Xinshen Diao, Mia Ellis, Peixun Fang, Karl Pauw, Angga Pradesha, and James Thurlow International Food Policy Research Institute

1. Nepal’s Agrifood System
Structure and Drivers of Transformation
Xinshen Diao, Mia Ellis, Peixun Fang, Karl Pauw, Angga Pradesha, and James Thurlow
International Food Policy Research Institute
This diagnostic analysis was conducted by IFPRI with financial support from USAID and funders of the CGIAR Research Initiative on Foresight.
July 2023

2. Four Parts to the Diagnostics
• Current structure
What does Nepal’s food system look like today?
• Decomposing value chains
How are different products contributing to the broader agrifood system?
• Growth and market structure
How is Nepal’s agrifood system growing and transforming?
• Future drivers of inclusive agricultural transformation
Which value chains could be most effective?
2019
2009-2019
2019+

3. Summary
Nepal’s agrifood system (AFS) diagnostic results
Nepal’s AFS lacked transformation during 2009–2019
• AgGDP+ has grown modestly
• Off-farm AFS GDP grew more slowly than primary agriculture GDP
• Share of off-farm components in total AgGDP+ fell
AFS growth has been driven by domestic-market-oriented value chains
• Less-traded value chains dominated AFS with their large size, contributing more than three-quarters of AgGDP+ growth
• Domestic consumption patterns (and changing diets) are therefore important drivers of agricultural transformation
Looking forward, the structure of AFS growth will be crucial in driving development outcomes…
(e.g., poverty, dietary improvement, employment creation, and growth)
…but no single value chain is the most effective in driving all these development outcomes
• Cereal crops are most effective at reducing poverty; cattle & dairy and fruits & nuts are best for improving diet quality; other
crops have strong employment effects; and wheat and rice have large growth multipliers
Jointly promoting wheat, rice, fish, and cattle & dairy would offer an effective way to achieve multiple
development outcomes

4. Framework | Agrifood Systems (AFS)
Primary agriculture
Agroprocessing
Trade and transport
Food services
Trade and transport
Input supply Demand
Consumption of own-
produced goods
Purchase of primary
agricultural goods
Purchase of processed
agrifood goods
Purchase of ready-made
foods outside of home
Imports
A
C
B
D
E
Includes agriculture, plus all upstream/downstream sectors
• Five major components (A to E)
• Same format as standard economywide datasets (e.g., national accounts)
• Allows us to measure AFS structure and performance using actual data
Agrifood System GDP (AgGDP+)
Total value added generated by all agricultural
value chains (in constant dollars)
Agrifood System Employment (AgEMP+)
Total number of workers who are primarily
employed in an agricultural value chain

5. Structure2019 | Nepal’s Agrifood System Today
GDP and employment in Nepal’s agrifood system (2019)
• Part 1 focuses on the current size and
structure of the national agrifood system
• Latest AgGDP+ and AgEMP+ estimates
• Decomposed into five AFS components
• Situates AFS within the broader economy
• Uses official data sources
• GDP from national accounts
• Employment from various sources (i.e., population
census, labor force surveys, ILO, etc.)
• Nepal AFS estimates indicate that
• AFS makes up 40% of GDP
($12.4 billion AgGDP+) …
• … and more than half of total employment
(8.1 million AgEMP+)
• Primary agriculture (A) is large, but off-farm
components (B–E) are also important
(40% of AgGDP+, 45% of AgEMP+)
GDP
($ billions)
Employment
(millions of workers)
Total economy 30.1 100% 14.5 100%
Agrifood system 12.4 41.0% 8.1 55.4%
Primary agric. (A) 7.7 25.5% 4.3 29.7%
Off-farm AFS 4.7 15.6% 3.7 25.7%
Processing (B) 0.7 2.4% 0.9 6.5%
Trade & transport (C) 2.9 9.5% 1.5 10.5%
Food services (D) 0.5 1.7% 1.0 6.6%
Input supply (E) 0.6 1.9% 0.3 2.2%
Rest of economy 17.8 59.0% 6.5 44.6%

