Agribusiness-Final Nore

Prepared by: Hari Krishna Panta, 2018
Agribusiness Management,
anagement, Marketing and Cooperatives (2+1)
DEFINITION AND CONCEPT OF BUSINESS, AGRIBUSINESS, MANAGEMENT AND

AGRBUSINESS MANAGEMENT, FEATURES OF AGRIBUSINESS, ITS SCOPE AND
IMPORTANCE
Business
• Business concerns all the activities which are connected with the production or purchasing of
goods and services with the object of selling them at a profit
• The activities connected with the business are manufacturing, trading, transportation,
insurance, warehousing, banking and finance
• The essential
ial characteristics of the business are:
o Sales or transfer for value,
o Dealing in goods and services,
o Recurrence of dealing,
o Profit motive and
o Risk
Major components of business

• Major components of business are industry, trade and commerce
• Industry refers to the process of extraction and production of goods either for final
consumption, or for use by undertaking for future transformation into finished products
• It includes constructional activities, manufacturing, mining, forestry, fishing etc
• The agro-based
based industries in Nepal are small to medium in size
• Examples of some industries:
o Manufacturing: juice making, cheese making, rice mill, flour mill, textile
o Production industries: poultry, mango orchard, nurseries, cattle farm
o Extractive industries: fishing,
fi mining, hunting
o Genetic industries: breeding firm, fish culture
• Trade concerns foreign exchange of commodities and cash within the country (domestic
trade) and outside the country (foreign trade)
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• Commerce is the process of buying and selling for which

which all the activities which facilitate
trade such as transporting, insuring, financing, sorting, grading and packaging
• The commerce includes trade and aid to trade
Agribusiness
• Agribusiness: Agriculture + Business (any business activities related to agricultural
agri
production)
• Gold Berg and John Davis of Harvard University first used the term agribusiness in 1957.
• Agribusiness is the industrious activities and services directly and indirectly involved in the
value chain of commercial production, transformati
transformationon and provision of food and raw material
subtract to consumers and agro-based
agro industries (MOAC/JICA, 2010)
• Agribusiness are farm activities that includes commercial production, marketing and first
step of processing
• Roy defined it as the coordinating science
science of supplying agricultural production inputs and
subsequently producing, processing and distributing food and fiber
• Agribusiness principles are drawn form microeconomic theory that deals resource (land,
labour, capital, and management) as scarce resources
resourc
• Like other economic sciences, agri-business
agri business enhances management skills of farm or firm
entrepreneurs/ business persons or company so that minimum level of investment on
agricultural enterprises could able to generate profitability in business.
• Agribusiness can also be defined as all the business enterprises or transaction to farmers,
traders and consumers.
• Transaction may involve either inputs or a produce or service and includes items such as:
1. Productive resources (feed, seed, fertilizers, equipment,
equipment, pesticides, fodder, machinery
etc.)-----Input sector.
2. Agricultural commodities (raw and processed commodities of food and fibers) fibers)------------
Farm sector.
3. Facilitative services (credit, insurance, marketing, storage, processing, transportation,
packing,
ng, distribution, etc.)-------product
etc.) sector.
Basic concept of agribusiness
Management
• Henri Fayol “To manage is to forecast, to plan, to organize, to command co-ordinate
co and to
control.“
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• Mary Parker “Management is the art of getting things done by the people.”
• It is the efficient use of men, material and resources towards achieving specific objectives of
organization.
• It is the whole activities by means of which the business firms direct their desired actions
towards achieving their set goals.
• In order to achieve the desired objectives of an organization through group action,
management is must to direct, co-ordinate and to integrate the activities and affairs of the
organization.
• Decision making and implementation are the two main functions of management.
• Planning, organizing, directing, controlling, coordinating, communicating, motivating etc. all
are included in management.
• It is concept of 6 M (money, market, materials, machinery, methods and manpower)
• Management is needed to convert the disorganized resources (men, money, materials,
methods) into useful and effective enterprises.
Nature of management
• Management tools and techniques are purely scientific
• It is taken as profession which is based on proven, systematic body of knowledge and
requires intellectual training
• It should maintain experimental attitude towards information thus requires a search of new
ideas
• It involves service motive along with profit motive
Agribusiness management
• Agribusiness management is the sum total of all activities involved in the manufacture and
distribution of farm supplies, production activities on the farm, and the storage, processing
and distribution of farm commodities and items made from them (David and Ray).
• It can also be defined as the branch of agricultural economics which co-ordinates among the
farm input suppliers, producers, processors, distributors and storing of farm commodity.
• Agribusiness management is managerial economics in agricultural sector applied in the
analysis of agricultural business problems and decision making.
Importance of agribusiness management
1. Improve resource use efficiency of farms

• In developing countries, entrepreneurs in agriculture often do ten deadly mistakes in business
due to which performance of the firms are often poor and not competitive.
• These mistakes are:
o Management mistakes
o Involve in business without specific experience and exposure
o Poor financial control
o Weak marketing efforts
o Failure to develop a strategic plan
o Uncontrolled growth
o Locate business in inappropriate place
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o Improper inventory control

o Incorrect pricing, and
o Inability to make the entrepreneurial transition
• ABM supports to correct these mistakes and increase the performances as well as efficiency
of scarce resources use
2. Provide food and fiber

• The daily requirements of food and fiber products at desired place at required form and time
come from the activities such as input supplies, farm and food production and marketing of
the products (i.e. from agribusiness)
• This entire system in brief is called agribusiness
3.Agribusiness provides crucial backward and forward linkages.

• Backward linkage---supply of inputs, credit, production technologies and farm services etc.
• Forward linkage---storage, processing, transportation and marketing of farm products and
items made from them
4. Agribusiness promotion leads to the strengthening of industrial facilities in certain area,

expansion of credit, raw materials, supply agencies, adoption of modern technology in
production and marketing of agricultural products
o It adds value to the product and thereby increases net profits
o It generates potential employment opportunities
o It contributes significant part of national economy as in developing and least developed
nations
5. Agribusiness focuses on commercialization, diversification, economies of scale, optimum

utilization of resources, minimum wastage etc
6. It focuses on creation of utility (form, place, time, possession)
7. Agribusiness is related to demand driven business approach focusing on market aspects of
products.
8. In overall it helps in economic development of country through, optimum resource
utilization, employment creation, industrial development, trade and commerce
Scope of agribusiness management

It can be expressed as:
o Whole agricultural sector (including fishery and forestry)
o Portion of industrial sector which is composed of manufacturers or suppliers of inputs
and processors of products.
o Portion of commercial or service sector which provides transportation or distribution,
financing or other services.
• Nepal is endowed with varied agro climate facilitating production of temperate, sub tropical
and tropical agricultural commodities.
• There is growing demand of agricultural inputs like feed and fodder, inorganic fertilizers,
bio-fertilizers owing to commercialization of agricultural sectors.
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• At present processing is done at primary level and the rising living standard creates
opportunities for secondary and tertiary processing of agricultural commodities (milk to curd
simply but to cheese, butter, bakery products etc. a bit complex)
• Being agribusiness a dynamic sector, this sector has been used continuously to meet the
current demand of consumers in domestic and foreign market.
• Different farming enterprises such as bee-keeping, sericulture, poultry enterprises etc. can be
taken on large scale in Nepal due to high production potentialities and growing market.
• Large number of agricultural products such as cereals, pulses, oilseeds, spices and
condiments, fruits, vegetables, flowers, medicinal plants, meat, milk, milk products, fish and
fish products, forest byproducts both in raw and processed form can be taken as exportable
commodities by trading to other nations being Nepal, a signatory of WTO.
• Vegetables and flowers enterprises produced under the green house or shade net house
(production technology) can be done to promote and produce exportable and qualitative
agricultural commodities.
• There is wide scope for the production and promotion of bio-pesticides, bio-control agents
for the protection of crops.
• As agribusiness is related to enhanced agricultural production, it creates open opportunities
for employment in marketing, transportation, cold storage and ware housing facilities, credit,
insurance and logistic support services.
• In summary, scope of agribusiness management is wide and ever increasing, reasons are:
o Nepal as an agrarian country – major occupation
o Business content introduced in agricultural business – but not much profitable
o Modern techniques are used in agricultural production – teach to select and adopt suitable
technology
o Agro based industries are increasing
o Agri-products are major exportable commodity of Nepal
o Foreign trade and globalization – Nepal is participating
Distinctive features of agribusiness

• Biological nature of production:
o Both crop and livestock are biological organisms
o This makes these particularly susceptible to forces beyond human control
o Variances and extremes of weather, pests, diseases, and weeds exemplify factors that
greatly impact production
o These factors requires careful management
Seasonal nature of business:

o Seasonal production
o Agribusiness markets face extreme seasonality
Bulky in nature:
o Agribusiness products are bulky
o Difficulty in handling
Scattered in production due to land fragmentation
o Difficult in mechanization, collection and marketing
Mostly necessary type nature (manufactured goods—luxurious nature)
o Majority of agribusiness products and food – is necessity good
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Demand curve are generally inelastic

o Price change does not affect demand
Inelastic supply in short run
o Can not adjust in production even price changed
Perishable in nature or short storage life
o Decay soon – should be disposed as soon as possible – have to be sold even at
unsatisfactory price
Homogeneous in shape, size, outlook causing difficulty in differentiation and advertisement
Risky enterprises (Insect, pest, price, market uncertainty and weather fluctuation etc.)
o More risky compared to industrial business
Rural tie:
o In Nepal nearly 80% of people are residing in rural areas and almost 90% of them
are food producers
o Many agribusiness firms or companies are located in rural areas
Types of firms:
o Great diversity of firms in agribusiness – from farmer to transporting firms,
brokers, wholesalers, processors, manufacturers, cold storage firm, grain storage
firms, mining, firms, financial institutions, retailers, food chains and restaurants---
-others also
Variety of market conditions:
o As diversified products are produced, different market conditions or structures
(monopoly to perfect competition) operates
Government involvement:
o Government agencies monitors agribusiness activities particularly prices,
qualities, adulteration, domestic supply chain and trade
o Government works as a care taker, input supporter as well as policy maker
SITUATION ANALYSIS FOR BUSINESS IDENTIFICATION

(Identifying potential business in the area before making investment)
Business opportunity identification

• Business environment
o Study whether existing socio-economic and political condition offer good
business environment or not
• Searching locally available raw materials
o Identify what raw materials are locally available and in which amount
o Study what agriculture, forest and mineral based raw materials are available,
assess their quality, quantity and price
• Study of local skills, practices and experiences
o Study what skills the local people have
o Study what products can be produced (potential enterprise) by using such skills
and labour
• State of use of technology
o Study what new technologies have been used
o Search what new technology can be used to produce differentiated product
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• Study of import and export

o What are imported from other parts of country/ foreign country and in which
quantity (ask local traders or importers)
o Study whether imported products can be produced locally
o Similarly, identify what products are being exported and in what quantity (ask
local traders, exporters)
• Study of existing industries/businesses
o Assess what enterprises are existing and which quantity of products they are
easily selling
o Identify gap between their products and consumers interest
o Identify weaknesses of products of existing enterprise
o Study what new businesses the existing business can support (biscuit factory –
flour industry)
• Study of old/closed industries
o Study reasons for closing such enterprises
o Study carefully whether they can be re-opened successfully with necessary
adjustment
• Study of relationship among enterprises
o Study whether supportive or antagonistic relationship exists among enterprises
• Study of development plans (national, state level)
o Study what business opportunities the existing plans/ projects have been offering
• Government priority
o Which enterprise is in government priority
• Learning from others experiences
o Consider what experienced businessmen suggests bout new enterprise
• Success stories
o Learn from success stories inside or outside the country- what and how?
• Study of business/economic news papers/ publications
o Be informed with successful enterprises all over the world from published or
online documents - papers
• Living style and festivals of local people
o Study what products the local people prefer most or need in their feast and
festivals
• Study of list of enterprises and their schemes
o Carefully analyze the existing enterprises and their production as well as
marketing schemes
• Experience from outside
o Do what you observed or experienced as successful during visit to other places or
occupation
• Feasibility study of business (concern reports)
o Start business which is already identified as feasible by concern organizations/
experts
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AGRIBUSINESS STRUCTURE
• It has a vertical integration (structure) of input supplier, farmers, processor, transport

operators, financiers, wholesaler, retailers and consumers
• The component actors participate in the movement of commodities from the producer down
to the final consumers
• Agribusiness is totally market oriented
• It considers producer/firm as supplier and consumers as the demander
• Market fixes the price of the commodity and commodity fulfills the satisfaction of consumer
• In the processs of product production or final finishing there are several business services
embedded
• However, some bottlenecks also seen
• Agribusiness deals to remove these inefficiencies
• The general structure or supply chain of the agri-business
agri is:
o farm supplies/input
supplies/inpu marketing-->farm entrepreneur-->processor
>processor-->wholesaler--
>retailers/vendors
>retailers/vendors-->consumer
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Inclusive business:
• Business models that engage low income segments along the value chain of companies as
suppliers, distributors or consumers in a win-win situation to create economic, social and
environmental benefits
• The low income segment can enter into the agri-business activities as an employee,
producers, distributers and consumers
• The inclusive business is not a corporate social responsibility and corporate philanthropy but
focus on growth potential of all sectors involved in value chains
Agribusiness incubator:
• Agribusiness incubators are programs designed to support the successful development of
entrepreneurial companies through an array of business support resources and services,
developed and orchestrated by incubator management
• Incubators vary in the way they deliver their services, in their organizational structure, and in
the types of clients they serve
• Mission of agribusiness incubation is to increases the likelihood that a startup company will
stay in agribusiness for the long term
• Second aim is development and commercialization of agricultural technology
• Third aim is facilitating creation of competitive agribusiness enterprises through joint venture
of government agency, research/academic institutes, community and private sectors in the
selected value chains
• Nepal Agribusiness Innovation Centre (NABIC) in Lajimpat, Ktm to provide skill and
consultation to agricultural entrepreneurs
• Consultation includes service and network construction, market network and study and
financial access
• Practical Action UK and the Kathmandu University School of Management signed an
agreement to provide the consultation service
• Funded by PACT, World Bank/International Financial Corporation also have financial
support
• The ABIC would be financially backed by PACT until the organisation would be able to
operate on its own
Co-business incubation:
• Co-business incubation is a platform that two or more incubator shares on mutually similar
programs based on each other competence for joint execution of incubation activities for
achieving enhanced impact and client servicing
• The outreach strategy of ABI is to partner with institutes or organizations globally on co-
business incubation to promote ventures and enhance technology commercialization
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Agribusiness incubation (ABI)
BASIC CONCEPT AND DEFINITIONS OF FIRM, PLANT, INDUSTRY AND THEIR

INTERRELATIONSHIP WITH RESPECT TO AGRICULCUTAL PRODUCTION
Farm:
• A piece of land with specific boundaries where crop and livestock enterprises are undertaken
under common management
• Types of farm:
o Family farm: Household labor dependent and diversified production
o Commercial farm: Commercial approach of production are used, market-oriented
market
production
Firm
• A firm refers as production unit that focuses on producing goods and services for the sake of
profits to trade or to sell to consumers
• A business firm is technical unit doing job of production of outputs (goods or service) for the
sake of profit
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• The firm is the company as a whole

• Business enterprises are called firm
• In a firm,
o There is management, someone makes decision
o There is some hierarchy and an organizational structure
• It is run by entrepreneur who is taken as an owner-cum manager
• The function of making fundamental policy decisions in a firm is generally called
‘entrepreneurship’
• Objective of firm is to increase the output/ to minimize the cost
• It is classified based on types of business doing, its size and pattern of ownership.
• Firm uses technology to produce certain output which may be:
Embodied technology: visible to eye.

o Occurs in the form of capital goods, assets, e.g., building, machinery
Disembodied technology: non-visible form.

o Occurs in the management services, e.g. service of labor, manager
Plant:
• Is a particular facility that is used to manufacture a product for a company or business
• A plant will usually have a plant manager whom is responsible for the manufacturing process
to run smoothly
• They implement the most effective system for producing the product in a comfortable and
steady manner
• They are also responsible for overseeing and organizing meetings as well as goals that the
company is aiming for in terms of production
• The plant is one of the company’s facilities, normally one of its manufacturing facilities
• Thus, plant is also a set of machinery/ technology used in production process
• For examples, milk processing plant, jam/jelly processing plant, skim milk plant of dairy
industry
• Plants are the input of firm and by using this input the firm produce certain output and this
summation gives industry output.
Industry
• Industry is a combination of many interdependent firms as groups producing bulk volumes
of identical/close substitute products and services; each firm is competing with any other
firm in the economy
• Under perfect competition: Industry is defined as a group of firms producing a homogenous
product ; there is no rivalry on price taking.
• It comprises of several similar firms or plants (group of similar firms/plants).
• For examples: Agricultural industry, Livestock industry, Poultry industry (Broiler industry,
Layer industry), Agri-feed industry, Eco-tourism, Mining industries.
• Two criteria are used to define an industry: product being produced (market criterion) and
method of production (technology criterion)
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o Firms are grouped in an industry if their product are close substitutes/ homogenous
o Firms are grouped in an industry on the basis ooff similarity of processes/or of raw
materials being used
Relationship between plant, firm and industry

• Industry is used to refer to the wider spectrum in the sense that it is a certain part of the
economy that contains a number of firms
• For example, seed industry where there will have a number of various firms such as maize
seed, paddy seed, vegetable seed firms etc
• They in turn will have plant facilities that are used to create their products
• Likewise energy industry includes companies involved in oil, na natural
tural gas and electricity
• There is cordial and unique relationship of firm, plant and industry in the production, supply
process
• The key points are producing unit products, level of output to be produced, changes in style,
selling activities, pricing, branding,
branding, types of market, market regulations, investment decision,
financial policies are the key guiding principle of fixing number of firms, plants and size of
industry
Fig. Relationship between plant, firm and industry in agriculture
PROBLEMS
ROBLEMS AND PROSWPECTS OF AGRIBUSINESS IN NEPAL
Major constraints/ problems

• Agricultural Production Input:
o Insufficient input service providers
o Lack of proper distribution and extension channel
o Lack of knowledge
o Inadequate and inefficient firm –production quality,
o Competition
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• Enabling Environment:
o Lack of good infrastructure- storage facilities, market center
o Roads, telecommunication and irrigation networks
o Policy constraints,
o Weak governance
• Production (throughput)
o Scattered and small production units
o Obsolete and inefficient technology
o Lack of farm managerial skills
o Difficulty in accessing financing support
o Lack of different business services
o Inadequate linkage and coordination
o Fragmented land, small land size
o Policy level constraints
o Lack of information services
• Marketing:
o Farm market is close to perfectly competitive while marketing firms are
oligopolistic or monopolistic –less bargaining power of farmers
o Poor marketing facilities and sales networking
o High transportation and distribution loss
o Inadequate marketing infrastructure
o Inadequate market information system
• Processing:
o Limited supplies of raw materials in terms of quality and quantity
o Inadequate technology
o Quality standardization
o Access to finance
o High competition due to import of cheap products
o Frequent load shedding
o Labor disputes
Results
• Subsistence agriculture with low productivity, higher production cost
• Low competitiveness of agricultural sector
• Stagnant agricultural production, increasing food imports
Agribusiness promotion in Nepal-approach

• System approach: product specific market system analysis and assess the key blockages in
the system
o Enabling environment
o Key actors in value chain and its function
o Supporting services (Business services)
Opportunities of agribusiness is Nepal

• Demand of quality food will be much stronger as the middle income group grows-the agro-
industry sector is expected to expand further.
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• Differing socio-economic development and the effect of globalization- diversified lifestyles

and food preferences- demand for processed food
• Export structure change from raw material to processed industrial goods
• Introducing modern technology and management system from developed countries.
• Opportunity to establish joint ventures with foreign companies
• Growth of financial institute in Nepal
• Government’s priority area
• Diversified agro climate and resource base
• Technology adaption –technical potential to increase yield
• Organic products
• Higher competitive of niche products
Agro-based industries suitable for foreign investment

o Vegetable processing – Floriculture
o Fruits – Flower seeds
o Vegetable seeds – NTFP processing
o Tea – Sugarcane
o Spices – Livestock industry
o Animal feed – Aquaculture
o Oilseed processing and oil extraction
Prospects for agribusiness in Nepal

• Dairy: Diversification from raw milk to value added product (chhurpi, khuwa, cheese, butter,
sweets)
• Tea: Value addition, organic, green tea, orthodox
• Coffee: High demand in international market, high mountain specialty coffee, product
branding, organic coffee
• Large cardamom: suitable climate, high demand in export market
• Spices: High demand in international market
• Apple: suitable climate, high demand in domestic market, scope of product diversification
from raw apple
• NTFP: Processing and value addition, high demand in international market
• Seeds: Appropriate agro climate, increasing demand
• Citrus fruits: High demand in the international market, also, domestic demand is not met
AGRIBUSINESS ENVIRONMENT, MANAGEMMENT SYSTEMS AND MANAGERIAL

