1. Introduction: Nepal’s Agricultural Sector Towards Modernization

1.1. Overview of Nepal’s Agriculture: Role in Economy, Main Characteristics and Challenges

Agriculture has historically been the backbone of Nepal’s economy, providing livelihoods to a large portion of the population and contributing significantly to the country’s Gross Domestic Product (GDP). As of 2022/23, the sector employed 50.4% of the population and contributed 24.1% of the country’s GDP.¹Other estimates point to employment of around 43.1% (2020) and contribution to GDP at 24.5% (2022).², while earlier data put employment at 65% and share of GDP at 31.7%.²These discrepancies in figures likely reflect both economic dynamics and differences in calculation methodologies, but they consistently highlight the central role of the agricultural sector. The main food crops are rice, maize, wheat, millet, barley, and buckwheat, as well as various fruits and vegetables.²The Terai lowlands have traditionally served as the country’s main agricultural breadbasket, producing surpluses that partly meet the needs of the less fertile hilly areas.²

Despite its importance, Nepal’s agricultural sector faces a number of serious challenges. One of the key ones is low productivity and crop yields. This is largely due to the prevalence of small-scale farming – the average landholding size ranges from 0.5 to 5 hectares³, making it difficult to apply modern technology and achieve economies of scale. Traditional farming methods are widespread.⁵, which are less efficient compared to modern agricultural technologies. An additional factor that aggravates the situation is the significant dependence on monsoon rains, which makes production vulnerable to weather fluctuations, as well as the shortage of labor in rural areas caused by the outflow of young people to cities and abroad in search of work.⁶Land fragmentation, where farms consist of several small, scattered fields, also reduces the efficiency of agricultural production.⁷

The apparent discrepancy between the high share of the population engaged in agriculture and its relatively low and, according to various sources, declining contribution to GDP, suggests that the sector is extremely underproductive. If a large part of the workforce produces a smaller share of national wealth, this is a classic sign of a low-efficiency sector. This situation is likely to be exacerbated by the prevalence of traditional methods, small farm sizes and insufficient investment, as indicated by several studies.⁵The declining share of agriculture in GDP, while maintaining a significant (though also declining) share of the employed population, highlights the structural problems of the economy and the slow pace of labor transition to more productive sectors. This puts pressure on rural incomes and may exacerbate poverty despite modernization efforts.

Table 1: Key indicators of Nepal’s agricultural sector

This table clearly demonstrates both the importance of the agricultural sector for Nepal and the existing challenges such as dependence on food imports, which directly relates to issues of food security and export potential.

1.2. The need for modernization: government goals and strategies

Recognising the severity of the existing problems and the need for radical changes, the Government of Nepal has made modernisation of the agricultural sector one of its priorities. This is reflected in a number of strategic documents aimed at transforming the sector. The key ones are the Agriculture Development Strategy (ADS) for the period 2015-2035 and the Prime Minister Agriculture Modernisation Project (PM-AMP), launched in the 2016/17 financial year.¹

The Agricultural Development Strategy (ADS) aims not only to increase production but also to develop processing, trade and related services such as storage, transportation, logistics, finance, marketing, research and extension. The ADS recommends an annual expenditure of 50 billion Nepalese rupees (approximately US$500 million) over 10 years, with 11% of this amount expected to be raised from the private sector and international donors. Key objectives of the ADS include accelerating investment in science and technology, ensuring broad-based and inclusive growth in agriculture, integrating smallholder farmers into competitive value chains, and developing infrastructure and agribusinesses.³

The Prime Minister’s Agricultural Modernization Project (PM-AMP) is a flagship initiative under the ADS. Its concept envisages the creation of specialized agricultural zones at different levels (pockets, blocks, zones and super zones) for specific commodities, which would help overcome land fragmentation and encourage commercialization. PM-AMP also provides grants for agricultural inputs including fertilizers, seeds, irrigation equipment and crop/livestock insurance.¹Key project strategies include scientific land management, introduction of modern agricultural technologies, development of infrastructure for processing and marketing, mechanization and application of climate-smart farming methods^.3

The main goals of modernization declared by the government are to increase the productivity and efficiency of agriculture, strengthen national food security, increase farm incomes, stimulate the growth of agricultural exports and, as a result, reduce the country’s dependence on food imports.⁶The need for modernization is not just a question of increasing crop yields, but a fundamental task of structural transformation of Nepal’s economy aimed at raising the general standard of living of the population and reducing poverty.

1.3. Summary of the report structure

This report provides a comprehensive analysis of the effectiveness of new technologies and government subsidies in the context of modernization of Nepal’s agricultural sector, with a special focus on their impact on food security and export growth. The report is structured as follows:

• Section 2 takes a detailed look at the various modern agricultural technologies available and promoted in Nepal, analyses their level of adoption, the factors influencing this process, assesses their impact on farmers’ productivity and income, and identifies the main barriers to their widespread adoption.
• Section 3 is devoted to the analysis of the system of state subsidies in the agricultural sector. It examines the main subsidy programs, funding volumes, distribution mechanisms, and also evaluates their effectiveness and identifies related problems.
• Section 4 assesses the combined impact of technological upgrading and government subsidies on Nepal’s food security situation by analysing key indicators, regional differences and the potential for reducing dependence on food imports.
• Section 5 examines the impact of modernization efforts and subsidies on the dynamics and structure of Nepal’s agricultural exports, identifying the main export commodities, markets, and challenges and opportunities for Nepalese exporters.
• Section 6 presents a comprehensive analysis, examining the synergies and trade-offs between technology adoption and subsidy provision, and assessing the effectiveness of key government programs such as PM-AMP in light of their objectives.
• Section 7 presents the key findings of the study and formulates policy recommendations for the Government of Nepal, donor agencies and other stakeholders to improve the effectiveness of agricultural modernization.

2. New technologies in agriculture in Nepal: implementation, efficiency and barriers

Modernization of Nepal’s agricultural sector is inextricably linked to the adoption and widespread use of new agricultural technologies. These technologies cover a wide range of innovations, from improved crop varieties to digital farm management platforms. Their application is designed to increase productivity, optimize resource use, reduce labor costs, and improve product quality, thereby contributing to food security and increasing the country’s export potential.

