Nepal’s Agribusiness Transformation

  17 min 23 sec to read
 Nepal’s Agribusiness Transformation

Analysing the prospects and problems in Nepal’s agriculture development

The Covid-19 pandemic has presented Nepal with big opportunities to modernise its agriculture. But the transformation is fraught with challenges and a collaborative approach is needed to make it work.


For Nepal, the impact of the Covid-19 pandemic has been severe and it is unlike past international crises when the events had little to no impact on the Himalayan country. But even in these gloomy times when the threat of the deadly pathogen looms large over the health of the citizens and the country’s economy, a silver lining has appeared on the dark clouds of uncertainty in that agriculture can help overcome many socio-economic problems that surround Nepal at present. With the global health emergency dampening the prospects of services and the manufacturing sectors, agriculture is suddenly being seen as the sector with the highest potential for investment and job creation. “We have introduced agriculture and animal husbandry programmes targeting unemployed youths and abroad returnees. They will be able to start agriculture enterprises in groups and get concessional agribusiness loans and will also get business insurance and facilitation to access the market,” says Minister for Agriculture and Livestock Development Ghanashyam Bhusal.

In a country like Nepal where the last few decades have seen agriculture becoming a much maligned activity, it is encouraging for farmers, foreign returnees and other people from rural areas who are looking to return to agriculture, and investors who are looking to invest in areas such as commercial farming and food processing. Some prominent business houses that had started agribusiness ventures prior to the pandemic are now expanding their activities in agriculture.   

“The Covid-19 pandemic has brought agriculture into a vibrant discourse at the political, policy and operational levels, government and non-governmental sectors. As a result of the pandemic-induced economic crisis, many people who have returned to their villages and hometowns from local cities and overseas have taken up agriculture in various forms,” observes Yamuna Ghale who is a agriculture and food security analyst. According to her, due to restricted imported supplies, agriculture is being consequently viewed as an alternative not just for livelihoods but also as a profession. As of October 5, the official number of foreign returnees, who are mainly migrant workers, has reached 120,000. Similarly, people whose livelihood was affected by the pandemic-induced economic recession have also returned to their villages from cities across Nepal. Ghale says that Covid-19 thus has established agriculture as one of the most viable sectors for immediate engagement for people in the villages, including returnee migrants, for the adoption of urban farming and for finding innovative ways in agriculture inputs and food supply systems.

In what came as a big surprise to many, a latest government-commissioned study found the agriculture sector to be the most profitable sector in the country. According to the 2020 update of the National Economic Census 2018, the profit level in the agriculture sector is 55.7 percent largely outpacing the manufacturing sector which registers 14.7 percent. Businesspersons engaged in agribusiness also say that agribusiness offers good returns to investors. “Profitability in agriculture depends on crops that are cultivated and ownership of land. Nevertheless, the business of food is profitable in itself, so we should move towards food processing,” says Ananda Bagaria, managing director of Nimbus Holdings, adding, “Despite various problems, some industries such as sugar have been doing good business in the country.”  

As per the National Census 2018, there are 24,229 business establishments in agriculture, fishing and forestry and this number accounts for 2.6 percent of the whole number of establishments in Nepal. Similarly, the contribution of the agriculture sector to the coutry’s GDP currently is 27.1 percent and the livelihood of two-thirds of the population is dependent on agricultural activities, according to the Economic Survey for FY2020/21 published by the Ministry of Finance.

Agriculture Development: Easier Said than Done
Despite the newfound optimism, agriculture development remains elusive as the sector is fraught with numerous challenges. Political leaders, bureacrats and many experts seldom forget to use catchphrases like ‘agriculture revolution’, ‘employment generation’, ‘food self-sufficiency’ during speeches and discussions.  “The agriculture sector has long been a scapegoat of ineffective policies. If we look closely at the budgets of the last 10 years, we can’t see any significant changes in the government’s priority when it comes to agriculture. “Time and again, terminologies like ‘commercialisation’ and ‘modernisation’ gain prominence in speeches and discussions,” says Bagaria.

Despite being called an agrarian economy, Nepal has to rely on imports to feed its people. The country’s food import bill in the fiscal year 2019/20 reached an all-time high of Rs 243 billion which was Rs 224 billion in FY2018/19. Import of rice topped the list with Rs 23.17 billion followed by fats and oils (Rs 50.24 billion), vegetables (Rs 33.05 billion), fruits (Rs 20.74 billion) and oil seeds (Rs 19.48 billion).