6. Structure2019 | Comparing to Other Countries
• Importance and structure of the AFS varies at different stages of development
Nepal is a lower-middle-income country (LMIC)
• A: Nepal’s AgGDP+ share of total GDP is higher than most LMICs and close to the average of low-income countries (LICs)
• B: Nepal’s primary agriculture component is also similar to the LIC average
• C: Nepal’s agro-processing is smaller than expected, and trade & transport is larger
Share of total GDP (%) Share of AFS GDP (%) Share of off-farm AFS GDP (%)
LIC = low-income countries | LMIC = lower-middle income | UMIC = upper-middle-income | HIC = high-income Source: IFPRI Agri-Food System Database
A B C
4.2
26.4
16.9
7.1
1.2
25.5
8.2
13.4
11.9
10.6
6.6
15.6
All LIC LMIC UMIC HIC Nepal
Primary agriculture Off-farm AFS
34.0
66.2
58.6
40.2
15.6
62.1
66.0
33.8
41.4
59.8
84.4
37.9
All LIC LMIC UMIC HIC Nepal
Primary agriculture Off-farm AFS
33.7 37.8 38.4
46.9
26.1
15.7
31.7
42.8 38.6 21.4
35.9 60.8
23.1
13.7
11.2
18.2 27.8
11.2
11.4 5.8 11.8 13.5 10.3 12.3
All LIC LMIC UMIC HIC Nepal
Processing Trade and transport
Food services Input supply

7. Structure2019 | Supply vs. Demand Sides of the Agrifood System
Agrifood GDP vs. consumption
Primary, processed, and other product shares (%)
• AgGDP+ defines the AFS on the supply side
• Household demand and trade (imports) capture AFS structure on the demand side
• Agrifood processing is more important on the demand side than the supply side in the AFS
AgGDP+ Household demand
Agrifood exports vs. imports
Primary and processed product shares (%)
Exports ($0.99 bil.) Imports ($1.41 bil.)
62.1%
5.9%
32.0%
$0.63 bil.
63.4%
$0.36 bil.
36.6%
Primary agriculture
Agrifood processing
$0.86 bil.
60.9%
$0.55 bil.
39.1%
67.4%
27.0%
5.7%
Primary agriculture
Agroprocessing
Other off-farm

8. Value Chains2019 | Contributions & Trade Orientation
• Part 2 decomposes the AFS across broad
value chain groupings
• Classify value chains based on trade orientation
• Exportable value chains have above-average export-
output ratios ( > 3.2%)
• Importable value chains have above-average import-
demand ratios (> 4.7%)
• Less-traded value chains make up the rest
• Domestic market dominates AgGDP+ (73.5%) –
eight less-traded value chains; relatively smaller
off-farm share (65.7%) and larger on-farm
(primary) share (78.3% of total)
• Only two exportable value chain groups (pulses
and oilseeds); relatively small share of AgGDP+
(10.8%)
• Four importable value chains account for a
disproportionate share of off-farm AFS (16.8%);
these value chains compete with processed
agrifood imports
Share of total GDP (%) Exports /
output
(%)
Imports /
demand
(%)
Total
AFS
Primary
agric.
Off-farm
AFS
Total 100 100 100 3.2 4.7
Exportable 10.8 10.1 12.0 23.2 14.7
Pulses 4.0 4.4 3.2 33.2 4.9
Oilseeds 6.8 5.6 8.8 18.6 17.9
Importable 13.6 11.7 16.8 1.0 10.2
Other crops 5.9 4.4 8.3 1.6 11.9
Other livestock 4.4 5.1 3.4 0.1 8.0
Fish 1.6 1.1 2.4 1.2 13.1
Forestry 1.6 1.0 2.7 0.5 7.6
Less traded 73.5 78.3 65.7 0.7 2.2
Maize 8.0 9.7 5.3 0.0 2.6
Rice 15.8 16.6 14.3 0.9 3.4
Wheat 7.0 7.3 6.4 0.4 3.0
Roots 3.4 3.6 3.1 0.9 1.4
Vegetables 11.4 11.2 11.7 1.2 1.8
Fruits 8.4 8.5 8.2 0.7 3.0
Cattle & dairy 14.1 14.9 12.8 0.1 0.4
Poultry 5.4 6.4 3.8 0.0 0.7
Breakdown of Nepal’s agrifood system (2019)

