Agricultural Trade and Poverty Reduction in Nepal

Dr. Shiva SharmaNational Labour Academynla@mail.com.np

Presented in Media Workshop, "Role of Trade in Poverty Reduction" Nagarkot, December 1-2, 2006

What is Happening to Poverty

from 42 in 1995 to 31% in 2004 45% in rural, and 10% in urban area are poor 54% are poor among agricultural labour households 50% poor among small land holders 2/3 of Nepali poor come from small holders Poverty among Dalits about 50% Muslims 44% poor in 1995, 41% poor in 2004

What Contributed to Poverty Reduction? Remittance income—1/3 of household receive it Increase in non-farm wage income

Agriculture: Growth and investment

[1992/93-2005/6] GDP growth was 3.9% AGDP growth was 3.3%

– Public sector expenditure in agri sector (-)3.57%– Agriculture (-)5.17– Irrigation (-)5.55– Land Reform (+)4.0– Forest

(+)1.0

Investment Growth rate After APP (1997-2005)

Agri sector (-)2.5 Research (-)5.3 Extension (+)1.2 Subsidy (-)42.4 Irrigation (-)6.4 Feeder Roads (-)9.8 Rural Roads (+)11.9

Output growth rate [1997-2005]

Cereal growth 3.2 Fruits 3.5 Vegetables 4.9 Milk 3.1 Meat 3.0 Egg 4.2Per capita food production from 170 kg in 1992

to 193kg in 2005

Trade channels through which poverty is affected

income and employment effect expenditure effects arising of price changes effects on revenue—enabling higher expenditure on poverty reduction

But not that simple; these are must for impact on poverty backward linkages to resources owned by poor labor intensities of activities labor market conditions (wage, security, safety at work)

Poor with these characteristics are least affected by trade lack of assets and capital physical isolation lack of access to created opportunities

Characterizing Agricultural Export/Import

Export accounts 3 to 4% of AGDP Imports accouts 7 to 8% of AGDP Dominated by India: 70% of export; 55 percent of import

Likely beneficiaries of trade policy reforms

Market surplus of paddy 27% Market surplus of lentil 42% Top 20% of farmers account 90% of sales of cereals Subsistence farmers—lack ability to respond to price changes Little diversification Weak, fragmented markets

After reform outcomes

prices are falling-rice, fruits inputs prices are rising cheaper imports of rice from India

[productivity and subsidy high in India] supply responses weak—many reasons

[related macro policies] diversification—but who do that taking risks

(prices, inputs)? Large farms?

Policy Outlook

"Utilizing trade for poverty reduction needs reorienting production structure and developing linkages with rural resources, resources owned by the poor"

Strategic interventions to build 'supply side' capability and capacity

enabling poor to benefit from growth, trade—asset ownership; employment

subsidy tariff policy to halt cheaper imports infrastructure—example of shallow tube wells public good character of agri investment

Thank you