Export as Development vs. Developing Export
Will export help the Chepang of Nepal?
Author: Dirk Aleven
Supervisor: Dr. B.J.W. Pennink
Advisor: Dr. C.H.M. Lutz
Technische Bedrijfswetenschappen Rijksuniversiteit Groningen
Export as Development vs Developing Export
Will export help the Chepang of Nepal?
Wednesday, 24 May 2006 Author: Dirk Aleven
Student Number: 1226169 Email: dirkaleven@gmail.com
Faculty of Management and Organisation Department of Technology Management Rijksuniversiteit Groningen
Supervisor: Dr. B.J.W. Pennink Advisor: Dr. C.H.M. Lutz Company advisor: Mr S. Rana
The Author is responsible for the content of this master thesis; the authorship of this master thesis rests with the author.
Preface
Groningen, Tuesday 23 May 2006
A study is coming to its end… I have written this thesis to finish my study Technische Bedrijfswetenschappen at the faculty of Business Administration of Rijksuniversiteit Groningen. Almost six years of studying in Groningen are characterised by friendships, study, work and travelling and are now coming to an official end with this thesis. These important elements of my time as a student in Groningen are combined again in this thesis.
I have written this report for SNV Nepal. Eight months ago, SNV Nepal offered me the perfect environment to combine my ambitions: Learn from other cultures, bring people together, create opportunities for the ones who need them, work hard, have fun, and of course…. Graduate! I would like to thank SNV Nepal for giving me this great opportunity. Not only for giving me the assignment, but also for giving me insight in the Nepalese culture during our nice lunch breaks in the garden! In person I would like to thank my close colleagues Sanjay, Suchana and Srijana. It was a pleasure working with you!
Prior to my departure, my advisors Bartjan Pennink and Clemens Lutz helped me in structuring the research question of SNV. You have shown the use of asking critical
questions at the right moment. This helped me to stay objective all along. Personally, I was disappointed to find out that the proposed export would not turn out to be promising to the poor of Nepal. But I learned that the negative advice brings new opportunities as well, and you helped me with this process. Thank you for this!
I enjoyed doing the research, and I really enjoyed presenting the results. But after the research and the presentation, the difficulty of finalising the report came next. I would like to thank my friends who helped me by reading it, correcting my Denglish (Dutch-English) and commenting! Special thanks to my Nina.
Last but not least I would like to thank my parents and family. You have always stimulated me in getting the best out of myself, leaving to judge “the best” to myself. I couldn’t wish better!
Management Summary
This research is written to give both SNV as the Chepang Cooperation in Nepal insight in how export can benefit the poor of Nepal. The Chepang form an indigenous group of Nepal. Because of a lack of income and a food shortage for over six months per year, SNV (the Netherlands Development Organisation) is supporting the Cooperation of the Chepang. Before putting efforts in research about how to establish export, preliminary questions have to give an answer on if export is the right method. These preliminary questions are the focus of this research. The main outcome of the answers on these preliminary questions is that export of Chepang’s honey and ghee to the Netherlands will not be beneficial to the
Chepang. Therefore the use of these preliminary questions is that the negative answer in this case prevented both the Cooperation and SNV to invest time and money in export that is not promising in the long term.
Answering preliminary questions is important to be objective and accurate in
answering the question if export is the right way of income generation for the poor. If this is not done in a structured way, the possibility rises that the advisors trust to much on their business instincts, and do not judge objectively. The model presented in chapter six helps the advisors to structure and answer these question. Using this model, one has to conclude in an early stage that export of Chepang’s honey and ghee to the Netherlands is not
beneficial to the poor of Nepal. Still all the preliminary questions are answered for these two products in this paper. This gives the reader an insight how this process works of identifying and judging possible export product and market combinations works. By studying the literature, several preliminary questions arise which can be categorised into four sections:
1. Export Impulses
Making export a success is costly and risky because the market knowledge is more limited than the domestic market. Investing in export can only be justified if the national market conditions are so poor that export is necessary. If one looks at the ghee produced by the Chepang, this is the case. For honey there are several promising local selling opportunities, so export is not the best way of income generation. For honey from the Chepang this means it is not useful to look at export, instead efforts should be put in local marketing.
The poor have to be well organised to secure equal profit distribution. Also land rights have to be secured in order to secure the longer term profits to the poor. Because the Chepang are organised in a Cooperation, the profits on export of ghee are well secured for the poor. Land rights are difficult in Nepal, but NGOs are supporting the Chepang on this matter.
Export is a process. This means a logical sequence of target markets can increase the chance on success. Companies that are experimenting with export should first consider target markets that are in countries which are psychologically close. The Netherlands is not a psychologically close country and putting effort in export to the Netherlands a success will demand unequal efforts and investments, and risks will be high. So for both honey and ghee from the Cooperation it is not advisable to focus on the Netherlands as the target market.
3. Identifying Product-Buyer Combination
In this section the buyer’s demands have to be compared with the product characteristics. For honey the quality control is a big problem for export to the Netherlands, and the
Nepalese residue monitoring program is not approved by the European Union. Because of this, export to the Netherlands is not allowed. Since ghee is a vegetable product, the
regulation is easier to meet. But the current selling price of ghee is too low to cover the costs of labour. If export is considered, the selling price to the exporter has to be at least hundred rupees per kilogram (± €1.16).
4. Analyse Company and Trade Barriers
Trade barriers can be divided into two kinds: direct and indirect. The indirect trade barriers do not differ much for different companies in the same areas. The indirect trade barriers are not positive for Nepal. The transport costs are high compared to other developing countries, difficult export licenses demand payment in advance of the buyers, and the political situation is unstable. Direct trade barriers are not special for ghee. The certification is not difficult to get, and import tariffs are equal for all other imports of ghee into Europe. The direct trade barriers for honey are problematic. Chepang’s honey is produced by the wrong species of bee to be classified as honey in the European Union. This makes it illegal to import honey from this bee from Nepal into any country of the European Union. Because honey is considered to be an animal product, quality requirements are very high, and too difficult to meet by the Chepang Cooperation.
In many ways the Cooperation is not ready to get involved in export. The lack of financial and human resources, and marketing knowledge has to be found in a partner exporter.
So for as far as the honey is concerned can be concluded that SNV and the Cooperation have to stop considering export to the Netherlands. A better solution for income generation would be investing in a better local or national marketing plan. There are some reasons for considering export of ghee. As the Netherlands is not a good country to experiment export with, it will be better to do this with a psychologically close country. As the Cooperation doesn’t have the experience, nor the financial and human resources, the Cooperation has to work with an experienced Nepalese exporter that helps to establish export.
