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Kathmandu University School of Management

Environment Analysis of Floriculture Business in Nepal

A Term Report submitted to Prof (adj.) Dr Achyut Wagle, Faculty (KUSOM)

(In partial fulfillment of the requirements for the)

Business Environment in Nepal

(GEM 501)

Submitted by:

Bindu Gaire Sharma (20328)

MBA (Spring 2020)

September 16, 2020

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Introduction to Floriculture Business

Floriculture business mainly includes production and trade of cut flowers, cut foliage, potted plants
and bedding plants. These flower and nursery plants can either be grown under cover or in an open
field. Flowers are purchased for a variety of reasons, ranging from expressions of love or sympathy
to satisfying environmental and beautification goals. With an abundant biodiversity and ecological
zones, Nepal has a very high potential of growing different flowers for commercial purpose across
country. Nepali culture has given a great importance to the flowers and its usage as religious,
aesthetic, decorative, cosmetic and medicinal purpose. Floriculture business in Nepal is booming
and becoming more innovative with urbanization spreading rapidly over the last few years.

The floriculture business was started from 1950 AD in Nepal and by now it has speeded to thirty
five districts in Nepal with more than 675 nurseries. Nepal has begun producing different varieties
of cut flowers and some cut flowers such as Gladiolus, Carnation, Gerbera and Rose are produced
all through the year. In year 2013, floriculture Promotion Policy was enacted by Government of
Nepal and the investment of Government sector in floriculture business has increased dramatically.
The transactions related to floriculture accounts to more than One Arba Twenty seven Crore rupee
every year at present. Due to the fusion of the western culture and increased standard of living
Nepalese people and the growing export potential for flowers, floriculture has become a good
business prospect in Nepal. The rise in domestic consumption has led flower business to diversify
into nursery keeping, retailing and landscaping in urban areas. Commercial floriculture has
emerged as a hi-tech activity and as a high growth industry. Commercial floriculture is becoming
important from the export angle. The liberalization of industrial and trade policies paved the way
for development of export-oriented production of cut flowers. Because of this growth prospect of
floriculture, I have choose it as a business that I want to invest into.

The following section presents the business environment analysis of floriculture business which is
used to analyze the macro environment affecting the business. Nepal is a democratic country in
the world and it is a unique country in many ways. It is important to be aware of the cultural
diversity in Nepal since it has a huge influence in the business environment. The following sections
presents the Political, Economic, Socio-cultural, Technological, Legal and Environmental factors
influence on the floriculture business.
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Political Environment

The political structure and the party system of a country exert a powerful influence on business
and industry as they provide restrictions and freedom to any organization. The Constitution is the
supreme law of a country and the Constitution of Nepal 2015, has provision for fundamental duties
and rights some of which such as right to property, right to equality, right to communication, right
to justice, right to employment, right to labor etc. are applicable to floriculture business as well.
Similarly there are some directive principles, policies and obligation which also includes policies
related to economy, industry and commerce mentioned in the constitution. The provision of federal
government also has an impact on floriculture business because as per the federal system the
regulation and registration of industry or business are within the power of federal government.

Another important aspect of the political environment or floriculture business is the political
parties’ and the political system of Nepal. As the government in a democratic setup nay change,
the political system invariably generates some degree of instability and uncertainty in Nepal. The
frequent change of government in Nepal in past few years clearly reflects the political instability
within the country. This political instability reflects the political risk to floriculture business as
such instability means instability in policies. With a multi-party democratic structure in Nepal,
business group have high scope for lobbying to get the decisions done in their favor. Similarly the
differences among the political parties also reflects different ideologies for regulating and
promoting business. Different parties have different views regarding policies like privatization,
liberalization and free market economy. And with the frequent changes in government there is also
frequent changes in the policies and plans and most of such policies and plans passed by the
parliament are delayed to be implemented.