“If we look at the countries in the world having high agricultural output and compare the number of people employed per hectare of land in those nations and Nepal, then we can observe our real situation. The question here is what plans do we have to provide employment to people if we are to modernise the agriculture sector?” asks Bagaria, adding, “I think the answer lies in having a linkage between agriculture and manufacturing sectors. This also means creating a market for farm produce.”

Increased Production: Stagnant Productivity
While there has been an increase in production of different types of crops and farm produce over the last few decades, the overall agricultural productivity has not been satisfactory. It is telling that in spite of the bumper harvests, the growth of rice productivity over the past five decades has stagnated at 1.5 percent. Nepal, which has one of the world’s highest per capita consumption of rice (137.5 kg) has not been able to feed its population which grew at a rate of 2.3 percent annually in those years. The Ministry of Agriculture and Livestock Development (MoALD) has estimated that the plantation of paddy will cover 1.37 million hectares across the country in the current fiscal year which was 1.55 million hectares in the last fiscal year. This indicates paddy acreage in Nepal will fall to its lowest in the last 20 years. The country’s paddy productivity is 3.5 metric tonnes per hectare which is among the lowest in the world and well below the global average of 4.7 metric tonnes per hectare.

In 2019, paddy production in Nepal reached an all-time high of 5.61 million metric tonnes followed by 5.55 million metric tonnes, which is expected to decrease this year due to severe disturbances caused by the Covid-19 pandemic alongwith the shortage of chemical fertilizers in the market. Despite the record harvests over the last few years, domestic production has not been met as the yearly demand for rice stands at 6.6 million metric tonnes.  Tradionally, paddy has remained the most important crop for Nepal as rice is the most consumed staple diet across the country.  According to official stastistics, the contribution of rice to agricultural gross domestic product (AGDP) of Nepal stands at 20 percent and nearly 8 percent to the country’s GDP.

Similarly, Nepal also imports pulses worth billions in spite of being the fourth largest producer of lentils in the South Asia region. At annunalised rates, the production, production growth and procutivity of pulses stand at 319,770 metric tonnes, 2.47 percent and 1.67 percent respectively. In the last fiscal year, Nepal imported pulses worth Rs 18.20 billion which was Rs 13.52 billion in FY2018/19. A similar situation can be observed in the area of vegetables. Nepal produces 4.2 million metric tonnes of vegetables which does not meet the demand for 4.5 million metric tonnes. In FY2018/19, the country imported vegetables worth Rs 33.05 billion, an increase of Rs 4.40 billion from Rs 28.66 billion in FY2017/18. Meanwhile, Nepal also exports some 25,000 metric tonnes of vegetables every year.

Poultry is among the few areas in agriculture in which Nepal fares relatively better in terms of productivity. The production of chicken meat which was 16,662 metric tonnes in FY2008/2009 jumped to 60,402 metric tonnes in FY2017/18; the production of eggs totaled 1.51 billion in FY2017/18 which was 620 million in FY2008/2009. Meanwhile, the annual production of fish is about 83,897 metric tonnes.  Still, the import of poultry meat and fish amounted to Rs 3 billion in FY2018/19 indicating that the increased production of poultry and aquaculture are insufficient to meet domestic demand. High value products such as tea and coffee also make up a sizeable portion of Nepal’s agro import. In FY2018/19, tea and coffee imports amounted to Rs 11 billion. The production of tea and coffee, meanwhile, was 25,205.85 metric tonnes and 530 metric tonnes respectively. Among the few export-oriented items, tea and coffee are considered to have big potential for Nepal; in the last fiscal year, the country’s tea and coffee exports were 15,700 metric tonnes and 45.81 metric tonnes respectively.

Agriculture Minister Bhusal says that the government has felt the need to shift its approach for agriculture development. “In the past, our focus was more on agriculture production and productivity.  We will now focus on increasing farmers’ access to markets and ensuring a fair price for their products. For this, various work like implementation of minimum support price, study on market management, development of necessary market infrastructure, will be carried out,” informs Bhusal. “Similarly, all local levels will be linked to the market, the feasibility of national and international agricultural trade will be studied, and farmers will be informed about the programmes. For the purpose, a structure will be set up under MoALD for which we have also arranged a budget in the current fiscal year,” he adds.

