32
NEPAL ECONOMIC FORUM
DOCKING NEPAL’S ECONOMIC ANALYSIS
AGRICULTURE
AGRICULTURE AGRICULTURE AND LIVESTOCK The country has been witnessing an ever-expanding trade deficit as imports of agriculture commodities like edible oil, cereals, and sugar continue to soar. Prices of edible oil and meat have also undergone a notable rise in the first ten months of the Fiscal Year (FY) 2020/21. The increase in meat prices could be attributed to increased meat consumption among Nepalis in recent years. Furthermore, there has been an effort to push the country towards selfsufficiency in rice production. TRADE OF AGRO-COMMODITIES Agriculture imports on the rise despite COVID disruptions: In FY
2020/21, the agriculture goods import bill reached NPR 325 billion (USD 2.73 billion), a 30% increase of the FY 2019/20 amount. As a result, the share of agriculture in the country’s total import bill has increased to 21%, as indicated by the statistics published by the Department of Customs.99 The surge in agriculture import bills could be attributed to the heightened purchases of edible oil, cereals, and sugar. The import value of edible oil surged by NPR 32.66 billion (USD 274 million) to NPR 82.9 billion (USD 696 million) in just a matter of one year, with annual imports of crude soybean oil crossing the NPR 52.95 billion (USD 445 million) mark, which has also “become the country’s top export commodity within a year”. The soybean imports totaled 452,626 tonnes, and NPR 40 billion (USD 336 million) worth of soybean oil was imported from Argentina alone. Nepali traders enjoy a profit margin of 45% by importing crude oils at minimum tariff and again exporting them to India at zero tariffs. The rise in the country’s import bill is primarily due to a massive surge in demand for imported edible oils,
which are again re-exported by Nepali traders to India at a net profit of 45%. Nepal enjoys a zero-tariff policy on its exported goods as mandated by the South Asian Free Trade Area (SAFTA) agreement, which has been exploited by traders to engage in rent-seeking activities; they have been extracting profits without adding any value to the economy in the process of importing and exporting edible oils. Such action is counterproductive to the entire intent of the SAFTA agreement, which is to alleviate trade deficits for countries like Nepal by promoting exports through the removal of trade barriers in the likes of tariffs. Instead, re-exporting edible oils has put the nation’s trade balance under a greater strain with the purchases of the crude oils from other countries reaching an all-time high. It is imperative that Nepal avail itself of trade agreements like SAFTA, for instance, to promote more productive and sustainable exports so that the country could gain and maintain a foothold in the global market for a longer period. Likewise, cereal imports spiked by NPR 22.71 billion (USD 191 million), exceeding NPR 79 billion (USD 663.3 million) in FY 2020/21. Sugar imports increased to NPR 12.26 billion (USD 103 million) from NPR 4.27 billion (USD 36 million) in the
last fiscal year. Due to an increasing number of farmers opting for the production of other crops, domestic sugarcane production has continued to dwindle causing a demand-supply gap. While the domestic demand for sugar was 250,000 tonnes, the domestic supply was limited to 105,000 tonnes in the last FY. Soaring imports combined with stagnant exports have led to trade deficit ballooning, with the deficit rising by 27.26% over one year.100 PRODUCTION UPDATES The momentum of paddy harvest is still as strong: The incidence of
heavy precipitation as well as people migrating back to their villages amid the lockdown has helped farmers maintain last year’s pace of paddy harvest, a promising sign for the COVID-19 affected economy. As per the Department of Agriculture, 88.75% of the 1.37 million hectares of arable land has been cultivated as of July 2021, owing to abundant and “above normal” rainfall the country reported this monsoon. Sudurpaschim province experienced the highest transplantation rate (96.74% of 164,639 hectares) followed by Karnali province (93.82% of 38,385 hectares) and Lumbini province (92.24% of 303,593 hectares).101
