Case Studies of Neem Processing Projects Assisted by GTZ in Kenya, Dominican Republic, Thailand and Nicaragua (GTZ, 2000, 152 p.)

Case Studies of Neem Processing Projects Assisted by GTZ in Kenya, Dominican Republic, Thailand and Nicaragua (GTZ, 2000, 152 p.) 4. Case studies of small-scale semi-industrial neem processing in Kenya, Thailand, the Dominican Republic and Nicaragua Comparison of selected countries 4.1 Kenya (introduction...) 4.1.1 Introduction, previous activities and other projects in Kenya in relation to neem 4.1.2 Situation found prior to the project for neem industrialisation 4.1.3 The beginning of small-scale commercial neem production 4.1.4 Economic assessment of the neem processing plant in Kenya 4.1.4.1 Technical and economic description of Saroneem Biopesticides Ltd 4.1.4.2 Production costs 4.1.5 Market potential, investment possibilities, marketing and development strategies 4.1.5.1 Marketing of neem products to date 4.1.5.2 Market potential 4.1.5.3 Analysis of Economic production with and without the use of neem pesticides 4.1.5.4 Market growth potential and substitution possibilities 4.1.6 ''Lessons learnt'' 4.1.6.1 Project concept 4.1.6.2 Marketing and development strategies 4.1.7 Investment possibilities 4.1.8 Post-project experience 4.1.9 References 4.2 Documentation of neem activities in Thailand with special reference to the Thai Neem Products Company Ltd and the assistance provided to the DoA, Toxicological Division by CiM (introduction...) 4.2.1 Introduction 4.2.2 Previous activities and other projects in relation to neem 4.2.3 Situation found concerning abundance of neem trees and of raw material supply 4.2.4 Small-scale commercial neem production 4.2.5 Economical assessment of Thai Neem Products Company Ltd 4.2.5.1 Selected key data of the plant 4.2.5.2 Production costs 4.2.5.3 Investment possibilities 4.2.6 Market potential, marketing and development strategies 4.2.6.1 The pesticide market in Thailand 4.2.6.2 Marketing of neem products to date 4.2.6.3 Market potential 4.2.6.4 Market promotion 4.2.6.5 Marketing channel and distribution 4.2.6.6 Analysis of economic production with and without the use of neem pesticides 4.2.7 ''Lessons learnt'' and recommendations 4.2.8 References 4.3. Small-scale industrial manufacturing of neem-based pesticides in the Dominican Republic (introduction...) 4.3.1 Introduction 4.3.2 Previous activities and other projects related to neem 4.3.3 Small-scale commercial neem manufacturing in the Dominican Republic 4.3.4 Economic assessment of the neem-processing plant in the Dominican Republic 4.3.4.1 Technical and economic description of FAMA's neem-processing plant 4.3.4.2 Production costs of FAMA's neem-processing plant 4.3.5 Market potential for neem pesticides in the Dominican Republic 4.3.5.1 Marketing to date 4.3.5.2 Market potential of neem pesticides 4.3.5.3 Analysis of the economic production with and without the use of neem pesticides 4.3.5.4 Market growth potential and substitution possibilities 4.3.6 ''Lessons learnt'' - recommendations 4.4 Small-scale commercial neem production in Nicaragua (introduction...) 4.4.1 Introduction 4.4.2 Previous activities and other projects in relation to neem 4.4.3 Small-scale commercial neem production in Nicaragua 4.4.3.1 Seed collection 4.4.3.2 Processing activities 4.4.4 Economical assessment of COPINIM's processing plant in Nicaragua 4.4.4.1 Technical and economic description of the neem processing plant 4.4.4.2 Production costs at COPINIM's neem processing plant 4.4.5 Market potential for neem pesticides in Nicaragua 4.4.5.1 Marketing of neem pesticides to date 4.4.5.2 Market potential 4.4.5.3 Further neem manufacturers in Nicaragua 4.4.5.4 Analysis of the economic production with and without the use of neem pesticides 4.4.5.5 Market growth potential and substitution possibilities in Nicaragua 4.4.6 ''Lessons learnt'', recommendations and development strategies 4.4.7 References 4.4.8 Units

Case Studies of Neem Processing Projects Assisted by GTZ in Kenya, Dominican Republic, Thailand and Nicaragua (GTZ, 2000, 152 p.)

4. Case studies of small-scale semi-industrial neem processing in Kenya, Thailand, the Dominican Republic and Nicaragua

Comparison of selected countries

For this study we selected four countries representing the conditions for neem processing on each of the continents considered. It is, however, difficult to find a representative country in Asia; the situation of Thailand for example is very different to that of India or Indonesia.

Nicaragua has been added although no assistance in the strict sense has been given directly to the neem manufacturer, but traditionally good working relations exist.

The backgrounds of all these projects vary, not only due to the varying abundance of the neem tree, the ethno-social environment and size of the pesticide market, but also due to political and economic frame conditions in the individual countries. Some characteristics are presented in Table 6.

Table 6: Characteristics of the agricultural sector in Thailand, Kenya, the Dominican Republic and Nicaragua

The data indicate quite clearly that Thailand has the largest pesticide market in terms of quantities and value.

While in Thailand the government is strongly supporting and promoting the use of low-residue locally produced alternative pesticide products, the policies in the Dominican Republic, Nicaragua and Kenya favour high-input agriculture based on agro-chemicals. Only recently has there has been a slight policy change due to pressure from the World Bank and other donors.

Thailand on the other hand also has considerable local pesticide production, while no such production exists in the Dominican Republic, and only a small Pyrethrum industry exists in Kenya, amounting to about US$ 1 million annually.

Compared to the three other countries the contribution of the GTZ to the neem processing activities in Nicaragua is marginal and consists mainly of testing neem products within IPM concepts.

Nonetheless there are quite a number of similarities between the other three countries:

· All of them export considerable quantities of agricultural produce to industrialised countries.

· In all three countries the pesticide market can be classified as "liberal".

· A small number of (international) agro-chemical companies share most of the market.

· Pesticide use has increased considerably in recent years, driven by population increase and subsequent shortage of land.

· In all three countries agricultural production is relatively intense, which also means that all three countries have the same problems such as resistant pests, contaminated resources and intoxicated labourers, and problems with high levels of pesticide residues on crops.

Table 7 indicates the formal structure of the partners, the availability of the raw material and the form of GTZ assistance.

Table 7: Partners, source of neem, form of assistance provided by GTZ

Our partners are in Thailand a small-scale family manufacturing firm, exclusively engaged in neem processing; in Kenya a company previously in the conventional agricultural supply business for about 40 years, but now putting emphasis on bio-pesticides; and in the Dominican Republic an NGO whose pesticide activities are focused on neem. However, the latter also conducts some activities in the field of sustainable agricultural training.

All neem-processing units investigated are relatively small, often family-run ventures. There are further firms (in addition to the one mentioned offering neem products in Thailand) which also offer locally produced neem pesticides, but these have no standardised azadirachtin content.

The following table shows some characteristic data of the plants:

Table 8: Description of the potential capacities of the processing units in Thailand, Kenya, the Dominican Republic and Nicaragua

We still hope that some general principles, difficulties and constraints - but also solutions -are illuminated by these case studies which may help to avoid mistakes in other countries if similar projects are going to be started (either by private entrepreneurs or technical cooperation organisations) and that these studies help others to learn from our experience.

4.1 Kenya

Documentation of neem activities in Kenya with special reference to "SMALL-SCALE INDUSTRIAL PRODUCTION OF NEEM-BASED PESTICIDES IN KENYA" compiled by A. M. Varela, H. Quentin and P. Foerster with the assistance of D. Rocco.

4.1.1 Introduction, previous activities and other projects in Kenya in relation to neem

Neem was introduced into Kenya, in eastern Africa, during the 19^th century by East Indian immigrants, who propagated the tree essentially for its medicinal properties. Until recently, local knowledge about the tree's uses was still limited to traditional beliefs in curative properties, in particular for the treatment of malaria, stomach problems, fever, colds, chest complaints and skin disorders. The leaves and/or bark and roots are boiled and used as tea or applied directly to the affected area. Neem twigs are also used as toothbrushes.

Currently the tree is grown in large numbers along the coast, where it is locally known as "Mwarobaini" the tree of forty cures. In addition to its medicinal properties, it is used as a mosquito repellent, firewood, shade, windbreaks, boundary delineation and reforestation. The timber is used primarily for making furniture. People have gradually learned about neem's potential for reforestation, timber, firewood and as an insect repellent, and more recently as a pesticide as research and awareness campaigns on the potential of neem are being conducted in Kenya. The results are disseminated through agricultural extension services and organisations such as the Deutsche Gesellschaft f�r Technische Zusammenarbeit (German Technical Cooperation, GTZ), the International Centre of Insect Physiology and Ecology (ICIPE), and several non-governmental organisations (NGOs) (see also Foerster & Moser 2000).

In Kenya, some people use a concoction of leaves for spraying their vegetables and ornamental gardens. A large farm, Baobab, located near Mombasa, has been experimenting with neem for more than twenty years. Leaves are used as protective mulch for vegetable plants as well as to control weevils in maize storage. A mixture of neem oil and water is sprayed onto the plants. The cake is mixed directly into the soil as protection against nematodes (DM 1994).

Research on the use of neem was limited before the 1990s. In 1991 ICIPE started trials on the use of extracts of neem bark, seeds and leaves for controlling ticks and tick-borne diseases. Ticks, as disease vectors, are a serious threat to livestock in Africa. These extracts showed potential for controlling the juvenile stages of the major tick species.

Major activities on neem started in August 1994, when ICIPE received funding from the government of Finland and the United Nations Environment Programme (UNEP) to start a project on neem. The project objective was building awareness of the potential uses of the neem tree among agricultural and forestry trainers, extension personnel, health workers, and representatives of NGOs.

Training courses and seminars to create awareness about uses of neem were held at Mbita Point, an ICIPE field station on the shores of Lake Victoria. The courses covered possibilities for production, application and commercialisation of neem products in Africa. This project trained over 650 people, and demonstrated the "standard" technology, using a cold-press oil expeller for the production of neem cake and oil. In addition research has been supported to investigate the effect of neem against pests of banana, maize and cowpea (Saxena 1997, Musbyimana & Saxena 1999).

Trials to determine the efficacy of neem-based products and their performance compared to commercial insecticides for the management of agricultural pests, have been conducted in collaboration with the Kenya Agricultural Research Institute (KARI). For example, trials on cowpeas were carried out at the KARI station at the coast (Mtwapa). Furthermore, there have been studies on neem products for management of ticks.

In September 1995, the GTZ Pesticide Service Project offered a training course for technicians in extraction and bioassays of biologically active plant products. The course was held in Nairobi with participants from several countries in the region.

4.1.2 Situation found prior to the project for neem industrialisation

Abundance of neem trees

Kenya has good potential for growing neem. Based on a conservative GIS analysis with rainfall, altitude and soil characteristics as parameters it is estimated that over 25% of the land area in Kenya is suitable for growing neem (DM 1995). The tree is currently found across Lamu, Taita Taveta, Kilifi and Mombasa Districts in the Coast Province. About 30-year-old stands of neem trees are present in Wajir, Mandera and Garissa in the North Eastern Province. Neem trees are also found around Lake Magadi.

There is no available information on the exact number of trees growing in Kenya; however, it can be estimated that several million stems are fruiting in the country. In a preliminary survey done by DM (1995), neem trees were found to be common along the coast. In Lamu District, most trees were found bordering plots of land, around schools and along roads. In Taita Taveta District trees were widely dispersed throughout the district. It was estimated that an average of one to two trees could be found on most homesteads in Mwatate Division. In Kilifi District, hundreds of mature neem trees can be seen on either side of the main road all the way to Malindi. In Mombasa District neem was present within Mombasa City centre, around government offices and in residential areas. Large numbers of neem trees are also found along the main road to Mtwapa. In North Eastern Province, the tree is confined to settlements. So far the tree has not been planted on plantations.

Neem seeds

Several organisations have been purchasing seeds for propagation and processing. For example, the Kenya Forestry Research Institute (KEFRI) is active in the collection and dissemination of neem seeds to farmers. Collection and germination of seeds is organised by the KEFRI research station at the Coast. The KEFRI headquarters in Muguga sells the seeds to farmers. The Kenya Forestry Seed Center has distributed neem seeds to farmers in the dry areas of Western Kenya. The ICIPE Awareness Project has also purchased seeds for propagation and for processing in order to produce material to be used in trials. Seeds and seedlings are being sold at Mbita Point, ICIPE's field station on Lake Victoria.

The Kenya Institute of Organic Farming (KIOF), a member of the International Federation of Organic Agriculture Movements (IFOAM), is promoting the dissemination of the existing local knowledge of the potential use of neem leaves, seeds and bark for plant protection, and conducting demonstration trials.

Processing activities

As stated earlier, the neem tree has been mainly used for shade and for its curative properties, using the leaves and the bark. Seeds have been occasionally collected for sale, mainly for propagation purposes and not for processing. As a result, no machinery has been developed specifically for neem processing. Baobab Farm uses a locally available hand press to extract neem oil from entire seeds, extracting about 2 l of oil per 100 kg of clean seeds (DM 1995). The ICIPE Awareness Project at Mbita Point uses an imported "Comet" oil expeller (manufactured by Monforts, Germany), which, although locally available, is costly. More affordable Indian-made oil mills are locally available; however, the quality of the steel would have to be taken into consideration to determine their suitability for neem processing because the neem seeds/kernels are quite abrasive. For instance, even the spindle of the Comet oil expellers, although made of a special steel, has to be replaced after processing about 10 tonnes of neem seed/kernel (D. Rocco, personal communication).

Need for neem products to manage pests in Kenya

Although the issue of pesticide residues is not considered in the Plant Protection Act of Kenya, and no regular control of residues is carried out on horticultural produce for the internal market, concerns about the levels of pesticide residues is increasing. KARI, through the Pesticide Chemistry Laboratory, has lately conducted studies on pesticide residues on crops such as tomatoes (Ngatia et al. 1996). The pesticide Chemistry Laboratory, formerly under the Kenya Agricultural Research Institute (KARI), and now under the Kenya Plant Health Inspection Service (KEPHIS), is also a pesticide residue level testing facility, used mainly for the horticultural export market.

The production of simple, home-made pest control products from the neem tree has been considered an attractive option for the resource-poor farmer in developing countries such as the majority of the Kenyan farmers. However, as in other countries the Kenyan farmers mentioned the various shortcomings (Moser 1996, Foerster & Moser 2000) listed in Chapter I and the majority of the farmers prefer ready-to-use pesticides.

Apart form this local commercial production and marketing of neem-based pesticides were expected to show the merits and benefits listed in Chapter I.

4.1.3 The beginning of small-scale commercial neem production

In 1994, the GTZ-IPM Horticulture Project (GTZ-IPMH) in Kenya directed its attention towards neem as an alternative to synthetic pesticides, in the context of integrated pest management programmes (IPM), to increase production of horticultural crops for export and local consumption in an environmentally sound and economically viable manner (Loehr et al 1997).

Based on experience from other countries, GTZ-IPMH focused its efforts on establishing a small-scale industry for producing simple, ready-to-use neem-based pesticides.

As a first step the GTZ IPMH project funded two feasibility studies, which were conducted in the coastal area in Kenya during 1994 -1995. The aim of these studies was to determine the economical and technical feasibility of producing neem-based pesticides. In January 1996, a local agrochemical company called Saroc Ltd (today: Saroneem Biopesticides Ltd) was contracted to organise the first commercial seed collection and to establish a pilot processing unit for extraction of oil from neem seeds. When these studies showed that Kenya had good potential for growing neem and first experiences were gained with processing and seed collection, measures were taken by IPMH and the Pesticide Service Project to initiate a separate project. This was started in mid-1996, as a two-year project called "Small scale industrialisation of neem-based insecticides in Kenya", funded by the GTZ and set up at ICIPE. The aim of this project was to produce simple, standardised, neem-based pesticides which could be purchased on the market at competitive prices.

ICIPE contracted Saroc Ltd to organise collection of seeds, to develop neem-based pesticides and to coordinate marketing of the products. A part-time scientist was contracted by ICIPE to coordinate research on the efficacy of the developed products and to generate the necessary information for registration of the developed products.

Development of neem products

· Seed collection:

The peak fruiting season in coastal Kenya and Tanzania is from March to May, which coincides with the rainy season. It was found feasible to organise collection of seeds through existing organised groups, especially women's groups, which expressed interest in a collection scheme. However, the feasibility studies concluded that the success of seed collection depended on several factors, such as:

· educating and familiarising local residents with neem and its use as an insecticide well in advance of the fruiting season;

· training on collection, cleaning and drying of neem seeds;

· setting the prices to take into account factors such as seed availability, wage levels for casual workers, the amount of time required, and opportunities of alternative sources of income. This should involve discussion with other organisations collecting seeds (DM 1994, 1995).

