From Transactional to Transformational Relationship: Jumla’s Apples to Keep Poverty Away

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An apple a day not only keeps the doctor away, but also is one of the key fruits with the potential to generate income and employment in the mountainous and poor districts of Western Nepal.
--By Meekha Tuladhar
The Challenge
Nepal imports fruits worth a staggering Rs 6 billion every year. Despite immense potential for fruit production and sales in Nepal, the country’s dependency on import has been increasing. Of the total supply, around 30 per cent is produced in Nepal while the remaining 70 per cent is imported. Domestic fruit production continues to suffer due to transportation hurdles, making market connectivity to the fruits producing districts a major obstacle. 
An apple a day not only keeps the doctor away, but also is one of the key fruits with the potential to generate income and employment in the mountainous and poor districts of Western Nepal. Jumla is one of these districts of Nepal where there is a huge potential for the production and sales of various kinds of delicious organic apples. Earlier, the apples of Jumla were a low-grade fruit, battered and bruised during harvesting by the growers who would vigorously shake the trees and then fling the dropped apples unprotected into crates to be flown to Surkhet and finally roughly transported to Nepalgunj and beyond. In fact, of the 4000 metric tonnes of apples that were grown, only five per cent was exported out of the region and the rest was dumped as mulch on the land. These apples were not able to compete with Chinese and Indian apples.
Thus, the performance of the Jumla apple sector was undermined by both poor quality and the lack of adequate market. However, in recent years, the improvement of roads has opened opportunities at both the demand and supply sides. 
The Intervention
In order to integrate the rural poor, especially women and marginal groups, in high value agriculture value chains, the High Value Agriculture Project in Hill and Mountain Areas (HVAP) supports business and service arrangements of these groups with agribusiness. HVAP is a joint initiation of the Government of Nepal/Ministry of Agricultural Development (MoAD) and IFAD with MoAD being majorly responsible for implementation of the project in partnership with SNV and Agro Enterprises Centre (AEC/FNCCI). 
As Value Chain Developer, SNV brokered contract-based market arrangements between a fruit trading company, BH Enterprises Pvt Ltd, and 21 apple producer groups and cooperatives in Jumla. This business partnership resulted in the sourcing of 1100 tons of apples in 2013/14. Inspired by this positive experience, other local traders have started following contract-based market arrangements. All the parties involved are expected to benefit even more in the harvesting season of 2015. BH Enterprises assured a guaranteed supply of quality apples. The local marketing cooperatives benefitted from the availability of technical support for improving quality control, storage and transport, as well as increased financial security due to advance payment offered by the fruit trading company which also provides embedded services such as packaging material, advance payments, top-up five percent bonus on total sales, seasonal employment to local resource persons, post-harvest training and grading-based pricing of the apples.
The Result
SNV’s intervention in apple value chain development resulted in the transition from a transaction-based business relationship towards a business relationship based on a contract. Earlier, the apple producers made deals on the spot with random buyers at random prices. The buyers either purchased all at a low price or purchased only better grades. SNV’s support to introduce grading based apple purchase has created a win-win situation for both the parties. The farmers are now less worried about the sales of the apples and are more attracted towards improving the quality of apple with grading based pricing. This year, the farmers earned up to Rs 40 per kg compared to only Rs 25 per kg last year, which has hiked their sales income. On the one hand, the apple producers have increased income, improved capacities, and embedded services for improved technologies and knowledge with guaranteed purchase from the contracted company. On the other hand, through improved relationships with the suppliers, the apple trading company has ensured supply of quality apples, increased profits and entrance to new market/clusters.
Lessons Learned
An important lesson learnt from the above-discussed transition from spot-based sales to a more formal or contract-based business relationship is the importance of developing and utilising embedded services in value chains. This brings knowledge and information to small producers in the rural areas, and leads to a sustainable business relationship. It further showed how development agencies can cooperate with private sector companies without becoming part of the market system, meanwhile ensuring that project development goals of improving income and decreasing poverty are achieved. 
The writer is Value Chain Development Advisor at SNV, Nepal.

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