Policy Impact Analysis Of Agriculture Policies For Food Security And Income Of Small Holder Farmers In Nepal : A Multi Market Model

Nepal,a country with 28.9 million population,has 28.7% agriculture land of its total 14.7 million hector area.Nepal experienced food deficit in the year 2016 after recording surpluses for the last five years from 2010 to 2015.Nepal has seen this pattern for last few decades where some years are food balance while other years are food sufficient.For example,the food balance was 4,43,057 metric ton in 2010 while it was 1,55,558 ton food balance in 2014(Ne KSAP,2015).However,the year 2016 saw 71,387 ton food deficit(Mo AD,2018).Achieving Food security remains an important agenda for government in Nepal.Four main pillars of Food security according to FAO(2009)are food availability,food access,use and utilization.While food availability is mainly related to production of food,access to food is largely influenced by agriculture and food policy of the specific country.Scientific innovations in the areas of seed,gene modification,yield growth has helped in making food available by increasing production but at same time policy related issues are also responsible for hindering access to food.What government policies are conducive for maintaining food security? In relation to that,this dissertation examines five policy scenarios relation to agriculture policy of Nepal including(1)a reduction in the tariffs imposed on food imports with respect to rice(2)an improvement in the rural infrastructure reducing transactions costs and marketing margins between urban and rural price;(3)a reduction in storage costs,and a combination of reduced transportation and storage costs to reduce seasonal price variation;(4)the introduction of a subsidy on fertilizer imports;and(5)an increase in rice productivity following from improved agriculture extension services and/or supplying high yielding varieties.By examining these policy scenarios,the study aims to find out the reasons on how food security can be achieved in Nepal and whether there will be increased income of small holder farmers.The broad objective of this study is to examine the impact of the policy and to explore policy options that are more targeted to rural poor and effective.It also looks into the existing institutional structures and will ask if these structures enhance or hinder food security and income of small holder farmers.It is hoped that the study will help to mitigate syndromes of global change in agriculture price,improve livelihoods,increase food security and better socioeconomic system of Nepalese farmers.This study will use a Multimarket model(MMM)to carry out ex-ante analysis of agriculture policy.The structure of this multi marker model has Six blocks of equations compromising of 1)Prices,2)Supply,3)Input demand,4)Consumption 5)Income and 6)Equilibrium conditions.They are given in detail in the methodology section.Data from Nepal living standard survey 2011/12 and FAOSTAT has been used for the data calibration purpose and both GAMS and EXCEL has been used for policy the simulation of policy scenarios.A series of policy experiments have been conducted in the study – ranging from import reduction,imposing tariffs and fertilizer subsidies to increases in productivity and reduction of transaction costs – to assess the impact of these alternatives on the well-being of urban and rural,poor and non poor households in Nepal.The study found that Fertilizer price subsidies of 20 percent have a reasonably large effect on food security and the incomes of the poor.If 20 percent fertilizer subsidy is given,It also leads to Fertilizer demand increases by some 9.5 percent.The lower input costs lead to higher production levels for rice(7 percent),course grains(2.3 percent),roots and tubers(0.6 percent),cash crops(1.9 percent)and other food(0.4 percent).By giving subsidy in fertilizer,Nepal can reduce rice imports.Although there is a reduction in tariff revenue for the government from fertilizer subsidy,the balance of payments position of Nepal does not deteriorate as the gain in foreign exchange from importing 50 percent less rice more than offsets the foreign exchange loss from importing fertilizer.By giving subsidy in fertilizer,Nepal can reduce rice imports.According to these simulations,fertilizer subsidies induce the largest increase in land use also as most of the land goes barren recently in Nepal.It should be also noted that there are environmental consequences from greater land use and from the use of chemical fertilizers,the risks of which should be further studied.The policy with the smallest impact on poverty is the 20 percent reduction in tariffs imposed on rice imports.This follows because of the inherent dilemma of rice producers being both buyers and sellers of rice.The study found that when tariffs is reduced by 20 percent,Rice imports rise by 3.8 as production falls by 0.1 percent)and consumption rises by 0.4 percent).But because the tariff rate is reduced,Nepal government import revenues from rice fall by 5 percent.As demand and consequently imports of non-food products and fertilizer fall,so do tariff revenues.Overall,government import revenues decline 3.4 percent.A reduction in the price benefits the buyer and hurts the seller.Thus this policy has smallest impact on poverty.It is expected that the findings will promote not only on discussion and debate around the impact of agriculture policy on food security and income of small holder farmers in resource scarce area of Nepal but also on the role and need of ex-ante policy analysis.Policy makers can make more informed decision from ex-ante analysis to devise the effective policies.