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Misdirected goal (?)

In a bid to curb rising unemployment, and international migration of rural youth to seek economic opportunities elsewhere, Nepal Rastra Bank (Central bank of Nepal) has recently issued a ‘Working Procedure on Interest Subsidy for Agriculture Loans to the Youth.’ As the name suggests, through this document, the government and Nepal Rastra Bank (NRB) are aiming to revive the Nepalese economy through agriculture. The plan is to encourage the youth to work in Nepal itself, make them feel like the country values them and is constantly working to providing better economic opportunities to them in Nepal, and develop the agriculture sector of Nepal; a nationalist policy I’d say. While the intentions are highly commendable, there are a few things that the authorities seem to have overlooked.

More farmers does not mean a prosperous Nepal

fragmented farming in NepalFirstly, the goal of the state has been misdirected. The new move by the state aims to bring in more and more people into agriculture. As 66% of the total population currently depends on agriculture, the sector’s total contribution to Gross Domestic Product (GDP) is only 33%. Furthermore 85% of these people who practice agriculture are in the sector purely for subsistence. Despite the fact that there are around 4 million Nepalese youth toiling in the foreign land, this figure has not really changed. The productivity of the sector has not declined with respect to the number of people exiting the sector. During a consultation meeting of the Agriculture and Water Resource Committee at Singhadurbar, Honorable Hari Prasad Parajuli, the Minister of Agriculture Development himself clarified that given this background, Nepal won’t lose even a kilogram of food grain that lands in the market due to the fact the Nepalese people are going abroad for foreign employment, neither will Nepal gain a kilogram even if some of these people come back. This is the reality of our agriculture. Yes, agriculture will allow people to earn a living, but the kind of agriculture we practice today – farming in fragmented plots of land to feed one’s own family – will not offer better economic opportunities to the poor.

Remittance on the other hand

On the other hand, the scores of youth that have been forced to seek economic opportunities in foreign lands due to unfavorable enterprising environment in Nepal seem to have given some respite to poor Nepalese populace. In the last twenty years (mid-90s being the period when Nepal began to see an increase in outward migration of Nepalese people due to the civil war), remittance has grown 111 folds, from $50 million in 1994 to $5,551 million in 2013. This has contributed largely to reducing poverty in Nepal, raising the quality of life of rural Nepalese and enhancing their access to education, health education and services, and technology. If the state really wants these migrant workers to come back, then the economic gain that they get upon their return has to be greater than the one they are currently getting in foreign lands. But this aspect has not been addressed by the state plan.

The Bankers’ Dillema

The other problem with the NRB guideline is how it fails to see the impact of a policy like this on the bankers. The guideline fails to recognize the fact that the money that commercial banks hold is actually savings of the general public itself and the profits belong to the shareholders. The bankers are accountable and answerable to these stakeholders if their money is channeled into making risky investments. Banking is a business and it is guided by the prospect of making profits. If a project looks lucrative to the banks, it will finance the project. If not, not even the one being undertaken by the poorest Nepali will be financed by the bank in the pretext of helping the poor. Besides, the administrative cost of availing services to great number of small scale farmers (esp. when these farmers fail to produce properties that can be entertained by the banks as collateral) is far greater than availing services to their corporate clients. If the state fails to acknowledge this fact, then this plan is bound to fail like other similar programs where the bankers opt to pay the fines instead of complying with the state policies.

Therefore, under the current scenario, what the state really needs to do is ease the process of holding formal entitlements of the land, buildings and small enterprises that people have owned and run for years. What the state needs to do is acknowledge people’s property, secure their property rights and convert their ‘dead capital’ into ‘live capital’ such that these can be used as collateral in the banks to acquire loans to enterprise (not just farming but everything) and create wealth, instead of subsidizing an inefficient farming practice in the name of nationalism.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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Cooperate to commercialize

contract farming in Nepal“There is no alternative to commercialization of agriculture in Nepal”, said Jaya Mukunda Khanal, Secretary, Ministry of Agriculture, Nepal Government at the recently concluded Nepal Economic Summit (NES), 2014. Resonating with his views were the agriculture experts, academicians, representatives from donor organizations and most of the participants in the Summit who thought that in a country where agriculture has been long hailed as the do-gooder for the poorest of the poor, the key to transformation lies in commercialization. And one of the many ways which could help Nepal commercialize in agriculture was proposed in the form of contract farming.