Government also plays several role such as facilitating role, regulating role and entrepreneurial
role regarding business. The government assists the floriculture business through several farm
subsidies and tax exemption as well as by providing several administrative and economic
infrastructure. Regarding regulating role government has provides several constitutional and legal
framework for the conduct of business which is also applicable for floriculture business. The
government has also provided several benefits and services to promote private sector participation
in floriculture business.
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Economic Environment

The generic economic conditions and trends are crucial to the success of a business firm as it
affects decision relating to resource allocation, costs, profits and expansion. Nepal has a mixed
economy system so private firm participation is encouraged in every sectors by the government.
The new liberalized economy of Nepal has opened a new frontiers for new startups as the economy
is now more market oriented. Major shifts have been made in industrial, foreign investment, trade,
labor and privatization policies. These shifts have resulted in a significant change in the overall
economic environment for the businesses in Nepal.

The Nepalese economy is divided into three sectors which are primary, secondary and tertiary
sector and floriculture business as a part of agriculture and farming falls under primary sector. As
per the economic survey 2018-2019 the agriculture contributes about twenty seven percent in the
total GDP of the country and this contribution is decreasing day by day as agriculture in Nepal still
remains primarily subsistence-oriented. However, floriculture activities have grown very
significantly and slowly being more market oriented. Nepal’s share in international market for
flowers is still negligible as it only exports to few Gulf countries but import more from other
countries. Floriculture business has prospect as the demand for flower is rising but we don’t have
enough floral businesses to meet the demand of domestic market as well as the demand of
international market

The current monetary policy 2077/78 has also mentioned about the credit facilities that are to be
provided to agriculture sector which also includes the floriculture business and has defined these
sector as a priority sector. Similarly in current budget 2077/78, the budget for agriculture sector
has increased by 6.60 billion which motivates new agriculture startup like floriculture business to
start their business. As Trade Policy of Nepal 2018, the data shows a heavy reliance on import of
agricultural products which also includes import of flowers as well. The agriculture policies under
the trade policy shows that the tariff for agricultural product is fifteen percent which is quite low.
So if a floriculture business is able to produce large amount of flowers it could easily export to
foreign markets.
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Socio-cultural Environment

This factor directly affects the floral industry because this is the factor which decides the customer
attitudes towards purchasing of goods and services, the markets they are sold on and the price at
which they are sold. Nepal is a country with diversity in religion, languages and traditions. People
have different attitudes and beliefs towards business that operate within the society. The basic
building blocks of culture are values, beliefs and attitudes. People have positive attitude towards
floriculture business as flowers are associated with different beliefs such as flowers for good luck,
flowers for friendship, and flowers for love and so on. Similarly, attitudes of people towards green
or ecological products, towards renewable energy, attitude towards imported products and
services, and attitude towards corporate social responsibility brings opportunity as well as threats
to the floriculture business. Nepalese these days are stressing more on consumption of locally
produced eco-friendly products. So, if a floriculture business would consider this values of people
and produce flowers that promote these beliefs and values they can really do well in Nepal.

Religion is another important factor for floriculture business in Nepal as flowers hold a deep
attachment with peoples sentiment as it is offered to the gods they worship and used in all the
auspicious occasion. Nepal is a multi-cultural country and every culture uses flowers for different
purposes on different occasion. Due to this diversity in culture, there are several occasions
throughout the year so demand for flowers is not just limited to certain seasons.

Similarly, with the increased number of educated people in Nepal, people are more inclined
towards starting their own business or doing something in their own country. Many people in
Nepal are studying floriculture, horticulture and gaining technological knowledge for commercial
farming. Due to this, floriculture business won’t be facing the problem of lack of skilled and
educated manpower. Different vocational and technical educations are available to people in Nepal
to promote people’s skill in floriculture. The educated people not only contribute to production of
flowers but also affect the purchase of flowers. They easily adapt to the recent trends and these
days flowers are used for almost all occasions and daily decorations.

Because of various social changes brought by acculturation, currently floral decoration and
flowers as a gifts is the growing social trend in every country. People in Nepal are celebrating
many international celebration trends like Valentine ’s Day, marriage anniversary, baby shower
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and many more where flowers are not only used for decoration but also as gifts. Similarly, because
of social medias and the focus of people on environment, people are now buying more floral plants
a more flowers for almost all sorts of occasions. Many are ready to invest on exterior decorations
and interior decorations using fresh green plants. This is an opportunity to the floriculture business.

