Better output

  • Past subsidy programmes in agriculture have had mixed results, but the government still has a role to play to strengthen agro-output

May 20, 2018-

Food is one of the necessities for human survival, and agriculture is the medium by which we fulfil this need. A sustainable increase in food production is necessary to meet the demands of an ever increasing population. But ensuring seed and fertiliser supply is the prerequisite for a high crop yield. An increase in farm output can lessen inflation, stabilise the economy and prepare the way for a higher rate of development. Hence, every effort should be made to ensure it in the country.

Unsound business

In Nepal, chemical fertiliser was introduced in 1952. And, in 1966, the government set up the Agriculture Inputs Corporation (AIC) to conduct business in this sector. Before 1972, the corporation was selling fertilisers at cost price (including overhead costs). As fertiliser prices were constantly increasing in international markets, the corporation’s fertiliser business was not profitable, hence unsustainable. Under such a critical situation, the corporation was not in a position to import and distribute fertilisers any more. In order to increase production and protect the farmers as well as the AIC, the government decided to establish a uniform price policy. In 1973/74 the government took the decision to subsidise fertilisers on the cost price, and this scheme was continued until 1997/98. As the demand for fertilisers grew over the years, the subsidy amount became large. It was very difficult for the government to afford this subsidy anymore. As a result, the government dropped it and deregulated fertiliser trade, and also allowed the private sector to import and distribute fertilisers in the country. Initially, the subsidy was phased out on Di-Ammonium Phosphate and Muriate of Potash, and later on Urea. There were no more subsidies after November, 1999.

At a similar time period as the introduction of fertilisers, Nepal began to see the rise of the use of improved seed varieties. Some improved varieties of rice were introduced in 1951; wheat and maize varieties followed later. Within a few years these varieties became so popular that seeds produced in government farms and stations did not meet the increased demand, and the responsibility for seed production and supply was handed over to the AIC. The corporation procured seeds from contracted seed growers, and government farms and research stations made available quality seeds to farmers through purposely built network distribution system.

Since the AIC was not making much money on its seeds business, and was losing money on fertilisers, the government decided to shake things up. In 1999, the government decided to split AIC with a view to convert the government infrastructure into a private company—initially with government holding shares—thereby allowing the management full liberty in commercial decision making and limiting subsidies. This action was intended to attract commercial investment in due course. The government established two companies: the Agriculture Inputs Company Limited (focused on fertilisers), and the National Seed Company Limited (seed business), on May 8, 2002.

Market realities

Deregulation failed to improve the quality fertilisers supply in the country. High prices put fertilizers beyond the reach of small and marginal farmers. On the other hand farmers were facing big problems in attempting to sell their high cost products in the market, because similar products from India were available in the market at lower prices. They were operating in an adverse situation without any incentive for production. Realising this, the government in 2009 decided to subsidise fertilisers again, this time implemented by the Fertiliser Supply and Distribution Management Committee, and headed by the chief district officers of the respective districts. At present, two organisations—the Salt Trading Corporation and the Agriculture Inputs Company (now AIC)—are involved in the marketing of subsidised fertilisers. However, on-time availability of fertilisers has been lacking, and the government has been unable to create an effective nationwide supply mechanism. AIC and Salt Trading are also unable to meet demand across the country due to their limited networks.       

In the seed sector, most of the private seed companies were engaged in vegetable seeds in easily accessible areas before 1999. Presently, private seed companies are producing more than 15,000 metric tonnes of cereal seeds annually, and they are actively engaged in the production and marketing of all kinds of seeds. Whereas, the public seed company—NSC—has seen its production programme shrinking. The company only sold 2000mt of wheat seeds (which is its major commodity) in 2074 BS. The government had initiated a seed subsidy program through National Seed Company Limited in 2013 and it ended in 2017.

Private seed companies were also involved in this scheme. The contribution of private seed companies in the seed subsidy program was increasing during successive years, whereas the contribution of National Seed Company Limited was decreasing. The decreasing supply is not good for both seed growers and seed users. Infrastructure like seed processing, storage facilities, laboratories facilities and skilled manpower required for seed production and supply are inadequate in the private sector and they have to be improved.

Impoverished nation

Nepal faces many natural disasters that destroy standing crops as well as stored seeds, thereby affecting people’s food stocks. Nepali farmers are poor, and they usually do not have enough resources to replant their field after such disasters. Seed and fertiliser supply in such emergency situations must be assured to revamp food supply in affected areas.  It is crucial to maintain a buffer stock of seeds and fertilisers to meet the sudden increases in demand during times of natural calamities and to absorb excess supply during times of glut. This needs a special type of cost effective storage under close supervision of the central government.  

Subsidy programmes in agricultural input must be continued and it will be good to implement a voucher system—as desired by the farmers. Under this scheme, the subsidy amount would be directly deposited into farmers’ bank accounts, which they can utilise in the market as required. Both the private as well as the public sector needs to be involved in the agriculture input business to lower costs as well as for efficient supply.

The government should make the environment favourable for the private sector to come forward in this business. The government should help establish commercial input companies in all seven provinces. But such ‘State Inputs Companies’ will need a long-term, technically sound and economically viable business plan to operate; and their shares should slowly be released to the private sector with a view to eventually do away with government control. Further, provincial governments should inject more capital in the agriculture sector and in rural development. Agricultural research and extension services should be reorganised, and a suitable combination of technologies should be developed based on agro-climatic regions. All those involved in policy making, research, production and marketing must be dedicated to achieve the goal. 

Jha is an Adjunct Professor, at Himalayan College of Agricultural Sciences and Technology

Published: 20-05-2018 07:51

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