Priorities for Facilitating Trade in Agriculture

(A Nepalese Perspective)

Purushottam Ojha
Secretary Ministry of Commerce and Supplies Government of Nepal

Paper presented in the High Level Consultation on Facilitating Agricultural Trade in Asia and the Pacific 25-26 January 2011 UNESCAP, Bangkok

Contents
Background
Agriculture in the Nepalese Economy Issues Related to Growth of Agriculture Sector

Trade of Agricultural Commodities Priorities for Facilitating Trade in Agriculture The Way Forward

Background
Food insecurity is a major development challenge for all South Asian countries, including Nepal. While increasing production/productivity of agriculture sector is necessary for longterm sustained food security; promotion of agricultural trade is equally important. Thus the GoN emphasized on development of agriculture sector as well as trade facilitation of agricultural products.

Agriculture in the Nepalese Economy

Agriculture is the mainstay of Nepalese economy
74 percent of the populations depend Contributes around one third in the GDP Total of 3.091 million hectare of cultivable land with1.06 million hectare round the year irrigation major cereal are paddy, maize, millet, wheat and barley and cash crops are oilseed, potato, tobacco, sugarcane and jute. Other crops are pulses, fruits, vegetables and spices. The productivity is normally lower (e.g. 2.7 Mt/Ha for rice, 1.9 Mt/Ha for maize and 1.8 Mt/Ha for wheat).

The growth of agriculture sector in recent years is not satisfactory.

Average growth rate during 1990s was 2.7 percent while it marginally increased to 2.8 percent during 2000-06.

Agriculture in the Nepalese Economy (Contd.)

According to the 2001-02 agricultural censuses:
Cereal crops cover more than 80 percent of the total cultivated land followed by cash crops which account for about 10 percent of the agricultural land and pulses (about 8 percent) and remaining 2 percent for other agricultural crops and livestock. Paddy is the most important cereal crop both in terms of cultivated area and in terms of production, followed by maize and wheat (paddy accounts for about 46% of the total cereal cultivated area, 24% for maize and 20% for wheat).

Similarly, the 2003-04 Nepal Living Standard Survey (NLSS) data reveal that paddy, wheat and maize crops accounted for 66 percent of total gross crop output, down from 72 percent in 1995-96.

Issues Related to Growth of Agriculture Sector

Government of Nepal prepared a 20 year Agriculture Perspective Plan (1995-2015) with a view to enhance the sector and establish agriculture as the backbone of the Nepalese economy. Inadequate government and private sector investment, inadequate effort on commercialization of agriculture, uncertainty in the availability of fertilizer, lack in pocket area development for specific crops, poor development of transport infrastructures, inadequate irrigation facilities and extension services constrained the development of agriculture sector. The current Three Year Plan prioritize agriculture sector as an import sector for overall development of the country at the same time trade is one of the major strategies to achieve the development goal of the country.

Trade of Agricultural Commodities

In the past Nepal was a net food exporting country, but due to growing population and less attraction in the sector, the country becomes a net food importing country. The trends in overall trade balance in agriculture sector is erratic, but it is growing since last two decades. Trade balance in selected/main agricultural commodities (cereals, potato, fruits) is also negative.

AgriculturalTradeBalanceofSouthAsianCountries(US$million)
Country
Afghanistan Bangladesh Bhutan India Nepal Pakistan SriLanka

19941996
103.919 847.266 4.89333 2649.018 120.834 992.736 29.099

19992001
201.554 1619.12 8.325 1351.741 151.065 800.784 215.2273

2005
708.639 2078.89 13.183 3659.151 257.962 1195.89 389.077

2006
824.99 2706.83 6.339 4190.592 135.267 1449.75 354.751

2007
722.815 3611.82 5.859 8974.276 200.323 1697.7 398.91

Source: FAO Statistical Year Book 2009/10

TradeBalanceinSelectedAgrigoodsinSouthAsia,2007(US$'000)
Country Afghanistan Bangladesh Bhutan India Nepal Pakistan SriLanka Cereal NA 613509 2676 2938739 83549 1267348 292116 Potato 752 2,953 349 10,991 6,784 20,863 13,677 Meat 14,696 586 1 897,461 284 27,631 6,954 Fruits 2381 29592 2227 159962 23212 83726 14875

Source: FAO Statistical Year Book 2009/10

Trade of Agricultural Commodities (Contd.)

Export
Agriculture and forest products constitute one of the major export items of Nepal. It occupies around 32% of total export to India and around 25% of the export to third countries. The major export items to India consist of jute goods, vegetable ghee, cardamom, ginger, non timber forest products, tea, fruit juices, oilcakes and processed foods while the export to third countries consist of pulses/lentils, tea, coffee, cereals, plant material, dairy products and non-timber based forest products. Of the total export, lentil constitute 6.14, tea 1.96, cardamom 1.92, noodles 1.11 and ginger 0.75 percent share in FY 2009-10. Thus these products contribute more than 10 percent of the total export of the country.

Trade of Agricultural Commodities (Contd.)

Import Out of total import of agricultural products, 75% is from India and remaining 25% from the rest of the world. The major import commodities under agricultural products include: edible fruits and nuts 1.25%, edible vegetables, roots and tubers 0.98%, cereals 1.1%, animal fodders 0.88%, and oilseeds and oleaginous fruits 0.84%. Altogether these products constitute around 6% in Nepals total imports in FY 2009-10.

