farmers | export market | regional integration | economic diplomacy | international trade

Despite being Nepal’s major export product, large cardamom hardly reaches world markets

Traders blame this on a flurry of inconveniences caused by both internal and external factors

- By the_farsight |

Dried Large Cardamom | Source: International Trade Centre (ITC)
Dried Large Cardamom | Source: International Trade Centre (ITC)

Nepali farmers are long known for minding their own business by doing subsistence farming. That is, growing crops to only meet their needs, leaving little to no surplus for selling. More than 80% are subsistence farmers. That could be changing now. Production of high-value crops is increasingly becoming a darling occupation for all kinds of farmers, because they yield good money in markets.

From 2008 through 2018, farmland use for the production of high-value crops, such as tea, ginger, chili and large cardamom, climbed by 24%. 62,000 hectare land, about 3% of total arable land, was in use for high-value crops. Yearly total production volume stood at 474,000 metric tons in 2018.

Among others, large cardamom is one of the most beneficial for Nepali farmers. In February 2021, the export of large cardamom increased by more than 90%, year over year. More than 67,000 households are involved in some kind of large cardamom farming, fetching farmers $650 on average each a year.

Of the total exports of Nepal, large cardamom accounts for 5%. In 2016 large cardamom exports earned $45 million, supplanting tea in terms of earning foreign currency. Tea exports contributed $18 million in the same year. All this shows that large cardamom holds a great potential towards contributing to the country’s economy.

Nepal cultivates large cardamom abundantly. Its cultivation spans 46 districts, and total national production amounted to 6,849 metric tons in 2018. That production volume is considerable, making the country the highest producer of large cardamom and accounting for more than half of the global production.

Large Cardamom Plant | Source: International Trade Centre (ITC)

In recent times, the development of agricultural value chains has helped connect small farmers to world markets. Even though the government simplified domestic export procedures and registered the trademark “Everest Big Cardamom” in 2016, export of Nepali large cardamom is limited to India only — 99% of the export is made to India, whereas less than 1% is exported to South Asian and Middle Eastern countries.

India stands to benefit tremendously as it imports large cardamom from Nepal at cheap price and then re-exports it as a high-value product at higher prices to South Asian and the Middle East countries.

Nepali cardamom exporters’ profits are crimped when they cannot access international markets for reasons–some. Nepali agricultural products’ stance in global markets is taking a beating, too. Stakeholders believe that having access to destination markets could increase their earnings considerably and the international visibility of this Nepali product

So what explains Nepali large cardamom absence in international markets?

A study that collected primary data from Ilam and Jhapa, and interviews with farmers, traders, and stakeholders has the answer. Three reasons stand out:

First, the ambiguity about the large cardamom market. Because ITC assigns a common Harmonised Code (HS) for all types of cardamom (green and large cardamom), it has become difficult to ascertain the world market of large cardamom. Even with India where Nepal exports 99% of its cardamom, it is unsure about India’s large cardamom re-exports because it produces, consumes, imports and re-exports both large and green cardamoms.

However, the government, in its ‘Nepal National Sector Export Strategy: Large Cardamom 2017-2021), identified Pakistan, the United Kingdom and the UAE as promising markets where India fulfills 60%, 11% and 10%, respectively, of those demands. Yet Nepal has failed to implement these strategies, including the Nepal Trade Integration Strategy 2016, in tapping the export market.

Second, potential buyer countries enforce stricter sanitary and phytosanitary (SPS) laws that ensure foods and beverages are safe to consume and require tedious documentation at borders. Some even impose high tariffs on Nepali products, unlike India which has lenient SPS measures and imposes no duties on Nepali products. That has diminished the competitive capacity (ability to supply at a competitive price and within a given delivery time) of Nepali traders and deprived them of global value chain opportunities.

For example, in Bangladesh’s case, exports are constrained by high tariffs of 55% to 90% on Nepali large cardamom. In comparison, Nepal imposes only 30% tariffs on Bangladesh’s agricultural products. And a trader has to go through preparing more than 78 documents before finally exporting to Bangladesh.

Third, large cardamom’s competitive capacity is hammered by Nepal’s physical barrier and poor market infrastructure.

Nepal’s imports and exports highly depend on Indian routes because of lack of direct access to sea routes. Making the problems worse, India allows Nepal only a limited number of land and sea routes to do trade with other countries. Hence exports to markets outside India–challenging.

For instance, according to a trader that the researchers consulted, exporting a consignment of large cardamom from Birtamod in Nepal to Karachi port in Pakistan via the permitted Kolkata route took them around eight weeks.

The shipping distance between Kolkata to Karachi extends to 5,000 km, which could be reduced by half if Nepal is allowed to use the direct overland route to Pakistani Border point Wagah via Mahendranagar in western Nepal. This would bring the distance between Birtamod and Wagah to less than 2,000 km.

In addition to the longer distance, customs clearance, transit, and shipments further increase transportation time and costs.

What’s more, the country does not have accredited laboratories, warehouses and auctions facilities for farmers.

The Indian customs office doesn’t recognise the quarantine certificate issued byNepal’s government laboratory. This compels Nepali traders to obtain the certificate from the Indian Central Food Laboratory, the closest of which is in Kolkata in West Bengal of India. This increases the time and cost for traders. Fees for laboratory tests, transportation and accommodation amounted to up to USD 300 per screening, the entire process taking up to 2 weeks.

Although this practice conflicts with the South Asian Free Trade Agreement (SAFTA) Article8 (a) that requires reciprocal recognition of tests and accreditation of testing laboratories of contracting states and product certification, there is mutual consensus that Nepal needs to upgrade its laboratories to international standards.

Nepali farmers and traders also expressed that Nepal lacked a trading platform that could help them bargain for competitive prices. In Sikkim and Bhutan, they organise auctions which facilitate competitive prices for farmers and traders alike but practice is decentralised in Nepal.

With scarce resources to invest in market infrastructure, research and development and strengthening institutional capacity, access to world markets has taken a hit.

Drop in prices run the risk of farmers turning away from cardamom farming

Accessing the world export market is not the only problem for Nepali producers and traders. Chances are that small farmers who depend on large cardamom for livelihood may turn away from producing cardamom and switch to non-farm jobs or migrate abroad. Drastic fall in prices runs this risk.

In 2017, the prices fell to USD 10 per kg and then to USD 6 per kg in November 2019. Earlier in 2014, traders paid as much as USD 28 per kg to farmers in Birtamod. Consequently, some large farmers were found to be diversifying to tea, avocado, betel nut and other high-value crops in parts of their farmland.

In order for Nepali large cardamom to succeed in global markets and reap benefits, necessary policy actions should come into practice, such as building warehouses to store excess cardamom for future export and upgrading food laboratories for testing.

Making sure that cardamom production meets international SPS standards is another important task. Similarly, establishing common regional guidelines for geographic indication, product standards, and codes of conduct for the origin of products and assuring quality and price stability are also crucial.

To sort out market access problems, the government and its potential import partners must engage. For instance, asking India for using its land or sea routes to export to, say, Pakistan.

________________________
This summary is based on a research work by Sushant Acharya (Kathmandu University School of Arts), Sagar Raj Sharma (Kathmandu University School of Arts), Bishnu Raj Upreti (currently Nepal Policy Research Institute) and Marie-Luise Matthys (University of Bern).

The paper can be found here.

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