The government will further study the draft Agribusiness Promotion Bill that envisages implementing contract farming in Nepal, the Ministry of Agricultural Development said on Monday.

Parliament had returned the bill after the Ministry of Livestock Development was established in December 2015 with instructions that the new ministry’s inputs should be incorporated in it.

The Agribusiness Promotion Bill is being seen as a major policy document to promote strong and sustainable farm growth with the sector suffering from labour shortages and low investment from the private sector.

“Now we have a federal system of government, and the draft needs to be reviewed accordingly,” said Agriculture Secretary Suroj Pokhrel while addressing a programme entitled National Dialogue on Status of Contract Farming in Nepal and Urgency of Drafting Contract Farming Legislation. The event was organized by Advocacy for Rights and Good Corporate Governance in Nepal.  

The draft Agribusiness Promotion Bill was prepared with financial support from Nepal Economic Agriculture and Trade (NEAT), a USAID programme, and in coordination with the government and the Federation of Nepalese Chambers of Commerce and Industry. The proposed legislation is expected to ensure market access for farmers and attract private players in commercial agriculture. Its key component is contract farming provisions.

Contract farming is a kind of supply chain adopted by buyers to secure access to agricultural products, raw materials and supplies to meet their desired quality and quantity at a stipulated time. The system also provides producers access to market and credit facilities. Buyers usually agree to buy products at a price that is established in advance. “Currently, agreements between buyers and producers are made, but they do not have any legal validity,” said agro expert Dev Bhakta Shakya. “After the bill becomes law, it will bind both buyers and producers legally, and they can claim compensation if either of the parties breaches the contract,” he said, adding that the provision would support commercial agriculture.

Moreover, the law will also address problems related to leasing land for agricultural purposes. The existing law does not deal with leasehold farming practices and land owners are reluctant to allow others to cultivate their land for fear they might claim permanent tenancy.

Current laws have been blamed for the large areas of arable land being left unused. The proposed legislation is also expected to increase land productivity through optimum utilization.

Shakya said that the draft needed to be reviewed under the federal system, but the whole process would take 10 years. “The government should realized that we are already late in implementing the law.” The Agriculture Development Strategy (ADS) that was implemented in the last fiscal year has envisaged enacting and implementing a Contract Farming Act that is expected to promote collective bargaining arrangements with multiple small farmers, protect farmers against exploitation through credit and accumulation of debt and contractors against unauthorized sales. 

A survey conducted by the International Food Policy Research Institute among ginger producers in the Western and Mid-Western development regions in 2016, shows that the average yield is about the same for contract and independent farmers, which is 91 quintals per hectare.

There is no difference in the cost of cultivation and output of ginger between contract and independent farmers, as per the study entitled Can Contract Farming Increase Farmers’ Income and Enhance Adoption of Food Safety Practices?

However, it seems that higher price realization by contract farmers makes ginger cultivation more lucrative for them. On average, contract farmers realize 40 percent higher profits than independent ginger farmers, according to the survey.

“The agriculture sector will take a great leap forward if we adopt contract farming as products will be specialized,” said agri economist Divakar Paudyal. “The government’s role will also be justified if we implement contract farming.”