Table of Content
Preface ...5
Management Summary ...6
Table of Content ...8
List of Tables and Figures...9
List of Appendices ...9
Abbreviations ...11
Chapter 1: The Challenge of Export ...12
1.1 Motive of Research...12
1.2 Objective...13
1.3 Relations concerning Export...14
1.4 Research Questions & Data Collection ...18
1.5: Constraints...22
1.6: To Be Expected...22
Chapter 2: Export Impulses...25
2.1 Importance of NTFPs...25
2.2 NTFPs of Chepang...27
2.3 Why export? ...28
2.4 Conclusion ...30
Chapter 3: Dutch Buyer Characteristics ...32
3.1 Macro-economic Indicators ...32
3.2 Niche Markets ...34
3.3 Model for Analysing Niche Markets ...35
3.4 Honey Niche Markets ...36
3.5 Chiuri Ghee Niche Markets ...39
3.6 Conclusion: ...40
Chapter 4: Chepang’s Product Characteristics...42
4.1 Product Analysing ...42
4.2 Honey Product Characteristics ...43
4.3 Chiuri Ghee ...49
4.4 Conclusion ...53
Chapter 5: Trade Barriers and Company Barriers ...56
5.1 Trade Challenges...56
5.2 Direct Trade Challenges for Honey ...59
5.3 Direct Trade Challenges for Chiuri Ghee ...61
5.4 Company Challenges ...61
Chapter 6 Identifying Opportunities ...67
6.1 Export readiness Checker ...67
6.2 Applying the model ...71
6.3 Conclusion ...72
Chapter 7: Conclusions, Recommendations and Discussion ...74
7.1 Conclusions ...74
7.2 Recommendations...78
7.3 Discussion...80
References ...82
List of Tables and Figures
Figure 1.1: Conceptual model _______________________________________________ 15 Table 1.1: Sub questions and data collection____________________________________ 19 Figure 3.1: Economic Growth of the Netherlands ________________________________ 33 Figure 3.2: GDP growth per capita____________________________________________ 34 Figure 3.3: Permanent exhibition importers World Shops __________________________ 38 Figure 3.4: Body Shop’s skin product made of a product similar to ghee ______________ 40 Figure 4.1: Value System Honey _____________________________________________ 44 Table 4.1: Diseases known with Apis Cerana and found in Nepal____________________ 46 Figure 4.2: Traditional Beehive in home’s backyard ______________________________ 47 Table 4.2: Cost of Production of Honey ________________________________________ 48 Figure 4.3: Value System Ghee ______________________________________________ 50 Table 4.3: Production Numbers Ghee _________________________________________ 51 Table 4.3: Cost Price of Production of Ghee ____________________________________ 52 Table 5.1: Estimated Freight Costs per Sea Container ____________________________ 57 Figure 5.1: Exchange Chart Indian Rupee/Euro _________________________________ 58 Figure 6.1: Export Readiness Checker ________________________________________ 70List of Appendices
A: SNV and Chepang iB: Classification of Export Challenges xii
C: Interviews xiii
D: What is an NTFP xv
E: Members EU xvii
Abbreviations
• CDO: Community Development Organisation
• Chepang: Ethnic group from the central region of Nepal • CIF: Incoterm that stands for Cost, Freight and Insurance • EU: European Union
• F.O.B: Incoterm that stands for: Free on Board
• FORWARD: Forum for Rural Welfare and Agricultural Reform for Development • GDP: Gross Domestic Products
• Market: The virtual place where buyers and sellers meet • MLD: Ministry of Local Development
• NCA: Nepal Chepang Association
• NFDIN: National Foundation for the Development of Indigenous Nationalities • NFEN: Nepal Federation of Nationalities
• NGO: Non Governmental Organisation
• NTFPs: Non Timber Forest Products: Non-timber forest products consist of goods of biological origin other than wood, derived from forests, other wooded land and trees outside forests
• PCDP: Praja Capacity Development Programme
• PDP: Praja Development Program, executed by SNV Nepal • PSP: Private Sector Promotion
• RS: Nepalese Rupees; 86 Rupees equals 1 Euro (01-12-2005) • SEACOW: School of Ecology and Community Work
• SNV: Before: Stichting Nederlandse Vrijwilligers, now: the Netherlands Development Organisation; client for this research
1: The Challenge of Export
Chapter 1: The Challenge of Export
The problem field is briefly described in this first chapter. The objective of this research is stated, as are the supposed relations between factors influencing this objective. On this basis the precise problem to be tackled is presented. To come to an answer to this problem
several sub questions and the methodology on how to answer these questions are presented. This chapter ends with an overview of the content of this paper.
1.1 Motive of Research
The beautiful country of Nepal is situated in South-East Asia in the middle between China and India. Nepal is known for its impressing surroundings of the Himalayan; eight of the world’s fourteen mountains higher than 8000 meters are situated in Nepal! Since Tenzing Norgay Sherpa and Sir Edmund Hillary successfully climbed the Mount Everest on May 29th 1953, tourism started to become an important source of income for Nepal. The Chepang is an indigenous group of Nepal, who traditionally inhabited the Mahabharat hills of Central Nepal. They have their own distinct culture, language, religion and world-views. You may also find the term “Praja” as a synonym for the Chepang, which literally means “political subject”. This term is introduced by Nepalese from the higher casts and is widely accepted.1
Various studies state that nowadays only 1% of the Chepang households has a food surplus and about 60% of the families has enough food for only six months a year or less. During the period the Rana’s ruled (1846-1951), the Chepang had to borrow money to pay for their own land revenue. This resulted in more and more families getting into greater loan obligations than they could meet. These kind of loans didn’t support the economic development of the Chepang. They borrowed money on a very high interest rate accompanied with free labour to the money loaner and repay loan with the entire yield of the season’s crops. Only sporadic events of resistance against the exploitative way the money loaners worked were organised. Due to the distance from the state machinery the Chepang have become a victim of a practice of exploitation.2
Different NGO’s are involved in the development of the Chepang. Some of their individual goals involve better education, better healthcare, poverty reduction etc. One of them is the Dutch NGO called SNV, The Netherlands Development Organisation. SNV wants to work on the development of Nepal by supporting the capacities of local organisations. This means that SNV wants to develop the strengths of local organisations, so that the organisation can develop themselves independently. SNV’s support to the Chepang started back in 1992
1: The Challenge of Export
when a consortium of NGOs implemented the Praja Development Program (PDP). SNV concluded in April 2003 that their project had positive effects on awareness creation and confidence building among the Chepang. They also discovered that the incomes of the Chepang households increased due to sales of non-timber-forest-products (NTFPs), agro-products and goats. This was reason for SNV to continue working with the program. One of the main outcomes of the efforts of the NGOs is the establishment of the ChepangCooperation in the Chitwan district. This cooperation was set up with the purpose of bundling powers of the different producers and to make it possible to collect and market NTFPs centrally and to provide its members with a sustainable source of income. It started with 220 Chepang members who came from five different villages.3 More details about Nepal, the Chepang and SNV can be found in appendix A.