2.1. Review of Modern Agricultural Technologies Available and Promoted in Nepal

A number of modern agricultural technologies are being promoted in Nepal to address key issues in the sector:

• Improved varieties of seeds and planting material: The use of high-yielding, disease-resistant and locally adapted seed varieties is fundamental to increasing productivity. Research shows that farmers recognise the importance of quality seed. For example, in a study on maize production in the Gulmi district, 76% of respondents preferred improved seed varieties, with Manakamana 3 being the most widely used variety.¹²The use of improved maize seeds, according to another study, resulted in an increase in yield by 767.62 kg/ha and an annual income of farmers by NPR 9,500 compared to the use of traditional local varieties.¹³Availability and acceptance of improved seeds by farmers are key factors for successful agricultural modernization.
• Mechanization of agriculture: The use of machinery and equipment such as tractors, mini-tillers, seeders, reapers and more plays a critical role in increasing the efficiency of agricultural operations, reducing reliance on manual labor, reducing production costs and improving the quality of soil cultivation and crop care.⁵Mechanization is especially relevant in the context of growing migration of young people from rural areas, which leads to a labor shortage.¹⁴Despite the obvious benefits, the level of mechanization in Nepal remains low. As of 2017, only 8% of farmers used tractors and 26% used iron ploughs.¹⁵The government is taking steps to encourage mechanization, including through programs to subsidize the purchase of agricultural machinery.¹⁶
• Modern irrigation systems and water management: Given that only about 28.8% of Nepal’s land is arable and the country relies heavily on the river system for irrigation¹⁷, efficient water management and expansion of irrigation systems are of paramount importance. Nepal has a long history of both government and Farmer Managed Irrigation Systems (FMIS), with the latter managing approximately 70% of all irrigated land in the country.¹⁷Research shows that improving canal irrigation efficiency (CCE) can significantly increase rice, maize and wheat yields, especially under climate change. For example, increasing CCE to 30%, combined with expanding irrigated areas and adjusting fertilizer rates, could increase yields of these crops by three tons per hectare nationally.¹⁹Modern methods such as drip irrigation also show great potential, allowing forage crops to be grown during dry seasons with significantly less water than traditional irrigation methods.²⁰
• Precision and digital farming technologies: These technologies, which include the use of global positioning systems (GPS), geographic information systems (GIS), unmanned aerial vehicles (drones), sensors, and mobile applications, open up new possibilities for optimizing agricultural production. Precision farming allows farmers to use resources (water, fertilizers, plant protection products) more efficiently, based on data on the condition of the soil, crops, and weather conditions.⁸Nepal has projects that aim to bring digital technologies to agriculture. An example is the GeoKrishi platform, which provides farmers with digital advisory services, including agronomic advice and weather information, helping them adapt to climate change and improve farming efficiency.²²Specialized forums and events are also held to promote digital agriculture.²⁴

2.2. Level of technology implementation: regional and industry differences, factors influencing implementation

Despite the availability and promotion of various modern technologies, their actual adoption in Nepalese agriculture remains relatively low, with notable regional and sectoral differences. A study among vegetable farmers in Bagmati Province found that the most common technologies were improved varieties, mini-tillers, sprayers, water pumps, and integrated pest management techniques. However, technologies such as plastic tunnels, drip irrigation, agricultural mobile apps, plastic mulching, and rainwater harvesting systems were much less widely adopted.²⁵A similar picture is observed in other segments: for example, when growing agricultural crops on river shallows, the average index of implementation of modern technologies was 43.67%.²⁷This indicates that a significant portion of farmers either do not use modern technologies at all or use a limited set of them.

The level of technology implementation is influenced by many interrelated factors. The key ones are:

• Socio-economic characteristics of farmers: Age, education level, ethnicity and farm size have significant impacts on the willingness to adopt innovations.¹²Farmers with higher levels of education and larger farms tend to be more active in adopting new technologies.
• Access to information and knowledge: Awareness of the existence and benefits of new technologies, as well as the necessary skills to apply them, are critical. Access to media, participation in extension programs, and membership in farmer groups or cooperatives are positively correlated with adoption rates.¹²
• Financial factors: The high cost of many modern technologies and limited access to credit, especially for small farmers, are major obstacles.⁷Receiving government subsidies can encourage technology adoption, but the effectiveness of the subsidies themselves is also an important factor.¹²
• Institutional support: The availability of effective agricultural extension services, access to technical support and advice, and stability of government agricultural policies play an important role.²⁷

Understanding these factors is essential to design targeted and effective strategies to accelerate the process of technological upgrading in Nepal’s agricultural sector. The existing gap between the potential benefits of technologies and their actual uptake by farmers points to deep systemic barriers that cannot be overcome by simply offering or even subsidizing technologies.

2.3 Assessing the impact of technologies on productivity, farmer incomes and sustainability

The adoption of modern agricultural technologies has demonstrated significant positive impacts on key farm economic indicators and overall agricultural productivity. Research conducted in Nepal confirms this relationship.

Thus, an analysis conducted among commercial vegetable growers showed that an increase in the number of technologies implemented by one unit leads to an increase in farm income by an average of 20.6%.²⁵This demonstrates a direct and significant return on investment in technological modernization. The use of improved varieties of corn seeds, as already mentioned, not only increases the yield (by an average of 767.62 kg/ha), but also increases the annual income of farmers.¹³

Mechanization of agricultural processes such as tillage, sowing, crop care and harvesting helps to increase labor productivity, reduce production costs by saving on manual labor and reduce product losses.⁵This is particularly important in the context of Nepal, where there is a shortage of agricultural labourers.

Efficient irrigation systems are one of the most powerful tools for increasing crop yields. Research shows that improving the efficiency of canal irrigation and expanding irrigated areas can lead to significant increases in the production of staple food crops such as rice, maize and wheat.¹⁹For example, increasing canal efficiency to 30% can increase crop yields by 3 tons per hectare. Further improvements to 50-70% can yield additional gains, especially in the fertile Terai region.¹⁹

In addition to the direct impact on yields and incomes, modern technologies also contribute to the sustainability of agricultural production. Precision farming technologies and climate-smart practices help farmers adapt to climate change, use natural resources (water, land) more rationally, and reduce negative impacts on the environment.²¹This, in turn, ensures the long-term viability of the agricultural sector.

2.4. The main barriers to widespread implementation: economic, social, infrastructural, institutional

Despite the obvious benefits, the widespread adoption of modern agricultural technologies in Nepal faces a complex of interrelated barriers that can be grouped into several main categories:

Economic barriers:

• High cost of technology:Many modern technologies, especially agricultural machinery and advanced irrigation systems, require significant initial investments that are beyond the means of most smallholder farmers in Nepal.²⁹
• Limited access to credit:Farmers, especially small and marginalized ones, often have difficulty accessing loans due to lack of collateral, high interest rates and complex procedures.⁷This limits their ability to invest in modernization.
• Small and fragmented land holdings:The average farm size in Nepal is small and plots are often fragmented. This makes it uneconomical for individual farmers to purchase expensive machinery or install complex systems, as the benefits of their use would be spread over small and fragmented plots.⁷Land fragmentation directly reduces the economic viability of investing in expensive technologies, exacerbating dependence on manual labor and traditional methods.

