VALUE CHAIN ANALYSIS OF LENTIL PRODUCTION IN SARLAHI DISTRICT

Anil Bhandari and Pratistha Joshi

Himalayan College of Agricultural Sciences and Technology (HICAST)

Purbanchal University, Kathmandu, Nepal

Corresponding Author: anil.bhandari6311@gmail.com

ABSTRACT

Lentils production can significantly improve the livelihood and nutrition of rural farmers. Despite the tremendous opportunity it represents, its potential has not been fully developed due to lack of prioritization. This study entitled “Value chain analysis of lentil production in Sarlahi district was conducted from October to December,2022 in 2 municipalities namely Lalbandi and Balara of Sarlahi. Primary and secondary data were collected from 100 respondents including producers, different actors and enablers as well as government and non-government publications. The objectives of the study were to 1) highlight the economic significance of lentil production, and 2) prioritize the major constraints and opportunities in lentil production. Study shows that Sarlahi district contributes 30.44 percent of the total lentil production in Nepal. An average yield of lentil was 1,240 kg per hacter per season in Sarlahi district. The cost of production of lentil was found to be NRs 23,415 per hacter. On an average, the return from lentil production was NRs 37,200 per ha per season. Net profit gained by the farmer was NRs 13,785. The farm gate price of lentil was found to be NRs. 30 per kg. Cost of production, up to harvesting, of lentil was NRS 18.88 per Kg and transportation cost was found to be NRs 35 from farm to the collector so the average total cost of lentil production was NRs. 20.18 per kg. The study showed that profit margin to wholesaler was higher than that of the other actors. followed by producer and retailers (52.03 percent, 26.82 percent, 21.14 percent respectively.). The lentil value chain does not seem to be strong enough due to poor vertical and horizontal linkages, market distortion and unhealthy competition among traders.

Keywords: Lentil, Value Chain, Value share, Cost, Profit Margin

INTRODCTION

Lentil (Lens culinaris) is mainly grown in the lowland Terai region of Nepal in rotation with cereals based on the availability of residual soil moisture after the harvesting of rice. It is generally planted in mid-October to November and harvested in March and April. Lentil is a short bushy annual legume with small purse like pods containing 1 or 2 lens-shaped seeds. Lentils were among the earliest domesticated plants about 10,000 years ago in the Near East (Cubero et al. 2009). Lentils play an important role in livelihood, food, and nutritional security. They are low in fat, low in sodium, cholesterol free, high in protein, and are an excellent source of both soluble and insoluble fiber, complex carbohydrates, vitamins and minerals. Lentil is also an important nitrogen fixing crop. Lentil is the highest pulse in terms of both production areas and production quantity that covers more than 60percent of the total pulses produced in Nepal. It is also the largest exported item among agricultural commodities from Nepal with a share of about 2.3 percent of total national exports and about 3.1 percent of the total world export (ITC, 2010). Nepal is currently listed among the top 10 exporters and was 5th in 2009 and 2010 in terms of quantity and value in US dollar exported. Lentils from Nepal are receiving US $1,364 per metric ton (MT) which is high compared to the lentils from other countries. The Nepal Trade Integration Strategy (NTIS) has prioritized lentil as one of the 19 commodities with export potential in Nepal. Despite a high export potential, there are many constraints that are limiting the production and export of lentils. The major constraints to increase lentil production at farm levels are the lack of improved seeds, production technologies, micro-nutrients, chemical fertilizers, insecticide/pesticide management, and micro-irrigation. Also constraining export growth are proper linkages with international buyers, compatible policies, information gaps, and quality standards and certification.

MATERIALS AND METHODS

The study was conducted from October to December, 2022 in 2 municipalities of Sarlahi Districts Lalbandi and Balara with the randomly selected 100 respondents including input suppliers, producers, wholesalers, retailers, and consumers from Sarlahi. The study consisted of following procedures such as: Selection of the study sites, survey of the study sites, preparation of the sampling frame, sample design, sources of information, data collection techniques, analysis of the data and their interpretation.

