Cogent Food & Agriculture

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Value chain analysis of arabica coffee (Coffea

arabica l.) in Arghakhanchi district of Nepal

Sushil Khatri, Tej Narayan Bhusal, Santosh Kafle, Aakriti Kafle, Yagya Raj
Joshi & Krishna Raj Pandey

To cite this article: Sushil Khatri, Tej Narayan Bhusal, Santosh Kafle, Aakriti Kafle, Yagya
Raj Joshi & Krishna Raj Pandey (2023) Value chain analysis of arabica coffee (Coffea
arabica l.) in Arghakhanchi district of Nepal, Cogent Food & Agriculture, 9:1, 2247173, DOI:
10.1080/23311932.2023.2247173

To link to this article: https://doi.org/10.1080/23311932.2023.2247173

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Value chain analysis of arabica coffee (Coffea
arabica l.) in Arghakhanchi district of Nepal
Sushil Khatri, Tej Narayan Bhusal, Santosh Kafle, Aakriti Kafle, Yagya Raj Joshi and Krishna Raj
Pandey

Cogent Food & Agriculture (2023), 9: 2247173

Khatri et al., Cogent Food & Agriculture (2023), 9: 2247173
https://doi.org/10.1080/23311932.2023.2247173

FOOD SCIENCE & TECHNOLOGY | RESEARCH ARTICLE

Received: 27 November 2022
Accepted: 08 August 2023
*Corresponding author: Sushil Khatri,
Faculty of Agriculture, Agriculture
and Forestry University, Rampur,
Nepal
E-mail: Kshetrisushil04@gmail.com
Reviewing editor:
María Luisa Escudero Gilete,
Nutrition and Bromatology,
Universidad de Sevilla, Spain
Additional information is available at
the end of the article
Value chain analysis of arabica coffee (Coffea
arabica l.) in Arghakhanchi district of Nepal
Sushil Khatri1*, Tej Narayan Bhusal2, Santosh Kafle1, Aakriti Kafle1, Yagya Raj Joshi1 and
Krishna Raj Pandey1
Abstract: A field survey was conducted during February–May 2022 in
Chhatradev rural municipality and Sitganga municipality with the purpose of
analyzing the existing value chain of arabica coffee in Arghakhanchi district of
Nepal. A sample size of 110 arabica coffee growers, comprising 55 from each
municipality, was selected by using three-stage sampling method for interviews
that used a pretested questionnaire. To study the value addition and trading
aspects, six collectors and pulper operators and two secondary processors were
selected. Descriptive statistics was applied to analyze the data. Input suppliers,
producers, collectors, pulper operators, secondary processors, traders, and con­
sumers were identified as key players in the coffee value chain. NTCDB, NARC,
CDC, AKC, Coffee Zone, Primary Coffee Cooperatives, Central Coffee Cooperative
Union Limited, NCPA, financial institutions, and certification agencies were
identified as the enabling environment providers in the value chain. The find­
ings showed that the gross margin of one kg each of fresh cherry production,
dry parchment production, green bean production, and coffee powder produc­
tion was NRs. 26.06, NRs. 92.83, NRs. 107.7, and NRs. 215.06, respectively. Value
addition from producers to primary processors was NRs. 109.8 per kg, and the

ABOUT THE AUTHOR PUBLIC INTEREST STATEMENT

Sushil Khatri is an agriculture graduate from
Agriculture and Forestry University. He is a young
researcher and youth activist. His area of interest
includes pest management, sustainable agricul­
ture, applied economics, and statistics. He had
worked as the Control Board Head of
International Association of Students in
Agriculture and Related Sciences (IAAS) Nepal in
2021-2022. He worked as research intern in
Prime Minister Agriculture Modernization Project-
Project Implementation Unit (PMAMP-PIU),
Arghakhanchi, Nepal.
Sushil Khatri
This study has analyzed how different actors
related to value chain analysis interact with each
other. Most studies in the past are related to the
WSB attack and disease management but this
study has assessed the value chain analysis of
the coffee subsector by considering function­
aries, actors, and enablers associated with the
coffee enterprise in Arghakhanchi district of
Nepal. Because of the asymmetric market infor­
mation coupled with no sufficient support, the
farmers have little power and trust in the coffee
business. This study has explored options for
enhancing market access and also analyzed the
production system opportunities and problems
related to cultivation. This study attempts to
analyze profitability at each stage of the value
chain in the journey of coffee from cherry to the
cup of consumers.

© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution
License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribu­
tion, and reproduction in any medium, provided the original work is properly cited. The terms on
which this article has been published allow the posting of the Accepted Manuscript in
a repository by the author(s) or with their consent.

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value addition from primary to secondary processors was NRs. 445.6 per kg.
Similarly, the value addition from secondary processors to consumers was NRs.
480.58 per kg. The research area’s value chain structure or network was deter­
mined to be brief and straightforward. Therefore, it is advised to adopt cutting-
edge processing and packaging methods to improve the competitiveness of
Nepali coffee in the market.

Subjects: Horticulture; Agriculture and Food

Keywords: fresh cherries; green beans; value addition; pulping; gross margin

1. Introduction
Coffee, one of the most important and highly traded cash crops, is widely consumed as a beverage
around the world. Coffee (Coffea arabica) is a member of the family Rubiaceae popularly known for
its pleasant taste, aroma, health benefits, and stimulant effect due to high caffeine content
(Aresta et al., 2005; Higdon & Frei, 2006; Schenker et al., 2002). This crop is native to the high
humid rainforest of south and southwestern Ethiopia (Mabberley, 1997). Coffee is cultivated in
about 80 tropical countries, where 125 million people from Latin America, Africa, and Asia depend
for their livelihoods on the annual production of nine million tons of coffee beans (Krishnan, 2017).
In 2020/21, worldwide production of Arabica coffee reached about 102.1 million 60-kilogram bags,
with Brazil, Vietnam, Colombia, Indonesia, and Ethiopia being the major producers, which con­
tributed around 75% of global production (Ridder, 2022).