Social barriers:

• Low level of education and awareness:Lack of knowledge about new technologies, their benefits and application methods is a significant obstacle. Education levels in rural Nepal are generally low³⁰, which makes it difficult to master complex innovations.²⁷
• Lack of skilled workers:The lack of sufficient specialists capable of training farmers and providing technical support for the implementation and maintenance of new technologies also slows down the modernization process.²⁹
• Traditional way of life and conservatism:Adherence to traditional farming methods and wariness of innovations can hinder the adoption of modern technologies.²⁸

Infrastructure barriers:

• Underdeveloped rural infrastructure:Poor road conditions, unreliable electricity supplies, and limited access to the internet and mobile phones in rural areas make it difficult to deliver technology and resources, as well as access information and digital services.²
• Lack of service centers:The lack of centers for maintenance and repair of agricultural machinery, as well as the shortage of spare parts, reduce the attractiveness of investments in mechanization and can lead to equipment downtime.²⁹

Institutional barriers:

• Weak knowledge dissemination system: The ineffectiveness of existing extension services limits the reach of farmers and the quality of support provided.²⁹
• Market inefficiencies: Problems with access to markets for produce, price instability and the lack of developed value chains reduce incentives for farmers to invest in increasing productivity.
• Policy inconsistency and bureaucracy: Frequent changes in government policies, conflicting regulations, bureaucratic hurdles and weak enforcement create uncertainty for investors and farmers, undermining their willingness to make long-term investments in technology.²⁸

Successful adoption of technologies requires not only their physical availability but also the creation of an enabling environment, including access to finance, education, developed infrastructure, and possibly measures to consolidate land or develop cooperative models of machinery use. Simply subsidizing the purchase of machinery may not be effective without addressing these related issues. The effectiveness of existing models for extending knowledge and training farmers in new technologies is also questionable, especially given the low levels of education in rural areas.³⁰, and requires revision and improvement.

2.5. Examples of successful modernization and implementation of technologies

Despite the existing barriers, Nepal has examples of successful implementation of modern technologies, demonstrating their potential to transform the agricultural sector:

• GeoKrishi Project: This digital platform is a shining example of how information and communication technologies (ICT) can be used to support farmers. GeoKrishi provides access to hyperlocal weather forecasts, market prices, expert advice and educational content on climate-smart farming practices. Since its launch, with support from the GSMA Innovation Fund, GeoKrishi has reached over 237,000 people, of which 51,500 farmers have received direct support in adapting to climate change. Importantly, 97% of farmer users had better access to localised weather information, 96% reported improved knowledge of crop nutrition and pest management, and the same number of farmers took action based on the climate-smart advice they received. The project has also helped attract additional investment and expand its workforce, demonstrating its viability and scalability.²²GeoKrishi’s success highlights the importance of developing solutions tailored to local needs and combining digital tools with offline support through cooperatives and community centres.
• GIES Technology for Cardamom Production: Another significant example is the application of China’s Geospatial Indicators of Environment and Sustainability (GIES) technology to modernize Nepal’s black cardamom sector. Under FAO’s One Country, One Priority Product initiative, the project uses big data, the Internet of Things, and artificial intelligence to map cardamom’s unique agro-ecological conditions, create traceable supply chains, and protect intellectual property. GIES technology helps Nepalese farmers optimize yields while preserving biodiversity, and increases the value and competitiveness of Nepalese cardamom in the global market. The project initially aims to reach 15,000 cardamom farmers, with plans to scale up across the country.³²This example demonstrates the potential of international cooperation and transfer of advanced technologies for the development of export-oriented agricultural sectors.

These cases demonstrate that with a targeted approach that takes into account the specific local conditions and needs of farmers, and with support from government and international organizations, the introduction of modern technologies can bring significant positive results. They serve as a guide for the design and implementation of future modernization programs in the agricultural sector in Nepal.

Table 2: Overview of key agricultural technologies in Nepal: adoption level, benefits and major barriers

3. Government Subsidies in the Agricultural Sector of Nepal: An Analysis of Effectiveness

Government subsidies are one of the traditional instruments of support for the agricultural sector in many countries, and Nepal is no exception. The government views subsidies as an important mechanism for stimulating agricultural production, supporting small farmers, stabilizing food prices and, ultimately, ensuring food security for the population.³³However, the effectiveness of this support directly depends on the structure of subsidy programs, the volume of funding, distribution mechanisms and the ability of the system to overcome associated problems.

3.1. Overview of the main government subsidy programs: for fertilizers, seeds, agricultural machinery, irrigation, insurance

Nepal’s system of government subsidies in the agricultural sector covers various areas. Historically, the government began providing subsidies in the late 1950s and early 1970s, but by the late 1990s, their scope and frequency had significantly decreased. After the establishment of a federal structure in 2018, subsidy initiatives received a new impetus, and provincial and local governments began to actively support the agricultural sector.³³

The main types of subsidies provided include:

• Fertilizer subsidies: This is the most significant expenditure item in Nepal’s agricultural subsidy system. The government spends heavily on importing and distributing chemical fertilizers (mainly urea, diammonium phosphate (DAP), and potash) at subsidized prices to farmers.³⁴The goal is to increase the availability of fertilizers and, as a result, increase crop yields.
• Seed subsidies: Since 2012, Nepal has had a Seed Subsidy Programme (SSP) that offers farmers up to 50% discount on the purchase of improved rice seeds.³⁸There are also seed support programs for other crops, although they may be on a smaller scale.³⁶
• Subsidies for agricultural machinery: The government and local authorities provide subsidies for the purchase of various agricultural machinery such as mini-tillers, walk-behind tractors, pumps and other equipment to encourage agricultural mechanization.⁸
• Irrigation subsidies: Support can be provided in the form of co-financing for the construction or rehabilitation of irrigation systems, as well as for the purchase of irrigation equipment.
• Agricultural insurance subsidies: To reduce farmers’ risks associated with adverse weather conditions, plant and animal diseases, the government subsidizes part of the insurance premiums for crop and livestock insurance programs.⁴²

Subsidies can be provided both directly, through the implementation of various state and donor projects (for example, PM-AMP), and indirectly, mainly through the system of preferential distribution of fertilizers.⁴²

3.2. Volumes of funding and mechanisms for distributing subsidies

The amount of funds allocated for subsidizing the agricultural sector in Nepal is quite significant. A total of NPR 107.66 billion has been allocated for agricultural subsidies over the five-year period from 2019/20 to 2023/24.⁴²The vast majority of this money – Rs 87.35 billion, or about 81% – was spent on subsidising chemical fertilisers.⁴²This highlights the dominant role of support for fertilizer purchases in the overall structure of agricultural subsidies.

