Economics and Policy in Agricultural Products

Agricultural products remain as one of the major determinants for the development of developing or the least developed countries in the world. Agriculture is termed to be the subsistence sector in almost all economies of the world- the difference being that developed countries have least dependence on the subsistence sector whereas the least developed countries have the highest dependence. Nepal is one such country where around 65 percent population is directly dependent on agriculture, but if the direct and indirect dependence is seen altogether, the dependent population crosses 80 percent. Where so much of dependent population is concerned, policy definitely has a major role to play and with policy comes the integral economics.

One always has to remember that everything is linked to everything in nature. Nature runs in a cycle and the cycle integrates many components like flora and fauna, environment, human beings, etc. When agricultural programs are carried out, no environmentalists, ecologists, sociologists or economists can reject the chance of occurrence of unintended and undesired environmental consequences. Experts believe two specific reasons for the above scenario: first, as more of the land gets used for the agricultural practices, the environmental purposes gets less attention and second, the less productive agricultural lands show up higher vulnerability to the environmental damages.

In developing and least developed countries, loss of forests and traditional crop production areas emerge as a big challenge. Usually, forests are destroyed and production areas are shifted to expand the crop production areas but many times the situation deteriorates and farmers neither have sufficient production nor the sufficiently productive land; on top of that they unknowingly contribute to the natural disasters. The condition is not the same in case of developed countries. The amount of land used for the US crop production has remained comparatively equal for the last 100 years. It is not that the use of land in USA has remained very constant- some have converted to the urban lands, some to forests, pasture and in return some other lands have converted to croplands too. One problem associated with it is that there is very limited information on the land-use transitions and the role of policies to affect them in the desired way. This archetype between the less productive land more environmentally sensitive and more productive environmentally less sensitive land will always raise questions onto the negligible policy implications and greater environmental impacts.

Getting to discuss the above mentioned point – “Is it true that the economically vulnerable lands are environmentally flimsy?” Experts say that this hypothesis is based on the basic economic and agronomic principles. The examples can be many. Ceteris paribus, the lands with higher slopes are vulnerable to erosion and are difficult to cultivate too. Also, poorer soils need to be supplied with higher nutritional value manures to engage in intensive agricultural use which can ultimately degrade the quality of soil and also cause soil erosion. Thus, one can develop logic for the statement that usually, economically vulnerable lands are environmentally flimsy and vice versa.

And it is those vulnerable lands which will be which will more likely shift either the land usage or the crop. And the shift can be the result of either government policies and government subsidies or commodity prices and production costs. Thus, the strategy of the training or the awareness program should be to influence the large landholders for the beneficial shifts rather than the small landholders whose shifts only affect their livelihoods and not the local or national economy. The validity for the relationship between land quality and environmental sensitivity can help us evaluate the effectiveness of both economic and environmental factors at the same time. And the current disinterest or the so called farm/agricultural policies of the government are not contributing to the sustainability of the environment can be objectified under the logical grounds – (a) The economic forces do not tend to get lured much by the agricultural sector owing to the lower economic value generation from it and (b) People still believe that farming and environment are two different concerns and they do not have any significant relation between them.

Source: United States Department of Agriculture, 2006

To elaborate the discussion we are having about the economics and the policy that are supposed to develop the dimensional paradigm of overall farming system and the agricultural products, we can refer to the above flowchart developed in a research paper by Lubowski et al for the United States Department of Agriculture. From the above flowchart, we can see how external factors, agricultural policies and land attributes contribute to the efficient land use and its management if there is a regular monitoring, evaluation and feedback mechanism. One very dominant portray from the flowchart is that the market responses are highly dependent on external factors and the land attributes along with the land use and management contribute to the environment outcomes.

In case of Nepal, the demand of food is definitely increasing but not only due to individual preferences but due to the international influences encouraged by the media. Agricultural Policies is in pathetic situation. We hardly have effective and efficient commodification programs and insurance companies are not at all interested towards crop insurance due to its low premium value. The land attributes significantly gets correlated with the land use and land management policies where they are still subject to research and where land-owners and land-workers are different. Market responses could equally be enhanced by the promotion of primary products trading companies and the commodity exchanges which is also a challenge to the economy. Environmental outcomes have been researched for but the outcomes and impacts have been quantified economically due to which the concern of the stakeholders has remained passive.

The feedback is very necessary and the market responses along with environmental outcomes have to be strictly quantified to develop the anticipated concern of the intended policy-makers to strengthen the overall land management, farm management and then the commodification of the agricultural products.

Note: This article is published in Capital Markets of South Asian Federation of Exchanges.