A Term Paper on

Investment appraisal of fresh vegetables farming in Chitwan, Nepal

January, 2023

TABLE OF CONTENTS
LIST OF TABLES....................................................................................................................iv

PROJECT SUMMARY.............................................................................................................v

1. Introduction............................................................................................................................1

1.1 Background.................................................................................................................1

1.2 Project Justification.....................................................................................................1

2. Objectives..............................................................................................................................2

2.1 Broad objective...........................................................................................................2

2.2 Specific objectives......................................................................................................2

3. District profile........................................................................................................................2

4. Methodology..........................................................................................................................3

4.1 Study site.........................................................................................................................3

4.2 PESTEIL Analysis...........................................................................................................3

4.3 SWOT(R) Analysis..........................................................................................................3

4.4 Financial Analysis...........................................................................................................3

4.4.1 Net present Value (NPV)..........................................................................................3

4.4.2 Benefit Cost Ratio (BCR).........................................................................................4

4.4.3 Internal rate of return (IRR)......................................................................................4

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 4.4.4. Payback period.........................................................................................................5

4.4.5 Breakeven point (BEP).............................................................................................5

5. Investment analysis of the farm.............................................................................................5

5.1 PESTEIL Analysis......................................................................................................5

5.1.1 Political Aspects..................................................................................................5

5.1.2 Technical Aspect.................................................................................................6

5.1.3 Marketing Aspect.................................................................................................6

5.1.4 Managerial Aspect...............................................................................................6

5.1.5 Economic Aspect/Financial Aspects...................................................................6

5.2 SWOT(R) Analysis.....................................................................................................7

5.3 Financial Analysis.......................................................................................................8

5.3.1 Total Fixed Cost..................................................................................................8

5.3.2 Total Variable Cost..............................................................................................9

5.3.3 Total Cost...........................................................................................................10

5.3.4 Calculation of Total income..............................................................................10

5.3.5 Calculation of BC ratio, NPV and Breakeven point..........................................11

5.3.6 Calculation of Payback Period...........................................................................12

5.3.7 Sensitivity analysis............................................................................................13

6. Conclusion...........................................................................................................................14

7. Recommendations and suggestions.....................................................................................15

7.1 Suggestions for farmers............................................................................................15

7.2 Suggestions for other business actors.......................................................................15

7.3 Recommendation for government and concerned stake holders..............................15

References................................................................................................................................16

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 LIST OF TABLES
Table 1. SWOT Analysis of vegetable farming in Chitwan district..........................................7
Table 2. Estimated total fixed cost of Lamichhane Vegetables Farm.......................................8
Table 3. Estimated total variable cost of Lamichhane Vegetables Farm..................................9
Table 4. Estimated total cost of Lamichhane Vegetables Farm..............................................10
Table 5. Estimated total income of Lamichhane Vegetables Farm.........................................10
Table 6. BC ratio, NPV and Breakeven point of Lamichhane Vegetables Farm....................11
Table 7. Payback period of Lamichhane Vegetables Farm.....................................................12
Table 8. Sensitivity analysis of Lamichhane Vegetables Farm...............................................13

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PROJECT SUMMARY
The report is an investment analysis about the proposed LamichhaneVegetables
Farm. It will be established inChitwan district. The economic life of the project is expected to
be at least 7 years. This project has set its main objective to meet the demand of vegetablesto
the consumers Bharatpur municipality along with neighbouring municipalitiesof Chitwan
district at reasonable price. The project has been put forward with a target of growing fresh
vegetables including cauliflower, cabbage, radish, rayo, cucumber and so on in the total area
of 20 ropani at the beginning of the project.
The initial investment of project isRs. 496140 with payback period of 2.43 years. The
calculated NPV of project is NRs268356.4(@ 10% discount rate) and BC ratio is expected to
be 1.24.
The factors to be considered while cultivating fresh vegetables are studied well.
Every factors and aspects were analyzed in terms of the financial feasibility, which suggested
that the project "Lamichhane Vegetables Farm" will be feasible at the proposed location.

