How does an agricultural country fail in agriculture?

Agriculture provides livelihoods for 68 percent of Nepal’s population, the data from the International Labor Organization shows. In 2020/21, it accounted for 25.8 percent of the GDP in the economy of the country. Nepal’s geography, water resources, and supply of labor give Nepal a comparative advantage in agricultural production. Given the same, the agricultural sector is considered as imperative for the growth of the country’s economy. However, the potential of the country in terms of agriculture and economic growth has not yet reached its full potential.

As per research entitled “Nepalese Agriculture: Time for New Departure” published in the book Economic Freedom – Compendium of Essays, in the past 10 years, the contribution of the agricultural sector to GDP declined by almost 10 percent, and the average annual growth of Gross Value Added (GVA) was only three percent.  More than 50 percent of the districts in Nepal are considered food-deficient by the Food and Agriculture Organization (FAO). There is also no significant contribution of agriculture to the economy. In the last fiscal year 2020/21, the Department of Customs reported that agricultural goods imports increased by more than 30 percent, taking the share of agro products in the total import bill to 21 percent. Imports increased largely due to purchases of soybean oil, cereals, and sugar. The imports have ensured food security for the people in the country, but the problem still looms large.

Why has agriculture failed? 

Some publicly known reasons affecting Nepal’s agriculture sector growth are lack of commercialization, inadequate irrigation infrastructure, poor agriculture-related marketing policies, and climate vulnerabilities. Another grave issue faced by farmers is the lack of quality inputs like seeds and fertilizers. Currently, the Government of Nepal (GoN) has allocated a budget of NPR 55.97 billion (USD 458 million) to the Ministry of Agriculture and Livestock Development, which is an increase of NPR 10 billion (USD 82 million) as compared to the last fiscal year. However, the needs of farmers have still not been met and many farmers still struggle. Farmers have not received sufficient amounts of fertilizers and pesticides from the government, which makes them dependent on the illegal market in India where they have to pay a very high price. However, even with an adequate supply of inputs, Nepal’s agriculture performance is not likely to increase substantially, as Nepal emphasizes more on the production of cereal crops, rather than focusing on other crops.

The shift from cereal crops to high-value cash crops would help Nepal unleash new opportunities in the agricultural sector, as high-value commodities have experienced faster growth compared to cereal crops. 

The country’s agricultural sector mostly prioritizes the production of cereal crops, which comprises 37.58 percent of agricultural production in Nepal. Promotion activities regarding agriculture are also dominated by cereal crops for the past decade, as it is regarded as vital for ensuring food security in the country. Paddy (rice), wheat, and maize are the three most prominent crops produced in Nepal which represent about 15.35 percent, 8.85 percent, and 6.34 percent of agricultural production respectively, and it occupies the highest portion of cultivated agricultural land. The prioritization would have been appropriate if there was a higher yielding and productivity of cereal crops. But that is not the case.

Nepal has the lowest productivity in cereal crops compared to other South Asian countries. According to the data published by the World Bank in 2018 which compares the yield of cereal crops in South Asian countries, Nepal has the lowest productivity with 2,896 out of 7000 in one hectare of field, while China has the highest number with 6,081 out of 7000 in the one-hectare field. Because of the low productivity rate of cereal crops, the value of the same crops is also expensive compared to other neighboring countries. So, to decrease food insecurity the country has to depend on foreign imports of cereal crops. In 2020, Nepal spent nearly Rs 33 billion importing rice, Rs 15 billion worth of maize, and Rs15 billion on millet.  But, because the country focuses on the production of cereal crops rather than other crops, there is a trade deficit leading to a decrease in the economy of the country.

The country has more productivity and opportunities for economic growth in high-value cash crops, compared to cereal crops. But the farmers and government rather than using the opportunity, do not prioritize the production of high-value cash crops. Instead, most of the budget allocation and priority is given to cereal crops, which, as stated earlier, are cheaper in the international market compared to the domestic market.

Another reason agriculture failed and has no significant contribution to the economy is that it was estimated that more than 25 percent of agricultural products are exported without processing in Nepal. For example, Nepal is the fourth largest ginger producer in the world and falls among the top 20 ginger exporters in the world market. But, Nepal receives the smallest amount when compared to selected top exporters of ginger in the world market. This can be attributed to a lack of value-added service, as most of the raw ginger is exported to India, which converts them into processed ginger and further exports to the world.

What should be done? 

Maybe it is not prudent for Nepal to invest in cereal crops. Resorting to imports has addressed the problem of food security in Nepal, as the price of cereal crops in foreign countries is cheaper compared to the price of the same crops in Nepal. Moreover, rather than focusing on the promotion and production of cereal crops domestically, the country has a higher advantage in high-value crop production. The shift from cereal crops to high-value cash crops would also help Nepal unleash new opportunities in the agricultural sector, as high-value commodities have experienced faster growth compared to cereal crops in Nepal.

The country should not only focus on the production of cash crops but also should try to add value-added services to the crops.  Despite the presence of numerous agro-processing plants, processing plants of high-value crops like cardamom, ginger, herbs, and others are still limited. Thus Nepal should prioritize the processing of high-value crops, which can increase the proceeds obtained from products when exported to foreign countries.

Rishab Tuladar ​​is a researcher 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. [email protected]