Concerns raised about foreign investment in agriculture, but it is needed, stakeholders say
Dhankuta farmers grow cabbage, primarily for export to India.
Kathmandu Post | 9 January 2021
Concerns raised about foreign investment in agriculture, but it is needed, stakeholders say
by Sangam Prasain & Krishana Prasain
In December 2017, the National Planning Commission held a discussion with Qatari officials on short- and medium-term opportunities to export for Nepali agricultural produce to Qatar as countries of the Gulf Cooperation Council imposed a blockade on the natural gas-rich nation.
The Qatari government had asked Nepal whether it can export organic foods—particularly green vegetables and dairy products—on a long term basis that would be worth over $2 billion annually.
The planning commission, the apex body that frames the government's development policies and programmes, was just clueless about the Qatari government’s proposal as there is no commercial farming in Nepal at such a scale.
Subsequently, the Ministry of Agriculture and Livestock Development decided to hold talks with private traders and producers whether they could meet some of the demand.
There is where the matter rested: on the table.
The demand for organic vegetables and spices in the Gulf Cooperation Council countries—Qatar, Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates—as well as India and Bangladesh is so high that it cannot be met by small shipments, according to an official at the ministry.
Officials estimate that Nepal has the potential to export agriculture products worth over $5 billion annually and this would narrow the country’s ballooning trade deficit.
“But Nepal’s agriculture sector needs a massive investment to meet the export demand. Our agriculture based on traditional methods cannot even feed our population,” said an official at the ministry who did not wish to be named. “Nepal’s agriculture needs a drastic shift from traditional farming to mechanisation. And for this foreign investment is necessary.”
But now the government has decided to open Nepal’s agriculture sector—primary production—for foreign direct investment by allowing 100 percent of investment. At present foreign investment is allowed only in processing of farm products.
Ironically, the decision comes as the blockade on Qatar has been lifted.
“The move [allowing FDI in agriculture] is aimed at creating a positive impact on export trade,” said Narayan Prasad Regmi, joint-secretary at Ministry of Industry, Commerce and Supplies.
“It will help increase agricultural production, enhance productivity through the latest technology in Nepal’s agriculture sector that has underperformed despite a good geographical location,” Regmi said.
Sections of the agriculture sector have already opposed the government decision.
On Tuesday Nepal Dairy Association, Dairy Industry Association, Central Livestock Rearing Association, Nepal Fisheries Association and Central Dairy Producers Association jointly organised a press meet criticising the government’s unilateral move.
Radha Krishna Sapkota, president of Nepal Dairy Association, said that foreign investment in the primary production is not acceptable.
“We are close to becoming self-sufficient in dairy, poultry and fisheries and the government is allowing foreigners to produce and sell,” Sapkota said.
According to Sapkota, the private dairy sector has investment of more than Rs30 billion, providing employment for 30,000 people with 600,000 farmer families directly associated with it.
“There is no lack of capital in the sector and new dairy industries are using the latest technology and we are 80 percent self-reliant on dairy products,” Sapkota told the Post. “Therefore, there is no need for foreign investment in the dairy sector.”
But officials argue that this fear is unfounded as the amendment to Foreign Investment and Technology Transfer Act, 2019 (FITTA) clearly says 75 percent of the produce through foreign investment has to be exported.
“Since 75 percent of the produced goods should be exported, it will not impact small farmers,” Regmi said.
As per the amendment, foreign investment is allowed in animal husbandry and livestock, fisheries, beekeeping, vegetables and fruits production, pulses, oil seeds, dairy business and other primary crops production.
Sashi Poudel, a farmer from Tilottama Municipality, Rupandehi welcomed the government’s decision to allow foreign direct investment in the primary production activities.
Poudel, who rears 550 cows at his farm in southern Tarai plains, said foreign investment is necessary because small investment, with limited resources and traditional methods, would not create a bigger impact on the economy.
“We need mass production that will create jobs and increase the income of farmers,” Poudel told the Post. “The entry of multinational companies will make Nepali products competitive in foreign markets.”
He also rubbished dairy entrepreneurs’ fears that Nepali farmers will be adversely impacted.
There is no reason to criticise the entry of FDI because in the dairy sector Nepal has been facing “milk holiday”—when farmers throw tonnes of milk on the road—quite frequently because farmers are not getting market for their produce, according to Poudel.
Nepal’s private dairy sector has been against any government plan that could be a potential threat to their business.
In 2013 and 2017 when the Dairy Development Corporation made plans to enter the market in Pokhara, the private sector launched a protest against the plans and the government entity had to back out.
India’s world famous Amul brand that produces dairy products has long wanted to come to Nepal but efforts have been thwarted by the dairy lobby.
“Amul India has huge interest in Nepal and last year the government stepped back from its decision to bring the company to Nepal following the pressure from the private sector,” said Sapkota.
Former commerce secretary Purusottam Ojha is not surprised by such an argument.
“The private sector in Nepal itself is preventing FDI and their longstanding cartel in the market remains intact,” Ojha told the Post. “It’s a basic market principle: only those who can compete will survive in the market.”
Meanwhile, farmers like Poudel would welcome international players in the market.