Project Information

Name of the Project Lamichhane Vegetables Farm

Project ownership 100 % Private
Proprietor SumanLamichhane
Location of the Project Parbatipur, Chitwan
Registration No. -
Contact No. 98********

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1. Introduction

1.1 Background
Nepal is developing country which relies much in an agricultural economy. Farming
is the major occupation of the farmer in Nepal where 2/3rd of the total population is engaged
in agriculture for sustaining livelihood (GC &Ghimire, 2018). Agricultural sector contributes
to 31% of gross domestic product (GDP) in Nepal. Vegetable production has played an
important role in determining the economic conditions of the farmer (Ghimire&Lamsal,
2018). Vegetable farming is efficient to generate cash income even from a small plot of land
in a short period of time and helps to uplift the living standard of farmers (Gurung et. al,
2016). Vegetables have higher commercialization rates and high benefit-cost (B:C) ratio
compared with cereal crops (Bhandari, Bhattarai, &Aryal, 2015). Vegetable farming ensures
livelihood primarily through food provision, income generation and employment because
vegetables are preferred cash crops.
Fresh seasonal and off-season vegetables have been categorized as high value crops;
Agriculture Perspective Plan (APP) designated vegetable crops as one of the priority crops
for Nepal's agriculture development and has emphasized the development of this subsector in
the country based on comparative advantages under different bio-physical domains(APP,
1995-2015). Nepalese government is also emphasizing the production of offseason
vegetables in the hills of Nepal as an important cash crop that could enhance the income level
of farmers and thus help to reduce the incidence of poverty (APP, 1995-2015). Vegetable
farming has been providing regular employment and income to the marginal farmers and
their family members throughout the year by bringing economic gains (Panta,
2001).Although the Terairegion produces and sells more vegetables, vegetables grown in
hilly region have better value because they are produced during rainy reason when prices are
relatively higher (Parsai, 2011).

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1.2 Project Justification
Chitwanis one of the major vegetable producing districts in our country. This district
has good access of road for the transportation and marketing of vegetables.Though there is
huge cultivation of fresh vegetables, there is still various constraints related to the cultivation
practices and low profit.In spite of great scope of commercialization and production of fresh
vegetables in Chitwandistrict, very few farmers are engaged in its production. There may be
several factors hindering its commercialization. To investigate these problems and
recommend possible solutions, this study is highly needed.
Establishment of vegetable farm can boost up their economic level through rapid
return of revenue. Vegetable farm can encourage other farmers to invest their fund in
vegetable business. Besides, employment opportunity can be a bonus point to the marginal
people to sustain their livelihood. The farm can contribute to increase vegetable productivity
directly or indirectly. This investment analysis report can be used as a tool to progressive
farmers to analyze whether their business is in profit or deficit. Initiation of vegetable farm
not only supplies quality vegetables but also can be productive and enhance the profit within
the short period of time.Chitwan is one of the main leader in the country in vegetable
production. Farming in Chitwan has leapt from subsistence to commercialization in just over
a decade.

2. Objectives

2.1 Broad objective

 To assess the existing situation of vegetable production and explore the ways for the
institutional development of vegetable at locallevel and analyze financial indicators of
vegetable farm.

2.2 Specific objectives

 To identify scope and opportunities to promote vegetable as an enterprise for
improving the economic status of the vegetable farmers.
 To identify the problems faced by vegetable farmers on production and processingto
analyze the financial feasibility study of vegetable cultivation.
 To analyze the financial feasibility study of the vegetable farm.

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3. District profile
Chitwan district is situated in Bagmati province of the Nepal. The annual temperature
ranges from the 24 degree Celsius in summer and rainy season and 15 degree Celsius in
winter having relative humidity 50-80%. The average rainfall of the district is 1993
millimeter per year. The altitude ranges from 415metresfrom the mean sea level (MSL).The
district has 152.96 meter square cultivated land .Rice, wheat, maize, vegetables, etc. are the
major crops being grown in the district. (DADO, 2072/73).Agro-climatic condition can be
exploited in the district for the production of fresh vegetables.

4. Methodology

4.1 Study site

Chitwandistrict has been selected purposively as study site based on the area coverage
of vegetable and its potentiality for growing off fresh vegetables.

4.2 PESTEIL Analysis

Under this, the political, economic, social, technological, environmental, institutional
and legal aspects related to vegetable farming in Chitwan district were analyzed.

