At first glance, buying all products from the farmer might seem expensive for the government. However, it is going to be less expensive than the current grants and other ineffective subsidies. Rather it will be an investment. Eventually, the government will be buying from the farmers at a fair price and selling in the market
The development of agriculture is always therein any socio-economic discourse in Nepal. However, this sector has not received the priority it deserves. Agriculture accounts for about 30 percent of the national GDP, but the irony is that a slight change in the timely monsoon affects economic growth greatly.
This piece will analyse what is impeding agricultural growth in Nepal.
What is particularly worth pondering is the immaturity of the government policies and its indifference towards the plight of the farmers. Politically motivated and ephemeral policies – priorities and policy change with governments – have long hindered the development of agriculture in Nepal. It is not that the government does not give priority to this issue - the annual budget bestows a huge portion to this sector - but it lacks practical policies.
Currently, the government's largest support to the agriculture sector is an easy loan: subsidies on interest rates.
However, data show that this is not working properly.
Problems associated with such subsidies are lack of supervision, with people using the fund for consumption purposes; inability of small industries and households to get the loan easily; and, most importantly, security, that is, what if they default on the loan? Other subsidies or support that the government provides are agricultural grants, which have proved ineffective – so some local and provincial governments have halted the programme –and subsidies on agricultural fertilisers, seeds and other inputs.
All of these priorities of the government are not problematic on their own; the issue is that these policies are sporadic and gratuitous. None of these policies have worked well so far.
This is because generally these subsidies cannot be accessed by the real farmers in need – households and small enterprises. We need to stimulate the agrarian activities at the household and small and medium-sized enterprise (SME) level to see a structural efflorescence in agriculture.
It does not mean that big firms should be ignored.
However, big firms can sustain on their own, and their needs from the government are different from those of the SMEs – they look forward to investment securities and tax benefits.
So what are the issues largely faced by individual farmers and small and medium-sized industries? We could point to lack of foreign direct investment (this is not even needed in this sector), infrastructure, human capital and technological advancements as being major hurdles in the development of agriculture in Nepal. However, in the present case of Nepal and in the short run, they are secondary.
The primary cause is lack of market guarantee, which needs significant government support. Nepal with its current agricultural infrastructure and productivity could reduce unemployment, increase growth and stop human capital flight should the government change its policies.
Nepal has a large and significant rural population that is dependent on agriculture and remittance. But their agriculture has yet to be commercialised.
Due to lack of access to the market, people prefer to grow grass on their land to feed their cattle than produce vegetables and other seasonal crops that do not have a market. Should the government provide guarantee to buy their products, most of the people would start commercialising agriculture and stop going overseas due to unemployment in rural Nepal. If they find agriculture a profitable business, they would not leave their land.
We have seen time and again the plight of the farmers. Even during the economic downturn, farmers' products remain in the field due to market anomalies, which could force them to opt for other businesses.
Therefore, the government's way of supporting this industry and farmers has to change. That does not mean that subsidies should be withdrawn. In fact, we should not hesitate to provide huge subsidies in this sector. For that, the federal government should work on policies related to subsidies on raw materials, and guide the state and local units to implement the policies efficiently. The government should not hesitate to guarantee to buy their products in the absence of a market.
At first glance, buying all products from the farmer might seem expensive for the government. However, it is going to be less expensive than the current grants and other ineffective subsidies.
Rather it will be an investment.
Eventually, the government will be buying from the farmers at a fair price and selling in the market.
Again, it will not affect the norms of the free economy.
The government's role here is that of a broker, ensuring a market for the farmers' investment with possible forward or future contracts before starting production. This will wipe out the current three-four layers of middle men between the market and farmers, and increase market efficiency.
Why are such subsidies going to work better than current subsidies? It is because current subsidies are a total burden to the government: be they loan facilities and interest rate subsidies, or grants or subsidies on other materials of production.
However, the future or forward contracts with the farmers to guarantee a market to their products is going to be direct investment: the government will recover its investment from the market. In fact, it is going to reduce the burden and increase productivity.
It will not only increase productivity but also decrease imports while increasing exports. It will also reduce unemployment and human capital flight, and increase economic growth.
Therefore, the current need in the agriculture sector is market guarantee. Infrastructure and technology are continuous processes: such long-term investments are obviously required and deserve to be given priority.
However, alongside such investment, market guarantee will give us instant and short-run benefits on all fronts: economic, social and environmental.
A version of this article appears in the print on May 21, 2021, of The Himalayan Times.