Plantation of coffee started in Nepal when Mr Hira Giri, in 1938 A.D., brought coffee seeds
from the Sindhu province of Myanmar and planted them in Aapchaur of the Gulmi district of
Nepal. Coffee seedlings gradually became popular in the backyards and gardens of most of
the neighboring districts of Gulmi, like Palpa, Arghakhanchi, Syangja, and Pyuthan. However,
commercial cultivation of coffee started only in the 1990s. Coffee is an export-oriented high-
value crop that is mostly cultivated in more than 40 districts in the mid-hills of Nepal. The
total area under coffee cultivation is 1887 hectares, and 297 metric tons of green beans were
produced with a productivity of 192 kg/ha during 2019–2020 (MoALD. Ministry of Agriculture
and Livestock Development, 2021). Due to the availability of suitable land topography and
climatic conditions, including relative humidity, temperature, and rainfall for arabica coffee,
districts like Arghakanchi, Gulmi, Palpa, Syangja, Kaski, Kavre, and Sindhualchowk mark
themselves as the top producers of coffee in Nepal (NTCDB. National Tea and Coffee
Development Board, 2018). Coffee is a high-value commodity with a greater net return per
unit that is four times more profitable than maize cultivation and three times more profitable
than millet cultivation (Project for Agriculture Commercialization and Trade PACT, 2012).
Nepal has suitable climatic and soil conditions that facilitate the production of high-quality
“specialty coffee” at altitudes ranging from 800 to 1400 m above sea level (Dhakal, 2005). So,
organic certification of Nepalese coffee can balloon the price in the international market.
Nepalese specialty coffee is in high demand around the world due to its organic nature of
reduced caffeine content (Tuladhar & Khanal, 2020). It can readily compete in the interna­
tional market and occupy a unique position among the world’s organic coffees.

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The previous study conducted by Acharya and Dhakal (2014) in Palpa district, Nepal,
focused solely on the production aspect of coffee and reported the total cost of coffee
production as NRs 5114.9 per Ropani of land. Similarly, Bhattarai et al. (2020) performed an
economic analysis of coffee in Arghakhanchi district, with a primary focus on coffee produ­
cers, revealing a gross return of US Dollar 25.28 per Ropani of land. While these studies have
provided insights only on coffee production, they have not comprehensively examined the
entire value chain, including the various stages and actors involved. Also, pre-field visits and
key informant interviews in the study area revealed that farmers have little leverage and
trust in the coffee business due to asymmetrical market information and a lack of adequate
support. Therefore, a collaborative study was needed to investigate the structure, scale, and
operation mechanisms of various chain actors. This paper aims to analyze the gross margin
and pricing at each stage in the value chain of coffee, along with the strengths and weak­
nesses of the existing value chain and the opportunities and threats (SWOT) to its competi­
tiveness. By examining the value chain, the paper intends to identify the different stages
involved, from coffee cultivation to the final consumption, and analyze the roles, relation­
ships, and interactions of the various actors within the chain.

2. Research methodology

2.1. Research site

The research will be conducted in the coffee zone of Arghakhanchi. Figure 1 Shows the map of
Nepal including the geographical map of Chhatradev rural municipality and Sitganga

Figure 1. Map of Arghakhanchi

district including study area.

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municipality. The coffee zone of Arghakhanchi is under the jurisdiction of Project

Implementation Unit (PIU), Prime Minister Agriculture Modernization Project (PM-AMP),
Sandhikharka, and Arghakhanchi. Arghakhanchi district lies in the lower hills of Lumbini pro­
vince and ranges from 305 to 2515 m above the sea level. Arghakhanchi district is surrounded
by Dang and Pyuthan districts in the west, Kapilvastu and Rupandehi in the south, Palpa in the
east, and Gulmi in the north. It has an area of 1193 m square, which lies between 27°45’ and
28°6’ north latitudes and 80°45’ and 83°23’ east longitudes (GoN. Government of Nepal, 2015).
The agroclimate in this region is characterized by a medium type of climate. The average
maximum temperature in summer is 40°C, the average minimum temperature in winter is
6.5°C, and the average annual rainfall is 2200 mm. To be specific, the survey was conducted in
Sitganga Municipality and Chatradev Rural Municipality.

2.2. Sample and sampling techniques

Respondents for the value chain study in coffee include four categories, namely, farmers, collec­
tors, primary processors, and secondary processors. The selection was done as follows:

2.2.1. Selection of farmers

The representative sample was collected by using a three-stage random sampling procedure. In
the first stage, Sitganga municipality and Chatttradev rural municipality were purposefully selected
as they are the highest coffee-producing local bodies in Arghakhanchi. In the second stage, five
coffee-producing villages from each local organization were selected randomly. In the third stage,
eleven coffee producers from each village were selected using the snowball method. Due to the
lack of an actual list of coffee farmers, snowball sampling is employed, in which research partici­
pants assist in recruiting other participants for further study. In this way, one hundred and ten
coffee producers were selected using the three-stage sampling method.

2.2.2. Selection of collectors and pulper operators

Collectors buy coffee from the farmer and collect it at the collection center for the purpose of
pulping. Pulper operators are the primary processors whose role is to remove the pulp and
mucilage from cherries, followed by drying in order to produce dry parchment. Six collectors and
pulper operators were purposefully selected for the study.

2.2.3. Selection of secondary processors

The dry parchment formed after pulping is dehulled to make green beans. Green beans formed after
dehulling are grounded in order to make coffee powder. In the survey, two secondary processors were
selected for interviews. They were selected based on their convenience for the collection of data.

2.3. Data and data types

In this survey, data from both primary and secondary sources were collected.

2.3.1. Primary data

The primary source includes a semi-structure questionnaire to collect primary data from farm­
ers, consumers, pulpers, dehullers and coffee powder producers. Two focus group discussions
were carried out in each local body to obtain and validate data and information. Key informant
interview was also carried out to get relevant information from different stakeholder in this
sub-sector. Information from coffee powder producers is obtained through a telephone inter­
view. Relevant information was collected and findings were arranged systematically to satisfy
the goals of the study.

2.3.2. Secondary data

Secondary data were collected from various online open-access journals, reports, books, related
websites, articles, and reports related to coffee production. Furthermore, secondary data related to
coffee production was obtained from different institutes and organizations like National Tea and
Coffee Development Board (NTCDB), Ministry of Agriculture and Livestock Development (MoALD),

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Food and Agriculture Organization (FAO), Central Bureau of statistics (CBS), Nepal Agriculture
Research Council (NARC), etc. Relevant information was collected from available literature and
the findings from them were arranged systematically.