Two of the products the Cooperation is collecting from the Chepang farmers are honey and ghee. Both SNV and the Cooperation want to commercialise these products in a better way, so that the Cooperation is able to generate its own income for the Chepang. Being a Dutch organisation, SNV uses a lot of Dutch experts in developing countries. One of the results is that trade connection have been developed between Nepal and the Netherlands in the past. Also other countries of Europe have been developing trade connections with Nepal, i.e. handicrafts and clothing. That is why SNV wants to test the export of Chepang’s products to Europe. Since regulation for food products is uniform for all countries of the EU, several aspects of the success of export can be generalised from one member to the EU as a whole, and therefore the Netherlands is used in this test case. This research is executed to test if income can be generated by exporting the Chepang products to the Netherlands.
1.2 Objective
Many research has been conducted on Non-Timber-Forest-Products (NTFPs) to make these products successful in order to generate a moderate income for poor communities. One of the difficulties by generating income on NTFPs is the limited link to domestic and
international markets.4 This research concentrates on methods to strengthen this linkage in order to support SNV’s goal of developing Nepal’s local organisation’s capacities. In this research the focus will be to concentrate on the NTFPs that come from the Chepang community. To be more specific, this research concerns honey and ghee collected by the Chepang Cooperation, which represents the Chepang from the Chitwan area in Nepal.
Export is a mean of generating income, but can never be a goal. A series of preliminary questions will help to answer the question if export is the right way to generate income. In
1: The Challenge of Export
this research, answering these questions proved in an early stage that export of honey and ghee from the Chepang to the Netherlands is not promising to the poor. The main reasons for not trying to export Chepang’s honey to the Netherlands are:1. National production of this kind of honey is not meeting the national demand. Making money on national opportunities is less risky then export, so it is better to first exploit national opportunities.
2. Importing honey from Nepal is not allowed because of European regulations.
In the case of ghee the reasons for not exporting are different. The local market is saturated, so there is a reason for export. But the Netherlands is not a good choice since the company barriers will be too big. The market knowledge is not within the Cooperation, they have a lack of financial resources to support export, and the cultural differences are difficult to overcome.
SNV’s question of how to export is therefore replaced by the question if the Cooperation should export. The negative answer on this question prevented SNV and the Cooperation investing in activities that are not promising to the poor. Despite the negative answer in an early stage, this research doesn’t immediately stop. The reason this research does not stop here is because it has to be a guideline for other export combinations as well. This process of identifying and judging possible export combinations is also very important for other combinations. The model introduced in chapter six, is also applicable for other combinations and should be used as a guideline for the future when the advisors of SNV and the
Cooperation are considering export. Honey and ghee of the Cooperation are used as an example how to use this model.
The specific goal of this research is to provide useful information for the Chepang
Cooperation and SNV to examine potential links between their NTFPs and the Dutch buyers. The objective therefore is stated as:
To give an advice on how the Chepang Cooperation can identify promising export
possibilities that lead to economical development, thereby focussing on export of Chepang’s honey and ghee to the Netherlands.
1.3 Relations concerning Export
In this paragraph a conceptual model is introduced. This model gives insight in the supposed relations between factors that influence the success of export combinations. First there has to be a reason to export. These reasons are called “export impulses” in this model. Export impulses can also be negative, so that one has conclude it is better to stay out of export. If the impulses are positive, we start with identifying possible combinations of buyers
1: The Challenge of Export
characteristics and product characteristics. The success of these combinations depend on the influence of two things: Company barriers and trade barriers. If these barriers can be overcome we have identified an export opportunity: a promising combination of buyers and products. The next step is an export strategy, but this is not in the scope of this research anymore. The different elements are explained after the introduction of the conceptual model in figure 1.1.Figure 1.1: Conceptual model
Scope Research
Product
Characteristics
Market
Characteristics
Export
Opportunities
Export
Strategies
Company
Barriers
Trade
Barriers
Export
Impulses
Export Impulses:Export takes time and money to become a success. As a company you have to invest money in building new networks, sales channels etc but the knowledge of your returns is less then in the domestic market. So there must be a reason to do so. Cavusgil and Zou (1994) share the opinion that export is a natural step for growing firms due to increasing influence of
globalisation. As possible reasons for export Leonidou (2004) mentions avoiding competitive pressure in the domestic market, better valuation for specific product aspects, spreading business risks, and better use of production capacity. If all this is not the case, then it is not justified to put efforts in export.
1: The Challenge of Export
Income generation and other economical economic side effects are some of the reasons to commercialise products. But in case of this research, SNV want to secure the incomes from these activities for the poor of Nepal. Belcher & Ruíz-Perez & Achidiawan (2005) warn for poverty traps. This is the practise that there is always some farmer willing to undercut the price. Doing this, will harm all other farmers. So the farmers need to be organised in some way. Also the land rights need to be secured to secure future revenues for the poor people.If there is reason to export, the challenge of identifying promising combinations of products and markets is the next step. The term “export combinations” is used in this research to mention the combination of a product and a buyer segment. Four elements that influence the success of the export combination are introduced. These elements from the conceptual model are explained below. The sub questions that comes from these four elements are introduced after this explanation in table 1.1 in chapter 1.4.
Market Characteristics:
If the Cooperation is considering a new export market, the macro-economic determinants are important to look at. Leonidou (2004) warns for the effects of poor determinants on the long term: “poor indicators may erode the purchasing power, and this may affect the consumer behaviour negatively”. Further Leonidou says that another difficulty with export of small companies is matching the competitors’ prices. A way of avoiding this is seeking for niche markets. Jobber (2004) agrees with this way of avoiding competitor pressure. So the next step is identifying niche markets. For these niche markets the demands have to be described to see if the products can meet those demands, and if prices can be met. Export can be interesting if product aspects are better valued in export markets then in the domestic
markets. For the niche markets these aspects have to be described. As one of the difficulties with export Leonidou (2004) mentions the quality of the export products. Since both product of Chepang are food products, and the European quality standard for food is very high, this is considered to be an important issue in this research.
Product Characteristics
For as far as the products are concerned, it has to be found out if they match with the buyers’ demands. A description of the production process will give insight in the production cost price, product aspects and the product quality. To come to a complete insight in the production process the value system of the products have to be described. Porter (1990) uses the term value system as a compilation of value chains of suppliers, producers and buyers. These independent value chains describe all value-adding activities of a company for a product. Eventually this value system gives insight in the competitive advantages of the
1: The Challenge of Export
products compared to other similar products that are sold in the Dutch markets. Acompetitive advantage secures the long term selling success in a market. Concluding, the following sub questions are interesting in describing the products:
After the description of the buyers and the products, one can determine if the product-buyer combination looks promising. Two mayor influences can break the success: company barriers and trade barriers.
