Nepal’s ‘spray and pray’ approach to agriculture

It makes up one-third of the GDP, but this year’s budget failed to confer farming the importance it deserves

The Minister for Agriculture and Livestock Development announced in May that Nepal would become agriculturally self-sufficient within a year. But the government’s budget, planning and practices in agriculture are inconsistent with its announcement.

First of all, the basics are not right. We may have the inputs but not the know-how. The budgets for fiscal years 1921-22 and 1922-23 budgets predominantly focus on providing financial support to farmers rather than building a solid foundation. Last year’s budgets had allocated Rs7.6 billion out of Rs45 billion for concessional loans to farmers so they could buy agricultural inputs.

However, there is no mention of training or technical assistance in the 2022-23 budget for inputs like soil quality checks, seeds, fertilisers, pesticides, irrigation, machinery, and labour. Without training and assistance, much of the input work will remain scattered and disorganised, leading to loans going to waste. Financial grants alone do not equip farmers with the necessary agronomy skills. Overlooking this need for training may result in low yields and reduced income, and overall low productivity. The government must consider serious capacity building for farmers and agribusinesses while making the financial support accessible.

Second, there is no clear reason these days for a Nepali to get into farming. With the youth moving abroad and remittances flowing in, people have easy money for consumables, so there is little incentive to produce. Farming in Nepal is also risky due to lack of irrigation, erratic weather, low-quality seeds, infestation of pests, and a chronic shortage of fertilisers. The government first needs to find ways to lower these risks to make it worthwhile to farm or switch to commercial farming.

Read more: Nepal less and less able to feed itself, Ramesh Kumar

The previous budget had allocated production-based grants to be given to address such risk. The current budget arranges subsidies for the private sector in the processing work, and for textile industries using raw materials such as betel and banana leaf. Even so, there are no details of incentives for the private sector to come in. The government seems to have a ‘spray and pray’ approach to its fiscal duties in the agricultural sector.

There is also lack of infrastructure and a pro-agricultural enterprise law and taxation system. Although there is limited access to finance, there is no significant investment from the government's side on the variables that really matter. The risks outweigh the benefits. As a result, this will prevent the sector from functioning at its optimum.

Third, the budget does not recognise the impact commercialisation, and processing can have on the agricultural sector. Commercialisation can only be achieved with an increase in demand, which is what incentivises the farmers and producers. The government’s role is to use public money to prime the pump of the rising demand for Nepali produce and products by assisting with quality control, storage, transport and marketing.

At present, there are no grants or subsidies for commercialisation except for crop insurance and leasing of land. A move to commercialisation is vital as it helps increase productivity, yield, and effective use of farmlands across Nepal.

People will still be unwilling to farm without technical assistance and access to high-value crops, suppliers, and markets. The 2021/22 budget provided tax exemptions up to 50% on commercial agriculture income, and provisioned the commercialisation of apple farming in Manang, Jumla, and Mustang and commercial livestock farming in the Himalayan region. Despite this progress, the current budget does not address commercialization – it is one step forward, two steps back.

Read also: Corruption and Nepal’s chronic fertiliser crisis, Kaustubh Dhital

In addition, the 2021/22 budget does not have loans, grants or subsidies allocated for the processing work along the value chain which is essential to turn crops to something that is easier to store and turn into marketable edibles – increasing the economic value and appeal of the agricultural products. The current budget, however, has increased credit flow for processing businesses especially for herbs, spices and apples. But there are no details on how the government will carry out any of these arrangements. Neither budgets consider post-harvest handling, storage, or conservation that come before the processing work on the value chain, making the processing element inefficient and less productive overall.

Fourth, neither budgets help to satisfy domestic consumption or ease the process of exporting. To export, we need to have an excess. Domestic demand needs to be met before exporting abroad. Exports are important as they potentially provide a larger market and higher incomes for farmers, and incentivise them to produce more.

Nepal’s 2021/22 budget did not address exports and the current one barely mentions it, although there is mention of exporting spices and herbs, without specifying how. Additionally, there are no export subsidies or exemptions on export tax. We are passing up a chance to uplift the agricultural sector by ignoring the potential for exports altogether.

Nepal has only given lip service, and failed to treat the agricultural sector with the significance it deserves. The two budgets are inconsiderate and ignorant of what is required to develop the agricultural sector. The agricultural sector is responsible for about 30% of Nepal’s GDP. Yet, only Rs56 billion out of the Rs1,793 billion budget was allocated to agriculture and livestock development in the 2022/23 budget. If Nepal sees the agricultural sector as deserving of only 3% of its budget, this not only risks food security but also sets itself back years in terms of becoming agriculturally resilient, sustainable, and productive.

There is a lack of a coherent strategy. The budgets overlook training, processing, commercialisation, incentives, and exports, all of which are aspects that are fundamental to making Nepal agriculturally self-sufficient. In this manner, we will continue spending money but fail to reap the benefits.

Read more: A grant failure, Lokmani Rai

Jayant Basnyat was a summer 2022 intern in agricultural finance at SAFAL Partners, Kathmandu.