Getting the priorities rightNepali farmers need a guaranteed market more than easy loans and subsidised inputs.
Agriculture is a term that never remains absent in any socio-economic issue in Nepal. It accounts for about 30 percent of the national GDP, but the irony is that a slight change in the timing or intensity of the monsoon affects economic growth. What is worthwhile pondering is the immaturity of government policies and the indifference towards the plight of farmers. Changes in priorities and policy with every change in government has long been a constraint to the development of this sector in Nepal. It is not that the government has not been prioritising this issue—the annual budget always bestows a large portion to this industry—but the problem is the priorities and lack of practical policies.
Currently, the government's largest support to the agriculture industry is easy credit—subsidies on interest rates. However, data shows that this is not working as expected. Problems with such subsidies are lack of supervision (people spend the funds on consumption), difficult access to this finance for small investors (small industries and households are not able to get loans easily), and most important of all, security. What if the farmers default on the loan? This industry is very fragile. In case, the monsoon is late or weak, productivity and their ability to pay back the loan could be affected. Other subsidies or support that the government provides are agricultural grants. They have been found to be ineffective, and some local and provincial governments have started halting such programmes.
All these priorities of the government are not problematic on their own, the problem is that these policies are sporadic and gratuitous. None of these policies has worked well so far. This is because these subsidies are not received by the real farmers in need—households and small enterprises. We need to stimulate the agrarian activities of households and small and medium-sized enterprises (SMEs) to have a structural efflorescence in agriculture. This does not mean that big firms should be ignored. Big firms can sustain themselves and their need from the government is different from that of SMEs—investment security and policy interventions.
So, what are the issues faced by individual farmers and small and medium-sized industries? The primary obstacle to the development of the agriculture industry in Nepal is the lack of a market guarantee which needs significant government support. Nepal, with its current agricultural infrastructure and productivity in the present form, could reduce unemployment, increase growth and stop human capital flight should the government change its major policies.
Nepal has a large and significant rural section dependent on agriculture and remittance. But their agriculture has not been commercialised. Due to lack of access to market, people would rather grow grass on their land to feed their cattle than produce vegetables and other seasonal crops for lack of a market. If the government buys their products, at least from farmers who are unable to find a market, most people would start commercialising agriculture and stop toiling overseas. If they find agriculture a profitable business, they will not leave their lands deserted and fly overseas.
We have seen time and again the plight of farmers— death due to hunger strikes to get their payment (sugarcane farmers), dumping tomatoes and other produce not having a market on the road, and selling their crops to brokers at low prices. Therefore, the governments' way of supporting this industry and farmers has to change. This does not mean that subsidies should be withdrawn. No. In fact, we should not hesitate to provide huge subsidies in this sector if needed. For this, the three layers of government should coordinate with each other. The federal government should work on policies related to subsidies and guide state and local units to implement them efficiently. The government should not hesitate to guarantee to buy their products in the absence of a market.
At first glance, this might seem expensive for the government to buy all products from farmers. However, if we do the math, it is going to be less expensive than the current grants and other ineffective subsidies. Even if it is going to be expensive, it is not an expense but an investment. Eventually, the government will be buying from farmers who are not able to find a market on their own. We should not be arguing if this is going to affect the norms of a free market economy. It will not. The government's role here is only that of a broker. The government would only be ensuring a market for the farmers' investment with a possible forward or future contract before starting production. These contracts allow farmers to sell on their own if they get better prices in the market. This will wipe out the current three-four layers of brokers between the market and the farmers, and increase market efficiency.
Why are such subsidies going to work better than current subsidies? The current subsidies are a total cost to the government, whether they are loans and subsidised interest, or grants or subsidies on other farm inputs. But the future or forward contracts with farmers to guarantee a market for their products are going to be a direct investment: The government will be recovering the money from the market. In fact, it is going to reduce the burden and increase productivity.
This is not only going to increase productivity, but also decrease imports and increase exports, reduce unemployment and human capital flight, and increase economic growth. Therefore, the current need in agriculture is a market guarantee. Infrastructure and advancements in technology are continuous processes. Such long-term investments are obviously required and should be given important priority. However, alongside such investments, investing in a market guarantee is going to give us instant and short-run benefits on all fronts—economic, social and environmental.