4.3 SWOT(R) Analysis

Under this, the strengths, weakness, opportunities and risks or threats of vegetable
farming in Chitwan district was analyzed.

4.4 Financial Analysis

All the costs incurred in the business and income from farm was listed out in the
financial analysis. The cost was considered into two main categories; fixed and variable cost.
The financial analysis of the business was done by using mainly fiveinvestment criteria
which are NPV, Pay Back Period (PBP),Benefit Cost Ratio (BCR), IRR and Breakeven
point.

4.4.1 Net present Value(NPV)

It was used as discounted cash flow measures of absolute profitability.Net Present
worth(NPV) was computed as present worth of incremental benefits (cash inflows)less

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present worth of incremental costs (cash outflows)due to farm enterprise (specified)or,in
other wordsas present worth of incremental net benefits (net cash flows)due to farm
enterprise (specified).
n
Bt −Ct
NPV= ∑ −−−−¿(1+i)t
t =1

Where,the notations on right hand side of the equation stand for the meaning as given
under B-C ratio.The investment on farm enterprise will be financially feasible if NPV is
positive.

4.4.2 Benefit Cost Ratio(BCR)

Benefit cost ratio was taken as the ratio of present worth of incremental benefit
stream (cash inflows)to present s worth of incremental cost stream (cash outflows)due to
enterprise.
n
Bt
∑ −−−−−¿ (1+i)t
t =1
n
Ct
∑ −−−−−¿ (1+i)
t
t =1

Where,
Bt= increment benefit in tthperiod due to farm enterprise(NRs)
Ct=incremental cost in tthperiod due to farm enterprise(NRs)
N=number of years
I=interest (discount)rate(%)
The farm will be financially feasible if the present worth of incremental benefits is
greater than the present worth of incremental costs due to farm.

4.4.3 Internal rate of return (IRR)

It is the discount rate which just makes the net present worth of incremental net
benefit stream equal zero.Thus, it is the value of “I "which makes
n
Bt −Ct
∑ −−−−¿(1+i )
t
=0
t =1

The notations are same as given under B-C ratio

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 In other words,IRR is the maximum interest that a project can pay for the resources
used in the project is to recover its investment and operating expenses and still just break
even.The method of interpolating the value of IRR lying between the two discount rates,too
high on one side and too low on the other (between a spread of five %points)is given below:

IRR=LDR+Difference between two discountrates [ NPV at LDR

∑ NPV at LDR+ NPV at HDR ]
Where,
LDR=Low discount Rate
HDR=High discount Rate
The farm would be financially feasible if IRR is greater than interest rate on farm
establishing and running loan.

4.4.4. Payback period

Payback period is the time required to recover the initial cost of an investment. It is
the number of years it would take to get back the initial investment made for a project.
Pay Back Period (PBP) = A+ B/C
Where,
A is the last period number with a negative cumulative cash flow;B is the absolute value (i.e.
value without negative sign) of cumulative net cash flow at the end of the period A; andC is
the total cash inflow during the period following period A. Cumulative net cash flow is the
sum of inflows to date, minus the initial outflow.

4.4.5 Breakeven point(BEP)

BEP is calculated as the ratio of fixed cost to difference between sales revenue and
variable cost.

BEP= [−−−−¿ sales r e¿venue−variable

cost
cost ]
x100%

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5. Investment analysis of the farm
The investment analysis/ appraisal of the farm includes PESITEL analysis, SWOT
analysis and financial analysis including the calculation of NPV, BC ratio, IRR and payback
period.

5.1 PESTEIL Analysis

5.1.1 Political Aspects

As government policies and regulations regarding agricultural products will affect the
farmer’s decisions regarding various agriculture products. The political scenario of the nation
after peace restoration is becoming more favorable for attracting private sector investor to the
vegetable cultivation as well. However certain form of political disturbances like blockades,
road strikes etc. may affect the business. In this scenario risk management strategies for
escaping the political risk will be adopted properly.

5.1.2 Technical Aspect

This is a small scale industry to produce and supply vegetables inside and outside the
district.Farm is located atChitwanwhich is the best for offseason vegetable cultivation, with
well drained land.

