Earthquake victims coming together to rein in the ever increasing price of construction materials

June 29th, 2017

A simple act of collective procurement is improving the access of the earthquake victims to quality construction materials and reducing the price by more than 10 percent.

Two years after the devastating earthquake, majority of the victims are still under the temporary shelters in Nepal. Their journey to permanent housing is uncertain due to ever increasing price of construction materials. Each time price hikes, their hope for bringing back roof over their head fades further.

Government has no apparent mechanism in place to reduce and regulate the price.

Communities taking matters in their own hands

Earthquake victims in Bhorle Village of Rasuwa have, however, found their own way to rein in the price of construction materials. They are landing materials at their village at 10 percent lower price since last two months.

The resource centre at Bhorle, Rasuwa

Neither earthen road leading to their village has improved nor have construction materials factories set up in vicinity. They have simply changed the way they procure materials. They have moved from individual procurement to collective procurement practice.

Maha- laxmi Cooperative, an exclusive women cooperative in the village, is spearheading the venture. The cooperative collects demand for materials from the households on weekly or fortnightly basis and forward the aggregated demand to a central supplier. The cooperative have formal agreement with the supplier for supply of materials. The supplier delivers the materials to resource centre in the village, from where the households collect their materials.

Cooperative has set up the resource centre to facilitate demand aggregation and provide market information to the households. It is equipped with simple equipment to test the quality of construction materials. A dedicated resource person oversees the day to day operation of the resource centre.

The difference they are making

In last 2 months, 42 households in Bhorle procured materials through the new arrangement. Each household saved from $192 to $385.The saving is significant for the poor households who are solely dependent on government housing grant ($2,300) for building their house. If we consider the opportunity cost, the saving is even more significant.

Mrs Chandra Kumari Paneru, the Chairperson of Maha Laxmi Co-operative

Earlier people used to buy materials from retailers in Trishuli Bazzar individually. As the individual demand would be small, there was no prospect of getting any discount on price. Beside, every trip to Trishulli would cost them a day and $5 to $10 extra (for food and travel) “said  Mrs Chandra Kumari  Paneru, Chairperson of Maha Laxmi Cooperative.

People are also spared from the hassle of finding right vendors and bargaining with them after the new arrangement is in place.

Likewise, People don’t have to worry about the quality of the construction materials. The supplier furbishes the lab certificates and issue VAT bill in each delivery. Besides, the resource person, who is trained on simple techniques of testing the materials, checks the quality before dispatching to households. If the materials doesn’t meet quality standard, the supplier revoke and replace the materials.

Resource person checking the weight of cement bag

Where does the saving come from?

High transaction cost is one of the major contributors to high price of construction materials in Nepal. A sack of Portland Pozzolana Cement (PPC) cost $4.85 at Factory at Bhirahawa. When it reaches to Bhorle , 400km north-west, it cost $6.70. It exchange hands at least four times before it reach to the earthquake victims. Hence, the transaction cost is whopping 40 percent.

The collective procurement from the central supplier reduces the transaction cost significantly.

When they procure materials from us they skip 3 layers of the normal market chain and save the margin each layer hold. Besides, saving comes from our effective logistic management, part of which we pass on to the earthquake victims “says Umesh Simkhada, the chairperson of Aakhu Enterpries, the central supplier

Ankhu combines the demand from the cooperative with demand it receives from 15 other cooperatives  in Nuwakot and Rasuwa before placing order to factories.

“The demand from individual cooperative is still very small. However, when we combine the demand of 16 cooperatives, it become significant and we get better deal from factories “ says Mr. Simkhada

Project support

Practical Action, through its UKAid, funded, Supply Chain Strengthening Project, is helping the cooperatives in Nuwakot and Rasuwa to aggregate the demand and procure collectively. Besides, convincing the cooperatives and the households about the benefit of demand aggregation, it helps cooperatives to establish linkage with suppliers. Project also helps to set up resource centres and manage them.

Simple yet effective way to reduce the price

Ever increasing price of construction materials, if not checked, is likely to upset the pace of reconstruction which is already lacklustre. For reducing the price of construction materials, either production cost or transaction cost has to be reduced. Given the persistent power crisis and high dependency on imported raw materials, it is very difficult to reduce the cost of production. However, the transaction cost, which is very significant, can be reduced by proper logistic management. The earthquake victims in Nuwakot and Rasuwa have demonstrated that collective procurement is one of the simple yet effective ways to reduce the transaction cost.

Trishakti Rana, Senior Supply Chain  Officer, in Strengthening Supply Chain of Construction Materials , also contributed in this blog.

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