When Help Hurts

Agricultural subsidies could be seen as a cornerstone for developmental efforts to support smallholder farmers. These subsidies are the financial aid governmental and non-governmental agencies provide to support farmers, stabilize food prices, and ensure food security. They might take the form of direct payments to farmers, tax deductions and breaks, price support schemes, or subsidized inputs like fertilizers, seeds, and irrigation. In Nepal, where the agricultural sector employs 57.3% of the total population, and accounts for 24.1% of the national GDP, subsidies can be perceived as a major component of agricultural policy.^[1]

The Government of Nepal began providing subsidies in the late 1950s and early 1970s. However, by the late 1990s, the scale and frequency of these subsidies had significantly declined. This downturn can be attributed to economic challenges during the 1990s, including political instability and resource constraints, which likely limited the government’s capacity to sustain such programs. Following the establishment of Nepal’s federal government in 2018, subsidy initiatives gained renewed momentum, with provincial and local governments actively enhancing support for the agricultural sector.^[2]  For the fiscal year 2024/25, the government has designated approximately 3% of the total national budget, which amounts to NRs. 57.29 billion, for the development and promotion of agriculture and livestock. This includes a dedicated allocation of Rs. 2.98 billion for the Prime Minister’s Agriculture Modernization Project, which aims to modernize farming practices and enhance productivity.^[3]

The Karnali region, one of Nepal’s most agriculturally vulnerable areas, will benefit from NRs. 820 million allocated to the Integrated Karnali Irrigation Development Programme, which will operate across all 10 districts of the province. These financial commitments reflect the government’s focus on revitalizing the agricultural sector of this region. Not only this but for decades, this region has been a focal point for development interventions, both national and international. These organizations have made remarkable contributions to enhancing productivity and uplifting the livelihoods of farmers. They have played a vital role in stabilizing agricultural commodity markets by aiding low-income farmers, raising unduly low returns to farm investments, compensating for monopoly in farm input supply and farm marketing industries, and providing various other services.

During our recent visit to Surkhet to assess the adoption of Climate-Smart Agriculture (CSA) practices and agricultural value chain development, it became evident how development agencies play a crucial role in addressing the challenges faced by farmers and supporting the agricultural sector through similar initiatives. While the purpose behind these initiatives is noble, our conversations with local farmers painted a clear picture of how this well-intentioned design has led to some silent unintended consequences.

The subsidy dilemma

One of the main issues with Nepal’s subsidy system is its inefficiency. Bureaucratic red tape, corruption, and mismanagement frequently prevent these subsidies from reaching the farmers who need them most. It is not unusual, for subsidized supplies to be sold at inflated rates in the black market. During our conversations with a smallholder farmer group in Birendranagar Municipality, we learned that subsidized power tillers provided to farmers were later sold for money. This incident highlights issues of negligence and the absence of effective monitoring mechanisms. Similarly, politically connected individuals, high-ranking officials, and larger landowners often capture a disproportionate share of these subsidies, leaving the targeted beneficiaries of these programs, the marginalized and smallholder farmers to fend for themselves.

Subsequently, while these initiatives aim to bolster agricultural productivity and improve livelihoods, a troubling pattern seems to be emerging, even the farmers who are financially capable of scaling their operations themselves are holding back, waiting for subsidies from the government and development organizations. This pattern of dependency deepens vulnerabilities within the agricultural sector. Farmers accustomed to external aid risk becoming over-reliant, losing the drive or capacity to adapt independently to challenges. If these ongoing projects were to conclude or if funds were to dry up, the repercussions could be severe. Without the support they have grown to rely on, many farmers may struggle to maintain their operations, leading to widespread instability across the sector.  This instability could ripple beyond individual livelihoods, threatening food security in the region as a whole.

Another issue lies in the sustainability of these projects. Many development programs focus on short-term goals, with limited follow-up once the initial phases are completed. Training sessions, when conducted, often lack the consistency needed to embed new practices effectively. This lack of sustainability leaves many farmers back where they started after the support is withdrawn. For instance, infrastructure, tools, or seeds provided during these initiatives often fall into disrepair or are misused without proper maintenance and oversight plans. Furthermore, a lack of collaboration between partner organizations and government bodies has resulted in the absence of a proper evaluation mechanism. This leaves an unclear accountability for assessing the program’s effectiveness post-implementation.

Environmental degradation is another unintended consequence of these initiatives. To give an example, the government has set aside NRs. 27.95 billion for the fiscal year of 2024/25, to ensure a timely and adequate supply of fertilizers.^[4] The overuse of chemical fertilizers and pesticides, driven by these subsidies, has taken a toll on the country’s natural resources. However, these environmental costs are rarely accounted for in the design of subsidy programs. These pesticides can be attributed to declining soil health leading to physical damage to the soil, contamination of water bodies and ultimately causing erosion over time.

There are also profound social implications to this aid dependency. By constantly positioning farmers as recipients of external help, these programs unintentionally reinforce a sense of inferiority. It chips away their confidence, farmers start seeing themselves as dependent, rather than as capable contributors to the economy. This mindset stifles risk-taking, halts creativity, and creates a vicious cycle of reliance. 

Furthermore, the blanket nature of subsidies often overlooks the diversity of needs within farming communities. While some farmers may indeed require financial assistance, others might benefit more from other initiatives like access to markets, training in value chain development, improved infrastructure, or in-field agricultural training. Such a one-size-fits-all approach wastes resources and obscure opportunities to create targeted, impactful change.

Rethinking the approach

These observations from Surkhet point to an urgent need for a shift in the approach to development interventions. The first step is to recognize that subsidies, while useful in certain contexts, are not the solution for all situations. Farmers must be equipped with the tools to take charge of their futures. Such capacity-building programs not only provide immediate solutions but also create a foundation for long-term resilience.

Additionally, to guarantee that subsidies reach the farmers who need them the most, policymakers must take a more targeted approach. This can entail tracking the distribution of subsidized inputs and reducing leaks through the use of digital technologies. Additionally, to maintain continuity and track the long-term effects of treatments, programs require robust monitoring and evaluation mechanisms. Follow-ups can help identify gaps and adapt strategies as necessary, ensuring that the support provided leads to meaningful, lasting change.

Apart from this, encouraging co-investment models can also make a significant difference. When farmers are required to contribute partially to project costs, they develop a sense of ownership and accountability. This approach aligns with existing government initiatives that cap subsidies at fifty percent, as we learned during our discussions with local government representatives in Surkhet. Such measures not only reduce dependency but also ensure that they remain invested in the outcomes of these programs.

Finally, the collaboration among different government bodies, development agencies, and local communities is essential for moving beyond a model that merely provides aid and creating a framework that ensures long-term agricultural resilience in areas like Surkhet. Working together can ensure that resources are used efficiently and that programs are aligned with the actual needs of farmers. By doing so, Nepal can create a more robust and sustainable agricultural sector that benefits farmers, consumers, and the environment equally.