5.1.3 Marketing Aspect

The necessary inputs like: seeds, fertilizers, equipment are easily available at
Chanauli, and Bharatpurat reasonable rate. Parbatipur being the zone for vegetable
production there are numbers of competitive firms but have high market due to high demand
of vegetables than the supply.

5.1.4 Managerial Aspect

Farm is running with one permanent worker, one supervisor and one agriculture
consultant.

5.1.5 Economic Aspect/Financial Aspects

The major components in production of vegetable include input costs, labour cost and
land preparation cost.Economic/Financial aspect of the proposed project will be covered in

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the investment analysis of the proposed project in the coming section judged through the
indicator B:C ratio, NPV, Pay Back period and sensitivity analysis.

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5.2 SWOT(R) Analysis
Table 1.SWOT Analysis of vegetable farming in Chitwan district
Strength Weakness
 Oneoftheadvantagesofferedby farm  Lack of skilled human resources
isthatit will produce vegetables of  Low road access and difficulty due
high quality and itwill also provide to seasonal roads
continuous supplyof vegetable toits  Lack of improved seeds
customers.  Subsistence level of farming
 Availability of cultivable land  Lack of good market facilities
 Climatic suitability  Lack of proper knowledge and
 Independent management technology on production
 Integrationof differentprojects is  Lack of collective marketing
possiblefor example maize and practices
cucumber is possible by  Insufficient collection and storage
intercropping. facilities; and minimum value
 Laboris readily available addition within the country.
 The projecthastaken cognizance of  Due to the lack of
social inclusion factors in termsof entrepreneurialskilland business
gender, social status andadolescents knowledge, farmersare unable to take
farming as business.
Opportunities Threats/ Risks
 Scope to increase the production area  Soil erosion
and overall productivity  Prevalence of diseases;
 Possibility to increase price through  Unpredictable weather
improved post-harvest practices like  Decline in consumer demand
cleaning, grading sorting  Lack of market
 Possibility of product and market  Poor agricultural policies
diversification opportunity for import
substitution
 Opportunities to employ women

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 anddisadvantaged groups in
processing activities;

5.3 Financial Analysis

5.3.1 Total Fixed Cost

Table 2. Estimated total fixed cost of Lamichhane Vegetables Farm

Total annual
expense
Quan Rate( Total Cost for from 2nd Expecte
S.N Items Unit
tity Rs) Cost 1st year year d Life
including
10% interest
1 Land lease Ropani 20 1500 30000 30000 33000
2 plastic Tunnels No. 4 15000 60000 12000 18000 5
3 Equipment 0 0
3.1 Buckets No. 5 200 1000 100 200 10
3.2 Shovel No. 2 200 400 40 80 10
Wheel
3.3 Barrow No. 4 1000 4000 400 800 10
power
3.4 Sprayers 4 1800 7200 1440 2160 5
3.5 spade Set 2 300 600 60 120 10
3.6 Miscellaneous 1 10000 10000 1000 2000 10
Total 103200 45040 56360 103200

5.3.2 Total Variable Cost

Table 3. Estimated total variable cost of Lamichhane Vegetables Farm

Total Interest
Rate Total
S.N Items Unit Quantity cost rate(10 Remarks
(Rs) cost/year(RS)
(Rs) %)

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 1 Seeds kg 3000 3000 300 3300
2 Seed treatment 200 200 20 220
3 Manpower 0 0
for 12
3.1 Labor Month 12 12000 144000 14400 158400 months
for 12
3.2 Supervisor Month 12 15000 180000 18000 198000 months
for 12
3.3 Ag consultant Month 12 2000 24000 2400 26400 months
4 Tillage cost Hrs 7 600 4200 420 4620
5 Labor cost 0 0 0
Labors for
5.1 planting Rs 25 400 10000 1000 11000
Labors for
fertilizer
5.2 application Rs 40 400 16000 1600 17600
Labors for
harvesting
5.3 & cleaning Rs 15 400 6000 600 6600
6 pesticides 1 2000 2000 200 2200
7 Fertilizers 0 0 0
7.1 Urea kg 90 30 2700 270 2970
7.2 DAP kg 50 60 3000 300 3300
7.3 MOP kg 0 0 0
7.4 FYM Doko 1200 30 36000 3600 39600
Storage,gradin
g,
transportation
8 and marketing 20000 20000 2000 22000

