Sunday, 29 January, 2023

FDI In Agriculture: Opportunities & Challenges

Mukunda Raj Kattel

In January this year, the Government of Nepal amended the Foreign Investment and Technology Transfer Act (FITTA) opening agriculture to Foreign Direct Investment (FDI). Until the amendment, the Act had barred FDI from primary agricultural production, including poultry farming, fisheries, bee keeping, fruit production, vegetable farming, oilseed and pulse seed production and the dairy industry. As soon as the bar was lifted, arguments started to abound for and against FDI in agriculture.
Curious about the issues at stake, Policy Research Institute, a government think tank on evidence-based policymaking, organised a multi-stakeholder dialogue – engaging farmers’ associations, agricultural experts, journalists, civil society representatives and concerned government officials – to hear their concerns, claims and counterclaims and explore policy research areas on this hotly debated issue. What follows is the summary of ideas, suggestions and contestation that emerged in the dialogue, which, I think, merit a critical look and appreciation by the policy community.

Expert opinions
It is wrong to approach FDI in terms of the binary opposite of ‘yes’ or ‘no’. A country like Nepal cannot say ‘no’ to FDI, which can be a means to offset the scarcity of financial resources that Nepal is facing to accelerate its economic growth. To fight poverty and deal with other pressing development priorities, economic growth is a pre-condition. FDI may contribute to it by investing in export-promoting goods and commodities within the agricultural sector.
FDI has, however, a checkered track record, which cannot be overlooked. It has brought benefits to some countries, but has also produced harmful consequences for others. Among countries benefiting from FDI are Ghana, Rwanda, Malaysia and Indonesia. Vietnam is one among the countries with negative experience. Nepal should critically review these successes and failures and learn from what has worked in these countries and what has not. Equally important is to remain watchful of FDI’s potential to pollute environment, trigger the displacement of communities on the margin of society and upset gender justice concerns, and be prepared with measures necessary to redress the harms when they occur.
Foreign investors do not invest unless they are fully assured of certain political and economic conditions. They seek the political (institutional) protection of their investment as well as the assurance that industrial actions – such as go slows, strikes and demonstrations – do not affect their business. In terms of economic security, they want the value of currency and the rate of inflation to remain as stable as possible in the host country. Quite often, these concerns contradict fundamental labour rights, such as the right to industrial action, which is protected by international labour standards. These concerns also, at times, run counter to national interests, such as the protection of the domestic sectors of comparative advantage. As such, before opening the agricultural sector to FDI, a robust policy environment should be established creating a balance between ‘domestic protection’ and ‘free market,’ which is at the heart of FDI. Or else, FDI in agriculture will be counterproductive.
An agricultural country with over 60 per cent of its people engaged in subsistent farming and the topography being a hindrance to establishing basic infrastructures for irrigation, transportation and communication, Nepal should take a cautious (progressive) approach to FDI. It should first build an enabling environment, both infrastructural and policy-wise, and then gradually invite FDI in selected sectors of agriculture. The Doing Business 2020 report by the World Bank, which ranks Nepal 94th in terms of the ease of doing business, also has this indication that Nepal’s agriculture is not up for FDI just now. Nepal’s relatively low ranking in terms of such sub-indices as contract enforcement, electricity supply, new business initiation, construction permit handling, property registration, insolvency resolution and minority investor protection, which contribute to the ‘doing business index,’ are not attractive to foreign investors.
The farmers’ associations represented in the event were, however, not so upbeat. A fear – in fact phobia – about FDI triggering the displacement of small farmers and their indigenous farming processes and skills was palpable among all of them. Once foreign companies enter the agricultural land, their argument went, small farmers will not be able to compete with powerful companies and protect the resources that earn them subsistence. FDI, in this reasoning, would ruin the very livelihoods of small farmers.
The farmers were also worried that FDI’s entrance into primary agriculture would starkly contradict the constitutional guarantee of the right to food and food sovereignty and the socialism-oriented polity that the Constitution of Nepal (2015) has envisioned to establish in Nepal. All this would be costly for Nepal, which is known – and recognised as such – over the world for its commitment to human rights, specially the right to food, which rarely features in the list of rights protected by domestic legislation. Nepal cannot slide back from this human rights vantage point.
Nepal is already self-reliant in tea and poultry products, the farmers claimed, and are heading towards self-sufficiency in dairy products. Nepal is doing good in coffee production as well. Opening these sectors to FDI will, in their claim, be detrimental to these sectors and the contribution they have made to the national economy as a whole.

Unique opportunity
Claims and counterclaims aside, there is no denying that economic growth requires investment and FDI can be a unique opportunity to that end. However, when it comes to agriculture, FDI should be cautiously approached. The fear that FDI’s entry in the primary sector of agriculture may be destructive to Nepal’s economy is not fully unfounded. FDI’s sole focus on export and profit may cause food insecurity, which will have an immediate bearing on the national goal of poverty eradication and prosperity. However, there are certain areas in which FDI can concentrate. Among these are agricultural research, innovation and extension; knowledge and technology transfer; and, establishment of fertiliser and herbs-processing plants, sectors identified by both the farmers and the experts.
Our regulatory mechanisms – policies, laws, regulations and governance practices – are, at best, very weak. At worst, they are scattered or do not cohere and, thus, are vulnerable to manipulation and abuse. Strengthening these mechanisms, and overhauling them where necessary, should be our immediate priority. They should be able to provide the protection our small farmers need and also address legitimate concerns of foreign companies. Let us move slowly but steadily, as the old adage goes.

(A PhD on human rights and peace, Kattel is a senior research fellow at Policy Research Institute.