2.4. Data analysis techniques

The data collected from the survey schedule from farmers, collectors, dehullers, coffee powder
producers, and consumers were coded, assembled, and analyzed with the help of MS excel and
Statistical Package for Social Sciences (SPSS). Descriptive statistics such as frequencies and per­
centages were calculated.

2.4.1. Cost of production

To calculate the cost of production, the variable cost and fixed cost items were taken into account. The
total cost of production was calculated by adding all the expenditures on variable inputs and fixed costs.

Total cost = Ʃ Fixed cost + Ʃ Variable cost

2.4.2. Gross margin analysis

Gross margin is also called “gross profit” or “returns over variable costs,” and it is used for the measure­
ment of profitability in coffee production and how efficiently they are using their resources. Gross margin
was estimated by subtracting total variable costs from the gross return involved in coffee production.

Mathematical expression for gross margin:

Gross Margin (GM) = Gross Return (GR) − Total Variable Cost (TVC)

where

Gross return (NPR) = Price of coffee (NPR per kg) × Total quantity produced (Kg)

Total variable cost (NPR) = Total cost incurred in all the variable items

2.4.3. Producer’s share

Producer’s share is the price received by the farmer expressed as a percentage of the retail price,
i.e., the price paid by the consumers. It can be calculated by the following formula:

where

Ps= Producer’s share

Pf= Producer’s price (Farm gate price)

Pr= Retailer’s price

2.4.4. Marketing margin

Marketing margin can be calculated by subtracting both the net price received by producers and
the marketing cost from the retailers’ sale price. Mathematically,

Marketing Margin= Retailers’ sale price − Net price received by Producers − Marketing cost

2.4.5. Indexing
Using an index, production and market-related issues were ranked and prioritized. Based on the
severity of the issues, the production and marketing issues in the research regions were

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recognized and ranked. A five-point scaling technique was used to compare the most serious,
serious, moderate, fairly, and least serious problems that the producers and merchants of coffee
were experiencing, using scores of 1.00, 0.80, 0.6, 0.4, and 0.2, respectively. The index for the
severity of production and marketing issues experienced by producers and dealers, respectively,
was determined using the formula provided below.

Mathematical Expression,

where Iimp = Index of importance

∑ = summation

Si = Scale value of ith intensity

fi = Frequency of ith response

N = Total number of respondents

3. Result and discussion

3.1. Coffee cultivation

3.1.1. Area under coffee cultivation

The rural population can be categorized into three groups: Small commercial farmers (19.6–98
Ropani land), Subsistence farmers (9.8–19.6 Ropani land), and Landless or near landless farmers
(<4.9 Ropani land) (ADS, 2014). Here, large portion of respondents (81%) fall in the category of
landless or near landless farmers. Around one-fifth of the respondents in the study area were
subsistence coffee farmers with a coffee plantation area of 9.8–19.6 ropani as shown in Table 1.
No farmers in the study area were small commercial farmers due to scattered land, small land
holding among farmers, the high initial investment in coffee, and the long gestation period of
coffee.

3.1.2. Shade tree in coffee orchard

The majority of the respondents (89.06%) had planted shade trees in their coffee orchards in
the study area. However, 10.94% of the respondents were found growing coffee an open field
without any shade tree. 44.54% of farmer had planted fodder trees (Siris, Badahar, Taki, Faledo,

Table 1. Area under coffee cultivation in the study site

Variables Category Chhatradev rural Sitganga Total (N=110)
municipality municipality
(n=55) (n=55)
Area under coffee Landless or near 48 (44) 41 (37) 89 (81)
cultivation landless farmer
(<4.9 ropani)
Subsistence farmer 7 (6) 14 (13) 21 (19)
(9.8–19.6 ropani)
Small commercial 0 0 0
farmer (19.6–98
ropani)
Note: Figure in the parentheses indicates percentage
1 Hectare = 19.65 Ropani

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Figure 2. Shade tree in the cof­ 50.00% 46.36%

fee orchard. 45.00%

40.00%

35.00%

30.00% 27.27%
25.00%

20.00%

15.00%
10% 9.09%
10.00%

5.00%
3.64%

0.00%
Adopted Open field Fodder Banana & Litchi Both
Shade tree adopted Tree

Chhatradev rural Municipality Sitganga Municipality

etc.) as shade trees in their coffee orchard, 30.90% or respondents had adopted fruits like
bananas and litchi as shade tree in their coffee orchards, and 13.62% of respondents had
planted mixed type of shade tree (fruits as well as fodder) in their coffee orchard as shown in
Figure 2. Coffee is a shade-loving plant that is reported to grow well under low canopy level
trees, with shade reducing the stress of coffee by reducing the adverse effects of climate and
maintaining nutritional balance (Ehrenbergerová et al., 2017).

3.1.3. Intercropping in the orchard

Since the gestation period of coffee is 3–4 years, the farmer can get yield from the coffee
orchard during the gestation period by intercropping with vegetables like legumes, ginger,
turmeric, etc. This practice diversifies the return, reduces the risk associated with the coffee,
and also helps in the management of pests in the coffee crops. More than half of the
respondents (56.72%) were found intercropping in the coffee orchard, while 43.28% of the
respondents in the study area were found not to be intercropping in the coffee orchard, as
shown in Figure 3. The majority of respondents (35.44%) intercropped coffee with ginger and
turmeric in the study area due to their high value in comparison to vegetables (potato,
cabbage, and cauliflower) and legumes like peas.

