Request for Information (RFI) -Agricultural Input Market System Activity.pdf

Request for Information (RFI)

ISSUANCE DATE: Wednesday, March 24, 2021

RFI CLOSING DATE: Wednesday, April 7, 2021, 17:00 Nepal Time

SUBJECT: Request for Information (RFI) – Agricultural Input Market System Activity

REFERENCE: RFI No. 72036721R00004

Dear Prospective Respondents and Interested Parties, The United States Government, represented by the U.S. Agency for International Development’s Nepal Mission (USAID/Nepal) issues this RFI per the Federal Acquisition Regulation (FAR) sections 15.201(c)(7) and 15.201(e), respectively, to provide stakeholders an opportunity to review, comment, suggest and enhance areas in the attached concept note for a planned new USAID/Nepal Feed the Future (FTF) activity, tentatively titled the “Agricultural Input Market System Activity”.

USAID issues this RFI solely for information and planning purposes. This RFI does not constitute a request for proposals. USAID posts its competitive business opportunities on www.beta.SAM.gov. It is the potential offeror’s responsibility to monitor this site for announcements of new opportunities.

By issuing this RFI for consultation, USAID/Nepal aims to consult with a broad community of public and private sector actors concerned with improving the productivity and competitiveness of Nepal’s agriculture sector. USAID/Nepal requests your comments to help refine the concept and ensure maximum development impact. USAID/Nepal may significantly revise the approach based on comments received and further stakeholder consultations.

RFI Submission:

All organizations and firms (large and small business) are strongly encouraged to provide information and comments by the closing date and time noted on the cover page. Responses should be sent to kathmanduoaaexchange@usaid.gov with the Subject Line reading “Agricultural Input Market System RFI Response.”

We request that respondents limit their submissions to 5 pages and would particularly value comments responsive to the consultation questions listed below.

http://www.fbo.gov/ mailto:kathmanduoaaexchange@usaid.gov

RFI No. 72036721R00004- Agricultural Inputs Market System

Consultation Questions

1. Given the various issues in the existing agricultural inputs market system highlighted in the attached concept:

a. Do you see anything important that was missed or anything unintended/unanticipated for us to consider?

b. How would you prioritize these issues in terms of leveraging change at the system level?

2. With respect to the proposed objectives and intermediate results in the attached concept note, what scale of results does your organization view as likely to be feasible within a five-year time frame and roughly what level of resources would be required?

3. Nepal is highly vulnerable to climate change. How can this activity mainstream climate-smart agriculture and enhance climate resilience while improving the productivity and competitiveness of Nepali agriculture through increased access to and use of seeds, fertilizer, irrigation, and agricultural equipment?

4. Given Nepal’s complex socio-economic structure and diverse geography, what market-based approaches should this activity adopt to ensure that vulnerable, marginalized, youth, and women farmers are included and benefit equitably from the interventions and outcomes?

5. The COVID-19 pandemic is expected to have a short and medium-term impact on Nepal’s agriculture sector. How might this activity best respond to this shock and ensure the long-term resilience of the agricultural input market system in case of similar and unanticipated shocks in the future?

Issuance of this RFI neither obligates the USG to issue a solicitation or award a contract nor commits the USG to pay for any costs incurred or information resulting from this request.

Respondents remain solely responsible for all expenses associated with responding to this RFI.

Sincerely, Marva M. Butler Contracting Officer

Feed the Future Nepal Agricultural Input Market System Activity

Background

In Nepal, agricultural productivity is relatively low due to little use of improved inputs and technologies, and widespread reliance on subsistence farming. Nepal’s crop yields are low relative to other South and Southeast Asian countries, confirming that there is considerable upside potential.

Most smallholder and emerging farmers face the barriers of lack of access to and availability of critical inputs and technology such as improved seed, appropriate fertilizers, irrigation, and agricultural equipment.

Seeds: Only about one fifth of Nepal’s 2.7 million smallholder farms use improved seed, and according to FAO reports1, these smallholders use such improved technologies only for part of their production.