DECISIONS
Agribusiness environment
• Agribusiness environment is the situation in which agribusiness firm is operated
• In overall it is related to economic, social and political condition of the firm and country
• Agribusiness environment foresee how much the agribusiness is potential for the overall
investment as:
o It is taken as most important steps in business initiation;
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o It is conducted throughout the business period (pre, during and post business
duration) at business feasibility study;
o It covers beginning to end product development and marketing.
Economic
environment
Policy Technological
environment environment
Business
environment
Social/
Physical
demographic
environment
environment
Fig. Elements of agribusiness environment
• The environmental forces which affect the success of agribusiness are as follows:
Economic environment:
• A nation’s economic situation and economic growth represents the potential ca capacity of the
firm to produce goods and services
• Usually the most significant market opportunities exist among the industrialized nations as
they have higher level of income which is one of the basic ingredients for the formation of
market
• However the long run potential for the growth of market exist in developing nations as there
is market instauration for many products
• Economic/financial environment includes:
o Labour availability, wage rate and regulations;
o Current firm, companies and industries;
o Comparative ve vs competitive advantage;
o Number of banks and banking facilities;
o Credit availability: credit need, formal loan providers, interest rate, installments, security
management
o Service providers: repair and maintenance, insurance, advertisement
o Suppliers;
o Bargaining power of buyers and suppliers;
o Threat of substitutable product or services;
o Input and output access:
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Input side: potential inputs, equipments, machine, raw materials availability in

quality, quantity and time
Output side: collection, packing, transportation etc
Demographic environment:
• The size of the population has important implication both for the demand and supply of
goods and services.
• Similarly economically active groups population determine the growth of the agribusiness
firm and gender inclusion have important implication on its growth.
• Different ethnic groups of the population represent different possible demands and
preference.
• Similarly education level determines the marketing technique adopted by the enterprises.
• These indicates potential consumers
Socio-cultural environment:
• It is important for marketers to learn about the customs and taboos, values and religious
beliefs of different locality and community.
• The language differences have direct impact on the advertising campaign and product labels
by the marketers.
• For ex: promotion of cereal products especially paddy is popular in Nepali culture whereas
promotion of under exploited crop products (finger millet) is not much feasible.
• It includes (factors to be considered regarding social environment):
o Types of social system, customs
o Income status of consumers
o Social infrastructures: school, college, post office, health facilities
o Social networks: groups, association, cooperatives, community based organizations
Political/legal/policy environment:
• The governmental policies and intervention such as taxation, subsidy and price control
(ceiling price, floor price) affect the growth of agribusiness firm.
• The legal procedure of registration and need of trademarks, branding, labeling, patents,
market communication, product safety, acceptability and environmental issues have direct
impact on operation of agribusiness firms.
• It includes:
o Type of political system
o Governance and government
o Business policies (agribusiness policy-2063, APP-1995-2015, ADS-2015-2035, milk
policy-2008), agri-trade policies
o Rules and implications of policy to particular business, registrations system, import and
export policies
o Production policies
o Marketing policies
o Banking policies
o Local taxes, social taxes, income taxes, duties
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Technological environment:
• The level of technological advancement of a nation affects the establishment of business
enterprises as well as type of it.
• The availability of trained personnel to operate machineries, transportation and distribution
facilities, communication facilities through mass media, etc. affect the growth of agribusiness
firm.
Physical environment:
• Physical environment determines potential types and sizes of agribusiness in particular area
• It includes:
o Location of business point
o Availability of land
o Road access, vehicle and transport network
o Communication facilities
o Electricity or power support, irrigation
o Market access and boundary
o Storage facility
o Soil, climate etc
Agribusiness enabling environment:

• Agribusiness enabling environment are generally categorized as:
o Good infrastructure: storage facilities, market center, roads, telecommunication
and irrigation networks
o Business policy
o Business governance
Some examples of business enabling environment in Nepal

• Following liberalization in 1991, government followed a liberalized policy regime, with
specific incentives for high priority food processing sector which provide a very conducive
environment for investment and export in this sector
• Overall thrust of government is providing a fair playing field to private sector in an area
dominated by government sector so far
• Support or incentives to private sector through schemes and partnerships
• Institutional change: several initiatives in PPP model, cooperatives
• Demand for processed products increasing i.e., socio-economic environment is favorable for
food processing agribusiness
Management system
• The management system is the process of planning, organizing, leading and controlling the
works of organizational members and of using all available organizational resources to reach
the organizational goal
• Not only the management is a set of activities (management functions) but also directed in
the organization’s resources (human, physical, information) and win the aim of achieving
organizational goals as efficient and effective manager (Griffin, 1998)
• Management is a comprehensive activity, involving the combination and coordination of
human, physical and financial resources, which produces a commodity or a service which is
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both wanted and can be offered at a price which will be paid, while making the working
environment for those involved agreeable and acceptable
• The process of management involves the coordination of people, time, tasks, money, place,
machinery and resource materials
• The management process enables manager, middle manager and staffs to produce, sell,
distribute goods, to provide services (education, banking, medicine, insurance etc) more
effectively
• The basic elements which are to be necessarily present in all forms of management are:
o There must be an organization, which gives institutional structure to the management.
The human team and material inputs used are constituted in the organizational
structure.
o There is a need for planning- planning a system, a programme and a way of
implementation and its monitoring. Planning is a way of organizing and utilizing the
resources to attain maximum benefit from the economic activity.
o The management should have better staffing both in terms of qualitative and
quantitative aspects.
o Management needs leadership and direction as it involves teamwork: Without proper
leadership and direction, goal of the organization cannot be reached.
o There is a need for co-ordination in the management process: Staffs have to be
coordinated toward achieving the goal of the firm.
o There must be proper evaluation, monitoring and control: The execution of any
project has to be evaluated with a very strict time frame and its performance has to be
properly monitored and controlled.
Managerial decision
• Managerial decision requires ability and capacity to make correct decision.
• The following sequences indicates the managerial decision (function of manager):

o Formulation of goal and objectives of the firm
o Recognition and definition of problem or opportunity
o Obtaining information i.e. observation of relevant facts
o Specification and analysis of alternatives
o Decision making that means choosing and alternative
o Taking action or implementation
o Bearing responsibility for the decision or action taken
o Evaluating the outcomes
• For the purpose of obtaining the proper sequence in production process of a firm, the various
typical farming decisions are needed which are as follows:
1.Production and organizational decisions:

o Strategic management decision which involves the heavy investment and long lasting
effects like deciding best size of farm; decision of farm labour and machinery
programme; decision on construction of building; decision on irrigation, conservation
and reclamation programme
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o Operational management decision which involves relatively small investment and more
frequent decision like what to, how to, how much to, when to produce
2.Administrative decision:
• Acquisition of funds through proper agency and time frame, optimum utilization of funds,
• Supervision of work operational timing,
• Accounting and book keeping and
• Adjustment of farm business to governmental programme and policies.
3.Marketing decision (buying and selling):

• What to buy and sell (product), when to buy/sell (time), from whom to buy/sell (buyer or
seller), where to buy/sell (place), how to buy/sell (way)
ORGANIZATION AND BUSINESS MANAGEMENT FUNCTIONS
Organization
• Oxford dictionary defines organization as a group of people who form a business, club, etc
together in order to achieve a particular aim
• It is a pattern or ways in which a large number of people of a size too great to have intimate
face-to- face contact and engaged in a complexity of tasks, relate themselves to each other in
a conscious systematic establishment and accomplishment of mutually agreed purposes
• There may be different types and sizes of agribusiness organizations
• Agribusiness organization are generally smaller and leaner
• Whatever the organization existing, they have own management committee and having role
and responsibility in organizational structure
• Example of business organization: farmer’s/ producers group, self-help group, cooperatives,
private firm, association, company, consulting firm, cooperatives unions and supporting
organization
Hierarchy of workforce in organization

• Organization has organizational structure having formal positions in a hierarchical order
• Organizational structure is prepared to designate different positions, divisions and sub-
divisions
• The chairman, vice chairman, secretary, vice secretary and treasurers are vital positions in the
organization and supportive positions are members ultimately leading the producer group,
cooperatives or firms
• Employees are managers, middle managers and staffs who are guided by the organizational
management committee
• There is trend of building contingency organizational design in order to recap works in
varying situations
• Middle managers are particularly vital to the functioning of agricultural and agribusiness
operations, which are often smaller and leaner organizations, with fewer management levels
• Middle managers promotes, additionally, the family business values while fostering
employee retention and job satisfaction
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• Organization has own VMGOS (vision, mission, goal, objectives and strategy) to use
employee and resources (both internal and external)
HUMAN RESOURCE MANAGEMENT IN ORGANIZATION
• Human resources are the people that work for the organization
• HRM takes into accounts the need of the organization and needs of its people
• Employees have own thoughts and feelings, aspiration and needs
• HRM involves finding out the needs and aspirations of each employee and creating the
opportunities within the organization (job enlargement, position creation) and outside the
organization (support for advance learning, training and exposure) for employees to improve
themselves
• It is therefore relates to every aspect for the way in which the organization interacts with its
people for example by providing training and development opportunities
Functions of HRM:
o Recruiting employee
o Fixing position in the organogram
o Fixing remuneration and incentives
o Fixing time rate to be worked
o Provide trainings, visits, exposure or advance education for the potential
employee
o See job satisfaction
o Award, punish or fire staffs
Human behaviour in organization

• Mobilizing employee means mobilizing human factor in the organization
• Employee work is perishable
• Employee is mobile factor
• Employee has different efficiencies
• But,
• Organization has own objectives to be met:
o To maximize profits
o To produce goods and services of good quality
o To compete with other players in the industry
o To ensure welfare of its employees
o To make efficient use of resources and achieve growth
Organizational behaviour
• Organizational behaviour is the system of culture, leadership, communication and group
dynamics that determines an organization’s actions
• According to Keith Davis, it is the study and application of knowledge about how people act
within an organization
• Employee have a variety of needs irrespective of one’s status, age, and achievements
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• Human behaviour in organizations is as complex as the social system itself – people differs
form each other in their needs and values, which can be understood better with the help of
behavioral science
• The organizational system consists of social, technical and economic elements which
coordinate human and material resources to achieve various organizational objectives
• If organizational behaviour is followed, it improves people's understanding of interpersonal
skills and also their ability to work together as a team to achieve organizational goals
effectively
Develop and maintain human behaviour in the organization (how to behave in

organization?)
• Make a feel of showing interpersonal behaviour in an organization
• Design specific organizational ethics of your organization for example hire and fire, pension
policy, uniform treatment, working nature etc
• Show courtesy/ civility while the customers are there
• Teach manner to all staffs
• Develop model organizational culture: welcome, farewell, reward, joint work, feedback
principles
• Oversee long term profit of the organization
• As a manager, read the face and heart of the counterparts
AGRIBUSINESS MANAGEMENT FUNCTIONS
• Management functions are:

o Observing and conceiving ideas;
o Analyzing with further observations;
o Making decisions on the basis of analysis;
o Taking action and
o Accepting responsibilities
• The basic functions of management are decision making, organizing, staffing, planning,
controlling, communication and direction
Directing
Staffing Controlling
Business
organization
Organizing Planning
Fig. Agribusiness management function
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Planning
• It is crucial managerial activity where one plans for what to produce/manufacture, how to
produce, how much to produce etc
• Answers of these questions constitute one’s annual production plan
• Assess environment (SWOT analysis) and do planning process
• Set objectives, formulate product production, processing or marketing strategies and plan
accordingly
• Prepare work schedule and budget accordingly
• Plan joint venture
• First prepare managerial work-plan and then work under it
Organizing:
• Organizing represents administrative works: systematic classification and grouping of human
and other resources in a manner consistent with the firm’s goals
• The organizing process is important at each level of a company or firm and it is the
manager’s challenges to design an organizational structure that allow employees both to
accomplish their own work, while simultaneously reaching the goals and objective of the
organization
• Organizing task occurs continuously throughout the life of the firm
• Do effectively, this task helps management establish accountability for the results achieved,
prevents buck-passing
• Trend of restructuring organization’s operation to improve efficiency, reduce costs or as the
result of a merger or acquisition
• Must develop an effective organizational structure before he or she can implement the
strategies needed to achieve the goals developed in the planning tasks
• Defining lines of authority and responsibility
• Decentralizing of authority
• Establishing relationships within the organization
• Coach and train all employees understand their relationships and clearly defined role
• When the employee accomplishes his or her goal, the goals for the organization are furthered
Staffing:
• Process of recruiting, selecting, training and developing human resources in the organization
Directing:
• Process of influencing the employees to work for the achievement of the organizational goals
• Managers need to have good understanding of human behavior, particularly the nature of
human motivation, leadership, group behavior, and effective communication
Controlling:
• It entails the collection of relevant feedback information, analyzing of such data and, as per
need, the taking of corrective actions
• It measures current performances of the firm, cooperatives or company
• Controlling guides for pre-determined goals
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Who could be agribusiness manager?

• Answer of this question is important in management
• According to Newman and Summer, manager is considered to be a person for organizing,
planning, leading and controlling
• The effective manager is one who is able to coordinate the works of the people and material
resources for the accomplishment of organizational goals
• Any individual possessing following qualities can be a manager:
o Knowledge
o Decision making power
o Self-reliance (confident)
o Self-assertion (claim)
o Regards to others and social sensitivity
o Emotional stability
ECONOMIC PRINCIPLES RELATED TO AGRIBUSINESS

MANAGEMENT
Agribusiness makes use of business principles derived from economics. Each principle is
important as it provides guidelines for making decisions in agribusiness management to solve its
management problems. These principles provide guidelines for allocation of limited resources in
agricultural business
1. Principle of variable proportion/diminishing return

• When amount of variable resource increased to the fixed resource, total output at first
increases at increasing rate, than at constant and finally at decreasing rate
• It has three phases:
Diminishing return: with one unit increase in variable resource in production process with given
amounts of all other fixed resources, the output added per unit of variable resource diminishes
Decision rule: keep adding variable resources to the fixed resources as long as the added return
is more that the added cost
Constant return: each unit of a variable resource adds the same amount of the output to the total
production
• Holds when none of the resource is fixed-all varied together and resources have excess
capacity
Decision rule: if production is profitable on first unit, keep producing till the constant returns
hold and do not produce at all if production is not profitable on first unit
• To know profitability of first unit used compare its total cost and revenue (also marginal cost
and marginal revenue)
Increasing return: every unit increase in variable resource add more to the total production
• This relation may hold only over a very limited range of production and is applicable when
all resources are increased together –none is fixed and fixed resources have excess capacity
Decision rule: as long as this relationship holds, production should keep expanding
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2. Cost principles
TR and TC approach:
• Keep producing if TR is greater than TC in long run
• But in short run, TR may be smaller than TC
MC and MR approach:
• Produce if MC=MR in short run (loss will be minimized in this point)
• i.e. in short run price (MR) should at least cover AVC though it is not covering ATC, but in
long run it should cover ATC
• In long run objective is to maximize profit instead of minimizing loss
• Thus, in long run one should go on using resources as long as the added returns remain
greater that added total cost
3. Principle of factor substitution

• To produce one output different factors are used
• One factor can be substituted for the next
Types of factor substitution:

o Constant marginal rate of substitution:
o Every successive unit of added input replace same amount of replaced input
o Decision: use only one factor based upon relative price to minimize cost
o Diminishing marginal rate of substitution:
o Successive units of added input replace less and less units of replaced input
o Decision: cost will be minimum when substitution ratio is equal to price ratio
o Increasing rate of substitution:
o Successive unit of added input replace greater and greater units of replaced input
o Decision: using only one input will minimize cost (decide based on price)
4. Law of equi-marginal returns

• States that profits will be the greatest if each unit of labour, capital and land is used where it
adds the most to the returns
• It further states that resources should be used where they bring not the greatest average
returns, but the greatest marginal returns
• For example, a farmer has Rs. 5000 to grow crops, raise dairy or poultry
Table: Marginal returns to capital on three enterprises
Amt. of capital used (Rs) Marginal returns (Rs)
Crops Dairy Poultry
1000 1300 1400 1500
2000 1300 1200 1250
3000 1200 1100 1100
4000 1200 900 1000
5000 1100 800 900
Total return from Rs. 5000 6100 5400 5750
Net profit 1100 400 750
Av. Return per rupee invested 1.21 1.08 1.15
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• Av. returns will be the highest if the total Rs. 5000 is spent on crops where gross returns is
Rs. 6100 and profits Rs. 1100
• The marginal return will, however, dictate spending of this money as under:
Amount Enterprise Added return
st
1 Rs. 1000 Poultry 1500
2nd Rs. 1000 Dairy 1400
rd
3 Rs. 1000 Crops 1300
th
4 Rs. 1000 Crops 1300
5th Rs. 1000 Poultry 1250
Total return from Rs. 5000 - 6750
Net profit - 1750
5. Opportunity cost principle

• The opportunity cost is the value of the next best alternative foregone
• The value of one enterprise sacrificed is the cost of producing another enterprise
• For example: if a farmer has Rs. 200
• If he purchase cow, net return is Rs. 80
• If he purchase a tractor, net return is Rs. 100
• If he purchase a bullock pair, net return is Rs. 60
• He gets highest return i.e. Rs. 100 from use in tractor compared to Rs. 80 from cow and Rs.
60 from bullock
6. Principle of combining enterprises

Independent enterprise:
• One enterprise has no effect in output from another (honey and rice)
Decision: each product should be treated separately (compare its cost and return irrespective of
next)
Joint products:
• Both products are produced from same production process (rice grain and straw)
Decision: both are taken as single (compare the cost and return of main/ one product)
Supplementary enterprises:
• Level of output from one enterprise has no effect on output from another (maize and wheat in
relation to land)
Decision: both the products should be produced up to the end of the supplementary stage
(produce both as long as this relation exists)
Complementary enterprises:
• If output from one enterprise increases output from next also increases (legume and cereal)
Decision: both the products should be produced up to the end of the complementarity stage
without reference to the prices of two products
Competitive enterprises:
• One enterprise compete with the next in terms of resource
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• There is some substitutability between two enterprises
Types of product substation

Constant rate of substitution:
• Every unit addition to added output replaces same units of replaced output
Decision: profit can be maximized by producing only one product or every combination gives
same profit
Decreasing rate of substitution:

• Successive units of added output replaces smaller and smaller units of replaced output
Decision: profit will be maximized by producing only one of the two products (decide based
upon output prices)
Increasing rate of substitution:

• Successive units of added output replaces greater and greater units of replaced output
Decision: profit will be maximized by producing a combination of the two products where
substitution ratio equals the price ratio (value of added output = value of replaced output)
7. Time comparison principle

• Value of money changes over time (purchasing power of money may not be same over time)
• Thus, time value of money is to be considered while making agribusiness decisions
• Compounding: calculating future value of present amount of money
FV=PV (1+r)n
• Discounting: calculating present value of future sum of money

PV=FV/ (1+r)n
• Example: a farmer have to purchase a tractor, his alternatives are:
o Purchase a new tractor at Rs. 25000 that will last for10 years
o Purchase an old tractor at Rs. 15000-and replace it after 5 years with another old
tractor worth Rs. 15000
Farmer with unlimited capital: opportunity cost of capital is lesser (say 5%)
PV=15000/(1+0.05)5 =Rs. 11760
• Comparison: new tractor=Rs. 25000 and two old tractor Rs. 26760 (Rs. 15000+Rs. 11760)
• The new tractor is economical
Farmer with limited capital: higher rate of interest (say 15%)
PV=15000/(1+0.15)5 =Rs. 7455
• Comparison: new tractor=Rs. 25000 and two old tractor Rs. 22455 (Rs. 15000+Rs. 7455)
• The older tractor is economical
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8. Principle of comparative advantage

Different locations or regions have different soil and climatic conditions so that differences in
yield, cost, and returns from crops and livestock enterprises which leads to the specialization in
the production of the farm commodities by individual farmer or region. In this case, law of
comparative advantage guides the producer for specialization of particular commodity in
particular location based on the economic advantages (relative yield, cost and return). Thus,
decision on business should be made based upon the comparative advantage not only upon the
absolute advantage.
• i.e. invest where you have greatest comparative advantage
• Different areas may have different opportunities-thus different enterprises have comparative
advantages over there compared to other areas
• There are two types of advantages in the production of farm commodities:
Absolute advantages
It is the size of the margin or difference between the cost and return from using productive input.
If the margin is larger for one farm commodity in one region then that region has absolute
advantage in producing that commodity.
Region Terai Hills

