On January 13, the Ministry of Agriculture and Livestock Development (MoALD) announced that, over the past five years, the government had disbursed a substantial Rs 107.66 billion in agricultural subsidies. Minister for Agriculture and Livestock Development, Ramnath Adhikari, disclosed the details of subsidies provided to agricultural cooperatives, groups and firms between the fiscal years 2019/20 and 2024/25.

The subsidies were distributed in two forms: direct and indirect. Direct subsidies amounted to Rs 20.30 billion, supporting projects run by the ministry in collaboration with domestic and development partners. This funding covered a wide range of initiatives, including sugarcane farmer incentives, agricultural insurance programs and premiums for livestock and fisheries insurance.

Among the recipients of the direct subsidies, the Prime Minister Agriculture Modernization Project (PMAMP) received the largest allocation, amounting to Rs 6.62 billion. The project benefited 141,670 cooperatives, groups and firms. The Rani Jamara Gulariya Irrigation Agricultural Program distributed Rs 184.86 million to 21,450 beneficiaries, while the Agriculture Sector Development Program allocated Rs 801.96 million to 27,650 cooperatives and groups.

Other notable subsidies included Rs 1.92 billion distributed through the Nepal Livestock Innovation Project to 11,150 beneficiaries and Rs 1.05 billion disbursed through the Food and Nutrition Security Improvement Project, which reached 46,226 cooperatives and firms. Additionally, Rs 4.07 billion was provided as incentives for sugarcane farmers, while insurance premiums for crops and livestock totaled Rs 564.29 million and Rs 5.13 billion, respectively. Indirect subsidies also played a significant role, with Rs 87.35 billion allocated for subsidized chemical fertilizers to support the country's agricultural output.

Concerns Over Utilization and Transparency

Despite the substantial funds allocated for agricultural subsidies, concerns are growing over their effective utilization. Minister Adhikari acknowledged public complaints regarding potential misuse of the subsidies, admitting that no comprehensive study had yet been conducted to evaluate their proper use. However, he confirmed the formation of a committee tasked with reviewing the distribution and utilization of subsidies.

“If agricultural subsidies are misused, action will be taken, and it should be taken,” Adhikari said, emphasizing the need for greater accountability. The ministry plans to urge provincial and local governments to disclose the names of associations, institutions, cooperatives and individuals receiving subsidies.

The latest annual report from the Office of the Auditor General (OAG) raised further concerns, revealing that despite significant subsidy allocation, intended outcomes such as improved agricultural production and reduced agricultural imports had not been achieved.

Agriculture Secretary Dr Govinda Prasad Sharma noted that the agricultural subsidies provided by the government have been fragmented, leading to suboptimal results. “The government should have integrated the various bodies working in the agricultural sector, but this did not happen,” Sharma said. “These bodies have been divided and delegated to local levels, where technical expertise is lacking. Responsibilities have been handed to elected representatives, but they have started prioritizing their own constituencies. Even at the provincial level, these organizations remain underdeveloped. The federal government still needs to provide guidance on technical aspects.”

A senior ministry official revealed that both government subsidies and loans from banks and financial institutions (BFIs) intended for the agricultural sector have been misused. “Loans are being approved without the involvement of local units or the ministry. Banks have been granting loans based solely on paperwork, and reports indicate that many of these loans are being diverted to other sectors,” the official said.

In response, the ministry, the Nepal Rastra Bank and the National Planning Commission are collaborating to implement reforms. “A new provision will soon require BFIs to approve loans only with the participation of local units and the ministry,” the official added.

Subsidy Utilization and Agricultural Performance

In fiscal year 2022/23, 87.59% of the Rs 41.15 billion allocated for agriculture subsidies was utilized. Despite this, the growth in agricultural output was modest—food production increased by only 0.046%, vegetable production grew by 4.31% and fruit production rose by 2.19%.

In contrast, agricultural imports have not decreased. In 2022/23, Nepal imported 1.3 million tons of food grains, 736,266 tons of vegetables, 291,896 tons of fruits, and large quantities of dairy, fish, meat and coffee. The total value of agricultural and livestock product imports was recorded at Rs 112.99 billion, further raising questions about the effectiveness of the subsidies in reducing dependency on imports.

The ministry's subsidy allocation for 2023/24 includes Rs 31.2 billion for chemical fertilizers, Rs 759 million for crop and livestock insurance premiums, Rs 736 million for sugarcane farming, and Rs 3.34 billion for other agricultural inputs such as seeds, seedlings, machinery and implements. Notably, 86% of the subsidy funds are dedicated to chemical fertilizer purchases.

Growing Investments by BFIs

Over the past decade, the agricultural sector has seen a significant rise in investment from banks and financial institutions (BFIs). From mid-July 2014, when BFIs invested Rs 50.9 billion in commercial farming and agribusiness, the investment has surged to Rs 418 billion by mid-July 2024—an eightfold increase. However, agricultural production has not kept pace. The average annual growth rate in agricultural production has been just 2.77% over the past decade, a decrease from the 3.27% growth rate of the previous decade.

