Cereal Seed Value Chains in Nepal : Current functions, changing context, and opportunities for upgrading

About 80% of Nepal’s cultivated land is under cereals, with a generally low level of productivity. Achieving higher productivity in cereal production will require, among other things, seed value chains that deliver timely, affordable, and quality seeds to farmers, the vast majority of whom are smallholders. The formal seed system provides roughly 17% of cereals seed used in Nepal. The remainder of cereal seed obtained comes from the informal system. The Government of Nepal (GoN), through its National Seed Vision, has mandated that private seed companies produce and make available to farmers five maize hybrids by the year 2025. The long-term objective of the strategy is to have a national seed industry able to meet the country’s demand for hybrid maize varieties. There has been a limited reflection on the current state of cereal seed value chains in Nepal and how to address the challenges and bottlenecks at multiple levels in the chains. Moreover, seed value chain development has taken place during a period of profound change in the larger political context. In 2018, Nepal adopted a federal system of governance with federal, provincial, and local tiers of government. This has led to the reorganization of the country’s bureaucracy, including the agencies under MoALD, and the creation of new structures in provincial and local governments, thus affecting public sector seed production and distribution systems and rules with implications on private seed business. The design of effective strategies supporting cereal seed value chain development requires deeper insights into how the chain performs (products delivered, prices, volumes), the capacities, bottlenecks and incentives faced by those engaged, and the context in which chain actors operate. This provides the foundation for assessing opportunities for upgrading in terms of products and functions. Nepal’s cereal seed value chains, particularly rice and maize, are rapidly evolving. The overall structure, functions, actors, and roles are changing with the adoption of a federal system of governance from 2017/18 and the COVID -19 related disruptions since 2020. A value chain assessment was conducted between 2018-2020 to bring out performance issues, drivers of competitiveness, and the interventions required to improve the performance of cereal value chains. In Nepal, there are several registered small-scale seed companies in operation. The majority of seed sold to farmers is brought into the country by seed importers and wholesalers, who sell seed directly to farmers or indirectly through agro-dealers. The seed sector in Nepal is characterized by vertically organized production and the distribution of released and registered varieties by public and private organizations. The Nepal Agricultural Research Council (NARC) is the main entity working on seed research and development, including hybrids. Seed companies produce seeds of public varieties through contract growers and conduct quality control and periodic monitoring. All seed companies have adopted seed processing, quality control, marketing and sales with varying levels of consistency. Cooperatives are also important actors in Nepal’s cereal seed value chain, mostly in the many parts of the Midhills where seed companies are not actively present. Seed is also brought into the country by importers and wholesalers, who ultimately make seed available to farmers through sales to agrodealers. Seed importers mainly bring in high-yielding hybrids for use in commercial grain production, since Nepalese hybrids have yet to be commercialized. In 2019, NARC produced and sold 27 Mt of rice breeder seed. The amount of breeder seed produced by NARC has increased by about 5% annually over the last five years. The largest market for both OPV and hybrid rice seed is in Madhesh province at 4,997 Mt. Karnali province has the smallest rice seed market at only 181 Mt. While the eastern regions of Nepal demand long-duration varieties, the western regions prefer short duration varieties of rice. Nepali varieties cover the spring season rice while domestic OPVs and imported hybrid and OPVs dominate the summer season. The domestically developed Khumal series are popular in the mid-hills. There is a huge rice seed supply gap in all seven provinces, with an overall 77% gap across the country. Seed production trends and sales of coarse rice varieties decreased by 65% in 2019 compared to 2017. The gross margin realized by rice growers was 42% and 43.9% for fine and coarse rice varieties, respectively. Seed companies realized a gross margin of 13.4%, while agrovets realized 7%. In the case of maize, seed growers realized 25% gross margin, while seed companies realized a gross margin of 16% and agrovets 6%. The survey found that imported seed accounted for 43.3% of the 17,656 Mt formal rice seed market in Nepal in 2018. Out of this 18% (7,646 Mt), came through formal channels while the other 82% came through informal channels. Unregistered varieties of OPV seed constituted the major part (80%) of the informal imports. The survey found quite a high prevalence of unregistered rice seed in the Terai districts of Lumbini and Bagmati provinces. The demand for short duration and fine hybrid rice varieties is increasing. Most millers and grain producers (seed consumers) are unaware of improved rice seed produced by Nepali seed companies and cooperatives. As of April 2020, NARC had released 30 maize OPVs. Additionally, 56 hybrids were registered, of which 50 are recommended for the Terai/Inner-Terai region and six for the foothills and river basins of the Midhills. NARC had also developed seven hybrids, of which one is recommended for the Midhills and six for Terai and inner Terai areas up to 700 msl. The open-pollinated varieties comprise 63% of the maize seed market. In the case of rice, Nepal had notified 181 varieties of rice. Among the 70 registered varieties, seven are imported fine quality OPVs; five are locally adapted varieties and 58 are medium-fine hybrid varieties. The new hybrid rice varieties Hardinath Hybrid-1 (HH-1) and Hardinath Hybrid-3 (HH-3) were released by the National Seed Board (NSB) in 2020. In 2019 the National Maize Research Programme (NMRP) produced 1.35 Mt of breeder seed, with Rampur Composite making up 30%, Arun-2 20% and Manakamana-3 35% of this amount. The largest market for both OPV and hybrid maize seed is in Lumbini province at 778 