"Have all your farmers organised"
Prof. John Mellor, world renowned agriculture economist, who through his consultancy firm John Mellor Associates, helped formulate the 20-year Agriculture Perspective Plan (APP), was in Kathmandu in November to participate in the mid-term evaluation of APP implementation. On the sidelines of the evaluation workshop, he shared his impressions about the APP implementation status and what changes should be made in the Plan current context. Excerpts from the interview:
The 20-year Agriculture Perspective Plan (APP) of Nepal that you helped to formulate was poorly implemented during the first 10 years to date. Who is to blame for this?
There are basically two problems here. The government has not put together the full implementation mechanism for the APP because they are too distracted by other issues. Now with the new government in place, hopefully there will be pressure to perform and they will be less distracted. The other problem is that a lot of the money for development comes from foreign countries/lending organisations and each has its own priority that it wants to push through. So, it is very difficult for the government to concentrate on the APP and its priorities itself when each of the donors is pushing its own priorities.
Who should be blamed for this situation?
One has to blame the government because it is their country and they need to decide that getting agriculture moving is the number one priority for Nepal . It is essential for poverty reduction and other objectives because it is so big and has such potential. The government has to tell the donors, "This is our priority and this is what you have to fund."
Since a few years, the government of Nepal has stopped providing any type of subsidy on agriculture as recommended in the APP. The poor performance of agriculture during this period has prompted Nepali economists from both the right and the left to vehemently demand the restoration of the subsidy system. Even the US and the EU are subsidising agriculture, and so does India - the immediate market for Nepali agro products. What is your advice to the Nepali authorities?
That's a very difficult question. Let me take it part by part. Having subsidies on fertilisers when the use is low is not a problem as it encourages fertiliser use. But when use grows, the subsidy becomes so large that it is a huge problem for the government. That is where the government of India is right now. They wish they didn't have such large fertiliser subsides. But they simply can't get rid of them. In Nepal , Dr. Mahat, the Minister of Finance, has taken a clear position in opposing fertiliser subsidies. I agree with him on that.
But it still creates problems in Nepal because with the big subsidies in India , the private sector cannot be competitive in importing fertilisers. So your fertiliser is mostly coming in illegally from across the border. The use is not very great now but when it gets to the million or two million ton mark, which it should, that is going to be a problem for India too. Therefore, subsidy is not a good idea but it is very difficult for Nepal when India has a big subsidy.
Now the other big subsidy issue is on shallow tube well irrigation. That's a very different issue and Dr. Mahat took a clear position on it, that is: he would like to see a subsidy on shallow tube wells. This is a subsidy that eliminates itself. You subsidise it now, get all the shallow tube wells in, and there's no more need for a subsidy. Unlike fertiliser, irrigation is a long-term investment. So it is harder for farmers to make those investments. The risks are higher; it is harder to get the capital and so on. So we need to find some way in giving a subsidy on shallow tube wells which is very economical.
When subsidies on shallow tube wells stopped, people have actually built more wells. What do you say to that?
The rate of drilling should be five times greater than what it is now. This is a central element in the growth of agriculture as mentioned in the APP; but it is not going well. Yes, there is some drilling going on and it is going on without subsidy, of course. However, some of the soft loans from donors are really subsidised, so it is a hidden subsidy in many cases. But the real problem is: Nepal needs to get the rate at which shallow tube wells are drilled five times as much per year as is going on now. And that would be much easier if there is a subsidy. This could be done without subsidies but if you don't have the subsidy, then you will have to spend much more money on the extension programme and the research programme to see to it that the cropping intensity goes up. So, the profitability of such subsidy is higher. You also have to improve the lending capacity. So, the whole lending system has to be reformed and expanded and the extension and research have to be much better. That might be the better way but if you are in a hurry, you do need some subsidies.
The major thrust of APP is to commercialise Nepali agriculture. But critics point to the high rate of suicides among the cotton farmers in India 's Vidharbha region and warn that the same could happen in Nepal if agricultural commercialisation is further speeded up. What should be the future direction in Nepal ?