At the same time, the import of agricultural goods has soared. This disconnect between the growing flow of credit and subsidies, and the lack of corresponding growth in domestic production, has been concerning. Critics suggest that funds intended for agriculture may have been diverted for other purposes, contributing to the gap between financial inflows and tangible improvements in agricultural outcomes.

Rethinking fertilizer subsidy

A significant portion of the subsidy budget has been allocated to fertilizers. A few years ago, the government was investing Rs 12–15 billion annually in fertilizers. This amount has now increased to Rs 30 billion. Currently, the government provides a 65% subsidy on fertilizers. However, experts say these subsidies are not delivering the expected benefits.

“A substantial portion of the subsidy is directed towards sectors like dairy, sugarcane, insurance, fertilizers and agricultural projects. Yet, there has been limited focus on promoting organic fertilizers. The impact of these subsidies has remained below expectations, as Nepal has not yet aligned its practices with the constitutional mandate. There should be a shift to empower local governments to implement targeted strategies, while federal and provincial authorities oversee their progress,” said Yogendra Karki, a former Agriculture Secretary. He further suggested that the government could reduce the subsidy while enhancing capacity of farmers by providing technical expertise through local units. “Rather than providing large subsidies, local governments could focus on organic fertilizers and identify potential agricultural products,” said Karki. The government introduced the Organic Fertilizer Subsidy Guidelines (2011) due to the prevalence of subsidized chemical fertilizers and fraudulent practices in the market.

“Nepal faces a recurring issue of chemical fertilizer shortages during the agricultural season, disrupting farming cycles and negatively impacting both farmers and the national economy,” Karki explained. He said provincial governments could take proactive steps to address the fertilizer crisis. “If provincial governments are allowed to procure fertilizers independently, it would help resolve the annual shortage. By taking responsibility for fertilizer procurement and distribution, they can ensure timely delivery to farmers,” Karki added.

Excessive Spending on Consultancy Services

The OAG report also highlighted the significant expenditure on consultancy services within the agricultural sector. In 2022/23, Rs 9.83 billion was allocated to four major projects—Agricultural Sector Development Program, Nepal Livestock Sector Innovation Project, Food and Nutrition Security Improvement Project, and Rural Enterprise and Economic Development Project. Of this, Rs 1.18 billion was spent on consultancy services, accounting for between 8.29% and 20.75% of the total project budgets.

The OAG has recommended that the government prioritize controlling consultancy expenses and instead utilize project manpower for tasks such as project implementation, monitoring, evaluation, procurement and accounting. This approach, OAG argued, would make better use of available funds and enhance the efficiency of subsidy programs.

A high-ranking official at the ministry questioned some clauses of the Procurement Act as well. Section 29 of the Public Procurement Act, 2006 states that a public body may procure consultancy services if it lacks the manpower required to carry out specific tasks. This year, Rs 9.83 billion has been spent so far on the following four projects, of which Rs. 1.18 billion has been allocated to consultancy services.

“A huge amount has been spent on consultancy services. And there has been a lot of duplication too. This amount could be spent on seeds and identifying potential agricultural products. But those in power have been providing consultancy services to their nearer and dearer ones,” said the official.

Need for Comprehensive Reform

With the implementation of federalism, the agricultural sector is now governed by all three levels of government—federal, provincial and local. However, the lack of a unified record for aid disbursement has created several issues, including the duplication of aid, incomplete tasks such as farmer identification and environmental assessments, and disbursements based on proposals without ensuring the participation of marginalized farmers.

There is also a lack of uniformity in the guidelines for aid distribution and poor coordination, leading to ineffective monitoring and evaluation of subsidy utilization. According to the OAG, this has prevented the expected growth in agricultural production and productivity from being achieved.

To address these challenges, the OAG has recommended several reforms, including the establishment of a national policy and management information system for import taxes, the updating of unified records for aid disbursement, and the creation of a more organized import tax system. The OAG has also stressed the need to strengthen monitoring and evaluation mechanisms to ensure the effective use of subsidies and agricultural aid.

As the government continues to allocate significant resources to the agricultural sector, the calls for transparency, accountability, and reform in subsidy distribution and usage has grown louder. Without addressing these concerns, the long-term sustainability and success of Nepal's agricultural programs remain uncertain.

To address these challenges and unlock the potential of Nepal’s agriculture sector, a few steps can be taken, according to Karki. First, the government can assign full agricultural responsibilities to local governments while federal and provincial governments act as supervisory bodies. Second, there should be regular field inspections to ensure subsidies are effectively utilized and not limited to paperwork. Third, local governments should identify potential crops based on the geographical and climatic suitability of their regions. Fourth, the government can reduce fertilizer subsidies from 80% to 50% to make farmers more competitive and self-reliant. Fifth, farmers should be categorized by the government. And finally, provincial governments should be allowed to procure fertilizers to ensure timely availability for farmers.

(This report was originally published in  February 2025  issue of New Business Age Magazine.)