Collection started in 1996, when Saroneem Biopesticides Ltd staff met with representatives of the local authorities and rural farmers' organisations, women's groups and pupils from primary and secondary schools. The aim was to identify, motivate and train potential collectors. It turned out that schoolchildren made excellent multipliers, since they pass on their knowledge and information to their families.

During the first collection it was found that a further factor was crucial to seed collection, namely creation of confidence between the collecting communities and the purchaser. Due to bad experiences in the past, villagers were extremely cautious and were not prepared to work if they were not fully assured of payment. Nevertheless, almost 7000 kg of seeds were collected by women's groups, schools, and local farmers. The seeds were then transported to Nairobi for processing (Rocco 1996).

Saroneem Biopesticides Ltd organised meetings in the coastal area and in the north-eastern region to inform the local population of the possibilities of earning money through seed collection, and to train them in harvesting, cleaning and drying the neem seeds. However, no collections were made in the north-eastern region due to the high costs of transporting the seeds to Nairobi. Thus, seed collection was concentrated along the coastal region in Kenya (Kilifi and Malindi Districts) and Tanzania. The average distance to the neem processing plant is about 730 km.

A series of local organisations, women's groups, farmers and their families as well as inmates of prisons were involved in seed collection. Since the harvest period coincides with the period of heaviest rains along the coast, special attention had to be given to the proper storage and drying of seeds to avoid fungal contamination and degradation of the seeds due to the high humidity.

Luckily, at the coast the harvest of seeds is facilitated by large colonies of fruit bats and birds, which pluck the ripe fruit off the tree, feed on the sweet pulp and then spit out the seed, which can be found lying under the tree. This saves depulping, which is a labour-intensive step in processing.

The following table (9) indicates the amount of neem seeds purchased in the last four years (since the beginning of the neem-processing activities).

Table 9: Neem kernels purchased by Saroneem Biopesticides Ltd

In each season Saroneem Biopesticides Ltd purchased the total amount of collected and usable seeds to create confidence in its collection system and motivate the farmers to collect seeds in the forthcoming seasons.

About 17 tonnes of neem seeds were collected and delivered to Nairobi in 1997. The collection in 1998 was hampered by the onset of unusually heavy and long rains at the end of 1997. Many of the flowers aborted, limiting the amount of fruit produced. Moreover, the seed quality was affected by the prolonged moisture conditions. About 14 tonnes were collected in 1998. In 1999 in total 2000 people were involved in collecting the 31 t of neem seeds. These are individuals and groups, mainly women and children, who see the collection of neem seeds as an additional source of income.

Seeds were delivered to collection points and transported to Nairobi. In 1999 the collections were organised by four agents situated in the coastal region, which purchased the collected neem seeds on behalf of Saroneem Biopesticides Ltd.

During the harvesting season the collected neem seeds are checked at the collection point, and the deliverers paid promptly. There the seeds are packed, and they are collected and transported to Nairobi twice a week.

The collectors receive 20 KSH (70 KSH = US$ 1) for 1 kg of usable neem seeds from the agents, or 5 KSH for lower quality seeds. The agents in their turn get 25 KSH for 1 kg of good quality seeds and 5 KSH as lump sum for packing and transport. The azadirachtin content was about 0.3 or 0.4% in 1999. The seeds are graded (and paid for) according to following quality criteria: contamination by fungi, cleanliness and moisture content. Oil and azadirachtin content are not considered because they cannot be checked on the spot.

It is difficult to obtain reliable figures on the yield per tree due to the heterogeneous growing conditions. According to rough estimates, about 30 kg of neem seeds are produced by a 12-15 year old tree, and about 12 kg per tree are gathered by the collectors. The yields, however, vary from year to year according to climatic conditions. Considering younger neem trees as resource trees, about 3500 to 4500 neem trees are required to obtain 31 t of seeds.

Seeds are transported from the collection area to the district capital by private pick-ups, and from there to Nairobi by frequent buses. Transport costs for the neem manufacturing plant are 30 000 KSH/t.

For the year 2000 Saroneem Biopesticides Ltd intends to purchase 50 t neem seeds, provided sales are according to the expectations. It is considered that it is feasible to extend and intensify the collection of seeds if more seeds are required.

· Processing

In order to overcome the difficulties of storing seeds under the climatic coastal conditions it was decided to undertake post-harvest development in Nairobi. For this purpose a pilot unit was established.

Description of the pilot plant

The machinery used was developed and manufactured by testing and adapting local machinery for groundnut processing, with the exception of a "Comet" oil expeller manufactured in Germany. The machinery included:

· a groundnut sheller, modified to cope with the much smaller neem seeds, for breaking the shell to liberate the seed kernel,

· a winnower to separate the kernels from the shell,

· an oil expeller to extract the oil from the kernels (later a double spindle oil expeller with a higher processing capacity was added),

· a hammer mill to crush the neem cake,

· an automatic packing machine.

The main problems faced during processing were:

1. Drying of seeds was difficult under the prevailing weather conditions and in the limited space available at Saroc Ltd in Nairobi. It was found that oil extraction was very limited unless the kernels were properly dried.

2. Crushing neem kernel cake alone was not easy as it jammed the hammer mill. This problem was solved by mixing the neem kernel cake with neem shells.

3. Contamination of neem products was possible since the company was producing agro-chemicals under the same roof.

4. The lack of equipment for analysis of azadirachtin hampered the formulation of standard products.

After these initial experiences the pilot unit developed by Saroc was moved to ICIPE headquarters in Nairobi. A section of the former livestock centre was made available for the processing unit. It consisted of a large covered shed of about 600 sq m, a large enclosed room, an office and a laboratory block. The covered shed was suitable for drying and shelling the seeds, whilst processing, formulation and packing could be restricted to the enclosed area, thus minimising the risk of contamination.

The processing capacity was later increased (see above).

Formulation of neem products

Pesticides for seed treatment, soil treatment and foliar spray were developed based on neem kernel cake powder and neem oil. Processing of neem seeds into pesticides includes the following steps:

1. Disinfecting and drying the seeds: the seeds are treated with a solution of calcium hypochlorite to prevent fungal growth and subsequent aflatoxin contamination.

2. Drying the seeds: the seeds are spread in thin layers and exposed to the sunshine. During the evening the seeds are covered with polyethylene sheets.

3. Threshing the seeds: 50% of the seeds are passed through a modified groundnut sheller to liberate the kernel from the seed shell.

4. Winnowing: a fan blowing through a constricted space is used to separate shells from kernels.

5. Extraction of oil: a mixture of kernels and seeds is passed through the mill. Trials on the most effective ways of extracting oil from the seeds showed that a mixture of 2/3 kernels to 1/3 shells maximised the extraction of oil.

6. Filtering the oil produces the pharmaceutical by-product "Neemsar "O" "The neem cake can be either used to produce neem powder or for alcoholic extraction. The quantity depends on the demands for the specific product lines.

7. The azadirachtin content in neem cake is quantified using high performance liquid chromatography (HPLC) at the chemistry department of ICIPE. Standardisation of azadirachtin A content in neem cake powder is achieved by reconstituting the neem cake with neem seed shell in appropriate proportions. A hammer mill and mixer are used to grind and mix neem kernel cake and shells. The final product is a neem powder of 0.5% azadirachtin, called "Neemros 0.5% Powder".

8. For alcoholic extraction the neem cake stays in an alcoholic extractor for 8 h. 100 l of alcohol is required for 130 kg cake. The alcohol percolates continuously through the cake, extracting part of the remaining neem oil and other active ingredients. The plant in Kenya has been using isopropanol (isopropyl alcohol), due to its easy availability and cheap price (but it is now using ethanol).

9. The neem oil (32%) is combined with alcohol (63%) and an emulsifier (5%). This marketable product, an emulsifiable concentrate, is sold under the trade name "Neemroc EC 0.03% W/W".

10. The extracted cake mixed with neem shells in a ratio of 1:1 is milled with a hammer mill and can be sold as organic fertiliser. To date Saroneem Biopesticides has not traded this product.

11. Formulation of neem products: pesticides for seed treatment, soil treatment and foliar sprays were developed based on neem kernel cake powder and neem oil. Two formulations were developed:

A) Neemros: Neem cake powder (NCP) standardised at 0.5% azadirachtin and

B) Neemroc EC oil: a water-miscible oil with 0.03% azadirachtin. For clarification the processing of neem cake is explained below:

The shells are removed from 1 t of neem seeds. The shells make up about 25% of the seeds' weight, coming to 250 kg. From the remaining 750 kg kernels 120 kg cold neem oil is pressed (16%). This leaves 630 kg neem cake which is mixed with 100 kg neem shells for technical reasons. Together the neem cake and seed shells amount to 730 kg of neem powder.

Figure 3: Processing of neem seeds into pesticides includes the following steps:

*Officially Neemroc has a minimum azadirachtin content of 0.03%, although it is usually higher than this.

In 1999 Saroneem Biopesticides Ltd purchased 31 t of neem seeds and from this manufactured the following quantities of marketable products:

Table 10: Expected output of marketable neem products

The above data concerning marketable products could vary according to the demand. The figures are estimates based on the experience gained in previous years.

Quality Control

Quality control takes place with regard to the following components: aflatoxin (not desired) and azadirachtin content (desired, should be as high as possible).

The seeds are checked for contamination with the storage fungus Aspergillus spp. The absence of aflatoxin in the seeds and in the finished products (neem oil, neem cake and neem powder) is regularly monitored (twice a month) at the chemistry department at ICIPE. The technician in charge of the analysis at ICIPE took part in a training course in extraction and bioassays of biologically active plant products, offered by the GTZ Pesticide Service Project in 1995. During 1996-1997 duplicates of some samples were sent for analysis to Trifolio-M GmbH in Germany for the sake of comparison.

The shelf-life of the products was determined by monthly HPLC azadirachtin A analysis of stored products and seeds. The changes in content of azadirachtin A in neem cake powder, stored at room temperature, during a ten-month period ranged from 0 to 30% reduction. The analyses showed that azadirachtin A was better conserved when the seeds were stored and then processed as needed.

The following table (11) provides data on azadirachtin and aflatoxin content according to the quality control laboratory at ICIPE in the latest analysis of products from Saroneem Biopesticides Ltd:

Table 11: Results of the quality analysis of Saroneem Biopesticides Ltd products in October 1999:

The quality criteria for marketable neem-based pesticides are defined as follows:

· constant azadirachtin content
· constant consistency
· reliable efficacy against pests
· aflatoxin content below defined limit

· Registration of neem-based pesticides in Kenya

All pesticides to be used in the Kenya have to be approved by the Pest Control Products Board (PCPB), the authority established by the government of Kenya to take care of pesticide regulation. The requirements for registration of plant derivatives are the same as for synthetic chemicals. Information on chemical composition, toxicity and efficacy is required. Efficacy trials can only be conducted by institutions recognised by the PCPB. The costs of efficacy trials conducted by governmental institutions such as the Kenya Agricultural Research Institute (KARI) have to be covered by the company making the application. Other institutions charge a fixed fee for conducting efficacy trials. Once all requirements are met, a fee of KSh 10,000 (about US$ 140) per product has to be paid for provisional registration and 30000 KSh (ca. US$ 400) in order to apply for permanent registration.

Applications for the registration of the two products, Neemros® and Neemroc® were presented to the PCPB in 1996. Information on the chemical composition and toxicology of neem and neem products was gathered from the literature and from information provided by the GTZ Pesticide Service Project.

Field and laboratory trials of the efficacy of the two products for the control of key pests of several crops were conducted. These trials were also intended to determine the frequency of application and effective rates of application that are economically competitive with other available pesticides. The trials on horticultural crops were carried out in collaboration with the GTZ-IPMH Project, the ICIPE-USAID Export Vegetable IPM Project, and the Kenya Agricultural Research Institute (KARI), as well as fruit, vegetable and cut-flower growers. Trials on maize and banana were conducted by the ICIPE Neem Awareness Project. Some of these studies were done as MSc theses by students from local and German universities under the supervision of scientists from ICIPE and the respective university.

A temporary Certificate of Registration for Neemroc® and Neemros® for use on horticultural crops was issued by the PCPB in March 1998. Further information on efficacy of the products in the field and effects on non-target organisms might be required in order to get a permanent certificate of registration.

At the end of 1999 Neemroc and Neemros were provisionally registered for horticultural crops.

These products are being tested, but are not yet registered in Kenya for potatoes/tobacco.

· Vegetables and fruits
· Flowers and ornamentals
· Potatoes
· Tobacco

· Results of the efficacy trials

Pests of brassica crops

Foliar applications with Neemros® water extracts at concentrations of 25 and 50 g/l, and Neemroc® at 1 - 3% have compared favourably with the Bacillus thuringiensis products Florbac and Dipel, for control of the diamond-back moth, and with Karate for control of aphids on kale and cabbage in greenhouse and field experiments (K�sters 1998, Okoth 1998).

Pests of French beans

Foliar applications with Neemroc® at concentrations of 1 - 3% provided very good control of A. fabae on French beans in greenhouse trials. This aphid was also satisfactorily controlled by foliar applications of Neemros® water extracts at a concentration of 50g/l (Maundu 1997).

Pests and diseases of tomato

Foliar sprays of Neemros® of 10 - 50 g per litre of water controlled dipteran leaf miners Lyriomyza spp. on tomato in field experiments (Pacho, in preparation).

Aqueous Neemros® extracts at concentrations of 5 - 50 g/l inhibited mycelial growth, sporulation and germination of Fusarium oxysporum fsc lycopersici. These applications reduced the pathogenicity of the fungus (Stanley 1998).

Dipping bare-root tomato seedlings into aqueous Neemros® extracts (50g/l) protected the seedlings when planted in soil inoculated with mycelium of F. oxysporum fsc lycopersici compared with plants dipped in water. The reduction in the severity of the disease increased as the duration of dipping increased (Stanley 1998).

Soil additives with Neemros® have proven to be promising for controlling root-knot nematodes on tomatoes. Unfortunately, conclusive data could not be obtained since the field experiments were hampered by diseases which wiped out the experimental plants.

Pests of cut flowers

In a commercial-scale trial, foliar sprays containing Neemros® at 10 - 25 g/l of water applied in combination with Trigard (whose Al is cyromazine) controlled leaf miners on Carthamus in a flower farm in Naivasha. A significant increase in levels of the leaf miner parasitoid Diglyphus isaea Walker was observed after synthetic pesticides were replaced by Neemros® in the spraying programme. Application of chemicals was reduced by 80%. Rejection of flowers due to leaf miner damage was reduced from 70% to 6%.

Management of stemborers

Products based on neem powder have proved to effectively control stemborers on maize and sorghum. This has been demonstrated in trials with neem seed powder conducted by the Neem Awareness Project. The trials were conducted at Mbita Point and at the ICIPE field station at the coast. These results were reconfirmed in trials carried out with Neemros®. Results of trials with neem cake (NC) showed that damage and stemborer infestations on plants treated with NC were similar to those on plants treated with Dipterex and much lower than on untreated plants. Grain yields of NC-treated plants were also comparable to yields from plants treated with Dipeterx and much higher than in control plants (Anon. 1996/97).

Other potential uses of neem-based pesticides

Neem products, particularly neem-seed kernel extract and neem oil, have proved to effectively control nematodes and the banana weevil, serious pests of banana in Kenya (Musabyimana & Saxena 1999).

Trials on tobacco are being conducted by the British American Tobacco Company Group (BAT), Kenya Ltd. Trials on cotton are being conducted by an organic cotton project in Lamu District, Kenya and by the Namulonge Research Institute in Uganda.

In addition, neem-based products have shown potential for the management of ticks and tick-borne diseases on livestock in Kenya. Neem kernel extracts and neem oil are being further tested (Kaaya 1997).

Further opportunities are discussed in section IV 1.5.4 below.

4.1.4 Economic assessment of the neem processing plant in Kenya

4.1.4.1 Technical and economic description of Saroneem Biopesticides Ltd

There is only one manufacturer of neem-based pesticides in Kenya, Saroneem Biopesticides Ltd (formerly Saroc Ltd). The company is processing neem pesticides in a one-step extraction plant (see section II.2.3).

The following provides key data on the neem-processing plant in Kenya:

Location of the plant: on the outskirts of Nairobi at Technoparc of the "Centre of Insect Physiology and Ecology (ICIPE)".

Owner: Saroneem Biopesticides Ltd is owned by Mr Dorian M. Rocco, Nairobi. The building and land at ICIPE are leased from ICIPE.

For a description of the location and list of machinery see above.

Staff:

The full-time staff are working in production, distribution and sales. The part-time workers only work in production and are requested on demand, according to the orders received. Over the period from 1 October 1998 to 30 September 1999 they were employed for eight months.

It has to be taken into consideration that some of the work of packing, bottling labelling, sales and administration for the fluid neem pesticides is carried out by the non-neem-processing wing of the former Saroc Ltd.