For the fiscal year 2024/25, the Government of Nepal has allocated around Rs 57.29 billion for agriculture and livestock development. Of this amount, Rs 27.95 billion (or Rs 27.9 billion, according to the³⁵), which constitutes almost 49% of the total budget of the Ministry of Agriculture and Livestock Development (MoALD), is intended to ensure timely and adequate supply of fertilizers.³³This confirms the continued high priority of fertilizer subsidies.

The Prime Minister’s Agriculture Modernization Project (PM-AMP) is also an important channel for distributing subsidies. During the five-year period mentioned, Rs 6.61 billion was distributed through PM-AMP to 141,670 cooperatives, farmer groups and firms.42Other projects such as the Nepal Livestock Innovation Project, the Food and Nutrition Security Enhancement Project, the Rural Sector Development Programme and the Rani Jamara Gularia Irrigation and Agriculture Programme are also involved in distributing direct subsidies, albeit in smaller quantities.42

The mechanisms for distributing subsidies vary depending on their type. Fertilizer subsidies are usually implemented through state or authorized companies that import fertilizers and sell them to farmers at fixed, preferential prices. Subsidies for seeds and machinery may be provided through cooperatives, farmer associations, or targeted state programs, often with co-financing from farmers.

Despite the significant funding levels, the effectiveness of the distribution mechanisms is often criticised, as will be discussed below. The dominance of fertilizer subsidies in the overall support volume creates a certain bias, which may have both positive and negative long-term consequences for the sector.

3.3. Evaluation of the effectiveness of subsidies: achievement of set goals, impact on production and farmers’ incomes

Assessing the effectiveness of public subsidies in agriculture in Nepal is a complex task, as the results are mixed and depend on the type of subsidy, the target group and the specific context of programme implementation.

Fertilizer subsidies: Guaranteed budgetary funding for subsidies on chemical fertilizers has led to a significant increase in their consumption by farmers.³⁶This, in turn, contributed to the increased availability of this type of resource for agricultural producers.⁴¹However, despite years of effort and significant import costs (Nepal still does not have its own fertilizer plant³⁴), the impact on productivity is not always unambiguously positive. One study found that in some cases there was a decline in productivity and annual yield after the introduction of subsidized fertilizers, especially for farmers located at significant distances from markets.⁴⁴This may be due to suboptimal use of fertilizers, lack of related agricultural knowledge, or problems with the quality of subsidized products.

Seed subsidies: The Subsidized Rice Seed Program (SSP), in place since 2012, has not shown a statistically significant impact on rice yields nationwide. One possible reason for this is that the program has tended to promote seeds of long-established open-pollinated varieties (OPVs) over newer, higher-yielding OPVs and hybrids.³⁸However, the analysis found positive effects of seed subsidies for certain subgroups of farmers, particularly low-income households and those living in remote areas far from agro-dealers and agricultural extension centres.³⁹This highlights the potential for the program to benefit the most vulnerable farmers if targeted correctly. Overall, the seed subsidy program was rated as “impressive” for wheat and rice, but its reach is limited mainly to these two crops.³⁶

Overall effectiveness of subsidies:Some studies indicate the presence of a positive and statistically significant linear relationship between the total volume of agricultural production and the amount of subsidies provided. Thus, a correlation coefficient of r=0.72 was found between these two indicators.⁴¹This suggests that subsidies may, in general, have a stimulating effect on production.

However, despite these individual positives and the huge financial injections, the overall effectiveness of the subsidy system is often questioned. Many studies and reports point to serious problems in achieving the stated goals, especially in terms of supporting small and marginalized farmers, as well as the risks of misuse of funds and corruption.³³Thus, significant public resources may be spent inefficiently, failing to address the fundamental problems of the agricultural sector and failing to fully lead to sustainable growth in farmers’ productivity and incomes.

3.4. Problems and limitations of the subsidy system: accessibility for small farmers, transparency, corruption risks, sustainability

Nepal’s agricultural subsidy system, despite good intentions and significant financial investment, suffers from a number of serious problems and limitations that reduce its effectiveness and fairness.

• Inefficiency and accessibility issues for target groups: One of the main problems is that subsidies often do not reach those who need them most – small and marginalized farmers.³³Bureaucratic complexities, confusing registration procedures, lack of proper information about available support programs and selection criteria create significant obstacles for this category of agricultural producers.⁴⁴As a result, a significant portion of subsidies may end up in the hands of larger, more politically influential farms or individuals with access to information and administrative resources.³³
• Lack of transparency and corruption risks: Lack of transparency in subsidy distribution processes and weak oversight create fertile ground for corruption and misuse of funds. There are reports of subsidized goods, such as fertilizers or machinery, being resold at inflated prices on the black market.³³Moreover, one study found that up to 35% of funds allocated for farm subsidies may have been used as “commissions” for government officials.⁴¹Such practices not only result in the waste of public resources, but also undermine farmers’ trust in the support system.
• Formation of dependence and distortion of market signals: Constant and large-scale support through subsidies can lead to farmers becoming dependent on government assistance, reducing their incentives to seek more efficient farming methods and adapt to market conditions.³³Furthermore, subsidies for certain types of inputs (such as chemical fertilizers) can distort market signals and hinder the development of alternative, more sustainable approaches, such as organic farming.
• Environmental risks: Excessive reliance on subsidies for chemical fertilizers without due attention to agricultural standards and environmental impacts can lead to soil degradation, water pollution and other negative environmental effects.³³This threatens the long-term sustainability of agricultural production.
• Management and monitoring issues: Weaknesses in the planning, monitoring and evaluation of subsidy programmes are also a major constraint. There is often a lack of clarity about the real impact of subsidies on productivity, farm incomes and food security, making it difficult to make timely policy adjustments.

Overcoming these problems requires a comprehensive approach, including reforming subsidy distribution mechanisms, increasing their transparency and accountability, strengthening control over the targeted use of funds, and shifting the focus from general resource subsidies to more targeted and “smart” support that stimulates innovation and sustainable development.

Table 3: Major Government Subsidy Programs in Agriculture in Nepal: Directions, Funding Amounts, and Target Groups (over the past 5 years, 2019/20-2023/24)

4. Impact of Modernization and Subsidies on Food Security in Nepal

Ensuring food security is one of the key goals of Nepal’s agricultural policy. Modernization of agriculture through the introduction of new technologies and provision of government subsidies are considered important tools to achieve this goal. However, their real impact on the availability, stability and quality of food for the country’s population requires careful analysis.