Data collected from field survey was coded first and entered into the computer. Both qualitative and quantitative techniques were used for the data analysis. Descriptive statistics like Mean, percentage and frequency was used to describe socioeconomic, value chain actors and activities and marketing. Data entry and analysis was done by using computer software package "Microsoft Excel 2007'. Analyzed data was then presented in Tables, graphs and pie chart as per the requirement. The price of lentil at value chain levels and commodity quantities are presented in a range because they fluctuate over time, even within a week. Additionally, there is a price difference between different regions (i.e. Eastern versus Western) because of transfer costs. Therefore, data might not precisely capture the trend or pattern to reflect market dynamics. The data is validated to the extent possible with different sources.

Total Cost

Total cost refers to the sum of total variable cost and fixed cost incurred to produce final product (Bist ,2010). All cost incurred to fixed factors such as land tax, electricity charge, salary of the permanent labor, fitting materials, farm construction, and depreciations were considered as fixed cost. Likewise, monetary value incurred to all variable factors such as wages of hired labor, seedling, fertilizers, organic manures and pesticides etc. was considered as variable cost.

Total Cost = Total variable cost + total fixed cost 

Total variable cost = Σ (Variable inputs × Price) 

Total fixed cost = Σ (Fixed inputs × Price) 

Total Cost = Total variable cost + total fixed cost 

Total variable cost = Σ (Variable inputs × Price) Total fixed cost = Σ (Fixed inputs × Price)

Total Cost = Total variable cost + total fixed cost

Total variable cost = Σ (Variable inputs × Price)

Total fixed cost = Σ (Fixed inputs × Price)

Price 

The value of any commodities or services in monetary term is called price (Joshi, 2001). Prices reflect value or can be adjusted to do so (Gittinger, 1982). Three points of prices such as farm gate price, wholesale price and retail price were calculated in this study. The monetary value that received by lentil producer when he/she sold his/her product is referred as farm gate price, that the wholesaler received is referred as whole sale price and that the retailers received referred as retail price.

The value of any commodities or services in monetary term is called price (Joshi, 2001). Prices reflect value or can be adjusted to do so (Gittinger, 1982). Three points of prices such as farm gate price, wholesale price and retail price were calculated in this study. The monetary value that received by lentil producer when he/she sold his/her product is referred as farm gate price, that the wholesaler received is referred as whole sale price and that the retailers received referred as retail price.

Gross Return Gross return is the total value of the final product which was calculated based on the direct use value of the final product at the local level (Bist, 2013). It was calculated by using following formula: 

Gross return= Price × Total quantity marketed 

Value share 

Value shared by different value chain actors in Nepalese Rupees was calculated. Share on the value was categorized into three categories namely; profit percentage of total cost, profit percentage of sales price and share in total benefit. These economic parameters were calculated by using following formulae (PACT, 2014): 

Profit percentage of total cost = total cost incurred by respective actors / net profit gained by respective actors. 

Profit percentage of sales price = net profit received by respective actors / price received by respective actors 

Share in total benefit = net profit gained by respective actors / total profit received by value added activities

Gross Return

Gross return is the total value of the final product which was calculated based on the direct use value of the final product at the local level (Bist, 2013). It was calculated by using following formula:

Gross return= Price × Total quantity marketed

Value share

Value shared by different value chain actors in Nepalese Rupees(NRs) was calculated. Share on the value was categorized into three categories namely; profit percentage of total cost, profit percentage of sales price and share in total benefit. These economic parameters were calculated by using following formulae (PACT, 2014):

Profit percentage of total cost = Total cost incurred by respective actors / Net profit gained by respective actors

Profit percentage of sales price = Net profit received by respective actors / Price received by respective actors

Share in total benefit = Net profit gained by respective actors / total profit received by value added activities

RESULTS AND DISCUSSION

Value chain Actors

There are many actors in lentil value chain which play different roles in product marketing from input supply to production, collection, processing/milling, wholesaling, retailing and ultimately to the consumers.