Kaleka & Constantine (1995) made an interesting synthesis of export problems described in the literature. In their theory they are dividing the problems into four categories:
1. Internal-Domestic Problems: Problems that manifest in domestic country, but are based in the company itself
2. Internal Foreign Problems: These problems also come from the company itself but manifest in the export-country
3. External-Domestic Problems: Problems that arise from the environment, and are experienced in the domestic market
4. External-Foreign Problems: Problems that come from the environment, and are encountered in the export market
In this research these problems are described under different subjects, namely Company Barriers and Trade Barriers. These last category is split into direct and indirect trade barriers. There are several reasons to do this:
1. The company barriers are all problems in export that arise with the Cooperation only. Another company exporting the same products to the same markets might not have these problems. This gives the Cooperation a good view on their own position, and what to think about export.
2. The trade barriers are problems that also occur in other companies. Direct trade barriers are specific for product-market combinations, where indirect trade barriers are more general. In this way the indirect trade barriers can be copied easily of one want to look at other product-market combinations.
The main reason to split the problems into different categories is thus to make it easier to copy some of these problems if one decides to test another export combination. See appendix B to see the difference in this classification.
Trade Barriers
If the company is ready, and the export combination still looks promising, the trade barriers are the next to examine. Trade barriers can be similar for some products coming from companies based in the same areas. These kind of trade barriers are called indirect trade
1: The Challenge of Export
barriers in this research. If the trade barriers only apply for specific product-marketcombinations, they are called direct trade barriers in this research.
Company Barriers
Thorelli & Cavusgil (1990) emphasize the importance of internal analysis of small companies that are considering export. As aspects of this internal evaluation they mention management commitment, financial resource availability, human resource availability and the soundness of organisational structure. This last aspect has something to do with the current stage of export. Is the company experimenting with their first export projects, or is the organisation ready for larger export streams. The process of a company getting involved in export is described in the Stage Theory of Cavusgil. Gankema, Snuif & Zwart (2000) proved this theory as working best for small sized companies. This is the reason to use this theory for analysing the status of the Chepang Cooperation. The current status of export implies the difficulties and the logical next steps in the export process.
If all looks promising, an export strategy is the next step to come to successful export activities.5 This next step is not within the scope of this research. Now we know more about the background of the elements mentioned in the conceptual model. The questions that helps to get the information needed to analyse these elements are described in the next paragraph.
1.4 Research Questions & Data Collection
This research focuses on the answer on the following research question:
In what way can promising combinations of NTFPs from Chepang, focussing on honey and Chiuri Ghee, and buyer segments in the Netherlands be identified which can lead to economical development of the Chepang society?
The elements of the conceptual model help us to come to this answer. The elements are described in the preceding paragraph, and the questions coming from this description is summarised in table 1.1 below. How these questions are answered and what interviews and literature is used is also described in table 1.1. The table is structured per sub question. The questions that need to be answered are below this sub question. In the table is described in which chapter the question is answered, what literature is interesting for answering this question, and which interviews are held to come to an answer.
1: The Challenge of Export
Table 1.1: Sub questions and data collection1. What are the Export Impulses?
Sub Question Chapter Main Literature Important
Interviews6 How can the export of
NTFPs economically contribute to the Chepang community?
2.1 *Neumann, R.P. & Hirsch, E. (2000)
*de Beer, J.H. & McDermott, M.J. (2005)
*OECD (1995)
*Belcher, B & Ruíz-Pérez, M. & Achdiawan, R. (2005)
*Neumann, R.P. & Hirsch, E. (2000) *CDO (2006) * Nepal Beekeeper’s Association (2006) What is the Chepang’s goal by exporting their products? 2.2 *Chepang Cooperation (2006)
How can the profits of the Chepang be secured?
2.1 * Belcher, B & Ruíz-Pérez, M. & Achdiawan, R. (2005)
*CDO (2006)
2. What are Buyer Characteristics of the Potential Dutch buyers of Chepang’s NTFPs?
Sub Question Chapter Main Literature Important
Interviews How can the
macro-economic determinants be described of the Netherlands? 3.1 *Boonstra, W. (2004) *Leonidou, L.C. (2005) *CBS (2005) *EIU (2005)
What are the buyer segments?
3.2-3.5 *OECD (1995) *Jobber, D. (2004)
*Marshall, E. & Schreckenberg, K. & Newton, A.C. & Bojanic, A. (1999)
*Imkerij het oude slot (2005) *Trillingo (2005) *New Sadle (2006)
1: The Challenge of Export
What is the demandof these segments?
3.4-3.5
What aspects are valued in the product by the buyers?
3.4-3.5 *World Shop guidelines *Fair Trade Standards
*Trillingo (2005) *Fair Trade (2005)
What are the quality demands of the buyers?
3.4-3.5 *Council Directive EU (2001) *World Shop guidelines *Fair Trade Standards
*National Association of World Shops (2005) What are the market
prices in the Netherlands?
3.4-3.5 *Organic Shops
(2005)
3. What are the Product Characteristics of Chepang’s NTFPs?
Sub Question Chapter Main Literature Important
Interviews How is the product
processed? 4.2/4.3 *www.nhhb.org *Martin, D. (2004) *Chitwan Bee Keeping Form (2006) *Chepang Cooperation (2006) *Ghorka Bee Farm (2006)
What is the quality and how is it maintained?
4.2/4.3 *www.beesfordevelopment.org *Chepang Cooperation (2006) *Ghorka Bee Farm (2006) *Nepal Beekeeper’s Association (2006) In what volumes is it produced? 4.2/4.3 *Chepang Cooperation (2006) What is the cost price
of the product?
4.2/4.3 Martin, D. (2004) * Chitwan Bee Keeping Form (2006)
1: The Challenge of Export
Cooperation (2006) *Ghorka Bee Farm (2006)How is the value system described?
4.2/4.3 *Porter (1990) *Chitwan Bee Keeping Form (2006)
*Chepang
Cooperation (2006) *Ghorka Bee Farm (2006)
4. What are the Trade Barriers?
Sub Question Chapter Main Literature Important Interviews Indirect Trade Barriers
Are the transport costs reasonable?
What are the difficulties with transport?
What are the risks in selling abroad?
What is the government’s support to export?
Are there any currency difficulties?
5.1
Direct Trade Barriers
Are the buyers accepting the product specifications? What are the difficulties with import regulations?
Are the trade tariffs reasonable?
5.2/5.3
*DFID (2005)
*Cavusgil, S.T. & Zou, S. (1994)
*Porto, G.G. (2005) *Leonidou (2004)
*Trade and Investment Div. Unescap (2003) *Council Directives EU *New Sadle (2006) *VWA (2005) *Gandaki Bee (2006) *Alternative Herbal Industry (2005)
5. What are the Company Barriers?
Sub Question Chapter Main Literature Important Interviews How is the marketing
knowledge within the
5.4 *Thorelli, H.B. & Cavusgil, S.T. (1990)
* Chepang
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company?Are the financial resources sufficient?