Figure 3. Intercropping in the 40.00%

34.54%
coffee orchard. 35.00%
30.00%
28.18%
25.00% 21.82% 22.72%
20.00% 15.46%
12.72% 13.65%
15.00%
10.00% 7.28%
4.54%
5.00% 1.81%
0.00%
Yes No Ginger & Turmeric Vegetables Legumes
Intercropping Crops

Chhatradev Rural municipality Sitganga Municipality

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Figure 4. Source of seedlings 25.00%

for coffee orchard.
20%
20.00% 19.09%

15.45%
15.00% 13.63%

10.92%
10.00% 9.09%

6.36%
5.45%
5.00%

0.00%
Own Nursery AKC/Coffee Zone Village nursery Other district(Gulmi)

Chhatradev Rural municipality Sitganga Municipality

3.1.4. Source of seedling

Quality seedlings are needed for the increment in production, uniformity in quality, and uniformity
in volume of production, so the source of the seedling is crucial for the establishment of the
orchard. Nearly one-third (33.63%) of the respondents in the study area reported that the village
nursery was the major source of the coffee seedlings. 28.18% of the respondents established
orchards with seedlings from government sources like the AKC or the Coffee Zone, whereas
26.37% of the respondents brought seeds from the Gulmi district, as shown in Figure 4, and
11.81% of the respondents had their own nurseries for coffee plantations

3.1.5. Factors encouraging coffee production

The respondents’ ranking of the different types of encouraging factors for coffee production
showed that less care or less intensive production was the most encouraging factor, followed by
high return, market demand, neighbor influence, and land suitability as shown in Table 2. A key
informant interview with different stakeholders and farmers was also carried out to get relevant
information regarding encouraging factors in coffee production in the study area.

3.1.6. Existing problems in coffee cultivation

Ranking of the different types of the problem faced by the respondents for the production of
coffee in the study area revealed that attack of insects (White Stem Borer) is the major problem
followed by poor rainfall and irrigation, lack of technical knowledge and extension, lack of
quality seedling and lack of organic plant protection means as shown in Table 3. Existing

Table 2. Factor encouraging coffee production among respondents in the study site
Encouraging factors P1 P2 P3 P4 P5 Weightage Index Rank
(1) (0.8) (0.6) (0.4) (0.2)
Market demand 7 14.4 18 14.4 3.8 57.6 0.52 III
High income/return 25 38.4 18 1.6 .6 83.6 0.76 II
Less care or less intensive 74 24.8 0 2 0 100.8 0.92 I
Neighbor influence 1 5.6 16.8 16.4 6.6 46.4 0.42 IV
Land suitability 3 4.8 13.2 10 1.8 41.8 0.38 V
Note: Figure in the parentheses indicate the score used and ‘P’ stands for priority (Ex. P1= First priority and so on).

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Table 3. Problems in coffee production among respondents in the study site

Problems P1 P2 P3 P4 P5 Weightage Index Rank
(1) (0.8) (0.6) (0.4) (0.2)
Lack of organic plant protection means 3 7.2 1.8 12.4 9.8 43.2 0.39 V
Lack of technical knowledge and 3 32 18 14.4 .2 67.6 0.61 III
extension
Lack of quality seedling 5 12 21 15.6 3.2 56.8 0.51 IV
Attack of insect (WSB) 53 33.6 6.6 1.2 .2 94.6 0.86 I
Poor rainfall and irrigation 49 32 3.6 2.8 1.6 89 0.8 II
Note: Figure in the parentheses indicate the score used and ‘P’ stands for priority (Ex. P1= First priority and so on).

problems in coffee production in the study area were identified through Key Informant
Interview which was carried out with different stakeholders and farmers before carrying out
the survey.

3.2. Post harvest operation

3.2.1. Coffee processing method

Fresh cherries can be processed by three different methods: the dry method, the semi-wet
method, and the wet method. All the pulper operators in the study area were found to pulp

Figure 5. Wet processing Harvesting

method of coffee.

Collection and sorting Homogenous Cherries

Pulping Parchment coffee with

mucilage

Fermentation Parchment coffee with

loose mucilage

Parchment coffee
Washing
without mucilage

Drying Dry Parchment coffee

Hulling Green beans

Roasting & Grinding Powdered coffee

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coffee cherries by the wet method. Processors prefer the wet method in comparison to others
due to its ease and lower labor intensity than other methods. Wet processing is found to be
superior to others due to its pleasant aroma and pure flavor (Subedi, 2010). Different stages in
the wet method of coffee processing are shown in Figure 5.

3.2.2. Value chain of coffee

The entire process of moving coffee beans from the field to the end customer’s cup is included in
the value chain. Value chain analysis requires the mapping of the value chains as well as the
identification of the institutions and individuals who create an enabling environment. Along with
suggesting potential interventions to move the value chain, it also identifies the opportunities and
constraints at each stage.

3.2.3. Value chain map

Figure 6. Value chain map of
arabica coffee in Arghakhanchi Function Actors Enablers
district of Nepal

Input Supply Nursery Agro-Vets

Farmers
(seedling)
(Inputs, equipment, etc. ) group,
cooperatives

Production of Coffee growers

fresh cherries
AKC, Zone,
NTCDB,
NARC,
Collection of Local collectors Certification
fresh cherries agencies,
CoPP,
BeaCoN

Production of Private pulp

dry parchment operators

Production of Financial
green institutions,
beans/powder Local CCU processing
processors center Gulmi DFTQC,
beans
NCPA

Marketing & Local Domesti International

trading market c market MOAD,
market
NTCDB,
NCPA

Consumers Local Domestic International

consumer consume consumers
r

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Figure 7. Marketing channel of

Input
coffee value chain in study Local
Suppliers
area. Market

Channel-I

Producers
Retailer
s Channel-II

Pulpers and Domestic

Channel-III Market
collectors Processor

Channel-IV

International
Exporter
Market
s

Production Primary Secondary Distributive Market

processors processors Trade

Figure 6 shows the value chain map of arabica coffee in the Arghakhanchi district of Nepal, which
shows the relationship among the actors, their functions, and the institutions that create an
enabling environment.

3.2.4. Actors and major function

(a) Input suppliers: Nursery and local agrovet were found major suppliers to the coffee farmers.
Seedlings were supplied by the nursery and other biopesticides, manure and other equip­
ment like mask, sprayers etc. Chemical fertilizers are not used by the coffee farmer in their
orchard to produce organic specialty coffee.

