Chapter - 17

COMMODITY CASE STUDY: POULTRY PRODUCTS

Devendra P. Chapagain

Raising a few poultry birds on the backyard is a common feature of the sub-
sistence farming system of Nepal, except for people of some castes who refrain
from consumption of egg and poultry meat on religious ground. This also has been
changing. While only about one-third of the farm households raised poultry birds in
1981/82, it increased to 52% in 1991/92 and to 57% in 2001-02. However, it is the
commercial sector that has been the main source of growth of the poultry sector in
Nepal and one of the fastest growing segments of the agricultural economy.
This growth in a way “reveals” the comparative advantage of the sub-sector.
The poultry industry has been able to respond fully to the rapid growth in the de-
mand for poultry meat and other products, and has also contributed to the growth
of the feed industry. That the industry was able to perform in this way in a fairly
open trading environment also indicates the competitiveness of the sector.
The paper has four purposes: (i) to examine the present situation of the poul-
try sub-sector of Nepal; (ii) to analyse the key issues affecting it; (iii) to discuss the
likely implications of Nepal’s WTO membership on the sub-sector; and (iv) to iden-
tify measures to improve efficiency and competitiveness. As a commodity cluster,
the poultry industry is also interesting from analytical and policy perspectives as the
policy measures, e.g. tariffs, need to strike an appropriate balance for support or
policy neutrality for various inputs and outputs of the industry, e.g. feeds, eggs,
meat and live birds. The importance of the industry to poverty alleviation is another
consideration in discussing policy implications.
The common definition of poultry includes avians such as chicken, quail, tur-
key and geese. However, the term “poultry sub-sector” or poultry in short in this
chapter refers to chicken and chicken egg, unless mentioned otherwise, in view of
the dominance of chickens. The term “poultry industry” refers to the entire gamut of
commercial poultry raising, feed and other ancillary industries and support services.
For simplicity, “meat” and “egg” only refer to chicken meat and egg.
As will be noted below, the analysis in this chapter has been constrained by
lack of time-series and disaggregated data, especially on trade. Hence, it was not
possible to establish firm trends. Similarly, despite the usefulness of the indicators
of competitiveness, like domestic resource costs and effective protection rates, ap-
propriate data were not available. Moreover, there is a high degree of discrepancy
between the official and private sources of data. As a result, consultation with key
stakeholders in the industry and government officials was an important part of the
methodology.
The chapter is divided into three sections. The section that follows presents
an overview of the main features of the poultry industry. It is followed by a section
that covers a range of issues facing the sector in the context of inter alia competi-
tiveness, domestic policy and WTO membership. The last section concludes.

268
THE POULTRY INDUSTRY OF NEPAL
Livestock sector accounts for one-third of the agricultural GDP of Nepal.
Within this sector poultry accounts for about 8%. Similarly, poultry meat accounts
for one-fifth of the total value of meat output in Nepal. Thus, the poultry industry still
has a relatively small base and is concentrated mainly close to the urban popula-
tion centres. The potentials, however, are high for both poultry production and in
the development of ancillary industries in other parts of the country where urbanisa-
tion is growing. Similarly, there is as yet unexplored potential for the establishment
of meat, egg and feather-based industries linked to tourism.
Nepal is considered to be self-sufficient in poultry products and in poultry
feeds although a significant proportion of the feed ingredients e.g. grains and oil
meals are imported from India (Lohani 2001). Current annual levels of production of
commercial chicks, broilers and eggs are considered enough to meet the domestic
demand for these products. The available information shows that the country is
also exporting poultry products and feed. The country seems to be a net exporter of
feeds116 and meat whereas it is a net importer of eggs.

Significant statistical discrepancy

Given the scale of the problem on statistics, it is important to note this point
at the outset. The private commercial poultry industry claims that its estimates of
chicken egg and meat production as well as growth rate of the industry is much
higher than official sources show (Lohani 2002). For example for 2001/02 for which
comparable figures are available, the private sector estimate of total volume of
chicken meat production in Nepal is almost four times that reported by the MoAC,
while egg production is more than double the MoAC estimate.

Growth of poultry within the livestock sector

Even if one accepts that the MoAC estimates are conservative, the national
average rate of growth in poultry production - both meat and egg - is much higher
than the rest of the major livestock products during 1996/97-2001/02 - more than
twice the rate of growth of outputs of rest of livestock sector (with some exception
for egg in relation to pig meat and cow milk). As a result, the share of poultry meat
in total meat production – in volume terms - has consistently increased over the
same period. Obviously, this share will be much higher if the estimates of the pri-
vate sector are used. In value terms, however, the opposite is the trend, i.e. a con-
sistent decline during the period, mainly reflecting changes in relative prices.

Commercial poultry industry

While traditional poultry farming is common all over the country, commercial
poultry is demand driven and is concentrated in accessible areas of 10 or so dis-
tricts. These 10 districts account for roughly 44% of Nepal’s total poultry population.
Most of the concentration (40 percentage points out of this 44%) is around Kath-
mandu valley and in the relatively accessible areas of the districts surrounding the

116
The private sector has a different position on Nepal being a net exporter of feed. See footnote 118.

269
valley (i.e., Kavrepalanchok, Nuwakot, Dhading, Makwanpur and Chitwan). Two
other districts in the eastern Tarai (Jhapa and Morang) account for the remaining 4
percentage point. Recently, accessible areas around the Pokhara Valley are also
emerging as fast growing poultry areas to meet the local demand and to cater to
the tourist industry.
The number of commercial poultry farms is rising rapidly. In 2001/02, there
were 25 commercial hatcheries with a combined capacity of: 60 000 parent layers
that can produce up to 70 000 chicks per week or 3.64 million chicks per year; and
300 000 parent broilers that can produce 650 000 chickens per week or 33.8 million
broilers per year. The industry associations state that there are 800 commercial
poultry farms in different parts of Nepal, with a total flock size of 3.7 million layers
producing roughly 2.7 million eggs per day. These farms are also raising 32.1 mil-
lion broilers producing 60 tonnes of poultry meat per day. As compared with this
capacity, the actual outputs in 2001/02 as estimated by the private sector (Table 1)
are 12.2 million commercial chickens producing 38.1 million day-old chicks, 1 174
million eggs and 206 880 tonnes of meat. Similarly, feed enterprises produced
nearly 414 000 tonnes of poultry feed in that year.

