Private sector rues foreign direct investment in dairy industry

  • Experts say private firms want to maintain their longstanding ‘cartel’ in the sector
- RAJESH KHANAL, Kathmandu

Mar 11, 2019-

The private sector has urged the government to come up with a clear policy to balance the small and sensitive domestic businesses with foreign investment as the government prepares for an investment friendly policy by amending the Foreign Investment and Technology Transfer Act.

In view of the upcoming Investment Summit 2019 scheduled to be held on March 29, the government has moved to revise a number of laws including the Foreign Investment and Technology Transfer Act. The Foreign Investment and Technology Transfer Bill have been registered in Parliament.

The Bill, if approved in its present form, will allow foreign direct investment in a number of farm sectors. Currently, foreign investment is only allowed in the area of farm products processing and it bars investment in primary agriculture production.

The private sector representatives said that the government should protect small and medium business while allowing foreign investment in those sectors.

Their concerns follow the government’s preparation to allow foreign direct investment in the dairy sector which is currently dominated by private players.

Sources said that Amul, the Indian dairy giant, plans to enter into the Nepali market which has worried private players.

In the past few years, there have been heated debates on whether Amul should be allowed to operate in Nepal. The plan, however, has not materialised.

The Nepali private sector is against the government’s plan to expand state-owned businesses in Nepal.

In 2013, the private sector launched a protest against the Dairy Development Corporation’s plan to enter Pokhara, nine years after it sold its plant to private players.

Few years back, Nepali cement producers had also lobbied to prevent the entry of an international cement producer in the market.

“The government should analyse the impact of foreign investment mainly in the micro and small enterprises which are sensitive,” said Hari Bhakta Sharma, president of the Confederation of Nepalese Industries.

There are both pros and cons of foreign direct investment. The private sector representatives said that countries receiving foreign direct investment often experience higher economic growth as it opens up new markets. Most foreign direct investment creates job with higher wages and brings home world-class technologies and technical expertise.

However, there are also a few drawbacks: once a foreign investment becomes profitable, capital begins to flow out of the country and it creates income disparity by attracting the best workers.

The government plans to open up foreign direct investment in the dairy sector which has been struggling to achieve self-sufficiency and enhance the quality largely due to low returns.

The country’s milk production has increased by around 50 percent in the last eight years. According to the Ministry of Agriculture and Livestock Development, milk production stood at 2,115 tonnes in 2017, up from 1,497 tonnes in 2010.

Last year, the state-owned Dairy Development Corporation purchased milk worth of more than Rs5 billion to the farmers. The government has planned investment of Rs20 billion to promote the dairy sector in its 2019-2023 agriculture roadmap.

In this context, some stakeholders said that allowing foreign direct investment in the dairy business will adversely affect domestic production.

Narayan Prasad Devkota, chairman of Central Dairy Cooperative Association Nepal, said that the policy would affect marginalised farmers. “As the small farmers will not be able to compete with the foreign firms, they will obviously be out of the market,” Devkota said.

The association said that more than 600 enterprises are involved in the milk processing business. The sector has an investment of Rs30 billion from private firms and cooperatives. However, some experts said that the foreign companies would purchase milk from the farmers and they could get a premium rate compared to what they are fetching now.

The experts said that there are some businesses driven by their own interests to prevent foreign direct investment to maintain their longstanding cartels.

Sharma of CNI, however, said they have recommended a sensitive list of a dozen products including a number of farm products that should be protected from foreign direct investment.

Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry, also has reservations over foreign direct investment in the dairy sector. “Foreign direct investment should not be allowed in some specific businesses.”

Published: 11-03-2019 11:17

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