Why Nepal should allow FDI in agricultureThe country needs foreign capital and technology to lift it out of subsistence farming.
Nepal is now immersed in a new debate about whether she should allow foreign direct investment (FDI) in agriculture. The country's farm sector faces chronic under-investment, under-production and a severe lag in mechanisation and modernisation. For these reasons, Nepal must welcome all forms of investment in agriculture to lift it from the present state of subsistence farming and small-holding production practices. Nepal has been practising subsistence agriculture for centuries primarily due to land fragmentation, and this condition persists even till date. Post-Covid-19, the number of people engaged in agriculture is likely to increase with migrant labourers returning home. Nepal’s food supply has mostly remained import-dependent. Though no precise data is available, recent estimates suggest that the import of agricultural products continues to increase, and reached an all-time high of more than Rs250 billion in the fiscal year 2019-20.
Among several distinguishing characteristics, the herd mentality is a peculiar trait of Nepali farmers. It is this mentality that makes them choose to produce the same crop that yielded a profit in earlier times. But it becomes a major cause for suffering eventually as every other farmer chooses to cultivate the same crop. Fruits like kiwi and avocado have already reached a stage of market saturation. Hence, FDI might help in identifying areas of production which have never been tested and tried earlier. The next issue is about the presence of middlemen who rule the roost as they have access to logistics such as vehicles for transportation, denying farmers an equitable share of the prices their produce command in the marketplace. Besides the issue of food security, we have other concerns such as the edibility status of foodstuffs. Lack of knowledge about the proper use of pesticides is resulting in a poor edibility status of food, vegetables and fruits. Besides, product labelling is hardly practised.
There were several instances of milk holidays being declared due to a decline in demand for milk with resultant heavy losses to dairy farmers. This phenomenon was observed in the post-Covid-19 scenario as the domestic industry could not market and utilise their excess production. The surplus could be utilised by coming up with different product variants. FDI would, therefore, facilitate and bring along much-needed technology transfer. Should the right linkages be developed and kept in place, the FDI originating sources would become an ideal destination for exports.
Global collaboration through FDI can happen in three areas, namely investment, mechanisation and technology transfer. Technology transfer is possible in seeds, higher-yielding crops, genetically modified organisms and so forth. While technology transfer comes with the credibility of supply, the domestic market doesn’t yet seem to be ready for that. For example, the apples produced in Bajura fail to reach the market on time due to lack of agricultural enterprises. Other hassles are related to logistics and connectivity, and large investment in agriculture can help get rid of those twin issues. For attracting investment in agriculture, FDI can be limited to products that are saleable in the investment originating countries. South Korea investing in banana farming in Kailali is a case in point.
In order to decide whether FDI would really benefit Nepal, we need to explore markets internationally. To take one example, there is a huge demand for soybean in China, and Nepal has the capacity to produce it. But it lacks the knowledge to match production with the particular kind of seeds and species desired by Chinese consumers. This precisely is the reason China has emerged as the largest importer of soybean from the United States. Currently, the cultivation of some kinds of fruits like sweet orange (junar) is being done along commercial lines, hence the juice market can be explored internationally. Unfortunately, due to the lack of processing facilities, most of the sweet oranges and oranges produced locally are going to waste. Thus, there is a huge scope for attracting potential investors and building a lucrative market for investment opportunities with the introduction of blockchain technology for sweet oranges.
FDI in agriculture can also be secured for international collaboration in processing, production and storage-related spheres of activity. Farmers and those in agriculture can learn modern systems of irrigation from other countries like Israel, provided the nation moves towards economies of scale. Another problem which plagues Nepali agriculture is non-availability of adequate fertilisers during almost every planting season. This year, the issue got exacerbated as the government relied mostly on neighbouring countries. FDI can be thought of as an attractive way to get rid of this perennial problem. We can also learn that FDI has improved the quality, growth, technology and expansion of the fertiliser industry in India where investment up to 100 percent is allowed under the automatic route.
Modernisation, mechanisation and monetisation are the three phenomena that are woefully missing in our agriculture, which has always been under the control of policymakers. Policymakers need to revisit the existing policies to ensure they don’t outlive their utility and continue to stay relevant. Even if FDI were to be allowed in agriculture, it is not as though the foreign investment will spread everywhere and crowd out domestic investors immediately. However, there is an immediate need to address the concerns of stakeholders. For instance, farmers need not feel apprehensive as the amended Foreign Investment and Technology Transfer Act clearly states that a minimum of 75 percent of the agricultural produce has to be exported. This provision has essentially been made keeping the interest of domestic farmers in mind.
Once FDI becomes legalised, we can expect huge capital inflows in potential areas and crops such as cannabis. Policies, after all, are not expected to remain in force forever. To serve the interests of the nation in general and Nepali farmers in particular, policymakers can always amend them as and when the need arises. Hence, there is no need to argue against and summarily reject FDI as such decisions should be based on evidence and ground realities rather than hunches.