalese rupees.
 E X P E C T E D R E S U LT S
BY 2020

To reach 8,000 farmers with To partner with one digital

modern agricultural financial service provider
technology and an open and two insurance service
marketplace to improve their providers to offer digital
livelihood. financial solutions to
farmers.

To farm over 15 hectares of To register 350 farmers who

land with modern practices make digital payments for
aided by the market pay-as-you-go irrigation
intelligence system. services.

“Smallholder farmers in Nepal face many

barriers to prosperity. With support from
UNCDF, SunFarmer Nepal wants to help farmers
dramatically increase their income with
modern agricultural solutions and digital
finance. Our vertically integrated agribusiness
invests in infrastructure (irrigation and
processing), provides quality inputs, trains
farmers on high-value crop cultivation, and
markets and sells farmers’ products via a
branded produce company that is co-owned
with the farmers." AVISHEK MALLA
CEO | SUNFARMER

Supported By:

For more information, please contact MM4P (Nepal Office):

UNCDF-MM4P, Central Business Park-5th floor, Thapathali, Nepal +977 01 620 0545 mm4p.uncdf.org @UNCDFMM4P UNCDF MM4P

August 2018. Copyright © UN Capital Development Fund. All rights reserved.

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