A SOCIO-ECONOMIC TOUR REPORT OF

ECONOMIC ASPECT OF MUSTANG DISTRICT AND VALUE CHAIN

ANALYSIS OF MUSTANG AGRO FOOD INDUSTRY

By
Ankit Luitel
Ashim Acharya
Asim Pokhrel
Sushmita Timalsena
Suyog Upadhyaya
Upashan khadka

A socio-economic tour report submitted to

M.B.A Program
In partial fulfillment of the requirement for the award of the degree of
Master of Business Administration
Fourth Semester

at
School of Management
Tribhuvan University

Kirtipur, Kathmandu
Chaitra/2078
 TABLE OF CONTENTS

CHAPTER 1: BRIEF INTRODUCTION ABOUT THE PLACE INTENDED TO

VISIT..............................................................................................................................2
Chapter 2: Study Approach............................................................................................4
CHAPTER 3: EXISTING STATUS..............................................................................5
3.1 Economic Overview.............................................................................................5
3.2 Value chain analysis of Mustang Agro Food Industry.........................................6
3.3 Porter’s Strategic Five Forces Model...................................................................8
3.4 BFIs in mustang and their services.....................................................................11
3.5 Price of different essential goods in different areas...........................................12
REFERENCES.............................................................................................................15
LIST OF FIGURES
Figure 1: Value Chain Analysis...........................................................................................11
LIST OF TABLES
Table 1: Substitute products for customers of Mustang Food Agro Industry..........................13
Table 2: List of BFIs....................................................................................................16
Table 3: Price Comparison...........................................................................................17
Table 4: Income and Expenses Ratio...........................................................................18
CHAPTER 1: BRIEF INTRODUCTION ABOUT THE PLACE INTENDED TO
VISIT

Beni

Beni Municipality is situated in the headquarters of Myagdi district. Kaligandaki river

lies to the east part of the municipality, similarly, Mangala Rural Municipality to
west, Raghuganga Rural Municipality to North and Baglung Municipality to its south
part. Three rivers meeting point is called Tribeni, exactly as, two rivers: Kaligandaki
& Myagdi meeting point is named as Beni, it is said. This municipality contains
altogether 8652 households and population is 33498: among them 15002 are males
and rest 18496 are females according to the Census 2011. This municipality covers
total 76.25 square kilometers area. The then Arthunge, Ghatan, Ratnechour,
Jyamrungcot, Pulachour ,Bhakkimle ,Patlekhet and Singa VDCs made this
municipality. This municipality is announced on 8 May, 2014 and started functioning
from 23 May, 2014. (Beni Municipality, 2022)

Jomsom (Gharpajhong Rural Municipality)

Gharpajhong village municipality is located in Mustang district. When the Ministry of
Federal Affairs and Local Development implemented 744 local levels in 2073 BS,
Gharpajhong village municipality was declared in Mustang district comprising of
Marfa, existing Tukuche (8, 9) wards and Jomsom village development committees.
This village municipality is divided into 5 wards. According to the data of 2074 BS,
the total population of the village municipality is 3,184.

It is bounded by Manang district on the east, Dolpa district on the west, Baragung
Free Zone municipality on the north, Thasang municipality and Myagdi district on the
south. In 5 wards of this village municipality, personal incident registration (birth,
death, migration, marriage and divorce) is registered through online system (VERSP
MIS) and social security allowance is distributed through banking system.
(Gharpajhong Rural Municipality, 2022)
Chhusang

Chhusang (Thsug in Tibetan) is a village development committee in Mustang District

in the Dhaulagiri Zone of northern Nepal. It is located on the Upper Mustang trekking
route. It lies at the junction of the Narshing river and the Kali Gandaki.

It is surrounded by gigantic red, orange and silver-gray cliffs spotted with cave
dwellings. The society is actively involved in farming and hotel business.

Kagbeni (Varagung Muktichhetra Rural Municipality)

Varagung Muktichhetra Rural Municipality is a village in Mustang, a mountainous

district in the Gandaki region of Nepal Spread over an altitude of 2800 m to 5310 m
above sea level, the village covers an area of 885.78 sq. Km. Has been Which is going
to be 0.60 percent of the total area of Nepal the population of this village is 2330
(according to the 2068 census). There are 1121 males and 1209 females. The total
population of this village is 17.32 percent of the total population of Mustang. The
total number of households in the village municipality is 753. (Varagung
Muktichhetra Rural Municipality, 2022)

Kagbeni is a village in the Varagung Muktichhetra rural municipality of Mustang

District (Upper Mustang) of the Himalayas, in Nepal, located in the valley of the Kali
Gandaki River. It lies on the trail from Jomsom to the royal capital Lo Manthang, near
the junction with the trail to Muktinath. Kagbeni is also regarded as one of the oldest
and greener villages in the Himalayas. The main occupation are tourism and priest.

