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January, 2005 |
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Economy & Policy |
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Agriculture Impressive Diversification BY Champak Pokharel This paper examines the trend of agricultural product diversification towards market-oriented production of high-value commercial products as against the traditional consumption-oriented production of low-value crops. While agricultural diversification is conventionally examined using proportion-based share of area under different crops, the analysis in this paper is based on the changes in the product mix of production composition away from the traditional crops and production towards high-value commercial products.1 The analysis covers the period 1990-2003 to coincide with the period when liberal economic policies were introduced and agriculture was considered as the main source of economic growth in Nepal. Share of Different Commodities in Gross Value Addition to Agricultural Output (%)*
*The shares are based on a three-year moving average with the base year of 1985. Source: Central Bureau of Statistics (CBS) Agriculture Impressive Diversification Four key indicators are
examined to analyze the trend of diversification towards high-value product:
(i) sub-sector diversification: reflecting diversification towards
sub-sectors within the agriculture sector; (ii) product diversification:
reflecting diversification towards certain products relative to other
products within the same sub-sector; (iii) agricultural export growth:
reflecting diversification towards export oriented products; and (iv) growth
in agro-industries: reflecting diversification towards products with
backward linkages and with domestic and external markets.
* Based on a three-year moving average on area an production of cereal crops, pulses, jute, and oil seeds as they depend heavily on monsoon Source: Statistical
Information on Agriculture, Ministry of Agriculture and Cooperatives; and
Economic Survey, Ministry of Finance Sub Sector Diversification There has been a shift from
production of traditional food grains towards high-value cash crops and
horticultural crops in the last decade, but the shift has been occurring at
a modest pace. A review of sub-sector diversification using gross value
addition by different sub-sectors shows that the share of cash crops and
horticulture has increased from about 20% in 1985 to 27% in 2003, while the
share of food grains has declined from 37% to 34% during the same period.
The share of livestock has declined from 33% to 27% over the period. Despite
being a priority output of the APP, the livestock sector has not performed
well in the last decade because of the decline in the herd size as well as
the poor quality of existing herds. Though opportunities exist, Nepal has
not been able to tap them by improving the productivity and marketability of
the livestock products.
Source: Statistical
Information on Agriculture, Ministry of Agriculture an Cooperatives; and
Economic Survey, Ministry of Finance Product Diversification Analysis of output growth
of different crops and their cultivated area (herds in case of livestock)
indicate that a significant change in product mix or production portfolio
has occurred within sub-sectors. Moreover, this change has been clearly
towards high-value and market-oriented products.
* Agricultural export is defined as the sum of three components (i) food and live animals (ii) tobacco and beverages, and (iii) vegetables and animal fats. Source: Nepal Rastra
Bank Field Crops A review of growth in area
and production of different field crops indicates increased production of
high-value and commercial crops relative to traditional crops. For instance,
growth rates are high for citrus, cut flowers, and for sugarcane and potato
in cash crops owing to a growing domestic and external demand. Production of
these crops has particularly benefited from removal of price distortions in
agricultural markets and a more favourable policy environment to facilitate
production, transport, and marketing facilities. In contrast, traditional
crops such as barley, millet, and pulses have grown relatively slowly during
this period. Livestock In the livestock sector,
production of eggs, chicken, and pork have significantly increased catering
to growing urban markets. The sector as a whole (with
exceptions such as duck meat) shows significant growth rates owing to strong
market demand for livestock products. Growth in Agricultural
Export Agricultural export has
grown at 21% on average during 1995-2003, much higher than the overall
export growth. Agricultural export account for about 15% of the total
export, with 75% of it going to India. The primary factor behind the
increase in exports has been the shift towards cultivation of high-value
commercial products. Expansion of Agro-industries The shift in agricultural
production towards high-value crops is further illustrated by data relating
to growth of agro industries. The share of agro-industrial production in
total industrial production has increased from 30% in 1991 to 47% in 2003.
This implies that farmers are increasingly producing crops and livestock for
sale to agro-based industries. Agro industries, which have benefited from
the liberalization of agriculture markets and private sector participation
during 1990s, now comprise more than half of the manufacturing GDP and about
4.5% of Nepal's overall GDP. As shown in figure, there
has been a strong growth in agro-industrial products. Growth of
agro-products with strong external demand such as vegetable ghee, tea,
noodles, and processed milk are the strongest. (%) of Agro-Industrial Production in Total Industrial Production in Nepal*
* Agro industry does not include woolen carpets Source: Nepal Rastra
Bank Conclusion Clearly, there has been
some progress towards transforming Nepal's subsistence agriculture into a
commercialized one through diversification. The production of cash crops and
horticultural crops has increased, fueling the growth of agricultural
exports and agro-based industries. However, the diversification has occurred
at a modest pace and has been unable to put agriculture on a higher growth
path necessary to meet the government's poverty reduction objective. Average Annual Growth Rate of Important Agro-industrial Products
Source: Central Bureau
of Statistics (CBS) (Based on a research article by the author to be published in a book "Agriculture Diversification in South Asia") |
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