Table 1: Commercial poultry population and outputs, and poultry feed

production, 2001/02
Production Flocks Parent Breeders
Item Unit
Layer Broiler Layer Broiler Total
Total population 000 units 6,290 5,569 57 276 12,191
Day-old chicks Million units 38 34 - - 38
Chicken egg Million units 1,174 - - - 1,174
Chicken meat M. Ton 6,374 47,612 61 559 54,605
Poultry feed M. Ton 230,627 167,058 2,280 13,794 413,759
Poultry manure M. Ton 115,313 83,529 1,140 6,897 206,880
Source: Lohani (2002).

Dualisms in the structure and growth of the poultry industry

According to the 1991 Agricultural Census, the relationship between the size
of land holding and the average number of birds per holding is positive and fairly
strong (Table 2). However, the data show an interesting dualism in that relatively
larger numbers of birds are raised by landless or near landless households located
in accessible rural areas or in the vicinity of urban areas, also indicating the poten-
tial of the poultry farming for poverty alleviation. The data also show relatively lar-
ger numbers of birds among the highest land holding stratum. One further dualism
is in the rate of growth in poultry population and outputs. The share of the top 10
districts, in particular Kathmandu valley and vicinity, in total poultry population has
increased markedly in recent years, while the share of the remaining 65 districts is
generally declining. Similar trends are found for layer population and meat and egg
production. The average annual rate of growth of chicken and layers population in
these districts during 1996/97-2001/02 was nearly 12% as against only about 3%
for the 65 districts as a whole. The growth rate for chicken meat and egg has been
around 9% per annum for the top 10 districts but only about one-fourth of that for
the rest of the country.

270
 Table 2: Size of holding and number of poultry birds per holding, 1991/92
Strata 1 2 3 4 5 6 7 8 9 10 11
Average holding (ha) 0.05 0.06 0.14 0.34 0.70 1.36 2.38 3.40 4.40 6.55 18.44
Number of birds/holding 15.6 2.6 3.1 4.0 4.5 4.8 4.8 5.5 5.2 5.3 54.2
Source: Based on CBS (1993).

Growth in commercial poultry production and poultry feeds

As noted earlier, the rates of growth of meat and egg production in the com-
mercial sector as estimated by the private sector are over twice the estimates of the
MoAC for the top ten districts for the same period. Notwithstanding this significant
difference, the private sector estimates (Table 3) show the production of both
chicken meat and egg to have grown annually by 23% during 1996 and 2001/02.117
All other components of the poultry industry, e.g. chick production, broiler and layer
chicks and poultry feed, have also grown in similarly impressive rates. While the
MoAC does not provide any disaggregated estimates for these products, the esti-
mates in the Economic Survey for feed production are substantially below the pri-
vate sector’s estimates reported above. For example, the production of animal feed
(which obviously should include poultry feed) was 24 000 tonnes in 1996/97 and 22
266 tonnes in 2001/02, approximately one-sixth and one-eighteenth of the esti-
mates reported in Table 3. These differences are too large to ignore and therefore
reconciling them must receive very high priority.

Table 3: Growth in Poultry Feed and Commercial Poultry Product production

Sub-sectors Unit Production Growth rate
1996 2001/02 % per year
Chicken meat 000 tonnes 20 55 23
Chicken eggs Million units 390 1174 23
Day old broiler chicks Million units 10 34268 27
Day old layer chicks Million units 2 3873 20
Broiler feed 000 tonnes 63 181 24
Layer feed 000 tonnes 87 233 22
Total poultry feed 000 tonnes 150 414 23
Source: Lohani (2002).

The structure of poultry firms

The commercial poultry sector is characterized by the predominance of small
farms with 200 to 500 birds per farm, most of them of backyard type. The flock size
of the largest layer and broiler hatchery both located in the Chitwan Valley is 30
000 parent birds and 50 000 layers, and 100 000 broilers, respectively. As regards
the rearing method, birds are generally kept in deep litter using rice husk as bed-
ding material and fed with commercially produced feed. This practice reduces initial
capital cost but increases the risk of spreading disease at a faster rate than if the
birds are kept in cages. One study found that the mortality rate is almost 25%
higher in the deep litter method compared to rearing in cages (Dhakal, n. d.).
117
The production estimate of the private sector for the base year (1996/97) is also found to be roughly
twice that of the MoAC for meat (10 671 tonnes) while it is less than the MoAC estimate (405 million) for
eggs (MOAC 2003). These differences in base levels influence the growth rates.

271
Industry employment
Although growing at a faster rate, the industry has yet to develop strong for-
ward linkages. One-fourth of the 68 000 persons estimated to be employed in the
industry are engaged in marketing of poultry products (Table 4). The number of egg
suppliers and meat suppliers within the Kathmandu Valley and its periphery alone
is reported to be 35 and 727, respectively (DLS 2003). Meat processing industry is
still in infancy, and egg processing industries and those that utilize poultry feathers
are non-existent. This also indicates future scope for expansion and diversification
within the industry.

Table 4: Employment in commercial poultry sub-sector, 2001/02

Activities Persons engaged Activities Persons engaged
Poultry raising 39 528 Poultry breeding farms 799
Feed production 4 276 Feed mix supply, vet-
Feed marketing 4 138 erinary care and drugs 914
Cold store and marketing 9 101 Collection and supply
Egg marketing 6 523 of feed ingredients 896
Hatchery and chicken distribution 1 907 All Total 68 062
Source: Lohani (2002).