(b) Producers: Coffee growers were considered as the producers. They were found producing
fresh cherry and send fresh cherry to pulper within 24 hours for pulping. Two kinds of
producers were identified in the study area namely, subsistence farmers and landless or
near landless farmers.
(c) Collectors: They were those individuals which were involved in the collection of fresh cherry
from farmers and supplies to pulper operators. They were the linkage between farmers and
primary processors.
(d) Pulper operator: They collect fresh cherries either from collectors or from farmers and peel
off them. The pulping of the freshly harvested cherries by pulper operator convert to parch­
ment coffee which is then fermented, washed and dried in sunlight to form dry parchment.
(e) Secondary processors: They were found collecting dry parchment from pulper operators.
They further process dry parchment by hulling to make green beans. Roasted beans were

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formed from green beans by roasting it. Fine powdered coffee is prepared from roasted
beans by grinding them in the grinder machine.
(f) Traders: Three type of traders were found involving in the trading of coffee, namely, local
traders, domestic traders and international traders (exporters). Local traders sell coffee
powder in local market, domestic traders sell green beans and coffee powder in domestic
market and exporters sell green beans to international market.

3.2.5. Enablers and facilitators

3.2.5.1. Government organization. These organizations are responsible for overseeing Nepal’s cof­
fee value chain including those responsible for creating a supportive climate for the country’s
coffee industries, varietal development, procurement and evaluation of genotype, technology
transfer, quality control, and conducting research related to shade management and disease
management. Some of the government organization working in coffee subsector were identified
during the study, which are listed below:
(a) Ministry of Agriculture and Livestock Development (MoALD)

(b) National Tea and Coffee Development Board (NTCDB)

(c) Nepal Agriculture Research Council (NARC)

(d) Department of Food Technology and Quality Control (DFTQC)

(e) Coffee Development Centre (CDC)

(f) Agriculture Knowledge Centre (AKC)

(g) Coffee Zone

3.2.5.2. Non-governmental organization. These organizations are responsible for promoting

Nepal’s coffee value chain by providing financial support to establish coffee processing centers,
technical support to farmers, collection, processing, and even the export of Nepalese specialty
coffee to foreign markets. They advocate for policies and practices that support coffee growers,
such as fair prices, access to credit and technology, and protection of land rights. They can also
raise awareness among consumers about the challenges faced by coffee growers and the impor­
tance of supporting sustainable and ethical coffee production. Some of the non-government
organization working in coffee subsector were identified during study, which are listed below:
(a) Primary Coffee Cooperatives (PCC)

(b) Central Coffee Cooperative Union Limited (CCCUL)

(c) National Coffee Producers Association (NCPA)

(d) Coffee Promotion Program (CoPP)

(e) Beautiful Coffee Nepal (BeaCoN)

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Table 4. Cost of production per kg. fresh cherry in the study area, 2022
Particulars Unit Quantity Unit cost (NRs.) Total (NRs.)
Variable cost
FYM Kg 9800 1.5 14,700
Labor cost for Man day 12 800 9,600
manuring
Labor cost for plant Man day 3 800 2,400
protection
Labor cost for Man day 21 800 16,800
intercultural
operation
Labor cost for Man day 100 800 80,000
harvesting
Miscellaneous cost 13,000
Total variable cost 136,000
Fixed cost
Rent Ha. 1 37,600 39,200
Land tax Ha. 1 1,000 1,000
Depreciation cost of Unit 1 20 1,380
seedling (5% of
1,380)
Depreciation cost 3,836
(10%) of farm
equipment
Other costs 8,612
Total fixed cost 54,028
Total cost of production per hectare per year 190,028
Total cost of production per kg of Fresh cherry 72.89
Note: 1 USD = 132.33 NRs

3.3. Financial analysis

3.3.1. Cost of production

Cost of production was calculated by compiling variable cost and fixed cost. Here, we had
calculated cost of production through the personal interview with the farmers, pulpers, primary
processors and secondary processors of the study area.

3.3.1.1. Cost of production of fresh cherry. Cost of production of fresh cherry per year was
calculated by compiling variable cost and fixed cost. Here, we had calculated cost of production
of fresh cherry of one year through the personal interview with the farmers of the study areas
shown in the Table 4. The cost incurred per hectare of coffee production had been analyzed
and was found to be around NRs. 190,028 for one year. Similarly, we had also analyzed the
cost required to make one kilogram of fresh cherry and was found to be NRs. 72.89 as shown in
Table 4. Through a production cost analysis, it is imperative to find strategies to cut the cost of
harvesting of coffee beans so that the farmers can enjoy maximum profit.

3.3.1.2. Cost of dry parchment production. Cost of production of dry parchment was calculated by
compiling variable cost and fixed cost. Total variable cost and total fixed cost incurred to produce
one kilogram dry parchment was NRs. 397.17 and NRs. 10.8 respectively as shown in the Table 5.
Through the personal interview with the pulper operator of the study area, the total cost incurred
during dry parchment production was estimated as NRs. 407.97 per kg. Dry parchment producer

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Table 5. Cost of production per kg. dry parchment in the study area, 2022
Particulars Unit Quantity Unit cost Total (NRs.)
Variable cost
Cost of Fresh cherry Kg 4.25 80 340
Electricity cost kilowatt hour (kWh) 0.36 10 3.6
Labor cost for Man day 0.017 800 13.6
washing
Labor cost for Man day 0.035 800 28
sorting
Packaging cost 2.09
(Packaging material
+ Labor)
Other cost 9.94
Total Variable cost 397.17
Fixed cost
Depreciation 5.02
Rent 1.48
Tax 0.37
Repair and 2.67
maintenance
Other cost 1.26
Total fixed cost 10.8
Total cost per kg of dry parchment 407.94
Note: 1 USD = 132.33 NRs

Table 6. Cost of production per kg. green beans in the study area, 2022
Particulars Unit Quantity Rate (NRs.) Total (NRs.)
Variable cost
Input cost of dry Kg 1.41 500 705
parchment
Electricity kilowatt hour (kWh) 0.42 10 4.2
Labor cost for Man day 0.053 800 42.4
hulling
Labor cost for hand Man day 0.049 800 39.2
sorting
Labor cost for Man day 0.003 800 2.4
packaging
Packaging cost No. 0.033 100 3.3
(Jute bag)
Other cost 22.8
Total variable cost 819.3
Fixed cost
Depreciation 8.69
Rent 2.3
Tax 0.6
Repair and 2.95
maintenance
Other cost 2.74
Total fixed cost 17.28
Cost per kg. of Green Bean 836.58
Note: 1 USD = 132.33 NRs

