Month: April 2022

Cooperatives in agricultural transformation

Having the right people at the governance and management levels is critically important for the success of cooperatives.

Cooperatives in agricultural transformation
Padma Singh

Published at the Kathmandu Post: April 10, 2022 Updated at : April 11, 2022 11:26 

Cooperatives are member-driven organisations with a business mind and a social heart that are founded to satisfy immediate needs and address vulnerabilities. Cooperatives allow people to pool their resources to create their own economic opportunities, thereby changing individual risk into collective risk. Cooperatives have proven to be resilient and capable of responding to the consequences of crises like the Covid-19 pandemic and the 2008 economic crisis. Studies show that small farmers working collectively in strong producer organisations and cooperatives were better able to take advantage of market opportunities and stave off the negative consequences of food crises. 

As per the World Cooperative Monitor (2019), more than 12 percent of humanity is part of any of the 3 million cooperatives in the world, contributing to sustainable economic growth and quality employment, employing 280 million people across the globe. 

The formal development of cooperatives in Nepal dates from the establishment of the Bakhan Multipurpose Cooperative Society in Chitwan in 1957. There is a long tradition of informal community-based cooperatives in Nepal, including savings and credit associations like Dhukuti. The government enacted the first Cooperative Act in 1960, and it has since undergone several amendments, most recently in 2017. In 1992, there were 883 cooperatives in the country. The number has now mushroomed to 35,000 with 6.3 million members. Among them, about 7,230 cooperatives are engaged in core agriculture production. 

Although the efficacy of cooperatives in rural socioeconomic change is mixed, there are some encouraging examples of cooperatives being used to restructure the rural economy in Nepal and elsewhere. 

Agricultural transformation

The major constraint faced by farmers, especially small-scale farmers, is lack of marketing opportunities. Small-scale farmers are subjected to the “curse of smallness” as their output is too small to entice traders, and their input requirements are also too small to lure input suppliers. And as such, cooperatives fill in the gaps where individual business owners find it unprofitable to provide services or where farmers are unfairly exploited. The Milansar Social Entrepreneur Women’s Cooperative, which operates in Tansen, Palpa with Heifer International’s technical assistance, is a shining example of how cooperatives may help farmers connect to markets. 

Lack of access to agricultural loans is a systemic limitation to the commercialisation of the agricultural sector. Despite the regulatory requirement for banks and financial institutions to invest at least 11 percent of their total investment in agriculture, the actual figure is below 7 percent. Because of the considerable risk involved in lending to small-scale farmers, banks are willing to pay a penalty to Nepal Rastra Bank than comply with the regulation. Because cooperatives can minimise transaction costs and lessen the risk of default, they have the potential to serve as a financial intermediary for small-scale farmers. 

Inadequate and ineffective service delivery is a significant impediment to agricultural development. Because of institutional inconsistencies, political instability and poor governance, the capacity of institutions established to provide services (agriculture extension, inputs, credit, marketing) has been limited. Cooperatives have the potential to deliver services to the community. 

Cooperatives face a fundamental challenge in enhancing their economic viability and institutional sustainability. They fail due to weak governance, poor financial management, inactive members, insufficient member services, lack of working capital and lack of entrepreneurial ability.

Cooperative values and principles are the foundation of cooperatives. The challenge is to link cooperative ideals to governance operations at all levels, including the staff, members and board of directors. It has to be noted that cooperatives have a unique governance structure with the three primary constituents. The board of directors, staff and members with diverse backgrounds striving for the same goal.

Another challenge that cooperatives face globally is staying innovative and competitive. Innovation enhances the likelihood of adapting to changes and discovering new opportunities to provide members with better products and services.

Cooperatives formed with the federation of matured groups have a strong foundation of social capital that makes cooperatives strong. Most of the cooperatives in Nepal have a weak foundation of social capital, resulting in non-performing cooperatives. 

Way forward

Strengthening cooperative capacity in several domains such as governance, financial management, business management, and community and stakeholder engagement should be a significant component of the cooperative formation process. Numerous tools are available to assess and analyse capacity gaps in cooperatives. It is critical that cooperative employees and board members fully participate in the assessment process. An improvement plan should then be developed and implemented based on the capacity gaps. 

Having the right people at the governance and management levels is critically important for the success of cooperatives. Without them, no matter how much time cooperatives dedicate to capacity building, they will not achieve their anticipated results. It is critical that members are educated about the desired qualities of the board of directors and management. 

Developing smart cooperatives should be part of the strategy to make cooperative businesses competitive, innovative and capable of attracting capital and generating economic opportunities. It is important to facilitate the growth and development of economically viable, socially acceptable and environmentally friendly cooperatives.

In collaboration with NGOs, INGOs, and the private sector, national, provincial, and local governments should plan and implement a coordinated approach to building an enabling environment for cooperatives. Local governments, in particular, should prioritise the development of cooperatives by allocating resources and providing oversight. 

Cooperatives are largely business entities with a social mission that have shown to be robust in times of financial distress. Cooperatives can help commercialise agriculture as a sustainable community organisation in situations when government service delivery is poor, and the private sector is not inclined to invest in agriculture. It would be prudent for local and provincial governments to work together to create an environment that allows cooperatives to thrive as a viable instrument of community socioeconomic transformation.