For long, what has been largely discussed as being a challenge to the possibilities of commercialization has been the characteristic of land holdings in Nepal—scattered and small land holdings. As it is, small land holdings have been a characteristic of any developing country not just Nepal and the truth remains that this isn’t going to change any time soon. The only way to progress is to work with what we have and make the most of it. In this context, contract farming can play a vital role; and as cooperatives have, so far, been working effectively with smaller communities, it would reap many benefits if contract farming were to be done through cooperatives. And such has been practiced in other developing countries and have yielded good results. In Senegal, Africa, food processing companies work with small land holding farmers (each 0.2-0.5 hectors).  A Thai company works with small holders in Vietnam. Such pro small-farmer contractual arrangement has worked for the benefit of the farmers and hence larger economic growth in both the given examples.

In a competitive market scenario there exists a pressing need to increase production and add value to products to meet both national and international demands. While the world continues to struggle with the needs, the inability of small farmers to reach the markets with finished products; let alone that, to not be able to fit in the value chain due to lack of access to capital and other inputs (seeds, fertilizers) puts the small farmers in the back seat with them being unable to bring about any significant change in their living standards—poverty ridden one generation after the next, they remain thus. Adding to the woes of such small farmers is the inability to mechanize—cost of mechanization is too high for a lone farmer to bear. What a cooperative model does is that it allows for these loopholes to be covered—right form the phase of access to inputs to the post production phase whereby, farmers, unlike at present, are not only able to meet their own subsistence needs but also make profits as a result of fair prices courtesy access to free and competitive markets.

In the wake of the reality that commercialization has been long talked about and now has gone on to be realized as a priority for Nepal’s agriculture sector, contract farming is a step forward and definitely worth the go.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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Food, Hunger and Nepal

food-security-nepal

 

In this year’s Global Hunger Index ( GHI) 2013 published by the International Food Policy Research Institute (IFPRI), Nepal has climbed up the ranks from 60th position to 49th position out of 120 countries which means that it has improved from the list of countries having an “alarming” situation of hunger to “serious”. The GHI is calculated based on three weighted average of the proportion of people who are underweight, the proportion of underweight children under five years and mortality rate of children under five. The number may give a positive outlook towards the food security of Nepal however, the production of food and total imports this year tell a different story. The improvement in the food security of the people has also been reflected in the NEKSAP food security report (2013 No 39).

According to the report, food security networks of seventy-two districts in Nepal has improved significantly. Food security situation improvement according to NEKSAP ( 2013, No. 37) report in January has been attributed to the summer crop harvest and the increase in household income owing to diversification of income source, increased wages and sales of high value commodities. Meanwhile NEKSAP (2013, No 39) stated seasonal improvement of food security was owing to the winter harvest crop. However, the report ( No 39) stated that a significant percentage of rural household are still consuming inadequate diet especially in the mountain regions followed by equal proportion in the hills and Tarai. Most of the affected households belong to the Dalit community and  wage laborers in the Far Western Region. The recent decline in food crop production is a subject of concern for food security in Nepal. The decline in food crop production will further harm those in the in the most vulnerable regions like the Far western hills and mountains as well as the Tarai region. Compared to other regions in Nepal, there is a greater disparity in terms of development and poverty in these areas. The vulnerability of these areas is expressed in the Multidimensional Poverty Index (2013) for Nepal which states that the Far Western Regions has a 57.7% incidence of poverty and the Midwestern with 59%. According to Gorkhapatraonline.com(August 29, 2013), rice grain import via the Birjung customs had increased by 53% owing to the inability of domestic supply to meet the demand. Rice imported amounting to 47,258 metric tones worth 1.18 billion is nearly 53% more than the import for the fiscal year 2012/13. Rice import for the fiscal year 2012/13 was 38,758 metric tones.

Majority of the rice mills in Birjung are said to rely on the rice imports from India. Furthermore, Nepal (Ekantipur, June 26, 2013) has imported Rs 11.60 billion worth of rice (420,490tonnes) in the first ten month of the fiscal year due to the paddy decline. This is higher than the projected amount which was slated at 300,000 tonnes by the FAO. Out of the total import 85.30%, i.e. Rs. 11 billion accounted for rice imports and Rs. 9.39 billion for cereal imports. The Ministry of Agriculture has projected ad deficit of rice for this year to be 900,000 tonnes, regardless of the previous year’s surplus. The NEKSAP report (2013. No 37) states decline in the overall summer crop production (maize, millet and paddy).