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Table 7. Cost of production per kg. coffee powder in the study area, 2022
Particulars Unit Quantity Rate Total cost
Variable cost
Input cost of green Kg 1.399 1000 1,399
beans
Electricity cost kilowatt hour (kWh) 0.82 10 8.2
Fuel cost 4.7
Labor cost for Man day 0.056 800 44.8
roasting
Labor cost for Man day 0.052 800 41.6
grinding
Labor cost for Man day 0.0053 800 4.24
packaging
Packaging cost No. 1 6.2 6.2
Other costs 26.2
Total variable cost 1,534.94
Fixed Cost
Depreciation 7.02
Tax 3.62
Rent 4.82
Repair and 5.31
maintenance
Other cost 3.02
Total fixed cost 23.79
Total cost per kg of coffee power 1,558.73
Note: 1 USD = 132.33 NRs.

can reap maximum profit from their produce if they shift their dependence on manual labor for
washing and shorting coffee beans to advanced modern machines.

3.3.1.3. Cost of green bean production. Cost of production of green bean was calculated by compiling
variable cost and fixed cost. Total variable cost and total fixed cost incurred to produce one kilogram
green beans was NRs. 819.3 and NRs. 17.28 respectively as shown in the Table 6. Through the personal
interview with the secondary processor of the study area, the total cost incurred during green bean
production was estimated as NRs. 836.58 per kg. Processors can discover areas where efficiency can be
improved by studying the many steps involved in the processing and distribution of coffee. They can
save costs and increase profitability, for instance, by streamlining their distribution networks or
enhancing the efficiency of their production methods.

3.3.1.4. Cost of coffee powder production. Cost of production of coffee powder was calculated by
compiling variable cost and fixed cost. Total variable cost and total fixed cost incurred to produce
one kilogram coffee powder was NRs. 1,534.94 and NRs. 23.78 respectively as shown in the Table 7.
Through the personal interview with the secondary processor of the study area, the total cost
incurred during coffee powder production was estimated as NRs. 1,558.73 per kg.

3.3.2. Gross margin analysis

The gross margin was calculated by deducting the average variable cost from average gross return
in order to evaluate the profitability of coffee producers, pulper operators, green bean producers,
and coffee powder producers. The gross margin of one kg fresh cherry production, one kg dry
parchment production, one kg green bean production, and one kg of coffee powder production was
NRs. 26.06, NRs. 92.83, NRs. 107.7, and NRs. 215.06, respectively, as presented in Table 8. The gross
margin of our study is found consistent with the findings of study by Luitel (2017). An analysis of

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gross margin reveals important information about the viability and sustainability of the coffee
value chain. Stakeholders can ensure that the value chain is profitable and sustainable in the long
run by deciding where to focus their resources and investments and by having a clear under­
standing of the costs and revenues connected with each stage.

Table 8. Gross margin analysis of fresh cherry production, 2022

Particulars Fresh cherry Dry parchment Green beans Powder coffee
(NRs/Kg) (NRs/Kg) (NRs/Kg) (NRs/Kg)
Total fixed cost 20.72 1.8 17.28 23.79
(TFC)
Total variable cost 52.17 397.17 819.3 1,534.94
(TVC)
Cost of Production 72.89 407.14 836.58 1558.73
(CoP)
Gross Return (GR) 78.23 490 990 1750
Gross Margin (GM= 26.06 92.83 170.7 215.06
GR – TVC)
Note: 1 USD = 132.33 NRs.

3.3.3. Value addition in different levels of value chain

Value addition in the different levels of value chain was calculated on the basis of Green Bean
Equivalent price at the different levels. At every stage of processing, coffee is transformed into
a distinct product. In order to bring uniformity to the various products, Green Bean Equivalent
(GBE) was utilized to calculate the cost, return, and value addition at each stage of value chain
(FNCCI/AEC, 2006; ITC International Trade Centre, 2011). These are the conversion factors that
were employed. Firstly, average price at each level was converted to Green Bean Equivalent
price by multiplying with GBE conversion factor as presented in Table 9. It was reported that
value addition from producers to primary processors was NRs. 109.8 per kg and from primary
processors to secondary processors was found to be NRs. 445.6 per kg. Similarly, value addition
from secondary processors to consumers was found to be NRs. 480.58 per kg. The findings
showed that the value addition of the coffee was highest from green beans to coffee powder
(NRs/kg 480.58) and was lowest from fresh cherry to dry parchment (NRs/kg 109.8) as shown in
the Table 9. The value addition at different levels of coffee value chain of our study is found in
consistent with the findings of study by Luitel (2017). By scrutinizing value addition at the
different stages of value chain, it is possible to identify the potential areas where cost can be
reduced and profit can be maximized.

Table 9. Value addition in different levels of value chain, 2022

Levels Particulars Price (RS/Kg) GBE GBE price Value
conversion (NRs/kg) addition
factor* (NRs/kg)
Produces Fresh cherry 78.23 0.18 434.6
Primary Dry parchment 490 0.8 544.4 109.8
processors
Secondary Green beans 990 1 990 445.6
processors
Consumers Coffee powders 1750 1.19 147.58 480.58
Note: *FNCCI/AEC (2006) and ITC (2011).

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Table 10. Marketing of coffee in the study site, 2022

Parameters Category Chhatradev rural Sitganga Total
municipality municipality (N=110)
(n=55) (n=55)
District to sell Arghakhanchi 49 (44.5) 55 (50) 104 (94.5)
Gulmi 6 (5.45) 0 6 (5.45)
Place to sell Home 55 (50) 55 (50) 110 (100)
Collector Involved Local level Collector 25 (22.7) 20 (18.18) 45 (40.9)
Pulpers 30 (27.3) 35 (31.81) 65 (59.1)
Agreement Oral Agreement 55 (50) 55 (50) 110 (100)
Written Agreement 0 (0) 0 (0) 0 (0)
Payment Advance payment 0 (0) 0 (0) 0 (0)
Mechanism
Cash payment 25 (22.7) 10 (9.09) 35 (31.8)
Payment with 25 (22.7) 33 (30) 58 (52.7)
month
Payment after one 5 (4.6) 12 (10.91) 17 (15.5)
month
Note: Figure in the parentheses indicates percentage.