Marpha

Marpha is a village in Mustang District in the Dhaulagiri Zone of northern Nepal. At

the time of the village is a part of the trekking industry, and has a nearby Tibetan
refugee camp. Tibetans from the camp work in the village, supporting the tourist and
trekking service sector. It is in a scenic location and apples are an important crop for
the area.

Formerly, Marpha was a village development committee (VDC), which were local-
level administrative units. In 2017, the government of Nepal restructured local
government in line with the 2015 constitution and VDCs were discontinued.
Currently, Marpha lies in Varagung Muktichhetra Rural Municipality.
 CHAPTER 2: STUDY APPROACH

2.1 Objectives of the study

The prime objective of the study is to explore the socio-economic aspect of the people
of the mustang district. The other secondary objectives of the report are as follows:

 To analyze the value chain of mustang Agro food industry

 To identify the status of BFIs in mustang district

2.2 Methodology

Methodology is the description of the procedure followed while collecting the

necessary data and information needed for research work and report preparation. This
chapter contains the methodology used during the process of the study. The research
design, study area, target population, sampling method, data collection method, data
analysis technique along with the limitations of the study are duly presented in this
chapter. The methodology includes interviews, surveys, publication research, action
research and several other research techniques, and could include both present and
historical information.

In this study, the primary data is collected through the distribution of Questionnaire
and interview with the respondents of Mustang district. The interview and
questionnaire included structured and unstructured questions. The method for this
study includes research design, population and sampling, data collection procedure
and instruments and statistical treatments.

2.3 Research design

The research design used in this study is descriptive. As descriptive and analytical
research design will help to study the problem in detail and explain facts to fulfill the
objective. (Nassaji, 2015)
For this purpose, descriptive research design is appropriate, and researcher has used
the descriptive design technique. (Sharma, 2019)
2.4 Sources of data

Primary sources of data are used in this study. The data of primary source will be
collected through questionnaire and interview.
A. Primary data

It is the original source of data collected for the very first time by filling up the
questionnaire, interview with the respondents. Primary data are collected from the
sample population i.e restaurant and hotel owners, travel guide and various local
people.

2.5 Data collection procedure

The purpose of the field research is to study about the socio-economic aspect of the
people of mustang district. The data is collected from the firsthand information
sources.

2.6 Data processing procedure

To make report simple and easily understandable figures will be used. The collected
data may be in unorganized form. The data is processed by using tables and figures.

2.7 Limitation of the study

No project is without limitation and it becomes essential to figure out the various
constraints that the author underwent during the study. The following points in this
direction have added to total deliberations:

i. Methodology limitations i.e., simple tools were used.

ii. The respondent might be biased and may not provide fact information.
iii. The study is prior focused on micro level.
 CHAPTER 3: EXISTING STATUS

3.1 Economic Overview

Mustang covers an area of 3,573 km (1,380 sq mi) and has a population (2011) of
13,452. The headquarters is located at Jomsom. Mustang is the 5th largest district (by
area) of Nepal. Agriculture and animal husbandry are the main occupations. The
entire district is included within the Annapurna Conservation Area, the largest
protected area of Nepal. Development programmers, tourism management, and so on
are primarily overseen by the Annapurna Conservation Area Project (ACAP), a
division of the National Trust for Nature Conservation (NTNC). The kingdom of
Mustang was a dependency of the Kingdom of Nepal since 1795, but was abolished
by the republican Government of Nepal on October 7, 2008, after Nepal became a
federal democratic republic. According to the Human Development Index, Mustang is
a relatively wealthy district with a GDP per capita of US$ 2,466.

Agriculture is the dominant economic activity in the district in which 80.65 percent
people are engaged in the district. People of Mustang are engaged in a traditional
form of agro-pastoralist economy common to the mountainous regions of Nepal.
Business (6.82%), government service (1.91%), house work (3.50%), foreign
employment (3.97%) and others (3.14%) are other occupation types besides
agriculture (Central Bureau of Statistics, 2011)

Many residents in Mustang make a living by raising sheep and mountain

goats. Horses are primarily bred for transportation. Mustang made 270 million
Nepalese rupees in 2016 by exporting 13,000 sheep and 9,000 mountain goats. During
the Dashain festival in 2017, the area delivered at least 25,000 sheep and mountain
goats to various marketplaces throughout Nepal. An estimated number of 9,000
mountain goats were imported from Tibet in 2017, though traditional Tibetan traders
are increasingly prioritizing Chinese markets.