5.4
Does the company have the human resources for export?
5.4
What is the current stage of export?
5.4
* Leonidou, L.C. (2004) *Gankema, H.G.J. & Snuif, H.R. & Zwart, P.S. (2000)
*Ghorka Bee Farm (2006)
1.5: Constraints
This research is partially conducted in the Netherlands and partially in Nepal. The first period took place in the Netherlands from June until September 2005. During this period the Dutch buyers were roughly analysed. The second part took place in Nepal and started in November 2005. During that time the focus was laid on the analyses of the producers and the product characteristics. The research finished in May 2006.
1.6: To Be Expected
In the first two chapters the problem has been set out. Six sub questions have been presented in this chapter to give an answer on the main question. Below a very brief
description is given on what can be expected in all the chapters, in order to give an answer to all sub questions.
Chapter one: The Challenge of Export
Nepal and its challenges are presented in this chapter. The indigenous group of Nepal called Chepang are introduced, and the way SNV supports this group. Their problem field is
presented, and the contribution of this research to this. The methodology of this research is introduced in this chapter.
Chapter two: Export Impulses
In this research the Non-Timber-Forest-Products of the Chepang are the central issue. What are these products and how can they contribute to the economic development of the
Chepang. What are the reasons (not) to consider export? The constraints that can make or brake the success of export are presented in this chapter.
1: The Challenge of Export
Chapter three: Dutch Buyer CharacteristicsFirst of all the macro-economic indicators of the Netherlands are summarised. Then the buyers for honey and ghee located in the Netherlands are divided in niche markets and described as such. Per segment the demand, the product valuation, and the quality demands are described.
Chapter four: Chepang’s Products Characteristics
In order to give an idea if the product characteristics meet the buyers’ demands, the products of Chepang are described in this chapter. For both honey and chiuri ghee, the volume
outputs, quality, value system, cost price and competitive advantages are described.
Chapter five: Trade Barriers and Company Barriers
If product characteristics meet the buyers’ demands, still trade barriers and company barriers can influence the success. In this chapter the direct and indirect trade barriers are described. Finally the company barriers of the Cooperation for export are discussed.
Chapter six: Identifying Export Opportunities
In this chapter a model is presented which can be used as a guideline containing preliminary questions for the advisors of SNV that they have to answer before considering export as a way of income generation for the poor people. This model is used to summarise the outcomes for ghee and honey.
Chapter seven: Conclusion, Recommendations and Discussion
In this chapter the conclusions are summarised. Based on his findings during the research, the author gives his recommendation on the issue and follow-up in this chapter. In the discussion part, a reflection on the process of conducting this research and the author’s experiences follows.
The next chapter will start with in introduction of the difficulties that arise in making export profitable for the poor. This will build a framework of restrictions that can be used in the rest of this paper. The goal of the next chapter is to introduce positive and negative impulses to consider export of Chepang’s products as a way of income generation.
1
The caste system is still used in daily life of Nepal. It is a system of socioeconomic stratification in which strata are closed and a person’s membership is determined at birth.
2
Kirant, J. & Lama-Tamang, M.S. & Raj Prakash, M. (2003). Mid-Term Review of Praja Capacity
Development Programme (PCDP). Nepal: SNV Nepal 3
Bishwa Raj Karki (2001). A Report on NTFPss Marketing of Praja Cooperative. Kshetrapur in Nepal: Industrial Development Institute
1: The Challenge of Export
4
Lotus Intellect Pvt (2004). Ltd. Report on Subsector Analysis NTFPs.
5
Based on: Cavusgil, S.T. & Zou, S. (1994). Marketing Strategy Performance Relationship: An
Investigation of the Empirical Link in Export Market Ventures. U.K: Routledge, Journal of Marketing
vol. 58
6
2: Export Impulses
Chapter 2: Export Impulses
The products of the Chepang Cooperation in Nepal for which new markets are sought, are categorised as Non-Timber-Forest-Products by SNV. In this chapter is described if
commercialising these products leads to economical development, and what the difficulties are. Several methods can be used to commercialise NTFPs, export is one of them. The NTFPs of Chepang are briefly described in this chapter and also what the impulses to consider export are.
2.1 Importance of NTFPs
The goal of this research is to give an advice on how promising export combinations between NTFPs of the Chepang and the Dutch buyer segments can be identified in order to generate a fair income for the Chepang community. Does commercialising NTFPs contribute to this goal, and how?
The definition used for Non-Timber-Forest-Products is the following:
Non-timber forest products consist of goods of biological origin other than wood, derived from forests, other wooded land and trees outside forests.
For a complete discussion and explanation of this definition is referred to appendix D.
Research showed a correlation of income with the dependency on NTFPs use in Nepal.7 As incomes decreases, the dependency on the NTFP-use increases. Three reasons for this correlation are identified:
1. Extraction of NTFPs in general doesn’t require big investments
2. There is a strong geographic overlap between the forest areas and the areas where indigenous impoverished people live. The economic and political centres are not concentrated near or in the forest
3. The lack of other opportunities in forest areas
Exploiting NTFPs has significant value for rural and national economies in the direct environment in terms of the provision of material needs, cash income and employment8. Case studies have learned us that initiatives in expanding opportunities of local resources in rural areas have good trade-offs. Even a small number of new jobs in these areas can be significant in rural areas like in the areas where the Chepang are living. Small successes can
2: Export Impulses
have attracting side-effects like building moral and social cohesion and increasing skills of the workforce9.
The community is dependent on the wellness of the forests where they live near by. Besides the value of the products that come from the forests, the trees offer watershed protection, soil stabilisation and climate regulation. Therefore it is in everybody’s interest to protect the forests of Nepal. Studies have shown that the economic value of NTFPs is higher than the value of timber. For this reason political interest has risen to support the production of NTFPs in order to contribute to the national income and meanwhile protect the forests.
Though it may look as if exploiting NTFPs will always benefit the poor of a given area and is good for the environment, a bitter down side exists. In open-access conditions there is uncontrolled competition for resources, leading to inefficient and damaging harvesting
practices. Profits for harvesters are pushed to the minimum. There is always someone willing to undercut the selling price so it will give middlemen a competitive advantage in the trade. This is the case especially when the product is perishable and when access to markets is limited by poor infrastructure, or various so-called “social barriers” are actual. Indeed, some of the cases may represent “poverty traps” in that, as more people get involved and/or as prices drop, harvesters who depend on the resource are compelled to harvest more just to break even10.