Technological Environment

Floriculture requires excellent growing, maintenance and transportation. The emergence of

technology and innovation in the flower growing has largely contributed to the success of the
industry. The floriculture industry in the world is applying advanced technology these days.
Floriculture products are cultivated in poly houses or shade houses according to the shade
requirement of the plant/flower type under necessary micro climatic conditions. In the cut flower
production, high quality new hybrid varieties imported from overseas countries are used as mother
plants. Both native and exotic mother plants are used for the production of foliage plants and
decorative leaves.

Planting materials and technology for cut flowers are usually imported from other countries in
Nepal. Biotechnology is one of the technology that is used in flower production. For Carnation
tissue culture plantlets are used and then for next season cuttings used. For some of the flowers the
technology for tissue culture is available in Nepal but for majority of flowers such cultured plants
are imported from other countries. Other biotechnology like mutation, generic modification,
polyploidy technology etc. are not usually used in Nepal.

There are many irrigation systems are available in latest technology like drip irrigation, sprinkler
irrigation, micro jet, and basin irrigation. In case of Nepal mostly drip irrigation is used and in
some cases flooded irrigation is used by most of the flower producers. Even though drip irrigation
is expensive once set it is quick and easy to irrigate and it is the best method to maximize water
efficiency, to keep water off the leaves and flowers, and to provide for fertilizer or chemical
application. In Nepal heavy rainfall has a high impact on the production of flowers, so in order to
protect flowers greenhouse technology and high tunnels are also required. Greenhouse technology
is also required to protect plants from wind. However the material to construct high-tech
greenhouse and the know how required to build green house is limited in Nepal.
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Flowers are highly perishable goods so it requires a good cooling system to preserve flower for a
longer period of time. In Nepal mostly cut flowers are kept in bucket containing cool water but a
proper commercial cooler is required to preserve large quality of cut flowers.

Natural Environment

Nepal has a very favorable climate and soil for commercial flower production. The floriculture
business is excessively dependent on the natural environment as it uses natural resources as a
source of materials for production, uses water for irrigation, and uses various sources of energy
for production. As environment has become a major concern of people today, there is pressure on
every business to deal with the environmental impact caused by their activities. Environment
protection has been the top priority of every people so an important part of innovative strategy of
every business is to develop products or services that are green and environment-friendly.

The floricultural business which thrives off of different days of celebration, in fact has huge
impacts on the environment through water usage, pollution, land degradation, and fossil fuel
transportation emissions. The intense irrigation system and the chemical pollution through the use
of fertilizers and pesticides that are used in floriculture are the major cause of environment
degradation. There is considerable pollution in this business and it may affect the health of the
workers in the long run. Similarly, a lot of polyethene is used in packing which discourage the
purchase of flowers as people these days are preferring environment friendly products. The hot
houses, artificial lightening, heating and cooling technology used in floriculture raises the level of
carbon dioxide which causes extreme harm to the environment. So it is necessary for floral
business to consider such impact and produce ‘Green’ flower labels that ensure high environmental
and social standards for workers. This can be done by implementing production techniques that
requires less use of pesticides, sustainable method of irrigation, and artificial environment.

To subsidize the effect of businesses on environment the Government and many non-government
organizations in Nepal have been emphasizing policy through legislation and application of
various other economic interventions. Various policies and acts like the Floriculture Policy,
Industrial Enterprise Act, and Environment Protection Act and so on have several provisions
related to measures for environment protection that business like ours should duly follow.
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Regulatory Environment:

Nepal is a common law country with a written constitution which guarantees individual and
property rights. In a free market and liberalized economy like ours, various types of business firms
exists and these business firms has a legal status and has to operate within the framework
prescribed by the legal system of Nepal. Nepal has laws relating to organization and management
of different types of business firms, labor, finance, investment, environment and many more. The
legal framework helps to determine not only the ownership and control of the firm but also other
aspects of its operations. Major bodies of laws affecting floriculture business in Nepal are as
follows:

The Companies Act 2063: The company act regulates the business and their management in Nepal.
As I will be establishing this floriculture business as a private company is it necessary for me to
follow the Company Act for registration of business and its operation. The company acts requires
different documents to be submitted by the businesses and the conditions to be registered and not
to be registered as well.