Well, we are talking about commercialising small farmers. What does that mean? It means farmers who have 1 to 2 hectares of land, which is not very big. They need to purchase more inputs, fertiliser, better seeds, and small amount of pesticides for integrated pest management. This means they spend more money, double or triple their production and sell a lot. Thus they are more subject to market forces, of course. But the big problem with Bt cotton in India was planting it in rain-fed areas where the risks were too high. That was bad advice to farmers there. You need to observe that and try to avoid giving bad advice to farmers.
Now that Nepal is a WTO member, what changes are worth considering in the APP in this context?
It's very important that agriculture in Nepal should grow faster than domestic demand. How can you do that? By exporting. Compared to 12 years ago when the APP was formulated, there is now a much larger market in India . You now have 300 million people in India who belong to the lower middle income status and whose incomes are doubling every eight years. If Nepal is going to tap that market, you have to lower your cost of production. APP talks about improved horticulture varieties, use of fertiliser and use of integrated pest management in order to get the cost of production of horticulture down so that Nepali agricultural products are fully competitive in the Indian market.
One of the special features of Nepal 's agriculture is the small landholding size. What should be Nepal 's strategy to overcome this weakness to be able to compete effectively under the new system of international trade in agriculture?
The small farms in Nepal are potentially quite competitive. They have a lot of labour, and a lot of management skills, but they need to get modern technology to increase their yields. But there is one problem. Supermarkets are coming to India soon. We see Reliance Industries is going to invest $ 2 billion in this business. As soon as that's done, India will open up to foreign firms. We see Wal-Mart already doing a collaborative arrangement in India . But supermarkets cannot buy from individual two hectare farmers.
How can that be managed? It is managed by making associations of farmers. You need to have horticulture farmers' associations of 50 to 100 (maybe 200) farmers. That association will manage the quality control and deliver the kinds of quantity that supermarkets need. This is absolutely feasible. I have seen it working very effectively in many countries. The government is probably going to have to help farmers organise but they shouldn't be government associations. They should be farmers' organisations - farmer-owned and farmer-managed, but with some outside help on the organisational side. This will have to be done within the next five to 10 years.
One of the major strategic thrusts of the APP was to improve the delivery of agriculture support services such as credit through the private sector. But this did not materialise despite a very rapid increase in the number of banking institutions in the country. What should be the strategy in this regard now?
The Reserve Bank of India takes a great interest in rural credit and every 10-15 years they have a look at the rural credit system. You too should have a commission from the central bank in Nepal to look at this issue. You want a competitive system in rural areas. You want commercial banks in operation, you want an integrated specialised rural development system, and you would like to see some kind of credit union, all competing with each other. To have effective credit for farmers, you need branches of commercial banks close to them but the big problem is how you get enough volume of business. I worked on the last All India Rural Credit Survey done by the Reserve Bank of India . I saw this at work, and it is a very good system. You could talk to the Indians on that and get some ideas but you'd have to do it your own way.
Commercial banks in Nepal say it is not feasible for them to work in rural areas. Even micro credit has not made a big impact. How can we overcome this problem?
Let me give you some background on that. The APP has not been fully implemented yet. When it becomes fully implemented, farming becomes much more commercial. When the APP is fully implemented and there are shallow tube wells, fertiliser is available, and horticultural marketing is developed, farmers will increase demand for loan. At that point, lending to farmers becomes much more profitable. The Reserve Bank of India requires that commercial banks do a certain percentage of lending to agriculture. I think that's a good idea. When commercial banks open branches in rural areas, they find out that they can staff them at low cost and maybe it's not highly profitable, but they do make some profits. But it took the pressure from the Reserve Bank to push them to do that. It's that kind of pressure that you may have to consider in Nepal too. But there's no point in pushing the commercial banks into rural areas if it is not commercialising out there because there is no loan to make. The commercial banks can lend to the bigger farmers and that helps a bit but the smaller ones will still have to go to the other credit systems. Micro credit is not really for small commercial farmers. The loans are too small, the repayment periods aren't right and the interest is too high.
But meanwhile, the Grameen Bank of Bangladesh and its founder Mohammad Yunus were awarded the Nobel Peace Prize and that seems to have created a new attraction to the Grameen Bank model of micro finance. This is in spite of the unsatisfactory experience with this model in Nepal so far. What do you suggest in this regard?