3.4. Marketing of coffee

The majority of respondents (94.5%) sold their produce in their district, Arghakhanchi; however, very
few of them (5.4%) sold their produce to another district for a better price and proximity to Gulmi. All
of the respondents sold their produce from their homes. The majority of respondents (59.1%)
reported that their produce was collected by the pulper operator, while 40.9% of respondents
reported that coffee produced by them was collected by a local collector, as shown in Table 10.

All of the respondents made an oral agreement with the trader for the purpose of selling their
produce. In the case of payment mechanisms, slightly more than half of the respondents (52.7%)
reported that they received payment within a month of the sale of their produce, while no one had
received advance payment from a trader for the sale of their produce. 31.8% of farmers reported
that they receive payment at the time of sale, and the remaining 15.5% of respondents reported
that they get payment after one month of selling their produce, as shown in Table 10.

3.4.1. Existing problems in the marketing of coffee among growers

Ranking of the different problems faced by the grower related to the marketing of coffee showed that
low farmgate price was the major problem followed by poor transportation and connectivity, lack of
processing facilities, lack of marketing knowledge and Lack of storage facilities as shown in Table 11.

3.4.2. Marketing channels

There are various ways of transaction regarding coffee value addition as well as marketing. From
input suppliers to final consumers there are various stakeholders in marketing chain. After

Table 11. Problems in the marketing of coffee among growers in the study area, 2022
Problems P1 P2 P3 P4 P5 Weightage Index Rank
(1) (0.8) (0.6) (0.4) (0.2)
Lack of storage facilities 3 0 6 4.4 17.2 30.6 0.29 V
Lack of marketing knowledge 2 7.2 31.8 14 2.2 57.2 0.52 IV
Lack of processing facilities 7 14.4 34.2 15.2 2 72.8 0.66 III
Low farmgate price 57 25.6 5.4 4 .4 92.4 0.84 I
Poor transportation and connectivity 41 4.8 .6 6.4 .2 89 0.8 II
Note: Figure in the parentheses indicates the score used and ‘P’ stands for priority (Ex. P1= First priority and so on).

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Table 12. Estimation of producer share’s in different identified marketing channels in the
study area
Particulars Marketing channel

I II III IV
Farm gate Price 434.6 434.6 434.6 434.6
(NRs/Kg)
Total Marketing 490 1203.9 1203.9 4136.8
Margin (NRs/Kg)
Retailer’s sales price 924.36* 1,638.65** 1,638.65** 4571.42***
(NRs/Kg)
Producer’s share 47.01 26.52 26.52 9.5
(%)
Note: *indicates price at local area, ** indicates price at Bhatbhateni super market which was considered as the final
price to domestic consumer, and *** indicates price at online market (Alibaba.com) which was considered as the final
price to International consumer.

assemblage from producers, pulp reaches to processors. After processing, marketing way carve up
into two ways, namely;,retailers and exporters. Retailers sell their product in two types of markets,
namely, domestic markets (12%) and local markets (3%). About 27% of the product is directly sold in
domestic market from processors and 58% of total produce is supplied to the international market by
exporters.

Different marketing channels were observed in the study area. The marketing channel identified
in the study area is shown in figure 7 below.

3.4.3. Marketing margin and producers’ share of coffee

Estimating the producer’s share is a crucial indicator for assessing the price received by farmers or
producers in relation to what consumers pay when purchasing a product. Table 12 indicates the
percentage share of the farm gate price that the producer receives. In channel I, the producer’s
share is 47.01%. In channel II, it is 26.52%. In channel III, it is also 26.52%. Finally, in channel IV, it
is 9.5%. Furthermore, this table also shows the total margin earned at each marketing channel.
Channel IV has highest marketing margin NRs 4136.8 per kilogram while channel I has lowest total
marketing margin is NRs 490 per kilogram.

In Table 12, Channel I has the highest producer’s share at 47.01%, while the other channels
have lower shares ranging from 26.52% to 9.5%. Although Channel IV has the highest total
marketing margin, the producer’s share is significantly lower, which means producers earn less
from each kilogram sold. Therefore, Channel I appears to be the best option for producers as it
offers a higher share of the farm gate price compared to the other channels.

3.5. SWOT analysis

SWOT analysis is a tool to evaluate the competitive position and strategic plan of any enterprise. It is
designed to facilitate a realistic and fact based look at the weaknesses and strengths of an organiza­
tion. Strength refers to internal factors of an organization that makes it more competitive than others.
Weakness level refers to the point at which a company can’t perform at optimum level. Opportunities
are favourable external factors that provide an organization competitive advantage. Similarly, threats
are external factors that have potential to harmper productivity of an organization.

The SWOT analysis of coffee business is presented hereby in table after thorough evaluation among
farm owners.

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3.5.1. SWOT analysis at input suppliers level

Strength Weakness
● Diverse range of inputs such as seeds, fertilizers, ● Fluctuating prices of inputs, such as fertilizers or
pesticides, machinery, and equipmen pesticides

● Suppliers often have knowledgeable staff who ● Limited accessibility to rural farmers
can provide guidance and technical support to
coffee farmers

● Established suppliers have well-managed sup­ ● Some coffee farmers might not be fully aware
ply chains, ensuring timely delivery of inputs to of the range of inputs available or the latest
farmers advancements in agricultural technology

Opportunities Threats
● Growing domestic and international demand for ● Intensifying competition among input suppliers
coffee

● Rising demand for environmentally sustainable ● Changes in government regulations related to

inputs in agriculture and have opportunities to input use, import/export restrictions, or labeling
offer eco-friendly alternatives, promoting requirements
organic practices, and supporting farmers in
obtaining certifications

● Government initiatives and policies that pro­ ● Instability in the global or domestic coffee
mote agriculture and provide subsidies or market can affect farmers’ incomes
incentives for input procurement

3.5.2. SWOT analysis at producer’s level

Strength Weakness
● Good returns ● Lack of quality seedling

● Less time Intensive ● Lack of awareness about improved and scienti­

fic cultivation practices

● Higher profit in comparison to cereals like rice, ● Less time for processing due to perishable nat­
wheat, maize, etc. ure of fresh cherry

