Policy Reform and Strategies for Agricultural Development in Nepal

by Yadav Sharma Bajagai

The Nepalese economy is fundamentally agrarian and the agriculture contributes to approximately one third of Gross Domestic Product (GDP) and the largest source of informal employment to the people.  Reducing poverty, improving food security and achieving sustainable development cannot be imagined in the agrarian economy like Nepal without inclusive development of agriculture sector. Two major requirements for the development of agriculture sector in our context are adequate investment and conducive policies. 

One of the major constraints faced by the agriculture sector in Nepal is the under-investment from both public and private sectors. Ministry of Agriculture Development is receiving approximately 3% of national budget which is not sufficient to promote adequate agricultural growth and ensure food security to ever-growing population. Out of this inadequate allocation, significant amount of public expenditure is being expended to give price subsidy in agricultural inputs mainly fertilizer. It has been also criticized that larger farmers are mainly benefitted by input subsidies rather than small and marginal ones. To get the best possible returns from subsidy policies, they should be subjected to a genuine cost benefit analysis and review. If allocated budget could have been invested in capacity building, rural infrastructure development and research in agriculture sector instead, it would have given far better results. It is experienced that producers are more concerned to easy access of these inputs than price. 

As subsidies have usually been politically sensitive agenda, it might be difficult to completely do away with them, but they should be subjected to improved modalities and management so that small and marginal farmers also benefit. 

The state is obviously not in the position to sufficiently invest in the agriculture particularly in developing countries which are in transition like Nepal. However, the government can draw other public and private sector investment by creating favorable investment climate.  As agriculture is predominantly small-scale, labor intensive and subsistence in our context; small farmers are the largest investors of agriculture. Therefore, farmers should be at the center to formulate any strategy related to agricultural development. Government policies should promote those agribusiness models which are in favour of small scale producers. 

Significant proportion of small scale farmers do not own the land they cultivate. Investment of these farmers to technology and farm level infrastructure to enhance production and productivity cannot be at optimum level unless there is perceived tenure security among these farmers. Marginal farmers cannot afford the risk of investing in uncertain rights of land tenure. This is inter alia one fundamental issue need to be addressed in our policy to increase private sector investment in agriculture and thus increase production and productivity of agriculture sector. 

Although private sector investment in Agriculture is mostly from scattered and unorganized small farmers, large scale corporate investment has been initiated in some sub-sectors mainly high value commodities like poultry and dairy. Favorable investment climate can attract corporate investors in other sub-sectors in future.  Large scale private investment in agriculture can create employment, transfer technologies and create forward and backward linkages. Although corporate investment could be the driving force for commercialization and modernization of agriculture if properly backed up by appropriate policies, there is risk that these investments may bypass small scale producers and pose additional risk to the livelihood of local communities. This can be prevented by the policy which ensures transparency and accountability of large investment. Governance of these large scale investments should be cautiously addressed in agricultural policy. 

Therefore, forthcoming agricultural development strategy should attract large investors but in the mean time interest of small farmers should be protected with due respect to the rights of small scale marginal producers. The policy should promote transparency and accountability of large investment and also ensure meaningful inclusion of local communities preventing transfer of productive capitals mainly land. Connection and relationship between large scale investors and small scale marginal producers should be a win-win model. This connection can be strengthened by mechanisms to ensure benefit sharing from large scale investment to the local communities. The strategy should promote direct involvement of local farmers in agriculture value chain. For example, contract farming regulated by appropriate and clear policy could be an option to attract large scale investment without transferring ownership of land and serving the interest of both. 

Moreover, youths are not sufficiently motivated to invest their time and money in the agriculture sector resulting either the agricultural land left barren or feminization of agriculture due to emigration of young males in search of employment. Policies to attract large corporate investors in agriculture may not necessarily motivate those youths to the agriculture sector as employment in agriculture sector is usually less attractive than in other sectors. Therefore, Agriculture Development Strategy should address this issue and create policies to attract youths in the agriculture sector. 

Thus, Increasing investment in agriculture is a must for reducing poverty, achieving sustainable development, and enhancing food security. Increased investment in agriculture will be beneficial to the country in the real sense only if the investments can help alleviate poverty and enhance food security of vulnerable communities. As government investment is not sufficient, appropriate policy and legal and institutional framework should be in place to create a favorable climate for investment. In our context, agriculture development policy should be in favor of small scale marginal producers and suitable to specific agro-climatic realities, but in the meantime, they should not hinder large scale investments capable of bringing equitable and balanced growth to the agriculture sector.

P.S. This article has been published in the Republica (http://www.myrepublica.com/portal/index.php?action=news_details&news_id=49847) of 13 February 2013.