Challenges and purposed solution to Nepalese agriculture (Subodh Khanal, Msc. Ag., Rampur campus, IAAS)

Associated with low level of economic growth, Nepal is characterized as a country with a large portion of rural population, high poverty rate and subsistence agriculture. About eighty percent of the country’s population lives in rural areas and agriculture is their primary livelihood where the rural poverty rate is over three times that of urban areas, 35 percent compared to 10 percent (NARC, 2010). The proportion of holdings that produce mainly for sale is not even 1 percent, while little over 21% farm families use their farm produce almost equally for both sale and home consumption (ADB, 2006). An estimated 60 percent of households cannot meet their own food needs, especially in mountainous areas, and agricultural production only meets food requirements for three-to-eight months per year (NARC, 2010). In this context, Commercialization of agriculture has been proposed as a feasible option for economic growth and poverty alleviation. However, despite all efforts to bring about revolutionary changes and growth in the agriculture sector of Nepal, the attempt has not fully translated into reality. Currently, the economy is largely remittance driven and it has been yet another challenge to get the remittance money invested in the productive sector which could escalate the much needed economic growth of Nepal. Commercialization of Agriculture has been deemed necessary for a long time in the growth planning of Nepal. However, it requires action along several factors that include policy support, capacity building, and investment in research, human resources and agricultural infrastructure, market information for producers and more.

Investment is the most essential component to transfer subsistence sector of agriculture into productive sector. As per the report of the UN Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) in agriculture tripled globally in eight years, from US$ 2 billion in 2000 to US$ 6 billion by 2008 despite the global recession

CHALLENGES OF NEPALESE AGRICULTURE

·         Nepalese agriculture primarily consists of small family farms, which are mainly subsistence oriented and yet not capable of supporting the adequate subsistence of the farm families.

·         Despite more than 70 percent of the workforce being involved in the sector, agriculture in Nepal produces only about one third of the gross domestic product and till this date food self-sufficiency is not ensured.

·         The greatest challenges faced in development of agriculture in Nepal are low productivity rates, traditional farming mechanisms, lack of commercialization and industrialization. Nepalese agriculture production had a virtual stagnation with 2.7 to 2.8 percent average annual growth rates for the past two decades.

·         Fragmentation of agricultural land is a major challenge to the commercialization and development of Nepalese agriculture. The average holding size of a farm is 0.8 ha. Almost half of the total farms have less than 0.5 ha of land, while those with less than 1 ha of land constitute nearly three-fourths of all holdings.

·         Nepal is facing a milk deficit of over 300000 liters every day. To fulfill the deficit, importing at least 10000 cows of improved breed is necessary. However, India restricts export of such cows. Talks on senior government level could resolve the issue. If allowed, the import could directly benefit dairy farmers as well as help save the country more than NRs. 10,000,000 everyday.

·         Several other constraints impede growth in agriculture. Nepalese agriculture still remains heavily dependent\ on the rainfall for irrigation as the required infrastructures for irrigation are yet to be built. Only about one-fifth of irrigable land has access to year round irrigation.

·         Lack of proper collection centers and storage houses for agricultural products is another major impediment to growth of Nepalese agriculture. Lack of proper storage facilities is forcing farmers to sell their products at random prices (sometimes even lower than the production costs). They are forced to do so due to the fear of damage of products in the absence of proper storage facilities.

·         Faced with declining agricultural employment and limited rural nonfarm employment, the rural poor—mainly women lacking specific technical and business skills—have responded to growing demand for processed food by establishing home-based production units.

·         The government’s policy of subsidizing fertilizers used in agriculture has resulted in unavailability of fertilizers on time. The shortage has forced farmers to rely on black markets for timely fertilizers. Black markets however impose an exorbitant cost on the farmers due to high prices and inferior quality of the fertilizers.

·         Agro-climatic diversity offers Nepal hills special comparative advantage in high value agriculture. However, taking advantage of such potential is limited by high transactions costs stemming from poor connectivity, deficiency of economies of scale, grades and quality compounded by weak agricultural R&D capacity .

·         Public agricultural research on agroprocessing traditionally is weak, and NGOs provide virtually all of the support for the small-scale food processing sector.