Cost/return
Paddy Citrus Paddy Citrus
Gross income (Rs/ kattha) 5000 10000 4000 20000
Total cost (Rs/kattha) 4000 9500 3500 19000
Net income (Rs/kattha) 1000 500 500 1000
For production of paddy, terai is most suited because it has more absolute advantage over hills.
Similarly, for citrus production, hill is more suited because it has more absolute advantage over
terai.
Comparative advantage
A region may have more absolute advantages for more than one commodity but a farmer should
specialize in that commodity which have more return per unit of investment among all other
alternatives.
Area Terai Hills
Particular Paddy Vegetable Paddy Vegetable
Gross income (Rs/ kattha) 5000 8330 10000 1660
Total cost (Rs/kattha) 4000 7330 9500 1160
Net income (Rs/kattha) 1000 1000 500 500
Return per unit of investment (% of 1.25 1.13 1.05 1.14
return over the cost of cultivation)
In this case, both paddy and vegetable have more absolute advantages in terai as compared to
hills but among the two commodities, in Terai paddy has more comparative advantage than
vegetables. Similarly, in Hills vegetables have more comparative advantage than paddy. Also
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comparative advantage occurs when one country can produce a good or services at a lower
opportunity cost than another. It occurs due to differential productivity and scarcity of land, labor
and capital. Theory of comparative advantage states if country specializes in producing goods
where they have a lower opportunity cost then there will be increase in economic welfare.
Example: Two countries Nepal and India are producing textile and books using same productive
resource that is labour (say)
Countries Textiles Books
Nepal 1 unit 4 units
India 2 units 3 units
For Nepal, to produce 1 unit of textile, it has opportunity cost of 4 books. However for India, to
produce 1 unit of textile, it has opportunity cost of 1.5 books. Therefore, India has comparative
advantage in producing clothing or textile because it has lower opportunity cost. For Nepal, to
produce 1 unit of book, it has OC of 1/4 = 0.25 textile however for India, to produce 1 unit of
book, it has OC of 2/3 = 0.66 textiles. Therefore, Nepal has comparative advantage in producing
books because it has lower opportunity cost as compared to India. Output of both goods can be
increased illustrating gain from comparative advantage. Competitive advantages are the
conditions that allow a company or country to produce good or service at a lower price or in a
more desirable fashion for customers. These conditions allow productive entity to generate more
sales or superior margins than its competitors.
9. Principle of value addition

This principle is particularly useful in product development and sequence of farm business starts
from the input marketing to end use of the output. Value addition is done in each level upto the
end product so that each actor gets higher price by adding value or services in product
development.
10. Competitiveness principle

The performance of an economy results from a series of variables. At micro level,
competitiveness is determined by “hard” comparative advantages such as the location, the
availability of primary resources and the cost of labour as well as by “soft” conditions like the
entrepreneurial competence. Yet competitiveness also is a function of value chain coordination
and the existence of supporting agencies at the meso level. Finally, the business enabling
environment deter4mines the overall cost of business making. Taken together, competitiveness is
expressed by measures indicating technical efficiency and profitability as well as innovation and
investment rates.
10.1. Economies of scale

The term economies of scale means that the marginal productivity increases with increasing
production. In microeconomics, economies of scale are the cost advantages that enterprises
obtain due to size, throughput, or scale of operation, with cost per unit of output generally
decreasing with increasing scale as fixed costs are spread out over more units of output. Often
operational efficiency is also greater with increasing scale, leading to lower variable cost as well.
For example, marginal productivity of labour increases with increasing production i.e. the unit
labor requirement declines with increasing production. Similarly, a large agro manufacturing
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company would be expected to have a lower cost per unit of output than a smaller facility. In the
following figure as quantity of output increases from Q to Q1, the average cost decreases from
fro C
to C1 (indicates economies of scale i.e. average cost decreases as production increases).
increases
However, in lower figure, beyond the output level Q1, additional production increases per unit
cost of production (diseconomies of scale).
10.2. Competitive advantage

The term competitive advantage is the ability gained through attributes and resources to perform
at a higher level than others in the same industry or market. Competitive advantage stresses
maximizing scale economies in goods and ser services
vices that garner premium prices (Stutz and Warf,
2009). When a firm or company acquires or develops an attribute or combination of attributes
that allows it to outperform its competitors. Thus, moving from comparative advantage to
competitive advantage means ans moving from resource-based
resource based to knowledge
knowledge-based advantage. The
competitive advantage of locality also arises from the combination of rivalry and cooperation
between local enterprises and from the partnership of public agencies and private organizations
inn supporting local enterprises (Schmitz, 2003). Moving from a focus on comparative advantage
to one of competitive advantage implies moving from a BDS enterprise oriented strategy to a
29
value chain industry focused strategy. Key attributes of competitive advantage are hiring
qualified and trained personnel, q2uality services in quality payments, placed business in a key
place, bring new technology, new brands, research based marketing strategies etc.
Sources of competitive advantages:

Marketing factors: Marketing factors comprises of product mix, packaging, service norms, ne
product leadership, pricing, strength of personal selling, channel strength, marketing
communication, brand dominance, market shares, market research, market intelligence, market
organization
Production factors: Production factors comprises of economies of scale, production and post
production facilities, location advantage, raw materials cost quality and delivery, maintenance
strength, inventory norms
Personal and expertise factors: These include high caliber employees, motivation level, lower
cost of labour, industrial peace, training and development
R and D factors: R and D factors are basic to advance R and D capabilities, speed of R and D,
value engineering e4tc
Corporate research and finance factors: These factors include corporate image and prestige,
company size, corporate performance records, assets, resources, financial clouts, structure and
system
10.3. Business Development Services (BDS)

BDS focus on creation of well-functioning support markets as the best means of providing small
enterprises with a wide array of useful, affordable and high-quality services. Developing BDS
markets involves engaging the private sector in the provision of BDS, working with multiple
providers in the market so as to create competition, and not subsidizing transactions between
providers of the service and MSE clients.
10.4. Sales promotion

Sales promotion includes those sales activities that supplement both personal selling and
advertising and coordinates them and help to make them effective, such as display, show and
expositions, demonstration and other non-recurrent selling efforts not in a ordinary routine. It is
essentially a direct and immediate strategy that adds extra value to the product, so that prompts
the dealers, distributors, ultimate consumers, to buy the product. It is quite different to
advertising by; a) advertising is indirect but sales promotion is a direct inducement to consumers,
b) advertising is long term but sales promotion is short term objective, c) advertising is long term
value addition to products but it is short-term value addition to the product.
10.5. Advertising
Advertising is telling and selling, the former convinces the consumers. It is the means employed
to draw attention to any object or purpose. The basic aim of advertising is popularizing the
product.
AGRIBUSINESS FINANCING
• It is about the financial management of farm
30
• Financial management deals with the acquisition and allocation of fund in investment
activities
• The equity capital; personal investment of the owner in the business (also called risk capital
because investors assume the primary risk of losing their funds if the business fails) may not
be enough to finance the agribusiness
• Therefore there may be need of debt capital in the business operation
• When the fund is borrowed from other sources and paid with interest then it is known as debt
fund
• The sources of fund acquisition is credit.
• Literally the credit is money that the borrower borrow from a bank/ group/ individuals; a loan
• It is the status of being trusted to pay back money to somebody who lends
• Loan is lubricant that keeps the wheel of development moving (Pandey, 1990)
• Credit depends upon the capital, character and capacity
• Credit also depends upon the return, repayment capacity and risk ( 3 C and 3 R)
1.1.Capital:
• One of the factor of production-not original factor, but the result of man-made efforts
• Man makes the capital goods to produce other goods and services
o Example: machinery, raw material, transport equipment, dams etc
• It is defined variously:
o A produced means of production
o A crystallized labour (Karl Marx)
1.2.Character:
• It is an attitude and behavior of borrower
• We can judge personal attitude and behavior of borrower expressed through the transaction
behavior, social relationship, social status.
• One should judge the character of borrower through different aspects.
1.3.Capacity:
• It is the acquisition strength to afford the credit.
2.1. Return:
• In which rate the credit when invested yields return
2.2. Repayment capacity:

• Whether the borrower will be in position to repay the borrowed capital in time with interest
2.3. Risk:
• Investment should be of minimum risk.
• Financial institution does not prefer risky investment.
• There should be provision of insurance in risky investment.
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• To allocate the fund among alternative enterprises, one should look at the comparative
advantages among competitive enterprises which can be accessed through profitability
analysis, net present value,
ue, internal rate of return etc.
Financial intermediation
• Financial intermediation is the process of channeling funds and securities between savers and
investors
• Fund flow originates with savers and terminates with investors while securities flow
originates with investors and terminates with saver
• Financial market determines these kinds of transaction between securities flow and fund flow
• Two types of financial intermediaries: institutional and non-institutional
non institutional are operating in
Nepal
Fig. Financial intermediation process
• Institutional credit in Nepal was started in 1963 when the cooperative bank was established
• Institutional loan in Nepal is provided by government, semi-government,
semi government, joint-venture
joint banks,
cooperatives which are registered in authorized place and are recognized to supply credit to
the client
Advantages of institutional credit:

• Institutional credit enhance civilian morality of borrowers because of official dealing while
taking such loan
• It also improved organizational behaviour
• Similarly as such agents provides profitable investment ideas
• Because of timely monitoring and repayment in time, it help to increase income in short time
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• Financial institutions provide term-base loan: long-term, medium-term and short-term

• Interest rate of institutional loan is generally low, however, it requires fulfilling long official
procedure to get loan
• Majority of large borrowers and savers in developing country resides in urban areas where
cash intermediation system is found for long period
• Most of the institutional loans are captured by the landlords because of the sufficient
collateral, loan access and awareness (FAO, 2003)
• The non institutional sources, despite charging higher interest rates, are reported to be
effective sources for distributing credit to the farmers especially in remote villages
Need of formal credit in agricultural business

• Equity fund is not sufficient to start agri-business
• Leverage effect of loan fund on equity fund is positive
• Frequent need of fixed cost in the agri-business for the replacement of machine parts, or
changing plant
• Interest rate of informal sector high and getting large amount of loan from a single person or
place is rarely possible
Status of formal financial institutions in Nepal

S.N Type of institution Category Number
1 Commercial banks A 28
2 Development banks B 57
3 Finance companies C 36
4 Microfinance Financial Institutions D 48
5 Saving and Credit Cooperatives - 15
6 NGOs - 25
7 Other Institutions - 10
Total 219
Source: Nepal Rastra Bank, 2017
Some financial institutions of Nepal

Commercial banks Rastrya Banijya Bank, Nepal Bank Limited, Nabil, Nepal Investment
Bank, Himalayan Bank Limited, Nepal Bangladesh Bank, Everest,
Kumari, Sun rise, Janta, Mega, Sanima, NIC Asia, Globa IME,
Machapuchhre, Nepal SBI, Prabhu, Bank of Kathmandu Lumbini
Development banks Agriculture Development Bank (1968), Rural Development Bank,

Laxmi Development Bank, DEPROSC Development Bank, Siddarth
Development Bank, Lumbini Development Bank, Garima Bikas,
Kamana Bikas, Kailash, OM, Fewa
Finance companies Nepal Aabas Financing Ltd, Pokhara Finance, Gorkha Finance Ltd,
Sagarmatha Finance Ltd, Everest Finance Ltd, Lalitpur, Goodwill,
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Micro Finance Nirdhan Utthan Bank Ltd., Sana Kisan Bikas Bank Ltd., Vijaya
Financial Institutions Laghubitta Bittiya Sanstha Ltd., Nepal Grameen Bikas Bank Ltd.
Saving and Credit Limited banking

Cooperatives Upakar Saving and Credit Sahakari Sanstha Ltd, Kisan Multipurpose
Sahakari Sanstha Ltd., Mahila Sahakari Sanstha Ltd
NGOs Some NGOs are registered as financial intermediaries who generally

involved in financing micro credit, awareness building, for women,
poor and disadvantaged groups, CYC, Unique Nepal, Gramin Jagaran
Manch, MANUSHI
Other Institutions Rastriya Sahakari Bank Ltd., Hydroelectricity Investment and

Development Company Ltd, Batas Investment Co. Pvt. Ltd, Syakar
Investment Pvt. Ltd, Sipradi Investment Pvt. Ltd
Agriculture development bank of Nepal

• Agriculture Development Bank Nepal (ADBN) was established in 1968 under the
Agriculture Development Bank Act 1967.
• The bank was established with the main objective of providing institutional credit for
enhancing the production and productivity of the agricultural sector in the country.
• It is an autonomous organization that is largely owned by the Government of Nepal
• The major operational area for the bank is rural finance
• The bank has also been involved in commercial banking operation since 1984
• To provide quality banking services, to adopt market driven strategy and to obtain sustained
and competitive return on investment are the major objectives of the bank
• The products and services of the bank includes current account, saving account, fixed deposit
account, sambridhi saving account, ba-ama saving account, auto loan, education loan, foreign
employment loan, home loan, residential loan, agricultural production/livestock loan, small
and cottage industry loan, products and inputs marketing loan, inward/outward remittance
etc.
• Like other lending agencies, ADB/N is interested in profitability of the lent funds as well as
in minimizing risks
• It needs sufficient collateral during the process of lending (land, house, machine)
• It re-evaluate the collateral generally after one year of loan approval especially in urban area
• It calculate interest half-yearly
• The loan recovery rate of ADBN is around 90% (rest is bad debt)
Legal requirement of ADBN for issuing loan (<2 lacks)

• Application form (provided by bank)
• Declaration of proprietorship
• Land certificate
• Copy of revenue paid receipts (land revenue)
• Identification paper of account operators
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• Income tax registration/ renewal certificate (clearance)
Legal requirement for larger loan for crop/livestock:

• Application form with investment analysis (IRR, NPV, B/C Ratio)
• Declaration of sole proprietorship
• Copy of renewed registration certificate
• Identification paper of account operator
• Income tax registration/renewal certificate
• Registration certificate at Small and Cottage Industries Office (for large fund more than 10
million fixed cost Department of Industries provides certificate)
• Collateral is necessary – bank evaluate property before lending
FINANCIAL STATEMENTS USED IN AGRIBUSINESS
• The term financial statement refers to basic statements that an accountant prepares at the end
of specified period of time for a business enterprise.
• Important financial statements are:
o Farm inventory
o Balance sheet (Net worth statement)
o Income statement (Profit or loss statement)
o Cash-flow statement
Farm inventory
• List of whole physical property of a farm along with their values at specified date
• It is the complete list of farmer’s assets
• It is first step in farm accounting
Illustration for farm inventory
Table: Inventory of Mishra farm on 1st July 2018

S.N. Items Quantity Value
I Non-depreciable assets
1 Crop produce (store)
2 Farm supplies
2.1 Seed
2.2 Fertilizer
2.3 Pesticides
3 Growing crops (field)
4 Marketable livestock
Sub-total (I)
II Depreciable assets
1 Farm machinery (Tractor, trolley, drill, tube
well, tiller, harrow, thresher, harvester etc)
2 Tools
3 Farm building
35
4 Livestock
5 Land (ha)
Sub-total (II)
III Cash assets
1 Cash in hand
2 Bank deposits
3 Shares (banks, hydro, coop)
Sub-total (III)
Grand total (I+II+III)
Purposes of inventory preparation

1. Farm inventory is necessary step in complete farm accounting
o It shows how much of the capital accumulated goes back to the business (compare
inventory prepared in beginning and end of season)
2. Shows change in net worth (compare beginning of the year and end of the year
inventories)
3. Help to measure income and efficiency
4. Helps in estimating depreciation cost
5. Helps to work out last year’s take over of stocks and this year’s left over
6. Basis for income statement: net farm income can not be calculated without inventories
Time of inventory preparation

• Best time is beginning of agricultural year (1st July for example)
o When crop season is finished and work of next season has not begun
o Stored products nearly finished
• However, time is not important factor – can be taken at any time
• But, should be taken at same time each year
• Regarding the time, two things should be remember
o Lesser need of price estimates: when most of farm products have sold/consumed
and supplies consumed
o Convenience: free time
Process of inventory preparation

i. Physical counting: counting of all physical assets (listing)
ii. Valuation of physical assets: estimating values of assets-should be done carefully-over
valuation and under valuation may mislead-give incorrect income in specific year
o Example: inflated opening inventory (previous year’s closing inventory) estimate
low income in coming year (equal to inflation)
Methods of valuation
• Use of valuation method depends upon the purpose of valuation and nature of asset
• Inappropriate valuation can lead to unsound business decision
36
Commonly used valuation methods

1. Cost minus depreciation
2. Cost or market price whichever is lower
3. Net selling price
4. Replacement cost minus depreciation
5. Income capitalization
1. Cost minus depreciation method

• Total cost put in business minus amount depreciated over time
• Commonly used for working assets like machinery and breeding livestock
• This method assumes that purchase price is the approximation of value of asset and its value
in subsequent years can be determined by subtracting a depreciation allowance from its cost
• This method can not be used for valuation of farm products
2. Valuation at cost or market price whichever in lower

• Used for valuation of purchased farm supplies
3.Valuation at net selling price

• Price which could be obtained for the asset if marketed less the cost of marketing
• i.e. market price minus selling cost
• Used for valuation of items put for sale (crops and livestock)
• Not appropriate for buildings and machines for which no actual market may exist
4.Replacement cost minus depreciation method

• Cost to reproduce the assets at current market price and technology minus depreciation of
asset
• Best for long-lived assets like building
• This may avoid undervaluation but may cause overvaluation
5.Income capitalization method

• Used for assets which contribution in farm income can be measured and for long lasting asset
like land
V = R/r
Where, V is value in Rs.; R is constant income over infinite number of years in future; and r is
rate of interest
• But in practice neither the future income and rate of interest will be known with certainty
• Thus, this method is generally used in combination of other method like valuation at market
price
Selection of method of valuation

Valuation method Asset
Net selling price Marketable assets (sold within the year)
Cost or market price (whichever is lower) Farm supplies, farm land
Cost minus depreciation Working capital like machinery and equipment,
recently constructed buildings
37
Replacement cost minus depreciation Buildings constructed long time ago

Income capitalization Farm land
Net worth statement (Balance sheet)

• Net worth statement shows the financial condition of the farm at point of time and stability of
the business over given time period
• Net worth is an excess of assets over liabilities
• Net worth is prepared for farmer not for his business
• It shows whether the business is expanding or shrinking
• The business is said to be solvent when the net worth or equity is greater than zero
• Business is said to be insolvent or bankrupt when assets do not meet business liabilities
• Difference between assets and liabilities shows the distance from insolvency position
o Greater the difference on positive side, the sounder will be the business
• Farmers are generally more concerned about the immediate solvency than the ultimate
solvency
• Therefore, assets and liabilities should be classified in to different groups to know the real
position of the farm business at a point of time and compare the nature of liabilities to the
assets
Classification of assets and liabilities
a.Assets
a.1.Fixed assets: difficult to convert them into cash to meet any current obligations
Examples: land, building
a.2.Working assets: more liquid than fixed assets

Examples: machinery, equipment
a.3.Current assets: most liquid assets and are consumable in a year

Example: seed, fertilizer, cash on hand, livestock for sale
b.Liabilities
b.1.Long duration liabilities: no need to repay during the current accounting period
o Example: long term loans, mortgage
b.2.Intermediate liabilities: payment can be postponed for present but fall due within the year
o Example: medium term loans
b.3.Current liabilities: payment within accounting period and generally at once (same season,
within 1 month?)
o Example: short term loans
• It will not be thus, appropriate to buy a long lived assets through short term loans
• Best policy is to match the liabilities with the nature of assets and earnings from them in
respect of time
38
Table. Net worth statement of Mishra in 1st July 2018

ASSETS LIABILITIES
S.N Item Value S.N Item Value
1 Current assets 1 Current liabilities
Cash in bank, share Short term loan (loan for seed, feed, fertilizer
etc etc)
Cash in hand
Farm products
Farm supplies
Standing crops
Sub-total Sub-total
2 Working assets 2 Medium term liabilities
Machinery & Medium term loan (loan for machinery,
equipment equipment, animal buy)
Livestock
Sub-total Sub-total
3 Fixed assets 3 Fixed liabilities
Land Long term loan (loan for purchase and
Land improvement improvement of land and buildings)
Farm buildings
Sub-total Sub-total
Total assets Total liabilities
• Net worth = Total assets – Total liabilities

• This estimation of net worth alone may not give true picture of the financial position of the
farmer
Example:
• Net capital ratio of Farmer A = Rs.40000/Rs.30000 =1.3
• Net capital ratio of Farmer B = Rs.20000/Rs.10000=2.0
• Though the net worth is same, net capital ration indicate that business of Farmer B is more
safer
• Because 25% reduction in asset value of Farmer A wipe out its safety margin however, 50%
reduction in asset value of Farmer B wipe out it
• Thus, rations between different categories of assets and liabilities should be estimated
Net capital ratio: ration of total assets to total liabilities
Net capital ration = Total assets ÷ Total liabilities
• Shows financial safety over the time by comparing net worth of different periods
• Capital ratio greater than 1 indicates solvent position, less than 1 indicates bankrupt and
equal to 1 indicates just solvent.
• If this ratio is greater than 1, then the funds of institutional agencies are safe.
39
Working ratio:
• It is derived by dividing the
the sum of working and current assets by the sum of medium term
liabilities and short term liabilities
• It measures the financial safety of the business over an intermediate period of time
Current ratio:
• It is obtained by dividing the current assets by the current liabilities
• It measures the degree of immediate solvency of the business
• Wider these ratios (net capital, working and current) better the financial position of business
Quick ratio or acid test ratio:
• Or, (Cash & cash equivalent + marketable securities + account receivable) ÷ Current
liabilities
• Indicates how well the company can meet its short term liabilities
• If quick ratio value is 1.5 then it indicates that a farm or company has Rs. 1.50 of liquid
assets available to cover each Rs. 1 of the current liabilities.
• Higher the quick ratio, better the company’s liquidity position.
Current liability ratio:
• Reflects the farmer’s immediate financial obligation against net worth.