4.1 Current food security situation in Nepal: key indicators, regional differences, vulnerable groups

Nepal has made some progress in improving its food security situation in recent decades. The country’s Global Hunger Index (GHI) has declined from 37.4 in 2000 (which was considered “alarming”) to 19.5 in 2021 and 19.1 in 2022, which is classified as “moderate” hunger.²This indicates general positive trends.

However, food insecurity remains a serious problem. According to the 2016 NDHS, about 4.6 million people in Nepal were still food insecure: 20% of households were classified as mildly food insecure, 22% as moderately food insecure, and 10% as severely food insecure.⁴⁵More recent data (2021 Fill the Nutrient Gap analysis) show that 22% of households cannot afford even the cheapest nutritious menu, which costs more than twice as much as a diet that provides only energy needs.⁴⁵

There are significant regional differences in food security, with rural areas generally more vulnerable than urban areas.³⁰The situation is most severe in the mountainous and hilly regions, where the proportion of the population experiencing calorie insecurity reaches 38% and 36% respectively, compared with 24% in the more fertile Terai region.⁴⁵Karnali province stands out as the region with the highest level of food insecurity – 77.5% of households.³⁰Access to nutritious foods is also uneven, with food being less available and more expensive in mountainous areas.⁴⁵

Vulnerable groups include children and women. Despite the decline, child malnutrition remains high: in 2022, 22% of children under five suffered from stunting and 8% from wasting.⁴⁵Anemia is also common among children (43%) and women of reproductive age (34%).⁴⁵Paradoxically, the Terai region, which is the most productive agricultural region², at the same time demonstrating the lowest level of receipt of the minimum acceptable diet by children aged 6-23 months.⁴⁵This discrepancy suggests that high regional productivity does not always directly translate into improved nutrition at the local level. Possible reasons include export of produce, prevalence of monocultures, lack of knowledge about proper nutrition, or economic barriers that limit households’ access to produced food.

4.2. The role of new technologies in increasing food availability and stability

New agricultural technologies play a key role in increasing food production, which is the basis for improving food availability and supply stability. The introduction of improved, high-yielding, disease-resistant seed varieties of staple food crops such as rice, maize, and wheat directly contributes to increased yields.¹²This, in turn, can lead to lower prices on the domestic market and increased physical availability of food products for the population.

Modern irrigation systems provide a more stable water supply to crops, reducing dependence on unpredictable monsoon rains and allowing crops to be harvested even during dry periods.¹⁷Research shows that improving the efficiency of existing canal irrigation by just 30% could increase yields of three major cereal crops by 3 tonnes per hectare at the national level, making a significant contribution to the country’s food balance.¹⁹

Mechanization of agricultural work, from tillage to harvesting, not only increases labor productivity, but also reduces the time required to carry out field work, reduces product losses, and cultivates larger areas, which is especially important in conditions of labor shortages in rural areas.⁵

Precision farming technologies, including the use of GIS, GPS, drones and mobile apps, provide farmers with tools to use resources – water, fertilizers, crop protection products – more efficiently. This not only increases crop yields, but also reduces production costs and negative impacts on the environment, contributing to the sustainability of production in the long term.²¹

Thus, technological modernization is a critical factor for increasing domestic food production, which directly affects the reduction of dependence on imports and an increase in the level of self-sufficiency in food of the country, thereby strengthening national food security.

4.3. Contribution of government subsidies to food self-sufficiency and food availability

State subsidies are intended to play an important role in supporting domestic agricultural production and, as a result, in ensuring food self-sufficiency and accessibility of food products for the population. Subsidizing key production resources such as fertilizers and seeds³³, is aimed at reducing costs for farmers. In theory, this should stimulate increased production volumes and make the final product more affordable for consumers.

Subsidies for improved seed varieties, such as through the Subsidized Seed Programme (SSP)³⁸, is aimed directly at increasing the yields of staple food crops, which should help increase the supply of food in the domestic market and reduce dependence on imports. Similarly, subsidies for agricultural machinery and irrigation equipment are intended to improve production efficiency and yield stability.

However, as discussed in detail in Section 3, the effectiveness of Nepal’s subsidy system faces serious challenges. Lack of transparency in distribution, corruption risks, bureaucratic hurdles, and poor targeting mean that subsidies often fail to reach small and needy farmers.³³If subsidies do not reach their intended beneficiaries or encourage inefficient use of resources (e.g. overuse of chemical fertilizers due to their cheapness, without regard to agronomic norms), their positive impact on food security and self-sufficiency may be significantly lower than expected.

Moreover, some subsidy programs may not be effective in increasing yields. For example, a study of the Rice Seed Subsidy Program found no significant overall impact on yields, possibly due to the promotion of outdated varieties.³⁸In such cases, public funds are spent without achieving the set goals of increasing food production.

Thus, while public subsidies can theoretically contribute to food security, their real effectiveness in Nepal is limited by existing systemic problems. For subsidies to truly contribute to food self-sufficiency, reforms are needed to improve their transparency, targeting, and integration with other agricultural modernization measures.

4.4. Analysis of dependence on food imports and the potential for its reduction through modernization

Nepal’s dependence on food imports is one of the most pressing issues directly affecting national food security. Data shows an alarming trend of increasing dependence. Between 2015 and 2020, the country’s imports of key agricultural products increased by 65%.¹¹In 2022, food imports accounted for 17.96% of Nepal’s total merchandise imports.¹⁰The food trade deficit has grown dramatically, from NPR 11 billion in the 2007/08 financial year to NPR 173 billion in 2018/19.¹¹

The country is forced to import even such basic foods as rice, wheat flour and lentils, even to remote rural areas that have historically been self-sufficient.¹¹India is the main supplier of rice and unprocessed paddy for Nepal.⁴⁸This high dependence on imports makes the country vulnerable to fluctuations in global food prices, potential supply disruptions due to trade restrictions or logistical problems, which directly threatens the stability of the population’s food supply.

Modernization of the agricultural sector through the introduction of advanced technologies and the effective use of government subsidies to stimulate domestic production of scarce crops has significant potential to reduce this dependence. Increasing the yields of staple food crops such as rice, maize and wheat through the use of improved varieties, modern farming techniques and expanded irrigation can significantly increase domestic supply and reduce the need for imports. For example, realizing the potential for increased efficiency of irrigation systems, as outlined in¹⁹, could provide a significant increase in yield.

