The Crisis of Agricultural Subsidies in Nepal: A System Plagued by Inefficiency and Lack of Transparency

The state invests billions in agricultural subsidies annually, yet for the actual farmers, accessing these benefits is an uphill battle. While all three tiers of government provide subsidies, the lack of a systematic approach leaves farmers in a state of confusion. Small and new farmers face even greater challenges. Ratopati spoke with Dipesh Nepal, a young farmer and activist with the 'Agriculture for Food' campaign, regarding the current subsidy system and the problems it creates for farmers.

• What is the current state of the agricultural subsidy system in Nepal? Does it effectively reach the real farmers?

The biggest problem starts right here. There is no 'single-window system' for agricultural subsidies in Nepal. The distribution process is highly fragmented and opaque. The federal, provincial, and local governments each have their own procedures and methods. Farmers are confused. Even government officials are often unclear about which subsidies are provided by the local, provincial, or federal levels. The system is designed such that those with connections get the information and secure the grants. The real farmer, busy in the fields, remains unaware of when or how to apply. Consequently, the current system seems to benefit 'paper farmers' or the well-connected more than the actual cultivators.

• What are the differences between the subsidies provided by local, provincial, and federal governments? How do their procedures function?

With the implementation of federalism, all three tiers of government are active in subsidy distribution, but there is a massive coordination gap. The federal government does not directly distribute small or retail subsidies; it primarily works through large projects and the 'National Agriculture Modernization Project,' focusing on heavy machinery and strategic sectors. Provinces distribute subsidies through their district-based 'Agriculture Knowledge Centers,' each with its own budget and procedures. Local governments create their own guidelines to provide subsidies for small machinery (like mini-tillers), seeds, and small infrastructure. The problem is that farmers often have to run between all three levels for the same type of work, or they receive nothing at all. In some cases, there is widespread 'duplication,' where one person receives subsidies from all three levels while others get nothing.

• What are the irregularities and problems associated with subsidies for agricultural machinery?

Machinery subsidy is currently the area most prone to 'arbitrariness.' While guidelines state that machinery should be provided based on need, in practice, it is often distributed based on political influence, despite being labeled as 'demand-based.' In many places, machinery is distributed with 50 to 85 percent subsidies, but the issue is that farmers receive the machines without access to maintenance services, or the machines are unsuitable for their geography. In some instances, 'merchant farmers' have emerged who sell the subsidized machinery at a lower price to pocket the cash. Because the focus is on quantity rather than actual utility and technical aspects, these subsidies have not been effective.

• What kind of subsidies do farmers prefer and why?

If you ask ordinary farmers in the field, they prefer 'loan subsidies' or 'interest subsidies.' The main reason is 'cash flow.' When a farmer receives a subsidized loan, they can invest according to their needs—whether it is for building a tunnel or buying feed. With machinery subsidies, they are forced to accept whatever the government provides. Loan subsidies also make farmers more responsible since they have to repay the principal. However, there is a risk here too: many take loans at low interest rates in the name of agriculture and invest the money in land plotting or other businesses. Regulation in this area is extremely weak.

• You mentioned that subsidy policies vary by province; can you provide some examples?

Yes, differences in subsidy models are emerging between provinces. For example, look at Koshi Province. Recently, they have adopted a policy that emphasizes 'interest subsidies' over 'in-kind subsidies' (machinery, etc.). Their belief is that this reduces corruption and mismanagement associated with distributing machinery. Meanwhile, Bagmati and other provinces use a 'hybrid model,' distributing both machinery and interest subsidies. In Karnali Province, after complaints of extreme misuse of interest subsidies some time ago, the government halted them for a while before restarting them in a new way. Thus, the facilities available to farmers in the same country are inconsistent and unstable depending on the province.

• There is much discussion about production-based subsidies; what is it, and what is its status in Nepal?

Production-based subsidy is a system where the state provides incentive payments based on the amount a farmer produces. This is considered the most scientific and transparent model. In this system, the farmer does not receive a grant upfront; instead, they receive money per kilogram or liter after producing and selling the goods in the market. For example, the 5-rupee subsidy per liter of milk is an example of this. It only benefits those who are actually working. 'Fake farmers' cannot show production and thus do not receive the grant. However, this system is considered difficult to implement in Nepal because our market is not organized. The government finds it cumbersome to maintain records of how much a farmer sells and to manage a billing system, but if we want to improve agriculture, there is no alternative to moving toward this model.

• Why is it difficult for new startups and young farmers to participate in the subsidy process?

For young people entering the field, this is like a labyrinth. First, the lack of information. Second, administrative hurdles. The paperwork required to get a grant, the registration process, and the necessity of visiting government offices leave hardworking youth frustrated. The government often prioritizes established or large farms, but those with new technology and ideas do not have large infrastructure at the start. The guidelines do not cover such small but promising startups. Therefore, many young people work with their own investment without hoping for subsidies and eventually quit due to a lack of capital. Instead of creating difficult processes, the government should provide 'seed money' for startups.

• What reforms are needed to prevent the misuse of subsidies and make them effective?

Some concrete steps are necessary for reform. Instead of distributing money or machines, the government should establish 'model farms' in various places through public-private partnerships to demonstrate new technology. There must be a mechanism to strictly monitor where the machine is and where the loan was invested after the subsidy is granted. A farmer's profile should be digital, showing the record of subsidies received by a farmer in a given year with a single click. Farms or machinery receiving subsidies must be mandatorily insured. Subsidies should be viewed as an 'investment,' not as 'charity.' As long as the government uses them as a tool for political gain, they will not be utilized properly.

• Why do you think neither employees nor farmers have clear data and information on the subsidy process?

This is a very unfortunate situation. It is due to the tendency to hide or not organize data. Each ministry and department spends its budget in its own way, but there is no integrated report anywhere. Employees only know about their own level; local employees do not know what the province is doing. When journalists ask for information, they are often brushed off with excuses like 'the guidelines are being drafted' or 'it is in the selection process.' This lack of transparency is why corruption thrives. If the government were to transparently post details of all subsidies on a website, much of the mismanagement would decrease on its own.

• What is your suggestion to the government and stakeholders to truly use agricultural subsidies for the benefit of farmers?

My suggestion is clear: the subsidy system must be moved away from 'access' and linked to 'progress.' The government should stop distributing small machines for cheap popularity. It should guarantee the agricultural market. If a farmer gets a fair price for their produce, they do not really need subsidies. For small and marginalized farmers, arrangements should be made to provide subsidies through collective farming or cooperatives. Most importantly, the agricultural subsidy policy must be stable for at least 5-10 years. When guidelines change every year along with the budget, farmers cannot make long-term plans.