The seed system in Nepal includes both informal and formal seed systems, with the formal seed system accounting for less than 10% of the seed supply. Most Nepali seed companies import improved seeds and some companies also import foundation seeds and inbred lines from other countries, particularly China, India, and Thailand because the seed companies themselves lack the technical capabilities to produce them themselves. Nepal’s seed sector is held back by certain key challenges, including:

● Farmers do not replace older varieties with newer, higher yielding and climate smart varieties;

vegetable seed replacement is around 40%, while the cereal seed replacement rate is around 10%.2

● Foundation seeds are not readily available as the technical capacity of seed companies is very low and because only the government’s Nepal Agricultural Research Council (NARC) -- by law -- can multiply breeder seeds to foundation seeds, but lacks the capacity to do so. Relatedly, the germplasm needed for seed multiplication is not readily accessible.

● The seed sector regulatory framework is inadequate: The Enabling the Business of Agriculture (EBA)3 index estimates that the time to register a new cereal variety is 611 days, while Nepal’s quality of seed regulation score is 5 on a scale of 0-9.

Fertilizer: Nepal scores very low (11.1 out of 100) in the EBA index for fertilizer because (1) it takes 1,125 days to register a new product and (2) the cost to register is 596% of the average income per capita. This indicates an incredibly inefficient system, especially given that about 20-25% of the Government of Nepal’s (GON’s) annual agriculture budget is allocated for subsidizing fertilizer. The fertilizer subsidy is equivalent to around 38% of the total fertilizer import cost. Even with this subsidy, fertilizer imports meet just half of the total demand of Nepal’s agriculture sector. Average fertilizer prices are relatively high and, as indicated by the EBA, costly relative to agricultural incomes. These factors together result in underutilization of fertilizer, contributing to low productivity.

1 http://www.fao.org/3/i5251e/i5251e.pdf 2 The impact of USAID’s agricultural research funding will be assessed by two key indicators: (1) genetic gains of new varieties and (2) the weighted average age of varieties in farmers’ fields.

3https://openknowledge.worldbank.org/bitstream/handle/10986/31804/9781464813870.pdf?sequence=7&isAl lowed=y http://www.fao.org/3/i5251e/i5251e.pdf https://openknowledge.worldbank.org/bitstream/handle/10986/31804/9781464813870.pdf?sequence=7&isAllowed=y https://openknowledge.worldbank.org/bitstream/handle/10986/31804/9781464813870.pdf?sequence=7&isAllowed=y

Recent years have seen the emergence of a small market for blended fertilizers that add deficient micronutrients to the soil. This market is nearly entirely private sector-driven. There are potential investors interested in investing in fertilizer blending facilities in Nepal, but they are cautiously waiting to see how government policy and regulations for these products play out.

Irrigation: Nepal’s irrigation potential is largely untapped, as just 6.66% of available water is used for irrigation. Specifically, irrigation infrastructure has been developed to serve 1.33 million hectares of land out of a total 2.6 million hectares of cultivated land, comprising 972,000 hectares through surface water and 359,000 hectares through groundwater4. Only 30% of surface water-irrigated land has year-round irrigation facilities. Irrigation opportunities range from horticulture to rice through improved gravity-flow and water pumping technologies, to other crops using various irrigation technologies to extend or introduce multi-season cropping. Available evidence suggests that drip irrigation technologies for vegetables are well on their way to being scaled and likely require little assistance because of the primarily private-goods nature of such investments. Irrigation brings the highest returns to horticultural crops, especially vegetables. These higher-value crops are more easily financed by banks than are irrigated staple crops. Yet improved management of water for staple and second- or third-season crops can substantially increase farm household productivity, though it is more difficult to finance because of the lower value of many of these crops.

Among the constraints to irrigation for use on staple crops that donor funding could help address are activities that improve the affordability of irrigation technologies or profitability for irrigation users, while taking into account sustainable, climate-resilient watershed management. These constraints include:

• Poor operation and maintenance of irrigation systems and lower water use-efficiency;

• Climate change impacting water reservoirs;

• Reliance on forest-fed river systems, leading to drying up of irrigation water sources during summer;

• Unsustainable water extraction and farming practices affecting watershed degradation;

• Underinvestment in irrigation infrastructure;

• Inadequate private sector investment in irrigation development; and

• Poor integration of irrigation with agronomic practices such as appropriate seeds, fertilizer, and pest management.