Total
B Variable cost       451100 45110 496210  

5.3.3 Total Cost

Table 4. Estimated total cost of Lamichhane Vegetables Farm

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Total Fixed Cost for First year 45040
Total Variable Cost 451100
Total cost for first year 496140
Total cost from second year onwards
A (Total Fixed Cost) 56360
B (Total variable cost) 496210
Total cost (A+B) 552570
Total Initial Investment 496140

5.3.4 Calculation of Total income

Table 5. Estimated total income of Lamichhane Vegetables Farm

S.N Items Unit Quantity Rate(Rs) Total Remarks
1 Cucumber Kg 18000 15 270000
2 Cauliflower Kg 20000 10 200000
3 Cabbage Kg 22000 6 132000
4 Tomato Kg 12000 15 180000
5 Radish Kg 22000 10 220000
6 Rayo Kg 15000 50 750000
Total
Revenue       1752000

5.3.5 Calculation of BC ratio, NPV and Breakeven point

Table 6. BC ratio, NPV and Breakeven point of Lamichhane Vegetables Farm

Project's Profit
and loss
statement 1 2 3 4 5 6 7 Total
Operating Cost 496140 552570 552570 552570 552570 552570 552570
Sales revenue 1752000 1752000 1752000 1752000 1752000 1752000 1752000
Gross
operating profit 1255860 1199430 1199430 1199430 1199430 1199430 1199430
Total Fixed 38320
cost(a) 45040 56360 56360 56360 56360 56360 56360 0

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Total variable 34283
cost(b) 451100 496210 496210 496210 496210 496210 496210 60
Depreciation(1 3780.302 3402.272 3062.044
0%)© 4504 5185.6 4667.04 4200.336 4 16 944
Tax (13% of
sale)(d) 227760 227760 227760 227760 227760 227760 227760
Total cost
including tax 784997.0 784530.3 784110.3 783732.2 783392.0
(a+b+c+d) 728404 785515.6 4 36 024 722 449
967002.9 967469.6 967889.6 968267.7 968607.9 68293
Profit after Tax 1023596 966484.4 6 64 976 278 551 18
Discount 0.909090 0.826446 0.751314 0.683013 0.620921 0.564473 0.513158
factor@10% 909 281 801 455 323 93 118
Discounted 662185.4 649186.4 589779.8 535844.7 486870.8 442396.4 402003.9 37682
Cost 545 463 948 756 064 358 876 68
Discounted 930541.8 798747.4 726523.6 660794.7 600983.3 546561.8 497049.0 47612
Benefit 182 38 364 982 516 897 355 02
1.405258 1.230382 1.231855 1.233183 1.234379 1.235457 1.236428 1.2634
B:C Ratio 62 185 549 243 519 263 122 99
268356.3 149560.9 136743.7 124950.0 114112.5 104165.4 95045.04 14184
NPV @10% 636 917 415 225 452 539 79 7.7
7.867303 11.98449 11.97129 11.95943 11.94878 11.93921 11.93061 11.267
BEP 876 246 201 644 649 774 896 41
Thus, enterprise break even @ 11.27%

5.3.6 Calculation of Payback Period

Table 7. Payback period of Lamichhane Vegetables Farm

Recovered in Cumulative
Year Initial investment initial investment Amount Recovered
1 496140
2 1023596 1023596
3 899006 1922602
4 900138 2822740
5 901156.8 3723896.8

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 6 902073.72 4625970.52
7 902898.948 5528869.468
Payback period 2.484702949

