Nepal's Paddy Economics

  Nepal's Paddy Economics

Paddy is one of the most important staple crop in Nepal. It plays a significant role in domestic production as well as meeting the calorie requirements of Nepali people. Here are few facts about paddy economy in Nepal.

1. Paddy accounts for a fifth of the agricultural output in Nepal.

Paddy production accounts for 20.7 percent of agricultural output and 60 percent of total cereal production in the country. The contribution of other major food crops viz. wheat and maize account for about 7 percent in agricultural output each and 20 percent in cereal production each. 

Composition of Agricultural Output (in percent)

2. The contribution of paddy in GDP is approximately 6 percent.

Being the most important food crop of the country, paddy production can largely influence the growth of GDP. The contribution of paddy itself in GDP amounts to almost 5.6 percent as of 2018/19. This implies that about 18 percent increase in paddy production can push the real GDP growth by one percentage point. 

 3.Paddy production is highly dependent on monsoon and is largely volatile with the monsoon cycles.

Paddy production has largely fluctuated following the monsoon cycles. During the last five years, production of paddy has increased by 3.5 percent on average. Such production has been estimated to decline by 1.05 percent in 2019/20.                                                                                                                                                   

Source: Ministry of Agricultural Development, Nepal

4. Paddy yield has increased over time but still lower than the regional average.

Paddy yield has increased over the last four years continuously by an average of 4.8 percent. Such yield has reached 3.80 metric tonne per hectare in Nepal which is below the average of South Asia (4.0 MT/HA)  and that of Asia (4.8 MT/HA). The world average of rice yield is 4.7 MT/HA. 

The countries with highest paddy yield are  Australia (10.4 mt/ha), Egypt(8.8 mt/ha) and USA(8.6 mt/ha). In  Asia, such yield is 7.0 in China, 4.7 in Bangladesh, 4.3 in Bhutan, 3.9 in India and 3.8 in Pakistan. 

 5. Nepal is one of the top 20 paddy producer in the world. 

In 2018, world output of paddy was 782 million metric tonnes out of which 5.2 million metric tone (0.7 percent of the world output) was produced in Nepal. Top producers of paddy in the world are China, India, Indonesia Bangladesh and Vietnam.

Source : FAO Statistics

6. In Nepal, paddy is grown mostly in Province 2, Province 1 and Province 5.

In 2018/19,  Province 2 contributed to the total paddy production by the highest 26 percent followed by province 1 and province 7. The contribution of  Province 6 in paddy production is just 2 percent only.

Source : Ministry of Agricultural Development, Nepal, 2019

7. In terms of districts, Jhapa, Morang and Kailali top the list of paddy production. 

The districts with largest paddy plantation area are Morang, Jhapa, Kapilbastu, Kailali and Rupendehi. These five districts cover 25 percent of the paddy plantation area of Nepal. On the other hand, districts with largest paddy production are Jhapa, Morang, Kailali, Rupendehi and Bara. These five districts accounts about 28 percent of the paddy production in Nepal. 

8. Bhaktapur has the highest paddy yield and Mugu has the lowest. 

Bhaktapur has an average paddy yield of 4.9 mt/ha followed by Dhading (4.4 mt/ha) and Nuwakot(4.2 mt/ha). Dolpa, Humla and Mugu has an average yield of less than 2 mt/ha. 

9. Nepal is a net importer of rice at present in contrary to its performance up to 1990's.

Nepal was sufficient in rice until 1990. In fact it was a net exporter of rice. Now, the country has become a net rice importer and the trade balance in the item is deteriorating each year.

Source: United States Department of Agriculture

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Challenges of Economic Development in Nepal

Challenges of Economic Development in Nepal

Nepal is still an underdeveloped country with low growth performance and low per capita income of $1034 only. Despite the achievements in poverty reduction and sociology-economic transformation in the last two decades, there are mounting challenges for the rapid economic development of the country. The major challenges for the economic development of the country can be listed as below:

—1. Poverty and Inequality

In Nepal, still 18.6 percent of the people are still absolute poor. The disparity of poverty between rural and urban area, among different castes and ecological belts is very much high. If we consider the multidimensional aspects of poverty that includes health, education and others, still one third of the population are poor. On the other hand, the inequality in income distribution has not reduced significantly. The Gini coefficient that shows the extent of income inequality is still high for Nepal. Thus, it is challenging to break the vicious circle of poverty and underdevelopment through rapid economic growth along with equitable distribution of the income.

—2. Unemployment

In Nepal, around 5 lakh youth join the labour market each year abut only less than 10 percent of them get employment opportunities in the country. The rest go for foreign employment. Around 1000 workers fly abroad in search for employment. In the agriculture sector of the country, there is disguised unemployment to a huge extent. It is thus challenging to address the problem of unemployment by creating job opportunities for the labour force in the public as well as private sector.