Agricultural equipment: Traditionally Nepal was a labor surplus country. However, massive outmigration of men from the countryside has led to the shortage of labor in the rural areas, putting immense pressure on women to carry the burden of extra agricultural work. Similarly, inadequate use of modern agriculture equipment in farming has led to low labor productivity in agriculture, driving down potential profit. In response to this, the use of modern agricultural equipment like mini-tillers has been increasing with large subsidy support from the GON. Recent research5 shows that mini-tillers yield an average 26% productivity improvement in rice for users versus non-users. Mini-tillers

4 https://wecs.gov.np/storage/listies/October2020/water-recource-climate-change.pdf 5 https://repository.cimmyt.org/bitstream/handle/10883/20154/60364.pdf?sequence=1&isAllowed=y https://wecs.gov.np/storage/listies/October2020/water-recource-climate-change.pdf https://repository.cimmyt.org/bitstream/handle/10883/20154/60364.pdf?sequence=1&isAllowed=y reduce the costs for tillage and/or weeding by 100,000 Nepali Rupees per hectare. Notably, the smallest farmers get the highest productivity increases. Women farmers also benefit substantially from adoption of mini-tillers with respect to income generation, time spent on childcare, cooking for laborers, time spent on other income-generating activities, more leisure time, and time for sleep. This sector is, however, beset with some unique policy constraints that reduce the pace of its scaling up.

The high customs duty on spare parts for agricultural machinery and weak capacity for maintenance at the local level are two of the greatest challenges. Similarly, while most agricultural machinery is targeted toward primary production, there is an opportunity to increase the availability and affordability of agricultural equipment for post-harvesting and processing as well, which would also help to increase labor productivity and increase overall efficiency of the agriculture value chain.

Finance: Finance cuts across the market system and is a particular constraint for agricultural MSMEs, particularly seed companies that face continuous challenges of seasonal cash flow and volatile demand.

Finance is less of a factor for fertilizer distributors because of the support they receive from subsidies.

While banks already finance irrigation technologies for high-value horticultural crops, finance for staple crop irrigation may be a way off due to lower profitability. Among the various types of finance that this activity could justify supporting are the financing of fixed assets, which for seed companies includes cold storage and dryers. Solutions need to be found for cash flow finance by underwriting lines of credit or other new, innovative models. There may be scope for trialing truly innovative finance and investment models. Finance is a cross-cutting theme for this activity.

Digital Technologies: Digital technologies, and digitization of data broadly, are critical to sustainable development. Effective deployment of digital technologies can realize significant cost savings and productivity gains for governments and for private companies. Digital technologies are used for the management of seed production, soil fertility, water resources, supply chains, and subsidies.

Digitization is therefore a cross-cutting theme for this activity. Potential interventions for digital support are:

● Paperless subsidy program management systems for seeds, fertilizer, irrigation, and agricultural equipment

● Supply-demand database for seed and for fertilizer

● Seed system mobile traceability for seed inspectors

● Mobile monitoring of emerging threats such as pests and weeds

● Database/catalog of inbred lines that the private sector can access

● Digital soil mapping and cloud-based accessibility of fertilizer recommendations

● Water resource monitoring

● Supply chain traceability and management for selected products

Development Hypothesis

The development hypothesis is:

If the commercial incentives improve for micro, small, and medium enterprises (MSMEs) to invest in improved and climate resilient agricultural inputs resulting from appropriate policy measures and increased access to business development services;

and if the MSMEs’ capacity is built up to capitalize on business opportunities and cope with shocks;

and if the Government of Nepal’s capacity is enhanced for effective delivery of the programs aimed at increasing access to and availability of agricultural inputs and water resource management services;

and if women, youth, and marginalized farmers have inclusive access to and awareness of how to effectively use critical inputs;

then, Nepal’s agriculture sector will be more productive, competitive, and resilient and will contribute to inclusive agriculture-led economic growth.