Production capacity per day:

² Based on 360 production days per year and 24 production hours per day.
³ Calculated average daily production for 300 days of production per year.

Based on a production capacity of 360 days annually and 24 h/day, it appears that only 20% of the potential capacity is used.

The following products can be manufactured per day, using the amount of neem seeds mentioned above:

The following table (12) provides a list of the neem products of Saroneem Biopesticides Ltd. and their prices.

Table 12: Prices and neem products offered by Saroneem Biopesticides Ltd.

Product description:

· Neemroc EC 0.03% W/W: for product description see page 39 above.

· Neemros 0.5% powder: for product description see page 39 above.

· Alcoholic extract Saroneem "M" 1% EC (1% azadirachtin): the alcoholic extract is used for the production of Neemros. It is sold for research purposes only and has not been registered. The product has hardly any significance at all for the profit of the company.

· Unfiltered oil: this is also a raw material for manufacturing Neemroc and is only sold for experimental purposes. It has hardly any significance at all for the profit of the company.

· NEEMSAR "O": this is a filtered oil for pharmaceutical purposes and has to be regarded as a by-product. It is used as an insect repellent and to treat skin diseases such as fungal infections.

· ULV formulated oil: this product is based on neem oil and is used for experiments in mosquito control by application to water. Currently the product is under investigation.

At the end of 1999 the following products were of commercial and economic relevance for the company:

Neemroc, Neemros, and to a certain extent Neemsar "O" (skin oil).

SARONEEM BIOPESTICIDES' neem-processing unit at Techno Parc, ICIPE

Drying neem seeds at ICIPE

Cold pressing of neem oil

Labelling and packing a mosquito-repellent based on neem oil

SARONEEM BIOPESTICIDES' registered neem products: standardised formulated neem oil and neem cake powder

4.1.4.2 Production costs

Investment and fixed costs

Saroneem Biopesticides Ltd has rented a plot of land and a building, including the technical equipment, from ICIPE. The company has to pay for any maintenance and investments in new equipment. This is important for an economic evaluation since Saroneem Biopesticides Ltd did not have to pay the costs of land and building etc but has to take into consideration the depreciation of the old equipment. The present value of the buildings, including installations and the land is approx. KSH 5,000,000. Although the value of the buildings is of little interest, since no depreciation take place, their estimated value is provided for information.

Table 13 provides information about items of capital expenditure, technical equipment, specifications, cost of purchase and present value including the annual depreciation.

In Kenya it is customary (and also required by the tax laws) to depreciate the cost of investment items by 25% p.a, in a degressive way. This leads to the fact that at the beginning of the utilisation period high depreciation costs have to be considered, which decrease in the course of time. This calculation method was also applied here. The above listed packing machine for neem powder is not in use and therefore not considered in the depreciation.

Table 13: Technical equipment and its value

* purchase of new goods
** 360 kg per day

With the exception of the two oil expellers, all investment goods are locally produced. The oil expellers were bought second-hand in Kenya. The quality standards of the technical equipment fulfil the market requirements. The prices listed in Table 14 include the costs of transport and installation.

The following table presents the calculated fixed costs of Saroneem Biopesticides Ltd for 1999/2000.

Table 14: Fixed costs of the neem-processing plant in Kenya

* Membership costs were covered up to and including 1999 by Saroc Ltd and are not a specific liability of Saroneem Biopesticides Ltd.

The most important item of the fixed costs is the full-time staff, at 49% of the total costs.

Variable costs

Table 15 provides information on the calculated variable costs of Saroneem Biopesticides Ltd for the period 1999/2000.

Table 15: Variable costs of the neem-processing wing of Saroc Ltd.

Discussion of the costs listed above:

Detailed consideration and interpretation of each cost item reveals that there is no potential for rationalisation, in either the fixed costs or the variable costs.

The items where a potential for rationalisation usually exists are discussed below.

Fixed costs:

The permanent employees are necessary for production.

Both "marketing" and "sales" are underdeveloped due to a lack of personnel, and would actually require more staff.

The other fixed costs cannot be reduced; in the case of "building" and "rent" they are already lower than the usual market price.

Variable costs:

The flexibility of the part-time staff to be employed only when work is available does not give any leeway for rationalisation.

The investments in advertising and product development are at a very low level. Especially in this area it would be advisable to intensify the activities. However, this would increase the variable costs.

It should be emphasised that it was not easy to allocate all the costs to a specific item, for example a non-quantifiable portion of the transport and the running costs is actually part of the advertising and product development costs. Also, the operational costs of Saroneem Biopesticides Ltd were partly covered by the non-neem-manufacturing wing of Saroc.

The interest rate referring to a six-month period is line with the market conditions and cannot be reduced. The other costs are required to keep production running and cannot be reduced either.

Production cost per unit (l/kg or 1000 l/t)

The following table presents a cost breakdown for the specific costs of one product unit.

Table 16:

Table 17 shows the production costs of 730 kg Neemros.

The production costs of 1 l neem oil are KSH 60. 120 kg neem oil has a value of KSH 7200. Since this neem oil is further processed within the company, it reduces the costs of the raw material. The value for the raw material is therefore subtracted from the cost of the raw material. The costs of KSH 22 800 have to be calculated for the interim products such as 639 kg of neem cake and 100 kg neem shells.

Table 17: Production costs of Neemros:

* Based on selling the total amount in 250 g paper bags. If the product is sold in greater units e.g. 2 kg, 25 kg, the costs of packing are reduced.

The next table provides details on the production costs for 1000 l Neemsar "O".

Table 18: Costs of production of Neemsar "O"

External costs

No external costs such as environmental damage are caused by the neem-processing plant.

Cash flow

Below is a calculation the cash flow of Saroneem Biopesticides Ltd in 1999.

From the raw material purchased the following products were manufactured:

· 10000 l Neemroc
· 10000 kg Neemros
· 60 l Neemsar "O".

This has to be multiplied by the specific wholesale or retail price.

Table 19: Calculated cash flow of Saroneem Biopesticides Ltd (with non-representative cost factors eliminated):

It is assumed that the entire production will be sold. Since most of the production will be purchased by large companies at wholesale prices (as in the past), a ratio of 30% retail prices to 70% wholesale prices is calculated.

This calculation shows that even with consideration of the representative market costs the neem plant in Kenya is a profitable business.

It should be taken into consideration that a range of further products can be developed and sold based on the present products (see section 3.1.6.4 below)

For example, it is known that extracted neem cake still contains nutrients and other active ingredients which show a positive impact on plant growth. This could be sold as a by-product of the insecticide production. To develop this product line it would require other marketing activities by Saroneem Biopesticides. The target group for this organic fertiliser would be small farmers growing vegetables. The retail price for 1 kg of extract neem cake could be about KSH 10.

This product alone would increase the cash flow and subsequently the profit by at least KSH 50000.

4.1.5 Market potential, investment possibilities, marketing and development strategies

4.1.5.1 Marketing of neem products to date

The project has worked in collaboration with the ICIPE Awareness Project to disseminate information on the use of neem as a pesticide and on the availability of neem products in Kenya. Thus, staff involved in the industrialisation project participated as resource persons in several training workshops organised by the ICIPE Awareness Project. Information posters and products were exhibited at the Mombasa Agricultural show and an IPM exhibition organised by the IPM Working Group in Kenya. As a result, a number of contacts were established with farmers, both as suppliers of neem seeds and as purchasers of neem products. A lot of interest arose, particularly about the neem-processing unit and the fact that neem products were locally available. The production unit was always open to visitors and samples given out for testing purposes.

Contacts were made with the Kenya Institute of Organic Farming (KIOF). It was agreed that a representative of the company would attend meetings in the Central Province to advise farmers. The neem products will be made available to them through Muthama District Cooperative Union distribution network.

As soon as there were indications that the products were likely to be registered in the near future, a concerted sales effort was undertaken by Saroc Ltd. Some larger vegetable and flower growers who were producing for export were approached and samples were offered to them for evaluation. In some cases excellent pest control was achieved and sales developed slowly.

4.1.5.2 Market potential

The current share of neem pesticides in the Kenyan market is limited due to the following factors:

· The short time since the pesticides were registered (at the end of 1998)
· Limited production capacities of the neem-processing plant
· Limited resources for advertising and distribution
· Investment required in demonstration and training

In the period from 1 October 1998 to 30 September 1999 11 t of neem pesticides from Saroneem Biopesticides were sold, with a value of KSH 2.725 million.

This resulted in a share of the market for different groups of pesticides as shown in Table 20.

Table 20: Market share of neem pesticides

* The market share has been calculated according to the volumes of registered neem pesticides; no illegally imported pesticides are considered. The real share for neem products will therefore be slightly higher.

Besides the two pesticides registered and sold by Saroneem Biopesticides Ltd, one Indian product has been registered and application was made for registration of two other products from the US and India in 1999.

There is a certain market potential for neem pesticides in Kenya and there are many factors which support the assumptions that the demand will increase in the near future.

4.1.5.3 Analysis of Economic production with and without the use of neem pesticides

In 1999 economic analysis of horticultural and agricultural practice with and without the application of neem-based pesticides was not easy and was based on niche applications with only a few examples. The reasons were the following:

· Neem-based pesticides are not regularly applied in standard crop production.

· The market for neem pesticides is still a niche market. Neem pesticides are only applied on a few crops and under certain frame conditions.

· Only very few ICM or IPM concepts exist which integrate neem products; however, no evaluations from the fields were available.

For these reasons no detailed data based on field experience were available at the end of 1999.

The current and potential market for neem-based pesticides can be defined according to following criteria:

Parameter for the application of neem as a commercial pesticide:

1.) tested and registered for crop species
2.) production methods, e.g. organic farming, IPM
3.) access to information on neem-based pesticides
4.) farm size
5.) efficacy of conventional pesticides
6.) market for agricultural and horticultural products
7.) significance of pesticide residue level on agricultural produce
8.) price compared to conventional pesticides

The different criteria are discussed below:

1.) Crop species:

Neem-based pesticides are only registered for and applied to the few crops listed above (see page 34). At the end of 1999 neem had been tried in other crop species on a trial basis only. With continued testing and registration of neem-based products in further crops against further pests, both market and demand will increase.

Also due to the limited time which has elapsed since neem products were registered and have been marketed, there is only a little experience from farming practice available. It is well known that the most important flow of information is from farmer to farmer.

2.) Production methods:

The NGO Kenyan Institute of Organic Farming (KIOF), among others, is promoting organic farming in Kenya. So far organic certification and separate market chains are not very well developed in east Africa, including Kenya. To date neem has been applied in Kenyan organic farming systems only to a very limited extent. However, there is considerable potential for integrating neem products into organic farming systems. No data is available on the total area under certification which is cultivated with the crops suitable for the application of neem pesticides. According to KIOF the main constraint for the restricted use of neem in organic farming in Kenya so far has been the limited access to neem products.

It can be stated, however that there is potentially a higher demand for neem products in organic farming systems in the future.

No systematic integration into the ICM or IPM systems has been worked out so far, except for very few crops; nothing from the ICM or IPM has been transferred on a large scale and tested in practice. This aspect is also related to point 3 below:

3.) Access to information about neem:

Only farmers who have sufficient information on the potential and mode of action of neem pesticides apply these pesticides. Information on the following aspects is essential:

· Which crops is the neem product registered for?
· Which crops can be treated?
· Which pests can be controlled with neem pesticides?
· What is the expected efficacy?
· What is the mode of action?
· Easy access to suppliers of the neem pesticides;
· Training and knowledge about how to apply neem pesticides.

At the end of 1999 the following groups in Kenya were well informed about the potentials of neem:

· farmers who had already applied neem pesticides, mainly large flower and vegetable
· growers;
· organic farming associations, the agrochemical industry, exporters on administrative level;
· some farmers using organic farming systems;
· large multinational agrochemical companies.

In general most of the small farmers, most of the large farmers not producing flowers and vegetables, the government administration, the extension service on district level and a great number of the flower and vegetable producers had insufficient information on neem-based pesticides.

With the "trickle down" effect of information and more intense marketing, the demand for neem products will increase in the future.

4.) Farm size:

At the end of 1999 Saroneem Biopesticides Ltd realised 99% of its turnover with large farms, while only between 100 and 200 kg of neem pesticides were sold to small farmers over the last 3 years. The main consumers of neem-based products are large growers of ornamentals and vegetable-producing farms.

It can be assumed that also small flower and vegetable-producing farms would apply neem, e.g. around Mt Kenya and near Nairobi, where approx. 10 000 to 15 000 small farmers are cultivating plots of 1/2 - 5 ha in size. This, however, would require more intense marketing activities and an efficient distribution system.

In 1999 the British American Tobacco Company (BAT) purchased a large amount of neem products which were distributed to small farmers in Kenya and Uganda who were growing tobacco.

This aspect is also very much related to the access of information.

5.) Efficacy of conventional pesticides:

Indiscriminate use of pesticides leads increasingly to the appearance of resistant pests (see Chapter 2.1). Despite sophisticated pesticide management, especially in ornamentals and vegetables, conventional pesticides are increasingly losing their efficacy against a range of pests. Neem pesticides are regarded as an effective tool to break the cycle.

Table 21: Lists those pests which have often shown resistance to conventional pesticides:

Neem pesticides were successfully applied against all the pests mentioned except spider mites.

It can be concluded that neem pesticides are increasingly used where conventional pesticides are no longer effective. This market is expected to increase in the future.

6.) Market for agricultural and horticultural products, and

7.) Significance of pesticide residue level on agricultural produce:

Agricultural production in Kenya can be divided in two sectors: production for the domestic market and for the export market, which is of some relevance for the demand for neem.

The majority of the agricultural produce exported is designated for the European Union and has to fulfil the strict requirements for minimum residual levels of pesticides (MRLs). The guidelines for MRLs will be even stricter and better enforced in future. Since neem decays very fast in the environment, the demand will be related to the export volume of agricultural produce. Based on both factors (MRLs and volume) it can be expected that the demand will rise in future.

At the end of 1999 the agricultural produce in Kenya assigned to domestic markets was not checked against the MRLs and most of the consumers did not show any concern or sensitivity with regard to this problem. Recently, however, the authorities have appealed to farmers to reduce the application of conventional pesticides (see Chapter 2).

It can be expected for the future that as in many other countries the consumers will show increasing concern about the contamination by pesticides. In the long-term it might be expected that the Kenyan authorities will pass and enforce MRLs for internal markets.

An increasing demand for neem-based products can be expected on both the domestic and foreign markets.

8.) Price of neem products relative to conventional pesticides

The relevance of the prices to the demand for neem-based pesticides depends on the specific situation of the farmers.

If the farmers have severe pest problems, e.g. due to resistant pests, the price of neem products is of secondary importance. The same holds in cases of pest gradations in (certified) organic farming systems, e.g. according to IFOAM standards.

The price relative to conventional pesticides could be of some importance for other producers applying pesticides not for the sole reason of resistant pests. The medium and long-term effects of switching to neem have to be taken into consideration, including the avoidance of side-effects such as intoxication, costs arising from environmental hazards and water contamination. One good example is described above (see pests of cut flowers).

More information and more knowledge about such benefits will improve the cost-benefit relationship and will certainly increase the demand for neem products in the future.

4.1.5.4 Market growth potential and substitution possibilities

For the reasons mentioned above, there is little doubt that the market potential for neem pesticides in Kenya is much higher than the market existing at the end of 1999.

Assuming that the volume of conventional pesticides used will be stable or increase in the future, it is clear that there will be an increasing demand for neem-based pesticides in the future.

The following reasons are given (dynamic scenario):

· An increasing population will lead to an increase in agricultural production, which will result in increased pesticide application.

· This will increase the problem of resistant pests and further typical results of the "pesticide treadmill".

· The growing concern of consumers and decision-makers will lead to stricter controls of MRLs, in the short run for the export market and also in the medium-term for internal markets.

· Currently the market share of neem pesticides is low, leaving sufficient space for exponential increase of sales of neem pesticides.

· The potential of neem in farming systems is not exploited to its full extent (see below). Research will open new market opportunities.

Potential new markets:

Fungicidal effects

Trials are currently being conducted on the control of Alternaria and Phytophtora in potato and fusarium in tomato. (These are not formal trials which could be used for registration, but are demonstration trials on farmers fields, coordinated by Saroneem staff.)

Further potential target diseases are the coffee berry disease (Colletotrichum) and coffee rust (Hemileia).

Effects promoting plant growth

In addition to the fungicidal and insecticidal effects of neem pesticides it has been reported that the application of neem has growth-promoting effects. If these additional properties of neem pesticides could be communicated to small horticulture cropping farmers this would greatly increase their demand for neem products.

Veterinary uses

Preliminary trials on tick control with neem conducted at ICIPE have revealed excellent effects on cattle, sheep and goats. The price would be lower than synthetic control agents and the potential market is about KSH 250 million.