Widening Agriculture Trade Deficit in Nepal*

     The conventional narrative of labeling Nepal as an agricultural country appears to be rhetoric rather than a reality, as Nepal, once a food exporting country, has now become a net food importer. Recent data from the Department of Customs bolsters previous reports that exports have stagnated while imports have skyrocketed. It is disheartening to see the import of cereals, fruits, vegetables, and animal products that can be domestically produced to be surging. As per the Customs data, import of cereal during the first six months (mid-July 2021 to mid-Jan 2022) of the current fiscal year 2021/22 has reached NRS 42.7 billion while it was 41.7 billion during the same period in the last FY 2020/21. Furthermore, cereal imports totaled NRS 79.5 billion in FY 2020/21, up from NRS 56.9 billion in FY 2019/20. Cereal exports, on the other hand, have been miserably low. The export value of cereal in FY 2020/21 was 5.4 million, down from NRS 17 million in FY 2019/20.

Imports at a high level indicate strong domestic demand and a growing economy. However, it is critical to investigate how a country pays for its imports. Because Nepal spends a significant amount of foreign currency primarily through remittances, its international trade is at risk due to the vulnerability of remittance inflows to geo-political situations and economic downturns. If the current trade deficit continues, Nepal’s food security will be jeopardized, posing a potential threat to National security. It entails an urgent call for action in reversing the trade deficit in agriculture. The subsequent discussion emphasizes the triggers of rising food imports, particularly cereals that Nepal can produce and meet the domestic demand, and puts forward actions for import substitution.

Triggers of Cereal Import

  • Increasing food imports can be attributed to low agricultural productivity, which occurs when domestic production does not keep pace with population growth. Adoption of improved technologies and production practices are critical drivers of agriculture production acceleration. According to IFPRI South Asia report Discussion paper 01781, December 2018), only 33% of households in Nepal use improved crop varieties, less than 10% use modern farm equipment, and fertilizer use is far below the South Asian average. There has been a marginal increase in crop yield during the past ten years. But it is too little and too slow. Agriculture is a labor-intensive industry, with per unit labor productivity of $794, one-fourth of that of other sectors (CBS, 2010). The weak performance of agriculture incentivizes youth to seek employment abroad. Reports from research and farmer field level demonstrations indicate a significant productivity gap between current and potential production levels.
  • One of the factors contributing to the increase in food imports is a shift in food consumption patterns. A growing rice-eating culture that deviates from traditional maize, millet, and potato consumption has increased rice demand, which now accounts for 60% of total food imports. There is also a preference for imported long-grained aromatic rice. In addition, the demand for processed foods such as noodles, burgers, and pizza are increasing.
  • Inadequate and ineffective service delivery is a significant impediment to agricultural development. Because of Institutional inconsistencies, political instability, and poor governance, the capacity of institutions established to provide services (agriculture extension, inputs, credit, marketing) has been limited. And, as a result of competing authority and jurisdiction, the federal governance structure has added to the complexity of service delivery. Farmers are still fighting for better seeds, fertilizers, credit, a fair price for their produce, and technical advice after years of political upheaval. A chronic problem impeding agricultural development is a lack of coordination among service-providing agencies.
  • The fragmented value chain of cereal crops contributes to demand and supply disruption. In moving agricultural produce from farm to fork, there is no integration of functions (input supply, production, aggregation, transportation, processing, grading, packaging, marketing, and so on). Value chains are most effective when their actors work together to produce higher-quality products and generate more income for all participants along the chain.
  • Because of the higher cost of production, Nepalese products have a lower competitive advantage. Foreign products, primarily Indian, are heavily subsidized and produced at a significantly lower cost, displacing Nepalese products in the domestic market.
  • Youth outmigration for employment has had a negative impact on local agriculture and food self-sufficiency. The agriculture sector is frequently experiencing labor shortages and land abandonment. As a result, it is estimated that one-third of the cultivated area is barren.

Call for Action

 The country’s urgent need for food security is to increase domestic production and productivity of food commodities. A shift in producers’ and agriculture service providers’ mindsets from supply-driven to demand-driven program implementation is required for long-term production growth. One example of this shift is the adoption of value chain-based commodity programs that integrate and collaborate on a variety of functions ranging from production to end-market consumers. The cooperatives and producer organizations partnering with public and private sectors as Public-Private and Producer Partnership (PPPP) further stimulates collaboration in program implementation. Increased production is inextricably linked to the capacity of service delivery institutions. It is impossible to successfully implement plans, policies, strategies, and interventions without a structurally and functionally efficient service delivery (extension, research, input, marketing, credit, etc). With the current federal governance structure, a comprehensive capacity assessment of public and private service delivery systems at the municipal, provincial, and national levels is needed to identify capacity gaps.

Contextualizing Agriculture Development Strategy (ADS), Sustainable Development Goal (SDG) targets, and national policies are critical actions that must be completed at the municipal level resulting in a municipal agriculture development plan of action with clear delineation of responsibility and accountability. Youth involvement in agriculture should be prioritized as a program package. To continue and expand the youth engagement program in agriculture and to reintegrate migrant returnees and engage youth as agri-entrepreneurs, it is necessary to reinstitute rural youth programs under the government structure.

The traditionally grown variety of nutrient-dense millets such as Kodo (Finger millet), Junelo (Sorghum), Kaguno (Foxtail), Chino (Proso millet), and Bajra (Pearl millet) used to be a staple food in many parts of Nepal but has since been replaced by rice. It is necessary to raise awareness about the nutritional value of KuAnna (Inferior grain) and dispel the traditional KuAnna myth, which will help reduce rice imports by increasing dietary diversity. In recognition of millets’ nutritional value, the United Nations General Assembly has declared 2023 the International Year of Millets

            The right to food is enshrined as a fundamental right of the people in Nepal’s constitution. The staggering food import figures indicate that food insecurity is on the horizon. Can the country go about its business as usual? How long must people wait before they realize their right to food is guaranteed in reality, not just on paper?

  • This article is publised in The Kathmandu Post on Jan 30, 2022