Mustang is commonly referred to as Nepal's apple capital. Despite the fact that
1,115 hectares of land in Mustang are rated ideal for apple growing, only 415 hectares
have been planted, according to the District Agriculture Development Office
(DADO). Terraced farms grow barley, wheat, and buckwheat, while orchards grow
vegetables and fruits. (Shrestha & Bahadur, 2005)

In 2018 the number of industry establishments in mustang was 775 which

provided employment to 3106 peoples including 1329 females. Largest number of
employments was created in the accommodation and food sector i.e. 1159 followed
by construction 510 and wholesale, retail trade 397. (Central Bureau of Statistics,
2018)

3.2 Major occupation of mustang district

The major occupation of mustang district are as follows:

A. Agriculture
Majority of people are involved in agriculture business. Apple, Oats, barley,
wheat, potato, beans are the major crops grown in Mustang district. Majority
of interviewee responded that the agriculture is self-sustained. And also claim
that, Nowadays, the apple is getting good market, locally and in out station.
B. Tourism
Another, main occupation of the mustang district is tourism. Various tourism
facilities such as hotels and restaurant, trekking guides are available. Mohan
Singh Lalchand (personal communication, April 5, 2022), owner of Hotel
Marpha palace claim that he is happy to know about the existing situation. He
also claimed that the tourism destination to mustang has not only promoted the
socio-economic aspect of mustang district but also has embarked a wider
range of improvement around the country. The tourism destination has also
backed the other industries like clothing and apparels, trekking stick etc.
C. Priest
Bal krishna Subedi (personal communication, April 4, 2022) asserted that he
was working as priest from past 16 years. Kagbeni is regarded as holy place
for doing ‘shraddha’ and people like him has good income opportunity. The
per day income is around 2500 to 4000 in the season.
3.3 Value chain analysis of Mustang Agro Food Industry

Figure 1: Value Chain Analysis

A. Primary Activities
a. Inbound Logistics: Apple is the major raw materials required for the firm
to produce its final products. According to Mr. Sanjog Thakali (owner of
the firm), he owns a land where he produces 50% of his raw materials
requirement. Rest 50%, her purchase from local apple farms. This has
helped Mr. Thakali to reduce the cost of inbound logistics. Apples are
graded in various grades which have different costs. In general, Mr.
Thakali purchases a kg of apple at Rs. 30-40.
b. Operations: As mentioned in the diagram, Mr. Thakali has generally 6
stages for producing any apple products. Different end products require
different amounts of apple as a raw material. However, the process like
 importing apples, grading them, and cleaning them are the common steps
of operation. On an average, the firm produces around 1000 liters of apple
juice per day.
c. Outbound Logistics: Due to the massive flow of tourists in Mustang
district, the firm has been able to sell all the produced goods in locally
based shops and restaurants. Wholesale purchases the goods from the
factory and sell it to the souvenir shops, restaurants and grocery stores.
d. Marketing & Sales: According to Mr. Thakali, this is the area where the
firm has done nearly nothing till date. However, the firm has big plans of
expanding their business to Pokhara and Kathmandu in near future. For
that purpose, they plan to do extensive research on marketing and sales.
e. Services: Mr. Thakali frequently visits the local stores, talks with
wholesalers and customers for the feedback of his products. This has not
only helped him improve various aspects of his products but also helped
him to realize the fresh market demand and the areas for future prospects.
B. Secondary Activities:
a. Firm Infrastructure: The initial capital of the firm was Nrs. 8 million.
Mr. Sanjog Thakali (owner of the firm) had invested using both private
loans (from relatives) as well as bank loans. According to Mr. Thakali, the
most significant cost was purchasing the machinery.
b. HR Management: With only 4 full time employees, the firm does not
face a huge challenge in managing the workforce. However, there are
certain times in a year where a greater number of labor force is required
which is fulfilled using temporary workforce.
c. Technology: The firm uses the latest machinery to produce wine, Jam and
juice from apples. From washing apples to packaging, machinery work is
important. This has not only reduced the workforce demand for the firm
but also has decreased the per unit production cost.
d. Procurement: Purchasing raw materials and other supplies is one of the
easiest tasks for the firm as almost everything is purchased locally. Being
one of the renowned people in the locality, Mr. Thakali finds it very easy
in the procurement process.
3.4 Porter’s Strategic Five Forces Model

An industry is composed of firms producing closely substitute products and thus

competing for the same pool of customers, Michael Porter states that competition in
the industry continuously works to drive down the rate of return on investments
towards the “competitive floor rate” of return. Returns lower than the competitive
floor rate puts pressure on existing producers, reducing the profitability and inducing
them to invest elsewhere. Conversely, a higher rate of return increases the competition
as a result of inflow of new capital in the form of new entrants or increase in
investment by existing firms (Porter, 1980, p. 5). Porter’s Five Forces Model
identifies and analyzes the following five factors: threat of close substitutes, threat of
new entrants, bargaining power of suppliers, bargaining power of customers, and
rivalry among firms in the industry.