—3. Subsistence Farming Practices

The agriculture sector of the country contributes about one third of the nation's output and provides employment opportunities to around two-thirds of the labour force. However, due to lack of commercialization and modernization of the agricultural sector, agricultural productivity is low and we have to import even the food grains and vegetables from India in large amount. Lack of irrigation facility, traditional farming practices, and shortage of seeds and fertilizers are the main problems. Thus, it is thus a great challenge to transform the agriculture sector through commercialization of the sector, expanding irrigation facilities, road networks, storage, fertilizers and inputs and others.

—4. Geographical Difficulty

Nepal has difficult topographical situation. More than 50 percent of the area of the country is covered by hills and mountains. It has made the development of physical infrastructures in all the areas of the country very much difficult. Connecting and mainstreaming all the parts of the country to the path of growth and development is thus a great challenge ahead.

—5. Lack of Capital and Technology

The domestic saving ratio of the country is low (around 10 percent on the average for the past five years). Thus, we do not have enough resources required for capital formation. Due to political instability in the country, the country has not been benefited from foreign investment. In such a case, it has been a challenge to manage for the resources needed for capital formation and developing new techniques in the country and adopt the foreign technology so as to raise the productivity.

—6. Timely Construction of Earthquake Damaged Buildings

Even after the three years from earthquake of 2015, only about half of the 5,00,000 houses damaged by the earthquake has been reconstructed. The progress of the reconstruction of the government buildings, public schools, hospitals, old palaces, temples, and other historical monuments is not satisfactory. At present, there is a challenge to manage resources for their timely construction.

—7. Meeting the Resources for the new Federal Nepal :

After the formation of governments at the 753 local bodies along with the seven provinces, the need for resources has increased at an alarming rate. The resource need at the central government has also increased in order to address the mounting aspirations of the people. But the tax revenue and other form of revenues is not sufficient for meeting such resource needs. It is challenging to manage for the needed resources in order to sustain the federal structure of the country.

— 8. Expanding the Financial Access

Despite the growth in the number of financial institutions and their branches, still the access to financial services is not satisfactory. The bank branches and their activities have been concentrated in Kathmandu valley and some major cities of Terai only. All the local level bodies still do not have the presence of a commercial bank branch. The UNCDF survey done in 2014 shows that only 40 percent of the Nepalese have access to banks and financial institutions. The study by Nepal Rastra Bank done in 2019 shows that about 61 percent of Nepalese have access to deposit accounts. Thus, it is a challenging to expand the financial access and increase financial literacy to share the benefits from this sector equally.

— 9. Meeting the Sustainable Development Goals by 2030

Nepal has shown a commitment to meet the sustainable development goals by 2030 that includes an end of extreme poverty, improvement in health and education facilities, and rapid growth in income, among others. Attaining such goals demand a lot of resources and a strong commitment. With the present status of the resource mobilization of the country, it is a great challenge to manage resources for meeting the goals.

—10. Reviving the Industrial Sector

The share of the industrial output in the gross valued added has been falling over the years. In 2001, the contribution of the sector in GDP was around 9 percent that decreased gradually over the years and reached 5.6 percent in 2019. It is challenging to revive the industrial sector by increasing the competitive capacity of our products.

—11. Widening Trade Deficit

Due to rapid growth in imports in the recent years, the trade deficit has widened alarmingly. Currently, it has reached about Rs.13.2 billion per year. The trade deficit GDP ratio reached above 38 percent. In such a case, it is challenging to reduce such deficit by promoting our exports and substituting the imports.

Stylized Facts about Poverty and Inequality in Nepal (pdf here)

     Absolute Poverty

1. Absolute poverty decreased from 41.8 percent in 1995/96 to 25.2 percent in 2010/11(Source: NLSS Reports).
2. Decline in rural poverty is higher than the decline in urban poverty during the period (Figure 1).

Figure 1

3. As per the estimates of National Planning Commission, Nepal, absolute poverty in Nepal has reduced to 18.5 percent in 2018/19 (Economic Survey 2018/19).
4. In terms of absolute poverty across provinces, estimates from NLSS 2010/11 show that such poverty rate is lowest in Province 1(12.4 percent) and highest in province 7(33.9 percent) (Figure 2).

Figure 2

5. There is a widespread disparity across the districts in terms of poverty rates. There are five districts with absolute poverty rate below 10 percent and 5 districts with a poverty rate of 50 percent or more (figure 3).