9. Growth2009-2019 | Agrifood System Performance
Nepal’s AFS lacked transformation during 2009–2019
• Agrifood share of total GDP fell 10 percentage points (51% to 41%), while primary agriculture’s share of
total GDP fell only modestly (29.8% to 25.5%)
• Off-farm components of AgGDP+ declined instead of rising
However, share of agricultural employment fell significantly (46.1% to 29.7%)
• An indication that structural change occurred economywide without transformation within AFS
Agricultural GDP, agrifood system GDP, and employment shares (2009–2019)
• Part 3 analyzes structural change in the AFS and the contribution of different value chains to AFS growth
29.8
50.9
41.5
46.1
25.5
41.0
37.9
29.7
Agricultural GDP share AgGDP+ share Off-farm share of AgGDP+ Agricultural employment
share
Share
(%)
2009 2019

10. Growth2009-2019 | Value Chain Performance
• Modest AgGDP+ and primary agriculture
growth (3.2% and 3.8% p.a., respectively)
during 2009–2019
• Most value chains with above-average
AgGDP+ growth rates (*) ( > 3.2%) are in
the less-traded group
• Less-traded value chains account for
more than three-quarters of total AFS
growth due to their large size and
above-average growth
• Oilseeds – an exportable value chain –
grew rapidly (6.1%)
• Off-farm growth is slower for many fast-
growing value chains
• AFS growth is led by primary agriculture in
many value chains (e.g., oilseeds, maize,
wheat, cattle & dairy, and poultry)
Value chain growth in Nepal (2009-2019)
Average annual GDP growth rate (%)
Total
AFS
Primary
agric.
Off-farm
AFS
Process-
ing
Total AFS 3.2 3.8 2.3 3.2
Exportable 4.0 4.1 3.2 4.1
Pulses 1.2 1.8 -0.1 3.6
Oilseeds* 6.1 7.6 4.7 4.2
Importable 1.9 2.2 1.6 3.6
Other crops 0.8 0.5 1.2 3.5
Other livestock 2.6 3.5 0.7 3.6
Fish* 4.3 2.4 6.0 3.7
Forestry 2.1 3.8 1.2 3.8
Less traded 3.3 4.0 2.1 4.0
Maize* 3.7 5.0 0.7 3.9
Rice 1.0 2.5 -1.5 3.8
Wheat* 5.1 6.4 3.1 5.4
Roots* 3.9 4.0 3.7 3.1
Vegetables* 4.3 3.7 5.4 3.3
Fruits 1.4 0.4 3.3 3.4
Cattle & dairy* 3.5 4.0 2.6 3.8
Poultry* 12.2 14.9 7.2 3.6

11. Future Drivers2019+ | Modeling Faster Growth
• IFPRI’s RIAPA model is used to analyze different sources of agricultural growth
• Expand production in different value chains
• Increase on-farm productivity growth rates in targeted value chains
• Achieve same overall growth in agriculture GDP (e.g., 1.0%)
• Track linkage effect within value chain and spillover effects to other value chains
• Assess outcomes
• Poverty – Poverty-growth elasticity in percentage points based on $2.15-a-day
• Hunger – Hunger-growth elasticity in percentage points based on prevalence of undernourishment
• Diet – Diet quality to growth elasticity in % derived from Reference Diet Deprivation index (REDD)
• Jobs – Employment multiplier in thousand employed persons associated with US$1 million growth in targeted value chain
• GDP – GDP growth multiplier in US$ millions associated with US$1 million growth in targeted value chain
• Average across outcomes
• The value of outcome indicators (elasticity or multiplier) is expected to differ across value chain growth; not all value chains are
equally effective at achieving all outcomes
• Normalizing the individual outcome scores
• The values of each outcome indicator are scaled so that the most effective value chain is given a score of one and the leasteffective is given a
score of zero. A value chain with adverse impact is also given a score of zero.
• An average score with equal weights is used to measure the total impacts across all value chains