This suggests that making the commercialisation of NTFPs a success, depends on the way producers are organised. If they are not organised, and they only have access to the market by a few middlemen, these traders will be the ones who benefit the most. Fortunately, in case of the Chepang such an organisation already exists. The power of the producers is bundled in the Cooperation. This Cooperation is looking for direct market access, in order to have producers benefit from trade.
What does this mean for the support of the Chepang project in Nepal? When the prices for the NTFPs from Chepang are increasing, it does not necessarily mean better conditions for the indigenous people who harvest the products. Several studies around the world on commercialisation of NTFPs have shown that increased prices for NTFPs did not lead to better conditions for the ones who harvest them.11 Because of a lack of secure property rights even the contrary happens: While prices increase and markets expand, the economic situation of the extractors becomes worse. Outsiders come to exploit the NTFPs. This is an aspect that has to be considered.
2: Export Impulses
The lesson that has to be drawn from this is that legal rights have to be secured first before starting to commercialise the NTFPs. An analysis has to be made of the beneficiaries of commercialisation in order to make it a success for the harvesters. The closer the products can be brought to the consumer, the bigger the margins for the ones who harvest the products. If the products can be brought closer to the customers by the ones harvesting them, the harvesters have a stronger position towards the middlemen. A way of doing this is by organising the farmers together in a Cooperation. This means that they have alternatives for the middlemen, so that they have bargaining power in their negotiations with middlemen. An unequal distribution of profit margins in the distribution chain can be avoided in this way.
2.2 NTFPs of Chepang
The production of NTFPs depends on the knowledge of the indigenous people. They know the details of the forest and they have the knowledge base on which the most important decisions need to be made. An increasing interest in NTFPs leads to a significant role for the indigenous people of Nepal. This fits into the goal of SNV to strengthen local companies position and capacities. The Chepang Cooperation is seeking for more business
opportunities to generate more income from the products collected by their farmers.
In the first paragraph of this chapter the definition of NTFPs is presented. Since it is such a broad definition, it is necessary to define the exact NTFPs produced by the Chepang in Nepal. In this research the focus is on two important NTFPs. These products are:
Honey
Vegetable Chiuri Ghee
Both products are being produced by the Chepang for a long period, and the Chepang are very familiar with this production. They are dedicating machinery and people for processing and want to look for more opportunities for these two products. Honey has been an important export product for Nepal to Europe in the past. Also an European importer has shown
interest before to import Chiuri Ghee from Nepal. For these reasons SNV and the
Cooperation suspect export opportunities for these products. So these two products are used to see if it is possible to export them to the Netherlands in such a way that the Chepang can benefit economically.
Honey:
Nepal hosts five of the seven bee species in the world. Nepal has a long history in bee keeping. With little to no land at all, and only small necessary investments it is possible to
2: Export Impulses
generate an income for the people from rural areas by beekeeping.12 That is why different NGOs are interested in supporting this business.
The Chitwan area where the Chepang Cooperation is based, lies in the hilly area that marks the border of the flat Terrai-area which is influenced by the Indian climate to a large extent. The area is on average of 180 meter above sea level and has a tropical climate. This tropical climate had an average temperature in winter between 22 and 26 degrees, and in summer above 36 degrees Celsius. Therefore Chitwan has a wide varieties of flowers and is an excellent host for bees.
In the Chitwan area, Chepang are hosting the Apis Cerana bee. This indigenous bee is collecting it’s nectar and pollen from the jungle nearby. In this area only small areas of land are used for agriculture, and pesticides are hard to find. So this honey is considered to be very pure and healthy by the Nepali people. The selling price of the Cooperation is 150 rupees per kg, that is approximately € 1,74 per kg.13
Chiuri ghee:
Chiuri ghee is a butter product extracted from the Chiuri tree. The Chiuri tree is a medium sized tree which is a native tree of Nepal. The average year production of ghee per tree is around 5,25 kg. The farmers have a production of an average 175 kg per year per farmer. The ghee is sold locally for around 60 Rupees per kg (± € 0.70).14
“Chepang are known for the immense knowledge on forestry products and their collection and preparation. They have a special relationship with Chiuri trees as they have the custom of giving Chiuri trees to their daughters as a gift for their marriage. Hence it is regarded as private resources”15 Ghee is used as edible oils for around 100.000 persons in Nepal. In the western world this product is used when preparing popular Indian dishes. Also the ghee is known for its medicinal uses.
2.3 Why export?
Nepal is in the middle of two giant economies in Asia: India and China. Both countries are quickly developing their economies and exports are increasing. This process of
internationalisation is a worldwide trend in which more and more companies are facing competition from worldwide. With globalisation of markets and competition, foreign markets have become increasingly viable and natural opportunities for growth-oriented domestic
2: Export Impulses
companies.16 Looking for ways of export is a solution to neutralise the competitive pressure the firm faces in the domestic market.
At this moment Nepal is receiving a lot of cheap import from India and China. For some of the local products this means that the market prices have collapsed. This has been the case for chiuri ghee since more than five years. Before the year 2000 Nepalese soap producers used Chiuri Ghee as raw material for their production. Since cheaper chemical alternatives came from India, the demand for chiuri ghee by the Chepang Cooperation dropped to zero in 2001.17 Since the Nepalese soap producers are not giving priority to the healthiness of their products, but were driven by cost price solely, an increasing need for new markets was born.18
So in the case of ghee the collapse of the national market is the motive to consider export. But for the honey from Chepang this is not the case. Prices for honey are still stable, and the demand is increasing. The national supply of Cerana honey does not meet the national demand. The thing that is concerning the Nepalese Beekeepers is the fact that cheaper imports are coming from India and China.19 Export can be a way of avoiding this competitors pressure in the national market. But since this pressure in the local market comes from foreign competitors, it is likely that these competitors are also found in export markets.
By looking for new markets it is possible to receive a better valuation for the product. Some aspects of a product may not be valuated at all in domestic markets, but are well perceived in new export markets. A good example of this is the Fair Trade principle. In export markets, like the EU, customers are willing to pay more for a product if they are ensured the producers receive a fair price for their products. This is not (yet) the case in Nepal and customers are under valuating if producers are applying the fair trade practices. To see if it is promising to export, the price of both domestic and international markets needs to be compared.
Besides the reasons of decreasing domestic pressure and better valuation of product aspect, reasons for export can be: Spreading business risks across different markets and ventures; improving technological, quality and service standards in the organisation; generating more revenues and funds for reinvestment and growth; exploiting idle operation capacity and improving production efficiency; and attracting and rewarding shareholders and employees through the creation of a better profit base.20
2: Export Impulses
2.4 Conclusion
In this chapter the definition of Non-Timber-Forest-Product by FAO (1995) is adapted: Non-timber forest products consist of goods of biological origin other than wood, derived from forests, other wooded land and trees outside forests.
