Current Status, Problems and Prospects of Agriculture Sector in Nepal

Current Status of the Agriculture Sector in Nepal

Nepal is an agricultural country with around 66% of its population depending on agriculture for their livelihood. Agriculture is the backbone of the Nepalese economy, contributing to around one-third of the GDP. The agriculture sector employs around 70% of the workforce and contributes 60% of the country’s export earnings. In this article, we will discuss agriculture’s current status, problems and prospects in Nepal using data from appropriate sources.


Read about Various Concepts of Agriculture and Farming

Crop Production:

Crop production is the most important aspect of agriculture in Nepal. The country is highly diverse in climate, soil, and topography, allowing the cultivation of various crops. According to the Ministry of Agriculture and Livestock Development, the major crops cultivated in Nepal are paddy, maize, wheat, millet, barley, pulses, oilseeds, vegetables, fruits, and spices. The table below shows the production of some major crops in Nepal from 2018 to 2021, according to the Ministry of Agriculture and Livestock Development.

Crop 2018 (in million tons) 2019 (in million tons) 2020 (in million tons) 2021 (in million tons)
Paddy 5.05 5.03 5.46 5.45
Maize 2.67 2.69 2.85 2.78
Wheat 1.83 1.89 1.94 1.87
Potato 2.69 2.65 2.68 2.63
Vegetables 7.31 7.56 7.82 7.78

The data shows that the production of major crops in Nepal has increased over the years, except for wheat, which decreased slightly in 2021. The production of paddy, maize, and vegetables has increased steadily over the years, indicating the growth of the agriculture sector.

Livestock Production:

Livestock production is an important part of agriculture in Nepal, especially for the rural population. The country has diverse livestock, including cattle, buffalo, goats, sheep, pigs, poultry, and fish. According to the Central Bureau of Statistics, the livestock population in Nepal was as follows in 2020:

Livestock Number of Animals
Cattle 7,581,100
Buffalo 6,875,300
Goats 8,913,700
Sheep 1,480,100
Pigs 1,369,200
Poultry 53,967,200
Fish 46,202,300

The data shows that the livestock population in Nepal is significant, with many animals like cattle and goats. Livestock production is an important source of income and nutrition for many households in rural areas.

Problems of the Agriculture Sector in Nepal

Nepal is primarily an agricultural country, with over 66% of its population depending on agriculture for their livelihoods. Despite this, the agriculture sector in Nepal faces several challenges, including:

  1. Limited Access to Technology and Inputs: Most farmers in Nepal still rely on traditional farming methods, with limited access to modern technology, improved seeds, fertilizers, and other inputs that can increase productivity and yield.
  2. Low Productivity: Nepal’s agricultural productivity is low due to the lack of access to modern technology and inputs. This is further compounded by poor soil fertility, inadequate irrigation, and limited access to credit.
  3. Climate Change and Natural Disasters: Nepal is highly vulnerable to the impacts of climate change, such as erratic rainfall patterns, floods, landslides, and droughts. These disasters often result in crop losses and damage to infrastructure, making it difficult for farmers to recover.
  4. Land Fragmentation: Land fragmentation is a significant issue in Nepal, with most farmers holding small landholdings. This limits the economies of scale, making it difficult for farmers to adopt modern technology and achieve economies of scale.
  5. Lack of Market Access: The agriculture sector in Nepal is largely characterized by subsistence farming, with limited access to markets, pricing information, and value chains. This has resulted in low prices for agricultural products, limiting farmers’ incomes and discouraging investment in the sector.
  6. Inadequate Agricultural Extension Services: The extension services in Nepal are inadequate, with limited reach and insufficient capacity to provide technical advice, training, and access to new technology and inputs.
  7. Inadequate Infrastructure: Poor infrastructure, particularly in rural areas, limits the transportation and storage of agricultural produce, making it difficult for farmers to access markets and obtain fair prices.
  8. Water Scarcity: Despite having several rivers and streams, water scarcity is a significant issue in Nepal, particularly during the dry season. This limits irrigation and reduces crop yields.
  9. Lack of Research and Development: There is limited investment in agricultural research and development in Nepal, leading to a lack of innovation and adaptation to changing conditions.
  10. Gender Inequality: Women in Nepal play a significant role in agriculture, but they often face social and economic barriers that limit their access to resources and opportunities.
  11. Policy and Regulatory Challenges: Policy and regulatory challenges, including inconsistent policies, inadequate enforcement of regulations, and corruption, make it difficult for farmers to operate and invest in the sector.
  12. Youth Migration: Many young people in Nepal leave rural areas to seek employment opportunities in urban centers or abroad, leading to declining agricultural productivity and rural development.

Read the Current Macroeconomic and Financial Situation of Nepal

Solutions to Agricultural Development Problems in Nepal

Some of the potential solutions to the problems facing the agriculture sector in Nepal are:

  1. Improved Access to Technology and Inputs: The government and private sector can invest in improving farmers’ access to modern technology, improved seeds, fertilizers, and other inputs through extension services, subsidies, and credit facilities.
  2. Increased Productivity: To increase productivity, there needs to be an investment in irrigation infrastructure, soil fertility improvement, and mechanization. Promoting modern farming techniques, conservation agriculture, and crop diversification can also help boost productivity.
  3. Resilience to Climate Change and Natural Disasters: To build resilience, there must be an investment in early warning systems, disaster risk reduction, and climate-smart agriculture practices. This will require close coordination between the government, NGOs, and communities.
  4. Land Consolidation: Land consolidation can help to increase the size of landholdings and provide opportunities for economies of scale, making it easier for farmers to access modern technology, inputs, and markets.
  5. Improved Market Access: The government and private sector can invest in improving infrastructure for the transportation, storage, and processing of agricultural produce. Promoting value chain development, including contract farming and market linkages, can also help increase market access and improve farmers’ income.
  6. Improved Agricultural Extension Services: The extension services in Nepal can be improved by investing in training and capacity building of extension workers, developing appropriate technologies, and strengthening linkages between research institutions and farmers.