RECOMMENDATIONS

The recommendations can be summarized in the following points:

·         Three-tier approach should be adopted to address the problems of Nepalese agriculture.

·         Mechanisms to ensure the effective participation of Private sector at different levels is imperative to help the farmers engaged in subsistence level farming.

·         Government should encourage a shift to high value agriculture from the current subsistence oriented agriculture.

·         Provisions of subsidies in agricultural fertilizers should be eliminated in favor of open access to private sector

·         Government should establish collection centers and storage houses in major market areas so that farmers can easily store their products until they get proper prices for their products

·         Government should provide tax concessions on import and application of machineries and technologies used in agriculture such as tractors.

·         The remittance incomes in the rural areas of the country should be directed towards high-value agriculture

POSSIBLE IMPACTS OF THE PROPOSED SOLUTION

·         The three-tier approach would help the government formulate specific and relevant policies to the different groups of Nepalese farmers. Such approach would be more effective in addressing the problems of different levels and magnitude than the ‘one size fits all’ approach. High-Value agriculture also provides better employment opportunities and less marginal employment rates.

·         Deregulating the fertilizer sector and elimination of subsidies will allow increased participation of the private sector in fertilizer import and distribution. Competition is likely to increase the availability and decrease the prices of fertilizers. Once deregulated, subsidized cheap Indian fertilizers and other adulterated and substandard fertilizers had infiltrated Nepalese market making it hard for the government agency and private sectors alike to sell quality fertilizers.

·         In addition to that, overall supply situation in remote areas could not improve for the obvious reason of high cost of transportation. Thus, while supply situation could not be improved as expected, widespread problems of fertilizer quality also surfaced. (Shrestha, R.K.1991). Challenges like these could have been met through certain measures such as appointing people with the expertise to monitor the quality of fertilizers at the local level. Hence, deregulation that can ensure timely and quality supply of fertilizers to the farmers should incorporate solutions to possible problems.

·         Establishment of collection centers and storage houses would empower farmers enabling them to withhold sale of their products until they get their desired prices in the marketplace. The farmers can also make transactions without actually moving their goods  reducing  the transaction costs. However, proper management and administration of these collection centers and the marketplace is a crucial issue that needs to be thought beforehand extensively.

ROLE OF PRIVATE SECTOR

Although agriculture policy started supporting commercialization from 1990s, the role of private sector has not been very high in the case of commercialization and the 12 years of conflict has also discouraged private parties to invest in the agriculture sector. However, due to the peace process, small enterprises to big companies are being attracted towards commercial agriculture. Post war, there has been tremendous growth in the involvement of private sector in the commercialization of agriculture. Coffee, herbal products, poultry farming, vegetables, cereals, rainbow trout, basic seeds, floriculture, ginger and dairy products are some of the products which are being commercialized by private sector. Poultry sector of Nepal is one of the best examples that have been commercialized by private sector. Since 1990s, private sector has invested around sixteen billion providing job to more than 70,000 young people. Poultry farming also contributes around four per cent to the gross domestic product (GDP) of the national economy (RSS 2010). The best example of PPP is agro enterprise center was established in 1992 with the tripartite partnership between Government, Donor and Federation of Nepalese Federation of Nepalese Chambers of Commerce and Industry (FNCCI). One Village One Product (OVOP) program involving GON, FNCCI/Chambers, DDC/VDC; “Commercial Agriculture Alliance” as nonprofit company formed to assist “Commercial Agriculture Development Project” of ADB/GON involving FNCCI, Agro enterprises, DDC, Cooperatives, Market management committees are the recent achievement of public private partnership.

1.       CBS, WB, DFID, and ADB, 2006 as cited in Karkee, M. (August, 2008). Nepal Economic Growth Assessment Agriculture. Extracted from http://nepal.usaid.gov/downloads/all-downloads/category/16-evaluation-reports. html?download=228%3Anepal-economic-growth-assessment-agriculture

2.       NARC, 2010. Nepal Agricultural Research Council(June 2010). NARC’s Strategic Vision for Agricultural Research (2011 -2030). Extracted from http://www.narc.org.np/narc_vision/NARC_vision.pdf