Input suppliers

In lentil value chain, agro-vets, agricultural tool dealers, fertilizer dealers and financial institutions are the major input suppliers. They supply inputs and also provide technical advice to farmers on application methods. There are 200 agro-vets, 32 fertilizers dealers and 29 financial institutions in the district. Producers Farmers are the producers of lentil in the district. They get inputs required for rice production from local level input suppliers. About 20 percent of lentil produced is used in home consumption, 55 percent is sold to small scale collectors and remaining 25 percent is sold to large scale collectors.

Collectors (small scale/large scale)

Most of the small scale collectors are also primary producers. Around 350 small scale collectors from different VDCs are involved in collection of lentil from villages. They are mostly involved in collection, drying, winnowing and storage. Of the total amount they collect, about 50 percent of lentil is sold to large scale collectors, 25 percent to millers and about 25 percent lentil to to small mill holders. There are about 120 large scale collectors who collect lentil from small scale collectors and sometimes also from primary producers. They sell their lentils to large millers

Wholesalers

In the district, about 150 wholesaler's lentil are found. They buy lentil from large millers and sell it to retailers within the district and outside markets.

Figure 1. Pie-chart showing the percentage of lentil being sold to collectors in Sarlahi district

Collectors (small scale/large scale)

Most of the small scale collectors are also primary producers. Around 350 small scale collectors from different VDCs are involved in collection of lentil from villages. They are mostly involved in collection, drying, winnowing and storage. Of the total amount they collect, about 50 percent of lentil is sold to large scale collectors, 25 percent to millers and about 25 percent lentil to to small mill holders. There are about 120 large scale collectors who collect lentil from small scale collectors and sometimes also from primary producers. They sell their lentils to large millers.  

Wholesalers

 In the district, about 150 wholesaler's lentil are found. They buy lentil from large millers and sell it to retailers within the district and outside markets.

Retailers

 In the district, about 1000 retailers of lentil are found. Retailing shops buy lentil from wholesalers and sell it to consumers. The functions of retailers are weighing and retailing.

Value chain analysis

Cost of production

Cost of production includes all the cost of inputs, machineries and labours used from land preparation to harvesting of lentil. The cost of production was found NRs 23415. Net profit gain by the farmer was NRs 13785.

Fixed cost per ha/season
Cost item	Unit	Quantity	Rate (NRS)	Amount (NRS)
Land Tax	NRS/ha	1.00	0.85	0.85
Variable cost per ha /season
Labor	Unit
Male	Unit of people	15	300	4500
Female	Unit of people	15	300	4500
Total Cost of hired labor	NRs	30	300	9000
Seed	Weight in Kg	20 (>85%Germination)	30	600
Fertilizer	Killograms	Unit	Rate	Amount
Nitrogen	Killograms	20	18	360
Phosphorus	Killograms	40	32	1280
Pottash	Killograms	20	20	400
Rhizobium	litre	1	400	400
Sugar solution	litre	1	200	200
Multivitamin	Bottle	1	300	300
Total cost of fertilizer	NRs			2940
Manual weeding  2 times	unit of people	10	300	6000
Organic Manure**
FYM	Tones	5	300	1500
Total Cost of Organic matter				1500
Pesticides**
Diethene M 45	Packet	1	375	375
Total cost of pesticieds				375
Harvesting (Sickele /Hand pulling)	unit of people	10	300	3000
Sub total (B)				23415
Total Cost (C)= (A+B)				23415
Income (D)		Unit	rate	Amount in NRs
Total Production of Lentil		1240 Kg	30	37200
Net profit D-(A+B)	37200-23415			13785

 

Table 1: Benefit cost analysis of Lentil Production by a farmer

Return from lentil production

It was found that on an average yield of lentil was 1240 kg per hacter per season on Sarlahi district. Out of total lentil production in Nepal Salahi district contributes 30.44 percent of lentil production. The return from lentil was on average NRs 37200 per ha per season. The farm gate price of lentil was found to be NRs. 30 per kg.