This definition is very broad and applies for the two important products for the Chepang community in this research: honey and vegetable chiuri ghee. These products are proven to be especially important to the poor indigenous people of Nepal. By helping to find a way to sell these products, the local companies are stimulated and hope for income generation rises. This is exactly the way SNV wants to support the poor of Nepal. Still some difficulties might break the success.
First, the power of middlemen that offers market access. The need of the producers to be organised in the Cooperation is proven. This Cooperation can guarantee a fair price for the producers and has the tools for direct market access. The second difficulty is the problem of property rights. To be sure that the Chepang producers are the ones who benefit from new potential markets in the end, a study on the legal framework and distribution chain is needed.
The next question to be answered is whether this commercialisation should be achieved by export. Export is not the easiest way, and brings new business risks. But in a world with growing internationalisation, and Nepal being in the middle of the two exporting giants of Asia, the pressure of international competitors is increasing. Export can be a way to counterbalance this pressure. Another reason for export is that some of the aspects of the product are at this moment not valued in Nepal and could give a good extra value in new export markets.
Commercialisation of NTFPs can be achieved by exporting them into foreign markets. Two main reasons for considering export are:
1. Neutralise the competitor pressure the company faces in the domestic market 2. Generate higher profits because better valuation of the product
So far it is doubtful if it is interesting to look for export possibilities for the NTFPs of the Chepang. This is because there are good national selling opportunities for Cerana honey, so it has to be concluded that export is not the best alternative to generate income. In case of ghee it is likely that the same competitors pressure will exist in export markets, since the pressure in the local markets comes from players outside Nepal.
2: Export Impulses
The next step in the preliminary questions is to test if export combinations of products and markets can be promising. Although in this early stage it has to be concluded that export of Chepang’s honey and ghee is not so interesting, this research will proceed with the
questions for these products in the next chapter to explain the process of identifying export opportunities. In the next chapter the research continues with an analysis of the Dutch buyer segments for ghee and honey. This is the first step in identifying possible export
combinations.
7
R.P. Neumann & E.Hirsch (2000). Commercialisation of non-timber forest products. Bogor, Indonesia: Centre for International Forest Research
8
J.H. de Beer & M.J. Mcdermott (1995). The Economic Value of Non-Timber Forest Products in
Southeast Asia. Amsterdam: IUCN 9
OECD (1995). Niche Markets as a Rural Development Strategy. Paris: OECD
10
Belcher, B. & Ruíz-Pérez, M. & Achdiawan, R. (2005), Global patterns and trends in the use and
management of commercial NTFPss: Implications for livelihoods and conservation, Indonesia: CIFOR 11
R.P. Neumann & E.Hirsch (2000). Commercialisation of non-timber forest products. Bogor, Indonesia: Centre for International Forest Research
12
Martin, D. (2004), Apiculture and Honey Products. A Market/Industry Analysis and Subsector Profile
of Constraints and Opportunities, Germany: Royal Roads University 13
From interview with Chepang Cooperation (2006)
14
From interview with Chepang Cooperation (2006)
15
http://www.itdg.org/, website on practical solutions to poverty, last viewed: 02-12-2005
16
Cavusgil, S.T. & Zou, S. (1994). Marketing Strategy Performance Relationship: An Investigation of
the Empirical Link in Export Market Ventures. U.K: Routledge, Journal of marketing vol. 58 17
Prakriti (2005). Newsletter, Nepal: Prakriti, 3rd issue
18
From interview with mister Govinda P. Ghimire, Managing Director Alternative Herbal Products Nepal
19
From interview with Nepal Beekeepers’ Association (2006)
20
Leonidou, L.C. (2004). An Analysis of the Barriers Hindering Small Business Export Development. U.K: Blackwell Publishing Limited: Journal of Small Business Management, vol. 42
3: Dutch Buyer Description
Chapter 3: Dutch Buyer Characteristics
To begin, this chapter will describe the Dutch market by examining the macro-economic indicators. In the beginning of this research, it is stated that for successful export of NTFPs one must seek for niche markets. What these niche markets are, and why they are
interesting for the Chepang is analysed in this chapter. Then the actual analysis of the buyer segments follows. After this the Dutch buyers’ characteristics for honey and ghee are
described. Per segment the demand and the buyers’ valuation are described.
3.1 Macro-economic Indicators
Before getting into the details about the possible buyer segments of the Netherlands it is important to have a look at the macro-economic indicators. By choosing a country for export, one has to balance risks and revenues. As the Cooperation is a young and fragile
organisation, they want to reduce the risks of export. Poor macro-economic indicators will on the long term destroy customer purchasing power and this will affect the consumer behaviour negatively.21 Looking carefully to the indicators is helpful to get an idea of the long term possibilities, and in this matter the long term development of income for the Chepang Cooperation.
The Netherlands was among the first participators in forming the European Union. In 1992 the member states agreed to form a united economic and monetary union. Since 2002 this agreement was strengthened by the use of one common currency: the Euro. Since then it was possible to travel within the European Union without any passport check and without changing any currency. The European Union wants to form a economic block in which there exist free flow of people, money and goods.22 This in most cased also implicates that if a good or person enters the European Union through one of the member states, it is free to flow through the union. So if a country accepts something or someone it is affecting every member state. This is why rules for import and export and immigration are more and more a concern of the union, and not to be decided by one of the individual states.
At this moment, the European Union counts twenty-five members as ten new countries were welcomed in 2004.23 Four other countries are in negotiations to join the union, these are Bulgaria, Croatia, Rumania and Turkey. The Netherlands was performing as one of the best countries in the union during the nineties. In the period between 1990 and 2002 the absolute Gross Domestic Product (GDP) rose in the Netherlands by 31%. Also the population grew in this period, but still 23% growth of GDP per capita was realised during this period. Late
3: Dutch Buyer Description
nineties, the Netherlands was one of the richest countries of Europe. Also the participation in the labour population was increasing. In 2004 the labour participation in the Netherlands was not only higher than the other countries of Europe, but also higher than US. And the
productivity of the workers per hour was and still is exceptionally high.24
So the Netherlands entered the 21st century with strong financial fundamentals. But it is also facing difficult times. Since 2002 the unemployment rate rose sharply to 6.4% in 2004. Also the obsolescence is a problem, not for the Netherlands alone but for the Union as a whole. Within the European Union the Netherlands is one of the best prepared countries for the obsolescence and is the only country in the European Monetary Union to have a fully funded pension system. In 2003 the Netherlands plunged in a economic crisis. The GDP was
shrinking by 0.9% and this was the biggest drop since 1982. At this very moment the economy is slowly recovering. After a decline of the GDP in the first quarter of 2005, the growth recovered and the growth of the 2nd and 3rd quarter of 2005 was 1,3% compared to the same period in 2004. 25
The year 2004 didn’t show any change in import of consumption goods, and the import was suffering a decline in the first two quarters of 2005. But also the imports recovered in the third quarter of 2005, showing a growth of 1,2%. The purchasing power parity (PPP) was $ 500 billion in 2005.26 This is a PPP of $ 30,000 per capita. Compared to the $ 1,450 per capita in Nepal, the purchasing power parity per capita is very high in the Netherlands.