• Ratio smaller indicates consistently good performance.
Debt-Equity
Equity ratio (leverage ratio):
• Reflects the farmer’s total financial obligation against net worth

• A falling ratio indicates good performance of farming and ability of farmer to reduce
dependence on borrowing.
40
Equity Value ratio:
• Indicates the productivity gained by the farmer in relation to the assets he has.
• Improvement in the ratio over years makes it crystal clear regarding the increased strength in
the financial position of the farm business.
Owner’s equity:
• Value of the owner’s investment in the business
• It is the balancing factor on the balance sheet, representing all of the owner’s capital
contributions to the business plus all accumulated (or retained) earnings not distributed to the
owner (s)
Income statement
• Income statement summarizes the data on income and expenses to present a truthful picture
of the year’s performance
• Is the list of all farm expenses or business debts on one hand and all receipts or business
credits on the other
• After bringing these together in a convenient form, expenses are subtracted from receipts to
determine the net income for the year
Table. Income statement of Mishra farm for the year 2074/075

Credit (receipts) Debits (expenses)
SN Particular Amount SN Particular Amount
(Rs) (Rs)
1 Crop sale 1 Operating expenses
Rice Hired labour cost
Maize Manure/fertilizer
Vegetable Electricity/fuel
Sub-total Insecticide/pesticide
2 Livestock sale Seed/seedling
Animal Feed
Milk Chicks
Egg Repair/maintenance
Sub-total Sub-total
3 Miscellaneous 2 Fixed expenses
Rent Interest paid
Custom work Cash rent
Government payment Permanent labour wage
Sub-total Land tax
A Gross cash receipts from farm Sub-total
production
B Gross cash expenses on
production
41
Various financial ratios are calculated on the basis of income statement
Operating ratio: Ratio of operating expense to gross income on the farm
Fixed ratio: Ratio of fixed cost to gross income on the farm
Gross ratio: Ratio of total costs to gross income on the farm
Capital turn-over ratio: Ratio of gross income to total capital invested
• It measures the gross farm income generated per rupee of capital investment.
CASH-FLOW STATEMENT
• It is summary of cash in-- flow and cash out -flow

flow of business organization in a particular
period, say a season or year.
• It is usually prepared for future
future.
Format of cash flow statement

Particulars First qrt Second qrt Third qrt Fourth qrt
(Jun-Aug) (Sep- Nov) (Dec-Feb)
Feb) (Mar-May)
1. Cash receipt (Inflow)
a. Cash balance 60000
b. Sales 5000 2000 1000
c. Non-farm income 10000
d. Burrowing 15000 10000
e. Government payments
Total 60000 15000 17000 20000
1. Cash expenses
(Outflow) 4000 2000
a. Operating expenses 5000
42
b.Capital investment 8000

c.Family living expenses 5000 4000 6000
d.Payment to debt
e.Dividends
f.Income tax
g.Deposit on saving
accounts
Total 9000 12000 6000 7000
Cash balance 51000 3000 31000 4000
INVESTMENT APPRAISAL CRITERIA
• The key steps involved in determining whether an investment is worthwhile or not are:
o Calculate the costs and benefits of the business
o Assess the riskiness of the business
o Calculate the cost of capital
o Compute the criteria of merit and judge whether the investment is good or bad
• The criteria of merit, referred to as investment criteria or capital budgeting techniques
• There are many criteria that have been suggested by economists, accountants, and others to
judge the worthwhileness of investment
• Some are general and applicable to a wide range of investments, others are specialized and
suitable for certain types of investments and industries
• The important investment criteria, classified into two broad categories-discounting criteria
and non-discounting criteria
A. Discounting criteria:
• This method takes into account of the time value of money (Discounting means the
calculation of present value of future worth).
• There are mainly three popular methods used for evaluating alternative investment activities:
• NPV, B/C ratio, IRR
B. Non-discounting criteria:
• This method does not take into account the time value of money and is not that much
popular.
• Payback period, Accounting rate of return, proceed per unit of outlay, simple rate of return
1. Net Present Value (NPV) of Net Present Worth (NPW)
• NPV of a project is the sum of the present values of all the cash flows-positive as well as
negative-that are expected to occur over the life of the project
• NPV of a project is the present worth of the benefits less the present worth of the costs
• It is simply the present worth /value of the incremental net benefit or incremental cash flow
stream
43
Mathematically it can be worked out as:
CF0 CF1 CF2 CFn n CFn

NPV = ------ + -------- + -------- + ……. + -------- = ∑ ---------
(1+r)0 (1+r)1 (1+r)2 (1+r)n n=i
(1+r)n
Where,
CF = Incremental benefit, n = Number of years, r = Interest rate
Or,
n
NPV = ∑ (Bt - Ct)/ (1 + r)t
t=1
Where, Bt = Benefit Stream at time t; Ct = Cost Stream at time t
Illustration
Year 0 1 2 3 4 5
Cash flow (Rs) 1000000 200000 200000 300000 300000 350000
200000 200000 300000 300000 350000

= −1000000 + + + + +
(1.1) (1.1) (1.1) (1.1) (1.1)
= Rs. 5,273
Decision criteria
• NPV = + ve →Project accepted (provided the discount rate more or equal to the opportunity
cost of capital)
• NPV = 0 → Indifferent in decision making
• NPV = -ve → Project rejected
Properties of the NPV rule

• The NPV has certain properties that make it a very attractive decision criterion:
a. NPVs are additive:

o The NPV of a package of projects is simply the sum of the NPV of individual
projects included in the package
b. NPV calculation permits time varying discount rates:

o Discount rates need not be always the same
o The NPV can be calculated using time-varying discount rates
Limitations of NPV criterion

1. The NPV is expressed in absolute terms rather than relative terms and hence does not
factor in the scale of investment
o Thus, no ranking of acceptable, alternative independent projects is possible with
NPV rule
44
o A small highly attractive project may have a small NPV than a large, marginally
acceptable project.
o Thus, project A may have NVP of 5,000 while project B has NPV of 2,500, but
project A may require an investment of 50,000 whereas project B may require an
investment of just 10,000
o Advocates of NPV, however, argue that what matters is the surplus value, over and
above the hurdle rate, irrespective of what the investment is
o NPV is the most appropriate measure to choose among the mutually exclusive
projects
2. The NPV rule does not consider the life of the project
o Hence, when mutually exclusive projects with different lives are being
considered, the NPV rule is biased in favour of the longer
longer term project
2. Benefit Cost Ratio (B/C Ratio) or profitability index
• B/C ratio is the oldest method among all discounted measures of project evaluation.
• It is the ratio of present worth of benefit stream divided by the present worth of cost stream.
• There are two ways of defining the relationship between benefits and costs:
cost ratio: BCR = PVB/I

1. Benefit-cost
2. Net benefit-cost
cost ratio: NBCR = (PVB-I)/I
(PVB
=BCR-1
• Where, PVB is the present value of benefits, and I is the initial investment
Illustration:
Initial investment 100,000
Benefits Year 1 25,000
Year 2 40,000
Year 3 40,000
Year 4 50,000
= 1.145
NBCR = BCR – 1
= 0.145
45
• The two BCR measures, gives the same result because the difference between them is simply
unity
Evaluation:
• The proponents of BC ratio argue that since this criterion measures NPV per rupee of outlay,
it can discriminate better between large and small investments and hence is preferable to the
NPV criterion
• When the capital budget is limited in the current period, the BC ratio criterion may rank
projects correctly in order of decreasingly efficient use of capital
• However, its use is not recommended because it provides no means for aggregating several
smaller projects into a package that can be compared with a large project
Decision criteria
• B/C Ratio > 1 Project accepted (provided the discount factor is the opportunity cost
of capital)
• B/C Ratio = 1 Indifferent in decision making
• B/C Ratio <1 Project rejected
3. Internal Rate of Return (IRR)

• It is discount rate which makes its NPV equal to zero
• In another word, it is the discount rate which equates the present value of future cash flows
with the initial investment
o Therefore, in IRR method the interest rate that equates the present value of the
future cash earnings with initial investment outlay is calculated
• If, IRR is used in financial analysis, it is named as financial rate of return and in economic
analysis, it is called economic rate of return
• It is actually the earning rate of the project under evaluation
• It is the value of r in the following equation:
n
Initial investment = ∑ Ct/ (1 + r)t
t=1
• Where, Ct is the cash flow at the end of year t, r is the internal rate of return (IRR), and n is
the life of the project
• In NPV calculation we assume that the discount rate (cost of capital) is known and determine
the NPV
• In IRR calculation, we set the NPV equal to zero and determine the discount rate that
satisfies the condition
Illustration:
Year: 0 1 2 3 4
Cash flow: 100000 30000 30000 40000 45000
• The IRR is the value of r that satisfies the following equation:
46
30000 30000 40000 45000

100000 = + + +
(1 + ) (1 + ) (1 + ) (1 + )
• The calculation of r involves a process of trial and error

• We try different values of r till we find that the right-hand side of the above equation is equal
to 100000
• Let us, to begin with, try r = 15%
• This makes the right hand side equal to:
•
30000 30000 40000 45000
+ + + = 100,802
(1.15) (1.15) (1.15) (1.15)
• This, value is slightly higher that target value, 100,000

• So we increase the value of r from 15% to 16% (higher r lowers right hand side value)
• The right hand side becomes:
30000 30000 40000 45000

+ + + = 98,641
(1.16) (1.16) (1.16) (1.16)
• Since, this value is now less than 100,000, we conclude that the value of r lies between 15%
and 16%
• In most of the purposes this indication suffices
• If a more refined estimate of r is needed, use the following procedure:
1.Determine the NPV of the two closest rates of return:

NPV/15% 802
NPV/16% -1359
2.Find the sum of the absolute values of the NPV obtained in step 1:
802+(-1359) = 2161
3.Calculate the ratio of the NPV of the smaller discount rate, identified in step 1, to the sum
obtained in step 2:
802/2161 = 0.37
4.Add the number obtained in step 3 to the smaller discount rate:

15+0.37=15.37
Limitations of IRR
1.In mutually exclusive projects IRR can be misleading,
• IRR seems unsuitable for ranking projects of different scale
• IRR is also unreliable for ranking projects which have different pattern of cash flow over
time
• Thus, while comparing mutually exclusive projects NPV criterion is simpler to use than the
IRR rule which involved additional computations
47
2.Difference between short-term and long-term interest rates:

• Discounting given year’s cash flow with another years opportunity cost of capital make no
sense
• In other hand, if cash flows are discounted at the corresponding year’s opportunity cost of
capital, which opportunity cost should be considered to compare with IRR
• In this case a complex weighted average of various rates should be computed to get a number
comparable to IRR-difficult
• Thus, NPV rule is simply used when short term interest rates differ from long-term interest
rates
3.Non-conventional cash flows:

• Conventional cash flows: initial cash flows of the project are negative and the subsequent
cash flows are positive
• If not conventional, more than one rate may make NPV zero
• Thus, problem is that which one is the IRR
Do the IRR and the NPV rules lead to identical decisions?

• Yes, provided two conditions are satisfied:
• The cash flows of the project must be conventional
• The project must be independent, meaning that the project can be accepted or rejected
without reference to any other project
Computing IRR
• It is very difficult to find a discount rate that makes the NPV zero, except for rare chance.
• We adopt a systematic procedure of trial and error to find the discount rate that makes NPV
equal to zero.
• The most difficult aspect of trial and error is making the initial estimate.
• If the estimate is too far from the final result, then several trails will have to be made to find
two rates close enough together to permit accurate interpolation.
• Interpolation is the process of finding a desired value between two other values.
! "#$% &'()#*+! !%
= + 0
,*- #. ( ! !$# &'()#*+! !%( (('/+ '/+# %&)
Here,
IRR = Internal Rate of Return
LDR = Lower Discount Rate
D = Difference between two discount rates
Decision criteria
• In case of single project: Accept the project when IRR greater than opportunity cost of
capital i.e. market interest rate which is generally between 14-19%.
• In case of two mutually exclusive projects: Accept one having higher Internal Rate of
Return
48
B. Non discounting criteria
1.Simple Rate of Return

• It expresses the average annual net income (annual profit) as a percent of the initial amount
invested in the project
SRR = (Y-D)/I
Where,
Y = Average annual net income;
D = Annual depreciation; and
I = Initial investment
Decision criteria:
• Accept all the independent projects with SRR more than Required Rate of Return (RRR) i.e.,
opportunity cost of capital otherwise reject the project.
• If SRR=RRR – indifference in accepting or rejecting
2.Pay Back Period

• It is a frequently used non-discounted measure
• Pay Back Period is the length of time form the beginning of the project until the net value of
the incremental production stream reaches the total amount of capital investment
• It is simply the length of time required to recover the initial cash outlay (initial investment)
on the project
Example:
• If a project involves a cash outlay of Rs. 6,00,000 and generates cash inflows of Rs.
1,00,000, 1,50,000, 1,50,000 and Rs. 2,00,000, in first, second, third and fourth years,
respectively
• Its payback period is 4 years because the sum of cash inflows during 4 years is equal to the
initial outlay
• If the annual cash inflow is constant, the payback period is simply the initial outlay divided
by the annual cash inflow
P=I/E
Where, I=Initial investment, E=Annual net cash return (annual cash inflow)
Decision criteria:
• According to payback criterion, the shorter the payback period, the more desirable the project
• Firms using this criterion generally specify the maximum acceptable payback period
• If this is n years, projects with a payback period of n years or less are considered worthwhile
and projects with a payback period exceeding n years are considered unworthy
Advantages of PBP criterion

1. Simple both in concept and application-no tedious calculations
49
2. Rough and ready method for dealing with risk

o It favors projects which generate substantial cash inflows in earlier years and
discriminates against projects which bring substantial cash inflows in later years but not
in earlier years
o The payback criterion may be helpful in weeding out risky projects
Limitations
1. It fails to consider the time value of money
o Cash inflows, in the payback calculation, are simply added without suitable
discounting
o This violates the most basic principle of financial analysis which stipulates that
cash flows occurring at different points of time can be added or subtracted only
after suitable compounding/discounting
2. It ignores cash flows beyond the payback period
o This leads to discrimination against projects which generate substantial cash
inflows in later years
Illustration:
Consider the cash flows of two projects, A and B
Year Cash flow of A Cash flow of B
0 100000 100000
1 50000 20000
2 30000 20000
3 20000 20000
4 10000 40000
5 10000 50000
6 - 60000
o The payback period rule prefers A, which has a payback of 3 years in comparison
to B which has a payback period of 4 years even though B has very substantial
cash inflows in years 5 and 6
3.It is a measure of project’s capital recovery, not profitability
4.Though it measures a projects liquidity, it does not indicate the liquidity position of the firm
as a whole, which is more important
Reasons for popularity of PBP

• The PBP may be regarded roughly as the reciprocal of the IRR when the annual cash inflow
is constant and the life of the project fairly long
• The PBP is somewhat akin to the break-even point
• The PBP conveys information about the rate at which the uncertainty associated with a
project is resolved
o The shorter the PBP, the faster the uncertainty associated with the project is
resolved
o The longer the PBP, the slower the uncertainty associated with the project is
resolved
o Decision-makers prefer an early resolution of uncertainty
50
3. Proceeds per unit of outlay

It is equal to total value of incremental production divided by the total amount of the investment
Decision criteria: invest where maximum PPUO
Project Incremental Cost Total Value of Incremental Proceeds Per Unit of Rank
Capital Item Production Outlay
A 100,000 100,000 1.00 4
B 100,000 110,000 1.10 2
C 100,000 120,000 1.20 1
D 100,000 105,000 1.05
4.Break-even analysis:
• The break-even
even point is the level of operation (sales rupees or production quantity) at which
a company neither earns a profit nor incurs a loss
• At this level of activity, sales revenue equals expenses, that is, firms break even
• It is the planning device for the small business owner
•
5#! " .'6%& )#(!
1 % 2 %3%+ 3#"*-%
, "%( 4 ')% 4% *+'! ' 7"% )#(! 4% *+'!
• (Sales price – per unit variable cost) is contribution margin

• It can also be expressed in percentage as:
5#! " .'6%& )#(!

1 % 2 %3%+ 4#'+! 8 100
, "%( 4 ')% 4% *+'! ' 7"% )#(! 4% *+'!
51
Sensitivity Analysis
• The advantage of careful economic and financial analysis of project is that it may be used to
test what happens to the earning capacity of the project if the event differs from the guesses
made them in planning stages.
• Analysis of sensitiveness of the project's financial and economic rate of return or net benefit
ratio to increase construction cost, to extension of the implementation period, to a fall in
price etc. is very important for successful implementation and attainment of objectives of the
project.
• Reanalysis to what happens under these changed circumstances is called sensitivity analysis.
o Change in the market price of the input and output
o Delay in implementation- farmers may fail to adopt new practices as rapidly as
anticipated
o Cost of overrun
o Yield
• Generally there is tendency in agricultural projects to be optimistic about potential yield
• If yield is lower compared to the expected, the analysis of what will happen to IRR, B/C
ratio and NPV etc. is the sensitivity analysis
• Since the future is uncertain, one should know what will happen to the viability of the project
when some variable like sales or investment deviates from its expected value
• In other words, one may want to do “what if” analysis or sensitivity analysis
• You can make optimistic and pessimistic estimates for the variables
Table. Sensitivity of NPV to variations in the value of key variables

Key variables Range NPV
Pessimistic Expected Optimistic Pessimistic Expected Optimistic
Investment 24 20 18 -0.65 2.6 4.22
Sales 15 18 21 -1.17 2.6 6.4
Variable costs as a % 70 66.66 65 0.34 2.6 3.73
of sales
Fixed costs 1.3 1.0 0.8 1.47 2.6 3.33
• Sensitivity analysis-a popular method for risk assessing
Merits:
• It shows how robust or vulnerable a project is to changes in values of the underlying
variables
• It indicates where further work may be done-if the NPV is highly sensitive to changes in
some factor, it may be worthwhile to explore how the variability of that critical factor may be
contained
Demerits:
• It merely shows what happens to NPV when there is a change in some variable, without
providing any idea of how likely that change will be
• Typically, in sensitivity analysis only one variable is changed at a time. In the real world,
however, variables tend to move together
52
• The interpretation of results is subjective: The same sensitivity analysis may lead one
decision maker to accept the project while another may reject it
LEADERSHIP AND MOTIVATION
• The activity of leading a group of people or an organization or the ability to do this is

leadership
• Leadership is helping the individuals or groups to accomplish organizational goals
•
Leadership is a practical skill encompassing the ability of an individual or organization to
"lead" or guide other individuals, teams, or entire organizations.
• U.S. academic environments define leadership as "a process of social influence in which a
person can enlist the aid and support of others in the accomplishment of a common task".
• A leader steps up in times of crisis, and is able to think and act creatively in difficult
situations.
• Unlike management, leadership cannot be taught, although it may be learned and enhanced
through coaching or mentoring.
Leadership involves:
• Establishing a clear vision,
• Sharing that vision with others so that they will follow willingly,
• Providing the information, knowledge and methods to realize that vision, and
• Coordinating and balancing the conflicting interests of all members and stakeholders.
Characteristics of a successful leader

• Passion/enthusiastic - Dynamism
• Creativity - Innovative
• Confidence - Versatile
• Knowledgeable - Self motivation
• Communicative - Visionary
• Intelligence - Resilient (Flexibility)
• Agility (alertness) - Coordinating
• Decisiveness - Patience
Leadership emergence:
•
Many personality characteristics were found to be reliably associated with leadership
emergence.
• Leadership emergence is the idea that people born with specific characteristics become
leaders, and those without these characteristics do not become leaders.
•
Research indicates that up to 30% of leader emergence has a genetic basis.
• There is no current research indicating that there is a “leadership gene”, instead we inherit
certain traits that might influence our decision to seek leadership.
•
Both anecdotal, and empirical evidence support a stable relationship between specific traits
and leadership behavior.
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• Using a large international sample researchers found that there are three factors that motivate
leaders; affective identity (enjoyment of leading), non-calculative (leading earns
reinforcement), and social-normative (sense of obligation).
Leadership emergence factors are:

1. Assertiveness
• The relationship between assertiveness (boldness) and leadership emergence is curvilinear;
individuals who are either low in assertiveness or very high in assertiveness are less likely to
be identified as leaders.
2. Authenticity
• Individuals who are more aware of their personality qualities, including their values and
beliefs, and are less biased when processing self-relevant information, are more likely to be
accepted as leaders.
3.Big Five personality factors