Other solutions include investing in rural infrastructure development, providing credit facilities for farmers, promoting gender equality in agriculture, and creating employment opportunities for young people in rural areas to prevent migration. It will require collaboration and cooperation between the government, private sector, NGOs, and communities to implement these solutions and address the challenges facing the agriculture sector in Nepal.

Prospects of Agriculture development in Nepal

Despite the problems and challenges facing the agriculture sector in Nepal, there are several prospects and opportunities for the sector to grow and contribute to the country’s economic development. Here are some of the prospects for agriculture in Nepal:

  1. Growing Demand for Organic and Specialty Products: The global demand for organic and specialty agricultural products is growing, and Nepal has the potential to produce these products due to its unique climate, biodiversity, and organic farming practices.
  2. Export Potential: Nepal’s agriculture sector has the potential to increase its exports, particularly to neighbouring countries such as India and China. The government can invest in improving infrastructure, promoting value chain development, and establishing trade agreements to facilitate exports.
  3. Agro-Tourism: Nepal’s diverse geography and culture make it an attractive destination for agro-tourism, which can help to generate income for farmers and rural communities. Agro-tourism can include farm stays, culinary tours, and cultural experiences.
  4. Youth Engagement: There is a growing interest among young people in Nepal to engage in agriculture, particularly in organic and high-value crop production. With the right investment in training and support, young people can help to drive innovation and growth in the sector.
  5. Climate Smart Agriculture: Nepal has the potential to become a leader in climate-smart agriculture practices due to its vulnerability to climate change. By promoting climate-smart practices such as conservation agriculture, agroforestry, and climate-resilient crop varieties, the agriculture sector can increase its resilience to climate change and reduce greenhouse gas emissions.
  6. Investment in Research and Development: Investment in agricultural research and development can help to promote innovation, adaptation, and improved productivity in the sector. The government and private sector can invest in research institutions, extension services, and technology development to support the growth of the agriculture sector.

Current Status of Agriculture Finance in Nepal:

Access to finance is one of the significant barriers to the growth of agriculture in Nepal. According to the World Bank, only 12% of the country’s farmers have access to formal credit, and most farmers rely on informal credit sources, such as money lenders or friends and family. This lack of access to formal finance limits the ability of farmers to invest in modern farming techniques, inputs, and infrastructure, leading to lower productivity and income.

The main reasons for the lack of access to formal finance are the limited reach of financial institutions in rural areas, the high cost of credit, and the lack of collateral for farmers. Banks and other financial institutions have been hesitant to lend to farmers due to the perceived high-risk nature of agriculture, leading to limited loan disbursement to the sector.

Solutions to Increase Access to Agriculture Finance in Nepal:

Several potential solutions can be explored to increase access to finance for farmers and agribusinesses in Nepal. Some of these include:

  1. Development of Agriculture-Specific Financial Products: Banks and financial institutions can develop agriculture-specific financial products, such as crop loans, livestock loans, and equipment leasing, to cater to the specific needs of farmers and agribusinesses.
  2. Promotion of Digital Financial Services: Using digital financial services, such as mobile banking and e-wallets, can help reach farmers in remote areas and reduce the cost of financial services. The government can also incentivize the development of digital financial services for the agriculture sector.
  3. Creation of Agriculture Credit Guarantee Fund: The government can establish an Agriculture Credit Guarantee Fund to provide a partial guarantee for loans to farmers and agribusinesses. This will reduce the perceived risk for financial institutions and encourage them to lend to the sector.
  4. Promotion of Value Chain Finance: Value chain finance can help increase farmers’ access to finance by providing credit based on the expected value of their produce. This will help farmers to access finance based on their expected income rather than collateral.
  5. Development of Rural Financial Institutions: The government can promote the development of rural financial institutions, such as cooperatives and microfinance institutions, to increase access to finance for farmers and agribusinesses in remote areas.

Sources of Agricultural Finance

External Sources of Agricultural Finance:

  1. Government Funding: The government of Nepal provides funding to support agriculture activities in the country through various programs such as the Agriculture Development Fund, Agriculture Input Subsidy Program, and Agricultural Research and Development Program. These programs provide farmers and agribusinesses with grants, subsidies, and loans to support their agricultural activities.
  2. International Donors and Development Partners: International donors and development partners such as the World Bank, Asian Development Bank, and International Fund for Agricultural Development (IFAD) provide funding to support agriculture activities in Nepal. These donors provide grants, loans, and technical assistance to support the agriculture sector in the country.
  3. Private Sector Investments: Private sector investments can also be an external source of agricultural finance in Nepal. Private investors can invest in agriculture through equity or debt financing to support agriculture activities in the country.

Internal Sources of Agricultural Finance:

  1. Self-Financing: Self-financing is an internal source of agricultural finance where farmers and agribusinesses use their resources to fund their agricultural activities. This can include savings, profits, and income from non-agriculture activities.
  2. Informal Sources of Finance: Informal sources of finance are internal sources of agricultural finance, including borrowing from friends and family, money lenders, and local savings and credit cooperatives. These sources of finance are commonly used by small farmers and agribusinesses who lack access to formal finance.
  3. Formal Sources of Finance: Formal sources of finance such as commercial banks, microfinance institutions, and cooperatives are also internal sources of agricultural finance. These institutions provide loans, overdraft facilities, and other financial products to farmers and agribusinesses to support their agriculture activities.

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