Control of malaria vector (mosquito)

A further potential must be seen in using neem products to control mosquitoes in water and housing areas. Preliminary tests conducted in Mali and at ICIPE revealed good control properties of neem.

The market potential of all neem pesticides applicable in this field is estimated at about KSH 100 million.

Storage

The treatment of stored agricultural produce such as pulses and corn is only advisable if the products are guaranteed free of aflatoxin.

Aflatoxin degrades fast under UV rays, but these do not penetrate storage rooms. Currently Kenyan neem products cannot be guaranteed free of aflatoxin.

Currently 500 t of insecticides are used in Kenya to control storage pests.

Pesticides

Apart from describing the potential market, one comparison with synthetic pesticides could be based on the price and recommendations concerning the registered neem products.

For an economic evaluation, a product/target pest/crop matrix is required. The effects of further active substances in neem (i.e. in addition to azadirachtin) and synergistic effects of substances added to the formulations must be taken into consideration. Further criteria such as the abundance of resistant pests, pesticide management, and limits on pesticide residues are also of importance. To compare the product prices alone is not very helpful if the additional information is not provided. Even comparison of the price per application per ha is only of limited information value. The best thing would be to compare cropping systems which make use of different neem products. However, hardly any models or studies exist on this topic.

The recommended application of azadirachtin on vegetables and ornamentals is 25 g/ha. If the azadirachtin content of the pesticide is 0.5% this comes to about 5 l Neemroc or 5 kg Neemros per ha.

Based on the retail prices, this amounts to KSH 2000/ha for Neemroc and KSH 1000/ha for Neemros.

The following (22) compares the price with that of competing synthetic pesticides.

Table 22: Price comparison analyses for neem insecticides versus conventional pesticides.

This survey indicates that Neemroc is competitive with other pesticides in 16 cases and Neemros is competitive with other pesticides in 28 cases.

If future demand is restricted to the present applications such as large ornamentals, vegetables and tobacco farms, the market potential will be somewhat restricted. There is, however, no doubt that this potential alone justifies neem production.

To open up this market at least to a certain extent it is necessary to promote neem for other purposes too. Further advantages of neem products should be demonstrated, such as promotion of plant growth, no negative effects on health and soil fertility.

Further market potential exists in the neighbouring countries such as Uganda, where all Neemroc and Neemros products are registered as insecticides for all crops. A further promising country is Tanzania, as are other countries where neem pesticides have been registered, such as Israel.

4.1.6 ''Lessons learnt''

4.1.6.1 Project concept

The main problem during the development of the project was shortage of funds. The budget allocated for the development of the project (US$ 100 000) proved to be too low. It was foreseen that the money from sales would flow into the project activities. However, sales could not be started until the products were registered. Temporary registration was granted in March 1998, which was towards the end of the project. Thus, the budget was not sufficient to develop products further and to conduct more efficacy trials.

The successful completion of the project (Varela & Rocco 1998) was possible due to the backing of projects such as GTZ-IPM Horticulture, which funded students working on master's degrees on the efficacy of the neem products developed for the management of key pests of horticultural crops. The ICIPE-USAID Export Vegetable IPM Project conducted trials on crops covered by its programme (e.g. French beans, okra). The ICIPE Awareness Project tested the products developed by the Industrialisation Project on maize and banana. Similarly flowers, fruit and vegetable producers offered inputs such as staff and fields free of charge, out of interest in neem as an alternative to synthetic pesticides. Only a few trials could be conducted with governmental institutions such as KARI, due to the lack of funds. Saroneem Biopesticides Ltd provided staff, transport and postal and telephone communication, as well as laboratory facilities for formulating products. The managing director of Saroneem Biopesticides Ltd, Mr Rocco, gave his time free of charge during the entire duration of the project.

Seed collection was initially hampered by lack of confidence on the part of the collectors, who had previously not been paid for their seeds as promised. In some cases the seeds were not transported speedily enough and they became contaminated with fungus. These problems were, however, overcome after the initial collections. Unfortunately the project vehicle was stolen in Tanzania during a seed collection exercise. The seeds were later recovered but not the vehicle. Vehicles from ICIPE and from Saroneem Biopesticides Ltd were rented for further seed collection until the end of the project.

Some problems were experienced with the formulation of the products, for instance maximisation of oil extraction from seeds. When the seeds were not sufficiently dry, or when the spindle of the mill was worn out, a considerable amount of oil remained in the cake. This led to a reduction in the amount of oil available for formulation of Neemroc® and affected the quality of the neem cake-based product. For example, differences in the effects of different samples of neem powder on germination of tomato seeds are likely to be due to differences in the neem oil content of the product. It was thought that the oil content in the cake should not exceed 8%.

The project initially concentrated on the production of simple pesticides based on neem oil and neem cake, as these are the easiest and cheapest ways of getting neem pesticides onto the market. Neemros®, the neem cake-based product, proved to be inappropriate for use in large production areas due to its bulkiness and the processes involved before it can used for foliar sprays, namely extraction in water and filtering. If filtration is not carried out properly, the particles block the nozzles of the spraying equipment. Neemroc® is user-friendlier, as it can be mixed with water and sprayed immediately.

The registration of neem products took longer than expected. Data generated by the students could not be used until they had completed their thesis work. Additionally, some of the field trials were affected by low pest incidence due to unusually long rains during "El Nino" phenomena, especially in 1998. The labelling of the products caused considerable delays, as the labels had to be modified several times.

4.1.6.2 Marketing and development strategies

One of the greatest obstacles is having to conquer a certain sustainable share of the total pesticide market for neem pesticides. It is much easier to defend an existing marketing share than to expand into the market.

In principle the existing distribution system is suitable for selling neem products. Until the end of 1999 this was realised by the non-neem-processing wing of Saroneem Biopesticides Ltd. Only a small percentage of the neem pesticides are sold directly from the factory gate.

After the separation of Saroc Ltd, the distribution and selling rights could be awarded to Saroneem Biopesticides Ltd or to other companies. In any case a minimum retail price should be determined.

Until the end of 1999 the user could only purchase neem products from Saroc Ltd (now Saroneem Biopesticides Ltd). This is one reason why only a few small farmers are buying neem products even if they are cropping according to organic farming principles. Further reasons might be:

· Unavailable or insufficient information on neem products and their effects;
· Unavailable or insufficient information on providers of neem products;
· Unavailable or insufficient information on minimum residue levels of export crops;
· Possible alternatives for minimising and avoiding pesticide residues.

A strategy for marketing neem pesticides to vegetable farmers has to consider the above aspects.

The focus should be placed on making neem products available to local distributors and rural stockists. There should be emphasis on the areas where the farm size and main crops could be expected to allow a greater demand for neem products. Target regions are e.g. the "Vegetable Belt" around Mount Kenya, the areas around Naivasha and Nakuru as well as the area around Nairobi.

Additionally, local substations at model farms should be set up within the reach of local farmers to demonstrate the effects of neem products on selected crops.

The model farmers should work as multipliers. Their selection should include psychological and social criteria. First and foremost, those farmers should be selected as model farmers who are cropping according to good agricultural practices and have high yields. Also they should be broadly respected by the local population. Ideally the local spokesmen/women should be the model farmers.

The idea is that potential consumers of neem products get advice on how and where to apply neem products and how they work, and they should be able to purchase them at the same time.

As an incentive the agents would get the difference between the wholesale and retail price. They would sell the neem products on a commission basis. The entire model is like a franchise system. Several legal aspects of the proposed system have to be discussed with the PCPB.

The model farmers would be trained and equipped by two or three representatives of Saroneem Biopesticides Ltd, who would have to be newly employed. They would have the additional task of informing and training the farmers cultivating vegetables and ornamentals on how to apply neem pesticides and to convince them about the advantages of neem products.

There should also be concurrent presentations, information days and on-farm demonstration days.

The neem demonstration campaigns should be designed as follows:

Demonstration fields of approx. 1000 sq m should be set up at the model farms in the target region, and also on other farms keeping to standard cultivation techniques. On the demonstration fields neem pesticides should be applied free of charge. With this demonstration it is intended to convince small farmers not only of the pesticidal but also of the other properties of neem, e.g. as a growth stimulant and fertiliser.

Should this assumption show some success, it can be expected that a good proportion of the small farmers would favour neem pesticides despite a possible price difference and/or a more laborious and complicated form of application.

Simultaneously the farmers should be taught about the MRL situation (see above) and potential pest resistance against pesticides.

In view of the different mode of action of neem pesticides as compared with synthetic ones, farmers will remain disappointed if, soon after application, they do not perceive immediate mortality of the insect pests on their crops. It will be a long and difficult task to persuade small farmers to start spraying early enough to give the neem application a chance to produce an antifeedant effect in the pests, as well as enhancing the presence of predators to act against the targeted insects. This will mean that sales of neem pesticides will be slow to take off.

Therefore promotion and training supported by governmental or other donors are required.

4.1.7 Investment possibilities

It was of interest to find out whether neem pesticides and products could be offered more cheaply and subsequently gain a larger market share if the production units and volume of raw material were larger. For example the costs (especially the fixed costs/unit) would decrease if neem manufacturing were carried out on a larger scale.

Based on the data available in Kenya, Quentin (1999) calculated that 300 t of neem kernels could be processed into the following products:

· 100,000 l Neemroc
· 100,000 kg Neemros
· 6,000 l Neemsar "O"

It was assumed that only a minor portion of the products would be sold directly to the final consumers and that most of the products would be sold to wholesalers.

Based on this calculation and the availability of capital for investment, the profit would be 39% of the turnover. This would result in a good profit, despite a high depreciation in the first year. In the eighth year the profit would be even better, assuming that all frame conditions remain constant.

Such processing would enable the company to build up its own capital which is required for example to purchase 300 t of neem kernels (KSH 9 000 000) in the next harvesting season. This would be an important step in the elimination of risks such as those arising from the severe fluctuations in interest rates in developing countries.

However, even calculations based on 50% or 100% credit for the start-up and investment costs and the repayments consequently required would result theoretically in a profitable business. Even neem manufacturing based totally on credit* would enable entrepreneurs to build up their own capital.

The calculation is based on larger volumes of the product currently offered, new product lines could increase the profit more.

Interest rates of 8% based on the US dollar - Basis

4.1.8 Post-project experience

ICIPE

Awareness of the potential of neem has increased remarkably, in large part due to the ICIPE's Awareness Project and to the Neem Industrialisation Project. Since 1994 thousands of seedlings and viable seeds have been distributed among farmers, schools, churches, NGOs and other interested groups in Kenya. This has stimulated the establishment of numerous nurseries in Kenya and neighbouring countries. More than 650 persons from seven east African countries have been trained.

Demonstration trials have also been organised by agricultural officers of several divisions.

Neem is mainly promoted by other NGOs in addition to the ICIPE. Thus, as mentioned earlier, KIOF has been promoting the use of home-made neem products by farmers, and it is interested in promoting the available neem-based products. An agreement has been reached with Saroneem Biopesticides Ltd to make neem products available to farmers through the Muthama District Cooperative Union distribution network. NGOs play an important role in knowledge dissemination.

NGOs

Two organisations, the NGO the "Kenya Neem Foundation" and the "Kenya Neem Development and Herbal Health Awareness Agency" were registered in 1997, These two organisations are promoting the neem tree in Kenya. The "Kenya Neem Foundation" has organised neem awareness meetings in several districts of Coast Province, Nyanza Province, Western Province and Rift Valley Province. Mr Anthony Kithini Mwongo of the second organisation conducts seminars to sensitise people to the potential of the neem tree in rural development and income generation. Another NGO, "Details, Kenya", working in development and training through appropriate initiatives for local set-ups, is creating awareness through seminars. This NGO is seeking funds in order to boost propagation of the tree, to conduct demonstration trials, and to create awareness of the multiple uses of the neem tree, in the areas surrounding the lakes Bogoria and Baringo.

IPM Projects

Other IPM projects in the region have also incorporated neem-based pesticides in their programmes. Thus, some projects have purchased neem products from ICIPE/Saroneem Biopesticides Ltd for testing purposes. These projects include the peri-urban vegetable IPM Project in Kenya, (developed the by the National Resources Institute (NRI) and the CABI African Regional Centre), the Tanzanian-German IPM Project and the GTZ "Urban Vegetable Promotion Project" in Tanzania.

Industry

The industrial and the cottage industry sectors in Kenya have also shown interest in the production of neem-based pesticides. This has included interest from local businessmen in starting production of neem-based pesticides. Some of them have visited the neem factory at ICIPE, but so far no one has started.

Several companies producing neem-based pesticides, mainly from India, but also the EU, have shown interest in the Kenyan market. They have visited and given samples for testing to several flower and vegetable growers. One Indian product, "Godrej Achook" has been granted temporary registration by the PCPB for horticultural use in Kenya.

Research

Research on the use of neem products in horticulture has gone a step further. It has concentrated on studies of the suitability of neem products in IPM programmes for the major pests. Thus, studies on the effect of neem products on parasitoids of leaf miners in tomatoes were conducted as part of a PhD thesis at ICIPE. Studies on the effects of neem products on natural enemies of the main pest of cabbage, namely the diamond-back moth and aphids were conducted by a Kenyatta University student for a master's degree funded by the GTZ-IPMH Project. Similarly, the effects of neem products on the parasitoids of the diamond-back moth are being studied by a PhD student at ICIPE.

Research on the effects of neem products in malaria control is going on at ICIPE. The use of neem oil as a larvicide for mosquito control is being studied in the laboratory and field trials are planned for the near future. Preliminary trials on the treatment of bednets with neem products have also been conducted.

Studies on the use of neem products for control of tick and tick-related diseases have continued, but the project on tick management has finished. A proposal for the integrated management of ticks with neem as one of the components has been prepared by ICIPE.

Saroc Ltd/Saroneem Biopesticides Ltd.

Saroneem Biopesticides Ltd is continuing production of neem-based pesticides. However, the present financial situation of the company merely allows it to pay for the raw material to be purchased next year and the processing into formulated products. There is not enough capital for further development of products or to conduct further trials on efficacy. As a consequence the sales increase very slowly, mainly through personal activity. Based on the efficacy trials performed in Kenya and results of trials conducted in Uganda, registration for use of neem-based pesticides in Uganda was granted early this year.

The company is working on the formulation of new neem-based products: an alcoholic extract and a formulation containing 20% pyrethrum. The alcoholic extract is a formulation suitable for use in large-scale applications. The neem-pyrethrum formulation is aimed at flower production. The available neem products are not suitable for pest management on flowers due to the slow action of the neem products and to the extremely low tolerance to pest damage in produce for export.

The new company Saroneem Biopesticides Ltd has been registered and started to operate in January 2000. Besides taking over the production and marketing of neem products in the region, this company will deal with other natural pesticides such as microbial pesticides.

Currently, the main buyers of neem-based products are large-scale horticultural producers. Due to the relatively high price of neem, these products are mainly used for the management of pests that have become resistant or are difficult to manage with conventional insecticides such as the diamond-back moth and leaf miners. As already mentioned, horticultural production for export is facing difficult times due to the maximum residue restrictions in the European market. Neem could have a role as an alternative to synthetic pesticides, depending on its acceptance, e.g. registration for use in horticulture in Europe. According to some vegetable and flower producers exporting to the UK, some supermarkets accept produce treated with neem products during its production.

Small-scale producers constitute a large potential market, but this potential has not yet been exploited due to economic constraints as mentioned above.

Neem-based pesticides are also in demand, though on a small scale, for organic production of vegetables and cotton. Thus, a GTZ-supported group of cotton farmers in Llama has purchased Neemros® for further distribution to its members. Few growers are involved in the production of organic vegetables, which are offered locally targeting the expatriate market. For instance, the neem products have been tested in a farm in Limuru, where organic vegetables are produced on a small scale and sold in Nairobi. The Kenya Institute of Organic Farming is also promoting the use of neem and contacts have been made with Saroneem Biopesticides Ltd, but activities have not yet started.

Another organisation involved in organic farming is Farmers Own Ltd, a subsidiary of the Kenyan/British governmental organisation, Association for Better Land Husbandry (ABLE). This association is aiming at poverty alleviation by establishing market-driven systems, rehabilitation of the environment and marketing of health foods. Currently, they have pilot projects in several districts in Western Kenya and in the Central Province. ABLE is promoting the development of Organic and Conservation Supreme Standards and Certification Schemes for Farmers Own Business in Kenya, in order to enable farmers to produce for the local organic market as well as for export (The Analyst, December 1999).

A lot of expectations have been created with both the Neem Awareness Project and the Industrialisation Project. Nurseries have been established and a lot of neem seedlings have been planted. It is now important to create a market for the seeds and other neem products which could be available in the near future.

From the experience in Kenya it is clear that when planning a project like this, aspects such as economy of production, marketing strategies and market potential should be investigated. A final evaluation and follow-up after the completion of the project are desirable to monitor the transition from a subsidised activity to a fully independent viable industry.