3: Dutch Buyer Description
Figure 3.2: GDP growth per capita3.2 Niche Markets
One can look in different ways to the term “niche market”. The two most important ways are from a marketing and economic perspective. When explaining the term niche markets, the strategies of product differentiation and market segmentation are often used as synonyms. Schnaars28 explains both strategies as follows:
Product differentiation: Many products sell on image as well as on physical attribute. A strategy of differentiation, as the term implies, is concerned with making the tangible and intangible aspects of a product different from those offered by other sellers. …Product differentiation takes a competitor orientation, but also provides consumer benefits. On the supply side, it allows firms to minimise competition and earn higher profits. On the demand side, it provides consumers with a greater variety of goods and services.
Market segmentation: Segmentation relies on specialisation. It does not seek to satisfy all consumers. Instead, it provides something special to a small, but defensible part of the market. …Segmentation avoids competition across a broad market by focusing on part of the market. It appeals especially to consumers in that segment with either lower prices or unique products, which are designed specifically for them. …Unlike differentiation, segments are not solely the creation of marketers.
A pure niche market is a market segment: small, narrow and specific. Product differentiation can help to create such a niche market, because by product differentiation the product can
3: Dutch Buyer Description
become very appealing to this specific segment. So to aim for a niche market, the producer has to focus on its product differentiation strategy. Porter5 states that this is done by
focussing on competitive advantages:
Competitive advantage is at the heart of a firm’s performance in the competitive market. (…) It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its products. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation.
First the relevance of niche markets for the Chepang most be clarified. The product that the Chepang Cooperation wants to find markets for, honey and ghee, are not new products in the Netherlands. The market for these products is also not new. The market can be
described as a mature market. During the maturity stage, market shake-outs are common. During shake-outs survivors battle for market share by product improvements, advertising, sales promotional offers, dealer discount, and price cutting. The result is a strain on profit margins, especially for brand followers.
When the Chepang Cooperation wants to enter this market, several marketing strategies exist to survive these shake-outs. The best suitable to Chepang, as becoming a small supplier in the markets for NTFPs, is to serve market niches. Niches can serve as buffer zones when competition pressures are not too strong and growth is possible. In order to do so, one has to look for market segments where big companies are underperforming. The reason big companies leave these market segments might be because small segments do not warrant heavy investments29.
The non-niche market of NTFPs such as honey includes for instance the supermarkets. The supermarket branch is huge in the Netherlands, and so are their supplier demands. The demanded volume exceeds the production capacity of the Chepang. One complication to underline this, is the explicit demand for the so-called year round supply. This means that the Cooperation needs to supply year round in the huge amounts that the supermarkets
demand. Since the Chepang do not want to start a privately owned shop in the Netherlands, this research focuses on the Dutch retailers as buyers of their products.
3.3 Model for Analysing Niche Markets
So far it has been proven that niche markets are the only possibilities of export for the
3: Dutch Buyer Description
them carefully. The steps to be executed to give a complete description of the niche markets are:30
Determine the niche markets: In this process one has to look for a small, narrow and specific buyers group. This group needs to have a special interest in the products of the Chepang. Because the Chepang are a vulnerable group, it is important to look for a group of buyers that is not to big and is willing to support the Chepang.
Analyse niche markets: In the next step these special demands need to be rewarded. How special are these demands, and how important is this for the buyers? In this step also the quality requirements need to be analysed so that in the next chapter it can be seen if the products can meet these demands.
Determine “what’s in it”: What is the size of the demand for this specific group of buyers and how much are they willing to pay for it? This price can be used to see if export to these niche markets can be profitable on the long term.
3.4 Honey Niche Markets
The European Union made the following definition for a product to be honey31:
Honey is the natural sweet substance produced by the Apis Mellifera bees from the nectar of plants or from secretions of living parts of plants or excretions of plant-sucking insects on the living parts of plants, which bees collect, transform by combining with specific substances of their own, deposit, dehydrate, store and leave in honeycombs to ripen and mature.
This definition contains some important aspects. The most important are:
1. Honey must come from the Apis Mellifera bee. Honey coming from other bees are not allowed to enter the European Union.
2. The honey can only be made of nectar and pollen that is collected by bees. These bees must make the end products themselves. Therefore honey that is mixed with sugar is not allowed, and it is not allowed for instance to artificially dehydrate honey.
If this honey is found it may enter the European Union and it can well serve the following niche markets: World welfare retailers and Organic Shops. The welfare retailers are trading in honey not from a commercial point of view, but from the conviction that selling the
products will benefit the poorest. In the Netherlands this kind of shops are represented by Fair Trade and World Shop.
3: Dutch Buyer Description
World ShopThe Dutch “wereldwinkel” (World Shops) is a volunteer-led organisation to promote fair trade practices with developing countries. The articles they have in their outlets are a result of trade with developing countries that concern32:
9 Respect for human and environment 9 Decent labour conditions
9 Sustainable trade relations 9 Supporting business development 9 Transparency in value chain
The World Shops are represented in the Netherlands by 400 independent shops. These shops are managed by volunteers who are allowed to make their own business plans, within the goals of the organisation as a whole. One central steering committee, the “Landelijke Vereniging van Wereldwinkels”, sets the goals for the World Shops. They give advice to the independent retailers, they design a house style etc.
The 400 shops are allowed to supply their own shops as long as they buy from one of the certified importers. The license to become an importer for the Wereldwinkel is approved by the steering committee “Landelijke Vereniging van World Shops”. At the time of writing, 14 certified importers are allowed to supply the 400 shops. These 14 importers have an permanent exhibition in Culemborg where the shop holders can go and “shop” for their products.
So if a producer wants to supply the Wereldwinkel shops, this can be done in two ways: 1) Become an importer yourself. So apply for the certificate, meet the requirements stated by the Landelijke Vereniging van World Shops and supply directly to the shops. The cost of the certification procedure is around 3000 euro.
2) Work through a certified importer. Still you have to meet the standards for suppliers of the Wereldwinkel, but it is not necessary to have a representative office in Holland and there is no costly license necessary.
Fair Trade
Fair trade is one of the certified importers for the World Shop. Fair trade is more specialised in food products from developing countries. Fair Trade’s most important trademark is that their transparency in the selling price. For all buyers it is possible to have a look at the profit distribution in the distribution chain. In this way the profits for the farmers/harvesters are secured. The Fair Trade organisation is not Dutch but a global network of cooperating