Industrial Enterprise Act 2076 (2020): Every company established under the Company Act is not
allowed to operate business transactions without registering its industry under Industrial Enterprise
Act. As per this act every industry is classified as per the nature of business and size of fixed assets
investment. As floriculture business is a part of agriculture it is classified as agro-based industry
and initially the investment and turnover is quite small so it is classified as a micro industry. The
act has various provisions such as approval requirement, benefits, tax exemption, environment
protection measures and corporate social responsibilities. The act also has made provision of
decentralization of registration, renewal and regulation process of all industries.

The Labor Act 2074 (2017): Considering the Labor Act 2074 is also important to have ideas with
key standards that exists at national level in order to avoid becoming both legally and financially
liable. Several provisions have been made by the Labor law to protect and promote the interest of
labor. This law is applicable to every entity which has been incorporated under prevailing to
provide services or conduct business despite its size. The important provision of the Act that
floriculture business firm should consider includes job security, work conditions, minimum wages,
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terminal benefits and other benefits, health and safety arrangements, termination, code of conduct,
dispute settlement and disciplinary actions.

Floriculture Promotion Policy 2069 (2013): This is a specific policy that is applicable to
floriculture industry and all the businesses operating within the industry. It is necessary to consider
this policy before starting floriculture business as it talks about economic and technological help
that is to be provided to the people starting Floriculture Company. This policy mentions several
provisions made to encourage private participation in floriculture business. As per the policy,
floriculture industry is treated as a first priority sector and every facilities provided to the first
priority sector is available in floriculture as well. The policy also mentions about every materials
used in packaging and producing flowers is treated as agriculture goods and custom duty is charged
same as in other agriculture goods. There are various provision about tax exemption, insurance of
the business, discount on taxes and consideration for environment pollution which is applicable to
every business under floriculture industry.
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References

CBS. (2016, September). Nepal Commercial Floriculture Survey 2015/16. Retrieved from
Floriculture Association of Nepal:
https://www.fanepal.org.np/files/listingfiles/Nepal%20Commercial%20Floriculture%20S
urvey%202072_73(1).pdf

Constitution of Nepal 2015. (2015, September 20). Retrieved from Nepal Law Comission:
http://www.lawcommission.gov.np/en/archives/987

FAN. (20069). Floriculture Promotion Policy 2069. Retrieved from Floriculture Association of
Nepal:
https://www.fanepal.org.np/files/listingfiles/Floriculture%20Promotion%20Policy%2020
69%20with%20operational%20plan.pdf

FAN. (2018, December 6). FAN Brochure. Retrieved from Floriculture Association of Nepal:
https://www.fanepal.org.np/files/listingfiles/FAN%20Brochure.pdf

FAN. (2018). Nepalese Floriculture. Retrieved from Floriculture Association of Nepal:

https://www.fanepal.org.np/files/listingfiles/Nepalese%20Floriculture%20Book%202074
.pdf

Gauchan, D., Pokhrel, A., Pratap, M., & Lama, P. (2010, March 8). Current Status of Cut Flower
Business in Nepal. Kathmandu University Journal of Science, Engineering and
Technology, 5. doi:10.3126/kuset.v5i1.2849

Highlights On Industrial Enterprises Act, 2020 (2076). (2020, March 16). Retrieved from Pioneer
Law Associates: http://www.pioneerlaw.com/news/highlights-on-industrial-enterprises-
act-2020-
2076#:~:text=Highlights%20On%20Industrial%20Enterprises%20Act%2C%202020%20
(2076),-
March%2016%2C%202020&text=The%20Act%20is%20a%20principal,establishing%20
industry%20under%20this%
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MOF. (2019, May). Economic Survey 2018-19. Retrieved from Government of Nepal Ministry of
Finance:
https://mof.gov.np/uploads/document/file/compiled%20economic%20Survey%20english
%207-25_20191111101758.pdf

Neupane, N. (2018, March 10). Floriculture business booms alongside rapid urbanisation. The
Kathmandu Post.

NRB. (2020, July 17). Monetary Policy 2077/78. Retrieved from Nepal Rastra Bank:
https://archive.nrb.org.np/ofg/monetary_policy/Monetary_Policy_(in_Nepali)--2077-
78_(Full_Text)-new.pdf

Pant, P. R., & Bajracharya, P. (2020). Business Environment in Nepal. Kathmandu: Buddha
Publications Pvt. Ltd.