July 2006
Sectoral

To transform the existing status of subsistence agriculture to sustainable and commercially viable lucrative enterprise requires many things to be done.

The rise and fall of agricul ture as an engine of growth in the strategic frame-work of developmental efforts of Nepal has been mercurial. Though, we swear by 70 per cent of our population engaged in agriculture and many other positive factors contributing to comparative advantage of Nepal in this sector, we are not self-sufficient in any of the crops be it cereal or cash. None of the agro-processing industry in Nepal obtains its entire supply of raw material from Nepali farmers. Despite huge investments in this sector over the years, the inconsistencies in the supply side in terms of quantity as well as quality have contributed to the break down of the traditionally flourishing rice, oil and flour mills. New ventures in the agro-sector are rare. The whole agricultural frame-work is non-commercial and non-entrepreneurial. Though, the necessity of linkage of farm and corporate sector has long been recognised, it has always taken a back seat in our action plans, perhaps because the political leadership never wanted this sector to be enlightened, vibrant, entrepreneurial and consequentially out of their sphere of influence. The tardy growth of the agricultural sector in most under-developed countries in the past has been the victim of negligence of the political leadership arising out of their vested political interests.

To transform the existing status of subsistence agriculture to sustainable and commercially viable lucrative enterprise requires many things to be done; the foremost among them is to establish proper links between the corporate world and the farming sector.

So far our agriculture is a backyard operation, very fragmented with shrinking acreage and low productivity. Society does not give much weightage to those who till the land, dignity is low, and risks are higher. But if agriculture has to play a meaningful role in accelerating growth rate of the country, the farmers need to be brought to the centre stage. This can be possible if the farmer and the industry can be made to play a complimentary role to synergise agriculture.

Industry requires quality, quantity and consistency in supply of agricultural raw materials whereas it can provide diverse inputs consistently and qualitatively to the farmers. The agricultural world is a vast empire in itself with diverse requirement ranging from seeds, equipments, pesticides, fertilisers, micro-nutrients, water and soil management technologies, credit, market, information, harvesting skills etc. to name a few and all of these can be provided by the corporate sector to the farmers in order that the latter can become technology driven entrepreneurs. Rural sector is a large consumer belt in which corporate sector is interested as manufacturer of consumer products. Moreover, the agro-based industries, which are not assured of consistent supply of agro raw material qualitatively and quantitatively, will be keenly interested in establishing linkages with the farm sector to obtain them in a sustainable manner.

The demand for agricultural products is rapidly growing world wide. The pressure on developed countries in WTO negotiation for reducing subsidies to their farmers and relaxing non-tariff barriers on imports of agricultural products from developing countries can boost export of farm products to these countries manifold within the next five years. Even among the developing countries China may emerge as a major importer of cereals in the world. Nepal can benefit immensely as least developed status country from these cross currents of change, if transformation can be brought about in our agricultural sector. But we can benefit only if we can compete with others which is possible if a collaborative approach is taken between the government, the corporate sector and the farmers to achieve efficiencies. To get access to the world market, we shall have to strike strategic alliance with international importers of agricultural product especially with Indian exporters to produce quality agricultural products in Nepal and get access to international markets. The government will have to allow FDI in agricultural sector, legislate on contract farming and set up institutions which can initiate and modulate interfaces between farmers and the corporate world.

Backward and forward market linkages with rural farmers and agro-processors will guarantee both reliable and cost-efficient inputs such as extension advice, mechanisation services, seeds, fertilisers, credit and ensure profitable market for their output.

In this context, contract farming is becoming popular worldwide under which production and supplies of agro-products are made by the farmers under forward contracts with the processors and traders. The prime advantage of a contractual agreement for farmers is that the sponsor will normally undertake to purchase all produce grown within specified quality and quantity parameters and provide farmers with access to a wide range of managerial, technical and extension services that otherwise may be unobtainable. Contract agreement facilitate as collateral for the bank to extend credit in order to fund inputs.

Contract farming is one successful example of linkage between small scale farmers and agro-businesses but there are other options being experimented successfully in many countries. The objective is to bring farmers and businessman together for a symbiotic relationship as each can concentrate on its own area of specialisation. Agriculturist confine to production whereas the processor or trader can look after the marketing.

Agricultural practices are no more the traditionally undertaken cumulative activities of tilling, sowing and harvesting and the results left to the mercy of rain-gods. It is now knowledge driven, very scientific and technological activity. But 70 per cent of our population engaged in agriculture is illiterate with no access to scientific knowledge. It is piecemeal, backyard and guided by residual approach. The government, in the past, has brought out perspective plans on agriculture many times and once again an agricultural policy is in the offing. The best would be that the new policy gives thrust to the linkage between farmers and the corporate world and visualises an active role for the corporate world in transforming the agricultural sector into knowledge based entrepreneurial commercial activity. The government should be bold enough to make critical departure from the past, allow foreign direct investment in the sector for export, provide subsidy for selective crops meant for export and invest heavily in developing infrastructural facilities such as rural roads, warehouses, agricultural product market, new techniques of irrigation etc. The government can create a few areas of excellence; which can be declared special “Agricultural Zones” through which required packages, subsidies and infrastructural facilities can be ploughed in. At this stage, what is required is not general statements on the overall development of agriculture but dictum from the government on promotional packages for selected sectors and specific strategy for commercialising Nepali agriculture.

