Investment Gap in Agriculture
Agriculture in Data
An agricultural holding is defined as an economic unit of agricultural production under single management comprising all livestock and poultry kept and all land used wholly or partly for agricultural production purposes. According to Nepal Sample Census of Agriculture 2011/12 there are 3,831,093 such agricultural holdings in Nepal. Compared to 2001/02 census there is an increase of about 13.89% (466993) holdings. This increase is very low than previous censuses, 23% in 2001/02 and 25% in 1991/92. In a span of 60 years, from 1961/62 to 2011/12 the number of holdings increased by 2.29 million. Nepal Outlook has taken this effort to bring together agricultural scenario and challenge in data.
However, there is a huge change in number of agricultural holdings; Nepal’s agriculture sector is still far behind from being commercialized and mechanized. Commercialization and mechanization of agriculture needs investment. Looking in to the data enumerated by the agriculture census the proportion of holdings availing agricultural credit to finance their farming is very low. Comparing previous year’s data there is no visible change seen in agriculture financing. In 1991/92 out of total holdings only 23% availed agricultural loan. Similarly in 2001/02 it was 24%. In 2010/11 it further dropped to 21.82%.
Growth of Financial Institutions (numbers) as of 21 August 2020
| Financial Institutions | 1990 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| Commercial Banks | 5 | 18 | 20 | 25 | 26 | 27 | 31 | 32 | 31 | 30 | 30 | 28 | 28 | 28 | 28 | 27 |
| Development Banks | 2 | 28 | 38 | 58 | 63 | 79 | 87 | 88 | 86 | 84 | 76 | 67 | 40 | 33 | 29 | 20 |
| Finance Companies | – | 70 | 74 | 78 | 77 | 79 | 79 | 69 | 59 | 53 | 48 | 42 | 28 | 25 | 23 | 22 |
| Micro-finance Financial Institutions | – | 11 | 12 | 12 | 15 | 18 | 21 | 24 | 31 | 37 | 38 | 42 | 53 | 65 | 90 | 85 |
| Total | 7 | 127 | 144 | 173 | 181 | 203 | 218 | 213 | 207 | 204 | 192 | 179 | 149 | 151 | 170 | 154 |
If we look at the table above we can see increase and decrease in its number of financial institutions. In 1990 there were only 7 financial institution including 5 commercial banks and 2 development banks. In 2011 there were 218 financial institutions. Currently there are 154 financial institutions, including 27 banks, 20 development banks, 22 finance companies, 85 micro finance development banks. These data do not include Insurance Companies, Infrastructure Development Bank, Citizen’s Investment Trust, Employ’s Provident Fund, Cooperatives and Other financial institutions licensed for financial intermediary operations. The existing provision requires commercial banks to disburse minimum 10 percent of their total credit to agriculture sector and minimum 15 percent to energy and tourism sector. Similarly there is policy provision for the development banks and finance companies to extend at least 15 percent and 10 percent of their total credits respectively to the priority sector. But table below shows that commercial and development banks are far below central bank’s mandate. Last three years data shows that agriculture sector loan did not exceed 6 percent in commercial banks.
Sector wise loan and advances of Commercial and Development Banks (mid July 2019)
| S.N | Sector | Percentage of Total Loan | ||
|---|---|---|---|---|
| 2017 | 2018 | 2019 | ||
| 1 | Agriculture Forest | 4.23 | 4.6 | 5.26 |
| 2 | Fishery | 0.12 | 0.11 | 0.14 |
| Percentage of Total Loan | ||||
|---|---|---|---|---|
| 2017 | 2018 | 2019 | ||
| 1 | Agriculture Forest | 5.5 | 5.96 | 6.24 |
| 2 | Fishery | 0.13 | 0.13 | 0.21 |
These data’s show that however, number of financial institutions is increased in last two decades, agricultural financing is not satisfactory. Agriculture Census data shows that farmers had most of the source of credit from non-institutional or informal types of source likes relatives, private lenders and others. If we observe sources of credit we can see 34.57% of holdings borrowed agricultural credit from relatives, 5.78% from undisclosed sources, while 8.68% borrowed from commercial banks, 12.61% borrowed from Agricultural Development Bank/Nepal and 15.68% from savings and credit cooperatives. In total scenario, only 21.82% of agricultural holdings borrowed agricultural credit. That means still 78.18% of agricultural holdings have no agricultural credit or investment.
