Nepal’s vegetable sector holds great promise for generating employment and increasing the incomes of rural households. Vegetables are a major high-value crop in Nepal, contributing 9.7 per cent to the country’s GDP and providing subsistence to more than 3.2 million families. Over 5 lakh smallholders grow vegetables commercially. Nepal has a comparative climatic advantage in vegetable production - the hilly zone continues to produce vegetables during the monsoon when the Tarai of Nepal and India fail to produce. Unmet domestic demand and import substitution could enable an additional 3 lakh smallholder families to become commercial vegetable producers.

Furthermore, there is potential for export to India as the neighbouring country's demand for fresh vegetables is evident in the increase in vegetable imports every year, which jumped to US$4.02 billion in 2015/16 from US$2.28 billion in 2011/12. In the post-COVID-19 scenario, where the government plans to increase the number of jobs in the agro sector, the vegetable value chain does hold great promise.

Despite its high potential, Nepal’s farm productivity remains dismal. The current yield is extremely low compared to similar terrains in adjoining geographical areas. For example, the average yield of cauliflower in Nepal’s hills ranges from 10 to 14 tons per hectare whereas in the Indian state of Himachal Pradesh, it ranges from 18 to 23 tons.

Furthermore, farmers hesitate to participate in more profitable value chains for fear of high chances of failure. The shortage of extension services means that farmers are less likely to participate in more profitable crop varieties as they lack the skills to start them and are risk-averse. For instance, in the hill districts, switching from rice to cauliflower or tomato can increase the net profit from Rs 19,414.20 per hectare to 454,897.50 or even Rs 798,772.50 per hectare--a 20-40 times increase with only 30 pre cent more investment.

Government and partner agencies alike have experimented and tried various methods to improve agriculture extension service in order to improve agriculture productivity, but most approaches have proved to be unviable due to the high cost in public sector-focussed initiatives and the lack of incentives in private sector-based initiatives.

Nepal’s agricultural extension system is characterised by public services delivery dominated by conventional approaches to advise agricultural producers and the stakeholders. The Government of Nepal has resorted to the conventional one, working through farmers’ groups (FGs). Prior to federalism, the public sector was the major extension service provider with each district hosting one District Agriculture Development Office (DADO). Under each DADO, four to six agriculture service centres existed, which served the entire district population totalling 378 extension offices nationwide. Each agriculture outreach station serves more than 11,000 farmers; one technician is responsible for an average 1,500 farmers. In the developed countries, the average is one per 400.

After Nepal’s transition to federalism, extension service centres have increased from 378 to 753 (one per municipality), but services to rural townships are still inadequate. The local level agriculture division is focussed on subsidised distribution of plastic houses and plastic ponds rather than disseminating extension and advisory services. The needs, priorities and demands of the farmers for technical backstopping are thus unmet by the available public sector extension workforce in the country.

Another method, the training and visit, or T and V, extension system, was piloted by the government with assistance from the World Bank. The approach was well accepted initially as a means to expand extension coverage, to train farmers and extension workers and to pass on technical recommendations in a time-bound, 21-schedule visits to contact farmers. But the extension service developed a fatigue with this system. The T and V system could not be replicated in areas where donor finance was unavailable as it was costly to sustain in terms of both financial and human resources.

The tuki system of agriculture extension was introduced under the Integrated Hill Development Project. The system was implemented with the recruitment of volunteers (the tukis) to the VDCs after an intensive 15-day progressive farmer training. The tukis received four trainings in a year before the beginning of each agriculture season. The tukis were those who had high respect within the community, were zealous to help their farmer neighbours access modern technologies, who maintained their own model farms and distributed agricultural inputs to farmers and who were also interested to interact with neighbours regarding modern farming issues.

Under 1988/89 prices, the operation of the tuki system required about Rs 4,00,000 (US$ 5,469) per year (of which 20 per cent went towards the payment of tuki commissions and travel) which was equivalent to about 24 per cent of the then annual budget of Dolakha district. Due to the high cost, the system was phased out. 

The Crop Diversification Project (CDP), implemented with ADB assistance, had employed partner NGOs as private service providers (PSPs) in the commercial production and marketing of high-value crops with the 'pocket area approach' working through farmer groups. The collaborative PSPs model of extension brought positive results but ceased to function after the project ended as extension funding from the public source was inadequate to sustain the system. However, village animal health Workers (VAHWs) and veterinarians who were initially employed as PSPs have been self-employed in areas where livestock production has attained commercial scale.

Building on the success of VAHWs and with the realisation that farmers will be prepared to pay for reliable advisory services that contribute to increased productivity and sustainability of production systems for improved livelihoods, the government and its development partners are piloting initiatives that embed extension services with agro-input suppliers.

Indeed, input suppliers are central to much agricultural innovation and productivity improvement, providing improved seed and breeding stock, fertilisers, agrochemicals, feed and mechanisation. Many projects such as USAID’s KISHAN project, DFID’s Samarth Project and DANIDA’s Unnati project emphasised input suppliers as EAS (agriculture extension and advisory services) providers. They provided substantial support to input supply systems, including extending input supply system networks, to reach small farmers through village sales agents, hub-and-spoke input supply systems, retail networks and group collective purchase arrangements.

These projects are also working to strengthen the input suppliers’ knowledge about the products they sell. However, the advice they would eventually give to small landholding farmers cannot be considered objective, unbiased technical advice. Input suppliers may knowingly or unknowingly sell inputs that are not in the farmer’s interest. Some may be 'bad actors', while others do so unintentionally.

Suppliers may sell products that are of no value, for example, 'soil amendments', counterfeit products, diluted or out-of-date pesticides, products unsuited to the crop or farming system, or excess products at unprofitable levels of usage, including fertiliser in parts of Asia.

Input supplier EAS will seldom encourage the use of less of their product and rarely extend to other inputs, other crops, farm management practices, or public good EAS. Input suppliers can be an important actor in EAS systems but can be expected to provide only a limited range of EAS.

Embedding EAS in MFIs could be a potential solution to this quagmire because they are paid by users, their incentives are better aligned than agro-input vendors, and they already have good outreach. Loan borrowers who are actually engaged in an enterprise may be willing to pay a service fee to avail of an EAS. This fee can be a percentage of borrowed money. An aspiring entrepreneur keen to establish a new enterprise would be willing to pay to receive the right advice as shown by various studies.

Furthermore, An MFI’s interest would be better aligned with that of the farmer. Its interest would make the farmer’s enterprise more profitable to increase total borrowing. However, bad advice would also harm the MFI as farmers who bear the loss cannot pay the loan. Unlike agrovets, they would not be interested in selling counterfeit products, diluted or out-of-date chemicals, products unsuited to the crop or farming system, or excess product, at unprofitable levels of usage as this would increase the risk of loan non-payment.

MFIs would have an incentive to optimise usage of fertilisers and pesticides and would be more willing to extend advice to lower production cost through better farm management practices, integrated pest management or public good EAS. The incentive of the farmers and the incentive of an MFI are better aligned.

MFI also has great outreach. According to Nepal Rastra Bank, MFIs have reach in all 77 districts with 2.7 million borrowers as of mid-July 2019. Ninety-six per cent of the loan borrowers of microfinance are engaged in the agriculture sector. EAS embedded in MFIs could be scaled quickly to reach a wide population if the pilot project yields good results. MFIs normally operate in areas close to a large market and high population density. So these areas would normally be better suited for the commercialisation of agriculture as well.

Parajuli graduated with an MSc in Development Management from London School of Economics