Shrinking Agricultural Land
The loss of arable land due to unplanned urbanisation and infrastructure development is considered to be the major reason for declining agricultural productivity. According to data from the World Bank, arable land as a percentage of the total land area of Nepal declined to 14.75 percent in 2016 from 16.42 percent in 2001. Though there is no exact data about the loss of paddy fields, the government has estimated that 100,000 hectares of such land have been lost in the past decade. Similarly, lack of irrigation is also another hindrance when it comes to increasing agricultural productivity as nearly half of the arable land in the country has to rely on rain water for agriculture; official stastistics show that only 56 percent of the country’s total arable land is irrigated. In the meatime, of the 4.1 million hectares of arable land in Nepal, one million hectares is barren.

Land Use Distribution
Experts stress on proper policies and actions related to land utilisation to address the problems.  “Agricultural productivity is about land, labour, and resource management. The shrinking land availability could be managed through effective implementation of the land policy making best use of all the arable land, managing resource tenure including user rights, facilitation of land use process and making land related institutions user responsive mainly to women, small holders and other users such as private sectors in operating processing zones, ware houses, auction centres etc,” says Ghale.

Though politicians have long been using the agenda of ‘progressive’ land reform and increasing agricultural productivity as tools to meet their own political objectives, things have’t changed visbly on the ground. Entrepreneurs, however, hold a different opnion on the issues regarding land reform.  “Issues in land reform are cited as hindrances to private investment in agriculture. But let us look at the sugar industry; land was fragmented even when sugar industries began to open in different parts of the country,” says Bagaria.

Agro Export: A Pipedream or Real Potential?
For a long time, the government has given emphasis to the export of agricultural commodities. However, the export of agro produce has remained dismal as domestic production struggles to meet the surging internal demand for food items.  The Nepal Trade Integration Strategy (NTIS) 2016 incorporated some agricultural goods including ginger, cardamom, tea, medicinal herbs and aromatic plants as high value exportable items. However, export performance of many agricultural goods listed in NTIS 2016 has remained below-par over the years. Except for tea and medicinal herbs, export of other agricultural goods has been satisfactory.

This situation has led stakeholders to urge the government to give emphasis to the substitution of food imports rather than increasing exports.  “It was encouraging to hear the agriculture minister saying that we should stop dreaming of exports and rather talk about import substitution. His statement was trolled in social media. But if we see it positively, then he must have realised that we lack essential infrastructure for exports and we also don’t have any inherent advantage,” says Bagaria referring to a speech made by the Agriculture Minister Bhusal at the Federal Parliament a few months ago.

He sees a growing awareness among people in the government that substitution of food imports should be the government’s priority. According to him, there are 5 to 7 major crops and farm produce - paddy, wheat, maize, potato, livestock and milk - that contribute to 70-80 percent of Nepal’s agricultural GDP. “So, we need a complete turnaround in the production of these items. We need plans to substitute import of these items in the next five years. If we look at last year’s statistics, 5.5 million tonnes of paddy was imported,” says Bagaria, adding, “We need to look into why rice mills in Nepal are closed. These topics should be areas of focus in our discourse of agriculture sector development. We talk about agriculture zones and industrial districts, but there is also a need to talk about agro processing zones.”

Experts believe that there are heaps of challenges to overcome before the country can benefit from exporting agricultural commodities to the international market. “The challenges are related to planning with immediate short and long term vision in the agriculture sector with categorized services for food crops, cash crops and other valuable crops for export market development for employment, income and food security,” she mentions.

Meanwhile, businesspersons who have entered the agribusiness in recent years see big opportunities in exporting farm produce. “Tourism, hydropower and agriculture are three major sectors for Nepal to earn foreign currency and IMS Group is engaged in all these sectors. Hydropower is lacking in terms of energy export, whereas we don’t have sufficient infrastructure in tourism. So, agriculture can be the best sector for Nepal to earn foreign currency,” opines Deepak Malhotra, chairman of IMS Group.

