Trend of Coffee Import and Export in Nepal

Trend of Coffee Import and Export in Nepal

Coffee import and export in Nepal is gradually trending towards increasing import while it is gaining popularity among urban population. Increasing number of crowds in well-designed coffee shops in urban centers proves its popularity. In fact coffee is the most consumed drinks and one of the most traded commodities in the world. Globally, consumption is estimated at over 2.25 billion cups per day. In our context, Nepal consumes 250 metric tons of coffee in average per year.

But before it gets to our morning cup, coffee beans travel through a complex global and local supply chain. There are two types of coffee plants-
• Coffee Arabica: complex flavor and less caffeine, and its used mostly in specialty and high quality drinks as Arabica coffee.
• Coffee Canephora: strong and bitter flavor, easy to grow, and is most frequently used in espressos and instant blends as Robusta coffee.

Coffee berry is stripped down to green beans and shipped from producing countries to a global supply network.

Coffee produced in Nepal is of Arabica variety. It is considered as specialty coffee for its distinct aroma and body and is grown in high altitude area above 1,000 meters up to 1,600 meters. Nepalese coffee is organic and eco-friendly. Small farmers are involved in its plantation. Until 2000 AD coffee plantation and production was an adventure in Nepal. Farmers were not sure of coffee being a source of income or income generating crop. Coffee was produced and processed only for domestic market. After the year 2002, coffee import and export in Nepal has substantially changed due to domestic consumption and motivated coffee producers considering coffee as one of the major income generating crops.

According to National Tea and Coffee development board Nepal produce an average of 470 metric tons of coffee per year. It is cultivated in about 40 districts of the mid-hills. Syangja, Nuwakot, Gulmi, Palpa, Kaski, Kavrepalanchowk, Arghakhanchi, Tanahu, Baglung, Gorkha, Lalitpur are major districts known for coffee production. According to a study done in 2018 Gulmi, Sindhupalchok and Baglung are the top three districts with largest areas classified as highly suitable for coffee cultivation. The study revealed that a total of 424 Palika from 62 districts have some area suitable for coffee cultivation.

Coffee import and export in Nepal

Looking into the trend of coffee import and export in Nepal, the country exports 112 metric tons of coffee per year in an average. In the year 2018/19 Nepal exported 84 metric tons of coffee to different countries. It is a very small share in the global coffee market and production. Germany, Japan, US, Australia, Netherland, Switzerland are major markets of Nepalese coffee.

Nepal made a record breaking import in trade history of Coffee in the year 2018/19. 1262 metric tons of coffee was imported this year. Coffee import to Nepal was 163 metric tons, the highest ever, in fiscal year 2017/18. Nepal imports an average of 80 metric tons of coffee every year from India, China, Brazil, Thailand, Korea, United Kingdom etc. Coffee import from India is consistently the highest in last decade.

Coffee isn’t just a drink; after all, it’s a business. Small farmers as well as individuals involved in coffee processing and marketing are shareholders of entire coffee business. Nepal has a favorable climatic condition for its cultivation. Technical and financial support to the farmers involved in coffee cultivation will increase the share of coffee in the economy of Nepal.

99.4% of total coffee import is from India and 0.6% is from other countries as below:
Investment Gap in Agriculture

Investment Gap in Agriculture

Agriculture in Data

An agricultural holding is defined as an economic unit of agricultural production under single management comprising all livestock and poultry kept and all land used wholly or partly for agricultural production purposes. According to Nepal Sample Census of Agriculture 2011/12 there are 3,831,093 such agricultural holdings in Nepal. Compared to 2001/02 census there is an increase of about 13.89% (466993) holdings. This increase is very low than previous censuses, 23% in 2001/02 and 25% in 1991/92. In a span of 60 years, from 1961/62 to 2011/12 the number of holdings increased by 2.29 million. Nepal Outlook has taken this effort to bring together agricultural scenario and challenge in data.

However, there is a huge change in number of agricultural holdings; Nepal’s agriculture sector is still far behind from being commercialized and mechanized. Commercialization and mechanization of agriculture needs investment. Looking in to the data enumerated by the agriculture census the proportion of holdings availing agricultural credit to finance their farming is very low. Comparing previous year’s data there is no visible change seen in agriculture financing. In 1991/92 out of total holdings only 23% availed agricultural loan. Similarly in 2001/02 it was 24%. In 2010/11 it further dropped to 21.82%.