The emergence of strong poultry associations

The industry is organized as a coalation of a number of independent private
firms or partnership entities. These firms have joined together to form four special-
ised but closely related associations: Nepal Hatchery Industry Association, Nepal
Egg Producer’s Association (NEPA), Poultry Entrepreneurs Association, and Nepal
Feed Industry Association. Combining these and other related associations is an
apex forum - the Nepal Poultry Entrepreneurs’ Forum. In December 2002, the
NEPA made a suggestion to the DLS to create a National Poultry Development
Board with adequate representation of the private sector and with a mandate to
serve as a bridge between the government and the private sector on matters re-
lated to the industry (NEPA 2002). This suggestion merits serious consideration.
Nepalese entrepreneurs produce only white broilers and brown eggs to dis-
tinguish these from eggs coming in from India. The common white broiler strains
raised are Vencobb, Hubbard, Hubchicks, Arbor Acres, Ross, Avian and Anak 200.
Similarly, common brown egg type strains are Lohmann, Hyline, Hisex, Keystone,
Golden Comet, Isa Brown and Babcock.
SELECTED ECONOMIC, POLICY AND LEGISLATIVE ISSUES
Innovative public-private collaboration on veterinary care: Private service
providers have emerged in many parts of the country but they mainly serve the lar-
ger firms at full cost, leaving the smaller firms to depend on services of the DLS.
The services are obviously grossly inadequate relative to the demand. As the in-
dustry grows rapidly, innovative ways have to be found to provide animal health
services, including best use of the government services. One example of this could
be a suggestion made by the NEPA to convert the National Avian Disease Labora-
tory; currently a government unit located in Chitwan, into a development board with

272
the participation of the private sector (NEPA 2002), also considering the fact that
the poultry industry is increasingly concentrating in Chitwan. This proposal merits
serious consideration, along with other ideas whereby the public-private collabora-
tion can contribute to reducing the cost of health service provision by the govern-
ment as well as effectiveness. The industry reports that not all problems involve
high costs. A number of poultry diseases have been identified that can be pre-
vented with better hygiene and care, essentially an extension issue. Similarly the
“indiscriminate use of antibiotics” leading to “development of drug resistant patho-
gens” is also reported, and would require a similar solution, e.g. evaluation of pro-
biotics as a method (Dhakal n. d.). The poultry industry has been a dynamic sector
and so deserves priority attention in these and other issues.

Marketing and credit

The marketing of poultry products and inputs are fully done through private
channels based on individual contacts and association. It is alleged that these
channels are seldom transparent in terms of the quantity, quality and process of the
products transacted, leaving considerable scope for distortions and other forms of
malpractices. For credit facility, the government treats commercial poultry sector as
any other industry and thus prevailing interest rates and other terms are applied by
commercial banks.

Ancillary industries and backward and forward linkages

Backward linkages with the crop, livestock and fisheries sub-sectors via the
feed industry are a characteristic feature of the poultry industry. Estimates for mid-
2003 show that there were 139 commercial feed mills with a combined production
capacity of 1 100 tonnes per day of both poultry and animal feed. Feed entrepre-
neurs report that adequate quantities of feed ingredients of acceptable quality are
often not available in local markets. Even when available in enough quantity, these
ingredients vary widely in quality thus affecting the quality of the feed produced. As
a result, the industry is heavily dependent on imports from India for most of the
feed ingredients. One estimate shows that domestic production of ingredients
meets only 54% of the total requirement while the balance is imported. Nepali poul-
try feed mills depend 100% on import for certain ingredients such as soybean meal,
sunflower cake, fishmeal, vitamins, minerals and additives (Lohani, n. d).
Given the high dependence on the one hand and technical feasibility for do-
mestic production of most ingredients on the other, there seems to be marked
scope for vertical integration of the industry. The other issue is horizontal linkage
between different production pockets – that the domestic market does not provide
sufficient signals to input producers on the quality of the various ingredients needed
means that initiatives are required from poultry entrepreneurs as well as the public
sector. Initiatives are required from the public sector along the line suggested in the
APP in order to reduce the cost of collection and distribution of raw materials. The
likelihood that the cost of collection and transportation of some of these feed ingre-
dients are much higher than that in India cannot be easily ruled out in the present
situation. Further in the chain of backward linkage, the number of specialised raw
material suppliers is 40 and that of drug dealers is 112.

273
 The poultry industry produced a total of about 207 000 tonnes of poultry ma-
nure as a by-product, which is generally considered to be richer in plant nutrients
than the manure from other animals.

Issues on productivity
Productivity, especially the gap between the commercial and traditional sec-
tors is an important indicator to know in itself, as well as for planning purpose.
However, there is very little information on this. What is known may be summarized
as follows. Comparing aggregate statistics (e.g. Table 3), it appears that poultry
sub-sector productivity in the top ten districts is only slightly higher than that in the
rest of the country, i.e. the commercial sector could be considered to be only mar-
ginally better than the traditional sector. However, estimates of the private sector
are very different than that of the MoAC. For example, one estimate without quoting
the source or the year under reference mentions that the average egg production
per hen in commercial poultry is 200 while it is only 50 for the rest of the country
(Dhakal, T., n. d.). Despite the attempts made, it proved difficult to obtain productiv-
ity statistics from poultry entrepreneurs, partly because of the reluctance to share
this information and partly because of lack of systematic records.
Competitiveness and its sources
Commodities like chicken meat and egg typically have high price and income
elasticities of demand, and their demand is likely to rise as prices relative to other
sources of meat such as goat meat continue to remain relatively high and income
grows at a reasonable rate. Based on this analytical framework, some indicators of
competitiveness of the poultry sub-sector are discussed below. These are: i) the
sub-sector performance relative to livestock sector as a whole; ii) trends in terms of
trade (ToT) relative to prices of potential substitutes; and iii) trends in ToT relative
to major feed ingredients. The basic data used are the estimates of the MoAC. The
section also reports some analysis to gauge the competitiveness of the sub-sector
in the international market.
Figure 3
Trends in factor and product Movement of chicken meat price relative to that
prices of goat and buffalo meat and fish: 1979/80-
2002/03
120.00
Figures 3 and 4 provide
two indicators of the trend in 100.00
competitiveness of the poultry
Relative Price

