–Ashansa Mulmi
Ms. Mulmi is a research intern at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. Author can be reached at Ashansa Mulmi [email protected]
The Nepal Trade Integration Strategy (NTIS) has once again listed Medicinal and Aromatic Plants (MAPs) as a top exportable commodity in 2023. Yet, despite this promising news, the present scenario paints a grim picture of untapped potential and missed opportunities. The entire sector grapples with various problems, mirroring the struggles of the nation’s agricultural industry.
One of the most significant hurdles is the presence of non-tariff barriers. The barriers are put into place since the public health aspect of these products makes them highly sensitive towards safety and quality standards. Notably, American and European nations – the major importers of MAPs – uphold strict quality standards and Sanitary and Phytosanitary standards (SPS) which Nepali goods struggle to meet, leading to inconsistent exports. The Plant protection directorate under the Ministry of Agriculture, and the Cooperatives Department of Agriculture issues quality certifications. But, problems of inadequate technological infrastructure and a lack of skilled human resources to operate present testing infrastructures plague the output from the facilities.
The present system is not compliant with the World Trade Organization SPS Agreement as it is not risk-based and does not include examination under controlled environments. The inspection and testing facilities require trained personnel, a challenge compounded by frequent staff rotation and their migration to better opportunities outside of government agencies. In some instances traders have resorted to sending their samples to testing facilities in Germany and India to acquire globally recognized quality certificates. This process imposes additional cost burden to the traders, leaving economically disadvantaged traders with a supply but no viable market. It is imperative that highest priority should be given to review and solve the bottleneck in phytosanitary capacity needed for negotiating improved market access
Over the past decade, India has been our primary export destination. However, a significant challenge in exporting Nepalese MAPs to India stems from the limited number of items allowed under Schedule VII of India’s Plant Quarantine Order 2003; out of 80 items only 17 are permitted. For the remaining products, India requires phytosanitary certificates that are not recognized, leading to product inspection at border checkpoints that extend the turn-around periods, may refuse entry, and even invite rent-seeking behavior, all of which increase the transaction costs.
While Crude MAPs are the major exports of the country and are eligible for preferential treatment under the Treaty of Trade with India, this benefit is limited to products manufactured by small scale units. An “Additional Duty” is imposed on products manufactured by medium and large-scale units, hindering the export of higher-value items.
Nepal primarily competes in the segment with the least value addition that has the highest degree of global competition. However, solely relying on exports of only raw materials places Nepali farmers and traders in a challenging position. As competitors incorporate new technologies the competition intensifies. This has rendered Nepali MAPs far less competitive, a trend that echoes throughout the agriculture sector of the country. A fine example would be that of Yarsagumba, which we export majorly to China who imports it for its medicinal properties. The average cost incurred in harvesting comes to $270 per kg while the selling price can range anywhere up to $30,000 per kg within Nepal. However, when the products reach China, it gets priced at $100,000 since they meet the international demand for great quality products. The global market value of MAPs has been assessed up to $11 billion, and it is clear Nepal is currently unable to reap the benefits of this opportunity.
The pressing matter is to enhance the quality of the testing facilities, which could be done potentially through foreign investments or partnerships with internationally recognized certification bodies. This could lead to positive spillovers such as the transfer of technology, ultimately strengthening the domestic capabilities over time. As our quality standards gain international recognition, Nepali harvesters and traders will be better equipped to negotiate higher prices on the global stage. This recognition holds the potential to significantly elevate the competitiveness of Nepali MAPs, fostering growth and prosperity in the sector.