“The entry of FDI in the farm sector will benefit dairy farmers as they will get a premium price for their product,” Poudel added.
It is not only for dairy but all Nepali farm produce that Poudel thinks will have a huge market with foreign investment as it would bring the technology necessary to increase production.
“The export potential of Nepali farm products is huge in the global market,” he said. “The existing production methods would not make the country self-sufficient and exporting them is a far cry.”
Studies have corroborated Poudel’s view.
Nepal’s vegetable export potential largely remains untapped, according to a study by the South Asia Watch on Trade, Economics and Environment.
The report said that both the public and private sectors had not made serious efforts to promote Nepal’s products globally. Investment is the major hiccup.
Nepal's eastern hill districts have been exporting thousands of tonnes of cabbage to India as demand for organic vegetables continues to grow. Because of the favourable climate and the fertility of the soil, farmers in the eastern hill districts do not use much chemical fertilisers and pesticides to grow vegetables commercially.
In a recent interview with the Post, Laxman Bhattarai, manager of the Agricultural Commodity Market Management Committee, Dharan, said the value of the cabbage exported to India annually alone stands at around Rs500 million.
But what is exported is just a tiny fraction of export compared to the potential Nepal’s hills and mountain regions hold, according to officials.
Agriculture Ministry officials say that among three geographical belts—Tarai, hills and mountain, Nepal has huge tracts of underutilised land in the hills where millions of tonnes of organic fruits and vegetables can be produced.
They say that Karnali province alone can produce apples to the scale that meets the South Asian demand.
But instead, due to the shortfall in production, Nepal’s import of agricultural products has been growing at an alarming rate to meet domestic needs.
According to the Department of Customs, Nepal's agricultural goods import bill crossed an all-time high of Rs250 billion in the fiscal year 2019-20 as a result of the country’s import-promoting policies, high production costs here and change in consumer behaviour, among other factors.
While the country’s overall imports dropped by 15.63 percent to Rs1.19 trillion in the last fiscal year, due to the Covid-19 related restrictions, agricultural goods imports continued to increase. The share of agro products in the total import bill has swelled to 21 percent.
In comparison, the agricultural goods imports bill in 2009-10 was just Rs 44.43 billion, growing almost six times in 10 years.
According to Ojha, agricultural production needs to be increased by allowing foreign investment in the sector and the increased production would help substitute for ballooning imports.
Ironically, Nepal is an agricultural country, still employing 60 percent of the population and contributing 27 percent to the country’s GDP.
“But unfortunately, we are not able to produce even enough onion, garlic, chilli to meet the domestic needs,” said Poudel, the farmer.
But other farmers are not as enthusiastic about the decision to allow foreign direct investment in agriculture.
Nawaraj Basnet, president of the Federation of National Farmers’ Groups, said the government decision is not in favour of small farmers.
“It will impact small farmers as their production will not get the market,” he told the Post. “Technology will replace employment.”
Whether foreign investment will create jobs or not is also a concern of Krishna Poudel, an agriculture expert.
“My question is will foreign investment create employment, increase the income of farmers and stop Nepalis from going abroad for jobs,” he said.
Agriculture entrepreneurs say that due to the lack of investment, Nepal’s agriculture sector holds no charm to attract youths and as a result thousands of young people are forced to migrate abroad for jobs.
Pawan Golyan, chairman of Golyan Group, one of the leading private sector enterprises, said that foreign direct investment is of utmost importance for Nepal’s agriculture sector.
“Investment is lacking in all areas. From agro processing industry to technology, Nepal lags in all areas,” said Golyan, who has leased 200 bighas (50 hectares) of land in Jhapa for commercial agriculture production.
The Golyan group, which entered the agriculture sector just a few years ago with an investment of around Rs1.5 billion, already has a long-term export agreement with countries like the United Arab Emirates.
“We don’t even have basic infrastructure like agro processing plants and cold and dry storage. To transform the traditional farming system, we need huge investment and technology. And that’s only possible through foreign investment,” said Golyan.
Under the existing monetary policy, commercial banks are required to disburse minimum 10 percent of their total credit to the agriculture sector but it has not visibly impacted the sector as private sector investment in agriculture is very low.
While the minimum threshold for foreign direct investment in other sectors is just Rs50 million, in the agriculture sector it is Rs500 million, as per the new provision.
Economist Jagdish Chandra Pokharel said that it is important to push the country’s agriculture sector to the next level through investment, but it should be assessed properly if foreign investment will bring visible changes to the agriculture sector.
To scale up production of cash crops like tea, coffee and cardamom to the next level, further investment and technology are needed, Pokharel told the Post.
“But there are basic sectors like those related to food security where investment should not be allowed,” he said.
With the law for foreign direct investment in place, and voices of caution being raised against it, poultry farmers, a sector of agriculture where Nepal is self-sufficient, however welcome the move.
“It’s not bad at all. Foreign investment will bring technology to increase productivity and that’s important as well,” said Guna Chandra Bista, president of the Poultry Federation of Nepal.
Such increase in productivity will ultimately benefit the consumer, according to former secretary Ojha.
“Allowing the FDI will make products cheaper and ultimately benefit consumers,” he said. “On the other hand, it will enhance the performance of domestic industries and make them competitive.”
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