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Commercialization of Agriculture: Opportunities & Challenges in Nepal Sushil Rijal Executive Board Member and Chairman of Agriculture Committee Chamber of Industries, Morang

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Major Agro Product of Nepal Paddy Maize Wheat Green Tea Jute Big Cardamom Ginger Herbs

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Overview of the presentation 1. Opportunities in agribusiness 2. Policies and its implications in agriculture commercialization in Nepal 3. Constraints in agribusiness promotion in Nepal. 4. Present status of Agriculture 5. Suggested recommendations 6. Way forward

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1.Opportunities Climatic condition suitability The Country topography and natural resources Existence and potential to grow different agriculture crops, livestock and NTFPs. e.g Sugarcane in Terai Kiwi in mid hills to Tulip in Jumla. Existence of more than 7000 plant species. 750 medicinal and Aromatic plants of commercial use. Nepal a country having topography of all climatic zone from sub- tropical zone Terai to Temperate zone, the Himalayan range. It comprises of Tropical (up to 1000m), Subtropical (from 1000 to 2000m), Temperate (between 2000 and 3000m), Subalpine (3000- 4000m), Alpine (4000-5000m) and Nival zone (above 5000m)

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Opportunities Market Opportunity A. Domestic market Increasing demand for off season vegetable, meat, dairy and poultry products because of the food habit change and increase protein intake. Food grains, potatoes(2 billions) and onions (0.7 billions) are imported to meet domestic demand. Government giving high priority in addressing food security and nutrition security.

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Opportunities B. Export Market opportunity: Demand of high value organic and specialty product e.g organic foods and high land coffee in international market. Nepal is being recognized as specialty agro product producing country, e.g Ginger, Orthodox tea and Cardamom.

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2. Agriculture policies/ Favorable A. National Agriculture Policy 2061: Increase competitiveness in regional and world markets developing foundations of commercial and competitive agriculture. B. Agribusiness Policy 2063: Help to produce market oriented and competitive agriculture Promotion of domestic marketing and exports through the development of agro-industries Commercial production area Organic production area Export area

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2. Agriculture policies Agri mechanization policy 2071 Subsidy on agri mechanization/machines purchase in hills and Terai Import duty relaxation Made provisions for supply of spare parts and accessories in regular manner. Opened avenues to promote agri tools manufacturing business with incentives.

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C. National Seed Policy2056 Seed Vision 2025 Identified the role of private, NGO and public sector for producing foundation seeds and seed multiplication. Recommend rebate on tax and custom of seed business. Recommend public, private and NGO for establishing lab and certification. D. Fertilizer Policy, 2058: Pricing of fertilizer considering market forces. Promote private, public and cooperative sector for the production and trade of fertilizers. Cooperative trade on fertilizer.

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E. National Tea Policy,2057 Registration of land for tea garden as an industry. Lease government farms to private sector for a maximum of 50 years. Give privilege in reduced import duty in imports of packing materials. F. National Coffee Policy, 2060 Public and private research for coffee. Privilege on Land ceiling Rebate on custom duty on machinery.

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G. Dairy Development Policy,2064 PPP concept Private sector in involvement in Dairy Development Board. Support private sector on production, processing and trade of dairy industry. Bring open policy for developing dairy industries and pricing of the products.

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H. Regulatory frameworks Acts related to agribusiness promotion/control: Industrial Enterprises Act, 2049 Contract Act, 2056 Food Act, 2023 Seed Act, 2045 Feed Act, 2033 Pesticides Act, 2048 Cooperative Act, 2048

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3.Constraints in Commercialization of Agriculture 3.1. Production: Fragmented and small land holding High costs of production, small scale of production poor coverage & low quality of infrastructure inadequate public support Large proportion of isolated farms. Poor and inadequate supply of fertilizers 450K. Mts vs. 150K. Mts and agri inputs Agri business became less attractive to the youth resulting out migration of the youth. Cause and result is subsistence farming

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3. Constraints in Commercialization 3.2 Marketing Constraints Highly fragmented businesses Poor export infrastructure within the country and in transit Limited public supports in the exploration of the export market Traders reluctant to start the export business, Risks of trade deflections or low quality consignment. 3.2.1 Export marketing Lack of standard laboratories for certification of exportable products; Insufficient and weak plant and animal quarantine procedures to protect domestic products from getting transmitted with imported disease; Weak enforcement have resulted in large scale non-compliance of standards; and More controlling than facilitating. Requirements for grades and standards are ever increasing Certain products require health certificates, safety test marks, or standards certification of the importing country Halal Certificate Product modifications Labeling, marking, packaging Several pesticides are banned If not, MRLs are fixed( Maximum Residue Limit) tracking the level of pesticides applied to the crops in the field Government is made responsible for food and quarantine regulation

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3.3 Globalization WTO and Agribusiness Scale sensitivity Standards (quality, quarantine) Technology transfer in agriculture Plant variety Biotechnology Agro-chemicals Processing techniques Effects of policy changes abroad Competitiveness

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4. Present Status of Agriculture The situation is not very favorable and needs to give very intensive attention from the GoN to address and correct following challenges and situation. Food deficit Acute food deficit in Far-western 3 districts namely Bajhang, Bajura and Dadeldhura, Mid-western zone Humla, Jumla and Kalikot districts. 85 % of agriculture product is still for household consumption only 15 % is for commercial purpose. Low supply of chemical fertilizers 1,50,000 Tons vs. 400,000 Mts demand. It is only 21 % of the total demand (MoAD data). Seed is still sourced from informal source govt. supply is not sufficient and registration of the new seeds is not in good progress. Hence 85 % of the seeds are supplied from informal source. Only 54 % of agriculture land is irrigated and also mainly in Terai. rest are still based in monsoon rain fall. Only about 1 percent of farmers own tractors. It is almost no mechanization in Agriculture.