Economic Year	AREA	Production
2074/75 (2017/18)	198,605	249,491
2075/76 (2018/19)	208,766	251,185
2076/77 (2019/20)	212,876	262,835

 

Table 2:  Area and Production of lentil in Nepal during different economic year

Area, production and yield of Lentil by Sarlahi districts 2076/77 (2019/20)

Particulars	Quantity
Area of Lentil Production	6,460 Ha
Quantity of Lentil Produced	8,009 Metric tons
Yield of Lenil	1.24 metric tons per ha

 

Table 3: Area, production and yield of Lentil by Sarlahi districts in the year 2076/77 (2019/20)

Value added activities and share in value addition activities by lentil production

The study showed that Land preparation, field sanitation, disease pest management, maturity judgement were the major activities carried out by producers to create and add value on lentil across the study site. This indicates that good agricultural practice has great role to add value in lentil.

Partiulars	Producers	Wholesellers	Retailers	Total
Cost of Production in NRs	18.88			18.88
Loss at farm in NRs	0.15			0.15
Storage loss in NRs	0.1		0.25	0.35
Transportation loss in NRs	0.5		0.16	0.66
Transportation cost in NRs	0.35	0.35	0.35	1.05
Packaging in NRs	0.2	0.1	0.7	1
Storage cost in NRs		0.5	0.8	1.3
Buying cost in NRs		30	50
Total Cost in NRs	20.18	30.95	52.26
Sales Price in NRs	30	50	60
Profit in NRs	9.82	19.05	7.74	36.61
Profit Percent of the cost	48.6620416	61.5508885	14.8105626
profit percent of the sales	32.7333333	38.1	12.9
shares in total benefit in percentage	26.8232723	52.0349631	21.1417645	100 (Percent)

Table 4: Table showing the Shares of

Value addition in lentil

Cost of production, up to harvesting, of lentil was NRS 18.88 per Kg. Transportation cost was found NRS 35 from farm to the collector. On average total cost of lentil production was NRs. 20.18. The study showed that profit margin to wholesaler was higher than that of the other actors in the value chain of lentil. Share in total benefit was found higher to the wholesaler followed by producer and retailers ( 52.03 percent, 26.82 percent, 21.14 percent respectively.)

share and supporting organization

A number of public and private organizations are providing support for the promotion of lentil in Sarlahi district. Most of the organizations are focusing their support to increase the productivity and production of lentil at farm level. The following are the major service providing organizations:

Government and non-government organizations

DADO, NARC, local NGOs and cooperatives are the major service providers in Sarlahi district. They support the value chain actors in different aspects such as technology dissemination, infrastructure development, electricity, policy and marketing. Farmers complain that technical and other supports are inadequate. Furthermore, there is lack of coordination and collaboration among service providing organizations for consolidated efforts to promote rice in a value chain approach.

Financial institutions 

There are more than 9 financial institutions providing services in Sarlahi district. Financial institutions provide loan to farmers and traders involved in rice business. The interest rate ranges from 12 to 24 percent per year.  

Major constraints, opportunities and potential interventions: Major constraints and opportunities in lentil value chain were identifies through FGDs and stakeholders workshop. In the district, several issues were found in lentil value chain. Some of the major constraints were high cost of production, less number of collection centers and storage facilities in villages, unorganized farmers for the business, lack of market information system, and short-term loan with early pay-back system. There are also opportunities to improve the performance of lentil business by strengthening the value chain.

Value chain map

Figure 2 : Value chain Map of Lentil Production

CONCLUSION

Lentils production can significantly improve the livelihood and nutrition of rural farmers. Despite the tremendous opportunity it represents, its potential has not been fully developed due to lack of prioritization. The lentil value chain does not seem to be strong enough due to poor vertical and horizontal linkages, market distortion and unhealthy competition among traders. The higher percentage of share to the wholesaler and producer may be due to the higher risk associated with production. Among the key market actors, large collectors, large millers and wholesalers have dominating role in pricing and supply of lentil in the market. There is no linkage and association among the producer farmers. There exists a weak negotiation among the actors. They are to be united to collect huge amount of lentil at one place and strong negotiations are to be made with the collectors so that they can get higher price. Some of the major constraints were high cost of production, less number of collection centers and storage facilities in villages, unorganized farmers for the business, lack of market information system, and short-term loan with early pay-back system. There are also opportunities to improve the performance of lentil business by strengthening the value chain.

 

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