Regional Workshop on

Agricultural

Transformation:

Challenges and

Opportunities in South

Asia, February 10-11, 2015

Accelerating Growth in Agricultural

Productivity and Profitability

Bishnu Pant, IIDS

Background

• Associated with low level of economic growth, Nepal is characterized as a

country with a large rural population, high poverty rate and subsistence

agriculture.

• Agriculture plays most important role , as almost two third of country's

population rely on agriculture for employment and contributes about one

third of national GDP , and is the main source of food, and income for the

majority of the people. In 1990/91, agriculture contributed to 48 percent of

total GDP, which declined to about 34 percent in 2012/13.

• Hence this sector is most crucial for country's development and is key in

issues of economic growth, poverty alleviation, better living standard of the

people and overall human development.

Agricultural Growth and Sustainability

• The agricultural growth has observed inconsistent growth pattern during the

last three decades (1980/81-2010/11).

• The production of cereals over this period increased by 2.25 times (Paddy

1.80 times, maize 2.78 times and wheat 3.66 times). Where as the yield rates of

these cereal crops during this period increased respectively by 1.54, 1.40 and

1.86 times, there by implying that technology has not contributed much in

enhancing the agricultural productivity in Nepal.

• An idea about the increase in production of major cereal and other crops and

related developments during this period can be seen from the following table,

which shows that there has not been any significant growth in both production

and productivity of major cereal crops. Table 1 shows positive growth in

paddy productivity from mid eighties until few years back. Lately growth rate

of paddy seems to have stagnated. Table 1 also shows some positive growth in

the productivity of maize and wheat since 2005/06, but they are not quite

significant. This implies that agricultural growth in Nepal is not sustainable.

Contd…

Table 1: Yield of Paddy, Wheat and Maize (in metric ton/ha)

Year Paddy Yield Maize Yield Wheat Yield

1984/85 1.97 1.42 1.18

1990/91 2.41 1.61 1.41

1995/96 2.39 1.68 1.55

2000/01 2.70 1.80 1.81

2005/06 2.72 2.05 2.07

2010/11 2.98 2.28 2.27

2011/12 3.31 2.50 2.41

2012/13 3.17 2.35 2.29

Source: Economic Survey, various years

Contd…

• Table 2 shows the status of chemical fertilizers and improved seeds over

the years.

• There has been highly inadequate use of agricultural inputs in Nepal. The

present level of chemical fertilizer consumption is highly unsatisfactory.

Government does not seem to have adequate capacity to supply the

increased fertilizer demand in the country, which is about a million ton a

year.

• Likewise the use of high yielding varieties of seeds has not been

encouraging. Total sale of improved seeds was 2946 metric ton in

2012/2013. There has been sharp increase in the demand of improved

seeds by the farmers. The supply of improved seeds will have to be

significantly increased to meet the increased demand.

• Investment in irrigation has also been very minimal with the result that

only about 31 percent of total agricultural land is currently irrigated.

Contd…

Table 2: Status of chemical fertilizer and improved seeds (in metric ton)

Year Chemical Fertilizer Improved seeds

1984/85 42829 2116

1990/91 72719 2275

1995/96 70154 3343

2000/01 23623 1894

2005/06 8136 3514

2010/11 29604 4192

2011/12 45672 2348

2012/13 145653 2946

Source: Economic Survey, various years

Declining Profitability of Agriculture

• Dramatic increase in food prices in recent times might also lead one to believe

that farming is a profitable business. However, in Nepal, while large farmers are

net sellers of food grains, small farmers who constitute a major percentage of

farming population are net buyers. This means that as food prices increase, large

farmers make bigger profits while smaller farmers are forced to shell out more

money for their food.

• Numerous reasons have been cited for this decline. In 1970s and 1980s, High

Yielding Varieties (HYV) of crops, most importantly rice and wheat, were

adopted mainly in Tarai and low lying hill districts and led to increased

productivity. Although these crops required higher inputs of chemical fertilizers

and irrigation, they had much higher output than traditional varieties.