Reducing post-harvest losses through improved storage and processing infrastructure, and diversifying agricultural production towards crops that are heavily imported, can also help reduce dependence on external supplies. Low levels of technology adoption (as discussed in Section 2) and ineffective subsidy systems (Section 3) are direct factors constraining domestic production growth and, therefore, contributing to high import dependence and food insecurity. Addressing these issues is key to strengthening Nepal’s food sovereignty.

Table 4: Food Security Indicators of Nepal

Ensuring food security in Nepal is not just a matter of increasing production, but also of addressing access, affordability, nutritional quality, and regional disparities. Modernization must address these complex challenges, including promoting the production of diverse and nutritious foods, not just staple grains, to improve diets, especially in vulnerable regions.

5. Impact of Modernization and Subsidies on Growth of Nepal’s Agricultural Exports

Developing the export potential of the agricultural sector is an important area for Nepal’s economic growth, diversification of income sources and improvement of the trade balance. Introduction of new technologies and targeted government subsidies can play a key role in increasing the competitiveness of Nepalese agricultural products in world markets.

5.1. Analysis of the current structure and dynamics of agricultural exports of Nepal: main products, sales markets, volumes

Agricultural exports contribute significantly to Nepal’s overall export earnings, accounting for more than 40% of the total.⁴⁸Key export products have traditionally been tea, large (black) cardamom and ginger.⁴⁸Nepal is the world’s leading producer of large cardamom, accounting for about 52% of the world’s production.¹, and is the world’s fourth largest producer of ginger.¹A significant portion of this production, for example about 80% of the cardamom produced, is exported to neighboring India.⁴⁹

In addition to these traditional products, the export basket also includes lentils, soybean oil, palm oil and various fruit juices.⁴⁸In recent years, there has been a significant increase in exports of processed oils. In the first eight months of the 2024/25 financial year, soybean oil exports reached NPR 47.94 billion, accounting for about 30% of the country’s total exports during the period. Cardamom exports during the same period amounted to NPR 5.84 billion, while tea and coffee exports amounted to NPR 3.5 billion.⁵⁰

The main market for Nepalese agricultural products is India, due to geographical proximity, historical trade ties and an open border.²Other important markets include the United States and Türkiye.²Exports are also made to Bangladesh (mainly red lentils) and Myanmar (medicinal herbs and plants).⁴⁸

Nepal’s total export value in 2023 was US$2.85 billion, showing a slight increase compared to the previous year.⁵¹However, it is important to note that much of this growth, particularly in the oils segment, can be attributed to imports of raw materials (e.g. crude soybean and palm oil from Thailand⁴⁸) and its subsequent processing and re-export, mainly to India. This creates a certain vulnerability, since such exports depend on trade agreements and tariffs, rather than on the growth of domestic agricultural raw material production. Data indicate that Nepal’s exports are highly concentrated in both a few key products and a limited number of markets, which creates risks in case of changes in the market or trade conditions.⁴⁸

5.2. Potential for export growth through the introduction of new technologies and improved product quality

The introduction of new technologies and modern agricultural practices opens up significant prospects for the growth of Nepalese agricultural exports, both by increasing production volumes and by improving their quality and competitiveness.

• Improved varieties and agricultural technologies: Use of high-yielding and high-quality varieties of export-oriented crops such as tea, coffee, cardamom, ginger, as well as the use of advanced methods of their cultivation, including organic farming (especially relevant for tea and coffee, which are in demand in the markets of Germany, Japan and EU countries)³), can significantly increase their attractiveness to foreign buyers and the volume of export deliveries.
• Development of agro-processing: Currently, Nepal mostly exports raw materials, while investments in setting up modern agro-processing plants¹would enable the production and export of goods with higher added value. This concerns the processing of ginger (e.g. into powder, oil, candied fruit), turmeric (obtaining curcumin), medicinal and aromatic plants (production of essential oils, cosmetic ingredients, herbal preparations), as well as fruits and vegetables (juices, preserves, dried products).
• Ensuring quality and safety standards: Access to demanding international markets, especially in developed countries, is impossible without strict product quality and safety standards. The introduction of modern quality control technologies at all stages of the production and supply chain, as well as certification systems (e.g. organic, GlobalG.A.P.) is critical. The use of systems such as GIES for cardamom, which ensures traceability and confirmation of the unique qualities of the product³², can serve as an example in this direction.
• Improving production efficiency: Use of modern irrigation systems to ensure stable production regardless of weather conditions¹⁹and mechanization of labor-intensive processes to reduce production costs⁵ also contribute to increasing the volume of products available for export and improving their price competitiveness.

Technological upgradation is thus a key factor to unlock Nepal’s export potential, especially in the high-value niche products such as spices, medicinal herbs, organic tea and coffee.

5.3. The role of government subsidies in stimulating export-oriented production

Government subsidies can play a role in stimulating export-oriented agricultural production, but their effectiveness directly depends on the design, targeting and implementation mechanisms.

Direct subsidies targeted to support the production of specific export crops or to develop the infrastructure needed for export (e.g., cold storage facilities, packaging lines, processing plants) can be quite effective. Programs such as PM-AMP, which provide for the creation of specialized “super zones” for certain types of agricultural products¹, are potentially capable of facilitating the concentration of resources, the development of production clusters and the formation of export consignments of goods.

However, if the subsidies are predominantly general in nature, for example, subsidizing fertilizers for all types of crops without reference to export orientation⁴², while suffering from problems with distribution efficiency and accessibility for small producers.³³, their direct impact on stimulating export production may be very limited. Farmers may use subsidized resources to grow products for the domestic market or for their own consumption, without focusing on export.

The absence or insufficiency of targeted subsidies aimed at improving the quality of export products, undergoing international certification, developing branding and marketing Nepalese goods in foreign markets, can also be a significant constraint on export growth. In order for subsidies to really contribute to increasing exports, they should be more focused, integrated into the overall strategy for developing the country’s export potential and aimed at solving specific problems faced by producers of export products. This may include support for the implementation of quality standards, assistance in finding sales markets, compensation of part of the costs of certification and participation in international exhibitions.

5.4 Challenges and Opportunities for Nepalese Exporters in Global Markets

Nepalese agricultural producers and exporters face a number of challenges in expanding their presence in global markets, but there are also significant opportunities that can be exploited to boost exports.