Priorities for Facilitating Trade in Agriculture The priorities of Nepal Government for trade promotion and facilitation are reflected in:
A. Trade Policy 2009, and B. Nepal Trade Integration Strategy 2010 (NTIS) C. Three Year Plan (2010-13)

Trade Policy -2009

Focuses on creating a conducive environment for promotion of trade and business in order to make it competitive at international level. Emphasized on trade of agricultural commodities that are of comparative and competitive advantage for Nepal. Development of some key agricultural products along the value chain that would help in bringing a positive impact on the living and income of the common people as it will enable them to participate and benefit from international trade. Identified tea, vegetable seeds, large cardamom, pulses, cut flower, ginger, medicinal herbs, coffee, honey, citrus oranges and vegetables as the most potential agricultural commodities and proposed action plan for the development of these products. Emphasized on development of physical infrastructure including transport, special economic zones and Inland Clearances Depots (ICDs). Aims at reducing transaction costs through simplification, standardization and harmonization of trade and transport related documents and procedures. Envisioned institutions like Board of Trade and Trade Promotion Institute related to trade facilitation.

NTIS 2010
NTIS 2010, the most recent strategic document, is a critical building block in the GoNs effort to strengthen its ability to coordinate and manage TRTAs and AfT by implementing the mechanisms of the Enhanced Integrated Framework (EIF). The four strategic objectives of NTIS are: (i) Ensuring proper market access, which will require from Nepali negotiators to address issues related to Non-Tariff-Barriers (NTBs) and related regulatory and business environment issues that may affect Nepalese exports in importing markets. (ii) Building domestic support institutions that can create a more friendly business environment and help Nepalese exporters address the challenges of NTBs; (iii)Taking steps to strengthen the supply capacity of exporters especially in selected sector (The NTIS 2010 identifies 19 priority sectors, which includes 7 agro-based products, 5 industrial and manufacturing products and 7 services sectors), where they can build a competitive advantage, be it in terms of production costs, quality of products, and/or productivity; and (iv) Mobilizing Overseas Development Assistance (ODA) to assist in developing pertinent capacity.

NTIS 2010 (Contd.)

Assessed the needs of Nepal for export promotion and presents an action matrix to prioritize the needs of Nepal under the said four strategic objectives. Suggests priority actions for 19 priority export potentials, which includes seven agricultural products (i.e. tea, ginger, lentils, medicinal herbs, cardamoms, honey and noodles). The focus of the Government of Nepal will be on those sectors and ensure their success in their current or potential attractive destination markets. Priority actions will be:
deepening the individual sector analyses presented therein and ensure those sectors benefit from proper sector-specific supportive measures. managing the quality of export items, particularly of agro-based products. In this regard, efforts to build a competitive supply-capacity for exporting agrofood items should focus initially on setting up a number of Good Agricultural Practices (GAPs), Integrated Pest Management (IPM) and Quality Management System (QMS) in selected agricultural commodities. Such effort is to be accompanied by Third Party Certification (TPC) programs to enhance the quality and quantity of such supplies and to lower the current burden for SPS certification. Accelerate progress on formulating new Plant Protection Act, and on reviewing plus amending the existing Food Act, Pesticides Act as well as Pesticides Rules.

Trade in Current TYP

Following issues have been identified in the current Thee Year Plan (2010-13) as the strategies in addressing the challenges of agriculture development in Nepal. Maintaining the fertility of the soil by checking the soil erosion and degradation Commercialization of agriculture, contract farming and use of modern technologies. Providing subsidies to the poor farmers and growers in agricultural inputs like fertilizers, seed and agro-chemicals. Quality testing and certifications of agro-products and achieving international accreditation of the Nepalese food laboratories. Improving competitiveness of small farmers and agribusiness sector in selected commodity value chain. Identification and development of agricultural products that are of comparative advantages. Promoting organic farming and cultivation of the products that are in high demand in the international markets. Promotion of indigenous crops for ensuring food supply in the remote & mountain areas. Focusing on practical agro research and dissemination of the information to farmers. Promoting improved breed of livestock in the mountain and hilly areas. Launching of vegetable and fruit seeds development programs in the remote hills and mountains.

The Way Forward

Timely implementation of the identified priority actions of TYP, NTIS and Trade Policy in a coordinated manner. Allocation of necessary resources for the development of the sector. Provide farm subsidies and inputs in the form of quality seed, fertilizers, irrigation and effective extension services to increase the production and productivity of the potential and niche products. Encourage cooperative and contract farming to get the benefits of economies of scale. Encourage research and development in agriculture sector. Promote good agricultural practices. Protect IPRs of the agricultural products, particularly in the areas of Geographical Indication (GI), labeling and trade mark Replication of One Village One Product (OVOP) program

The Way Forward (Contd.)

Develop incentive package for promotion of agroprocessing and the auxiliary industries like manufacturing agricultural tools, packaging and storage facilities. Encourage Foreign Direct Investment (FDI) and technology transfer in food technology and food processing with a special incentives and tax rebates for the potential investors. Develop transport, communication and energy infrastructure to expand agro-processing activities in various parts of the country. Identify and collate the type of non-tariff barriers and take up the issues in the bilateral, regional or multilateral level, as appropriate. Develop appropriate quality infrastructures for testing and certifications of agricultural products. The accreditation of the Nepalese food testing laboratories is equally important to address the market entry barriers.

Thank You