RISKS

It should also be borne in mind that neem processing is prone to a double risk concerning the climatic conditions: in the harvesting year the weather should be appropriate to produce sufficient neem fruits (which might be affected by too much rain, for example the effects of "El Nino"). For selling the produce any severe draught, as in 2000, will effect the sales of the products, as much fewer vegetables, ornamentals and fruits are produced. Such considerable climatic risks must be covered by a stock of capital or else the small enterprises will go to the wall. This is especially true since interest rates in developing countries often fluctuate considerably.

4.1.9 References

DM Consultants (1994): Manufacturing a neem-based, ready-for-use insecticide in Kenya. A technical and economic feasibility study. GTZ-IPM Horticulture Project, Kenya.

DM Consultants (1995): Manufacturing a neem-based, ready-for-use insecticide in Kenya. A technical and economic feasibility study, part two. Investigating the possibilities of lowering the costs of neem seed collection and processing in Coast Province of Kenya. GTZ-IPM Horticulture Project, Kenya.

Foerster, P. & Moser, G (2000): Status report on Global neem Usage, 2^nd revised edition. GTZ Publication, 120 pp.

ICIPE (1994): Awareness building and facilitating the use of neem as a source of natural pesticides and other useful subprojects in sub-Saharan Africa, pp. 47-49. In: ICIPE Annual Scientific Report.

Kaaya, G.P. (1997): Ticks and tick-borne diseases in Africa: economic importance, control problems with acaricides and new hope based on use of neem compounds. Paper presented at the seminar "Neem for Sustainable Agriculture and Environmental Conservation". ICIPE, Sept. 1997.

K�sters, N. (1980): Investigations of effects of neem cake powder and neem oil on the cabbage aphid Brevicoryne brassicae (L.) in Kenya. Master thesis. "Institute fur Pflanzenkrankheiten und Pflanzenschutz". University of Hanover, Germany, 70 pp.

L�hr, B., Mullins, D. & Varela, A.M. (1997): Manufacturing a neem-based, ready-for-use insecticide in Kenya. A technical and economic feasibility study. In: Proceedings of the National Horticulture Seminar. Nairobi, Kenya, 30 -31 January, 1997, pp. 43-52.

Maundu, M. E. Control of the black bean aphid, Aphid fabae Scop. Using neem-based insecticides on French beans in Kenya. Report for GTZ-IPM-Horticulture Project. 1997. 57 pp.

Moser, G. (1996): Status report on Global neem Usage, GTZ, 39 pp.

Musabyimana, T. & Saxena, R.C. (1999): Efficacy of Neem Seed Derivatives against Nematodes affecting Banana. Phytoparasitica, Vol. 27, No. 1, pp. 43-50.

Ngatia, J., Kiragu, B.W., Namu, L.M. & Muchiri, P.W. (1996): Dithiocarbamate residues on tomatoes in Kenya. In: Crop Protection for resource-poor farmers in Kenya. Proceedings of the 1^st Biennial Crop Protection Conference, pp 40- 43.

Okoth, S.O. (1998): Control of diamondback moth Plutella xylostella (L) (Lepidoptera: Yponomeutidae) in cabbage using neem-based pesticides in Kenya. Master's thesis. Department of Zoology of Kenyatta University, 70 pp.

Organic Farming, in 'The Analyst', December 1999, pp. 32-33.

Quentin, H. (1999): Kleinindustrielle Herstellung von Niempflanzenschutzmitteln in Kenya, 105 pp. Study for the GTZ.

Rocco, D.M. (1996): Report on neem seed collection and extraction. GTZ-IPM Horticulture Project, Nairobi, Kenya.

Saxena, R.C. (1997): Neem for sustainable agriculture and environmental conservation. Paper presented at the seminar "Neem for Sustainable Agriculture and Environmental Conservation". ICIPE, Sept. 1997.

Schmutterer, H. (1995): The neem tree, Azadirachta indica A. Juss. and other meliaceous plants: sources of unique natural products for integrated pest management, medicine, industry and other purposes. H. Schmutterer (ed.). VCH Verlagsgesellschaft, Weinheim, FRG, 696 pp.

Stanley, K.K. (1998): Efficacy of neem kernel cake powder against Fusarium wilt on tomato. Master's thesis. Plant Pathology and Botany Department, Kenyatta University, Nairobi, Kenya, 95 pp.

Varela, A.M. & Rocco, D.C. (1998): Final report on the project "Development of a Small-scale Industrialisation of Neem-based insecticides in Kenya" for the period July 1996 - June 1998. GTZ.

4.2 Documentation of neem activities in Thailand with special reference to the Thai Neem Products Company Ltd and the assistance provided to the DoA, Toxicological Division by CiM

Compiled by Dr. S. Praneetvatakul⁴, Dr. U. Sanguanpong⁵, Dr. A. Sattarasart⁶, S. Udomvinijsiland⁷ and Dr. P. Foerster, with assistance of Kun Chatri Jampa-Ngern⁸ and Dr. K. Ermel⁹.

⁴ Department of Agricultural and Resource Economics, Faculty of Economics, Kasetsart University, Bangkok, Thailand

⁵ Department of Postharvest Technology and Processing, Faculty of Agricultural Engineering and Technology, Rajamangala Institute of Technology, Bangkok, Thailand

⁶ Center for Applied Economics Research, Faculty of Economics, Kasetsart University, Bangkok, Thailand

⁷ Department of Agricultural and Resource Economics, Faculty of Economics, Kasetsart University, Bangkok, Thailand

⁸ Thai Neem Products Company, Ltd

⁹ CiM expert working for Department of Agriculture, Office of Research and Development of Botanical Pesticides, Bangkok, Thailand

4.2.1 Introduction

The agricultural cropping systems in Thailand are relatively intense. The typical situation of increasing impacts of pesticide application on health and the environment, and the development of resistance to pesticides described above (see Chapter II) holds especially true for Thailand. In spite of the impacts mentioned, both the total imported quantity and the amount of locally formulated synthetic pesticides are steadily increasing.

The government became aware of the problem in the 1980s and set up a programme to improve awareness, production, application and use of botanical pesticides. Therefore, compared with other countries, the political and administrative frame conditions for producing and using alternatives to pesticides are comparatively good.

However, alternative pest control such as botanicals is still limited. This is to a certain extent due to the immense market pressure and cheap availability of synthetic pesticides and the incomplete enforcement of the pesticide regulations. In Thailand synthetic pesticides are extremely cheap and often of low quality, especially if the active ingredients are imported from China and the pesticides are locally formulated by small backyard companies.

On the other hand, there are many plant species with pesticidal properties growing in Thailand and the traditional use of botanicals was widespread in previous generations of farmers. However, the constraints on making use of them in the form of home-made pesticides are the same as those found elsewhere (see Chapter II). This leads to the next step of offering ready-to-use botanical pesticides and manufacturing them locally. The first initiative came at the beginning of the 1990s.

The lack of quality control and standardisation of plant-derived pesticides has led to a loss of credibility for botanically based pesticides.

The government of Thailand was aware of this problem and has supported facilities to upgrade and improve production methods of plant-derived pesticides in cooperation with pesticide manufacturers, and has aimed to develop standard requirements. It was within the scope of consultancy to the DoA that a German expert from CiM (Centrum f�r internationale Migration und Entwicklung) assisted neem manufacturers in Thailand for 5 years (from 1994 to 1999). This chapter presents the neem-processing plant of the Thai Neem Products Company Ltd as an example of small-scale neem processing in Thailand. The Thai Neem Products Company was cooperating closely with the CiM expert in the fields of technology development and quality control improvement. Additionally Dr Praneetvatakul and her research team have investigated the economics of neem processing and carried out a marketing study for neem products on behalf of the GTZ's Pesticide Service Project.

4.2.2 Previous activities and other projects in relation to neem

The use of simple water-based extracts of neem fruits and seeds - and other botanical pesticides - for pest control is traditional knowledge which has been passed down from one generation to the next. During the time when the "green revolution" was being introduced and advocated (especially during the 1970s and 1980s) and chemical pesticides were being introduced, this knowledge was largely lost and botanical pesticides were not common practice any more.

Since the late 1980s, when the effects of pesticides on farmers, resources and consumers became obvious to everyone, the government has changed its policy and put more emphasis on the use of botanicals. A range of projects has started to advocate the re-introduction of botanicals and revive the traditional knowledge.

It has been the policy of the government since the beginning of the 1990s to assist the realisation of the self-help potential of Thai farmers in applying alternatives to broad-spectrum pesticides with low toxicity and low residues. One example was that in Thailand the Department of Agricultural Extension (DoAE 1998) permitted and promoted the extension service's buying and dissemination of neem seeds and the sale of half-finished or ready-to-use neem products.

The focus of the governmental policy was placed on the following aspects:

· Investigation and promotion of botanical pesticides which could be used in crude form by the farmers (mainly investigated by the Department of Entomology of Kasetsart University, Bangkok)

· Development of technologies to formulate botanicals, (responsible department: DoA, Division of Toxic Agricultural Substances)

· Demonstrations and training for farmers to understand the nature and advantages of botanical pesticides, (responsible department: DoAE)

The media have spread knowledge about model farmers successfully working solely with non-synthetic pesticides.

The use and improvement of home-made products and the development of standardised neem extracts was assisted in the late 1980s and the early 1990s by the NGO-supporting component of the GTZ project "Production of Natural Insecticides from Tropical Plants". Additionally a laboratory for neem analysis for quality control has been set up.

A range of further organisations and institutions such as RENPAP/UNIDO/UNDP (1994), FAO (1994), CUSO, the University of Minnesota, Misereor etc. have supported the new governmental activities to put emphasis on the use of botanicals, with various conferences, workshops and projects, and have investigated the adoption rate and the constraints (Mitchell 1993, Tran 1998).

Neem can be considered as an economically significant and practically applicable means of pest control in rural areas as has been shown by the relevant scientific research. Neem showed considerable potential for controlling various insect pests such as Plutella xylostella, Spodoptera litura, S. exigua, Hellula undalis, Phyllocnistis citrella, Helicoverpa armigera, Ohiomyia phaseloi, Nephotettix virescens and spider mites (Sombatsiri et al. 1990, 1995, 1998, Sanguanpong 1993).

The practice of mixing neem materials, especially neem oil, with store products in a warehouse trial showed effective protection against certain store pests (Sanguanpong 1996).

Today the knowledge is again generally available to rural farmers. Certain farmers' groups are applying plant-derived pesticides to a sometimes amazing extent. The constraints concerning labour, availability of raw materials and standardisation, however, still remain the same as described earlier (cf. Chapter II, Foerster & Moser 2000) and by the authors presented below:

Sukthamraksa (1994) conducted an interesting farm survey in Ratchaburi Province, Central Plains of Thailand, six years after training on the use of neem products in 1988. After the training, about 65.4% of the sampled households had accepted the use of neem products, mainly on vegetables (kale, asparagus and cabbage) and ornamentals. Six years after the training, 44% of the sampled households were still using neem pesticides. These farmers have used and plan to use neem in the future because of the lower input costs, no negative impacts on health, and higher efficacy than synthetic pesticides.

Of the farmers investigated, 21.4% have stopped using neem products, due to lack of neem raw material, easy access to synthetic pesticides and swapping from asparagus or other vegetables to field crops.

The other farmers use synthetic pesticides, because they are easy to come by, they are convenient to use, because of the efficacy and efficient services and lack of information about any alternatives. More than 50% of the group have reduced their use of synthetic pesticides due to the high costs of these pesticides (on average 1000 baht per rai per year), and the health and environmental impacts (6.25 rai = 1 ha).

About 94.4% of the farmers who apply neem extracts use home-made extracts. The reasons were the cheaper price and assured quality. Neem fruit costs about 6 baht/kg from the extension officers and ground neem fruit costs 7 to 10 baht/kg.

The suggestions taken from this study were:

· Provide the raw material, promote planting of neem trees in local areas, conduct research on neem products.

Poorod (1995) conducted a farm survey in Phathum Thani province, another province of the Central Plains. About 21.6% of the sampled households used neem products in their citrus plantations for the same reasons as listed above.

Most of the farmers (78.4%) did not apply neem products, for the following reasons:

· Applying neem products requires great quantities of raw material and more time.
· Extraction of neem is relatively complex.
· Lack of labour and frequent spraying of neem products.
· Lack of experience in the proper application of neem products.
· Low efficacy when using neem products if compared with synthetic pesticides.

The factors which made farmers interested in neem products were:

· Number of years in growing citrus (more than 10 years).
· Availability of information about using neem products (positive sign).
· Farm size (positive sign).

Tongdang (1994) studied the factors which influence the farmers' decision for or against applying neem pesticides in Suphan Buri province, Central Plain of Thailand. The main motivation for farmers who have used neem products for at least 2 years was the low toxicity. Problems raised by the farmers include the low quality of the neem water extracts, the laborious preparation of extracts, application and storage. The farmers observed that using neem products lowered yields, compared to using synthetic pesticides. However, 93% of the households continued to apply neem products due to cost savings, safety, efficacy and higher price for the products. Only 7% stopped using neem products. The reasons given were:

· No time for preparation, complicated extraction procedure, not effective in terms of controlling pests.

In this survey, about 60% of the households used neem products in rice fields, 40% in vegetable crops, 20% on fruits and 12% in flowers (some farmers applied neem on different crops). About 73.3% of the sampled households applied neem products every year and 26.7% sometimes. While 58% used neem products on their own, 42% mixed them with synthetic pesticides. The farmers using neem products formed a group for purchasing the raw material more cheaply in bulk amounts.

The conclusion drawn from these studies is that there is a potential for marketing ready-made neem products. Farmers mentioned that one of the constraints on using neem products was the complex extraction process. On the other hand, the farmers pay more attention to the quality of home-made neem products than they would if they purchased them.

In the beginning of the 1990s a range of neem pesticides, often a mixture of different plant extracts was offered by some companies on the markets. Occasional checks of quality and efficacy by the DoA, however, revealed that the efficacy of the products was not reliable and the products are not standardised.

Therefore the DoA supported the development and improvement of technologies for production and formulation of biological/neem pesticides. A pilot plant for improving neem-processing technology has been set up, including neem oil pressing and a second extraction step for enriched neem powder. This project was assisted by an integrated German expert from 1994 to 1999.

4.2.3 Situation found concerning abundance of neem trees and of raw material supply

Sadao, the local name for Thai neem (Azadirachta siamensis), can be found in the north, central, north-east and south of Thailand. It is popularly used as a farm border and a roadside tree and grows well at altitudes below 200 metres (Willan et al. 1990). Similarly to "Sadao Thai", the other two varieties, A indica and A. excelsa, are naturally found in western and southern parts of Thailand respectively. Due to the fact that Thai neem is naturally widespread, this species is considered as the main source of raw material for commercial production in Thailand.

It is estimated that today there are approx. 1 million neem trees in Thailand, of which 70% are A. siamensis. In the 1990s the Forestry Department and private entrepreneurs started to use neem in their reafforestration activities, mainly with Thai neem. Some entrepreneurs established large plantations of 300 000 trees.

A siamensis is not as suitable for pesticide production as A indica. The reason is its generally lower azadirachtin content. Additionally, the higher chlorophyll content of the kernels leads to faster degradation of azadirachtin compared to the kernels of A. indica and greater difficulties in drying the kernels for storage.

The botanical characteristics and chemical composition of A. siamensis are different from A. indica and A. excelsa as shown in Tables 23 and Table 24 respectively.

Table 23: Botanical characteristics of three neem species

Source: Tran, 1988

Table 24: Major chemical constituents of three neem species

Compound identified as 1 -trigloyl-3-acetylazadirachtol (Kalinowski et al. 1997)
Source: Ermel et al. 1997

4.2.4 Small-scale commercial neem production

Commercial neem products in Thailand

In Thailand, there are several commercial neem-based products manufactured and available on the market. The locally produced neem products are all manufactured by a few small companies. Other neem pesticides will be imported from abroad in the near future and application has already been made for registration (see registration below).

The Thai Neem Products Company in Suphan Buri Province is one of the neem manufacturers who have closely cooperated with the quality control laboratory of DoA. The main product of the Thai Neem Products Company is a neem extract called "SADAO THAI 111". After this product line was successfully set up, several others were produced such as "SADAO THAI 222", "SADAO THAI 444", SADAO THAI 555", and the most recent one, "Nee-mA" (Table 27).

The following table (25) and Table 2.9 in the chapter Technical Description give an overview of the products of Thai Neem Products Co. Ltd., Suphan Buri Province, as an example of a commercial neem business:

SADAO THAI 111 is a liquid neem concentrate extracted from Thai neem seed using methanol. It contains azadiracthin as the active ingredient, at about 0.3% (w/w) (Ermel 1999, personal communication). Recommended application is spraying 2-3 times over the first two weeks of control, preferably in the evening, since UV radiation, heat and humidity rapidly destroy the active ingredient. Later the spraying interval can be modified depending on pest infestation. Target pests are the larval stages of insects. The active compound disrupts their hormone system during the moulting and pupation stages. The effectiveness ranges from highly effective to less effective and ineffective (see Chapter "Results of the efficacy trials" below, p. 78).

