Farm subsidies are currently at the centre of discussions in almost all spheres—government, media, civil society and non-governmental organisations. However, things are different at the global and domestic levels. At the global level, concerns emerged from the efficient administration of the subsidy system. In contrast, our discourse is about inefficiency in the subsidy programme. We are mainly concerned with two principles of subsidies—producer welfare and consumer welfare. We are hardly thinking about the principle of environmental protection or conservation and sustainability. Some countries offer subsidies to farmers not to produce anything in the context of the environment and market stability.

The competitiveness function of subsidies is another controversial matter. One school of thought argues that subsidies reduce competitiveness. Another school of thought believes that subsidies are needed to make the industry competitive. Nepal subscribes to the second school of thought. We are justifying our subsidy programme with reference to subsidies in neighbouring countries. Subsidies are also necessary to introduce new technology, but this function is poorly incorporated in our system. The principle of consumer welfare is also weakly constituted in our context. We just hear that we get cheap or quality food due to government subsidies.

The need for agricultural subsidies cannot be ruled out, but the important issues are process and beneficiaries. Many doubt whether the subsidies are reaching the target beneficiaries. A major flaw arises from a mismatch between the target audience and the process. For instance, we propose a subsidy programme for resource-poor farmers with the objective of food security. To achieve this objective, we come up with matching grants with competitive bidding. The resource-poor farmers are trapped in a vicious cycle of poverty, which implies a lower level of income, education and other socio-economic parameters. Such marginal groups may not have the capacity to prepare a proposal with sophisticated cost-benefit analysis and internal rate of return or enough resource endowments to match the grant.

The government provides millions of rupees in subsidies to relatively better off farmers. It offers agriculture and livestock insurance with a 75 percent subsidy on insurance premiums, but small farmers are reportedly facing difficulties in accessing the agriculture and livestock insurance scheme. Likewise, the government fixes the price of sugarcane which covers all costs and an appropriate profit. Also, 90 percent of the value added tax that consumers pay when buying sugar goes to the farmers.

But several reports claim that the money never reaches the farmers.

To correct these anomalies, first, the farmers need to be identified and classified. Different farmers groups have different needs. Marginal farmers need improved seeds, fertilisers, small implements and training programmes while product prices matter to small and medium farmers. In the case of big farmers, accessible credit would be more than enough. Second, a digital voucher system can be launched to ensure that the benefits reach the target groups.

Farmers will get a special bankcard which they can use to buy inputs at subsidised prices. A marginal farmer can go to a dealer, swipe the card and get a specified quantity of seeds and fertiliser free of charge. The subsidy amount will be debited from his voucher and credited to the dealer’s account. If the subsidy scheme provides a 50 percent subsidy on agricultural inputs to medium farmers, they can submit the voucher to the agro-dealer and purchase agricultural inputs at a 50 percent discount. More importantly, the voucher system can have separate accounts for seeds, fertiliser and machinery so that specific subsidies cannot be used for other purposes.

Under this system, the government will need to budget a specific amount annually and deposit the money directly in the farmers’ individual voucher accounts. Unspent subsidies can be redrawn to the central treasury or used for next year’s programme. Strict and frequent monitoring will be necessary to check misuse of the voucher. The concept of farmers’ voucher can be combined with the National Identity Card programme.

The introduction of a digital voucher system will eliminate paperwork hassles for farmers, and allow them to devote their time to doing what they do best—growing crops.

GC is an officer at the Ministry of Agriculture and Livestock Development.