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4. Recommendations actions: Government sector 4.1. Quality standard and regulatory aspects: Quality control regulation and statutory law Quality control, disease-pest control and quarantine control, certification Support private sector for quality control and certification of agricultural products. e.g. Pest free certificate for Citrus Export to China (Garden and pack house) Efforts towards getting FMD free certification for livestock product export.

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Government 4.2. Investment and promote investment Infrastructure: Attract investment in Agriculture by liberal tax policies and bank interest rate: 4.2.1 Present interest subsidy 6% minimum interest does not opened the avenues for existing and new coming medium scale agri business because of limitation of 10 millions and 45 years age bar. 4.2.2 Agri business should be made tax free for at least 5 years of gestation period. 4.2.3 The bankers are still reluctant to finance agri business because of high risk. Make agri insurance more conducive to the business by setting up trustworthy evaluation mechanism e.g involvement of DCCI and FNCCI/commodity associations

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Government 4.2.3 Long-term raw material development plan a. support measures requiring the agro-industries to plan and develop supply of raw materials from domestic sources b. incentives to agro-industries using the domestic raw materials. c. Encourage private investments on local resource-based and export oriented businesses (far reaching and predictable measures) domestic foreign

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Government 4. 3. Access to the market Ensure preferential access to foreign markets including India. Lower tariffs on key agribusiness inputs like packaging materials, farm green houses, machineries, implements and cold chain equipment machines, etc. Rationalizing tariff structures on import (from all the countries )

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Government 4.4 Technical guidelines for quality control A reliable system of quarantine control and food testing should be established to ensure the export market that the products originating from Nepal does not have risk of sub- standard quality and disease-pests. a. Bilateral agreement with Indian government for : b. Mutual Recognition of the certificates. c. Harmonization of local tax and bidding process for Jute bags tender in India. d. CV duty on Pashmina Products in India Bring conducive laws in: food, quarantine, contract farming, land contract)

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Government 4. Technical backups and marketing Technical backups for enhancement of productivity and the quality Technical teams managed by the commodity associations Encourage private sector to supply technology Marketing systems that can aggregate and link small produce to traders and larger markets while maintaining the traceability of the products. Training and interaction among agribusiness operators, traders and exporters Data base on agriculture production and enterprise, analysis, projection and dissemination

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Government 5. Knowledge generation Technology generation, verification Linking the livelihood concerns of small farmers to the export market Market exploration Technical and managerial means of reducing the cost of production and handling Post-harvest technology, preserving and storing Machinery and equipment Encourage private sector in research

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Recommended activity from the Private Sector Give priority in the investment in agro business giving more focus on area expansion in cultivation, crop production and processing. Bring new technologies and inputs from foreign partners for mass production Commercialization of the research Larger scale investment for the agro processing business Market exploration and linkage development Buy back guarantee and contract farming for the mass production. Quality and quantity production at the larger extent Establishment and operation of Commercial farms Advise government for the revision of policies and act to bring conducive environment for FDI Larger scale and aggregated farming of the crops Bring joint venture investment with foreign partners and collaborate with international buyers Promotion of Nepalese niche agri products,like specialty tea, coffee, vegetables and food grains in the international market. Collaborate with GoN in creating branding for Nepalese products.

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Private sector: Producers & processors 2. Quality control Adherence to technical guidelines for quality control. Testing and certification as business register and operate under the government testing and certification system Get educated and follow the SPS/TBT requirements of export market.

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Producers and Processors 3. Technical specifications Visualize all the problems and prospects of production including the input use, variety requirements, pesticides and MRLs, inspection and quality control, farm households involved in the production process including their consumption requirements during the crop season. Packaging & labeling should be as required by the export markets

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Private sector : Exporters 1. Market explorations Explore the niche products Have information about the tariffs and non-tariff barriers in importing country Know the pre-shipment inspection requirements of the importing country Find quality, testing, treatments and certification requirements and pass on these information to the producers and processors Know if the product is eligible for entry to the country of export treatments and conditions required health certificates, safety test marks, or standards certification Get information of the product quality, quantity, production conditions of your export

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Exporters 2. Meeting the requirements Inform to the government about the problem in export market. Give inputs to the government for trade negotiations

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The Way forward Enabling Environment GoN is implementing Agriculture Development strategies for 20 years incorporating all the issues of commercialization of Agriculture and enhance the role of private sector. New directives for commercial banks investment at least 10 percent of their loan portfolio in Agriculture. Set priority to invest at least 2,00,000. Nrs at the VDC level from Local Dev fund.

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Way forward enabling environment (contd) Government investment in the Agriculture is increasing. Increasing liberalization in tax regimes, waver of agri development tax in imports of agriculture inputs New fertilizer policy is underway to incorporate more private sector in the supply of fertilizers. Subsidy in organic fertilizer production in the country.

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Way forward Enabling Environment: Subsidy in Organic Certification for export promotion. SEED Vision 2025 is formulated and, which includes role of private sector as pivotal for the seed production and supply.

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Recommended priority areas for development under the collaboration with private sector. 1. Increase productivity and value addition through commercialization and irrigation investments. 2. Improve the functioning of factors of production and marketing. 3. Reach out to the poor and increase investment in basic infrastructure 4.Insure the supply of fertilizers, seeds and agricultural equipment for all.

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Way forward Government of Nepal has been increasing annual budget for the Agriculture Development. Expected increasing investment from the private sector under joint venture and FDI.

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