Porter’s Five Forces Model Analysis of Mustang Agro Food Industry

1. Threat of close substitutes

Availability of close substitute products and the costs of switching to alternatives
influence whether a firm faces threat of substitutes in the industry. Generally, the
substitute products for wine, jam and juice are as follows:

Table 1:
Substitute products for customers of Mustang Food Agro Industry

Product Substitute products

Apple jam Cheese, Peanut butter, other branded fruit jams

Apple juice Fruit juices, soft drinks

Apple wine Beer, Brandy other wine products, soft drinks

 Mustang Agro Food Industry face a low threat of close substitutes because:

● There are no other producers of Apple Jam in Mustang

● Most producers focus on apple-based Brandy
● Unlike Mustang Agro Food Industry, its competitors produce apple juice in a
small quantity only, it fulfills approx. 90% of the demand for apple juice in
Mustang.

2. Threat of new entrants

The entry of new firms is influenced by factors such as: barriers to entry, capital
requirement, government policies, access to distribution channels, and cost of
switching to customers.

Mustang Agro Food Industry face low threat of new entrants as the capital
requirement is quite high, significant costs are incurred in acquisition of assets for
production of juice and wine. For example, Mustang Agro Food Industry incurred
Rs. 80 lakhs in initial investments for commencement of production. Besides,
procurement and transport of raw materials for packaging are also quite high as
the same have to be acquired from as far as Butwal and Kathmandu.

3. Bargaining power of suppliers

Suppliers play a crucial role in a firm’s ability to produce quality products at the
right time and at the right price. It includes factors such as: number and size of
suppliers, number of buyers of supplier’s products, uniqueness of each suppliers’
products, etc.

Mustang Agro Food Industry face low bargaining from suppliers because:

● Apple is readily produced in Mustang district

● There are large number of producers, vying for small number of local wine
producers
● Apples as raw materials are readily procured at a cost of approximately Rs.
30-40 per kg during the season, the same can then be stored in cool places for
several months for use in production which is usually during the month of
Poush to Chaitra.
 4. Bargaining power of customers
The customers’ buying power influences the competition in the industry, this
includes factors such as: number and size of firms, number/size of customers, size
of each customer order, differences between customers, price sensitivity,
switching costs, availability of substitutes, and availability of information. If
there are a large number of firms producing closely substitutable products then
the competition will be higher for firms, the customers will also be able to
bargain for lower price offers.

Mustang Agro Food Industry face low bargaining power of customers because:

● There are no apple-based jam producers in Mustang

● There are a small number of apple-based juice producers in Mustang

5. Rivalry among existing competitors

The rivalry among existing players in the industry also shapes the profitability
and competition in the industry. For example, a firm will face greater competition
and risks in the market if there are a large number of rival firms, if the rival firms
have highly competitive strategies, or if the rival firms have the same or higher
size and access to resources influencing the intensity of marketing efforts and
price wars.

Mustang Agro Food Industry face low high rivalry from existing firms in the
industry because:

● No firms produce apple jams in Mustang

● Small number of apple juice producers in Mustang (with small market share,
fulfilling approx. 10% of demand for apple juice)
● Most producers focus on producing brandy and Mustang Agro Food Industry
currently does not produce wine (though it plans to, in the near future).

3.5 BFIs in mustang and their services

As per the (Financial notices, 2022), A total of 25 Banks, financial institutions and
insurance companies are available in Mustang district.
 The categories of Banks, financial institutions and insurance companies are
mentioned below:

