'By prioritising infrastructure and value chains, Nepal can ensure donor participation aligns with national priorities'

Satish C Shrestha, Managing Director of Shreenagar Agro Farm, returned to Nepal after completing his MBA in finance from Sydenham College in Mumbai, India. After working in the representative office of City Bank (USA) in Nepal for several years, he decided to pursue a different path.

City Bank’s operations were limited, at that time on correspondent and treasury banking. “We served as a local bank for other Nepali banks, facilitating their trade services like LCs and dollar accounts through City Bank’s global network. We also managed fund placements for Nepal’s central bank,” he shares. Around 2004, City Bank decided to exit Nepal and Shrestha was offered relocation to India but he chose a different route. 

“A family obligation presented an opportunity, a chance to acquire a stake in a poultry farm. This sparked a new direction. I left a comfortable corporate job and focused on scaling up the poultry business,” he says.

“Starting in 2004 with 2,000 birds on 11 acres in Gongabu, we faced limitations for expansion. We sold the property and began scaling up in other locations like Butwal and Palpa,” he recalls. From a farm operation, Shrestha has expanded into feed production and now even food processing. “Today, our comprehensive and well-established company is preparing for an IPO,” he says.

In this edition of Business 360, Shrestha speaks about the country’s agriculture sector and how it could be bettered. Excerpts:

What are the key factors and strategies needed to achieve significant growth in agricultural output?

Nepal’s diverse terrain offers a unique advantage for agriculture, but challenges remain. A key issue is the limited amount of arable land and its fragmentation into small holdings. This fragmentation hinders both increased productivity and large-scale, modern farming techniques.

The ‘Bhumi Bank’ or ‘Land Bank’ initiative, intended to consolidate land holdings, hasn’t shown significant progress. Additionally, infrastructure for the agricultural value chain is lacking, with most farmers stuck in subsistence farming. Produce often struggles to reach the necessary markets due to poor logistics.
The exodus of young people from agriculture further complicates the situation. Despite abundant resources, a skilled workforce is crucial for development. 
Focusing on these three areas – land consolidation, improved value chain infrastructure, and youth engagement – is essential to significantly boost Nepal’s agricultural sector.

Many agricultural development strategies seem heavily influenced by donor priorities. How do you view this?

The heavy donor focus on ‘software’ aspects of projects like strategies and consultations raises concerns. Donors often seem more interested in funding these areas compared to ‘hardware’ – the infrastructure and capital expenditure.  This allows them to choose consultants who meet their standards. This trend disadvantages Nepal. The government should establish a clear policy: for every rupee received, a specific portion (perhaps 50%) should be allocated to infrastructure and value chain development. Without such guidelines, donors can essentially dictate project focus, potentially neglecting crucial infrastructure needs.

By prioritising infrastructure and value chains in its strategies, Nepal can ensure donor participation aligns with national priorities. Donors will not be able to unilaterally choose project areas. Currently, Nepal lacks clear sector priorities and allows donors free rein, hindering strategic development. Nepal’s unique position as a least developed country seeking middle-income status in South Asia makes it attractive to donors. India’s developed status, Bangladesh’s growing economy, and Pakistan’s complexities leave Nepal as a prime target. Sri Lanka faces economic challenges and Bhutan is a smaller market. Nepal’s population size and overall potential make it an ideal recipient of donor support. 

Has the Agriculture Development Strategy been effective in achieving its goals?

Over a decade since its inception, the Agriculture Development Strategy (ADS) hasn’t achieved its target of 5% annual growth. The core issue seems to be a disconnect between planning and execution. The ADS serves as a well-written guide, but implementation suffers due to a lack of stable government policies and consistent budget allocation. Furthermore, the ADS might benefit from revisions to incorporate changing times. One potential improvement could be a ‘Triple P model’ that fosters Public-Private Partnerships. Additionally, the strategy should address the issue of cooperatives in Nepal. Currently, cooperatives are often solely associated with agricultural production, creating an inaccurate picture. The ADS, or any future agricultural policy, should encourage collaboration between cooperatives and the private sector.
Regular modifications, without altering the core principles, are crucial for the ADS to remain relevant and achieve its goals. Focusing on implementation and adapting to changing circumstances could significantly improve the strategy’s effectiveness. 