Geographic focus and target Beneficiaries

Implementation of the Activity will focus on the FTF Zone of Influence (ZOI) in order to complement and build on USAID’s ongoing efforts to improve food and nutrition security and stimulate agriculture-led economic growth in that focused geographic area. The FTF ZOI was identified in the GFSS Country Plan due to the potential in those areas for agricultural growth as well as high levels of poverty, malnutrition, and vulnerability. As shown in Figure 1 below, the FTF ZOI comprises 25 hill and terai districts in Karnali, Sudur-Paschim, Lumbini and Bagamati provinces. This Activity aims to reach at least 10% of the total population of the FTF ZOI, including at least 25 percent marginalized and vulnerable households and at least 50 percent women, in the total target beneficiaries.

Figure 1 Map of Nepal FTF/GFSS Zone of Influence

Goals and Objectives

The Activity’s overall goal is to improve the productivity, competitiveness, inclusivity, and resilience of Nepal’s agriculture sector by increasing the availability and accessibility of four critical inputs-improved seed, fertilizer, irrigation, and agricultural equipment. This Activity will complement USAID’s ongoing Feed the Future initiatives which aim to reduce poverty, hunger and malnutrition in Nepal and will contribute to the achievement of USAID/Nepal’s Development Objective 2: Broad-based and inclusive economic growth fostered. The Activity will achieve this Objective by supporting (IR 2.1) Inclusive, private sector driven growth in agriculture promoted. The Activity also contributes to the U.S. Government’s GFSS Country Plan for Nepal and directly addresses Objective 1: Inclusive and sustainable agriculture-led economic growth and Objective 2: Strengthened resilience among people and systems. Finally, the Activity will contribute to USAID/Nepal’s mitigation of, and recovery from, second order economic and food security impacts of the COVID-19 pandemic.

The Activity will stabilize agricultural input market systems, support the GON to prevent the backsliding of competitive input systems, and ensure increased and sustained availability and access to critical inputs during and after the pandemic, and in the face of future shocks. The Activity will reduce the specific barriers faced by women, youth, and marginalized farmers to accessing, utilizing, and benefiting from improved inputs. Followings are the key components of the Activity.

Objective 1: Demand- and supply-responsive and financially viable seed system developed

IR 1.1 The enabling environment for seed business strengthened IR 1.2: Seed companies’ and multipliers’ technical capacity to develop new varieties, commercially multiply, and maintain inbred lines for hybrid seeds improved IR 1.3: Business development services for seed companies and seed multipliers strengthened IR 1.4: Seed replacement rate for the selected crops improved

Objective 2: Soil fertility management and fertilizer distribution system improved

IR 2.1: Fertilizer distribution system improved IR 2.2: Fertilizer subsidy mechanism made more effective and efficient IR 2.3: Fertilizer use efficiency enhanced IR 2.4: Commercialization of blended fertilizer increased

Objective 3: Climate adaptive and sustainable water management system enhanced

IR 3.1: Access to irrigation for commercially oriented agriculture increased IR 3.2: Water use efficiency enhanced IR 3.3: Capacity of local government and civil society for sustainable water management improved IR 3.4: Enabling environment for sustainable water resource management and irrigation systems improved

Objective 4: Adoption of modern agricultural equipment increased

IR4.1: Uptake of modern agricultural equipment in primary production and value addition increased IR 4.2: Policy environment for agricultural equipment promotion improved IR 4.3: Maintenance service system for agricultural equipment improved

Cross-Cutting Components:

Increased Digital Capacity will result from using digital technologies to better match input supply to demand, improve traceability of inputs, enable more virtual transactions for input sales and https://www.usaid.gov/sites/default/files/documents/1867/GFSS-Nepal-Country-Plan.pdf provision of technical advisory services, and to improve the management efficiency of the GON’s input subsidy systems.

Increased Access to Finance for MSMEs in the agricultural inputs sub-sectors, mainly to finance fixed assets and cash-flow, line-of-credit support, will underpin market systems for seeds, fertilizers, irrigation, and equipment. Specific financial products tailored to the needs of the input sub-sectors will be developed together with commercial banks. Given how COVID-19 has disrupted input supply chains and markets, increased access to finance will be made available to those MSMEs most affected, and those most critical to rebuilding a stronger and more resilient input market system.

[END OF RFI No. 72036721R00004]