80.00
sector and chicken meat pro-
60.00
duction in particular. Figure 3
shows that, barring a few 40.00
Goat Buffalo Fish
exceptions with respect to 20.00
fish; the price of poultry meat
0.00
has been falling relative to
other meats and fish. While
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chicken meat was the most

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expensive meat until 1990/91, Year

it has emerged as the

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cheapest source of commonly consumed meat after buffalo meat (DOA 2003). The
strong growth in recent years despite these declines in output prices is indicative of
the resilience of the sub-sector. It also means that the business is still paying.
Figure 4 indicates positive trend in the price of meat relative to the price of
major feed grains, i.e. a fa-
Figure 4 vourable terms of trade (ToT).
Movement of chicken meat price The prices of important
relative to that of maize and soybean: ingredients of poultry feed
1979/80-2002/03 such as maize and soybean,
160.00 which together account for
140.00 nearly 56% of the total cost of
120.00 feed ingredients (Lohani,
2002) are increasing at a
Relative price

100.00

80.00
much slower rate than the
60.00
price of chicken meat. This is
Maize Soyabean an indication of the growing
40.00
competitiveness of the sub-
20.00
sector in the domestic market.
0.00
As for egg, the ToTs are less
favourable in the domestic
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market than for chicken meat

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Year
within the poultry industry,
both in relation to the price of
the two main feed grains and to the prices of goat and buffalo meat, and fish.

International trade and competitiveness

A thorough analysis of the structure of and trends in trade of poultry and re-
lated products is very much constrained by lack of statistics, notably lack of trade
data in volume for various poultry products and feeds. The following analysis there-
fore is based mainly on four-years of data (1999-2002) only in value terms, pub-
lished by the Department of Commerce (DOC 1999 to 2002), supplemented by ad-
ditional information from the private sector.
Overall, Nepal seems to be a net exporter of animal feeds118 and meat, and a
net importer of eggs and live birds (Table 5), with animal feeds showing some sign
of competitiveness in export also.119 Considering this situation one could conclude
that it is the feed industry that has been compensating, to some extent, for deficits
in other components of the industry.

118
Figures published by an alternative source covering a period of over a decade but also based on the
customs data also confirm that Nepal has indeed been a net exporter of animal feed for at least a dec-
ade (DOA 2003). Yet, during the course of an interaction the representatives of the poultry industry con-
tended that the export of feed observed in the official statistics are in fact certain vitamins that are re-
quired for animal feed. These vitamins are recorded as medicines while importing and as animal feed
ingrerdients at the time of reexport. Thus the trade surplus in animal feed found in the official statistics is
due to this factor. This is yet another indication of the weakness in the existing statistics.
119
About 95% of Nepal’s total feed production (about 205 000 tonnes) is estimated to be poultry feed, fol-
lowed by cattle feed (4%). The share of the other feeds might have increased in most recent years.

275
 Table 5: Trade in poultry products and animal feed (in Rs 000)
1997/98 1998/99 1999/00 2000/01
Chicken meat
Import 571 1177 609 286
Export 2577 16437 340 2588
Balance 2006 15260 -269 2302
Live poultry
birds
Import 8655 7221 13293 24141
Export 1602 1670 1750 3617
Balance -7053 -5551 -11543 -20524
Eggs
Import 24955 65197 33037 2302
Export 903 1383 741 454
Balance -24052 -63814 -32296 -1848
Animal feed
Import 68422 151807 16916 1611
Export 85565 95296 150695 243297
Balance 17143 -56511 133779 241686
Source: Department of Commerce (1999 to 2002)

Table 5 shows trade surplus in chicken meat also, with India being the sole
trading partner. Although the data are available for a few years only, this may also
be an indication of revealed comparative advantage in this product. A great deal of
information is lacking to draw firm conclusions. Thus, while it is known that trade is
bi-directional, not much is known about seasonality. Nor is there any information on
the origins and destinations of trade within India.
In the case of the eggs, available statistics lump all “bird’s egg” into one
product, but most probably these are mostly chicken eggs and the main competitor
in the Nepalese market.120 Information provided by poultry entrepreneurs indicates
that egg imports from India take place during summer and monsoon season when
domestic demand in India is low. Eggs are imported from as far as Madhya
Pradesh. On the export side, the Tibetan Autonomous Region of China is the prin-
cipal destination for chicken eggs, accounting for almost 80% of Nepal’s total ex-
port on average (with a range of 50-95%) in the recent four year period, 1999-2002.
Nepal has also exported eggs to India but further analysis is severely constrained
by lack of information on the volumes exported, seasonality and export destinations
in India.
In so far as Nepal’s position of being a net importer of live poultry birds is
concerned, the data in Table 5 need to be supplemented with additional information
on the types of birds traded and the direction of trade. The DOC data (DOC 1999 to
2002) indicate that over 50% of the value of live poultry imported is from distant
sources like the US and Europe, although India continues to be an important
source. India’s share in value terms ranged from as high as 100% in 1997/98 to as
low as 40% in 1999/2000.121

120
One exception seems to be in 1999/2000 when Nepal imported eggs from distant places like Brazil,
Germany and Hong Kong, most likely fertilized eggs for breeding purpose.
121
The industry feels that in 1997/98 “dumping” took place – the issue of import surge is discussed below.