SADAO THAI 111 is effectively utilised on citrus and orchid farms against leaf miners.

Table 25: Neem products produced by the Thai Neem Products Company Limited

SADAO THAI 222 is a form of neem cake pellet prepared from a mixture of neem cake powder (neem seeds after extraction), neem oil and dried neem fruit powder. This product contains several plant nutrients such as nitrogen, phosphorus, potassium, calcium, magnesium, sulphur, carbohydrates and proteins. It therefore serves as a slow release fertiliser for plants. It also comprises nematicidal and insecticidal compounds (Ermel 1999, personal communication). For target pests see below.

SADAO THAI 444 is a powder of dried neem fruit supplied in a bag. The method of packaging as a "tea bag" allows rapid and easy extraction of the powder with water. The product contains trace amounts of azadiracthin A (Ermel 1999, personal communication) but the extracts show good antifeedant efficiency against a broad spectrum of insect pests. Long-term trials have shown that it does not harm the beneficial insects and has no negative impact on the environment. For target pests see below.

Application of SADAO THAI 444 can be prepared by soaking the "tea bag" (700 g) in 20 litres of water for 12-14 hours. It is recommended to add an adjuvant as a sticker or spreader to the aqueous extract before spraying. Spraying three times every 5-7 days is recommended. Later, the time interval between sprayings may be modified depending on pest infestation. The by-products from the extracted fruit powder can also be used as a fertiliser and to control soil-borne pathogens.

SADAO THAI 555 is the by-product of alcoholic neem seed extraction. It acts as a fertiliser since it contains several plant nutrients such as nitrogen, phosphorus, potassium, calcium, magnesium, and sulphur. It can be used in several kinds of vegetables, by applying 350 g of SADAO THAI 555 per square metre to the soil or pot in a ratio of 1:5. For crop species see below.

Nee-mA is a liquid neem oil soap for pets. The product can be applied against ticks and fleas. Nee-mA is mixed with water in a ratio of 1:1 for application. Application is recommended once every seven days.

The Rangsit Settakit Kan Kaset Company in Bangkok is another producer of neem products for crop protection. The raw material that stems mainly from Central Plains (Lopburi, Saraburi, Ratburi, Kanchanaburi, Chainat, etc.) and the north-eastern region of Thailand includes neem fruit (200 tonnes/year) and neem seed (20 tonnes/year). The product, NEEM BOND-A, is a mixture of neem extract and other herbs such as lemon grass and galangal. It contains 0.1 w/v % azadirachtin SL and was registered in 1998. Additionally, the ground neem fruit has been sold (approximately 150 tonnes at 15-20 baht/kg in 1999) until October 1999. Within the next three years the company plans to register a new neem product for pest protection in rice and field crops.

The Ladda Company in Bangkok buys neem a product from India (containing 3% azadirachtin) and plans to sell it in Thailand. However, at present this product is only at the research stage (application on vegetables) for obtaining registration, which may take another year.

The Agro Thai Company in Bangkok is preparing for registration of a neem product. From an interview, it was obvious that Agro Thai has also produced neem products on request, but the amount was not significant for the market. Ground dried neem seeds are also available on the market at a cost of 40 baht/kg.

As mentioned before, Thai farmers have experience in using neem products for crop protection. There are three neem products registered, only two of which are available on the market. This indicates that there might be some constraints on production, for example capital investment, lack of technology or know-how, market potential, etc.

Neem fruit/seed collection in Thailand

In contrast to many other countries, neem fruits are of considerable importance as raw material for the production of neem pesticides in Thailand. The reason is that the costs of depulping in Thailand are rather high, often making it unprofitable to apply neem kernels or process them further into pesticides.

Seed treatment such as depulping, drying and decorticating is done without any machinery. This is carried out by the collectors who do the harvesting. Neem fruits are picked up from the ground or from the tree and mixed with sand. The pulp is removed by trampling or rubbing by hand. After depulping the seeds are washed and dried in the sun for 2-3 days.

As mentioned above, seeds or fruits are often bought by the governmental extension service or the extension service of the pesticide companies, and sold to the neem manufacturers.

The company Thai Neem Products Ltd basically needs two main types of raw materials i.e. dried neem fruits and neem seeds. Recently, neem oil has become another important raw material for the pet shampoo.

The main geographical sources of raw material are the central, north-eastern and northern regions of Thailand, such as Karnchanaburi (228 km), Nakhon Ratchasima (257 km), Surin (557 km), Uthai Thani (319 km), and Nakhon Sawan provinces (340 km). The distances in parenthesis are the average driving distances when delivering the raw material to the company.

When neem manufacturing was in its infancy, the raw materials had to be bought at the places where neem grew. Later on, a contract was developed between buyers and sellers. Eventually the farmers from several provinces came to sell the neem seeds and the dried neem fruits to the company at its site (see Figure 3).

Fruiting begins in April. May is the peak period when the company requires high liquidity (ready cash) to buy neem fruits and seeds in order to store them for the whole year's production. When there is a shortage neem seeds and extracts are imported from Myanmar. Neem from Myanmar is of better quality (concerning the azadirachtin content) than that from Thailand.

Until the end of 1999, the company imported a small amount of raw material from abroad but it mainly processes raw material from domestic sources.

The prices which have to be paid by the manufacturer for the raw material are given in the following table.

Table 26: Price of neem raw material in Thailand

Note: 20 baht = DM 1 (exchange rate in 1999)
Source: Interview

Processing: description of the processing steps

Despite recognition of the advantage of neem-based extracts as effective and environmentally friendly botanical insecticides, adoption of neem products for pest control in Thailand is still limited. The reason may be seen in the limited availability of technology and equipment on the village-scale. Furthermore, the development of appropriate technology is required not only out of economic necessity but also for improving processing quality.

The following figure (Fig. 4) and describes selected processing steps, using the Thai Neem Products Company Ltd as an example:

Figure 4: Flow chart of the path from raw material to end products

Drying. The neem seeds are bought from the farmers or collectors after they have been initially dried in the sun. For storage, and to maintain good quality of the neem seed, it is essential to dry the seeds so that their moisture content is lower than 10%. This is performed at the Thai Neem Products Ltd using a rice dryer which operates a temperature of 80 C. It requires 10 hours to reduce the moisture content of the purchased seeds from nearly 70% to the required level.

Storing the seeds. Dried neem seeds are stored in the cold store at a temperature of 18-20 C.

Grinding. Dried neem seeds are ground in a locally made grinder which has a capacity of 100 kg per hour.

Description of the alcoholic extraction process

Extraction with methanol.

The best-known product of good quality is prepared from neem seeds by extraction with methanol. For commercial EC formulations in Thailand, a single-step extraction method is used to produce a neem-based extract (see Chapter II.2.2.3). At Thai Neem Products Ltd. 100 kg of ground neem seeds are mixed with 300 litres of methanol in a tank and stirred for 1-2 hours. This results in 200 litres of neem extracts and neem cake, which still contains about 100 litres of methanol.

The 200 l of neem extracts is concentrated using a vacuum evaporator. After about 3-4 hours, about 60 l of methanolic neem extract concentrate is obtained (see Table 27).

Bottling & storing: The extract is then transferred to big plastic containers and kept in a cold store. The extract is only bottled and shipped on request.

Neem extracts are packed in different bottle sizes: 5 l, 1 l, 500 ml, and 100 ml. The bottles are labelled and are then ready for shipment.

Table 27: Current production capacity of the Thai Neem Products Company Limited

Notes: * The company does not operate the machine every day.

Simple description of neem cake pellet process

Drying and grinding of the neem fruits are the same as for seed.

Mixing.

Ground neem fruits are mixed with neem cake and neem oil in the proportions 50:30:20 in a mixing machine.

Pellet pressing.

The neem fruit-cake-oil mixture is then extruded by a pellet-pressing machine (see figure 5).

Figure 5: Flow chart of neem cake pellet production

Packaging.

700 g of neem pellets is packed and sealed in a plastic bag. The bag is labelled as Thai Neem 222.

Description of neem cake powder process

Drying.

The by-product of extract manufacturing, called "extracted cake", is dried for 2-3 days.

Packaging.

700 g of dried cake is packed in a plastic bag and labelled as Thai Neem 555.

Description of dried neem fruit powder process

Grinding.

Dried neem fruits are ground to a powder using the grinder described above.

Packaging.

700 grams of ground neem fruit powder is packed in a cotton bag and labelled as Thai Neem 444.

Quality control

The DoA (1998) was aware of the importance of the quality control aspect for manufacturing reliable botanically-based pesticides. Therefore research has been carried out during recent years to find out which factors have to be improved in the production chain for botanical pesticides. Technologies have been developed and manufacturers trained free of charge on request by the DoA.

A lot of research work showed that suitable post-harvest technology (in particular seed drying) is necessary to achieve good quality of the raw material. High ambient temperature and high moisture content cause rapid degradation of azadirachtin and its analogues (Ermel et al. 1997). Thus there is a need for investigation of and investment in the drying temperature and the equipment. Sanguanpong (1997) reported that different drying temperatures ranging from 60-75-90 C can be used to reduce seed moisture content from initial 60% MC to 14% moisture content without any statistical change of the azadirachtin content in neem seed. Furthermore it has been found that the drying time required at a high temperature (90 C) was the shortest, at only 8 hours, while drying in the sun for 1 day followed by further drying at 60 C took 21 hours. In addition, the sun drying performed by the farmers is not as effective as drying at high temperatures.

To apply this finding to the improvement of processing quality, there must be investment in certain equipment such as seed dryers, which must then be employed. However, it is still necessary to develop suitable equipment in further experiments.

Moreover, it is also necessary for such processes as seed crushing, extraction and evaporation to invest in equipment such as depulverisers, overhead stirrers or mixers and vacuum evaporators.

The quality (i.e. the azadirachtin content) of neem pesticides is checked about four times a year. The neem extract is randomly sampled and sent to the Office of Research and Development of Botanical Pesticides at the Department of Agriculture to check the azadirachtin content by HPLC. As a result, it is certified that the neem extract produced contains more than 0.1% w/w azadiracthin. Hence the product meets the quality criterion set by the government. Nonetheless, there is no quality control of other products which do not contain azadirachtin. Additionally the DoA offered the manufacturers their service free of charge. However, not all were interested in improving the quality of their products.

Pesticide registration policy

In 1991, the Ministry of Agriculture and Cooperation had revised and amended the Toxic Substance Act B.E. 2510 (1967) and B.E. 2516 (1973). This revision included the phased registration scheme which followed closely the guidelines prescribed by the FAO's international "Code of Conduct on the Distribution and Use of Pesticides", a phased registration scheme comprising three steps:

· Trial or experimental clearance
· Provisional or limited clearance
· Commercial or full registration.

In 1992, the Ministry of Industry introduced the Hazardous Substances Act, B.E. 2535, which is published and has been in force since 1995, and repealed two former Acts. The Ministry of Agriculture and Co-operation is responsible for regulating and overseeing matters of registration, import, domestic production, and export concerning toxic substances. It is in charge of quality control, container examination, testing, labelling, storage, destruction and other relevant matters. Application for registration must be made for any substances imported for sale or produced for export, and even the possession and storage of such substances. This registration consists of three steps.

Even though the Thai government tries to control and prevent any negative impacts upon human or animal health or the environment arising from the use of hazardous substances, the adverse effects still continue to some extent (Sombatsiri 1999).

Regarding legal constraints on pesticide use and pesticide imports, Thailand has banned about 41 hazardous synthetic pesticides. However there is no strict enforcement of registration policy for synthetic chemical products or for neem products.

At present, several companies are selling neem products on the pesticide market in Thailand. Four companies are the major players in the neem business and only two of them have registered their products. In total three products are registered. There are still neem products on the market which are not registered.

The government of Thailand is trying to promote the use of bio-pesticides to replace the synthetic ones. To achieve this objective, the Department of Agriculture promotes alternative methods. Bacillus thuringiensis, Nuclear Polyhedrosis Virus (NPV) and neem extracts do not require toxicological data for registration (Wong-Ek et al. 1997). The registration guideline set by the Department of Agriculture in the first half of the 1990s requires La. that a neem formulation contain at least 0.1% azadirachtin and be effective in controlling the pests specified on the label, which has to be proved in a one-year efficacy test. In contrast to many other countries, the efficacy tests required by the authorised institutions in Thailand do not incur any costs to the companies applying. The registration fee is low and the product is registered for three years.

Table 28 shows the neem products which were registered at the end of 1999.

Table 28: Registered neem-based pesticides in Thailand (as of 1999)

¹⁰ This product is not available on the market (October 1999).

Source: Interview

Technical, quality, packaging and labelling requirements for neem pesticides

The technical and quality requirements for neem pesticides in Thailand have been taken from the registration of synthetic pesticides:

· Chemical and physical properties
· Toxicology
· Toxic residue on agricultural products
· Impact on environment and animals (bees, birds, fish, etc.)
· Efficacy data
· Toxic residue analysis method

Packaging requirements are as follows:

· For hazardous liquids the packaging material should be glass or plastic bottles (100 ml, 250 ml, 1,000 ml and 2,000 ml)

· For hazardous powders the packaging material can be cans, plastic bottles, or plastic bags in paper boxes (100 g, 250 g, 500 g, and 1,000 g)

· For hazardous pellets the packaging material can be plastic bags or thick paper bags (10, 15, 20 and 25 kg)

Labelling requirements for any pesticides consist of

· a label with the words "Hazardous Substance" written in red

· the scientific name of active ingredient

· the name and location of producer

· the quantity of the hazardous substance with the proportion of the active ingredient

· the expiry date

· instructions for applying the products, information on the benefits and storage, including a warning and diagnosis of poisoning, first aid measures and medical treatment

Results of the efficacy trials

Thai farmers apply neem products on fruit trees (citrus, mango and grape), vegetables (asparagus¹¹, cabbage, Chinese kale, etc.¹²) and flowers (jasmine, roses, marigolds and crown of thorns, etc.¹³) including orchids (Prompard 1994).

¹¹ Neem extracts are proven to act against the beet army worm on asparagus in Thailand (Sombatsiri 1993, Sombatsiri & Choeikamhaeng 1997).

¹² Green mustard, Chinese cabbage, onion, multiplier onion, angle loafs, winter melon, tomato, chilli, basil, sweet basil, sweet potato, Chinese radish, taro, cucumber, yard-long bean

¹³ Rose bay, queen of the night, Chinese rose, impala lily, white champak, and aglanema plants

The efficacy of neem products against pests can be divided into three levels:

· High efficacy: caterpillars, leaf miners, leaf rollers, cutworms, psyllids, aphids
· Moderate efficacy: borers, fruit flies, thrips, spider mites
· Little or no efficacy: beaters, weevils, bugs, rust mites

If there is a pest outbreak, neem products might not effective enough on their own and it might be necessary to apply synthetic pesticides also in order to control the pests. More research is required on using neem products against different pests and varying severity of pest outbreak.

Efficacy tests on the products of the Thai Neem Products Co Ltd have revealed the following effects:

Sadao 111 (alcoholic extract): the highly susceptible insects are cutworms, beet army worm, leaf-chewing caterpillars e.g. the diamond-back moth, leaf-rollers, leaf-miners, aphids and psyllids. The less susceptible insects are the American army worm, rice stem borer, shoot-boring maggots, topborer, leaf hoppers, thrips, whiteflies, and red mites.

The insects not affected by the neem extract are flea beatles, sucking bugs, weevils, and mealy bugs. At present, SADAO THAI 111 is effectively used in citrus and orchid farms against leaf miners.

Sadao 222 (cake pellet): the main target pests are insect larvae and nematodes that damage the plant roots at an early stage of growth. The application of SADAO THAI 222 is also recommended for vegetable crops such as Chinese kale, green mustard, cabbage, onion, and multiplier onion at a rate of 1 kg/30 - 40 sq m once a month. Other suggested plants are sweet potato, Chinese radish, taro, cucumber, yard-long bean, and asparagus. The recommended dose is 5 -10 g (0.5 tablespoon) per hole applied to the soil around the plants once a month. For ornamentals such as crown of thorns, jasmine, roses, marigolds, orchids, rose bay, queen of the night, Chinese rose and impala lily, 0.5 tablespoon per plant pot is recommended.

Sadao 444 (tea bag powder): the extracts prepared can control leaf miners, leaf rollers, leaf-chewing caterpillars, cutworm, diamond-back moth, beet army worm, borers, citrus caterpillars, aphids, thrips and red mites.

Sadao 555 (cake powder): this can be used on several kinds of vegetables such as Chinese kale, green mustard, cabbage, Chinese cabbage, onion, cucumber, angle loafs, winter melon, tomato, chilli, asparagus, basil and sweet basil. It can also be applied to several types of ornamentals such as crown of thorns, jasmine, roses, marigolds, orchids, white champak, Chinese roses and aglanema plants.