● Less investment ● Higher gestation period (i.e. 3–4 years)

● Scope for cultivation in marginal land ● Fragmented and scattered land that restrain
scope of commercialization

Opportunities Threats
● Utilization of barren land for expansion ● Infestation of Insect (White Stem Borer) &
Disease (Leaf rust)

● Great scope for increasing productivity ● Climate change causing shift in altitude

(Continued)

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Strength Weakness
● Opportunity for production of organic specialty ● Inconsistent quality of production
coffee

● Many I/NGO working for the capacity building of ● Inconsistent volume of production
farmer

3.5.3. SWOT analysis at primary processor’s level

Strength Weakness
● Can be done at farm level ● Scarcity of water/poor water supply for washing

● Low initial investment ● Lack of skilled manpower for repairing pulping

machines

● Cheap and easy availability of pulper machine ● Low quality of pulping machine causing more
wastage

● Low quality of pulping machine causing broken

parchment

Opportunities Threats
● Government provide subsidy for establishment ● Untimely supply of fresh cherries by farmers
of pulping center

● Organized collection of fresh cherry through ● Presence of middle man

institutions like farmer groups and cooperatives

● Growing coffee plantation area increasing the ● Lack of research in processing technology
volume of fresh cherry

3.5.4. SWOT analysis at secondary processor’s level

Strength Weakness
● Organized channel for the collection of dry ● Lack of skilled manpower for repairing pulping
parchment machines

● Easy availability of processing machineries ● Low quality of processing machine causing more
wastage

● Processors doing processing as well as trading ● Low quality of processing machine causing bro­
thus reducing the number of middleman in ken green beans
value chain

Opportunity Threats
● Increasing demand of Nepalese specialty coffee ● Increment in price of coffee cherries every year
in both domestic and foreign market

(Continued)

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(Continued)

Strength Weakness
● Shifting of consumer preference from tea to ● Dependence on limited buyers
coffee

● Potential to fetch premium price by certification ● Decreasing international reputation due to

adulterations

● Uncertified coffee sold as organic coffee in

international market

3.5.5. SWOT analysis at consumer’s level

Strength Weakness
● Active engagement with the coffee community ● Nepalese specialty coffee production is relatively
and coffee culture small-scale, resulting in limited accessibility for
consumers

● Nepalese specialty coffee is often produced with
meticulous attention to detail, focusing on
quality cultivation, processing, and roasting
methods, ensuring a premium product for con­
sumers.
● Specialty coffee often comes with a higher price
tag due to its quality and unique characteristics.
This may be a deterrent for price-sensitive con­
sumers.

● Many Nepalese specialty coffee producers follow ● Many consumers have limited knowledge about
sustainable and ethical practices, including specialty coffee
organic farming methods, fair trade principles

Opportunity Threats
● Rise of e-commerce platforms and coffee sub­ ● Limited availability of specialty coffee
scriptions provides convenience and accessibility

● Opportunity to explore and discover new and ● Economic downturns, inflation, or changes in
unique flavor experiences consumer spending habits can impact the pur­
chasing power

● Customization based on individual preferences
where consumers can choose their preferred
origin, roast level, brewing method, or even
experiment to create their own unique flavor
combinations.
● With the increasing popularity of specialty cof­
fee, there is a risk of counterfeit or mislabeled
products entering the market

4. Conclusion
Input suppliers- supplying seedling and other inputs; producers- producing fresh cherry,
collectors- collecting fresh cherry from farmers and suppling to pulper operators; pulper
operator- producing dry parchment coffee; secondary processors- producing green beans &
fine powdered coffee and traders- delivering to consumers were identified as key players
involved in the coffee value chain. Gross margin of one kg each of fresh cherry, dry parch­
ment, green bean and coffee powder production was NRs. 26.06, NRs. 92.83, NRs. 107.7, and

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NRs. 215.06, respectively. Value addition from producers to primary processors was NRs.
109.8 per kg and from primary processors to secondary processors was NRs. 445.6 per kg.
Similarly, value addition from secondary processors to consumers was NRs. 480.58 per kg. The
findings showed that the value addition of the coffee was highest from green beans to coffee
powder (NRs/kg 480.58) and was lowest from fresh cherry to dry parchment (NRs/kg 109.8).
All things considered, a value chain assessment is a crucial for coffee producers and firms to
pinpoint areas for improvement and raise their level of competitiveness in the national as
well as international market. Processors can find chances for cost reduction, value addition,
efficiency improvement, and sustainability enhancement by carefully reviewing each stage of
the value chain. This will ultimately result in higher profitability and a more sustainable
business model.

Acknowledgments Bhattarai, C., Bhusal, K., Bhandari, D., Gautam, A.,

The authors owe their sincere and deep gratitude to cof­
fee farmers of Arghakhanchi district for their support
throughout this research. Special thanks to our parents
whose guidance is always with us.
Funding
Authors didn’t receive any direct funding from an indivi­
dual or an institution for conducting this research.
Author details
Sushil Khatri1
E-mail: Kshetrisushil04@gmail.com
ORCID ID: http://orcid.org/0000-0002-4058-0877
Tej Narayan Bhusal2
ORCID ID: http://orcid.org/0000-0001-6821-5110
Santosh Kafle1
ORCID ID: http://orcid.org/0000-0001-8595-3529
Aakriti Kafle1
ORCID ID: http://orcid.org/0000-0002-7359-0473
Yagya Raj Joshi1
ORCID ID: http://orcid.org/0000-0002-9421-4346
Krishna Raj Pandey1
ORCID ID: http://orcid.org/0000-0001-6862-3421
1
Faculty of Agriculture, Agriculture and Forestry
University, Rampur, Nepal.
2
Department of Genetics and Plant Breeding, Agriculture
and Forestry University, Rampur, Nepal.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Citation information
Cite this article as: Value chain analysis of arabica coffee
(Coffea arabica l.) in Arghakhanchi district of Nepal, Sushil
Khatri, Tej Narayan Bhusal, Santosh Kafle, Aakriti Kafle,
Yagya Raj Joshi & Krishna Raj Pandey, Cogent Food &
Agriculture (2023), 9: 2247173.
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