12. Future Drivers2019+ | Prioritizing Agricultural Growth
Individual outcomes
(per unit change in agriculture GDP, ordered by poverty outcome)
Average across outcomes
(averaged normalized scores, reordered)
Poverty
(change in %-point)
Hunger
(change in %-point)
Diet quality
(change in %)
Jobs
(change in 1,000)
GDP
(change in mil. $)
6.97
5.86
5.43
4.64
6.42
1.98
3.16
0.97
2.83
6.00
1.65
1.60
3.95
6.42
13.50
13.01
2.60
7.85
2.52
4.64
-0.12
-6.12
6.68
2.67
1.55
8.94
0.57
0.11
0.15
0.29
0.27
0.32
0.54
0.14
0.82
-0.20
0.17
0.19
1.10
-0.92
0.00
-0.14
-0.79
-0.31
-0.11
-0.11
-0.09
-0.03
-0.05
0.03
0.05
0.03
-2.47
-2.36
-1.58
-1.46
-0.87
-0.77
-0.59
-0.51
-0.33
-0.22
0.09
0.20
0.37
Wheat
Fish
Other crops
Maize
Rice
Oilseeds
Vegetables
Pulses
Fruits
Root crops
Poultry
Other livestock
Cattle & dairy
0.81
0.75
0.67
0.60
0.57
0.52
0.46
0.42
0.35
0.34
0.21
0.20
0.14
Wheat
Fish
Other crops
Rice
Cattle & dairy
Maize
Vegetables
Root crops
Oilseeds
Fruits
Poultry
Other livestock
Pulses
Total
Wheat
Fish
Other crops
Rice
Cattle & dairy
Maize
Vegetables
Root crops
Oilseeds
Fruits
Poultry
Other livestock
Pulses
Poverty Growth Jobs Diets

13. Future Drivers2019+ | Key Messages
AFS growth is pro-poor
• Growth led by many value chains reduces poverty, and the cereal crop value chains are more effective in poverty reduction
AFS growth is effective in improving food security (hunger) and diet quality
• Most value chains reduce hunger; the cereal crop value chains are most effective
• Most value chains improve diet quality; cattle & dairy and fruits & nuts are most effective
Agricultural growth creates jobs but not necessarily on-farm
• Most value chains are associated with an increase in total employment, but AFS jobs are mainly created off-farm
• Cattle & dairy, other crops, and rice value chains are most effective in creating jobs in the overall economy and within AFS
Agricultural growth has strong growth multiplier effects generating income beyond agriculture
• Wheat, rice, and root crop value chains have stronger growth multiplier effects for both AFS income and total GDP growth
In conclusion, promoting multiple value chains can achieve broad impact
• No single value chain group is the most effective in achieving all the outcomes we consider
• Wheat, fish, rice, and cattle & dairy rank highly in the combined outcome scores of poverty, diet, jobs, and growth
• Promoting these value chains would offer an effective way to achieve broad-based outcomes

14. Note: Value Chain Groups and Agricultural Sectors in Individual
VC Groups
Value chain group and their share
of AgGDP+
Individual products and their share of group’s agriculture GDP
Maize (8.0%) Maize 100%
Rice (15.8%) Rice 100%
Wheat & barley (7.0%) Wheat & barley 100%
Oilseeds (6.8%) Oilseeds 100%
Pulses (4.0%) Pulses 100%
Roots (3.4%) Irish potatoes 81.6% | Other roots 18.4%
Vegetables (11.4%) Leafy green vegetables 64.0% | Other vegetables 36.0%
Fruits & nuts (8.4%) Nuts 1.8%| Bananas 16.0% | Other fruits 82.2%
Other crops (5.9%) Sorghum & millet 25.9% | Sugarcane 39.0% | Cotton & fibers 15.1% | Tobacco 15.9%
Cattle & milk (14.1%) Cattle meat 57.7% | Raw milk 42.3%
Poultry & eggs (5.4%) Poultry meat 41.8% | Eggs 58.2%
Other livestock (4.4%) Small ruminants 92.3% | Other livestock 7.7%
Fish (1.6%) Aquaculture 91.8% | Capture fisheries 8.2%
Forestry (1.6%) Forestry 100%