Is there a sufficient number of technically skilled workers in Nepal’s agricultural sector? 

Nepal’s current vocational training system, particularly the CTEVT institutes under the Ministry of Education, has potential but needs strengthening. Firstly, agriculture education should be integrated into the national curriculum. While subjects like engineering and commerce are offered in schools, agriculture is absent. Introducing a compulsory agriculture course with both theory (70%) and practical components (30%) like planting, irrigation and basic farm work would spark early interest in the field.
Secondly, more emphasis should be placed on the ‘Junior Technician’ (JT) programmes offered after completing secondary school. These 1.5 to 2 year courses provide valuable practical training in various agricultural areas, including veterinary science and livestock management. A focus on both classroom learning and hands-on experience is crucial.

Currently, most agricultural entrepreneurs come from farming backgrounds, with fewer individuals entering the field through formal education. By promoting agriculture education in schools and strengthening the JT programmes, Nepal can cultivate a new generation of technically skilled professionals. These ‘techno-commercial’ individuals, equipped with both technical expertise and business knowledge, will be well-positioned for success in the agricultural sector and contribute to faster job creation. 

Nepal’s heavy reliance on monsoon rains for irrigation presents challenges. What are your thoughts on potential improvements to the irrigation system, or innovative approaches we could consider? 

Nepal has a wealth of water resources but efficient irrigation systems remain a challenge. While large multi-purpose projects like the Sunkoshi Marin Diversion are underway, these solutions can be complex and less applicable to Nepal’s many plain areas. A promising approach for these plains is a focus on ‘agri-pockets’ - smaller, targeted agricultural zones.  Developing irrigation projects specifically for these areas is a wise strategy.

In hilly regions, where water retention is low, drip irrigation systems offer a significant advantage. This method, pioneered in Israel and adopted elsewhere, minimises water waste and allows for precise irrigation based on specific needs. Promoting drip irrigation in Nepal’s hilly regions holds great promise for improving water management and agricultural productivity. 

Nepal’s poultry sector has seen a recent decline, likely due in part to outbreaks of avian influenza (bird flu). What are the key challenges facing this sector, and how can we work towards overcoming them?  

Nepal’s poultry sector suffers from a ‘herd mentality’ in investment, mirroring trends in other sectors. The industry has evolved recently, adopting a three-part model of farms, feed production and processing (food). Initially, high profitability in chick production attracted many new entrants, leading to oversaturation in the market pre-pandemic.

Banks also played a role, with agricultural lending regulations favouring livestock over crops. Government subsidies (up to 80%) for livestock further incentivised poultry farming. However, a critical gap existed – bird flu wasn’t covered by insurance due to a government rule prohibiting vaccination during outbreaks.  This exposed farmers to significant financial risk.

Production outpaced demand, with weekly broiler chicken production reaching 40 lakhs against a national need of 25 lakhs. This oversupply led to market instability and ultimately contributed to farmer hardship during the Covid 19 lockdown. Stockpiled eggs and chickens faced a collapsed market, resulting in financial losses and even suicides.

The government’s response, limited to loan refinancing, proved inadequate. Needed measures included extended restructuring periods, delayed loan installments, and extended interest rate subsidies. Resource constraints may have limited the government’s options, but a more comprehensive approach was necessary. The poultry sector’s challenges stem from a combination of factors: herd mentality investment, regulations favouring livestock, lack of bird flu insurance coverage, overproduction, and inadequate government support during the pandemic. 

How can we ensure Nepal’s farmers receive fair compensation for their products? 

Nepal’s agricultural sector suffers from a complex web of middlemen. These entities, ranging from dealers to sub-dealers and veterinary suppliers, act as intermediaries between manufacturers and farmers. This multi-layered system often disadvantages farmers, who receive a lower share of the profits.