• Extroverted (demonstrative), conscientious (careful), emotionally stable, and open to
experience, (strong factors) and agreeableness (no meaningful role) plays role in leadership
emergence.
4.Birth order
• Those born first in their families are hypothesized to be more driven to seek leadership and
control in social settings.
• Middle-born children tend to accept follower roles in groups, and later-borns are thought to
be rebellious (disobedient) and creative
5.Character strengths
• Those seeking leadership positions in a military organization had elevated scores on a
number of indicators of strength of character, including honesty, hope, bravery, industry, and
teamwork.
6.Dominance
• Individuals with dominant personalities – they describe themselves as high in the desire to
control their environment and influence other people, and are likely to express their opinions
in a forceful way – are more likely to act as leaders in small-group situations.
7.Emotional intelligence
• Individuals with high emotional intelligence have increased ability to understand and relate
to people.
•
They have skills in communicating and decoding emotions and they deal with others wisely
and effectively.
• Such people communicate their ideas in more robust ways, are better able to read the politics
of a situation, are less likely to lose control of their emotions, are less likely to be
inappropriately angry or critical, and in consequence are more likely to emerge as leaders.
8.Gender identity
• Masculine individuals are more likely to emerge as leaders than are feminine individuals.
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9.Intelligence
•
Individuals with higher intelligence exhibit superior judgment, higher verbal skills (both
written and oral), quicker learning and acquisition of knowledge, and are more likely to
emerge as leaders.
10.Narcissism (selfishness)
• Individuals who take on leadership roles in turbulent situations, such as groups facing a
threat, tend to be narcissistic: arrogant, self-absorbed, hostile, and very self-confident.
11.Self-efficacy for leadership

• Confidence in one's ability to lead is associated with increases in willingness to accept a
leadership role and success in that role.
12.Self-monitoring
• High self-monitors are more likely to emerge as the leader of a group than are low self-
monitors, since they are more concerned with status-enhancement and are more likely to
adapt their actions to fit the demands of the situation
13.Social motivation
• Individuals who are both success-oriented and affiliation-oriented, as assessed by projective
measures, are more active in group problem-solving settings and are more likely to be elected
to positions of leadership in such groups
Leadership styles
1.Autocratic or authoritarian
• Under the autocratic leadership style, all decision-making powers are centralized in the
leader, as with dictators
• Autocratic leaders do not entertain any suggestions or initiatives from subordinates.
• It permits quick decision-making, as only one person decides for the whole group and keeps
each decision to him/herself until he/she feels it needs to be shared with the rest of the group.
2.Participative or democratic
• The democratic leadership style consists of the leader sharing the decision-making abilities
with group members by promoting the interests of the group members and by practicing
social equality.
• This has also been called shared leadership.
3.Laissez-faire or Free-rein
• In Laissez-faire or free-rein leadership, decision-making is passed on to the sub-ordinates.
• The sub-ordinates are given complete right and power to make decisions to establish goals
and work out the problems or hurdles.
4.Task-oriented and relationship-oriented

• Task-oriented leadership is a style in which the leader is focused on the tasks that need to be
performed in order to meet a certain production goal.
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• Task-oriented leaders are generally more concerned with producing a step-by-step solution
for given problem or goal, strictly making sure these deadlines are met, results and reaching
target outcomes.
•
Relationship-oriented leadership is a contrasting style in which the leader is more focused on
the relationships amongst the group and is generally more concerned with the overall well-
being and satisfaction of group members.
• Relationship-oriented leaders emphasize communication within the group, show trust and
confidence in group members, and show appreciation for work done.
Motivation
• The goal seeking behavior or goal directing behavior of individual is called motivation.
• All the personnel in the organization should be oriented towards achieving the objectives.
• Certain motivational devices are usually followed to make the direction effective such as
rewards for better work, time bound promotion and better working conditions.
• The manager in business has to motivate his staff towards better utilization of resources
and move the things in right direction towards accomplishment of goals and objectives.
Definition
• Motivation is regarded as “the inner state that energizes activities and directs or channels
behavior towards the goal”.
• “Motivation is the process that arouses action, sustains the activity in progress and that
regulates the pattern of activity”.
Nature of Motivation
• The nature of motivation emerging out of above definitions can be expressed as follows:
1.Motivation is internal to man

• Motivation cannot be seen because it is internal to man.
• It is externalized via behavior.
• It activates the man to move toward his / her goal.
2.A Single motive can cause different behaviors

• A person with a single desire or motive to earn prestige in the society may move towards to
join politics, attain additional education and training, join identical groups, and change his
outward appearance.
3.Different motives may result in single behaviour

• It is also possible that the same or single behaviour may be caused by many motives.
• For example, if a person buys a car, his such behaviour may be caused by different motives
such as to look attractive, be respectable, gain acceptance from similar group of persons,
differentiate the status, and so on.
4.Motives come and go

• Like tides, motives can emerge and then disappear.
• Motives emerged at a point of time may not remain with the same intensity at other point of
time.
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• For instance, an entrepreneur overly concerned about maximization of profit earning during
his initial age as entrepreneur may turn his concern towards other higher things like
contributing towards philanthropic activities in social health and education once he starts
earning sufficient profits.
5.Motives interact with the environment

• The environment in which we live at a point of time may either trigger or suppress our
motives.
• You may desire an excellent performance bagging the first position in your examination but
at the same time may also be quite sensitive to being shunned (give up) and disliked by your
class mates if you really perform too well and get too much of praise and appreciation from
your teachers.
• Thus, what all this indicates is that human behaviour is the result of several forces differing
in both direction and intent.
Business Motivating Factors

• Most of the researchers have classified all the factors motivating entrepreneurs into internal
and external factors as follows:
A. Internal Factors
• These include the following factors:
o Desire to do something new.
o Become independent.
o Achieve what one wants to have in life.
o Be recognized for one’s contribution.
o One’s educational background.
o One’s occupational background and experience in the relevant field.
B. External Factors
• Are outside influences that can impact a business
• Various external factors can impact the ability of a business or investment to achieve its
strategic goals and objectives
• These external factors might include:
o Competition – can sell your product profitably?
o Social, legal and technological changes
Society –accept?, law – permit? Technology – available?
o Economic and political environment
o Policy on export/import, tax/subsidy, ceiling?
• External factors that affect the viability of a business are:

o new competitors,
o existing competitors,
o substitute products,
o buyers, and
o suppliers.
• Collective strength of these forces determines the ultimate profit potential of a business
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Theory X and Y of human motivation

Douglas McGretor and MIT Sloan School of Management (1960s) introduced Theory X and Y
especially use it for human resource management, organizational behaviour and organizational
development.
Theory X: Management assumes employees are inherently lazy and would like to avoid work
responsibility as possible. Because of this reason employees need to be closely supervised and
comprehensive systems of controls developed. A hierarchical structure is needed with narrow
span of control at each level. Many managers (1960s) prescribed theory X, as pessimistic view of
their employees. The major problem of this theory is causing diseconomies of scale in large
business, may rude business by bogged rules and increased administrative costs.
Theory Y: This theory of management assumes employees may be ambitious, self-motivated,

anxious to accept greater responsibility, and exercise self-control and self-direction. It is believed
that employees enjoy their mental and physical work duties. If management gives chances and
freedoms, employees create creativity and forward thinking in the workplace, enhance workforce
productivity. It is positive set of assumptions about the workers. Thus managers need to be open
to more positive views of workers and create many management possibilities for middle
managers and junior employee.
Maslow's Hierarchy of Needs theory of motivation

Maslow's (1943, 1954) hierarchy of needs is a motivational theory in psychology comprising a
five tier model of human needs, often depicted as hierarchical levels within a pyramid. Maslow
stated that people are motivated to achieve certain needs and that some needs take precedence
over others. Our most basic need is for physical survival, and this will be the first thing that
motivates our behaviour. Once that level is fulfilled the next level up is what motivates us, and so
on.
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This five stage model can be divided into deficiency needs and growth needs. The first four
levels are often referred to as deficiency needs (D-needs), and the top level is known as growth
or being needs (B-needs). The deficiency needs are said to motivate people when they are unmet.
Also, the need to fulfill such needs will become stronger the longer the duration they are denied.
For example, the longer a person goes without food, the more hungry they will become. One
must satisfy lower level deficit needs before progressing on to meet higher level growth needs.
When a deficit need has been satisfied it will go away, and our activities become habitually
directed towards meeting the next set of needs that we have yet to satisfy. These then become our
salient (most important) needs. However, growth needs continue to be felt and may even become
stronger once they have been engaged. Once these growth needs have been reasonably satisfied,
one may be able to reach the highest level called self-actualization.
Every person is capable and has the desire to move up the hierarchy toward a level of self-
actualization. Unfortunately, progress is often disrupted by a failure to meet lower level needs.
Maslow noted only one in a hundred people become fully self-actualized because our society
rewards motivation primarily based on esteem (respect), love and other social needs.
The original hierarchy of needs - five stage model includes:
Biological and Physiological needs - air, food, drink, shelter, warmth, sex, sleep.
Safety needs - protection from ailments, security, order, law, stability, freedom from fear.
Love and belongingness needs - friendship, intimacy, trust and acceptance, receiving and giving
affection and love, affiliating - being part of a group (family, friends, work).
Esteem needs - achievement, mastery, independence, status, dominance, prestige, self-respect,
respect from others.
Self-Actualization needs - realizing personal potential, self-fulfillment, seeking personal growth
and peak experiences.
• Maslow posited that human needs are arranged in a hierarchy

• 'It is quite true that man lives by bread alone — when there is no bread, but what happens to
man’s desires when there is plenty of bread and when his belly is chronically filled?
• At once other (and “higher”) needs emerge and these, rather than physiological hungers,
dominate the organism.
• And when these in turn are satisfied, again new (and still “higher”) needs emerge and so on.
• This is what we mean by saying that the basic human needs are organized into a hierarchy of
relative prepotency
The expanded hierarchy of needs

• It is important to note that Maslow's (1943, 1954) five stage model has been expanded to
include cognitive and aesthetic needs (seven stage model) and later transcendence needs
(eight stage model) developed during 1960’s and 1970’s
1. Biological and Physiological needs - air, food, drink, shelter, warmth, sex, sleep, etc.
2. Safety needs - protection from ailments, security, order, law, stability, etc.
3. Love and belongingness needs - friendship, intimacy, trust and acceptance, receiving and
giving affection and love, affiliating - being part of a group (family, friends, work).
4. Esteem needs - self-esteem, achievement, mastery, independence, status, dominance,
prestige, managerial responsibility, etc.
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5. Cognitive needs - knowledge and understanding, curiosity, exploration, need for meaning
and predictability (be experienced).
6. Aesthetic needs - appreciation and search for beauty, balance, form, etc.
7. Self-Actualization needs - realizing personal potential, self-fulfillment, seeking personal
growth and peak experiences.
8. Transcendence (experienced beyond the normal level) needs - helping others to achieve
self actualization.
PRODUCTION PLANNING IN AGRIBUSINESS
Production planning is the planning of production and manufacturing modules in a company or

industry. Different types of production methods, such as single item manufacturing, batch
production, mass production, continuous production etc. have their own type of production
planning. Production planning can be combined with production control into production planning
and control, or it can be combined - enterprise resource planning. Production planning is used in
companies in different industries, including agriculture, industry, amusement industry, etc.
Production planning is a plan for the future production, in which the facilities needed are
determined and arranged. A production plan is made periodically for a specific time period,
called the planning horizon. It can comprise the following activities:
o Determination of the required product mix and factory load to satisfy customers needs
o Matching the required level of production to the existing resources
o Scheduling and choosing the actual work to be started in the manufacturing facility
o Setting up and delivering production orders to production facilities
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In order to develop production plans, the production planner needs to work closely together with
the marketing department and sales department. They can provide sales forecasts, or a listing of
customer orders. A critical factor in production planning is the accurate estimation of the
productive capacity of available resources, yet this is one of the most difficult tasks to perform
well. Production planning should always take into account material availability, resource
availability and knowledge of future demand.
Types of planning
Different types of production planning can Related kind of planning in organizations:

be applied:
• Advanced planning and scheduling • Employee scheduling
• Capacity planning • Enterprise resource planning
• Master production schedule • Inventory control
• Material requirements planning • Product planning
• Scheduling • Project planning
• Workflow • Process planning
• Sales and operations planning
• Strategy
AGRIBUSINESS MARKETING
Marketing involves activities to satisfy consumer needs. It considers all activities concerning to
provide right product at the right price, place and time. There are five concepts or marketing as:
1. Exchange concept: Exchange between the buyers and sellers. Exchange covers the
distribution aspect and price mechanism involving in marketing.
2. Production concept: Marketing is an appendage to production. If production is done
marketing could be managed, and the consumers support what is produced at low cost
and large volume.
3. Product concept: It seeks to achieve winning market and profits as in production
concept via product excellence not high volume of production and low unit of cost.
Excellence means improved products, new product and ideally designed and engineered
products. It deals with quality assurance or product attributes.
4. Marketing myopia: A colored or crooked perception of marketing and short sightedness
about business which may result into failure in the market place.
5. Sales concept: No automatic demand for the product unless there is promotional works
in terms of aggressive advertising, high power personal selling, large scale sales
promotion, heavy price discount and strong publicity and public relations.
Marketing is the economic process by which goods and services are exchanged between the
producers and the consumers and their values determined in terms of money prices. According to
Richard Kohls “Marketing is the performance of all business activities involved in the flow of
goods and services from the point on initial agricultural production until they are in hands of the
ultimate consumers”. According to Faryque “Agricultural marketing comprises all operations
involved in the movement of farm produces from the producers to ultimate consumers”.
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Marketing management is the managerial process of analysis, planning, strategy, implementation

and control.
Marketing is different from selling:

Marketing Selling
1 Marketing is wider and dynamic 1 Selling is narrower and less
dynamic compared to marketing
2 Marketing revolves around the need and interest 2 Selling is fulfilling the needs and
of the buyers interest of sellers
3 Marketing starts with the customers present and 3 Selling starts with the products
potential needs and views business as a task of
meeting the needs of the customers by producing
and supplying products and services
4 Marketing seeks profit but not through 4 Selling seeks profit by pushing the
aggressive pushing of the product but by meeting products on the buyers
the needs of customers and by creating value
satisfaction
Difference between marketing and selling can be understood with this table also:
Marketing Selling
Starting point Market Company
Focus Customers need Products
Means Coordinated marketing Selling and promoting
Ends Profit through customers satisfaction Profit through sales volume
Company’s four orientations on marketing
Production orientation Product orientation

Product availability is the major attention Product quality
point Good products, improved products
Low cost production “Good products sell automatically”
High production efficiency/ productivity
Selling orientation Marketing orientation
Selling and promotion efforts Core: needs and want of target markets
“Additional efforts are needed to sell” Aim: deliver satisfaction
Through 4 pillars:
1. Market focus
2. Customer orientation
3. Coordinated effort
4. Profitability
Features of marketing
1. Consumer’s orientation: consumer is the king in agribusiness, thus the purpose of the
business is to create more customers so that the market need to consider willingness to
pay (WTP) capacity of the customers.
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2. Integrated management action: All the different functions of the business just be tightly
integrated with one another, keeping marketing as the pivot leaving a favorable impact on
the consumer. All the departments of the business enterprise reach the point of
optimization keeping the cost low and quantity flow and quality under control leaving
within prescribed budget.
3. Consumers satisfaction: leads to satisfaction of the consumer meeting his/her ends
within the means
4. Realizing the organizations goal including profit
Systems/ types of agricultural marketing in Nepal
SN Market type Description

1 Hat bazaar Weekly, semiweekly, fortnightly managed by farmers/ groups
in collaboration with local government body
Specially selling vegetables, grains, animals, tools, foods etc
2 Collection centres Organized by farmers coordination committee, cooperatives
Established under Krishi Upaj Bazaar Sanchalan Samiti
under MOAD guidelines of 2053
Sells milk, vegetables
3 Whole sale markets Larger volume at a reasonable price
4 Retail markets Retailers and consumers meet and perform buying and
selling activities
Organized by VDC, Municipality and DDC, cooperatives,
private company, entrepreneurs and firm
5 Venders Door to door selling in cycles especially in major cities
6 Supermarkets In large cities (Bhatbhateni, Civil mall, Sales berry, Gorkha
kitchen, saleways, Buddha super market etc)
7 Department stores Small to large across all cities of the country
Sell raw, semi-processed or processed agri-products
8 Hotel summit Especially organic products in daily or weekly basis
9 Organic village Shops in Sanepa, Baluwatar, Basundhara, Sindhuli and other
places
Central or state governments announces such villages in
many districts
10 Market hubs The big markets like Narayangurh, Butwal, Bhairahawa,
Biratnagar, Dhangadi, Janakpur, Birtamod, Pokhara etc
STRATEGIC MARKETING PLAN
Every successful business must have a business plan. This plan spells out among others the ways
the company intends to rationalize its resources, engage in production and even handle its clients.
Most importantly, a sound business plan must also include a strategic marketing plan. Strategic
marketing planning is considered as a creative process in its own right. Here, the management
and operations teams strive to come up with and implement practical marketing strategies that
can guarantee a stable flow of business for the company.
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Considerations in the Planning Process

A strategic marketing plan revolves around the kind of environment the entity desires to establish
for the client in the quest to make sales. This plan involves concepts such as geographical and
demographic target markets as well as market segmentation.
The Plan Should Contain the Following Five Components
Company Positioning
• It should outline the current position of the firm regarding financial results.
• Such an analysis allows the planning team to identify the strategies that were previously put
in place and assess the success of the overall plan against the financial results.
• In the end, a SWOT analysis reveals the current situation of the company.
Goals and Strategies

• The strategic marketing plan is never complete without listing the organizational goals and
strategies to be implemented.
• The goals inform the rationalization of resources in production, distribution, and marketing
while the strategies discuss the conversion of targets into realities.
• For instance, a goal may state the intention to improve the brand recognition and image while
the corresponding plan defines the most appropriate media or promotion method to achieve
desired results.
Market Opportunities
• The plan should always assess emerging or existing market opportunities that may be
harnessed in the short and long term.
• By so doing, the planners can easily dedicate resources to the most promising opportunity.
Target Market Defined

• It is important to define the target groups for all your products and services.
• This step allows you to conduct more research on their needs, demands, and even preferences
to capitalize on sales.
• Also, define the demographic and geographic stratification of these groups.
Marketing Budget
• Last and most importantly, a strategic marketing plan is considered complete due to the
inclusion of a realistic marketing budget and the dedication of an implementation period.
• Tough decisions have to be made at this point.
• These include the division of duties and responsibilities.
Benefits of Strategic Marketing Planning

This process facilitates a common understanding among all stakeholders in an organization. The
plan informs management decisions, the behavior of the employees towards the institutional
goals and also the response among current and potential clients. The plan is also subjected to
changes over a period to meet changing demands. A sound marketing plan allows a corporate
entity to grow its market share which results in more revenue and profits. As the firm expands, it
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can enjoy large economies of scale and thus less operational costs. Overall,
Ove the strategic
marketing planning process connects the production engine to the consumption transmission.
Four Tools Used in Strategic Planning for Marketing & Sales

Strategic planning involves considering potential internal and external impacts on the
organization and then mapping out an approach to deal with these impacts. From a marketing
standpoint, strategists consider customer needs, competitive factors and organizational
advantages. There are a number of tools they can use as they develop and implement ways to
ensure that the strategies and tactics developed are appropriate and plans can be effectively put
into action.
1.Porter's
Porter's Five Forces Model
• Used in business feasibility study (tool for analyzing business attractiveness)
• Michael Porter developed
eloped his Five Forces Model and introduced it to the world in 1980 in his
first book, "Competitive Strategy."
• Five forces interact with one another to determine the attractiveness of the business
o Rivalry among companies competing in the industry
o Bargaining ng power of the suppliers to the industry
o Bargaining power of buyers
o Threat of new entrants to the industry
o Threat of substitute products or services
Fig. The five force model of competition
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2.SWOT Analysis
• The SWOT analysis is a tool used in strategic planning to identify and, ultimately, prioritize
the organization's strengths, weaknesses, opportunities and threats.
• In fact, SWOT is an acronym that stands for these elements.
• The process involves a brainstorming session where participants create a list for each of these
areas based on previously gathered data and information.
• Once the lists are created, a ranking process is used to prioritize the items so that the top
items in each category can be used to provide a basis for the development of objectives,
strategies and tactics.
3.Mind Maps
• Mind maps are visual tools used in strategic planning to show how various items relate to
each other.
• A mind map is a diagram that presents words, ideas or images linked to an initial central
theme or idea.
• Mind maps is the form of brainstorming and was popularized by psychologist Tony Buzan in
1976, according to the University of Surrey.
• The process starts with an initial question or problem that is written in the center of a large
piece of paper or on a whiteboard.
• Additional ideas or concepts are then tied to and branched out from the central idea.
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4.Balanced Scorecard
• The Balanced Scorecard is a method used to monitor the implementation and effectiveness of
strategic plans.
• According to the Balanced Scorecard Institute, it has been popularized by Robert S. Kaplan
and David P. Norton, who wrote about it in their book "The Balanced Scorecard" in 1996.
• It is a way for organizations to track progress on strategic planning goals across various
categories that are balanced against each other to ensure appropriate focus across all areas.
MARKETING RESEARCH
Marketing research is the process or set of processes that links the producers, customers, and
end users to the marketer through information used to identify and define marketing
opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing
performance; and improve understanding of marketing as a process. Marketing research specifies
the information required to address these issues, designs the method for collecting information,
manages and implements the data collection process, analyzes the results, and communicates the
findings and their implications. It is the systematic gathering, recording and analysis of
qualitative and quantitative data about issues relating to marketing products and services. The
goal of marketing research is to identify and assess how changing elements of the marketing
mix impacts customer behavior. The term is commonly interchanged with market research;
however, expert practitioners may wish to draw a distinction, in that market research is
concerned specifically with markets, while marketing research is concerned specifically about
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marketing processes. Marketing research is often partitioned into two sets of categorical pairs,
either by target market:
o Consumer marketing research, and
o Business-to-business (B2B) marketing research.
• Or, alternatively, by methodological approach:
o Qualitative marketing research, and
o Quantitative marketing research.
Role of marketing research

The purpose of marketing research (MR) is to provide management with relevant, accurate,
reliable, valid, and up to date market information. Competitive marketing environment and the
ever-increasing costs attributed to poor decision making require that marketing research provide
sound information. Sound decisions are not based on gut feeling, intuition, or even pure
judgment. Managers make numerous strategic and tactical decisions in the process of identifying
and satisfying customer needs. They make decisions about potential opportunities, target market
selection, market segmentation, planning and implementing marketing programs, marketing
performance, and control. These decisions are complicated by interactions between the
controllable marketing variables of product, pricing, promotion, and distribution. Further
complications are added by uncontrollable environmental factors such as general economic
conditions, technology, public policies and laws, political environment, competition, and social
and cultural changes. Another factor in this mix is the complexity of consumers. Marketing
research helps the marketing manager link the marketing variables with the environment and the
consumers. It helps remove some of the uncertainty by providing relevant information about the
marketing variables, environment, and consumers. In the absence of relevant information,
consumers' response to marketing programs cannot be predicted reliably or accurately.
Ongoing marketing research programs provide information on controllable and non-controllable
factors and consumers; this information enhances the effectiveness of decisions made by
marketing managers. Traditionally, marketing researchers were responsible for providing the
relevant information and marketing decisions were made by the managers. However, the roles
are changing and marketing researchers are becoming more involved in decision making,
whereas marketing managers are becoming more involved with research.
Characteristics of marketing research

First, marketing research is systematic.
• Thus systematic planning is required at all the stages of the marketing research process.
• The procedures followed at each stage are methodologically sound, well documented, and, as
much as possible, planned in advance.
• Marketing research uses the scientific method in that data are collected and analyzed to test
prior notions or hypotheses.
• Experts in marketing research have shown that studies featuring multiple and often
competing hypotheses yield more meaningful results than those featuring only one dominant
hypothesis.
Marketing research is objective.