5.3.7 Sensitivity analysis

Table 8. Sensitivity analysis of Lamichhane Vegetables Farm

Sensitiv
ity
Analysi
s 1 2 3 4 5 6 7
Cost
increase 824246.89 823756.85 823315.81 822918.88 822561.64
d by 5% 764824.2 824791.38 2 28 75 58 72
NPV
after
increasi
ng cost 235247.09 117101.66 107254.74 98157.783 89769.004 82045.632 74944.848 804520
by 5% 09 94 68 76 9 11 52 .8
B:C 1.3383415 1.1717925 1.1731957 1.1744602 1.1755995 1.1766259 1.1775505
Ratio 43 57 61 31 42 65 93 8.8375
Benefit
decrease 918652.81 919096.18 919495.21 919854.34 920177.55
d by 5% 972416.2 918160.18 2 08 27 14 73
NPV
after
decreasi
ng
benefit 221829.27 109623.61 100417.55 91910.282 84063.377 76837.359 70192.596 754874
by 5% 27 98 97 63 64 42 12 .1
B:C 1.3349956 1.1688630 1.1702627 1.1715240 1.1726605 1.1746067 8.3665
Ratio 89 75 72 81 43 1.1736844 16 97

Sensitivity analysis can be summarized as below:

Market Situation NPV B:C Ratio Remarks

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 Normal 141847.7 1.263499 Feasible
Cost increased by 5% 804520.8 8.8375 Feasible
Benefit decreased by 754874.1 8.366597 Feasible
5%

6. Conclusion
Vegetable production and marketing is valued on account of its growing contribution
to thenational GDP and expanding areas with potentials to export earning, rural employment
andpoverty reduction. Such potentials of vegetable farming especially in smallholders could
beharnessed only through improved performance of production and marketing systems.
Looking at the overall business plan we can conclude that, as far as the need of the
consumer is concern, it can be satisfied with the help of this business model. Freshness is the
aspect which matters as far as the vegetables are concerned. The challenge for this model will
be inventory management, effective procurement and waste reduction and cost reduction. As
far as the profitability is concerned, this project is very lucrative and attractive.

7. Recommendations and suggestions

7.1 Suggestions for farmers

 Farmers should be conscious enough of market demands for the local produces and
possibleprice risks and added costs while selling products at market centers.
 Farmers should strategically manage crop production in time of high demand.
 Scale productionof the crops should be produced which are saleable at farm gate and
disposed them at farm gate to collectors in contact.

7.2 Suggestions for other business actors

 Collection-centers should be established to facilitate storage and the transaction
process. Because of perish ability of theproduces and lack of proper storage, the
farmers have weaker position in price negotiation.

xviii
  Even then the marketing system is observed to perform well as the farms on an
averagewere observed sharing very low percentage.
 On such ground, vegetable farming can be good source ofincome to reduce farm
poverty especially in small holders. Despite the facts, farm suppliesare irregular and
below quantity demand leaving sufficient rooms for promotion of scaleproduction
and marketing improvements.

7.3 Recommendation for government and concerned stake holders

 Because of harsh bargain on price and delay onpayment by traders, disposing farm
produces in wholesale market centers is a matter ofprice risks to the farmers so proper
marketing information system should be established.
 Marketing weaknesses,relevant policies and programs are essential regarding research
and development onemerging pest control, suitable crop variety and seed and
fertilizer
 Likewise, marketing related problems such as fluctuating pricesdue mainly to poor
availability of price information to farmers compared to traderscontributing to market
imperfectness should be justified by the government and other agencies working there
in production and marketingpromotion of vegetables.

References
APP. (1995-2015). Agriculture Perspective plan.

CBS. (2018). https://cbs.gov.np/.

DADO, L. (2072/73). Annual Agriculture Development Program :Progress and Statistical

Book. Lalitpur.

HVAP. (2011). Value chain Analysis os off season vegetable in Nepal.

Birendranagarsurkhet : HVAP,Project Management Unit.

ICIMOD. (2015). Offseason vegetables improving rural livelihood. Kailash sacred

Landscape Initiative.

xix
PACT. (2014). Value chain development plan for Tomato. Kathmandu: PACT,Nepal.

Panta, S. (2001). Final Report on Commercial Off-Season Vegetable Production and

Marketing Program (1997-2001). Kathamandu, Nepa: Agro Enterprise Centre,
FNCCI,.

Parsai, S. (2011). Nepal produces veggies worth Rs 45 billion annually:. Kathmandu:

Retrived on Feb. 12, 2011 from
http://www.ekantipur.com/the-kathmandu-post/2011/02/15/money/nepal-produces-
veggies-worth-rs-45-billion-annually-report/218494.html. Downloaded on 28th April,
2011.

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