The Covid 19 pandemic further exposed these vulnerabilities. Many companies struggled to recover payments as middlemen prioritised their own collections. This experience prompted a new approach: contract farming.

Inspired by successful models in the US and India, we launched a pilot programme in the poultry sector. Targeting small, women-led farms with limited resources, the programme directly connected farmers with needed supplies (chicks, feed, medicines) and guaranteed market access. This eliminated the middleman and ensured fair pricing for the farmers’ products.

The initial success, with weekly distributions growing from 2,000 to 20,000 chickens, has led to an ambitious goal of reaching 50,000. This programme represents a shift from viewing middlemen as a necessary evil to establishing a more collaborative model – a ‘synergetic module’ where farmers and manufacturers work directly together.
The system acknowledges the continued role of middlemen in certain situations. However, it prioritises farmer security by offering multiple options: farmers can raise chicks for a guaranteed per-kilo payment, sell the grown chickens to the company, or receive a ‘growing charge’ for their labour regardless of market fluctuations.
To address potential dishonesty, the programme partnered with a farmer cooperative bank (Sana Kishan Sahakari Bank). Members of this bank, themselves involved in agriculture, recommend participants and help monitor compliance. This three-party agreement (farmer, company, bank) ensures a secure and sustainable model for contract farming.

This innovative approach in the poultry sector offers a promising blueprint for wider adoption in Nepal’s agricultural industry. By empowering farmers and reducing reliance on exploitative middlemen, contract farming can create a fairer and more resilient agricultural system. 

What is your view about foreign direct investment in the agriculture sector? 

Nepal’s current foreign direct investment (FDI) policy restricts foreign investment in sectors like poultry, dairy and bee farming. While this policy, created decades ago, aimed to protect small-scale farmers, it might be time to reconsider.

There’s a potential benefit to allowing FDI in these areas, with certain safeguards.  Publicly listed companies (those that have gone through an IPO) could be eligible for FDI, as they already have public shareholders who might include Nepali farmers. This could bring in valuable investment while maintaining some domestic ownership.
Furthermore, attracting FDI could lead to increased exports of agricultural products. Ideally, these exports would exceed 75% of production, making high-quality goods available domestically at affordable prices. While exploring opportunities with neighbouring countries like China and India is positive, FDI offers additional possibilities.
A promising alternative to traditional donors is Development Finance Institutions (DFIs). These institutions can provide a variety of financial instruments, including equity, debt, grants and mixed funding. By investing in publicly listed companies that meet specific criteria, DFIs could provide much-needed capital to Nepal’s agricultural sector.

However, current regulations hinder DFI involvement. For example, the Dolma Impact Fund, while eager to invest in Nepali agriculture, is registered in Mauritius due to restrictive rules. This not only limits DFI participation but also discourages potential investors who may find Nepal’s regulatory environment cumbersome.
To truly support agriculture, Nepal needs a two-pronged approach. First, local funding for smaller agricultural projects needs to be more readily available. Second, FDI should be allowed with appropriate safeguards, such as focusing on publicly traded companies. The current situation, where potential investors lose interest due to regulations, is detrimental to the sector’s growth.

Relaxing local restrictions on FDI, alongside increased local funding options, could provide the financial resources needed to revitalise Nepal’s agricultural sector. This would allow for investment in infrastructure, technology, and expertise, ultimately benefiting both farmers and consumers. 

China and India’s heavily subsidised agricultural sectors pose a significant competitive challenge for Nepal. Given this reality, how important is it for Nepal to prioritise high-quality, efficient agricultural production?