Figure 3

 

5. Small area estimates of poverty rates based on NLSS 2010/11 data show that Bajura is the district with the highest poverty rate (64.1 percent) and Kaski is the district with the lowest rate (4.0 percent) (Figure 4).

Figure 4

7. The poverty headcount as per the World Bank $1.9 a day definition has reduced from 61.9 percent in 1995 to 46.1 percent in 2003 and further to 15.0 percent in 2010 (World Bank Database).
8. The multidimensional headcount poverty rate for Nepal is 28.62 percent as of 2014. 
9. Rural MPI poverty headcount ratio (33.2 percent) is much higher than for urban areas (7 percent).
10.  Province 6 has the highest MPI poverty rate (51.2 percent) whereas Province 3 has the lowest poverty (12.2 percent).

Figure 5

11. Province 2 has the largest number of multidimensionally poor people  (35 percent of the MPI poor) followed by Province 5 (20 percent). Province 4 has the lowest number of multidimensionally poor people (5 percent of the MPI poor). 
12. The MPI poverty has declined from 59.35 percent in 2006 to 39.13 percent in 2011 and further to 28.62 percent in 2014. 

Inequality

13. NLSS 2010/11 estimates show that consumption based Gini coefficient has reduced from 41.4 percent in 2003/04 to 32.8 percent in 2010/11. However, this is marginally above the 1995/96 level (figure 6).

Figure 6

14.  NLSS 2010/11 data show that almost 56 percent of the income in Nepal is held by the richest 20 percent of the population while only 4 percent of the income goes to the poorest 20 percent. The average per capita income of the richest 20 percent is almost 14 times the income per capital of the poorest 20 percent.

Figure 7

15. In terms of deciles, the richest 10 percent hold almost 40 percent of total income whereas the poorest 10 percent get only 1.5 percent.
16. The distribution of consumption shows somewhat a better picture. As per the estimates from NLSS 2010/11, 45.1 percent of the consumption expenditure is made by the richest 20 percent while such share for the richest 20 percent is 7.6 percent (figure 8).

Figure 8

17. In terms of decile groups, the richest 10 percent of the population hold 29.5 percent of the consumption where as only 3.2 percent of the consumption goes to the poorest 10 poorest.
18. Estimates from the World Bank show a similar picture. As per its estimates, Gini index showing the inequality of income distribution increased from 35.2 percent in 1995 to 43.8 percent and reduced to 32.8 percent in 2010.
19. The distribution of income among the income groups is very asymmetric. As per the world bank estimates, the poorest 20 percent of the population receive about 8.3 percent of total income while the richest 20 percent receive about 41.5 percent of the income.

Share of Income by Income Groups	1995	2003	2010
Poorest 20 %	7.80	6.50	8.30
Second 20 %	11.90	9.70	12.10
Third 20 %	15.60	13.40	16.20
Fourth 20 %	21.00	19.20	21.80
Richest 20 %	43.70	51.20	41.50
Source : World Bank

20. However, a study done by Oxfam shows that the level of inequality is worsening in Nepal over the years. In 2010/11, Nepal had one of the highest income Gini coefficients in the world at 49.42.
21. The study has shown that income inequality has widened considerably during 1995/96 to 2010/11.  

Figure 9

22. The Palma ratio, share of income by the top 10 percent and the bottom 40 percent shows that income of the richest 10percent of Nepalese is more than three times that of the poorest 40percent.
23. During the period from 1995/96 to 2010/11, only the richest 20 percent of Nepal’s population experienced an increase in income share. Such share decreased for all other groups.

Figure 10

24. Wealth inequality is substantially high in Nepal as shown by the wealth Gini coefficient of 0.74 (per capita).  The Wealth Palma ratio of 26.7 shows that the richest 10percent of the Nepalese people hold more than 26 times the wealth of the poorest 40percent.

Figure 11

25. Land inequality is the basic form of wealth inequality. The richest 7percent of households own around 31percent of agricultural land. More than half of Nepali farmers own less than 0.5 hectares of land and 29 percent of the population do not own any land at all (Oxfam Report).

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For Pdf version of this blog, visit herehttp://siddhabhatta.com/pdf/Stylized%20Facts%20about%20Poverty%20and%20Inequality%20in%20Nepal.pdf. 

References

https://blogs.worldbank.org/endpovertyinsouthasia/demystifying-economic-inequality-nepal

https://cbs.gov.np/poverty-in-nepal-2010-11/

https://oxfamilibrary.openrepository.com/bitstream/handle/10546/620607/bp-fighting-inequality-nepal-110119-en.pdf

https://www.nepalitimes.com/banner/nepals-great-income-divide/

World Bank Database available at https://data.worldbank.org/country/Nepal.