Commercialization of Agriculture: Opportunities and Challenges

1. Commercialization of Agriculture: Opportunities and Challenges Krishna Prasad Pant

2. Context • WTO to facilitate trade • Trade facilitation means more competition and more opportunity • Competition needs efficiency • Agribusiness Promotion Policy 2063

3. What hinders efficiency? • Fragmented or loosely linked enterprises in the commodity value chain • low reliability in business relationships (in terms of quantity, quality and price) • Regulatory requirements (health, sanitary, phytosanitary and quality) • government-mandated • industry/supermarket • buyers • High costs of production, • small scale of production • poor coverage & low quality of infrastructure • inadequate public support • Large proportion of isolated farms

4. Isolated farms • Cause and result of subsistence farming • geographic isolation • isolation from market • isolation from public support • technological isolation • information isolation • Isolated farms find difficulty in • starting a business • selling their outputs • purchasing for their daily needs • WTO is very far for them

5. WTO and Agribusiness • Scale sensitivity • Standards (quality, quarantine) • Technology transfer in agriculture • Plant variety • Biotechnology • Agro-chemicals • Processing techniques • Service openings • Effects of policy changes abroad • Food prices and production • Competitiveness

6. Check-list for export competitiveness • Whether the product has export market or not? • Whether the quantity is large enough for scale of economy in export? • What about the quality of the product? • Can it pass through the SPS/TBT measures imposed? • Do we have a competent laboratory and certification system in place to certify the quality in the ways acceptable to the importing country? • Is the certification economical to make the product compliance? • Can the aggregated product be traced back?

7. Supply-side Problems • Highly fragmented businesses • low economy of scale, • limited commercial farming • uneconomical to invest for research in product development and market promotion, • difficulties in the collection of the products, • heterogeneity of the aggregated production, • difficulties in product tracing back to the farm, • high expenditures on testing and certification as these services are charged on the basis of the services rendered rather than the quantity of transaction, • Poor export infrastructure within the country and in transit • Limited public supports in the exploration of the export market • Traders reluctant to start the export business, • Risks of trade deflections or low quality consignment

8. Demand-side Problems • Highly competitive • Need to reveal product information • production conditions • quality of product • other relevant information (Codex Alimentarius Commission, OIE, IPPC) • Need to use some specified technology • Requirements for grades and standards are ever increasing • Certain products require health certificates, safety test marks, or standards certification of the importing country • Heat or chemical treatment • Product modifications • Labeling, marking, packaging • Several pesticides are banned • If not, MRLs are fixed • tracking the level of pesticides applied to the crops in the field • Government is made responsible for food and quarantine regulation

9. National Agriculture Policy 2061 • Increase competitiveness in regional and world markets developing foundations of commercial and competitive agriculture • Large Production Packets with infrastructures • Insurance • Organic farming • Attraction to youths • Cooperative farming • Contract farming

10. Agribusiness Policy 2063 • Help to produce market oriented and competitive agriculture • Promotion of domestic marketing and exports through the development of agro-industries • Commercial production area • Organic production area • Export area

11. Packaging in AB Policy (1/2) 1. Infrastructure • Agriculture road • Rural electrification • Irrigation • Market network, auction • Assistance for collection center, processing plant, slaughter house 2. Inputs • Agricultural inputs (seeds, fertilizers) 3. Land • Lease hold pasture, herbs farming, • Land ceiling exemption

12. Packaging in AB Policy (2/2) 4. Services • Technology and technical services – human resource development, service center in PPP • Loan – project mortgage and group assurance, repayment • Insurance • Information – e-commerce, PPP • Cold storage – 25% rebate on electricity • Export import certification, organic certification 5. Mechanization – custom duty rebate of 75 % for 10 years, interest subsidy on trucks 6. Processing – contract farming, local raw material, 7. FDI

13. What the government can do?1. Quality control regulation and statutory law • Quality control, disease-pest control and quarantine control, certification • Support private sector for quality control and certification of agricultural products. • Technical guidelines for quality control • A reliable system of quarantine control and food testing should be established to ensure the export market that the products originating from Nepal does not have risk of sub-standard quality and disease-pests. • Legislation (food, quarantine, contract farming, land contract)

14. Government2. Investment and promote investment • Infrastructure • Long-term raw material development plan • support measures requiring the agro-industries to plan and develop supply of raw materials from domestic sources • incentives to agro-industries using the domestic raw materials. • Encourage private investments on local resource-based and export oriented businesses (far reaching and predictable measures) • domestic • foreign • Pay certain fraction of premium for agricultural insurance

15. Government3. Access to the market • Ensure preferential access and country of origin • Lower tariffs on key agribusiness inputs like packaging materials, farm green houses, machineries, implements and cold chain equipment, mother machines, etc. • Rationalizing tariff structures on import (from all the countries)

16. Government4. Technical backups and marketing • Technical backups for enhancement of productivity and the quality • Technical teams managed by the commodity associations • Encourage private sector to supply technology • Marketing systems that can aggregate and link small produce to traders and larger markets while maintaining the traceability of the products. • Training to and interaction among agribusiness operators, traders and exporters • Collection of agriculture enterprise related data, analysis, projection and dissemination

17. Government5. Knowledge generation • Technology generation, verification • Linking the livelihood concerns of small farmers to the export market • Market exploration • Technical and managerial means of reducing the cost of production and handling • Post-harvest technology, preserving and storing • Machinery and equipment • Encourage private sector in research

18. Input-push based agricultural policyfocusing on government expenditure Market-pull based policy focusing on private investment Business Creation A problem of many people is an opportunity for some

19. What producers & processors can do?1. Investment • Identify the competitive area for investment • Scale of production, suitable technology • Invest in quality control and certification • Establishing backward-forward linkages is necessary to achieve the efficiency • Invite foreign companies (in joint venture) to invest for value addition and exports

20. Producers & processors2. Quality control • Every input used in the value addition should be as specified by the requirements of the export market. • Every step of the value addition needs to be tested by an accredited laboratory and certified by the competent authority. • Adherence to technical guidelines for quality control. • Operating manuals to demonstrate quality control as required by export markets • Testing and certification as business • register and operate under the government testing and certification system • SPS/TBT requirements of export market need to be learnt by the agribusinesses.

21. Producers and Processors3. Technical specifications • Specify the terms of quality for the product, including size, appearance, and other factors • Product and process requirements should be known before production planning. • PP should be based on the contracts made with the traders. • PP should visualize all the problems and prospects of production including the • input use, • variety requirements, • pesticides and MRLs, • inspection and quality control, • farm households involved in the production process including their consumption requirements during the crop season. • Packaging & labeling should be as required by the export markets • Treatment of biological packaging materials

22. Producers and Processors4. Cost of compliance • Agribusiness should compare a priori the • costs required for quality compliance • expected benefits from export • level of risks involved

23. What exporters can do?1. Market explorations • Explore the niche products • Have information about the tariffs and non-tariff barriers in importing country • Know the pre-shipment inspection requirements of the importing country • Find quality, testing, treatments and certification requirements and pass on these information to the producers and processors • Know if the product is eligible for entry to the country of export • treatments and conditions required • health certificates, safety test marks, or standards certification • Have full information of the product quality, quantity, production conditions of your export

24. Exporters2. Meeting the requirements • Beware of low quality products or products imported from elsewhere without having required value addition in the country. • For getting a favorable treatment on export, the goods should be produced wholly or there should be sufficient value addition within the country. • Provide information asked by importers • Get the feed-back from the consumers abroad • If you face any problem in export market, inform to the government • Give inputs to the government for trade negotiations

25. Thanks kppant@yahoo.com