• It attempts to provide accurate information that reflects a true state of affairs.
• It should be conducted impartially.
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• While research is always influenced by the researcher's research philosophy, it should be free
from the personal or political biases of the researcher or the management.
• Such research is deliberately biased so as to result in predetermined findings.
• The objective nature of marketing research underscores the importance of ethical
considerations.
• Also, researchers should always be objective with regard to the selection of information to be
featured in reference texts because such literature should offer a comprehensive view on
marketing.
Classification of marketing research

Organizations engage in marketing research for two reasons: firstly, to identify and, secondly, to
solve marketing problems. This distinction serves as a basis for classifying marketing research
into problem identification research and problem solving research. Problem identification
research is undertaken to help identify problems which are, perhaps, not apparent on the surface
and yet exist or are likely to arise in the future like company image, market characteristics, sales
analysis, short-range forecasting, long range forecasting, and business trends research. Research
of this type provides information about the marketing environment and helps diagnose a
problem. For example, the findings of problem solving research are used in making decisions
which will solve specific marketing problems.
Types (forms) of marketing research

Marketing research techniques come in many forms, including:
• Ad Tracking – periodic or continuous in-market research to monitor a brand’s performance
using measures such as brand awareness, brand preference, and product usage. (Young, 2005)
• Advertising Research – used to predict copy testing or track the efficacy of advertisements
for any medium, measured by the ad’s ability to get attention (measured with Attention
Tracking), communicate the message, build the brand’s image, and motivate the consumer to
purchase the product or service. (Young, 2005)
• Brand awareness research — the extent to which consumers can recall or recognize a brand
name or product name
• Brand association research — what do consumers associate with the brand?
• Brand attribute research — what are the key traits that describe the brand promise?
• Brand name testing – what do consumers feel about the names of the products?
• Buyer decision making process— to determine what motivates people to buy and what
decision-making process they use
• Commercial eye tracking research — examine advertisements, package designs, websites,
etc. by analyzing visual behavior of the consumer
• Concept testing – to test the acceptance of a concept by target consumers
• Coolhunting (also known as trendspotting) – to make observations and predictions in changes
of new or existing cultural trends in areas such as fashion, music, films, television, youth
culture and lifestyle
• Copy testing – predicts in-market performance of an ad before it airs by analyzing audience
levels of attention, brand linkage, motivation, entertainment, and communication, as well as
breaking down the ad’s flow of attention and flow of emotion. (Young, p 213)
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• Customer satisfaction research – quantitative or qualitative studies that yields an

understanding of a customer's satisfaction with a transaction
• Demand estimation — to determine the approximate level of demand for the product
• Distribution channel audits — to assess distributors’ and retailers’ attitudes toward a
product, brand, or company
• Internet strategic intelligence — searching for customer opinions in the Internet: chats,
forums, web pages, blogs... where people express freely about their experiences with
products, becoming strong opinion formers.
• Marketing effectiveness and analytics — Building models and measuring results to determine
the effectiveness of individual marketing activities.
• Mystery consumer or mystery shopping – An employee or representative of the market
research firm anonymously contacts a salesperson and indicates he or she is shopping for a
product. The shopper then records the entire experience. This method is often used for
quality control or for researching competitors' products.
• Positioning research — how does the target market see the brand relative to competitors? –
what does the brand stand for?
• Price elasticity testing — to determine how sensitive customers are to price changes
• Sales forecasting — to determine the expected level of sales given the level of demand. With
respect to other factors like Advertising expenditure, sales promotion etc.
• Segmentation research – to determine the demographic, psychographic, cultural, and
behavioral characteristics of potential buyers
• Online panel – a group of individual who accepted to respond to marketing research online
• Store audit — to measure the sales of a product or product line at a statistically selected store
sample in order to determine market share, or to determine whether a retail store provides
adequate service
• Test marketing — a small-scale product launch used to determine the likely acceptance of the
product when it is introduced into a wider market
• Viral Marketing Research – refers to marketing research designed to estimate the probability
that specific communications will be transmitted throughout an individual's Social Network.
All of these forms of marketing research can be classified as either problem-identification

research or as problem-solving research. Similarly marketing research may be exploratory and
conclusive. Exploratory research provides insights into and comprehension of an issue or
situation. Conclusive research draws conclusions: the results of the study can be generalized to
the whole population.
Methods (design) of marketing research

• Methodologically, marketing research uses the following types of research designs:
Based on questioning
• Qualitative marketing research – generally used for exploratory purposes — small number of
respondents — not generalizable to the whole population — statistical significance and
confidence not calculated — examples include focus groups, in-depth interviews,
and projective techniques
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• Quantitative marketing research – generally used to draw conclusions — tests a

specific hypothesis – uses random sampling techniques so as to infer from the sample to the
population — involves a large number
numbe of respondents — examples
include surveys and questionnaires.
Based on observations
• Ethnographic studies — by nature qualitative, the researcher observes social phenomena in
their natural setting — observations can occur cross-sectionally
cross sectionally (observations made at one
time) or longitudinally (observations occur over several time-periods)
time
• Experimental techniques – by nature quantitative, the researcher creates a quasi-artificial
quasi
environment to try to control spurious factors, then manipulates at least one of the variables
Researchers often use more than one research design. They may start with secondary research to
get background information, then conduct a focus group (qualitative research design) to explore
the issues. Finally they might do a full nationwide
nationwide survey (quantitative research design) in order
to devise specific recommendations for the client.
RISK MANAGEMENT IN AGRIBUSINESS
• Since perfect knowledge situation in agribusiness management decisions is far from reality it
is necessary to study the effect of technical progress on the production relation and
incorporate all the complications due to time and risk and uncertainty in decision making
• Consideration of such aspects should help to arrive at some adjustments with the introduction
of time and risk and uncertainty aspects
Decision making under risk and uncertainty

• Frank Knight classified knowledge situation as follows:
Perfect knowledge: everything

thing (technology, price, organizational behaviour etc) about the future
of business is know with certainty
• No need of farm management expert
• But does not reflect the real world situation
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Imperfect knowledge: may be either risk or uncertainty
• Risk represents less imperfection in knowledge than does uncertainty

• Under risk the occurrence of future events can be predicted fairly accurately by specifying
the level of probability
• When a risk situation prevails, it can be said, for instance, that the chances of a hailstorm at
the time of harvesting wheat are 5:95 or 20:80
Priori risk: prevails when sufficient advance information is available about the occurrence of an
event, e.g. the probability of a head or a tail turning up if an unbiased coin is tossed
Statistical risk: can only be predicted on the basis of occurrences of several observations in the
past
• Mortality tables of insurance companies provide good examples of statistical risk
• An insured vehicle meeting with an accident or an insured house catching fire or being
burgled can be assigned probabilities on the past experiences of any country
• Because of the quantification of imperfect knowledge under a risk situation, the event can be
insured
• From economic point of view, uncertainty is undoubtedly the most important
• The occurrence of an event can not be quantified with the help of probability
• Thus future occurrence of an event can not be predicted
• A farmer often finds himself confronted with such a situation where the knowledge is
incomplete, yet the decision has to be taken
• It becomes, therefore, essential to formulate some estimates however wild, of the most likely
outcomes
• In practice, however, farmers are unable to draw a clear distinction between risk and
uncertainty, though the reaction in each situation is markedly different
• Thus in most cases risk and uncertainty are taken as similar in decision making
Types of risk and uncertainty
Economic uncertainties:
• Input and output price uncertainties
• In many developed countries this uncertainty are reduced by price announcement before crop
season
• This uncertainty is caused by national and international policies which are beyond the
approach of individual farmer
Biological uncertainties:
• Common and important in agriculture
• Rain, drought, flood, hailstorm, frost may cause disease and pest incidence
Technological uncertainty:
• Continuous advancement of knowledge through research
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• New technology (method, practice, raw material, market etc) available to farmers – increased
efficiency of production
• Same level of input produce larger level o outputs
• Measured by upward shift of production function
function (more output with same level of input) or
by downward shift in isoquant
• Production function shifted to right also – delayed operation of law of diminishing return
• Downward shift in isoquant – same level of output can be produced with less amounts of
bothh inputs by new technology
Institutional uncertainties:
• Government, banks may cause uncertainties for farmers
• Crop cess, credit squeeze, price supports, subsidies etc may be enforced and withdrawn
without considering individual farmers
Personal uncertainties:
• Unexpected happening in farmer’s household or its labour
Sum of production and technical risk, marketing and price risk, and personal risk is called
business risk
Business risk management

• Hardker, Huirne, Anderson and Lein (2004) defined that risk management is the systematic
application of management policies, procedures and practices to the tasks of identifying,
analyzing, assessing, treating and monitoring risk.
• Risk management is an integral part of good management in any organization
• It is a way for an organization to avoid losses and maximize opportunities
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Steps of business risk management
Establishing context
• The first step in risk management concerns three steps in establishing context: strategic,
organizational and risk management aspects
• The strategic context defines the relationship between the organization and its environment
and identifying the organizations’ SWOT
• The organizational context relates the process of setting and communicating goals and
objectives and the division of responsibility for various types of decision making among
people in the organization
• The risk management context relates defining the scope of the current strategy that pass
through the risk management process
Identifying important risky decision problems

• Aim of risk identification is to make a list of the events that may have important effect on the
performance of the organization
• Major aspect of identifications are related to: what might happen, why and how, and how the
organization mightt be affected
Structure problems
• In experience, structural problems are faced at the beginning of the risk analysis in terms of
identifying the exact nature of the risk being considered
• The problem would be: who faces the risk, who suffers if things go wrong,
wrong, what are the basic
and proximate causes of risk, how the risk currently managed, what other options are
available to manage the risk and finally who decides what to do
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Analyze options and consequences

• Risk analysis often starts with consideration of the chances of occurrence of the risk,
followed by assessment of the consequences, given current risk management practices
• If this assessment is judged as unsatisfactory, analysis proceeds to consideration of alternate
options for action and their possible consequences
Evaluate and decide

• Consequently after risk analysis, risky consequences are evaluated to reach a decision on
what to do for the best
• During judging acceptability of the risk, it may be necessary to consider attitude to risk inside
and outside of the organization
• The risk issues inside the organization would be degree of risk avoidance (aversion) of
people/farmer or decision maker, indifference level of government authority etc
• The risk issues outside the organization would be public concerns caused by the risky
decision
Implement and manage

• Implementation of decision means come in action for what has been decided upon
• It may be simple matter in small organizations when the person making the risky decision is
also the manager, in large organization it might be difficult
• During implementation some risks are managed by sacrificing expected returns i.e., risks of
some investment may be avoided by not investing, thus foregoing the potential benefit of the
investment or risk may be insured by paying premium
Monitoring and review

• Once the risk management programmes are implemented, these should be maintained,
updated, reviewed or monitored them frequently to perform managerial functions under
perfect information or depleting imperfect information
• Thus monitoring and review processes are essential parts of the process of learning about
risk, so that, better plans of risk management can be devised and put into operation
Risk management strategies

• Some farmers take more risk than others
• However, every farmer take some safeguarding measures to minimize loss
Some measures to safeguard against R & U:
1.Selection of enterprises with low variability:

• Yield and price may be more stable for some enterprises than others
• Example, cereals against vegetable and poultry
• Inclusion of such enterprise is good way to safeguard against risk and uncertainty
• But, farmers sacrifice some probable long run profits
• Here, objective is to stabilize farm incomes, rather than long run higher profits
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• Data on yield and prices of different enterprises over a period of time may be used to
measure the extent of variability by using statistical concepts like range, variance or
coefficient of variation
2.Discounting returns:
• Discounting only as a function of risk and uncertainty, but not as of time
• Planning based on single value expectation some times may mislead as it assumes perfect
knowledge situation
• Therefore, price, yields and incomes should be discounted to some extent while planning
• It measures the safety margins to be deducted prom expected prices, yields or incomes
• In terms of profit maximization condition of MPP = px1/py, discounting means that py is
decreased by some proportion, px1 is increased and MPP would assume a higher value
because of discounted, i.e. lower yields
• Thus profit maximization level of the variable input x1 may now be lower with discounting
than otherwise
3.Insurance:
• Well accepted method to safeguard against risk and uncertainty
• However, insurance in agriculture is not common in many countries like Nepal
• Insurance involves substitution of a certain small cost for uncertain and large magnitude of
loss
• Insurance of farm house, livestock and machinery when purchased in loan is more common
• There is provision of both livestock and crop insurance in Nepal now
• But, farmers are not participating in it as expected-program not effective
4.Forward contract:
• It reduces the future prices, both of the factors and products into certainty
• Contract may either be in money or in kind
• Contract labour for one month or one year is example of forward contract in money
• Pre-harvest citrus and apple contract is common in Nepal
• Share cropping is good example of forward contracts in kind
• Contract in kind reduces income variability however contract in money increases it
5.Flexibility:
• Changing organization of farm to take advantage of changing situation (technology, price)
• Flexibility should be maintained in farm plan for stabilizing income year after year and to
maximize the expected stream of total income over a longer period of time
• If the plan is flexible but not rigid desirable changes can be made in farm plan as needed
• It differs from diversification in the sense that it aims at preventing the sacrifice of large
gains as compared to the prevention of large losses through diversification
• Flexibility can be of following types:
• Time flexibility: timing of operation
• Cost flexibility: variation in output within the structure of a plant with a longer life
• Extension or contraction of output depending upon favourable prices to lower cost
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• Though purchasing machine will lower cost of operation, one may use machine in custom
hiring to have more cost flexibility in the farm
• Product flexibility: change in output proportions based upon price signals
6.Liquidity and asset management:

• Liquidity is the form of assets which can be readily converted in to cash – the most liquid
asset
• If assets are kept in liquid form, it provides a safeguard to the farm by enabling him to make
necessary adjustments in response to risks and uncertainties
• Cash in hand and bank, farm produce, supplies are more liquid however machinery, land,
buildings are less liquid
• However also comes at cost – higher liquidity lesser investment in fixed farm assets
• It thus, prevents immediate maximum profit
7.Diversification:
• Very important, useful an popular method to safeguard against risk and uncertainty in
agriculture
• It is the means of stabilizing income rather that maximizing profit
• It allows taking benefit from complementarity and supplemantarity
• In risky environment, farmers may not specialize on single or few enterprises even though
substitution ratio and price ratios suggest that
• Diversification distributed risk among many enterprises
• However, diversification also comes at cost and should be used only when the immediate
objective is income stabilization rather than profit maximization
• Like flexibility, diversification is not mean to reap larger gains but mean to prevent larger
losses
• All the advantages of specialization can not be gained by diversification
• Diversification can be achieved by following ways:
o Increasing existing stock of resources: using more resource – added resource can be used
for producing new products
o Diverting resources from existing enterprise to new enterprise: using some portion of
resource to some new enterprises
8.Maintaining resource in reserve:

• Used to cope up with uncertain availability of important resources in right time, quantity,
price and place
• Therefore, farmers maintain sufficient stock of resources which supply is uncertain
• Farmers ability to maintain resource reserve however, depends upon amount of speculative
fund, his ability to forecast future and storage facility
• This may come at cost or free of cost depending upon the opportunity cost of capital used in
maintaining stock
9.Adjustment to uncertain availability of inputs:

• Some resources may not be available at all and others in limited quantity
• Substituting resources which availability is uncertain with some others
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• It come at certain cost

• Limited quantity of resource can be allocated among different enterprises based on principle
of equi-marginal
marginal return rather than equating the MC and MR
• Farmers in poor countries can not push the use of wor
working
king capital far enough as to equate the
marginal cost with marginal revenue
• They then use the limited working capital in such a way as to equalize its marginal return
from all the enterprises
Risk management strategies in general can be categorized as:
• Diversification
On-farm • Flexibility
• Risk avoidance (prevention, use tested method)
instruments • Risk abatement (contingency plan, precautions, low
risk enterprise)
• Business financing
• Insurance
Market based • Share cropping, forward contract
instruments • Trading in community derivatives
• Option trading to reduce price risk
• Living standard adjustment

Ex-post • Emergency borrowing
strategies • Distress sales
SWOT ANALYSIS OF AGRIBUSINESS
• This is also explained as competitiveness analysis.

