Trade Deficit in Agriculture Sector

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Trade Deficit in Agriculture Sector

Despite being the most prioritised sector of the economy, the performance of the agricultural sector in Nepal has been poor.


The modernization of Nepal's agricultural sector is characterised by a shift away from traditional farming practices, with local seeds and breeds being replaced by hybrid alternatives and the widespread use of pesticides. These changes have brought about a fundamental transformation in Nepal's agricultural landscape, leading to the elimination of local seeds and breeds and the rapid depletion of soil fertility. In essence, the fundamental rights of Nepali farmers to control their own seeds, breeds, and soil fertility have gradually been eroded and transferred to the market.

A surprising contradiction has emerged in the agricultural sector of Nepal. On one hand, Nepali farmers are encouraged to abandon traditional farming practices and adopt modern technology. On the other hand, agricultural land has become politicised, making it nearly impossible for massive investment in the sector. The policy of land fragmentation has reduced the average farm size, making the use of machines like tractors, planting and sow machines, and combined harvesters economically unviable on small plots. As a result, the adoption of modern technology in Nepali agriculture has been limited to academic discourse. The disproportionate use of chemical fertilisers has destroyed the fertility of the soil, and the impact of unethical and excessive use of pesticides seems irreparable. The introduction of improved breeds in animal husbandry has brought about a paradigm shift. Grazing system is being replaced by cereal feed-based husbandry, resulting in a significant increase in production costs and imports. These tendencies have severely affected the food supply for human consumption. The restriction of grazing in community forests has exacerbated the situation, forcing farmers to adopt cereal-fed husbandry by abandoning grazing practices.

In the fiscal year 2008/09, agricultural inputs such as seeds, fertilisers, pesticides, and farm machinery worth Rs 7.019 billion were imported, which increased to Rs 96.7 billion in FY 2021/22. The imports also include live plants, seedlings, vegetable seeds, forage seeds, animal semen, grain seeds, animal feed, veterinary medicines, chemical fertilisers, pesticides, vehicles used in agriculture and their accessories, agricultural tools, tractors, parts, and medical equipment. This trend of increasing imports of agricultural products is surprising as it contradicts the general perception that increased capital goods can have a positive impact on production. In the fiscal year 2021/22, the import of agricultural products increased by nine times to reach Rs 379.6 billion, compared to Rs 41.4 billion in 2008/09.

According to the Development Cooperation Report, 2020/21 published by the Ministry of Finance, Nepal's agricultural sector received a total of Rs 63.35 billion in foreign aid over the past four years, with an average annual growth rate of 38%. In addition, the economic bulletin published by Nepal Rastra Bank states that Rs 29.5 billion has been collected through customs under the provision of agricultural reform duty during the past four fiscal years.

The government has allocated a total of Rs 177.36 billion over the past four fiscal years towards the development of the agricultural sector. The systematic development of agriculture began with an initial plan to spend Rs 12 million during the first five-year plan period. Since then, agriculture has been given high priority in subsequent plans. In the current 15th Period Plan (2019/20-2023/24), a proposed investment of Rs 80.97 billion has been allocated for the agricultural sector, with targets set accordingly.

Despite being the most prioritised sector, the performance of the agricultural sector in Nepal has been poor. The reasons behind this are multifaceted. Firstly, frequent policy shifts without proper impact analysis of modernization have resulted in devastating consequences. Secondly, the opening up of foreign employment has caused an acute shortage of agricultural workers Thirdly, the delimitation of land rights has hindered large investments in the agricultural sector. Fourthly, agricultural land has been politicised in Nepal, with a growing trend of forceful seizure and encroachment of land and boundaries by local goons, and larger farm sizes being depicted as exploitative and feudal. Fifthly, the prohibition of entry of domestic animals in community-based forestry has discouraged grazed husbandry. Sixthly, Nepal's agriculture is one of the least subsidised sectors in the world, which has largely eroded the competitiveness of Nepali products in the domestic and international markets.

Seventh, there is a severe lack of interest among farmers, consumers, and policymakers to develop an effective mechanism to create a win-win situation for all concerned stakeholders. The self-centric arguments and actions of stakeholders have made the problem more complicated, giving intermediaries the upper hand. The domination of intermediaries in the agricultural sector has made it the most unprofitable sector for investment. Eighth, the massive urbanisation of agricultural land is another problem in this area. Ninth, road-induced landslides in the mountain regions and road-induced flooding in the plains are causative factors behind the decrease in agricultural products. In summary, attempting to develop Nepal's agricultural sector without addressing the aforementioned aspects seems to be a futile attempt. The meaningful reform in Nepal's agricultural sector to become self-reliant in agricultural products should begin with amending the delimitation of landowner provisions.  

(Bajgain is a Senior Officer with the Trade & Export Promotion Center. The views expressed here are his personal.)

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