Print Edition - 2015-04-19 | MONEY
Subsidise our farmers
- The government should help the agro sector to ensure food security and boost exports
Apr 18, 2015-
An abrupt rise in Nepal’s food imports in recent years has drawn much media attention and the publicity has aroused the interest of the general public. Food imports (cereals and live animals as defined under the harmonized system of product category of the customs) have jumped from Rs24 billion in 2009-10 to Rs88 billion in 2013-14. This represents a massive leap of 266 percent in the past five fiscal years. On average, the annual growth rate was more than 30 percent in the review period.
In contrast, exports of the same food category increased from Rs13 billion to Rs21 billion during the same period, an increase of only 64 percent. Exports of food items could not climb above the annual average rate of 10 percent in the last five years. This simple trade data illustrates how domestic food production has been lagging behind increased domestic demand leading to a growing dependency on food imports. Ultimately, this has resulted in a massive deficit in the country’s food trade balance.
Net food importer
These indicators have revealed Nepal, despite being an agricultural economy, is turning into a net food importing country. There are two basic reasons commonly referred to behind this phenomenon. One, there has been a growing shortage of farm labourers to produce enough food in the country due to the increased outflow of our manpower to overseas countries attracted by a relatively better pay abroad. Two, the overflow of cheap and subsidized food imports in the country has outcompeted domestic production. But why the fuss as long as we can feed our people by importing cheap food from the remittance sent back by our labour force working abroad or through any other net foreign exchange incomes in the balance of payments?
Yes, in the short run, there is no reason to worry about it. But in the long run, the problem of food security emerges. This is why many countries, irrespective of their economic development, subsidise farm production and protect it from external competition. Forget about some developing countries like India and Brazil which are striving hard to subsidize their farming with the view of maintaining food security. The farm subsidies provided in the world’s richest and industrialized countries, specifically the EU and the US, are astonishingly high.
The developed countries have been accused of spending $1 billion a day in farm subsidies and outpricing the developing countries in the international market. The Organization of Economic Cooperation and Development (OECD) has estimated that farmers in the West received more than $300 billion a year which was six times the assistance provided by the rich countries to the poor countries.
The EU’s common agriculture policy (CAP) provides another example of farm subsidies. About half of the farm income in the EU countries comes directly from this programme. Ascribed to production-based subsidies, European countries were said to have produced a “lake of wine” and a “mountain of butter”. At the same time, the tariffs imposed on agricultural imports in the rich countries are unbearably high. They have not lived up to their promise to cut farm tariffs and provide easier market access to the farm exports of the developing countries.
Instead, the rich countries have succeeded in protecting their farm sector by increasing subsides and maintaining relatively higher tariffs despite WTO negotiations to liberalize the farm sector. These persistent practices have made agriculture one of the most contentious issues in the global scenario.
For a least developed country like Nepal, these international developments have provoked much thinking. While subsidies are central to food security and farm trade in most of the developing and developed countries, they are virtually non-existent in Nepal. For many years in the past, farm subsidies were considered to be a violation of international norms as if they mattered to only a poor country like Nepal. Lack of funds with the government has also been cited for its being unable to finance subsidies.
Considering the current international situation, Nepal cannot go against food subsidies because it is a net food importing country. Imports of subsidised and low-priced foods have maintained total consumer welfare. At the same time, if we are to ensure food security and promote agro exports, the country’s agricultural sector has to have solid government support. So the country needs a comprehensive farm subsidy programme that increases the output and lowers the unit price so that imports can be easily substituted and food security can be ensured. In the same manner, subsidies on farm exports will allow Nepali exporters to effortlessly outprice competitors in the rich country markets as Nepal enjoys duty-free access in these countries which have high tariff walls in agriculture.
Shakya specializes in the economic and trade interests of Nepal and the LDCs.
Published: 19-04-2015 09:16