276
 Trends in the import of parent breeding stocks: By and large, the poultry
sector depends on hybrid chicks from pure line parent stocks imported from coun-
tries like Germany, United Kingdom, France and the Netherlands, while broiler par-
ents are imported mainly from India. In 2001/02, there were a total of 48 hatcheries
in Nepal that together imported 352 000 male and female breeder chicks, 50%
more than in the previous year (Table 6). Unfortunately, there is no information –
both from the public and private sources - on prices of the products imported. Since
“import of commercial chicken has not been recorded in the last couple of years”, in
the assessment of the private sector (Lohani 2002), one would assume that live
birds imported from India may also be for breeding or rearing purposes. Per unit
prices of parent and breeder stocks, which are used for breeding purpose, are
generally very high compared with commercial birds. Considering this price differ-
ential the country may actually be exporting relatively larger numbers of commer-
cial birds. Thus the negative balance of trade in live chicken could be attributed to
this difference in the type of birds traded. A corollary that emerges is that Nepal
may also have some comparative advantage in the export of commercial birds and
in the export of chicken meat. This is another area in which close monitoring and a
deeper analysis is needed before drawing any firm conclusion.

Table 6: Parent breeder chicks imported by poultry entrepreneurs of Nepal

(Numbers in 000 units)
Type of bird 2000/01 2001/02
Male Female Total Male Female Total
Broiler 25 168 194 41 276 317
Layer 5 35 40 5 31 35
Total 30 203 234 46 306 352
Source: Animal Quarantine Section, DLS.

The issue of import surges and dumping: There have been several com-
plaints by the Nepalese poultry industry that Nepal frequently faces import surges
of poultry products from India, often with marked negative effects. For instance, the
data in Table 5 had shown that the import of live poultry almost doubled in 1999/00
and again in 2000/01. This phenomenon, i.e. sudden and sharp rises in imports, is
known as import surge (see Chapter 10 on Import surge). Further, the industry
claims that the main reason for the surge is “dumping”, i.e. Indian producers export-
ing poultry products at below “cost of production”.
Similar allegation is made in the case of the day-old chicks. According to a
private sector estimates the import of day-old chicks from India in 1997/98 alone
amounted to 7 million birds, or a weekly average of 132 thousand chicks. It is
equivalent to one-third of the total domestic supply (Lohani 1998). These imports
came from five hatcheries located in West Bengal, Madhya Pradesh and Uttar
Pradesh states of India. It is further believed that the Indian producers target the
Nepalese market during summer and monsoon seasons when there is a demand
slump for chicks in India (Lohani and Amatya 1998). Being surplus, the marginal
cost of these chicks is little during those months, and so any export would help the

277
industry to recoup some of the fixed cost.122 On those occasions, Nepalese hatch-
eries are forced to sell at prices far lower their own cost of production, with the re-
sult that a number of them, particularly the smaller ones, are becoming bankrupt.
One estimate put the total loss to Nepalese hatcheries at Rs 104 million (Lohani
1998). The industry also feels that eggs (white eggs) are also frequently dumped at
prices below the cost of production.

Current Policies and Emerging Issues

With new trading opportunities following WTO membership also come chal-
lenges, inter alia ensuring that laws and policies are WTO compatible. In this con-
text, this sub-section looks at some of the internal policies, legal regime and the
associated rigidities that need to be addressed as soon as possible. The discussion
is presented in two interrelated parts: support system that influences domestic pro-
duction, processing and distribution of inputs and outputs, and international trade.

Domestic regularity and other support system

On the whole, the poultry sector faces the same policy regime as most other
commercial agricultural enterprises. It neither receives any special favour on ac-
count of policies nor is discriminated against.123 Yet, there are some specific issues
that have implications for industry competitiveness and so worth raising.

The treatment of the commercial poultry sub-sector as an “industry”:

This issue has been raised from time to time. Being an industry, and in common
with other industries, the commercial poultry sector receives less preferential
treatment than enterprises classified as being agricultural and rural. Thus, the sec-
tor relies on commercial banks for loan and pays prevailing commercial interest
rates. Similarly, income from commercial poultry is subject to income tax whereas
agricultural income is tax exempt.
Local taxes, fees and charges: The role of local taxes on the production
and movement of various commodities came up as an issue in the course of the
surveys conducted for this study. The Local Self-Governance Act 1999 allows local
self-governing bodies (villages, districts, cities) to collect taxes. Various local bod-
ies levy this tax on several items including poultry products, feed and feed ingredi-
ents such as rice polish, rice polish cake, mustard cake, sesame cake, sunflower
cake, wheat bran and poultry feed. Garbage tax is also levied on the collection and
transport of raw bone that is used for bone meal, a poultry feed. Entrepreneurs re-
gard these taxes and charges as additional burden that raise cost of production
and cut competitiveness.
Also relevant here is the registration requirement. The industry complains
that while the direct cost of registration in terms of the official fees and dues is not

122
The DoC data show that the total value of live birds imported in that year was Rs. 12.1 million, which
gives the per unit import price of the day-old chicks at about Rs. 1.73 per bird. This is considered very
low by the industry, indeed less than half the production cost.
123
For example, like most other agricultural products, poultry meat and egg are exempt from the VAT, and
so are most ingredients used in animal feed including poultry feed and other products that are generally
used in poultry.

278
high, indirect costs in the form of the time spent for administrative process and as-
sociated “hidden” costs in registering a firm are often high. Although these apply to
all commercial agricultural firms, the point is that these expenses are not insignifi-
cant in the overall cost of production.
In addition, the Environment Protection Act 2053 (1996) requires any poultry
firm with a capacity of more than 2 000 birds to conduct an initial environmental ex-
amination (IEE) and environmental impact assessment (EIA) before it is registered.
The same applies to subsequent expansion (LBMB 1997). Although desirable, the
industry feels that the associated direct and indirect costs of establishment and ex-
pansion are high, given the way the government machinery functions. Currently,
the approval can be obtained from Kathmandu only. The egg association, NEPA
has pleaded to decentralise the IEE and EIA process to the district level (NEPA
2002).