(Agrawal is convener of Industry Committee of CNI)

Pitfalls of Rice Economy

Bhate is an abusive term in Nepali which literally means one whose sole objective in life is to eat rice. With rice as the staple, we Nepalis, are bhate in a sense. However, the principles of economics show that we cannot develop as long as we remain bhate and continue putting so much emphasis on eating and producing rice.

It is no wonder that rice is the main agricultural product in Nepal as rice is our main food and the government too has been emphasising on growing more rice. As a result, the production of rice has considerably increased - from 1.98 metric ton per hectare in 1974-75 to 2.86 metric ton per hectare in 2003-04. Though it is much lower than America's 7 metric ton per hectare, it is almost equal to India's 3 metric ton per hectare and higher than that of Thailand, one of the major rice-exporting countries in the world, where it is mere 2.3 metric ton per hectare. Yet the living standard of Nepali farmers has not improved. Why?

Income and price elasticity of demand of a staple is very low, which means people do not consume more of it if its price goes down or the income of the consumer goes up. Conversely, they do not cut down consumption of such food when their income decreases or the price of staple increases. The implication is that the income of Nepali farmers will not increase (rather it will decrease) if they produce more rice. When rice crop is good in Nepal, the same will happen in India. As a result, Indian rice gets into Nepal at a cheaper price. On the other hand, the income of Nepali farmers will not increase when agricultural production decreases. Their production will be just enough for their own consumption. They will not have any surplus to sell.

In fact no objective analysis has been made to assess whether rice farming is really appropriate for Nepal. The country's agricultural policy is based on traditions, customs and culture in which rice is accorded a high importance. Now time has come to think with a cool head.

Rice farming is certainly more expensive than other types of farming, for example, from the point of view of water consumption and water is a very scarce commodity for irrigation purpose in Nepal where most of the farming land is high up on the hills and slopes while the perennial rives flow deep down along the valleys. In addition to that, much more water is needed to cook rice and to clean the utensils and dishes. Nepal will always lag behind other rice-producing countries in the international rice market unless Nepali farmers are provided with cheap and modern irrigation facilities and other inputs. Provision of these by the government has proved an utter failure. The change in the policy allowing private sector to provide these inputs has not been effective as such policy change has been only marginal, still leaving so many hurdles on the private sector in this business. Nepali farmers have been cultivating rice not only in the plains but also in higher altitude areas in their effort to grow more rice. The result has been frequent landslides destroying lives and property every year.

It is often complained that the import of cheap rice has been harming Nepali farmers, but in a free competition market this complaint does not hold ground. If the objective of encouraging the Nepali farmers to grow more rice is to gain food security, there are alternate ways to achieve this. The best method is to increase the income of Nepali farmers. There are so many countries that are ready to supply rice at cheaper prices. Moreover, it is also suggested that Nepal should link its policy on food security to the food security policy of India. Self-anointed scholars may bitterly oppose this suggestion on the grounds of patriotic sentiment but it will be wise to consider the suggestion. There will be qualitative increase in the income of Nepali farmers if the government encourages the farmers to turn to other agricultural activities such as animal husbandry, horticulture etc. Meat, milk, wool, vegetables and fruits have high income and price elasticity of demand. The market mechanism rewards farmers if they produce more of such products. Also the farmers have shown that they are quite eager to adopt these activities if the market infrastructure is there. The example of more farmers adopting such activities in areas linked to the cities proves this point.

It is not much difficult to achieve such transformation of Nepali agriculture because it does not require a new skill or working method. Farmers who know how to grow rice also know how to grow vegetables and fruits and raise animals. The only thing the government is required to do is to make a conducive policy, establish a modern system for marketing of agricultural products and set up the legal framework, which encourage the private sector to expand in agricultural marketing and insurance facilities. Unfortunately, we have neither a favourable policy nor an appropriate legal framework. Farmers get loan from banks for farming but not for marketing their products. Marketing intermediaries, who play an important role in the modern marketing system to connect the producer and the consumer, are regarded as evil elements. This attitude has hindered institutional development of agricultural marketing in Nepal. Producers themselves have to look after marketing and distribution, so that there is no efficiency in marketing and distribution, which has been causing a lot of material loss and price inefficiency. Businessmen who store up agricultural products with the intention of selling them during the off-season are considered black marketeers and thus punished. There is a legal provision which allows farmers to buy insurance coverage for their cows they have purchased against bank loan but this is not available for the calf of the same cow. This facility is not available at all for animals on which there is no bank finance and for the standing crops.