– This article was originally published by Roopali Bista in the Himalayan Times on the May 12, 2019.
Nepal is an agricultural country if we look at the labor force involved in the sector. Almost 66 percent of the people are directly engaged in farming, according to Food and Agriculture organization (FAO). Whereas, its contribution to Gross Domestic Product (GDP) is only about 23.8 percent. This translates that two third of the people are engaged in the agriculture sector but the contribution to the GDP is less than one quarter.
The agriculture that is done in the country is mostly of subsistent in nature and commercial farming is still struggling to take off. There is a need for Nepal to turn the present status of subsistence agriculture into robust, vibrant and commercial agriculture. This can not only improve the productivity of the agricultural sector but could also address the problems of trade deficit, food and nutrition insecurity, income generation, poverty reduction, and employment generation.
There is an urgent need for Nepal to come up with functional, pragmatic and implementable agriculture plan and policy to harness the huge possibility of agriculture commercialization to meet the consumption demand per se within and outside the country. The major problems that exist in today’s agriculture sectors are there are too many middlemen involved in the supply chain, which gives only a small share of the profit of the produce to the farmers. The farmlands are still being cultivated by using primitive tools like sickle and spades which results in lower yields and makes it labour intensive, therefore, there is a need for technological advancement and mechanization in this sector. The agricultural sector is mostly dependent on the monsoon rain, the productivity of the sector directly correlates with the climatic condition which causes volatility in the agricultural yields. Though there are various financial assistance and subsidies provided to the farmers by the government itself, it has not translated to huge investment in the agricultural sector and has not shown desired results.
Introducing contract farming and having proper laws and acts to guide it could be one such possible approach to improving the agricultural sector. Contract farming is a system for the production and supply of agricultural produce under forward contracts, the essence of such contracts being a commitment to provide an agricultural commodity of a type, at a time and a price and in the quality required by known buyers, it basically involves four things: pre-agreed price, quality, quantity or acreage and time.
The major advantages of contract farming are that it helps farmers connect with the buyers and mitigates the middlemen involved. It helps to reduce the unpredictability of agriculture by giving farmers the possibility of knowing in advance when, to whom and at what price they will sell their products. It reduces the risks associated with fluctuating prices, and can also help protect farmers against losses associated with natural disasters and climate change as these risks can be shared with the buyer under a contract. The buyers will also provide access to inputs including finance and technical assistance which will increase yields of agriculture, which in turn will increase profits of the farmers. Another advantage for Nepal could be that the resources being spent by the government on buyback guarantees provided to the farmers and on various financial and technical supports can be used in other sectors.
However, contract farming comes with its own disadvantages too. Flexibility to sell to other buyers when price of the produce increases is not possible. There can be a risk of indebtedness from the loans provided by the buyers. For the buyers, the transaction costs can be high from contracting with many small farmers. There can be a breach in contract by either parties and dispute may arise.