Issues related to the Animal Feed Act 2033 (1976): This legal instrument
and policies that emanate from it also affect the poultry industry directly. Section 10
of this act empowers the government to set feed quality standards through notifica-
tion (LBMB 1999). The poultry entrepreneurs hold that the present standards are
outdated and irrelevant for the present day commercial operation, and there is a
need to update the standards, with active consultation with stakeholders.
The second issue vis-à-vis this law is related to implementation. The regula-
tory mechanism to check feed quality, although provisioned in the law, is opera-
tionally very weak and often exacerbated by insufficient and poorly equipped labo-
ratories for analysis. Due to these weaknesses, imports of low quality and often re-
jected materials from India find an easy way into Nepal against the spirit of the ex-
isting law. Addressing both these issues, which are within the legal jurisdiction of
the government, requires active co-operation of the stakeholders. Unless these are
effectively addressed, Nepal’s benefits from the WTO membership would be un-
dermined, and indeed Nepal could stand to lose if the current situation continues.

Animal Slaughterhouse and Meat Inspection Act 2055 (1999): This Act
and the policies that emerge from it have implications on the poultry industry, espe-
cially chicken meat sub-sector. Although not enforced as yet, the law has several
provisions relevant for the industry. Of immediate concern are its stipulations that:
establishment of abattoir and trading in meat without licence is forbidden (Section
3); the government shall establish a slaughterhouse in a designated place124 in Ne-
pal or issue licence to do so to the non-governmental sector (Section 4); conditions
and fees shall be specified for issuing such licence (Section 5); only a university
graduate in veterinary science can be designated as meat inspector and supervisor
(Sections 6 and 7); all animals must be inspected in a designated place prior to
slaughtering (Section 8); animals must be slaughtered in slaughterhouses, and
where such slaughterhouse does not exist, at a place designated by the supervisor
(Section 9); and the meat of the animals so slaughtered should be inspected prior

124
The wording of the clause is such that it implies establishment of a single slaughterhouse, which, as is
clear from the wordings of Section 9 of the act, is not the intention. Yet, this oversight skipped the atten-
tion of all those who were involved in the entire process of legislation.

279
to sale (Section 10). While these provisions are not inconsistent with the WTO
rules, effective implementation should give due consideration to the need for a
genuine decentralization in order to address some issues raised by the private sec-
tor concerning the import of diseased animals for meat, although this will keep in
check meat prices in Nepal.

Policies Affecting International Trade and Competitiveness

It is clear that the poultry industry is not receiving any direct support except
for the limited access to public veterinary services that cover the entire livestock
sector. These services are generally confined to a few farms that are close to the
district headquarters and are available only if the concerned entrepreneur manages
to access the services of the veterinary technician.
Nepal has multiple tariff regimes in operation currently. While most tariffs are
on an ad valorem basis, some are in specific form also. More importantly, there are
a number of “concessions” to published basic customs duties depending on the
source of the import.125 For example, imports from India face no tariffs (i.e. 100%
concession), while a 10% discount on the standard rate is applied to imports from
the Tibetan Autonomous Region of China, and 5% discount for imports from coun-
tries with bilateral trade agreement (provided the products are subject to ad
valorem tariff).
Agricultural reform duty is levied at a flat rate of 10% ad valorem on those
agricultural products that face no customs duty. Thus, even those imports eligible
for duty free import from India and Tibet are subject to a levy. The purpose of this
duty seems to provide some protection to domestic products while remaining within
the broad framework of the Nepal-India bilateral treaty, which provides for trade in
primary products free from customs duty and quantitative restriction. A local devel-
opment duty is also levied on importable items at the rate of 1.5% ad valorem.
Table 7 shows current applied tariffs and other duties on poultry and poultry
products plus feed ingredients. In most products, the applied rate is 10%. In the
case of India, while imports are free of customs duty, imports face “agricultural re-
form duty”, with the same effect as tariff. Duty on parent stocks imported on the
recommendations of the Nepal Hatchery Industry Association and on such ingredi-
ents as shells of molluscs, feed supplements and limestone is only 1%. Similarly,
duty on some of the equipment used in raising poultry and crates used in egg pack-
ing are also levied a duty of 1%.
It is evident from the tariff structure that poultry products have some protec-
tion as compared to feed. In case of feed, it is somewhat complex to determine the
level of tariff protection. There are duties at the rate of 10% for important ingredi-
ents such as maize and soybean, and these amount to 56% of the total cost of in-
gredients. Nearly half of maize used by the feed industry is imported. Considering
this situation and the fact that tariffs applied to animal feed, which includes poultry
feed, is half the rate for these ingredients, the possibility of the feed industry being
negatively protected cannot be ruled out.
125
See the chapter on border protection (Pant et al 2004) in this volume for details.

280
 Table 7: Current applied duties and WTO bound rates on poultry products
and feeds
Products Current applied tariffs (%ad valorem) WTO bound tariff
Customs ODCs2/ (% ad valorem)
Duty Rate Removal by: Initial Final 1/
Live poultry 10 2/ 9.5 2013 45 30
Poultry meat –Fresh and frozen 10 4.5 2005 60 40
Poultry meat-cuts and offals frozen - - - 60 35
Feather (for stuffing) 5 2.5 2005 30 20
Maize and Maize flour 10 9.5 2013 50
Rice bran 10 4.5 2005 50 40
Soybean 10 9.5 2013 50 30
Molasses 25 n.a n.a n.a n.a
Fish meal 10 4.5 2005 50 40
Animal feed 5 2.5 2013 45 30
Ingredients for animal feed 1 n.a n.a 45 30
Limestone 1 n.a n.a n.a n.a
1/ For import from India the Basic Tariff figures are replaced by Agricultural Reform Duty @ 10%
ad valorem.
2/ Tariff on the parent stocks imported on the recommendation of the Nepal Hatchery Industry
Association is only 1%.
Source: DOC (2001a) and the following years’ Finance Bills.

