The proposed Agriculture Sector Development Program (ASDP) will promote sustainable and competitive agriculture sector development in Nepal. It will combine a policy-based program and an investment component to support implementing the Agricultural Development Strategy (ADS) in a comprehensive and integrated manner. The program component will support and foster key policy reforms identified in ADS to improve competitiveness and commercialize agriculture. The investment component will support market infrastructure and value chain development, rural transport connectivity, and food security initiatives in four clusters of the eastern, central, western, and mid and far-western parts of Nepal. The counterpart funds generated by the program will be earmarked for agriculture sector development.
ASDP will contribute to the ADS vision of developing a competitive and inclusive agricultural sector in Nepal. For this purpose, ASDP will support the envisaged policy and institutional reforms and priority investment projects to achieve ADS's result targets through the joint efforts by the government, private sector, and the beneficiaries. The impact of the ASDP will be accelerated growth of the agriculture sector. ASDP outcome will be inclusive, market-oriented and competitive agriculture sector developed. The outputs for program component are: (i) institutional and policy reforms in place to implement ADS; and (ii) agricultural inputs supply and distribution improved. These outputs will require formulation and/or amendment of various policies or regulations and will complement the investment component. The outputs of the investment component are: (i) agribusiness infrastructure improved; (ii) rural connectivity extended and maintained; and (iii) agricultural extension and research strengthened. Design and monitoring framework is in Appendix 1.
|Project Rationale and Linkage to Country/Regional Strategy
The agricultural sector in Nepal made progress in some areas since launching the Agricultural Perspective Plan (APP) in 1997. Rural roads, horticulture and community forest achieved envisaged targets. The performance of cereals, fertilizer, and seed was poor; performance of livestock and irrigation was mixed; and overall agricultural growth was slower than projected. Investment did not increase as envisaged. Political instability slowed down the reforms needed to implement APP. Also the leading stakeholders farmers and private sector, as well as women and excluded groups were not actively involved in its formulation and implementation. The 10-year conflict that concluded in 2006 had adverse effects on the agricultural sector. A large number of rural households left their lands and moved to the cities or abroad. These movements of rural population resulted in labor and investment scarcity in rural areas. The agriculture sector is still in a low development stage as indicated by low labor productivity, low commercialization and value addition, and food insecurity. There is a growing food trade deficit, and malnutrition is high.
Agricultural growth in Nepal continues to be low, averaging 3% in the five years ending in FY2013. The policy environment at present is not conducive for a competitive agriculture sector. Lack of integration between agriculture and non-agriculture sectors contributes to the low performance of Nepal's gross domestic product. While in neighboring countries there is a growing and relatively vibrant agribusiness sector, in Nepal this is still in the very formative stages of development. Nepal is lagging behind in structural transformation in agriculture from subsistence to commercialization and competitiveness. High levels of farming for subsistence is related to poor rural connectivity, and limited access and adoption of suitable technologies (both on farm and post-harvest); limited availability of inputs; lack of access to credit; and research and extension system, which is not demand driven. Limited number of service centers and resources, and lack of innovation constrain extension outreach. The national agricultural research system is ineffective in responding to the needs of the farmers and agro-enterprises. As rising temperatures and the effects of climate change are felt more intensely, food insecurity in Nepal is expected to become more acute.
Insufficient availability of quality fertilizers, low seed replacement ratio, and limited availability of quality and affordable seeds are major constraints in productivity improvement. It takes on an average about three years to register a new seed variety. The government has recently adopted Seed Vision 2013-2025, but for which no implementation plan has been developed. Fertilizer supply remains below the estimated demand of 700,000 metric tons per annum. About one-third of fertilizers used in the country are officially imported. Presently, the import price of urea is $422 per metric ton; local market price is only $180 per metric ton, indicating a subsidy of about 57%. The state-owned Agricultural Inputs Company Ltd. has not been able to achieve timely, sufficient, and profitable fertilizer supply and distribution. A substantial amount of fertilizer is imported informally, much of which is fake or adulterated, causing under-use and financial damage to farmers who purchase fertilizer in the market. Private sector currently is not importing fertilizers because it cannot compete with informally-imported fertilizers. The absence of fair competition in the fertilizer distribution militates against private sector intervention. The existing policy on fertilizer subsidy needs a review for better targeting, effectiveness, and efficiency. Compliance with international sanitary and phyto-sanitary standards is poor impeding trade of agricultural products, and farmers lack demand-driven financial and insurance products.
Nepal is yet to transform the traditional small-scale agriculture sector into an agribusiness industry, which would also cater to premium and export markets. Lack of modern wholesale marketing facilities for agricultural products impedes the growth potentials of the agribusiness industry. There are very few examples of agriculture and food value chains that are effective at establishing mutually advantageous linkages among their stakeholders and in meeting the increasing urban and international demand. Women and excluded groups are often left out in the value chains. There is inadequate legal framework for contract farming arrangements for commercializing agriculture. Despite progress, rural road connectivity in Nepal remains underdeveloped. Poor connectivity impairs physical and economic access. Less than 20% of rural population has access to all weather roads. The existing roads are not well maintained and construction quality is poor.
ADB led the process of preparing ADS together with 12 other development partners. ADS was completed in 2013 and is expected to be formally approved by the Government within 2014. ADS envisages a self-sufficient, sustainable, competitive, and inclusive agricultural sector that drives economic growth and contributes to improved livelihoods and food and nutrition security. To achieve its vision, ADS will accelerate agricultural sector growth through four strategic components related to governance, productivity, profitable commercialization, and competitiveness, while promoting inclusiveness. This is expected to result in increased food and nutrition security, trade competitiveness, and higher and more equitable income of rural households. The lessons learned from the APP experience have been incorporated in formulating ADS. Among these lessons is the need to ensure good governance by promoting effective participation of stakeholders, and to promote commercialization and competitiveness. With the completion of ADS, there is a high expectation by the government and the development partners for ADB to continue its lead role in its implementation. Accordingly, ASDP has been included in the 2015 lending program with co-financing from the European Union, Department for International Development of the United Kingdom, the Swiss Agency for Development and Cooperation, and others.
The sector development program modality for the proposed ASDP is justified because ADS implementation requires both policy-based support and investment component. The investment component cannot be accomplished without the policy reforms and institutional framework as envisaged in ADS. Also the reforms require substantial economic, financial and social costs. ASDP is consistent with Nepal's Country Partnership Strategy (CPS) 2013 2017, which supports inclusive economic growth. The focus of the CPS agricultural sector interventions is on increased agricultural production, productivity, and food security.