However when the data is looked as an aggregate average of five year production, no decline in output is found owing to summer harvest surplus in 2011. None-the-less, a point to note is that the crop losses this year were mostly felt in the Siraha District which is the main production belt. Similarly, according to official estimates, winter crop production, i.e wheat and barley for 2013/13 had shown an increase with 2% and 6% respectively, but the national crop production had decreased by 7.6% compared to last year.

Despite this, the official data stated that there was a net positive national cereal balance for human consumption (NEKSAP, 2013, No 39). These figures show the huge possibility of inflation that will likely affect the urban sector and the already struggling rural sector like the Far western region. These figures show a need to improve the agricultural sector of Nepal and to correct its declining productivity. This can only be done if the food sector is improved technologically and through commercialization. Increasing the accessibility of information regarding high value crops, agricultural goods, storage, market demand and others technologies to the farmers should be undertaken.

Similarly, the private sector should be encouraged to move towards commercialization by simplifying policies for the commercialization of farms for the agro entrepreneur’s such as leasing smaller farms to benefit from the economies of scale. Private sector should also be encouraged to invest in the procurement and distribution of chemical fertilizer business instead of providing subsidies to increase the farmer’s accessibility to fertilizers. These effective measures would ensure Nepal’s agro productivity thereby improving the overall food security of the country.

About Astha Joshi

Astha completed her undergraduate degree in Politics, Philosophy and Economics (PPE) and is working as a research assistant at Samriddhi, The Prosperity Foundation.

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‘Liberalization’ and yet ‘no materialization’

agriculture in Nepal

any other day in the field (photo by Govinda Siwakoti)

The whole deal of liberalization in Nepal came with its own set of signing these and those multilateral, bilateral and regional trade agreements and the same applies in the case of agriculture. Like many countries around the world, it was quite some decades ago that Nepal realized that there existed this global village where the best way to go about was to ensure better facilitation of the exchanges between the countries across the globe. While the world was (and has been, needless to say) benefiting from the facilitation of international trade, Nepal despite having been the signatory to quite a few of these arrangements has not been able to reap the expected benefits.

Liberalization of agriculture market would ideally mean that the tariff walls would come down; the unproductive subsidies would be done away with and the government alone would not hold the food stocks. It would also mean that the ineffective farmers would not be able to compete with the rest and would eventually be torn apart from others; and those able to compete would thrive. A market based model would run as per the demands—if a particular market in one corner of the globe (let us use Europe as an example) needs seasonal fruits a competitive market in Africa, for instance, would grow the fruits and then benefit from the trade. If the African government cared enough it would deregulate its markets accordingly and the farmers would reap benefits and so would the consumers on the other side of the world who would get quality products for much cheaper prices as a result of the competition in the market. And same would be the case with other countries if the demand in one country were to be paired with the ability to supply in another.

What then, you ask, has made Nepal lag behind in this regard? While concerns over geographical limitations, technological backwardness and the inability to compete with the international prices and mechanisms plague our system, what dominantly remains true is that though the country has signed the international trade agreement, let us say, World Trade Organization (WTO) trade agreement, it has not been able to tailor the national policies accordingly—if nothing else, it has failed largely in terms of being able to implement the same as a large divide still exists in regard to policy intentions and the subsequent outputs.

Agreement on Agriculture (AOA) in the WTO deals with all the matters of tariff, domestic support and export subsidies. It identifies massive domestic subsidies as being a major problem to international trade—as it is, Nepal government’s decision to subsidize fertilizers and be a monopolistic power in this regard has been a problem much talked on. We want trade and yet we lack export friendly policies. We want to sell our products in the international market and yet we cannot keep up with meeting the demands for competitive prices that other countries are capable of providing. We say we work in a market based economy and yet our government has been known for being centralized and monopolistic in terms of its approaches—hence, no level playing field for any potential private players who would not only have incentives to innovate but also to bring in competitive edge.

Amidst all this, the gist remains that Nepal needs not only to be a signatory to international agreements but it needs to bring alongside the needed reforms in the national policies and also ensure the implementation of the same. And despite the fact that Nepal’s major source of income is agriculture as it contributes to 35% of the GDP and a lot has been said about putting the sector as a priority, it is high time that we let the ever-so-talked-about ‘liberalization’ materialize.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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