Nepal’s agricultural sector faces a significant challenge: competition from heavily subsidised products from neighbouring countries like India. Recognising this, the Confederation of Nepalese Industries (CNI), where I serve as Co-chair, had proposed specific measures to the government for the upcoming budget.
Our primary request is a substantial increase in fertiliser subsidies. Currently, only half of the required 7-8 lakh metric tonnes of fertiliser are subsidised, placing a financial burden on farmers who must purchase the remaining amount at unsubsidised rates. We believe that prioritising a full fertiliser subsidy, even if it requires reallocating funds from other agricultural programmes like Pradhan Mantri Krishi Aadhunikaran Yojana, would significantly boost productivity.

Increased fertiliser availability would have a domino effect. Higher yields would translate to decreased reliance on imported goods, making Nepal less vulnerable to price fluctuations in neighbouring markets. This approach offers a clear path to greater agricultural self-sufficiency and food security.

While recognising the importance of chemical fertilisers in the short term, we also advocate for long-term soil health by promoting organic options. A phased approach, initially encouraging a 25% blend of organic fertilisers, could gradually shift the balance towards sustainable organic practices.

Beyond fertiliser subsidies, we urge the government to address value-added tax (VAT) on agricultural products. Currently, even basic necessities like potatoes and onions are subject to VAT, while imported processed foods are exempt. This disparity disadvantages domestic producers and discourages investment in value-added processing, which could extend shelf life and create market opportunities. A lower VAT tier for essential agricultural goods, or even complete exemption, would create a more level playing field.

To further discourage unfair competition, we recommend implementing non-tariff barriers at border checkpoints. Stringent quality control measures and inspections could deter the influx of substandard imported goods. However, such measures should not impede the availability of essential food staples.

Finally, we propose a national network of storage facilities across all provinces.  These ‘Nepal Warehousing’ centres, modelled after existing entities like Krishi Samagri Sansthan and Khadya Sansthan, would serve multiple purposes. By offering minimum support prices for crops, these centres would guarantee a fair return for farmers while ensuring a strategic reserve of essential food grains. This would stabilise market prices, prevent food shortages, and enhance national food security.

Are there are any immediate policy reforms that are required for the agriculture sector?

Nepal’s agricultural sector needs policy reforms that offer long-term stability. Currently, changes in leadership often lead to new agricultural programmes creating inconsistency and hindering long-term planning. A multi-year commitment to a single strategic plan is crucial for sustained growth.

Incentives are also essential for attracting larger players to the agricultural sector. Interest rate subsidies, for example, could be tiered based on the investment amount. Larger investments with a wider impact would qualify for a greater subsidy. Tax breaks could function similarly, rewarding companies that create significant employment opportunities. By focusing on policies that encourage larger-scale investment and job creation, Nepal can unlock the sector’s full potential.

Furthermore, Nepal could learn from successful models in neighbouring countries. India’s recently established Agri Infra Fund allows for collaboration between private companies, cooperatives, the government and even donors. This ‘basket fund’ approach could be replicated in Nepal to create a more robust funding ecosystem for agriculture.

Currently, Nepali cooperatives are restricted from partnering with public companies. Lifting this restriction would allow for strategic alliances that leverage the strengths of both entities. For instance, cooperatives with large memberships, representing thousands of farmers, could invest in publicly traded companies, benefiting both the cooperative members and the company itself. This collaboration would increase accountability, transparency and access to capital for the agricultural sector.
Finally, the licensing and approval process for agricultural businesses should be streamlined. By prioritising this sector and expediting approvals, Nepal can send a clear message that it values agricultural investment and is committed to its growth. This, along with the other proposed reforms, will create a more attractive and stable environment for agricultural development. 

Over a decade since its inception, the Agriculture Development Strategy (ADS) hasn’t achieved its target of 5% annual growth. The core issue seems to be a disconnect between planning and execution. The ADS serves as a well-written guide, but implementation suffers due to a lack of stable government policies and consistent budget allocation. Furthermore, the ADS might benefit from revisions to incorporate changing times. One potential improvement could be a ‘Triple P model’ that fosters Public-Private Partnerships. Additionally, the strategy should address the issue of cooperatives in Nepal. Currently, cooperatives are often solely associated with agricultural production, creating an inaccurate picture.