Furthermore, government promoted these crops by subsidizing fertilizers and

providing extension services to the farmers.

• However government withdrew these subsidies in 2002/03. At the same time, the

government made some policy changes regarding agricultural extension services.

Since about a decade ago, there has been sharp increase in the migration of

agricultural labor force, there by causing sharp increase in the labor wages.

Besides, the fragmentation of land holding over the years has contributed to

decline in productivity.

Contd…

• All this means that while farmers spend more money on growing their

crops, their total output and therefore their profit has continued to decline.

The following Table 3 shows the operational average cost and net profits

of selected crops.

Table 3: Average Cost and Net Profit of Selected cereals

Contd…

• With the shortage in supply of agricultural labor, farmers are getting

disincentive to opt for cereal farming as the cost of production increases

with the hiring of expensive labor.

• In the recent years, vegetable farming has been a lucrative business with

the increasing demand . Table 4 shows the average cost and net profits of

the selected vegetable and spices farming:

Vegetable and

Spices

2009/10 2012/13

Cost Profit Cost Profit

Potato 439 194022 904 107173

Chilli 287 2496945 415 288529

Tomato 292 207086 559 319909

Pea 226 184679 683 178918

Cauliflower 359 164800 452 216071

Cabbage 179 140371 310 235832

Ginger 1056 266737 2835 327929

Garlic 667 1170346 1503 1219081

Onion 289 134455 387 170578

Source: Statistical Information on Nepalese Agriculture, Cost in Rs./Qt and Profit in Rs./Ha

Programs and Policies

• Some efforts being made by the government towards addressing increasing cost of

agricultural production in Nepal. Since the last few years, there has been sharp increase

in the agricultural labor wages in the country. Higher labor wages have significantly

contributed in escalating cost of production to a large extent.

• Farm mechanization policy has recently been initiated in the country. However, it

needs to be effectively implemented. Introduction of efficient farm equipment and

mechanization can help not only in reducing the cost of cultivation, but also in

increasing profitability in the agricultural production.

• There is also need to aggressively adopt climate smart new seed varieties for

improving agricultural productivity as well as to enhance pest and disease control in

farming. The use of hybrids in rice and maize is increasing dramatically particularly in

Tarai and accessible hill pockets. NARC has limited capacity and programs to produce

competitive hybrids to date. Promoting private sector in hybrid seed and commercial

seed business at the remote and community levels is urgent.

• MOAD has, over time, brought out a number of programs and policy guidelines

including agricultural development strategy (ADS), seed vision, NARC vision, etc.

There is a need to effectively implement these guidelines so that they will be able to

address the problems related to cost of production there by improving the profitability

in agriculture in Nepal

Issues, Challenges and Recommendations

• Nepal lacks adequate road networks connecting production pockets to market

centers. Agricultural roads contribute to reduce transportation costs and increase

profitability in agriculture. Government will have to give highest priority in

constructing agricultural roads in every districts specially in connecting major

production pockets to market centers.

• AICL does not have necessary capacity in supplying increased fertilizer demand

in the country. Involvement of private sector, preferably under PPP model, in

producing, importing and distributive fertilizer is important. Likewise, effective

seed planning including seed production, marketing and pricing, performance

monitoring and promotional activities of superior varieties (OPVs and hybrids) is

completely lacking and will have to be sufficiently addressed.

Continued......

• As there is shortage in supply of agricultural labor, government needs to

intensify effective implementation of farm mechanization policy. Introduction

of mechanization policy can help not only in reducing the loss due to

outmigration of agricultural labor force but also in contributing to reducing cost

and maximization of agricultural profits.

• Investment in Research and Development in agriculture is imperative since the

dynamics of farming is changing. Agriculture research is an engine for

agricultural growth if it generates and disseminates agricultural technologies

that farmers can accept and that increase food production. The agricultural

research in Nepal suffers from highly inadequate research funding. The

government must consider providing adequate funding, fill up scientists' vacant

positions and develop necessary infrastructure so that they will be able to

continue research and contribute to the improvement of agricultural production

in the country.