Mt. Gandaki province has the smallest market for maize seed at only 320 Mt. There is a maize seed supply gap in all the provinces, with the highest gap in Province 1. For maize, hybrid seeds are imported through formal and informal channels. In 2018, Nepal formally imported 1,364 Mt of hybrid maize seed, and importers estimate that the figure is at least 2,000 Mt if informal imports are also included. For both rice and maize seeds, wholesalers and retailers depend on importers to supply these varieties, as the availability of popular varieties is essential for maintaining and growing their customer bases. Most farmers know which varieties of open-pollinated rice and maize they prefer to buy, but many are unfamiliar with the various brands. Many farmers have grown imported rice hybrids of various brands, but the uncertain availability of seeds of many unregistered varieties means that they usually buy seeds based on retailers’ recommendations. The assessment found that hybrid rice varieties are replacing coarse and medium fine OPVs. This is because the hybrid varieties yield significantly more grain (by about 0.7 Mt/ha) than OPVs. In 2018, the Sabitri rice variety had the highest market share (20%) of the total 10,010 Mt Nepali seeds sold, followed by Radha 4 and Sawa Sub 1 varieties. Dang is Nepal’s main hybrid rice-growing district. For maize, in 2018, Rampur composite held the highest market share at 40% of the total sales of 2,297 Mt, followed by Arun 2 (30%), both of which are 30-year-old varieties. Hybrid maize has been adopted in areas where feed mills have been established. Jhapa is Nepal’s main hybrid maize growing district. About 63% of surveyed grain-producing households grew improved varieties, with 36% of the total sample growing hybrid maize. Our assessment showed an overall lack of competitive Nepali hybrids (vis-a-vis imported hybrids) and low awareness and information on new varieties. Limited research and development in seed production and limited innovation in marketing continue to form significant bottlenecks to the growth and development of cereals seed value chains. Small seed businesses lack access to critical services needed to expand their capacity and compete with foreign seed companies. There is a weak link between the public and private sectors that affects the provision of public goods, such as research and extension on new seed varieties. The public sector continues to play a dominating role in the formal seed sector, providing limited options for expanding the private sector. The transition to an effective private sector-driven seed system has been hampered by a lack of complementarities in public and private investments, leading to deficiencies in the institutional linkages between the various stages of seed production, from breeding to commercial seed delivery. We propose an upgrading strategy for cereals seed value chains, focused mainly on small-scale seed companies, with the following dimensions: • Product upgrading – Conduct hybrid seed production research and seed producibility research; include new hybrid varieties of rice and maize seed in product portfolios; develop and produce three-way cross and single-cross hybrids; introduce new products such as biofortified maize for the food and feed sectors. Launch smart product, pricing and packaging strategies based on market segments and customer needs and diversify product categories for targeting various needs (economies of scope); Comply with safety, environmental and sustainability standards (such as safe seed treatment practices, product handling standards, soil conservation related information) and maintain steady quality and homogenous product standards.• Process upgrading – Maintain parental lines of hybrids; improve the quality of OPV pr oducts by implementation of maintenance breeding; follow standard operating procedures for producing hybrid and OPV seed; develop contractual seed production systems between seed producers and seed companies; increase seed processing capabilities such as high-quality seed drying and packaging facilities. Improve logistics for supplying adequate volumes of seed. • Functional upgrading – Introduce and strengthen the research and development function in seed companies; Develop and strengthen the marketing function of seed companies; Develop market research capabilities to nurture and expand market segments; Develop branding and engage with farmers and marketing channel partners. Develop communication and product promotion approaches including product demonstrations, dealer meetings, seed fairs, farmer clubs and farmer reward programs; Introduce crop advisory services for farmers; timely delivery to markets to meet farmer demands; Provide competitive incentives to agro-dealers and track performance of varieties and address complaints using digital tools. • Interchain upgrading – Learning from the experiences in public varieties develop strategies to product development and marketing for seed companies exclusively licensed products. Suggestions generating a more enabling environment in the areas of variety testing and release, quality assurance in seed production, quality assurance in seed commercialization and financial and business management services for seed value chain development are also proposed. Our diagnostic highlights the need for systematic planning for marketing seeds in various market segments of the country to counter the issues of low knowledge and information of Nepalese seed varieties among market actors and farmers. Finally, the capacity building needs of value chain actors and stakeholders in the areas of seed policy, research and development, seed production and market development and seed sales and use by consumers and to develop resilient seed systems, which will be useful to implement the proposed upgrading strategies are suggested. Recognizing that the informal sector can play a crucial role in the diffusion of new varieties to farmers, especially in countries such as Nepal where the formal sector cannot produce adequate seed to meet farmers’ needs, several actions have been suggested. Likewise, strategies to address the different opportunities, constraints, priorities, abilities of women and various social groups have been discussed to develop an inclusive cereal seed system in Nepal. A strengthened and competitive seed system will open avenues for Nepali companies to deliver high-quality products to farmers in various agro-ecological regions that are currently unreached by imported varieties.