Finally, there are no export duties on any of the poultry products. Two feed
ingredients, namely rice bran and molasses, are however subject to export duty at
the specific rate of Rs. 0.25 per kilogram.

Nepal’s WTO commitments

The key commitments made at the time of accession and relevant to the sec-
tor include the following: ‘other duties and charges’ (ODC) to either incorporate
within the tariff structure or do away with such duties and charges as agricultural
reform duty and surcharge for local development, by 2013 or 2015 for some. The
likely impact of this commitment will be more on industries based on feather and
egg, as the nominal ODC will also be removed by 2005.
Border protection to be provided through ad valorem tariff only. The agreed
initial bound tariffs are in the range of 30-60% for poultry products, to be reduced to
20-50% range by 2006, and from 45% to 30% for animal feeds. As current applied
tariffs and ODCs are about half the final bound rate, there is sufficient scope to
provide protection to the industry should such need arise.
In addition, Nepal has also committed to amend existing relevant laws rules
and regulations to make them WTO compatible (WTO, 2003). Of direct concern to
the poultry industry are the laws concerning export and import and customs valua-
tion listed in the legislative action plan of Nepal’s submission to the WTO. Nepal
also committed to introduce a new law on anti-dumping by July 2004. Parallel to
this development, the government is also reviewing the current Food Act 2023
(1966) with an intention to update it to meet the present day requirements.

281
 Feeds may be a source of comparative advantage: Nepal is a net ex-
porter of animal feed, and, interestingly, the main export market, India, is also the
main supplier of imported feed ingredients. As nearly 95% of the domestic feed
produced is poultry feed, most of the “animal feed” reported in the trade statistics
implies poultry feed. Given this situation, it would be difficult to confirm that the
source of “high” domestic cost of poultry production is indeed the high cost of feed
pointed by the private sector. Hence the concern of the private sector regarding
free entry of poultry products and high domestic cost of production because the in-
dustry is based on imported raw materials for feed production could not be estab-
lished. On the contrary, available circumstantial evidences suggest that the source
of Nepal’s competitiveness in poultry products is its feed industry. This ambiguity is
yet another example of a lack of dependable information.
This implies that Nepal should explore for the cheapest possible source of
feed ingredients, which need not be India since Indian markets are highly regu-
lated. For example it could be cheaper to import soybean, produce soybean oil as
well as soy meal within Nepal also. If the size of import consignments is a con-
straint, concerned associations may need to pool resources for bulk buying from
the cheapest source and at times when prices are the cheapest, for being and re-
maining competitive.
Diversification of export markets: Nepal currently exports live poultry, and
meat and edible offal of poultry although the export of the former has declined sig-
nificantly due to growing domestic demand. However, potentials exist to expand
domestic production and export of poultry products to neighbouring countries such
as the Tibet region of China while trading with India is likely to be governed by bi-
lateral agreements. WTO membership will further expand that opportunity if the
Nepalese producers can effectively compete in the international market.
CONCLUDING REMARKS
One key message of this study is that Nepal’s poultry sub-sector in general
and the poultry industry in particular is one of the fastest growing segments of the
economy, and that the potential for further growth of the sub-sector for both domes-
tic and export markets appears to be high. Despite some two-way trade with India,
a feature common to many commodities, the country is considered to be “self-
sufficient” in poultry products as a whole. While Nepal could be a net exporter of
meat and feed, it is a net importer of eggs. The following paragraphs summarise
some of the main issues that need to be addressed in order to realise these poten-
tials.

Statistics: A recurring point made throughout the chapter is the wide varia-
tion in all major statistics, e.g. poultry and feed production and trade volumes, be-
tween the private sector and government source. This serious lack of quality statis-
tics not only hinders sound policy making and planning but also trade negotiations
when disputes, such as on import and export surges, arise between trading part-
ners. Addressing this problem is fully a government responsibility. The specific ar-
eas where information was found to be weakest were: volumes of imported prod-
ucts disaggregated by product type, customs points from which the products are

282
imported and exported, seasonality of external trade in various products and cost of
production. As various government agencies are already collecting closely related
information, e.g. Departments of Customs and of Agriculture, CBS, Nepal Rastra
Bank, the incremental cost of collecting appropriate information would be rather
marginal. What is required is for the MoAC to take the lead in ensuring that the re-
quired data are collected by these agencies. Also very importantly, what is usually
forgotten that the private sector can make valuable contribution to this process
since it is also in their own interest to ensure the accuracy of statistics.