• This analysis identifies the strength, weakness, opportunity and threat of business.
• Strength and weakness are the internal factors where the producers can have control over it.
• Opportunity and threats are the external factors and producers have no control over it.
• External factors are influencing factor.
Methods
o Focus group discussion
o Key informant interview
o Household survey
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o Panel discussion
o Observation
• Indexing technique can be used for ranking each SWOT

• SWOT analysis can be done by using the indexing technique / scaling technique
• Scaling technique is the tool to study the direction and degree of attitude of the respondent
towards any proposition
• A respondent is asked to choose among various categories indicating his strength of
agreement or disagreement
• The categories are assigned scale values and the sum of the values of the categories is the
measure of attitude of the respondent
• Respondents’ perception on the importance
importance given to the different constraints and
opportunities were analyzed by using different point scales
• For example 5 point scales comprises
• Very high importance, high, medium, less and the least importance by using 5, 4, 3, 2, and 1,
respectively (orr 1, 0.8, 0.6, 0.4, 0.2)
• The SWOT matrix can be employed for this purpose where options in every cell can be
ranked based upon index value
• The index of importance will be computed by using the following formula:
•
Where,
Iimp = Index of importance
∑ = Summation
Si = Scale value
Fi = Frequency of importance given by the respondents
N = Total numbers of respondents
EXAMPLE
Frequency of priority response × scale value =23 × 1 + 5 × 0.8 + 3 × 0.6 + 2 × 0.4 + 2 × 0.2
• No of participants = 35
• Priority index = 0.84
Example of use of indexing technique in ranking production problems

Problems Index Rank
Diseases 0.84 I
Insects and pests 0.63 II
Lack of quality seed and planting materials 0.62 III
Loan facility 0.52 IV
Insurance facility 0.37 V
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Example of SW0T Matrix
Strength Weakness
• Availability of suitable land • Lack of suitable land
• Irrigation facility • Lack of technological knowledge and skill
• Availability of family labour • Lack of fund and input
• Training (skill) and knowledge • Lack of irrigation facility
• Enough fund and own inputs • No working family members
• Possibility of mechanization • Difficulty in mechanization
• Family preference • Non-preference of family
Opportunity Threats
• Funding agencies (low interest rate on • Unavailability of external input in time
credit) • Difficulty in borrowing (high interest)
• Availability of external input (Q,Q & T) • Low progress in infrastructure development
• Involvement of government (DADO, • Negative attitude of the society
DLSO, Service centers) and private sector • High price and market uncertainty
service provider (agro-vets) • Difficult to compete with large external
• Government support – favorable policy market and their products
(incentives, insurance, subsidy) • Low market demand and price
• NGO/INGO working in the same area • No possibility of processing and value
• High demand and price addition
• Positive attitude of the society towards • No government support – unfavorable
the product policies
• Developed infrastructure (road, • High insect-pest infestation
communication, cold storage etc) • Unfavorable soil and climate
• Opportunity of value addition
• Favorable soil and climate
TYPES/FORMS OF BUSINESS ORGANIZATION
1. Individual enterprise/single proprietorship/ sole trader/sole proprietorship

• Most common form of business organization
• Owned and operated by a single person, who takes all the responsibilities of outcomes of the
business
• Generally small, freedom of owner, easy to start and terminate, capital requirement is less,
flexible
• It is not a legal entity
• Owner can not generate capital by shares
• Any time the owner can start or withdraw the business
• Unlimited personal liabilities, limited capital
2.Partnership:
• Association of two or more individuals who join together as co-owners to share profits or
losses in agreed proportions
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• To safeguard the business, normally a written partnership agreement is made regarding

capital contribution, managerial responsibilities, sharing of profit and losses, withdrawal
form the business, termination of business, etc
Two types of partnership: general and limited
o General: every partner, irrespective of the percentage of capital contributed, has equal say in
the management of business-equal right and liabilities
o Limited: liability of member is limited to the extent of investment made, profits are
distributed according to the capital contribution
Kinds of partner:
o Active: actively involved in running the business-as manager, organizer and adviser
o Sleeping: contribute capital, share profit and loss but not participate in running the business
o Nominal partner: join the business but not contribute capital-just lends his name for the
business and on his virtues the business prospers
o Secret partner: whose name is kept secret, liable for losses
3.Joint stock companies:

• These are corporate body owned by a large number of shareholders and managed by a board
of directors elected by the shareholders
• To start a joint stock company, two documents, viz., memorandum of association and articles
of association are to be submitted to the registrar of joint stock companies
• Memorandum of association: contains the name of the company, location of head office,
aims, share capital particulars, kind and value of shares and declaration of limited liability
• Article of association: contains rules and regulations for establishment of company
JSC are of two types:

a.Joint stock private limited company:
• Member-2 to 50
• No need to call statutory meeting
• Need not submit its annual balance sheet to the registrar
• Transfer of share is restricted
• ‘Pvt. Ltd’ must be used with the name
b.Joint stock public limited company:

• Minimum no is 7 and maximum no limitation
• Certificate of incorporation is must from registrar of JSC to commence
• Statutory meeting is must
• Annul balance sheet must be submitted
• Share is freely transferable
4.Co-operative organization:
• Cooperatives are community based organizations of people organized to achieve their
common socioeconomic and cultural goals
• They are productive economic entities jointly owned, mutually owned, mutually operated
and democratically controlled by the members
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• They are member centric business enterprises

• The cooperative mode of business focuses on fair trade, transparency and democracy in
operation
• It is the business with social responsibility
• It contributes not only its members but also to the community and whole country
• It creates a productive environment in the respective location and empower the people to
reduce the poverty and hunger
• Cooperative implies the self help made effective through mutual help
• The philosophy behind cooperative movement embodies in a slogan called “all for each and
each for all”
5.State/government or public enterprise:

• Undertook, owned, controlled and managed by the local or central government
• Entire or major part of investment is done by government
• Government invest-when heavy investment required, need to protect weaker sections, private
traders hesitate to invest
• State enterprises are found in manufacturing, trading and service sectors
• These are corporations – are legal entity that has most of the rights and duties of a natural
person but with perpetual life and limited liability
• Shareholders of a corporation appoint a board of directors and the board of directors appoints
the officers for the corporation who have the authority to manage the day-to-day operations
of the corporation
• Share holders are generally liable for the amount of their investment in corporate stock
• A corporation pays its own taxes and shareholders pay tax on their dividends
• Corporation can raise capital through the sale of securities and can transfer ownership
through the transfer of securities
• Corporation requires annual meetings and require owners and directors to observe certain
formalities
• Example: NTC, NEA, DDC, AICL, National Trading Ltd. (phase out), Nepal Food
Corporation (NFC)
6.Multinational company:
• Are large scale organizations which production and output delivery extended across the
boarders of the countries
• Example: Coca-Cola, Honda
7.Public private partnership:

• Involvement of both government and private sector
• Found in commercial production and marketing of agri-products as well as technology
dissemination in Nepal
• Eg: one village one product (OVOP) program involving GON, FNCCI, DCC/MC/RMC
• Commercial Agriculture Alliance to assist Commercial Agriculture Development Project
(CADP) involving ADB/GON, FNCCI, DDC, Cooperatives, Agro enterprise centre, market
management committee etc
• Salt Trading Corporation Limited (STCL)
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VALUE CHAIN CONCEPT AND USE
Concept of value chain

• A set of events that an enterprise functioning in a certain industry for rendering a useful
product or service in the market is the core concept of value chain.
• The concept originates from business management and was initially explained by Michael
Porter in "Competitive Advantage: Creating and Sustaining Superior Performance"(Feller et
al., 2006).
• Value chain covers the entire range of activities — including design, production, marketing
and distribution — as the product goes from outset to the hand of consumer (Arline, 2015).
• All the actions and events involved in producing a product and distributing it to a retail and
the end consumer forms a value chain.
• Extension of traditional supply chain analysis by discovering values in each links of the chain
is value chain analysis (Gilbert, 2006).
• The concept behind value chain is the complete array of activities involved in carrying a
product to the end market from the preliminary input-supply stage through several stages of
production (UNIDO, 2009).
• Value Chain Analysis is a valuable instrument to figure out how the greatest possible value of
a product can be created to its final consumers.
• The analysis answers to a set of questions such as how the process of production is carried
out; who are the actors at various steps; where do the actors interact and for what benefits,
etc.
• Value chain analysis is an analytical tool which breaks a chain into its elements for
comprehending their organisation and role by identifying the players at every phases and
allocating costs and added value to each phases in order to help understand the complete
system and point out intervention areas (UNIDO, 2009).
Identify value chain functions, actors and enablers
Functions: input supply, production, collection, processing, trading, consumption

Actors: input suppliers, producers, collectors, processors (primary, secondary), traders
(wholesaler, retailer, exporter), consumers
Enablers: research institutes (NARC), INGO/NGO, government organizations (DOA), boards
(NTCDB), departments, DADO, cooperatives, producers associations, financial institutions
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Fig. Value chain map (example of coffee value chain)
Marketing channel
• One of the important part in value chain study
• Show how the product is channelized from the producer to the consumer
Example (marketing channel of vegetable seed in Nepal)

Nepal):
Seed farmers (seed growers) ==> Consumer (vegetable growers)

Seed farmers ==>Local traders/agents ==>Processor ==>Wholesaler ==>Retailer
Retailer==> Consumer
Seed farmers ==> Local traders/agents ==>
== Private seed firm/ importer ==>
== Wholesaler ==>
Retailer ==> Consumer
Seed farmers ==>Cooperative==>Wholesaler==>Retailer==>
==>Cooperative==>Wholesaler==>Retailer==>Consumer
Seed farmers==>Cooperative/collector==>Processor==>Wholesaler==>Retailer==>Consumer
ooperative/collector==>Processor==>Wholesaler==>Retailer==>Consumer
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Company
Distribution
(Processing Wholesaler
centre
industry)
Consumer
Retailer
(Farmer)
Fig. Marketing channel of vegetable seed processed in Rukum
CONSUMER BEHAVIOUR
The term refers to the behaviour of the consumers displayed in researching for, purchasing,
using, disposing of products, and service they expect will satisfy the needs. The study of
consumer behaviour is the study of how individuals make decisions to spend their available
resources on consumption related items. Marketing deals with the consumer in the forefront of
its agenda hence;
• The customers are the kings
• Kingdom of marketing is governed by the consumer
• Agents of distribution are appendages that help to govern the whole system and
institution of marketing
• Consumers’ choice of goods and services are different because of variety in terms of age,
gender, race, nationality, education, occupation, marital status and living status
Consumers’ buying and purchase decision making processes are shown in following figures.
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The study of marketing is not only physical and economic in nature but it is to a large extent a
psychological phenomenon. Study of consumer behaviour is the utmost importance in business
expansion. Marketing study deals consumer’s concern on product like what things the different
aged people
le like, what are the products needs for the urban and rural people, what kinds of
product the younger like, what the cultural sensitive products, where they buy, how often they
buy, how often they use it, what are the consumers health related matters, organic
org or inorganic
the consumer like etc.
Initiator
User Influencer
Purchase
decision
Buyer Decider
Fig. Roles in purchase decision making process
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IMPACTOF GOVERNMENT POLICY IN AGRIBUSINESS

Agribusiness Policy in Nepal
• High priority on diversification, modernization, commercialization and promotion of

agriculture sector
• Important role of private sector to promote commercial farming
• Promotion of internal and external markets
• Agri-business service centers establishment for quality agriculture inputs and services
• Emphasis on special economic zones for agro-industry development- Commercial, Organic
and Export Areas
• Infrastructure development for processing and marketing as a foundation for
commercialization and diversification
• Promotion of partnership approach between government and the private sector for agriculture
development
• Private sectors involvement for the export of quality goods and market network
• Focused on market oriented and competitive agriculture
Government policies related to agribusiness

• Trade policy 1992
• Trade policy review 2012
• APP 1995-2015
• National agricultural policy 2004
• Agribusiness promotion policy 2006
• Agribusiness Implementation Procedure 2008
• Nepal Trade Integration Strategy (NTIS) 2010
• The Bilateral Investment Promotion and Protection Agreement (BIPPA) 2012
• Nepal Integrated Trade Policy (NITP) 2010
• WTO (Nepal became member in 2004)
• ADS 2015-2035
Agribusiness policy 2063 BS (2006 AD)

• It was formulated in 2063 BS with the objective of transforming the subsistence oriented and
dispersed agricultural production system into a modern, sustainable, competitive and
commercial production system
• The policy intended to reduce poverty through agriculture commercialization along with
import enhancement through agricultural development
• The policy incorporated the following programs within the framework of National
Agriculture Policy 2004:
o Emphasis on establishment and development of growth centers based on
geographical, technical and economic potentials
o Establishment of agro-product export areas and business service centres
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o Development of infrastructures required for agro-business promotion such as

irrigation facilities, roads, collection centers, cold and frozen storage, cooling
chambers, rural electrification etc through collaboration of the government,
private sector, NGOs and civil society
Objectives of ABP
• To support in the production of market led and competitive agricultural produces
• To contribute domestic market and export promotion by developing agri-industries
• To support poverty alleviation by commercialization of agriculture
Major policies:
1. Establish and develop extensive growth centers based on geographic, technical and
economic potentialities
2. To be compatible and coordinate with special economic zone program
3. Ensure identified production regions by concentrating facilities of production inputs,
technology and technical services, agricultural road, rural electrification, irrigation,
agribusiness loan, insurance, market management, information system, agri-
mechanization and processing in cooperation of government, non-government,
cooperative and private sector
4. Establish and promote ‘Business Development Service Centre’ based on agribusiness and
geographic region
5. Extend agribusiness promotion infrastructures like irrigation, road, cold storage
6. Build practical and scientific contract system as per required between farmers and any
middlemen for the promotion of agribusiness potentialities and need
7. Subsidizing import of machines and equipments up to 75%
8. Provision of agribusiness loan liberal repayment strategy
9. Implementation of special program for establishment of agribusiness industries by
disadvantage groups, woman and Dalits
10. Preparation of crop and livestock business program for unemployed educate and retired
professionals
11. Focus on human resource development for the demand led agribusiness promotion by
capacitating GO, NGOs and cooperative institutions
12. Suitable curriculum design for development of middle level human resource development
in coordination of teaching institutions to promote agribusiness
13. Rangeland of himalayas availed to farmers for extensive livestock farming under
leasehold system in coordination of suitable agencies
14. MAPs will be promoted based on potentiality and suitability in public or marginal land
15. Land tenant right will be assured in case of national priority production making into
commercial, competitive and export oriented
16. Develop and extend market net works to connect agri-commercial pockets situating
alongside of highway, sub-highway or rural road
17. Agri-markets will be developed, extended and managed to assure collection centre
proximate to production place and organized wholesale and retail market proximate to
urban area by bringing private and cooperatives sector into economic an managerial
activities
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18. E-commerce will be developed at agri-market and business service centres

19. Agri-market and agribusiness relate information system will be developed, extended and
inflowed in close cooperation of private sector, cooperative and local bodies
20. Agri-produce competitive environment will be promoted by creating price determination
system by market
21. An arrangement of using 20% of the collected tax by the local bodies from businessman
of the agri-market will be utilized to construct, improve and promote same agri-market
22. Interest subsidy will be arranged for those businessman while purchasing agri-product
transport vehicle
23. Technical support and physical assistance to agri-cooperatives, producer groups, NGOs
or any entrepreneurs to establish agri-product collection centres, processing plant or
slaughter house
24. 25% subsidy in electricity cost upto 10 years for cold and frozen storage, cold chain, cold
chamber and chilling vat, collection centre, slaughter house
25. Quality of organic farming technique will be assured for its business promotion
26. Quarantine system will be strengthened and make capable while exporting or importing
seeds, plants, animals, birds or any food items
27. Indigenous agricultural knowledge/ technologies will be registered and promoted
28. Based on potentialities, Foreign Direct Investment (FDI) will be promoted for
agribusiness development and extension
29. Government and private sector will be encouraged for establishment and promotion of
accredited independent analytical laboratories for quality verification of food products
30. Given agri-industries as national priority industries for providing more facilities
31. Policy of removing land tenant right in case doing contract farming system
32. National industry policy focus is to be given first priority of using local/ domestic raw
materials as inputs
33. Technological support for opening export and market promotion oriented business based
on growth centre/ agricultural pockets
34. Export market information system and promotion support will be enhanced from
embassies of Nepal located in different countries
35. Exploring foreign market to promote export of agricultural produces by searching
information and technologies
36. Mobilizing district and regional level agricultural development committee to solve policy
implementation problems by including private sector also
37. Each agricultural market will collect at least 2% of total income as agribusiness
promotion fund and be used in coordination, infrastructure development and capacity
development
38. Any private or government land potential for market infrastructure development, will be
used for such infrastructure development under public private partnership system
39. Commercial agriculture oriented crop production, livestock, market management and
agri-industries will be brought into insurance system
Major impacts of Agribusiness policy of Nepal

• Reducing minor cereal crop area and cash crops (jute and tobacco)
• Self sufficiency to off season to seasonal vegetables
• Subsistence to semi-commercial stage of production
89
• Road side impacts on production and marketing

• Increasing trend of farm gate price
• Increased growth of private sector in agriculture
• Public private partnership in agriculture
Public-Private Partnership (PPP) in Agribusiness Promotion
• The Agro Enterprise Centre (AEC), established in 1992 with the tripartite partnership
between government, donor and Federation of Nepalese Chambers of Commerce and
Industry (FNCCI)
• The AEC has been initiating wide range of programs, in National Agriculture Policy 2004
and also emphasized potential PPP activities which includes research and development
programs involving food and nutrition, production, collection, grading, storage, processing
and packaging; commercial production, processing and marketing; agro technology extension
services; market information system; establishment and management of agricultural product
collection centres, wholesale markets and Haat Bazaars
• In agribusiness promotion policy 2006, PPP has further emphasized and elaborated the
activities including launching of programs delineating specific commercial production areas,
organic production and establishing agro-product export areas and business service centres
• One village one product (OVOP) program involving GON, FNCCI, DDC/VDC; Commercial
Agriculture Alliance as non-profit company formed to assist commercial agriculture
development project of ADB/GON involving FNCCI; Agro enterprises, DDC, cooperatives,
market management committees are the recent achievement of public private partnership in
Nepal for agribusiness promotion
ADS (2015-2035)
• The Agricultural Development Strategy (hence forth “ADS”) is prepared by the Ministry of
Agricultural Development in consultation with National Peasants’ Coalition.
• It was funded by GON and supported by ADB, IFAD, EU, FAO, SDC, JICA, DANIDA,
WFP, USAID, DFID, World Bank, AusAID, UN Women
• The objective of this report is to present the overall strategy for ADS including a 10-year
Action Plan and Roadmap and a rationale based on the assessment of the current and past
performance of the agricultural sector
• The ADS is expected to guide the agricultural sector of Nepal over the next 20 years
• It is the long term development strategies of period 2015-2035
ADS AND THE PROCESS OF AGRICULTURAL TRANSFORMATION

• The ADS is expected to guide the agricultural sector of Nepal over the next 20 years.
• Over the course of this period, the structure of the agricultural sector in Nepal will change
considerably and agribusiness and non-farm rural activities will grow relatively to agriculture.
• Strengthened linkages between agriculture and other sectors in the economy will be critical to
the reduction of poverty particularly in rural areas where the development of non-farm
activities based on agriculture will be fundamental for the growth of an overall robust
economy, a more balanced rural economy, and employment generation.
90
• In this context, it is worth emphasizing that the ADS considers the agricultural sector in its
complexity, and encompasses not only the production sectors but also the processing sector,
trade and other services (storage, transportation and logistics, finance, marketing, research,
extension).
• The ADS is formulated taking into account the conceptual framework of agricultural
transformation of Nepal from a society primarily based on agriculture to one that derives
most of its income from services and industry.
• This process will have profound implications for the ways the Nepali population will shape
their food production and distribution systems, the development of rural areas including the
rural non-farm sector, labor and land productivity, trade balance, employment and
outmigration of the youth, the role of women in agriculture, and management of natural
resources in the context of increasingly more severe climate change events.
• The ADS will ensure that the process of agricultural transformation is accelerated and
molded according to the aspirations and constraints of Nepali society.
• The ADS action plan and roadmap are formulated in order to move towards the ADS vision
formulated by stakeholders as follows: “A self-reliant, sustainable, competitive, and inclusive
agricultural sector that drives economic growth and contributes to improved livelihoods and
food and nutrition security.”
• Various indicators and targets to monitor progress towards the vision during implementation
of the ADS are reported (Table )
Indicators and targets for ADS vision
Vision Component Indicator Current situation - Target 2035

2010
Self-reliant Self-sufficiency in food grains 5% trade deficit in 0-5% trade
food grains surplus
Sustainable Agribusiness as % GDP 10% 20%
Agricultural land productivity $1,804 $4,787
(AGDP/ha)
Competitive Agricultural trade balance Trade deficit $350 Trade surplus
million $690 milli
Agricultural Exports $248 million $2000
Growth Average annual growth of 3% 6%
AGDP
Livelihood AGDP/ Agricultural labor $794 $1833
Poverty in Rural Areas 27% 10%
Food and Food Poverty 24% 5%
Nutrition Security
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SUMMARY AND KEY ISSUES OF ADS
PRODUCTIVITY
There is considerable potential for growth of agricultural productivity in Nepal. Currently the
level and the growth of productivity is low due to a number of factors including an ineffective
and underfunded agricultural research and technology transfer system, lack of effective
mechanism for linking research extension and farmers, the low availability of year-round
irrigation, the limited availability and affordability of key inputs (fertilizer, seed, breeds, etc.),
declining soil fertility, poor integration of research and extension with the agricultural education
system, and high incidence of pests and diseases.
COMPETITIVENESS
Nepal is ranking very low in competitiveness measures. Constraints to competitiveness include
poor infrastructure, weak governance, limited capacity and human resources, an overvalued
exchange rate, difficulty to access credit and doing business. Improvement in competitiveness of
Nepal agriculture could result in a strong performance of high value exports. Currently
competitiveness of agricultural products from Nepal is low and declining. Most exported
products are in raw forms and value addition is done in destination markets. The potential for
high value food and agricultural exports is limited by the lack of a well functioning system for
quality and safety control, low technology, difficulty of doing business, and poor infrastructure.
TRADE
Nepal-India Trade Treaty has de facto created free trade among the two countries and resulted in
Indian products outcompeting some of the Nepalese agricultural produce in Nepalese domestic
market, particularly in the cereal market. Due to lack of good farming and manufacturing
practices, it has been difficult for Nepalese farm products to comply with international quality
standards. As a result, Nepalese products face non-tariff barriers in the form of sanitary and
phyto-sanitary (SPS) and technical standards in the export markets. Pegged exchange regime
with India has resulted in erosion of competitive edge of Nepalese products in exports to India as
well as in domestic markets. One of the issues of agriculture trade is how to use trade policy
instruments in securing food security through self reliant food economy.
COMMERCIALIZATION
Agriculture and agribusiness investment are constrained by lack of suitable policies (e.g. contract
farming), competition with state enterprises and cooperatives, lack of services and infrastructure
to support value chain development (e.g., agribusiness incubators, agro-industrial parks), absence
of agricultural insurance, and a transparent and stable tax and incentive system to promote
innovation and reduce risk. The key issue is how to increase sustainable and profitable
investment in agriculture and agribusiness that could accelerate growth and modernization of
agriculture.
INFRASTRUCTURE
In order to develop a required level of infrastructure base for the growth of the agriculture sector,
it is essential that the government prepares an investment friendly environment for the private
sector and for international investors to invest, particularly in the power and telecommunications
infrastructures. The rural road sector suffers from increased fiduciary risks at the local (i.e. DDC
92
and VDC) level where the guidelines for development of rural roads in a systematic manner
following agreed District Transport Master Plan and Rural Roads standards are not followed.
CREDIT, INSURANCE, TAX