I'm going to give a very complicated answer to that question. My old institute, the International Food Policy Research Institute, did a study on the Grameen Bank in Bangladesh . We found that in districts where agricultural incomes were not rising, the Grameen Bank was lending to poor people. But there was no expansion of demand of what those poor people were producing. So, the poor people who took loans from the Grameen Bank were just benefiting at the expense of other poor people. But when you went to districts where agriculture had been growing, the situation was different. There, farmers were making more money and they were spending a lot of that money on local goods and services: improving their house, buying some services, getting a haircut etc. Then, when the Grameen Bank lent to the people doing those other things, there was an expanding market and the whole thing grew.
Now the problem in Nepal is that very little of your farmers have seen increasing incomes. So the market to which the micro credit lends to has not been growing; therefore they have not done very well. So part of it is that you don't have good organisation and enthusiasm like in the Grameen Bank but part of it is that the farm incomes are not rising enough to create the market for the micro credit. What gets produced in rural Nepal is what we call 'non-tradable' goods. You cannot sell those things in Paris and London , you cannot export them. They have to be bought locally and you need rising rural incomes to make the demand for them.
How can we increase those incomes?
Now we're back to the APP. We need another million hectares of land under shallow tube irrigation. We need to get the fertiliser use up to two million tons. We need a lot more roads in Nepal and we need to improve the marketing of horticultural commodities. That's going to give this big increases in income. That will then lead to growth of the rural non-farm sector, and the micro-credit.
These days a new ideology is gaining currency. As the strategy of focusing on rural development by developing agriculture has not yielded the expected results, it would be better to focus on developing rural townships. The far-flung rural areas would then be automatically pulled up by the demand created in those townships for rural products. Are there some experiences from elsewhere to help guide this debate?
It depends on what you mean by rural townships. If you mean the eight biggest cities in the Terai or Pokhara, then yes. If you can get manufacturing going in a big way and you sell the products outside of the country, then you can generate income that will increase the demand for livestock and horticulture products and allow some intensification in agriculture.
But if you are talking about the rural market town, that's nonsense. The rural market town depends upon agriculture for its demand, not the other way round. In Nepal , agriculture still accounts for a very high percentage of the GDP and occupies most of the people. You cannot pull that big sector with a little sector. You've got to do the APP, get those agriculture incomes growing and this will make the market towns grow because of the demand from farmers.
India ITC Ltd.'s initiatives in rural areas are highly commended for its contribution in helping rural incomes grow. How feasible would similar corporate sector efforts be in Nepal ?
Getting big agribusinesses to help develop the rural areas is, of course, a very good idea and that's in the APP. But how much of the hills will ITC or its subsidiary in Nepal cover? Very small because only a small part has roads. ITC is only going to go to places with all-weather roads, not some poor track or a road that is closed during the monsoon. So, a part of the answer is that you should invest in roads, in the agricultural research and extension, and see to it that the fertiliser comes and so on.
What are the other issues in APP now?
I think there is a consensus that the government has to do two or three things. It has to appoint some sort of a high level body that cuts across ministries. This body should see to it that each ministry is doing what it is supposed to do. There should be a member in it to co-ordinate with the private sector also so that the private sector processors, input suppliers etc. know what's going on and how they could help.
Secondly, there needs to be a co-ordination system at the district level. Now you have a tendency to build a road over to these villages, electrify them, and put shallow tube wells but it doesn't add up to anything. APP has a package approach. You need to pick the best areas where you'd get a good response, see to it that all three things are done at the same time, and then expand from there. So, in the implementation, there have been two or three critical things missing. I think there's going to be a focus on getting those things done now.
Nepal also has to compete in global markets. First of all, in India but then you want to go beyond that eventually. Global markets are driven by technology. Your competitors are constantly reducing their cost of production. So you have to improve your agricultural research system. You now spend 0.1 per cent of your agricultural production on research. It should be 15 to 20 times as large as that.
But if you're going to do that, you have to focus the research on the real priority problems in Nepali agriculture. How to get better fertility, use fertilisers better, get better intensity in the cropping in the shallow tube-well areas? How to increase yields and quality in the horticulture areas? These are the three areas you need to concentrate on. The research people have to get out and do farm demonstrations and in doing that work, co-ordinate with the extension people so that they can multiply the result. To put it bluntly, agriculture in Nepal is a little backward on technology, even compared to India - let alone the most advanced countries. So you need to improve on these.