Number, area of holdings and number of holdings reporting agricultural credit by total area of holding
Number, area of holdings and number of holdings reporting agricultural credit by total area of holding
| Province | Holdings with credit by main source (%) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| No. of holdings | Holdings without agricultural credit % | Cooperatives | ADB/N | Commercial Bank/financial institution | Farmer's group | Women's group | Relatives | Other | |
| Province 1 | 717148 | 79.48 | 16.62 | 16.76 | 12.2 | 9.64 | 12.31 | 29.71 | 2.76 |
| Province 2 | 672927 | 73.76 | 9.66 | 18.75 | 11.02 | 3.97 | 8.42 | 39.12 | 9.05 |
| Bagmati | 658776 | 79.54 | 25.23 | 7.42 | 4.54 | 12.76 | 16.11 | 31 | 2.93 |
| Gandaki | 413300 | 85.84 | 19.97 | 12.04 | 10.55 | 7.06 | 15.31 | 33.22 | 1.86 |
| Province 5 | 697293 | 78.45 | 14.84 | 13.73 | 9.95 | 10.15 | 14.01 | 32.45 | 4.87 |
| Karnali | 261770 | 72.14 | 16.92 | 3.87 | 4.34 | 13.31 | 9.3 | 42.92 | 9.34 |
| Sudurpaschim | 409879 | 76.66 | 9.6 | 7.48 | 4.92 | 14.55 | 17.47 | 36.48 | 9.51 |
| NEPAL | 3831093 | 78.18 | 15.68 | 12.61 | 8.68 | 9.74 | 12.95 | 34.57 | 5.78 |
Examining Provincial data, we can see 27.86% of holdings in Karnali Province have agricultural credit, the highest among the Provinces. Province 2 comes second with 26.24% and Sudurpaschim Province with 23.34%. Similarly, 14.56% of holdings in Karnali province have agricultural credits from relatives and individuals and only 7% of credit from financial institutions like commercial banks, ADB/N and cooperatives. Sudurpaschim province is among the provinces having least agricultural credit from financial institutions, which is 5.13%.
Investment in agriculture is directly related to production and food security. Less investment in agriculture results less production and high food insufficiency. Agriculture Census report reveals food insufficiency in various provinces, among all Provinces Karnali province has the highest insufficiency of own produce for household consumption, which is 74.71%. Similarly, Gandaki Province has 67.80%, the second highest insufficiency of own produce for household consumption. Overall scenario showed that 59.91% of holdings reported that they are insufficient in food from their own produce. So, how are farmers coping with year round insufficiency of food? Income earned through own non-agricultural business, wage earnings (within district and outside district), pension, borrowings and other means of earning are adopted by many of the farmers for livelihood.
| Province | Total number of holdings | Percentage of holdings reporting insufficiency of own produce for household consumption |
| Province 1 | 717148 | 57.01 |
| Province 2 | 672927 | 57.69 |
| Province 3 | 658776 | 54.28 |
| Province 4 | 413300 | 67.80 |
| Province 5 | 697293 | 56.66 |
| Province 6 | 261770 | 74.71 |
| Province 7 | 409879 | 65.85 |
| NEPAL | 3831093 | 59.91 |
‘A declining long term trend in public investment particularly in agricultural support and productivity limits the productive capability in the agriculture and its ability to benefit from the rise in output prices.’ (Prof. Dr. Pyakuryal Bishwamber ; ‘Nepal’s Development Tragedy Threats and Possibilities’)
However declining, Nepal’s agriculture sector still has highest share in GDP. And there is still huge number of population depending on agriculture for livelihood. To fill the investment gap in agriculture and productivity an urgent review of investment financing strategy is needed.