Agriculture in Nepal

Nepal being an agricultural country employs more than ⅔  of the country’s population. But, contributing to 35% of the country’s GDP it is one of the highly unproductive sector. Commercialization of agriculture has been a highly publicized statement whereas nothing is actually done and issues remains the same.

The first issue I see is the financing challenge for small scale farmers. Although the policy requirement for the corporate banks to invest in the agriculture sector is minimum 10%, the banks are allocating their 2.7% of the capital in this sector. It is seen that the banks prefer to pay the fine to the investment. Also, here is a specialized Agricultural Development Bank  which provides loan to the dealers and traders but the SME farmers complain a lot on being deprived of the financing. There are commercial financial institutions which provide housing loan, auto loan at 9% but the same institution charges 14% for the agricultural loan. Government has recognized the three pillars economic model where cooperatives is recognized as one of the active contributor, but the lack of regulations and imprudence on the sector has neglected the development of grassroot agripreneurship. Simply, an interest rate of 18% and service charge of 2% encourage (total of 18% in average) wouldn't encourage  an aspiring entrepreneur who is facing the financial challenge.

Another challenge I see is on the part of insurance. I don’t know if there is any agricultural insurance policy in Nepal. I see the two major risks on the agricultural sector on two aspects: (1) Product risk: Risk involved during starting the sowing of the seeds to the shipment of the produced products. This can include risks from diseases, risks from the natural calamities, risks from theft, and etc. The risk is even more high in the production of organic products where no chemicals can be used. If a product catches the disease the whole farm is sickened. (2) Price risk. Risk involved in the uncertainty of getting the best value of the product produced. The price risk can be best clarified with the case of sugarcane pricing. The price of sugarcane is fixed after the negotiation between sugar mill owners and sugarcane producers association. Generally, the meeting is set after India fixes the price for Indian sugarcane. Their point on setting the meeting after India sets the price is to make the price of sugarcane in Nepal equal to the Indian market price so that no Nepalese farmers would sell their sugarcane to the Indian market for getting the better price and Nepal does not need to face the shortage of sugar canes. By that time, it will already be late for the sales and farmers are in rush to repay their loan taken during the chhath and dashain-depawali. Understanding this dependency, sugar mills always delay for the meeting so that it creates pressure on the sugarcane producers to lower down the price.

With all these hassles and price risk, a farmer won't get motivated for increasing the production and productivity.

The next issue I would like to highlight is the involvement of the agencies spending some much of resources in providing training to the farmers and providing them production knowledge while keeping the business development training to zero. The farmers learn, they implement and produce the products but when it comes to the sales they don’t have the direct access to the market. No one is going to purchase their product until it comes from the redundant channel. The farmers , with no options left, now have to rely on the middlemen traders for selling their products who ultimately are taking large share of profits giving the farmers petty amount of profit. The farmers now need to get empowered not only from the production methodology but also from the business perspective. They should be trained enough on aspects of quality preservation, supply chain, marketing, etc.

Another major constraint in the agricultural market is the dominance of the sector by few large markets where the price is controlled more by the things other than the fluctuation in demand and supply. Dependence of the whole capital city on one and only one large vegetable market clarifies the least bargaining power of the producers and the monopoly of few large scale of traders. Establishment of large scale alternative markets is necessary for enabling the farmers to get the best value.

Despite the constraints, there are so many opportunities in this sector which have been still untouched. With the growing middle-class population, the demand for organic and semi-organic food has been increasing. Although the business scope has been identified, the demand has not been yet catered. It is positive that like minded entrepreneurs have been discussing at this idea of serving organic/semi organic agricultural products. Green-Mart Chain project is one potential project that we (at Biruwa Ventures) have been discussing upon. Next, the financing from the seed fund capitalists like Uddhyami Impact Fund, Gazaab Ventures  fund etc. , who provide equity financing and even loan financing without any collateral raises a hope for the budding entrepreneurs who were not able to start their business because of lagging the start-up capital. Info Dev : a world bank group project is opening the first agricultural business incubation center in Nepal which will help the farmers to look at their problems, analyze them, and solve them individually. These all initiatives raises a hope for better agricultural  future, at least I see the hope.