Credit to agriculture and agribusiness is constrained by numerous factors including the lack of
agricultural insurance and effective credit guarantee schemes. Taxes are not discriminatory
against agriculture; however a lax revenue collection system prevents from ensuring adequate
source to finance agricultural development.
SUBSIDIES
Subsidies on fertilizer and irrigation are ingrained in the being of the average Nepali farmer. The
debate about subsidies is affected by the comparison with highly subsidized but inefficient
Indian agriculture. Recent subsidy policies have reversed years of lack of subsidies adding to
higher expectations in the future. The ADS will need to address subsidies keeping into account
these expectations but also realistic assessment of what are the economic implications of
subsidies, and alternative methods to achieve similar results.
LAND
Land use planning is urgently needed in order to put a halt to unsustainable practices and
environmentally damaging use of land. Farm size has important implications for the formulation
of the agricultural development strategy. Rural population could be roughly classified into three
groups comprising 18% of small commercial farmers (with 1 to 5 ha of land); 17% of
subsistence farmers (with 0.5 to 1 ha of land); and the landless and near landless (less than 0.25
ha) comprising about 65% of the rural population. Similarly, the livestock herd size averages 2 to
3 livestock units. An effective agricultural strategy will directly benefit the small commercial
farmers and could substantially raise the productivity of the subsistence farmers, whereas the
impact on the landless and near landless with be mostly through employment effects. Subsistence
farmers might require the formulation of a special extension program.
FOOD AND NUTRITION SECURITY

Food and nutrition security is a multidimensional concept that entails the aspect of food
availability, food access, food use and utilization, and stability. There is a need to clarify to what
extent food and nutrition security in Nepal requires achievement of foodgrains self sufficiency
and to what extent nutritional security requires an emphasis on a more diversified agricultural
production system with a larger role of animal and horticultural products than foodgrains. As
urban markets and international food trade increase, food safety issues will become more
important.
INSTITUTIONS AND HUMAN RESOURCE

In spite of considerable rhetoric indicating agriculture as a priority sector for growth and poverty
reduction in Nepal, credibility is eroded by (i) frequent changes in the leadership of agencies and
organizations responsible for the agricultural sector; (ii) low budgetary support to the sector, both
in terms of capital and recurrent expenditures; (iii) enormous gaps between policy formulation
and implementation; and (iv) weak system for policy monitoring and evaluation. Moreover,
institutional capacity to implement policies and programs is constrained by limited size and skills
of human resources, insufficiently and inadequately trained staff, and lack of hardware and
93
investment funds to carry out programs. Accountability and transparency in program

implementation need considerable strengthening, including linking monitoring and evaluation
systems to performance evaluation and incentives.
CLIMATE CHANGE AND NATURAL RESOURCE MANAGEMENT

Available evidence on climate change in Nepal indicates increasing temperatures and different
patterns of monsoon precipitations. The impact of climate change on agriculture in Nepal is
currently studied, but even the preliminary evidence suggests the need of introducing appropriate
adaptation mechanisms to increase resilience of farmers to climate change. At the same time it is
important to understand the feasibility of mitigation mechanisms including clean development
mechanisms and disaster risk reduction that could be beneficial to farmers. The issue is how to
ensure sustainable modernization of agriculture and commercialization while strengthening
resilience to climate change.
SOCIAL AND GEOGRAPHIC INCLUSION

Poverty, social and geographic exclusion, and massive youth outmigration have multiple and
complex links with agricultural development. The high differentiation of Nepal society has led in
the past to polarization and social conflict. The ADS will need to identify mechanisms that value
diversity, eliminate or reduce polarization, and create cooperative arrangements for mutual
benefits of the parties involved. This will need to be realistically formulated given the economic
stage of development, the resources available, and the support of a leadership able to promote
consensus around the strategy and its implementation. Budget allocations are often silent over
how to enhance women’s strategic positions through recognizing women as independent and
autonomous farmers, ensuring women’s access to means of production, enhancing their
leadership competence and creating acceptance, and improving women’s position in different
structures of the government, non-government and private sectors.
LEGAL
Although policy formulation in Nepal has addressed several dimensions relevant the agricultural
sector development and by and large there is a general agreement that most policies are
acceptable, the main problems arise in the implementation stage. One critical aspect explaining
the weakness of policy implementation is the limited legislative effort made in ensuring that the
legal aspects of the policy implementation are well thought out and clear. In order to address this
weakness, the ADS will need to incorporate legal provisions and a legal framework. Some of the
initial issues that require further review include food quality and safety, commerce and trade,
land and water, and public enterprise reform.
INTERNATIONAL TRADE AND BALANCE OF PAYMENT
By 1947, a framework that would regulate international trade and stimulate international
commerce, was designed and named as General Agreement on Tariffs and Trade (GATT) with
the principle of non-discrimination, reciprocity, transparency and tariff reduction. Without
getting to transform into formal organization, new name was brought into operation in Uruguay
Round Meeting in 1994. GATT was succeeded to the World Trade Organization (WTO) on
January 1, 1995 with the objectives of fostering free and open trading system to raise standard of
living, ensuring full employment and sustainable development through better utilization of
94
resources, ensure benefit of trade to developing countries. Nepal however, had applied her
membership to WTO in 1989 and after four years study she received “an observer” status in
1993. The same application was converted her accession process of the WTO in 1997. A six-
years’ tough negotiations, thus, Nepal could access as 147th member of WTO on 23rd April 2004.
Aims of the membership of Nepal is to integrate her economy for expanding trade opportunities,
facilitating competition, absorbing knowledge and thereby creating opportunities for growth and
pursuing overall development goals. In addition, the WTO rule based trading culture may insure
domestic policy stability and enhance institutional capabilities that in turn help increase
productivity, foreign direct investment and exposure to new technologies.
Functions of WTO
WTO is the only global organization dealing with the rules of trade between nations. At its heart
are the WTO agreements negotiated and signed by the bulk of the world’s trading nations and
ratified in their parliaments. The goal is to help producers of goods and services, exporters, and
importers conduct their business. Major functions of WTO are:
1. Administering WTO trade agreements
2. Forum for trade negotiations
3. Handling trade disputes
4. Monitoring national trade policies
5. Technical assistance and training for developing countries
6. Cooperation with other international organizations
Agreement on Agriculture (AoA)

The main beauty of the Uruguay Round Agreement is three pillar policies that are mostly
popular under agriculture agreement (popularly called Uruguay Round Agreement on
Agriculture – URAoA) which are market access domestic support and export subsidies.
Domestic support
There are particularly three boxes polices namely Amber box or technically “Aggregate
Measurement of Support” (AMS), Green box and Blue box. The fear is higher domestic support
can distort trade, hence, the WTO has country-based reduction commitments. However, rules
exempt the least developed country, Nepal (FAO, 2003). Especially other south Asian countries
has certain kind of domestic support either in product specific or somewhere it is non-product
specific. Nepal provides nominal price support in fertilizer, tube well and subsidized electricity
price for agro-based industries, custom charge free on agro-based tools and machines. In
Uruguay Round Negotiation, Green and Blue box subsidies have been used to compensate for
any reduction in the Amber box subsidy. These boxes enable semi/ developed countries farmers
to reduce production cost and offer produces at lower prices in the international market. The
domestic support in Nepal is not specialized into box categories but particularly divides into
agriculture, irrigation and forestry sectors.
Market access
Nepal has tariff base as well as non-tariff base barriers for developed country market access.
Concerns of Nepalese exporter are that Indian non-tariff measures makes them trouble instead of
clear understanding in trade agreement. India is providing Visakhapattanam port for trade
facilitation and additional support on trade capacity enhancement. Recently, provision for check
95
pass on goods imported from third country via India is eliminated in August 2018. Likewise,
government of china decided duty free access of Nepalese products since July 1, 2010.
Nevertheless, market access of the international food products into Nepal is much easier than the
market access of Nepalese product into the world market. Major causes would be because of
lower border tariff in comparison to neighboring country India and Bengladesh. Similarly, Nepal
has no significant non-tariff barriers except a quarantine standard and product composition
standards on inputs such as fertilizers. However, the world market has more difficult non-tariff
measures like rule of origin (ROO), safeguards measures (SM) and sanitary and phyto-sanitary
measures (SPS). The safety first principle if applied in the trade, Nepalese exporters and policy
makers have fear now to reduce the production of these commodity until and unless Nepal could
able to maintain international standards. All these tariffs as well as non-tariff measures reduce
the access of food commodities to developed countries market (Chand, 2006).
Export subsidies and export competition

The Trade Policy 1992 and Industrial Enterprises Act 1992 and their amendments state that
Nepal has not direct subsidy program for exportable but have some export promotion programme
for increasing their competitiveness. The recent plan is focusing to establish export oriented or
import substitutable industries in an export promotion zones (EPZ) and reducing income tax of
the exporter (Mosoti, 2007 and Sawtee, 2006).
Nepal’s bilateral and multilateral trade negotiation and market access

South Asian Preferential Trade Agreement (SAPTA) is a regional economic integration policy
where eight member countries (Nepal, India, Pakistan, Bangladesh, Bhutan, Sri Lanka, Maldives,
and Afganistan) are associating since 1995 and SAPTA is succeeding to establish South Asian
Free Trade. In SAPTA, Nepal-India free trade agreement is characterized as preferential and
unconditional trade agreement having greatest share in food material import and export. In recent
decades trade relation is increasing with other neighborhood country especially with China and
Bangladesh. Nepal is connecting with 21 custom union centres with India and 8 northern custom
borders with China. Nepal’s trade agreement with European Union was began from 2001 but not
yet finalized. Like SAPTA, Nepal is now a member of other regional organizations named as
“The Bay of Bengal Initiatives for Multicultural Technical and Economic Cooperation”
(BIMSTEC). Nepal has bilateral trade relation with 17 countries.
While joining into WTO, Nepal gets some advantages for agricultural development in general
and agribusiness in particular. Positive aspect of Nepal’s membership in WTO is that the
country’s trade policies are more favorable with the world trade liberalization movement because
the world is leading towards full trade liberalization. Currently Nepal has country specific,
region specific and global specific bilateral and multilateral trade agreements and along with
most extensively liberalized markets in South Asian fronts.
96
BALANCE OF PAYMENT AND BALANCE OF TRADE
The BOP is a systematic record of economic transactions of the residents of a country with the
rest of the world during a given period of time. The record is so prepared as to provide meaning
and measure to the various components of a country’s external economic transactions. Thus, the
aim is to present an account of all receipts and payments on account of goods exported, services
rendered and capital received by residents of a country, and goods imported, services received
and capital transferred by residents of the country. The main purpose of keeping these records is
to know the international economic position of the country and to help the government in
reaching decisions on monetary and fiscal policies on the one hand, and trade and payments
questions on the other.
Balance of Trade and Balance of Payments
BOT and BOP are two related terms but they should be carefully distinguished from each other
because they do not have exactly the same meaning. BOT refers to the difference in value of
imports and exports of commodities only, i.e., visible items only. Movement of goods between
countries is known as visible trade because the movement is open and can be verified by the
custom officials.
During a given period of time, the exports and imports may be exactly equal, in which case, the
balance of payments of trade is said to be balanced. But this is not necessary, for those who
exports and import are not necessarily the same persons. If the value of exports exceeds the value
of imports, the country is said to experience an export surplus or a favorable balance of trade. If
the value of its imports exceeds the value of its exports, the country is said to have a deficit or an
adverse balance of trade. Exports and imports of a country are rarely equal. BOT, in other
worlds, will not balance. During any period a country may experience a favourble or an adverse
BOT.
Determinants of BOP
There are several variables which determine the BOP position of a country.
1. National income
2. Exchange rate of national currency
3. Price of goods and factors
4. International oil and commodity prices
5. Supply of money
6. Rate of interest etc
All of which determine exports, imports, and demand and supply of foreign currency. At the
back of these variables lie the supply factors, production function, the state of technology, tastes,
distribution of income, economic conditions, the state of expectations, etc. If there is change in
any of these variables and there are no appropriate changes in other variables, disequilibrium will
be the result. The main cause of disequilibrium in the BOPs arises from imbalance between
exports and imports of goods and services, of a country are smaller than their imports,
disequilibrium in the BOPs is the likely result. Exports may be small due to the lack of
97
exportable surplus which in turn results from low production or the exports may be small
because of the high costs and prices of exportable goods and severe competition in the world
markets. Important causes of small exports are the inflation or rising prices in the country or
over-valued exchange rate. When the prices of goods are high in the country, its exports are
discouraged and imports encouraged. If it is not matched by other items in the BOPs,
disequilibrium emerges.
BOPs on Current Account

BOP is more comprehensive in scope than BOT. It includes not only imports and exports of
goods which are visible items but also such invisible items as shipping, banking, insurance,
tourism, interest on investments, gifts, etc. A country has to make payments to the other
countries not only for its imports of merchandise but also for banking, insurance and shipping
services rendered by other countries, it has to pay further the royalties for foreign firms,
expenditure of the country’s people in foreign countries, interest on foreign investments in the
country, or on loans obtained by the country from other countries and such international
organizations as the IMF, WB etc. These are debit items for the country since these transactions
involve payments abroad. In the same way, foreign countries import goods of the country, make
used of countries films and so on, for all of which they make payments to the country. These are
the credit items for the country as the latter receives payments. BOP thus gives a comprehensive
picture of all such transactions including imports and exports of goods and services.
(Amounts in Billion $)
S.N. Items Year 1 Year 2 Year 3 Year 4 Year 5
1 Exports 105 129 166 189 182
2 Imports 157 191 258 308 301
3 Trade Balance -52 -62 -92 -119 -118
4 Invisible (net) 42 52 76 90 80
4.1 Non-factor services 23 30 39 50 36
4.2 Investment income -6 -7 -5 -4 -8
4.3 Private transfers 25 30 42 45 52
5 Goods and service balance (3-4.1) -29 -32 -53 -69 -83
6 Current account balance (Net, 3-4) -10 -10 -16 -29 -38
Balance of Payment on Capital Account

The important items of BOP on capital account are borrowings from foreign countries and
lending funds to other countries. This takes two forms: a) External assistance which means
borrowing from foreign countries under concessional rate of interest; b) Commercial borrowing
under which the government and the private sector borrow funds from world money market at
higher market rate of interest. Besides non-resident deposits are another important items in
capital account. Another important item of BOP on capital account is foreign investment by
foreign companies in Nepal. There are two types of foreign investment. First is portfolio
investment under which Foreign Institutional Investment (FII) purchase shares (equity) and
bonds of Nepali companies and government. The second is Foreign Direct Investment (FDI)
under which foreign companies set up plants and factories on their own or in collaboration with
the Nepalese companies. Still another item in capital account is other capital flows in which the
important source of funds is remittances from abroad sent by the Nepalese citizens working in
foreign countries. Following table shows the BOP at capital account.
98
(in billion $)
S.N. Items Year 1 Year 2 Year 3 Year 4 Year 5
1 External assistance (Net) 2 2 2 3 3
2 Commercial borrowing (Net) 3 16 23 7 3
3 NRN deposits (Net) 3 4 0 4 3
4 Foreign investment (Net) 15 15 43 3 50
4.1 FDI (Net) 3 8 16 18 18
4.2 Portfolio Investment (Net) 12 7 27 -15 32
5 Other capital flows (Net) 2 9 40 -10 -13
6 Capital Account Total (Net) 25 46 108 8 46
7 Use of exchange reserve -15 -36 -92 +21 -8
Foreign trade balance of Nepal

Over decades there is heavy import of the goods and services leading to trade deficit in Nepal.
Trade deficit of Nepal in the year 1975/76 was almost 62 cror Nepalese rupees. In 2016/2017
deficit in trade was NRs. 912,825,975,000. Trade deficit of goods trading in the year 2017/18
was estimated to be 22.9% which in 2016/17 was 27%.
Table. Foreigm trade balance of goods and services of Nepal (000 Rs)
Year Total Annual Total Annual Total tradeAnnual Trade Annual
export change% imports change% change% deficit change%
in total in total in total in trade
export import trade deficit
2007/8 58474359 0.8 273030276 21.1 295504635 16 178555917 30.4
2008/9 68596852 17.3 291000944 22.8 359597796 21.7 222404092 24.6
2009/10 60949603 -11.1 375605870 29.1 436555473 21.4 314656267 41.5
2010/11 64562444 5.9 397535942 5.8 462098386 5.9 332973498 5.8
2011/12 74089060 14.8 498161074 25.3 572250135 23.8 424072014 27.4
2012/13 77350709 4.4 601207525 20.7 678558234 18.6 523856815 23.5
2013/14 91361036 18.1 722776788 20.2 814137824 20 631415752 20.5
2014/15 86640462 -5.2 784581255 8.6 871221717 7 697940793 10.5
2015/16 71137663 -17.9 781145961 -0.4 852283624 -2.2 710008298 1.7
2016/17 73125351 2.8 985951326 26.2 1059076677 24.3 912825975 28.6
Source: TEPE, 2017
Total export to India in the year 2016/17 is 56.5% that to China (including Hongkong and
Makau) is 2.8% and to other countries is 40.5%. Of total import, 65.5% is from India, 13.5%
from China and 21% from others. Out of total trade deficit of NRs. 912825975000 in the year
2016/17, 604, 131 and 177 billion rupees were deficit with India, China and others respectively.
Major exportable commodities of Nepal are woolen carpet, yarns (polyester, cotton and others),
readymade garments, iron and steel products, juices, cardamom, tea, textiles, woolen and
pasmina shawls, jute bags/shacks, felt etc. similarly, major items that Nepal imports are
petroleum products, iron and steel (and products), machinery and parts, transport vehicles and
parts, cereals, electronic and electric equipments, telecommunication equipments and parts,
cement clinkers, pharmaceutical products, gold, air craft and parts, polythene granules, crude
soyabeans oil, articles of apparel and clothing accessories, fertilizer etc. almost 97% of Nepalese
export to SAARC member countries is with India and 99.2% import is from India.
99

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Agribusiness-Final Nore

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Prepared by: Hari Krishna Panta, 2018

DEFINITION AND CONCEPT OF BUSINESS, AGRIBUSINESS, MANAGEMENT AND

Major components of business

• Commerce is the process of buying and selling for which

Basic concept of agribusiness

Importance of agribusiness management

1. Improve resource use efficiency of farms

o Improper inventory control

2. Provide food and fiber

3.Agribusiness provides crucial backward and forward linkages.

4. Agribusiness promotion leads to the strengthening of industrial facilities in certain area,

5. Agribusiness focuses on commercialization, diversification, economies of scale, optimum

Scope of agribusiness management

Distinctive features of agribusiness

Seasonal nature of business:

Demand curve are generally inelastic

SITUATION ANALYSIS FOR BUSINESS IDENTIFICATION

Business opportunity identification

• Study of import and export

• It has a vertical integration (structure) of input supplier, farmers, processor, transport

Agribusiness incubation (ABI)

BASIC CONCEPT AND DEFINITIONS OF FIRM, PLANT, INDUSTRY AND THEIR

• The firm is the company as a whole

Embodied technology: visible to eye.

Disembodied technology: non-visible form.

Relationship between plant, firm and industry

Fig. Relationship between plant, firm and industry in agriculture

Major constraints/ problems

Agribusiness promotion in Nepal-approach

Opportunities of agribusiness is Nepal

• Differing socio-economic development and the effect of globalization- diversified lifestyles

Agro-based industries suitable for foreign investment

Prospects for agribusiness in Nepal

AGRIBUSINESS ENVIRONMENT, MANAGEMMENT SYSTEMS AND MANAGERIAL

Fig. Elements of agribusiness environment

Input side: potential inputs, equipments, machine, raw materials availability in

Agribusiness enabling environment:

Some examples of business enabling environment in Nepal

• The following sequences indicates the managerial decision (function of manager):

1.Production and organizational decisions:

3.Marketing decision (buying and selling):

ORGANIZATION AND BUSINESS MANAGEMENT FUNCTIONS

Hierarchy of workforce in organization

HUMAN RESOURCE MANAGEMENT IN ORGANIZATION

Human behaviour in organization

Develop and maintain human behaviour in the organization (how to behave in

AGRIBUSINESS MANAGEMENT FUNCTIONS

• Management functions are:

Fig. Agribusiness management function

Who could be agribusiness manager?

ECONOMIC PRINCIPLES RELATED TO AGRIBUSINESS

1. Principle of variable proportion/diminishing return

3. Principle of factor substitution

Types of factor substitution:

4. Law of equi-marginal returns

5. Opportunity cost principle

6. Principle of combining enterprises

• There is some substitutability between two enterprises

Types of product substation

Decreasing rate of substitution:

Increasing rate of substitution:

7. Time comparison principle