Other potential uses of neem-based pesticides

Neem may not only be used to manufacture azadirachtin-containing products, but also byproducts such as oil and cake are obtained during processing (see technical description in Chapter II).

Neem oil also is used in pet shampoos and neem cake can generally be used as an ingredient in animal feeds, or as a fertiliser. It is sold as neem cake powder or neem cake pellet. They have multiple uses, e.g. as fertilisers and pesticides for controlling nematodes.

The use of neem cake as an ingredient for cattle feed seems to be possible, but this is not practised in Thailand. When using neem as a fertiliser, a distinction has to be made between using neem cake as organic manure or as a nitrification inhibitor together with urea. Using neem cakes as organic manure requires huge quantities before a significant yield increase can be observed. Using the cake as a nitrification inhibitor together with urea requires only amounts of up to 25 kg/ha for yield increases of 5 and 10% (Ketkar & Ketkar 1995).

4.2.5 Economical assessment of Thai Neem Products Company Ltd

4.2.5.1 Selected key data of the plant

Thai Neem Products Company Limited is located in Suphan Buri Province, Thailand, and managed by the Jampa-Ngern family. In total the company employs 5 permanent staff and other labourers on a day-to-day basis.

The company was established in 1994 on an area of 1,600 sq m.

The neem extraction plant has a capacity of approximately 60 litres per day.

The production is operative on 100 days per year.

Machinery for neem processing

For processing steps see Chapter II. figure 1 and 2. For small-scale manufacturers such as the Thai Neem Products Co Ltd, investment is needed in certain equipment, as shown in Table 29.

Table 29: Machinery used by the Thai Neem Products Company Ltd and production capacities

The processing of neem involves many operations (as shown in Chapter II) and requires a set of equipment. This requires a certain amount of investment on the part of small-scale manufacturers such as the Thai Neem Products Co Ltd, as shown in Table 30.

Table 30: Types and capacities of equipment for neem processing used by the Thai Neem Products Co Ltd, Thailand

Neem products and prices are described in Chapter 11.2.4 above and listed in the following table of products, volumes and prices:

Table 31: Commercial neem-based extracts from the Thai Neem Products Co Ltd

1. Mix 25-50 ml of the product directly with 20 litres of water; for controlling leaf miner (Phyllocnistis citrella) apply to the crop 3 times daily for 5-7 days.

2. 40-50 kg/rai (1 hectare = 6.25 rai) as a soil additive and controlling agent against soil insects and nematodes, for vegetable crops such as Chinese kale, cabbage, onion, asparagus, yard-long bean etc., flowering plants such as roses, jasmine and orchids etc.

3. Using the Tea-bag method, soaking 1 bag in 20 litres of water for 12-24 hrs, and apply to the crop 3 times daily for 5-7 days.

4. Use 350 g/sq m as a soil additive or soil insect controlling agent on vegetable crops such as Chinese kale, cabbage, lettuce, tomato etc.

5. Apply Nee-mA on wet hair, leave for 5 minutes and rinse off; shampooing every week is recommended.

4.2.5.2 Production costs

Investment costs

The investment required for establishing a small-scale neem industry is not high. Investment items are land, preparation of land, water supply, buildings and machinery for neem processing.

Land. The Thai Neem Products Company Ltd is using a 1600 sq m (1 rai) plot for manufacturing which are part of a 10 rai pomelo plantation. The current price of land in Suphan Buri Province is about 300,000 to 400,000 baht per rai (Table 2.10). If unpaved land is bought, the preparation of the land also has be considered, which will cost about 200,000 baht per rai.

The rent of land is rather cheap, at about 10,000 baht per rai per year.

Water and energy supply. Thai Neem Products Company has built a well as the main source of water. The total investment was about 100,000 baht for the motor and the pipes. The well supplies the whole plant with water.

Electricity is locally available.

Buildings. The buildings the Thai Neem Products Company use for neem production are quite simple. The owner has designed everything himself. About 500,000 baht was invested in the buildings. Most of the residential parts were converted to industrial uses or have multiple uses. The cold store was built at an investment cost of 300,000 baht.

Machinery. Several machines such as those for stirring, grinding, sealing, mixing, seed screening, pellet pressing, and closing bottle had to be bought for neem processing. The most expensive machine is the vacuum evaporator, costing about 700,000 baht. The investment costs of each machine are listed in Table 32.

Fixed costs

The fixed costs comprise depreciation, maintenance costs and interest paid.

Depreciation. Depreciation is calculated by the strength line method. The initial price minus the salvage value gives a value which is divided by the effective life-time, to give the depreciation per year. Based on this calculation, the depreciation equals 122,034 baht per year (see Table 33).

Maintenance costs. Maintenance costs are considered as one component of the fixed costs, since the machinery needs to be kept in good working order, whether the business is operating or not. The maintenance costs per year of the Thai Neem Products Company total 47,500 baht.

Interest paid. Interest of about 48,000 baht per year has been paid.

The total fixed costs of the Thai Neem Products Company are about 217,534 baht per year.

Table 32: Investment items of the Thai Neem Products Company Limited

¹⁴ 6.25 rai equals 1 ha.

Table 33: Depreciation and maintenance costs at the Thai Neem Products Company Limited

The Thai Neem Products Company Ltd pays interest of 48000 baht/year, which forms part of the fixed costs.

Operating or variable costs

Operating or variable costs are those arising when the business is in operation. They include labour, materials, packaging, electricity, communication, marketing, transportation and other costs, as well as sales tax. They are described below.

Costs of materials. The main variable cost is that of the raw material and accounts for 43% of the total variable costs. It requires high liquidity during May and June. The supply of raw material fluctuates from year to year depending on the climatic conditions, e.g. in 1998 neem seeds were abundant while in 1999, due to heavy rains, there was a shortage of seeds. This is one reason why the costs of raw materials vary each year (see Table 34). The prices of dried neem seeds and dried neem fruits are about 15 and 5 baht per kg respectively (Table 26). The total material costs come to 1,034,700 baht per year.

Table 34: Costs of raw materials purchased by the Thai Neem Products Company Limited

Note: *Data for the year 1999 are estimated.

Labour costs. Like most small-scale industries in Thailand, the Thai Neem Products Company is operated as a family business. The manager, assistant manager the supervisor, two accountants and one driver are employed and receive a fixed salary per month. Labourers are hired on a daily basis and no permanent labourers are employed. The temporary labourers receive about 125 baht per day. This means that the total labour costs per year run to 781,000 baht, which makes up about 30% of the total variable costs.

Packaging costs. The costs for each package are estimated based on the material used: cotton bags, plastic bags, plastic bottles, glass bottles, labels etc. For example, the estimated packaging costs of 1 litre neem extract amount to 13 baht. Total packaging costs vary with the amounts sold. In 1999 they were estimated to be about 155,977 baht.

Marketing costs. Marketing promotion is done through advertising in print. Each month the company spends about 10,000 baht on advertising these products in agricultural journals.

Electricity costs. Electricity is the main source of energy. All the company's machines use electricity. The estimated annual costs of electricity are about 180,000 baht, which accounts for 7 per cent of the total variable costs.

Communication costs. Fax and telephone costs are estimated to come to 5,000 baht per month.

Transportation costs. These include car and truck rentals. It is assumed that if the business is not operating, there is no need to rent a car. Petrol is the main fuel used for transportation of most products to the market. However, the transportation costs of dried neem fruit powder that sent to the Department of Agricultural Extension are paid based on the weight (in kg) of products sold. Total transportation costs are about 144,500 baht per year.

Table 35: Estimated variable costs of the Thai Neem Products Company Limited in the production year 1999

Other operating costs. Since the company does not own a seed dryer it had to pay for drying the seed. However, the Thai Neem Products Company has already invested in the installation of a dryer, which will soon be working. The other operating cost is the sales tax. Due to the economic crisis in Thailand, the Thai government has levied a sales tax of 5%. However, based on negotiation, the company can reduce the sales tax to 3%. In addition, products that are sold to the Department of Agricultural Extension are subjected to a sales tax of only 1%.

External costs

Based on the interview and observations, it seems that there are no external costs or environmental damage from the Thai Neem Products company. Nearly everything is recycled and all by-products of neem processing are used.

Cash flow

Break-even yield. Based on the calculation, the minimum production required to cover the variable costs, so that the company can survive and continue the business, is about 11,183 litre per year of neem extract. If we assume 300 working days a year, at least 47 litres per day of neem extract are needed to reach a profitable level (see Table 36).

Break-even point of operating days. With the current production capacity of 60 litres per day, at least 186 days of production per year are required to generate enough revenue to pay the costs.

Break-even price. The minimum price that will cover the costs is about 252 baht per litre (see Table 36). It implies that with the increasing production or a reduction of the costs for the raw material, which is main item of total costs, the price of the product can be set lower.

Table 36: Results of a break-even analysis

4.2.5.3 Investment possibilities

Assumptions of investment feasibility

Praneetvatakul et al. (1999) carried out a financial investment analysis for neem processing on a larger scale based on the following assumptions:

· A new company would be set up with investment costs of 5.2 million baht.

· Investment items include land purchase, land preparation, water and energy supply installations, machinery; operating costs are based on the key data taken from the Thai Neem Products Company Ltd.

· Raw materials are assumed to be available within the country. Neem seeds are the main raw material used to produce neem extract. Nonetheless, neem fruits are also used to produce neem fruit powder.

· Production capacity is set at 60 litres of neem extract and 330 operating days per year. The growth rate of production is assumed to be constant for the next 15 years. A period of fifteen years was used for investment analysis since most machinery is no longer used after 15 years.

· An eight per cent discount rate was used for the calculation of net present value.

· Short-term credit is assumed to cover variable costs each year with an interest rate of 10%. Long-term credit is also assumed to have a 10% interest rate.

Table 37: Estimated yearly production of a small-scale neem industry

A cost-benefit analysis is given below.

Results of financial investment analysis

Based on the financial investment analysis of the base case model, investing in a small-scale neem industry is quite profitable.

Four criteria are used to investigate the investment feasibility.

· Net Present Value (NPV)

The net present value is the annual sum of net return over a defined period of years. It is the present value of benefits minus the present value of costs.

The investment analysis for this small-scale neem business reveals a net present value of 15 years of 35.7 million baht. The present value of net benefits (benefits minus costs) over the next 15 years is a value greater than zero, indicating that it is feasible to invest in the project.

· Benefit-Cost Ratio (BCR)

The benefit-cost ratio is the ratio of the present value of benefits to the present value of costs. It is a criterion of relative net gain.

The investment analysis reveals a benefit-cost ratio of 1.88, which indicates that the value of benefit over cost is greater than 1 and hence it is profitable to invest in the project.

· Internal Rate of Return (IRR)

The internal rate of return is the discount rate needed for the present value of benefits to equal the present value of costs, or it is the rate at which the net present value will equal zero.

The investment analysis shows that the internal rate of return equals 76%. Based on economic theory, all alternatives with an internal rate of return exceeding the discount rate are profitable and desirable. For instance, this implies that the money invested in the small-scale neem business is more profitable than if it were deposited at the bank where the present interest rate in Thailand is only 6%.

· Payback period

If the investment in a project is paid back within a specified time, usually in the order of 3-4 years, the project is accepted.

Here the payback period equals two years, which implies that the investment costs are already covered only two years after the business goes into operation. This shows a very quick return on investment and hence the neem business is quite acceptable for investment.

To summarise, with initial investment costs of about 6 million baht it is quite attractive to invest in the neem business. It provides high benefits, a high rate of return and quick investment turnover.

1. Sensitivity analysis

Sensitivity analysis aims at testing the unpredictable events that might occur, for instance, what would happen if the benefit of a small-scale neem industry were not as high as expected in the base model, or if the costs were higher than expected in the base model.

The results of sensitivity analysis show that if there were a reduction in benefits by 20% and/or an increase in the costs by 20%, investment in a neem business would still be profitable.

Table 38: Results of investment analysis for a small-scale neem industry

2. Break-even analysis

Although there are several products produced by the neem business, neem extract is the principal product of this company. Therefore the break-even analysis will be investigated based on the revenue generated from neem extract. Based on the data of financial investment analysis, total costs (as used for the analysis) come to 5,032,450 baht per year. The sale price of neem extract is 450 baht per litre. Total production of neem extract is 20,000 litre per year.

Break-even yield. Based on the calculation, the minimum production required to cover the variable costs, so that the company can survive and continue the business, is about 11,183 litre per year of neem extract. If we assume 300 working days a year, at least 47 litres per day of neem extract are needed to reach a profitable level.

Break-even point of operating days. With the current production capacity of 60 litres per day, at least 186 days of production per year are required to generate enough revenue to cover the costs.

Break-even price. The minimum price that will cover the costs is about 252 baht per litre. This suggests that increasing production or reducing the costs of the raw material, which is main item of total costs, would allow the price of the product to be set lower.

Table 39: Results of a break-even analysis

4.2.6 Market potential, marketing and development strategies

4.2.6.1 The pesticide market in Thailand

Before the 1980s, agricultural productivity and growth of crop output were mainly based on increasing the land area under cultivation, rather than on yield improvements. Since the 1980s, yield improvements have become instrumental to the maintenance of agricultural output levels. The first measure required for yield increases was the minimisation of crop losses due to pest infestation (ADB 1987, cited by Ruhs et al. 1999). Since then, crop protection has become a major concern of farmers and scientists in Thailand.

Thailand's pesticide market can be classified as liberal. Import and sale of pesticides are handled by the private sector. The main objective in using pesticides is to improve the productivity and/or to reduce the production risk at the farm level. Driving forces for the increasing use of pesticides in Thailand (see Table 2.15) include limited land resources, improvement of crop productivity, growing high value crops, inefficient use of pesticides¹⁵, easy access to pesticides, and institutional factors, etc. The latter include direct subsidies or taxes, indirect subsidies, interventions in input and the commodity market, and research, education and extension systems (Pincus et al. 1999).

¹⁵ Information on synthetic pesticides use was mainly obtained from the private companies which produce, import and sell them. The quality of the products is often not as specified on the label, which might lead to misuse or inefficient use of the pesticides.

On the other hand, the indiscriminate use of pesticides has incurred external costs such as those to the environment, and the health of producers and consumers, etc. Jungbluth (1996) studied the guidelines of a pesticide policy in Thailand and quantified the major externalities relating to pesticide use. The calculations showed that the ratio of pesticide sales to externalities is almost one to one.

The main group of pesticides used in Thailand is insecticides. The use of insecticides almost doubled from 1981 to 1990 (see Table 40). This indicates intensification in Thai agricultural production. Most of the insecticides consumed are imported.

Table 40: Domestic consumption of insecticides and imported quantities in Thailand 1981-1998

Note: During 1981-1991 the amount of insecticides consumed was recorded as formulated products; during 1993-1996 the amount of insecticides consumed was recorded as active ingredients and the amount of insecticides imported was recorded as formulated products; NA = not available.

Source: Pesticides Statistics, Regulatory Division, Department of Agriculture

The amount of insecticides imported has increased moderately. In 1998 the top ten pesticides made up almost 90% of total imports. This indicates that the markets concentrate on a few insecticides. Imported insecticides can be either formulated products or active ingredients that are then formulated within the country.

One problem associated with pesticide production is the insufficient quality of the products (Tayaputch 1992, Grandstaff 1992 cited by Jungbluth 1996). The pesticide market in Thailand is a product differentiation market, which means a single active ingredient can be found in various products with different registered names. This makes it very difficult for the Designated National Authorities to control the market and enforce the pesticide regulations.

The liberal market encourages competition between pesticide companies. They try to undersell each other, which in turn is driving market prices down (see Table 41) (see Ruhs et al. 1999). In addition, factors affecting prices of pesticides include low input costs and external factors such as government tax policy.

Table 41: Real average price of 18 selected pesticides in per cent in 1986-1996

Source: Ruhs et al. 1999

Thirty-seven pesticide companies are large-scale producers belonging to the Thai Crop Protection Association. The main segments in the pesticide market are covered by international companies.

The remaining companies are small to medium-scale producers, only some of whom belong to the Local Thai Association of Pesticides, which currently has 46 members.

Another group of insecticides are derived from plants or other organisms, and are imported to Thailand, but are of quite low quantity and value. There are about three or four types, namely Bacillus thuringiensis (78,337 kg, 51,229,366 baht in 1997), Nuclear Polyhedrosis Virus (NPV¹⁶), neem extract (trade name is AZA¹⁷, azadirachtin 3% EC), and Rotenone (imported 3,000 kg, 83,602 baht in 1997).

¹⁶ There is no record of this at the Regulatory Division.

¹⁷ There is no record of this at the Regulatory Division; the amount imported is assumed to be insignificant. Moreover, it is not possible to get information from the company that imports this product. All that is known is the trade name and the fact that it comes from India.