Main challenges:

• High competition: Global agricultural markets face fierce competition from other producing countries that may have more advanced technology, lower production costs, or better government support.
• Compliance with international standards: Difficulties in complying with strict international quality, food safety, phytosanitary and packaging and labelling standards often limit the access of Nepalese products to developed country markets.
• Underdeveloped infrastructure: Insufficient development of transport logistics, a shortage of modern warehouse facilities (including refrigeration facilities) and processing plants lead to increased costs, product losses and a decrease in its competitiveness.
• Limited access to information and marketing: Nepalese producers often lack up-to-date market information and have insufficient skills and resources to effectively market and promote their products in foreign markets.
• Dependence on the Indian market: Over-reliance on the Indian market and significant informal cross-border trade⁴⁸make exports vulnerable to changes in India’s trade policy and make it difficult to enter other markets.
• Insufficient diversification:Nepal’s export basket is not sufficiently diversified in terms of both product types and markets, which increases risks.⁴⁸

Existing capabilities:

• Growing global demand for niche products: There is a steady growth in global demand for organic products, high-quality spices, medicinal and aromatic plants, as well as products with unique geographical characteristics.¹Nepal, with its diverse agro-climatic conditions, has the potential to produce such products.
• Unique Nepalese products: The country has a number of unique agricultural products with high export potential. These include large (black) cardamom, Himalayan honey of various varieties, Timut (Sichuan) paprika, organic tea and coffee, and various medicinal herbs.¹
• Geographical proximity to major markets: Nepal’s location between two huge and fast-growing markets – India and China – offers significant export opportunities.¹
• Development of agrotourism: The production of unique agricultural products can be linked to the development of agrotourism, which will generate additional income and promote Nepalese brands.

Overcoming the existing challenges and effectively using the emerging opportunities require coordinated efforts by the government (including developing and implementing a coherent export strategy, improving trade diplomacy), the private sector (investing in production, processing and marketing) and farmers themselves (improving product quality, cooperation). For sustainable export growth, Nepal needs to actively work on diversifying both the products themselves and the sales markets, and the modernization of the agricultural sector should be aimed at increasing the competitiveness of a wide range of local products made from Nepalese raw materials.

Table 5: Structure and dynamics of export and import of agricultural products of Nepal

This table provides a clear picture of Nepal’s agricultural trade structure, highlighting both existing export flows and significant import dependence for a number of key food commodities. Comparing exports and imports highlights areas where Nepal has comparative advantages and where domestic production needs to be increased to ensure food security and improve the trade balance.

6. Comprehensive analysis: synergies, challenges and prospects for sustainable development

Effective modernization of Nepal’s agricultural sector requires not only the introduction of individual technologies or subsidies, but also an understanding of their interrelationships and consideration of a broader range of challenges and opportunities. A comprehensive analysis can identify synergies, existing contradictions, and identify prospects for sustainable and inclusive development.

6.1. Interrelationship and synergy between technology implementation and subsidies

In an ideal modernization model, new technologies and government subsidies should work in synergy, mutually reinforcing each other’s positive impact on the agricultural sector. Subsidies are designed to facilitate farmers’ access to modern technologies by reducing financial barriers to their acquisition and implementation.⁴¹For example, subsidizing the purchase of improved seed varieties³⁸or mechanized equipment such as mini-tillers or pumps¹⁶, should encourage their wider use by farmers. In turn, the technologies introduced increase the efficiency of agricultural production, which can make the use of subsidized inputs, such as fertilizers, more productive and economically viable. A farmer using improved seeds and optimal irrigation methods will get a greater return on the fertilizer applied than one who relies on traditional methods.

However, achieving such synergies in practice in Nepal faces a number of challenges. If the subsidy system is not transparent, is prone to corruption, or subsidies do not reach the target groups, especially small farmers, as is often the case in Nepal³³, they will not be able to effectively incentivize technology adoption. Farmers without access to subsidies will continue to be limited in their ability to modernize.

On the other hand, even with subsidies, the adoption of technologies may be limited if the technologies themselves are too expensive, difficult to master, not adapted to local agro-climatic and socio-economic conditions, or if the necessary infrastructure and technical support are lacking.²⁸For example, providing a subsidy for the purchase of a tractor will not have the expected effect if the farmer does not have sufficient land to use it effectively, lacks the skills to operate the equipment, or does not have access to service and fuel.¹⁵

Lack of proper training and technical support when providing subsidized machinery or other technologies also significantly reduces the potential synergy effect. Farmers may not know how to use the new technology correctly, which leads to its ineffective use or even failure. Thus, to maximize the positive impact on the agricultural sector, it is necessary not only to apply these two instruments – technology and subsidies – in parallel, but also to closely coordinate them, as well as to create a favorable environment that promotes their effective interaction.

6.2. Key challenges to effective modernization

Effective modernization of Nepal’s agricultural sector faces a number of deep-rooted and interrelated challenges that require comprehensive and long-term solutions:

• Land fragmentation: The predominance of small and often fragmented land holdings is a fundamental structural barrier. It hinders the use of modern large-scale machinery, efficient resource management and the introduction of advanced agricultural technologies that require a certain scale of production.⁷
• Climate change and its consequences: Nepal’s agriculture is extremely vulnerable to the impacts of climate change, such as increased frequency and intensity of extreme weather events (droughts, floods), melting Himalayan glaciers (affecting water resources), irregular monsoon rainfall and rising temperatures.⁶This requires urgent adaptation of agricultural practices, investment in climate-resistant varieties, development of irrigation and water management systems.
• Limited access to funding: Small farmers, who make up the majority of agricultural producers, experience significant difficulties in accessing formal credit due to the lack of collateral, high interest rates and complex loan procedures.⁷This seriously limits their ability to invest in modern technologies, quality seeds, fertilizers and other resources needed for modernization.
• Low level of human capital development: Insufficient education and training of farmers and agricultural workers slows down the process of mastering and effectively using new technologies.²⁸The shortage of qualified agronomists, veterinarians, engineers and equipment maintenance specialists is also a limiting factor.
• The role and effectiveness of cooperatives: Agricultural cooperatives play an important role in Nepal by providing farmers with access to inputs, training, markets and financial services.⁵²However, many cooperatives themselves face problems of operational inefficiency, weak governance, limited technological integration and lack of financial resources.⁵², which reduces their potential as agents of modernization.
• Underdeveloped infrastructure: Insufficient rural infrastructure, including roads, storage and processing systems, reliable electricity and internet access, is a major obstacle to developing commercial agriculture, improving efficiency and reducing post-harvest losses.²
• Institutional weaknesses: Inconsistency in government policy, high levels of bureaucracy, corruption, weak law enforcement and insufficient coordination between various government agencies create an unfavourable environment for long-term investment and sustainable development of the agricultural sector.²⁸

These challenges are closely interrelated and mutually reinforcing. For example, land fragmentation makes investment in irrigation (necessitated by climate change) less attractive to smallholder farmers. Low levels of education make it difficult to learn new technologies and access financial services. Poor infrastructure increases costs and reduces profitability even with improved technologies. Without an integrated approach to addressing these interrelated challenges, modernization efforts will have limited success.