Private Sector Participation
The recent years have seen some business houses starting to invest in agribusiness. According to Malhotra his group saw big potential to invest in agriculture which will also help to lower the country’s dependency on import of food to some extent. IMS Agro, the agribusiness vertical of IMS Group has plans not only for domestic supply but also to export farm produce to Gulf nations including the United Arab Emirates and Qatar. Under a pilot project, IMS Agro started the cultivation of paddy, wheat, papaya, strawberry and lemon at its 25 bighas of land in Sunsari. “We will prepare a strategy to expand our market across the country from east to west next year,” shares Malhotra.

Many large business houses of today have their roots in agribusiness. From the Dugars, Golchhas, Khetans, Sharda Groups to Panchakanya Group, many business houses that have investments in various verticals started grain trading businesses moving later into food processing, industrial and other ventures. Over the years, many of them have reduced their presence in agriculture or left agribusiness altogether, but some business houses have ventured into farming high-value crops. For instance, Jyoti Group is into the production and export of coffee. The group which commenced commercial cultivation of coffee at Nirmalpokhari, Kaski in 2008 exports the processed Himalayan Arabica coffee beans to Japan. With the Himalayan Arabica coffee gaining a good market in the East Asian country, the group is expanding its coffee farming to Lamjung.

Over the last couple of years, Nepali coffee has gained popularity in the international markets. In 2016, the Himalayan Arabica Specialty Organic Coffee was named the Best Gourmet Coffee in the 2nd International Contest of Coffee organised in Paris in 2016. According to coffee exporters, the current 500,000 kgs annual production of Himalayan Arabica is insufficient to fulfill the increasing demand for Nepali coffee in the international market.

Similarly, another business group, Vaidya’s Organization of Industries and Trading Houses (VOITH) is also engaged in agro processing, tea production and animal feed production. Its subsidiary companies including Guranse Tea Estate, Mai-Illam Guranse Tea Industries and Nirvana Tea Processing and Packaging are in the business of exporting high-quality Nepali orthodox tea.

Credit Flow of Commercial Banks in Agriculture
Golyan Group is among the new entrants in agriculture. Under the brand Mato, Golyan Agro over one year ago started to supply organic farm produce at affordable rates in the market. What began as a CSR initiative in Rangpur, Jhapa has grown to become a successful business model of perennial farming encompassing nearly 1,000 farmers from 25 villages. For the collection of farm produce and market management, Golyan Group has been collaborating with the Women Entreprenuers’ Association of Nepal (WEAN) in Jhapa. Mato already has a few stores and the group has plans to open at least 20 stores in Kathmandu this year aiming to operate 100 stores across the capital valley and to also expand branches in different parts of the country over the next few years.

“Among our entire investment portfolio, agribusiness will be the biggest in the next five years. We established ‘Mato’ to start a retail business creating a big market for organic farm produce. Eventually, there will be profit in agriculture, but the growth will not achieve greater heights by just supplying products to local markets,” said Pawan Kumar Golyan, chairman of Golyan Group, during a conversation with NewBiz in August, adding, “So, we have planned to start exporting farm produce when Mato will become a certified organic brand in the next three years. Currently, we are also engaged in small exports. During the lockdown, we exported water melons and a few other farm produce.”

Currently, Golyan Group is in the process of expanding its organic farming for which it has bought land totaling 300 bighas in different locations of Jhapa. Golyan agro which has already planted crops such as paddy, fruits including strawberry, lemon, watermelon, dragon fruit, papaya and seasonal vegetables also plans to cultivate medicinal herbs, bettlenuts and bamboo. Similarly, the company has planted local rice breed ‘Kalanamak’ in 190 bighas in Jhapa and Bardia districts collaborating with the local farmers. Golyan Agro plans to take up rice plantation in 1,000 bighas by next year. Besides this, the company is also preparing to produce plant seeds to end the dependency on imported seeds.

While these initiatives are commendable in terms of setting a new direction for Nepal’s agriculture development, much needs to be done from the government’s side to attract the private sector into agribusiness, say experts. “The foremost important need is to clarify and state the position in defining what kind of agriculture is to be promoted. The unbundling report is yet to be clarified for the provincial and local governments to take up their roles and responsibilities including the private sector. Likewise, policies related to the role of the private sector have to be defined explicitly,” states Ghale.

No comments yet. Be the first one to comment.