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Commercialization of Agriculture: Opportunities and Challenges Krishna Prasad Pant

Commercialization of Agriculture: Opportunities and Challenges Krishna Prasad Pant

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Commercialization of Agriculture: Opportunities and Challenges

Krishna Prasad Pant

Context

• WTO to facilitate trade

• Trade facilitation means more competition and more opportunity

• Competition needs efficiency

• Agribusiness Promotion Policy 2063

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

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

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

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?

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

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

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

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

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

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

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)

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

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)

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

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

Input-push based agricultural policyfocusing on government expenditure

Market-pull based policy focusing on private investment

Business CreationA problem of many people is an opportunity for some

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

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.

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

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

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

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

Thanks

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