Making agriculture competitive

BY: Bhairab Raj Kaini

Nepali agriculture has to compete with the highly subsidized and commercialized agriculture of China and India. Therefore, Nepal needs to identify niche commodities and commercialize these products through appropriate technologies. Nepal, which is situated in the central Himalayas, has many comparative advantages in the agriculture sector, especially for horticulture and livestock due to its climatic suitability and access to big markets of the neighboring countries.

The mid-hills of Nepal having a sub-tropical type of climate with warm and humid summer and frost-free spring and winter provides many comparative advantages to produce high-quality citrus fruits, coffee, orthodox tea, ginger, vegetable seeds and off-season vegetables. Similarly, mountain areas are popular for apple, medicinal and aromatic plants, yak and sheep. The high elasticity of demands for these products in both domestic and international markets is another comparative advantage.

Currently, competitiveness of agricultural products from Nepal is low due to poor infrastructure, weak governance, weak quality and safety control, low technology, limited capacity and human resources, and difficulty to access credit to do business. Agricultural products can be made competitive by addressing these constraints and taking comparative advantage from the diversified ecological conditions along with increasing productivity and profitability through value addition and improved market connectivity.

However, taking advantage of such potential is limited by high transaction costs stemming from the deficiency of economies of scale in aggregation. Small farmers generate small marketable surplus at scattered production units and pockets. Grading and quality standards are lacking. It is a costly business for small and scattered farms and agribusinesses to comply with the demanding sanitary and phytosanitary regulations and to meet other non-tariff measures, such as labeling and packaging.

As a matter of fact, agriculture offers Nepal the best opportunity to spur economic growth. However, such growth requires a significant increase in agricultural productivity, along with the expanded and sustained integration of smallholder farmers into agricultural value chains so that they have a greater impact in the marketplace. These farmers also need better access to services and agro-inputs.

Therefore, firstly there is a need to intensify agricultural production to boost the yields, leading to increased food availability at the household level and larger marketable surpluses that generate higher incomes. A key to intensification is the adoption of new technologies along with the application of more nutrients to crops as they grow in the fields. In this context, China can help Nepal by providing new technologies of production. Plant nutrients mostly come from mineral fertilizers and/or from locally available soil management practices including manures and organic stuff. Likewise, farmers must be able to access adequate amounts of high-quality production inputs.

Another way to make agriculture competitive is to help smallholder farmers and entrepreneurs integrate into value chains that increase their participation in the marketing process. However, integrating them in the value chains is challenging because of poor market infrastructure, informal networks of trade and information exchange. But, Nepal has to address these issues for strengthening the competencies of the various stakeholders in the value chain. Then only, smallholder farmers and entrepreneurs will be integrated into local, national, and even regional value chains established for specific commodities. In order to enter the regional value chains, better understanding among neighboring countries is vital.

Commodity-based value chains not only empower farmers to shift from subsistence farming to an entrepreneurial business but also give them the tool they need to take ownership of the process. Farmers are better linked with suppliers and processors to produce the specific goods consumers want. Realizing this fact, the Agriculture Development Strategy (ADS) has developed value chains for 35 commodities and prioritized 10 for implementation during its first phase.

Existing institutions also need to be made innovative to facilitate reduction of costs and risks and promote the local resource-based technology. Institutions encouraging collective actions of small farmers, development, and spread of grades and standards, responsive R&D, effective market information, weather-based insurance, etc. are the needs of the day for making high-value agriculture competitive in the markets. Empowerment of farmers groups and cooperatives to effectively carry out collective actions and to advantageously connect to the market value chains should be given high priority. These are important in promoting vertical coordination between farms, firms, and forks to reduce transaction costs and market risks, and to facilitate trade.

In addition, Nepal lacks an adequate legal and institutional system for the certification of products. Development of such a certification system is equally important if Nepal wants to promote the export of agricultural products.

Remoteness is one of the challenging issues for making Nepalese agriculture competitive. The level of connectivity required for the diversification and commercialization of agriculture is still too low. The average travel time required for rural households to get connected to facilities and markets are prohibitively long. An average household needs to spend more than two hours to reach the nearest road head and over four hours to the nearest market centers. That is why the speed of linking production areas to the markets with all-weather roads needs to be increased.

(Kaini is a horticulture expert based in Kathmandu)

(Photo: Xinhua)