Agricultural Growth and Performance in Nepal: Assessing Trends and Signals for Policy Reforms

Abstract

Purpose: Despite its crucial role in poverty reduction, the agricultural sector in Nepal has exhibited lagging
performance by large within the context of the broader economy over the past decades. Agricultural growth, at
2.2%, was nearly half of the national economy’s growth rate of 4.0%. Additionally, the contribution of agriculture
to the overall economy has decreased from 33.4% in 2010 to 24.2% in 2022. This decline is mainly attributed to
factors such as low crop productivity, limited diversification, a substantial increase in production costs, and the
influx of low-cost subsidized foods from abroad, particularly India and China.
Methods: The research employed a mixed-method approach, integrating both quantitative data from secondary
sources and qualitative insights through case studies and literature reviews. The study began with a desk review of agricultural performance trends over the past decade, followed by week-long qualitative case studies in
three rural municipalities in western Nepal. These case studies involved fieldwork, semi-structured interviews
(SSIs), focus group discussions (FGDs), and observations with various stakeholders, totaling 196 respondents
using snowball sampling.
The study also analyzed Nepal’s agricultural policies using the Political Economy and Policy Analysis (PEPA)
framework. This framework was used to examine the political and economic factors affecting agricultural outcomes. Quantitative data on various agricultural indicators, such as Gross Domestic Product (GDP) growth,
agricultural productivity, and trade, were collected from multiple sources, covering the period from 2013 to 2022.
The integrated methods aimed to provide a comprehensive understanding of Nepal’s agricultural landscape by
combining macro-level policy analysis with grassroots-level insights.
Results: A significant disparity was observed between policy provisions in the agriculture sector and the actual
implementation of its services. Despite having a strong Agricultural Development Strategy’s (ADS) emphasis on
fostering self-reliance, sustainability, competitiveness, and inclusivity, we found that agricultural extension programs, constituting 70% of public agriculture expenditure, predominantly focused on subsidies. These programs
seemed more aligned with welfare initiatives than a strategic approach. Further analysis of government programs at federal, provincial, and local levels revealed that over 60% of subsidies were directed toward purchasing
costly inputs (chemical fertilizers, farm machinery, equipment, hybrid seeds, and agrochemicals) from neighboring countries, contributing to a widening trade imbalance. Findings also revealed that extension programs
disproportionately favored elite groups, distorting market prices and adversely affecting women, marginalized
communities, and resource-poor farmers. A comprehensive FGD involving 196 participants indicated that only
7.7% had access to government subsidies and services, with over 70% of the subsidies focusing on private and
personal capital development. Findings also uncovered a troubling trend of diminishing investments in the agricultural sector. The average agriculture budget allocation of 2.9% over the last 13 years signals a significant lack
of both political and fiscal commitment to fostering the growth and development of the agriculture sector.
Conclusion: These insights emphasize the evolving landscape of budgetary priorities, underscoring the urgent
need for strategic interventions to rejuvenate support for this crucial agricultural domain.