The largest amounts of pesticides are applied in the horticultural (tropical fruits and vegetables) and rice sectors, for example high value crops which rely on pesticides, such as fruit trees, vegetables, cotton, sugarcane, and so on. It is, however, difficult to obtain detailed information on the quantities applied on each crop.

4.2.6.2 Marketing of neem products to date

Distribution of neem products can be classified as selective. The target groups in the agricultural sector are people who can afford to pay for the product, for example farmers growing ornamentals or farmers using neem in fruit orchards. Due to the relatively high costs of neem formulations, most farmers cannot afford to buy them. Instead they buy the raw material¹⁸ and prepare their own extracts.

¹⁸ The farmers can either buy directly from the company or through the extension officer in the area.

Additionally, the neem market has been improved due to the sensitisation and increasing awareness of toxic pesticides which affect both producers and consumers. This provides a good opportunity for the neem products. The channel of product distribution ranges from the producer to the retailing institutions and the consumers, and sometimes the product is sold directly to the farmers¹⁹ (see Figure 2.3).

¹⁹ Direct sales in this case include a) direct contact with the consumers and b) direct sales at the farmers' training on using neem products (from survey).

To promote of their products, the neem manufacturing companies cooperate with the government and education institutes. Some small-scale neem producers started to distribute their products through cooperation with the government officers that are working on this issue. In Thailand neem products in agriculture are promoted by the government. Kasetsart University and the Department of Agriculture have conducted training for farmers on the use of neem every year. Representatives of companies are also invited as guest speakers. It gives them a chance to present and sell their products directly to the farmers or participants. This is a short and direct channel for product.

Some companies also distribute their products through department stores and hypermarkets, or sometimes to the special markets (herb products). It should be noted that companies produce on request²⁰ and do not keep stocks, because of the short shelf-life (one year) of the product.

²⁰ Taking Thai Neem Products Co as an example, there are at least 50 to 100 litres in stock. The producer is therefore quite flexible and able to produce on request (interview).

At present, the use of neem in Thailand's agriculture can be classified into two types:

· Use of dried neem fruit (purchased or subsidised²¹
· Use of neem extracts (purchased)

²¹ Department of Agricultural Extension had provided the farmers with dried neem fruit for crop protection until 1998.

The farmers using neem at present have had problems when applying synthetic pesticides, for example impacts on health and resistance of the pests. Therefore they switched to neem to protect their crops. However, the farmers who have had no problems with synthetic pesticides still apply them. The constraints on using neem products are the same as those mentioned in Chapter II:

· Relatively high price
· Lack of confidence in using neem products
· No knockdown effect and slow action
· Efficacy²²

²² Ermel et al. (1997) reported that the low profile of the locally made neem insecticides mainly depended on the quality of the raw material. Neem seed kernels obtained from the Thai neem tree contain lower amounts of azadirachtin A than kernels from Indian neem (Chirathamjaree et al. 1997). Additionally, the harvesting and post-harvest conditions may adversely affect the quality.

4.2.6.3 Market potential

Neem extracts and pure compounds have been evaluated against more than 400 species of insect pests (Schmutterer 1995).

Neem extracts have been compared with synthetic pesticides for controlling insect pests, for example:

· Control of insect pests of crucifera and citrus. The results showed that the effectiveness of the neem extracts was not significantly different from abamectin pesticide (Sombatsiri 1995).

· Control of insect pests of soya bean (Chaowattanawong 1988)

· Ophiomyia phaseoli (high efficacy - as prothiophos 0.15%)
· Lamposema spp. (high efficacy - as monocrotophos 0.15%)
· Empoasca sp. (moderate efficacy)
· Nezara viridula (no efficacy)

A limited price survey of retailers in Bangkok and Rangsit in Pathum Thani Province the following prices of the insecticides, including neem products from the could be found (see Table 42).

Table 42: Selected insecticides with trade name and price from retailers in Bangkok and Pathum Thani, Thailand 1999

Note: 20 baht = DM 1 (exchange rate in 1999)
Source: Survey in 1999

Only a few retail shops were offering neem products at all, indicating again the need to put emphasis on developing efficient distribution and marketing concepts for the neem pesticides. The staff of the retail shops report that neem products have not been popular in the area, due to the lack of a knockdown effect and the slow action, indicating the need for more efforts in marketing, training and demonstration. There were other pesticides and fertilisers listing their active ingredient as neem but not specifying the quantities nor any concentration of active ingredients.

It is not realistic to make a comparison between the costs of using synthetic and neem products without field experiments. Only limited data has been available to date on the economics of IPM systems including neem, compared to conventional IPM systems recommended by the agricultural extension department or farmers' practice. This sort of data and studies would provide a clearer picture of potential markets for neem pesticides and/or the steps required for marketing neem products. However, the information on the recommended pest control methods of some selected crops may give a rough idea on which (synthetic) pesticides can be substituted by neem pesticides (see Table 43).

Table 43: Some selected crop protection recommendations from the Department of Agriculture, 1998, and the Thai Neem product company

Note: For costs of insecticides see Table 2.8
Source: DoA (1998)

This table indicates that considering only the cost per application (not taking into consideration long-term effects and the advantages concerning the environment and health), the neem products are cheaper than specific pesticides such as Bacillus thuringiensis but more expensive than standard broad-spectrum insecticides such as Karate or Decis.

Neem products can replace any synthetic insecticides that are used to control the following insects: caterpillars, leaf miners, leaf rollers, cutworms, psyllids, aphids, borers, fruit flies, thrips, spider mites and so on. There is a potential for neem use on vegetables, fruit trees, flowers, rice and other field crops (maize, sorghum, soya bean, mung bean, cotton, and sesame) in Thailand.

Despite a lack of in-depth investigations and adequate data the following studies can provide some indications:

Teepasiri (1995) conducted a comparative study of vegetable production costs, revenues and profits between cultivation practices using synthetic pesticides and those using synthetic pesticides together with neem extracts in Sai Noi district, Nonthaburi Province. The results showed that costs, revenues and profit per unit area of farmers who used synthetic pesticides together with neem extracts were greater than those of the farmers who used only synthetic pesticides in vegetable production (see Table 44). It is possible to introduce neem products with other synthetic pesticides.

Table 44: Vegetable production costs, revenues and profits in different cultivation practices, Nonthaburi Province, Thailand

Note: 20 baht = DM 1 (exchange rate in 1999)
Source: Teepasiri (1995)

If there is a pest outbreak, neem extracts alone might not be an ideal concept for controlling pests. In the short run, using neem products requires higher input costs.

In the long run, the costs might be lower than those of applying synthetic pesticides. This is because using neem products contributes to maintaining or creating an ecological balance in farming systems and reduces the likelihood of pest outbreak.

A further demand for neem products might result from the export of vegetables and fruits and the increasing controls on pesticide residue levels by the authorities of the importing countries. However, even today some exporters are reporting that pesticide-free products are more competitive and fetch a higher price.

In Thailand, there is limited promotion of applying neem products in agriculture. However, some government policies (such as pesticide-free vegetable products, awareness of toxic synthetic pesticides via government projects, media and the national "economic and social development plan") encourage use of bio-pesticides such as neem products.

Due to increasing consumer awareness of toxic synthetic pesticides, it can be expected that there will be a growing market for neem pesticides in the future.

The reasons are as follows:

· The amount of neem products sold increases every year.

· Due to the promotion of neem products used in agriculture by Kasetsart University, training has transferred information, knowledge and technology from the scientists to the farmers. In addition, the successful application in some orchards (mango, citrus, orchid and vegetables) will spread among the farmers.

· Regarding resistance of insects to synthetic insecticides, an alternative may be the application of plant-derived or other organism-derived insecticides instead of synthetic pesticides.

· Awareness of the producers and consumers of hygienic products.

· Government effort to control agricultural products (vegetables) without hazardous chemicals on the market, Bangkok.

The higher demand will be an opportunity for increased production and better business with neem.

The questions to be answered are, whether the neem producers can afford to cope with an increasing demand; and whether the market is guaranteed. Other constraints in this business should be considered, for example:

· Lack of raw material²³
· Inferior quality of raw material
· Short shelf-life of the products
· Competitiveness in the markets for synthetic and other insecticides

²³ The fluctuation of neem seed yield is the main problem in estimating the future supply of neem products (expert opinion). Harvesting neem fruit is labour-intensive.

More research on marketing and dissemination concepts is required for neem products to communicate the information on neem to the users (farmers), so that use of neem products can be more effective and there will be less impact on the health of both producers and consumers. More information is required for comparison of the use of neem products (ready-to-use products) and other conventional insecticides on any insects or crops.

4.2.6.4 Market promotion

According to marketing theory, consumers seldom have complete knowledge about a product. Their exposure to the information is limited and the information about the products changes over time (Ward 1997). Therefore, advertising and promotion will help to provide the consumer with useful information for their decision to purchase. For example, farmers may not be aware of a new neem product with improved azadirachtin content (e.g. neem containing 0.7% azadirachtin) which provides more effective pest control (the positive impacts of the neem product on the natural enemies, ecology and the environment, etc.).

There are two concepts of advertising and promotion: generic and brand. Brand advertising and promotion refers to advertising exposure for specific brands, whereas generic advertising and promotion emphasise the product's attributes instead of being brand-specific. Normally, the main objective of brand advertising is to increase the market share.

Assuming that consumers can hardly make a clear distinction concerning the quality of neem products in the market, generic advertising and promotion are recommended. Since neem products are not well known by most farmers (Purod 1995), advertising and promotion of neem products in general is more appropriate. The main objective of generic advertising and promotion is to change consumers' perception and to expand their knowledge about the neem products. However, this activity requires a considerable budget and thus support from the national government.

In addition, the government should enforce a strict registration policy for neem products. Otherwise, farmers who do not have the knowledge will buy the cheap but ineffective products on the market, which would spoil the reputation of neem pesticides in general. This would also target those companies who have invested in improving the quality of neem production.

The message in the promotion of neem products should address the following issues:

· Environmental education on the effects and detrimental side-effects of pesticides
· Changing pesticide usage patterns
· Providing information on neem products
· Making farmers aware of the attributes and quality of the existing neem products

The media for promoting neem products are as follows:

· Radio
· Newspapers
· Books
· Stores
· Institutional distribution, e.g. Department of Agricultural Extension

4.2.6.5 Marketing channel and distribution

Distribution, as a marketing function, serves consumption by making products available to consumer in the right form, time and place (Meulenberg 1997). In some markets, distribution can stimulate demand by making products available at a specific place and time.

The two main objectives in the distribution for neem products are to maximise the access to target groups, and to minimise the distribution costs. Storage and transport are core elements in a distribution process.

Storage. According to economic theory, identification of the quantity of stock which minimises total inventory costs per time period depends on the order quantity, carrying costs per unit of time period, ordering costs per order, and product demand per time period. Moreover, the quality of neem products are negatively influenced by longer storing periods. The neem company should avoid stocking the products for a long time but deliver them at exactly the right time. So the appropriate stock for a neem company will have to be tailored to match these demands. Since the Thai Neem Company is already producing on demand and holds only low stocks, not much can be improved at the present stage.

Transport. The choice of a transport mode is based on a trade-off between customer service and transportation costs. For example, sending neem products via the railways or a contracting transport agency for the supply of certain customers might be cheaper than distributing the product via the company's own transport facilities. Nevertheless, selecting the appropriate mode of transportation depends on the operating characteristics such as speed, availability, reliability, capability, and frequency (Meulenberg 1997). In addition, transport planning is another important element in marketing management for a neem company. In economic theory, there are transportation models available to minimise the transportation costs. However, this might be too sophisticated for a small-scale neem company. Nevertheless, a company should keep transportation planning in mind to minimise total transportation costs, to satisfy the requirements of the demand in a certain location, and not exceed the capacity constraints of the vehicles.

To summarise, the performance of distribution of neem products can be improved by better planning methods, integrated planning of purchasing inputs, management in the factory, and the physical distribution of final products.

Distribution strategy. Access to the target group, distribution efficiency and marketing channel power are the key elements of distribution strategy. For a neem company, an intensive distribution strategy is more appropriate than selective or exclusive distribution. That is to say a neem company should sell the neem products through as many channels as possible.

Marketing channel.

For producers and distribution chains see Figure 6.

In 1996, there were about 28 formulators, 68 repackaging plants, 438 distributors and around 4,095 retailers conducting pesticide business in Thailand. Distribution of agro-chemicals in Thailand goes from the producer to the dealers and afterwards to sub-dealers or retailers. The pesticide companies employ sales personnel for the wholesale business, as well as for retail at the farmer's level (see Figure 6).

Pilot plant at the Toxic Division of the Department of Agriculture, Thailand

Filling the extractor of the pilot plant with neem cake

Bottling the neem extract

Neem products from the Thai Neem Products Company Ltd

Figure 6: Marketing channels of synthetic pesticides and neem products in Thailand

Note: Numbers in parenthesis are the numbers of producers, dealers, etc.

Wholesaling is a recommended marketing channel for neem products. A study showed that farmers in Thailand have changed their purchasing behaviour from local markets to wholesale supermarkets such as Macro (Matichon 1999). The advantage of wholesalers is that they are more effective distributors because of their market knowledge and handling of large product volumes. The wholesale market for neem products supplies local pesticide shops in every province and wholesale supermarkets e.g. Lotus.

Retailing is another option for a marketing channel for neem products. A low price, such as by discounting, is an example of a recommended retail price strategy for some neem products, e.g. neem powder. This is because price and product policies are correlated. Low price strategy is suitable for a product which require limited advise, has low purchase price and quick inventory turnover.

A high price strategy is appropriate for high quality products and the offer of a better service. This could be achieved by labelling the products and providing information on them. Due to the current concern about natural resources and the environment, labelling is another marketing strategy for promoting neem products.

Additionally further complementary products beside neem, such as Bt and virus products, should be offered within a "green mark" system. This is also another attractive marketing strategy.

4.2.6.6 Analysis of economic production with and without the use of neem pesticides

Based on the present estimated costs for neem products, producers' opinion, and literature reviews, the prices of neem pesticides are hardly competing with those of synthetic pesticides. However, a study on socio-economic factors affecting the acceptance of neem extracts claimed that the difference in cost of a pesticide is not the main determinant for acceptance (Sukthamraksa 1994). That is to say there are several types of synthetic pesticides in the market; some are very cheap while others are very expensive. Consumers or farmers usually select a certain kind of pesticide based on different criteria, such as social or community communication, existing knowledge, information available, type of crops, experience of pesticide poisoning, etc. In addition, based on the calculation, the profit margin of neem extract is about 100% of the cost per unit, i.e. the profit margin is about 250 baht per litre. Hence, neem products have a chance in the pesticide market and can compete with synthetic pesticides, if the appropriate information is supplied and if they can enter the common marketing channel.

4.2.7 ''Lessons learnt'' and recommendations

Technical information. There is still a lack of technical information on the level of the manufacturers. For instance, the by-product neem oil has not yet been fully used due to the lack of appropriate machinery and technology. More technical information about oil pressing would add more value to neem processing without increasing the costs. Consequently,

(i) the costs of raw material may be reduced if neem oil is used to its full potential, and

(ii) the quality of neem extract remains unchanged while the cost is reduced - hence the price of product can be lower.

This is an important point in making a neem product more competitive than a synthetic pesticide.

Input supply. The supply of neem seeds and fruits fluctuates from year to year. Raw material seems to be the most important issue in the business. Regarding the capacity of the neem business investigated, there is no problem with production capacity. For the time being, this means that the production can still be expanded within the existing plant. However, an increasing supply of neem seed raw material, either domestic or from neighbouring countries, will contribute to the expansion of neem pesticide production. In particular, neem supply in Thailand has yet to be investigated. This may become the bottleneck of neem production in the future, if more companies decide to invest in neem. Therefore, research on the raw material of neem is needed urgently. Moreover, there has to be a programme for selecting and/or breeding the Thai neem tree to improve the azadirachtin content of seed kernels.

Quality conservation. Since azadirachtin is the most important active ingredient in neem product, it can function as a quality marker. At present, all existing neem extracts in Thailand exhibits rapid degradation of the active ingredient during storage. Therefore, a technology for producing neem formulations which are more stable during storage needs to be found and implemented, in order to improve neem products in Thailand.

Recommended development and/or government support programmes

· A generic advertising and promotion programme for neem products,

· Regular investigation of sub-standard and/or unregistered neem-based insecticides on the market,

· Consideration of lower tax on the raw materials for neem products such as ethyl or isopropyl alcohol, which are environmentally friendly and may be used as substitutes for methanol.

· An intensive survey of the existing neem seed potential in Thailand,

· Government support programme for neem tree plantation,

· Research on bio-technology to improve the neem trees (fruit production and azadirachtin content).

4.2.8 References

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DoA (1998): Crop protection recommendation. Department of Agriculture (DoA).

DoAE (1998): Vegetables for commercial purpose 1997. Department of Agricultural Extension (DoAE).

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