Growth of Financial Institutions (numbers) as of 21 August 2020

Financial Institutions 1990 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Commercial Banks 5 18 20 25 26 27 31 32 31 30 30 28 28 28 28 27
Development Banks 2 28 38 58 63 79 87 88 86 84 76 67 40 33 29 20
Finance Companies 70 74 78 77 79 79 69 59 53 48 42 28 25 23 22
Micro-finance Financial Institutions 11 12 12 15 18 21 24 31 37 38 42 53 65 90 85
Total 7 127 144 173 181 203 218 213 207 204 192 179 149 151 170 154

If we look at the table above we can see increase and decrease in its number of financial institutions. In 1990 there were only 7 financial institution including 5 commercial banks and 2 development banks. In 2011 there were 218 financial institutions. Currently there are 154 financial institutions, including 27 banks, 20 development banks, 22 finance companies, 85 micro finance development banks. These data do not include Insurance Companies, Infrastructure Development Bank, Citizen’s Investment Trust, Employ’s Provident Fund, Cooperatives and Other financial institutions licensed for financial intermediary operations. The existing provision requires commercial banks to disburse minimum 10 percent of their total credit to agriculture sector and minimum 15 percent to energy and tourism sector. Similarly there is policy provision for the development banks and finance companies to extend at least 15 percent and 10 percent of their total credits respectively to the priority sector. But table below shows that commercial and development banks are far below central bank’s mandate. Last three years data shows that agriculture sector loan did not exceed 6 percent in commercial banks.

Sector wise loan and advances of Commercial and Development Banks (mid  July 2019)

S.NSectorPercentage of Total Loan
1Agriculture Forest4.234.65.26

  Percentage of Total Loan
1Agriculture Forest5.55.966.24

These data’s show that however, number of financial institutions is increased in last two decades, agricultural financing is not satisfactory. Agriculture Census data shows that farmers had most of the source of credit from non-institutional or informal types of source likes relatives, private lenders and others. If we observe sources of credit we can see 34.57% of holdings borrowed agricultural credit from relatives, 5.78% from undisclosed sources, while 8.68% borrowed from commercial banks, 12.61% borrowed from Agricultural Development Bank/Nepal and 15.68% from savings and credit cooperatives. In total scenario, only 21.82% of agricultural holdings borrowed agricultural credit. That means still 78.18% of agricultural holdings have no agricultural credit or investment.

Number, area of holdings and number of holdings reporting agricultural credit by total area of holding

Number, area of holdings and number of holdings reporting agricultural credit by total area of holding

ProvinceHoldings with credit by main source (%)
No. of holdingsHoldings without agricultural credit %CooperativesADB/N Commercial Bank/financial institutionFarmer's groupWomen's groupRelativesOther
Province 171714879.4816.6216.7612.29.6412.3129.712.76
Province 267292773.769.6618.7511.023.978.4239.129.05
Province 569729378.4514.8413.739.9510.1514.0132.454.87

Examining Provincial data, we can see 27.86% of holdings in Karnali Province have agricultural credit, the highest among the Provinces. Province 2 comes second with 26.24% and Sudurpaschim Province with 23.34%. Similarly, 14.56% of holdings in Karnali province have agricultural credits from relatives and individuals and only 7% of credit from financial institutions like commercial banks, ADB/N and cooperatives. Sudurpaschim province is among the provinces having least agricultural credit from financial institutions, which is 5.13%.

Investment in agriculture is directly related to production and food security. Less investment in agriculture results less production and high food insufficiency. Agriculture Census report reveals food insufficiency in various provinces, among all Provinces Karnali province has the highest insufficiency of own produce for household consumption, which is 74.71%. Similarly, Gandaki Province has 67.80%, the second highest insufficiency of own produce for household consumption. Overall scenario showed that 59.91% of holdings reported that they are insufficient in food from their own produce. So, how are farmers coping with year round insufficiency of food? Income earned through own non-agricultural business, wage earnings (within district and outside district), pension, borrowings and other means of earning are adopted by many of the farmers for livelihood.

Province Total number of holdings Percentage of holdings reporting insufficiency of own produce for  household consumption
Province 1 717148 57.01
Province 2 672927 57.69
Province 3 658776 54.28
Province 4 413300 67.80
Province 5 697293 56.66
Province 6 261770 74.71
Province 7 409879 65.85
NEPAL 3831093 59.91

 ‘A declining long term trend in public investment particularly in agricultural support and productivity limits the productive capability in the agriculture and its ability to benefit from the rise in output prices.’ (Prof. Dr. Pyakuryal Bishwamber ; ‘Nepal’s Development Tragedy Threats and Possibilities’)

However declining, Nepal’s agriculture sector still has highest share in GDP. And there is still huge number of population depending on agriculture for livelihood. To fill the investment gap in agriculture and productivity an urgent review of investment financing strategy is needed.