The ecological settings in the Himalayan hills provide a unique opportunity for resource poor farmers to sell their organically produced Nepali coffee as specialty coffee to the global market. This study attempts to examine the impact of coffee production on Nepali smallholders'' livelihoods taking their integration into value chain into account. Descriptive analysis, logit and linear regression models were used to gauge the impact of coffee production on the livelihood strategies of Nepali smallholders in the value chain. Finding of the study shows that smallholders have little bargaining power and trust in trade due to asymmetric market information and inadequate support in farm level upgrading activities. Group organic certification of coffee seems as a catalyst to entry international market and cost effective with 6-10 per cent premium price to the smallholders. The results from the logit model reveal that level of education, record keeping about coffee activities, training received for quality enhancing practices, access to credit and trust in trade have a positive and significant effect on farmers'' decision to adopt process upgrading at farm. Some suggestions are mentioned.