Table 2:
List of BFIs

Banks and Financial Institutions Number of BFIs

Commercial Bank 15
Development Bank 01
Finance company 06
Microfinance 03

 Majority of the market in the Mustang district was captured by the Prabhu
Bank Limited. It has a total of 5 branches in the region.
 Out of 25 financial institutions and insurance companies available in the
Mustang district, 12 were situated in Jomsom. Being the headquarter of the
Mustang district and the availability of the Jomsom Airport, most of the
financial institutions had their major focus on the customers of Jomsom.
 Majority of the customers outside the Jomsom area carried out their financial
transactions on a cash basis. However, the customers in the Jomsom area were
exceptional where most of the transactions were done through digital means
and through cheques. It was because of the availability of hotels around the
place.
 N. Shrestha (personal communication, April 5,2022) opined that, on an
average Rs 1000 to Rs 2000 was deposited at a time in the bank account by the
people who carried out their daily basis on agricultural means. However, the
people who had hotel business deposited Rs 4000 to Rs 5000 at a time in their
banks account.
 N. Bhattachan (personal communication, April 4, 2022) exclaimed that the
ATM machines were also used frequently by the customers because of which
the Banks had to fill up the machines with cash every 5-6 days.
3.6 Price of different essential goods in different areas

An essential good is a physical item that a consumer requires in order to sustain their
life. Basic food and consumer goods, emergency supplies, medical and hygiene
supplies (including pharmaceutical products), refined petroleum products, and
emergency clean-up materials.

Here we have compared the price of the necessary items we consumed during our
socio-economic tour.

Table 3:
Price Comparison

Place Tea Lunch or Dinner

Tatopani 40 330

Marpha 90 400

Jomsom 60 350

Chhusang 70 350

During our visit, we found that Marpha has become a great tourist hub, which
explains the reasons for the high price of essential goods. Of all the places we visited,
Chhusang was the only place where milk was scarce, so only black tea was available
there. People of Chhusang village were mostly engaged in hotel business, potato
farming and Uva production. But the price of goods varies to the foreign tourists, in
the presented menu, the price for Nepali was 350 whereas for the foreigners were
Rs,650 for Nepali khana set. Comparing the price of different food items with
different place shows, tatopani is cheaper in comparison to the places of higher
altitude.

The hotels of Marpha, Jomsom usually purchase rice, salt and sugar from Pokhara and
Beni. They generally add up Rs.6 as per the delivery charge. The people of Mustang
district usually order in a bulk from Pokhara, there are not so many retail shop as the
price will be higher when purchasing from the local shop.

As per the District profile of Jomsom rural municipality (2074), the main agriculture
production of Marpha, Jomsom and Chhusang are potato, apple, uva and maize.

Income and Expenses Ratio of Gharapzhong Rural Municipality

Table 4:
Income and Expenses Ratio

Ward No Income Expenses Ratio

1 (Chhairo) 301.8 839.35 0.36

2 (Marpha) 383.65 178.25 2.152

3 (Syang) 909.5 764.635 1.159

4 (Jomsom) 569.94 449.94 1.267

5 (Thini) 262.79 183.84 1.429

From the presented table we can explain, Marpha has the highest income to expenses
ratio that is 2.0152, here most of the people are engaged in agriculture and business.
The lowest ratio is 0.36 of Chhairo, where the expenses of people are greater than
their income, here we can assume that either they are using their parental property or
they are taking loans from different landlords. Whereas, the income and expense ratio
of Jomsom is 1.267, it explains people are saving money to give better livelihood to
their children and many of the business people are reinvesting their money in their
business.
Chapter 4: Long Term Planning , Objectives and Policy

To be done by MR Acharya
 REFERENCES

Beni Municipality. (2022, April 2). Brief Introduction of Beni Municipality, Myagdi.
Retrieved from Beni Municipality: https://benimun.gov.np/en

Central Bureau of Statistics. (2011). National Population and Housing Census 2011.
Kathmandu: Central Bureau of Statistics.

Financial notices. (2022, April 12). Bank branch in mustang. Retrieved from
Financialnotices: https://www.financialnotices.com/bank-location/district-
41.bank

Gharpajhong Rural Municipality. (2022, April 3). Introduction to Gharpajhong Rural

Municipality. Retrieved from Gharpajhong Rural Municipality:
https://gharapjhongmun.gov.np/

Nassaji, H. (2015). Qualitative and descriptive. London: Sage Publications.

Porter, M. (1980). Competitive Strategy: Techniques for analyzing industries and

competition. New York, USA: The Free Press.

Sharma, S. (2019, May 05). Descriptive Research Design. Retrieved from Research
Gate:
https://www.researchgate.net/publication/333220662_Descriptive_Research_
Designs/link/5ce2b330299bf14d95aa722f/download

Varagung Muktichhetra Rural Municipality. (2022, April 5). Introduction to

Varagung Muktichhetra Rural Municipality . Retrieved from Varagung
Muktichhetra Rural Municipality office:
https://varagungmuktichhetramun.gov.np/