Implications of the WTO Agreements: The discussion in the preceding

Section had shown that the WTO membership does not constrain any government
policies and programme towards the poultry and feed sub-sectors. As regards the
implications of the membership, the main instrument available for protecting the
domestic industry is tariff. With bound rates some 3-4 times higher than currently
applied rates, there is a considerable scope for tariff protection, if that is feasible
and makes economic sense. However, tariffs are not first-best policies, and there is
no alternative to be competitive in both price and quality. The analysis in this chap-
ter suggests that the industry should be able to compete even without tariff protec-
tion.
The fairly large gap between the applied and bound tariffs also provides am-
ple scope to vary applied rates up to the bound rate when faced with the problem of
import surge. The problem is that all these instruments are effective only in the
case of trade with third countries, as Indo-Nepal trade rules are governed by the
bilateral agreement. On domestic support measures also, the AoA provides con-
siderable scope for granting subsidies to the poultry sector (e.g. up to 10% of the
value of production). The issue, however, is one of the availability of budget for this
and equally importantly the desirability of doing so in the context of competitiveness
objective as noted here.
Policies, laws and WTO membership: In general, neither the existing poli-
cies nor the laws discriminate between a domestic and imported product, and so
the policies are consistent with the WTO TRIMS Agreement. On the legislative
front, however, some of the existing laws may need amending to harmonise them
with the requirements of the various WTO agreements to which Nepal is a party. A
set of laws to address trade related intellectual property rights might need to be
brought into force. In doing so, care has to be taken to safeguard the interest of the
country in terms of realising benefits from the existing biodiversity and to safeguard
the farmers’ interest. To be compatible with the various agreements that are part of
the WTO accession process, the following additional legal instruments may be re-
quired: improving legal provisions relating to food quality, plant and animal quaran-
tine, and legal provisions on TRIPS and other related rights. Similarly, legal provi-
sions arising out of the WTO and other international treaties should also be made
for regulating genetically modified organisms, for implementing the Convention on
Biodiversity, and for protection against dumping. With regard to the poultry industry,
provision of an anti-dumping law and its effective implementation should clearly re-
ceive priority. The country should start preparing for trading of poultry products in
countries other than India, especially the Tibetan Autonomous Region of China, in

283
the medium to long run, and for this the country has to develop requisite capacity to
compete internationally. The country’s export would have to meet internationally
accepted quality and standards while being price competitive.
Responding to the problem of import surges: The statistics on this phe-
nomenon discussed in the preceding section clearly showed that Nepal faces this
problem frequently, notably in case of day-old chicks and eggs. The industry seems
to have a fairly good idea of the source of the import surge, reasons and the impact
on the Nepalese poultry industry. By contrast, there has been very little response
from the government side, e.g. in collating statistics, analysing the impact and re-
sponding to the problem.
As discussed in Chapter 10: Import Surges, this problem is recognized by
the WTO Agreements and there are several provisions on trade remedy meas-
ures. In the case of Nepal, there are many problems in responding to the problem.
First, available statistics are patchy and weak to even establish that import surges
have occurred. While the main source of the surge is India, there are no volume
data on imports, which are essential because a surge cannot be established on
value data on imports. There are no price or unit import value data either. Second,
as discussed in Chapter 11: the Nepal-India Trade Treaty does not have an objec-
tive basis for establishing a surge nor for responding to the problem, other than
discuss the matter with India at periodic trade meetings.
While the above reflects the ground reality for Nepal, it is true that the WTO
framework provides at least three trade remedy measures (e.g. anti-dumping). The
problem is that resorting to these measures is very demanding in terms of statis-
tics, institutional capability and legislation, all missing currently in Nepal. Nepal
does not have access to the simpler agricultural safeguard of the AoA, although
Nepal would have access to the presumably similar Special Safeguard Mechanism
being negotiated as part of the Doha Round, once Nepal completes accession im-
plementation period. Even more important, these instruments will not be useful for
the problem being discussed here because the surges are coming from India under
a bilateral trade agreement with its own provision on safeguard measures, as said
above.
Thus, Nepal is basically very vulnerable to the problem. Although it is a long
way ahead, it is urgent that Nepal makes efforts without any delay in at least the
following two areas: i) to put in place a statistical system that helps in monitoring
trade and import surges; and ii) to develop capability to quantify the impact of the
surge. These together would provide credible evidence needed for discussing the
matter during bilateral trade meetings, as well as in the WTO context. Other related
measures needed include enacting appropriate legislation.
The planned introduction of the anti-dumping law and its effective enforce-
ment may be able to address some of the concerns in this respect. Similarly, effec-
tive enforcement of the existing legal provisions concerning animal quarantine may
be able to address the issue of imported unhealthy buffaloes that are contributing
to depress chicken meat prices as has been raised by the NEPA. By the same to-

284
ken, it will be unrealistic to assume that these measures will be able to fully nullify
the forces of the market especially considering the open porous border.
The localized nature of import surges, i.e. surges in one area and surplus in
others, indicates weak integration of the domestic markets. Increased integration
obviously reduces the magnitude of the negative impact. So one of the response
measures would have to be integrating domestic markets. This is not a simple task
and requires efforts in a number of areas, notably transport infrastructure, espe-
cially rural roads, provision of market information and abolition of measures that
hinder movement of goods across Nepal. The strengthening of vertical and
horizontal linkages also helps, e.g. linking the feed industry with soybean oil
industry.
Competitiveness with Indian suppliers: Besides being an advantage in
many respects, the long and porous border with India has also been a source of
disruption to Nepalese agricultural markets. It is well known that India has an com-
petitive edge over Nepal in many agricultural products, on account of factors such
as much more developed infrastructure and economic base in all respects, sub-
stantial subsidies provided to the Indian farmers and the fact that Nepal has to bear
extra transport cost on imported raw materials. Moreover, the immense size of the
Indian market relative to that of Nepal means that Nepal is effectively a price taker
with little room for influencing domestic relative prices. The question is what can be
done to be competitive given these parameters? One aspect is being import-
competitive, i.e. being competitive with Indian poultry products in the Nepalese
market itself. The other is responding to occasional import surges.
Analysis of effective protection to various sub-sectors: The poultry in-
dustry as a whole includes several products and production processes. Many prod-
ucts of a sub-sector are also inputs to other sub-sectors. Given this, nominal tariffs
– e.g. applied rates or bound rates – provide only partial information on the state of
protection or taxation of the commodities and sub-sectors. For example, where
feed ingredients, feeds and poultry products are taxed at different rates; it is difficult
to determine the exact level of protection to a commodity, e.g. eggs or live poultry.
Therefore, some analyses are required on the levels of protection given by policies
to all major outputs of the poultry industry. This information is valuable for informed
debates on policy issues and to answer such questions as the following. Whether
poultry products are essentially taxed because of the taxation on feeds? Should
Nepal provide uniform effective protection to all poultry and feed products or to pro-
tect them selectively?

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