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Thimphu, 28 January 2013: In 1987, a young officer of the erstwhile Ministry of Trade was given a huge task by the government of Bhutan: to establish an agro-processing unit. And the 26-year-old Sonam P. Wangdi thought it was a fair challenge.

He had seen the potential for such an undertaking, especially given that most farmers in the west grew fruits and vegetables. The feasibility study showed positive prospects and the farmers were excited at the opportunity to earn cash income.

But, there was a major problem: the government had no money.

However, in a significant milestone for the country’s development partnership with Denmark, the then Foreign Minister Uffe Ellemann-Jensen visited Bhutan in 1988. The Bhutanese officials lost no time in putting forward the proposal for the agro-processing plant.

And the Bhutan Agro Industries Ltd. (BAIL) was born, as a government undertaking.

When social mandate overrides commercial interestBhutan’s first fruits and vegetables processing company at Wangchutaba in Thimphu is a success story of hard lessons

>> Workers inspect the production line

The humble beginningsAs soon as Danida committed financial and technical assistance, BAIL was established in 1993 with a heavy social mandate. Among others, it was mandated to create opportunities for farmers by supporting the cultivation of high value cash crops through ‘contract farming.’ It was also expected to serve as a pioneer for quality development of the agro industry in Bhutan.

To fulfill its mission, BAIL provided the farmers with technical and financial

assistance. It distributed seeds and saplings, and signed ‘contracts’ with farmers promising them a ready market for their surplus produce. The farmers of the five western districts were the target beneficiaries of the project.

“We took a sector-wide approach to the project,” says its former managing director, Sonam P. Wangdi, who is today a joint secretary at the Ministry of Economic Affairs. “And the support we received from Danida

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was comprehensive, meaning everything to do with the project was Danish.”

A Danish firm updated the feasibility study, technology and equipment were all Danish, and Danish agro-processing experts oversaw the project and trained

their Bhutanese counterparts. In September 1994, BAIL started commercial production, producing canned fruits and vegetables, marmalade, pickle, juice and fruit squash.

But then came the shaky phase.

Commercial challengesWhen a project started with a huge social mandate has to perform like a commercial entity, the road can be fraught with challenges. And BAIL became a living example of this dichotomy.

The initial phase of optimism was soon followed by several unforeseen challenges. From raw material shortage to poor marketing networks, BAIL was sapped by its social obligations.

“When we could have bought cheap raw materials from across the border, we had to stick by our social mandate,” says Sonam P. Wangdi. “For example, tomatoes came for Nu. 1 a kilogram in Falakata (India), but we were buying it for Nu. 6 in Punakha.”

BAIL struggled to develop an efficient

>> Bottled water has been one of the most profitable products

>> An assortment of BAIL products on display

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After the interventionThe company rethought its strategies soon after. The new management sought new solutions. Cost-cutting measures were undertaken. Technology was upgraded, and a bottled water plant installed.

The present managing director, Gyem Dorji, says the resurgence of BAIL was primarily because of four factors: a reinvigorated management team, the government’s takeover of its bank liability in 2005, the Danish-supported upgrading of production technology, and an aggressive

marketing drive. By 2011, the domestic market accounted

for 92% of the company’s total sales. During the year, BAIL achieved gross sales of Nu. 85 million as against Nu. 79 million in 2010. The company made net profit of Nu. 2 million in 2011.

Today, BAIL produces 35 products comprising jams and marmalades, fruit juice and squash, canned fruits and vegetables, pickles and bottled water. The products are marketed under “Royal Bhutan” brand in

marketing network, both within and outside the country. A major share of raw materials had to be imported from outside and the transportation cost was huge. As a result, the company not only suffered losses year after year but its financial position became so precarious towards the completion of the Danish assistance that it had to seek

government intervention. And since it was a socially beneficial project, the government decided to bail out the company, and fresh assistance was sought from Danida.

“Despite the poor commercial performance, the social mandate of the company was met,” says Sonam P. Wangdi.

-2.57 -2.1

-1.69

-4.06 -3.97

-4.49

-3.57

-7.74

-3.46 -3.48

1.13

3.28 3.47

3.67

4.44

6.71

1.95

-10

-8

-6

-4

-2

0

2

4

6

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Profit and Loss from 1995 - 2011

Nu. In Million Nu.

in M

illio

n

Source: BAIL Annual Report 2011

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>> Workers load a pick-up truck for the supply of BAIL’s products to the local market

the three countries of Bhutan, India and Bangladesh.

The company has also extended its reach to the other parts of the country, bringing more farmers in its folds. It also benefits from the three integrated food-processing plants in Dagana, Zhemgang and Pemagatshel established with support from the Programme for South-South Cooperation. It gives technical backstopping to these plants that in return sell their semi-finished products to the company.

BAIL also encourages specialized farmers’ group to take advantage of its processing technology for a fee. For example, the Mushroom Group of Genekha

in Thimphu uses BAIL’s facilities to process its products.

Moreover, the agriculture and forests ministry’s idea to promote commercial farming and increase vegetable production augurs better times for BAIL in terms of domestic availability of raw materials. This is expected to reduce dependence on imported raw materials, although currently only those items which are not produced locally or are in short supply in the local market are imported.

“The future is good if we are willing to work hard,” says Gyem Dorji. “Today, both our social and commercial objectives have been met.”