6.3. Evaluation of the effectiveness of government programs (e.g. PM-AMP) in the context of the set objectives

The Prime Minister’s Agriculture Modernization Project (PM-AMP), launched in the 2016/17 financial year, is the government’s flagship programme to transform Nepal’s agriculture sector. The stated objectives of the project are ambitious: modernizing agriculture, making it profitable for the rural population, increasing productivity, ensuring food security and increasing exports.³The project envisages the creation of specialized agricultural zones (pockets, blocks, zones, super zones) for various types of products, stimulation of mechanization, improvement of irrigation, development of infrastructure for processing and marketing, as well as the introduction of climate-smart agricultural methods.¹A significant budget of NPR 130 billion has been earmarked for the implementation of PM-AMP over a ten-year period (2016/17 to 2025/26).⁵⁵The project is also a major recipient of government subsidies, with Rs 6.62 billion disbursed through PM-AMP over five years (2019/20-2023/24).⁴²

Despite the ambitious goals and significant financial investments, the assessment of the real effectiveness of PM-AMP today raises serious questions. In public discourse and expert assessments, the opinion is often heard that “the real results of the project are not yet visible” and its implementation is “far from satisfactory”.⁶There are numerous complaints that subsidies provided under PM-AMP do not always reach small and truly needy farmers, and that funds are misused and embezzled by politically connected individuals or those with access to administrative resources.⁴³

The poor performance of PM-AMP calls into question the entire modernization strategy implemented through this project. There is a significant gap between ambitious plans and their actual implementation on the ground. This points to systemic problems in the implementation of public policies that are not limited to a lack of resources, but also affect issues of governance, coordination, transparency, accountability and the fight against corruption. Analyzing the reasons for the poor performance of PM-AMP is critical for learning lessons and developing more effective approaches to modernizing the agricultural sector in the future. It is important to understand which aspects of the project – from planning and prioritization to implementation and monitoring mechanisms – require a radical revision. The success of future initiatives will largely depend on the ability of government institutions to effectively implement the planned programs, overcome corruption risks and provide real support to agricultural producers.

Table 6: Summary assessment of the effectiveness of technologies and subsidies for food security and export growth

This summary assessment highlights that despite the significant potential of new technologies and substantial levels of public subsidies, their current effectiveness in achieving food security and export growth goals in Nepal is limited by a number of systemic problems. Successful modernization requires not just increased investment or adoption of individual technologies, but deep institutional reforms, human capital development, and the creation of a favorable ecosystem for innovation and entrepreneurship in agriculture. An important aspect that requires further attention is the role of the private sector (beyond farmers and cooperatives) in the modernization process and the creation of incentives for its greater involvement in investment, service provision, and agribusiness development, as envisaged, for example, in the Agricultural Development Strategy (ADS).³and the policy of attracting FDI.¹

7. Conclusion and strategic recommendations

A study of Nepal’s agricultural sector in the context of its modernization, the effectiveness of new technologies and government subsidies in ensuring food security and export growth reveals a complex picture that combines significant potential with deep-rooted systemic problems.

7.1. Key findings of the study on the effectiveness of new technologies and government subsidies

1. Potential and barriers of new technologies: Modern agricultural technologies, including improved seed varieties, mechanization, modern irrigation systems, and digital solutions, have significant potential to dramatically improve productivity and crop yields, increase farmers’ incomes, strengthen food security, and expand Nepal’s export opportunities. However, their actual adoption is hampered by a complex set of interrelated barriers: economic (high cost, limited access to credit), social (low education and awareness of farmers, shortage of skilled labor), infrastructural (poor roads, energy, irrigation, internet), and institutional (land fragmentation, ineffective extension services, policy instability).
2. Inefficiency and problems of the subsidy system: State subsidies, which allocate significant financial resources, in their current form are often ineffective, failing to achieve their stated goals and target groups, especially small and marginalized farmers. The system suffers from insufficient transparency, corruption risks, bureaucracy and a bias towards support for chemical fertilizers, which can have negative economic and environmental consequences. There is a lack of targeting and incentives for innovation.
3. Food security status: Despite some progress, food security remains a serious problem for a large part of Nepal’s population, especially in rural, mountainous and remote areas. Child malnutrition and micronutrient deficiencies remain high. The country’s dependence on food imports, including basic foodstuffs, remains critically high and is on the rise, creating risks for the national economy and vulnerability to external shocks.
4. Export potential and its implementation: Nepal has the potential to increase agricultural exports, especially high value-added niche products (cardamom, ginger, tea, coffee, medicinal herbs). However, current exports are characterized by insufficient diversification of products and markets, heavy dependence on India, and a significant share of re-exports of products made from imported raw materials. To realize the export potential, it is necessary to increase the competitiveness of products made from local raw materials, improve quality, and develop infrastructure.
5. The gap between policy and practice: There is a noticeable gap between ambitious government modernization programs, such as PM-AMP, and their actual impact on the agricultural sector. This points to systemic problems in the design, implementation, monitoring and evaluation of public policies.

The effectiveness of both new technologies and government subsidies in Nepal to achieve food security and export growth is currently limited by these systemic problems. Isolated interventions will not achieve the desired results; a comprehensive, coordinated approach is needed to create an enabling ecosystem for sustainable agricultural modernization.

7.2 Recommendations for the Government of Nepal, donor agencies and other stakeholders

Based on the analysis conducted, the following strategic recommendations are proposed:

A. Improving policy in the field of technological modernization:

1. Comprehensive overcoming of barriers: Develop and implement a national program to remove key barriers to technology adoption. This should include:

• Improving access to targeted financial products for farmers (preferential loans, leasing, support for cooperative financial institutions⁵³).
• Investments in rural infrastructure development: roads, irrigation systems, electricity, warehouses, cold chains and broadband internet access.³⁰
• Improving the level of agronomic education and professional training of farmers, as well as specialists for the agricultural sector.²⁸

2. Adaptation and development of technologies: Focus on adapting existing technologies to local agro-climatic and socio-economic conditions, and supporting national research and development (R&D) in agro-technologies that meet the needs of smallholder farmers.¹⁴
3. Development of the service market: Stimulate the creation and development of a market for agricultural machinery rental services (custom hiring) and maintenance, in order to make mechanization accessible to small farms that are unable to purchase their own equipment.¹⁴
4. Support for digitalization: Actively promote the digitalization of agriculture through the development of the necessary infrastructure, increasing the digital literacy of farmers and supporting the development and implementation of useful mobile applications and platforms (such as GeoKrishi).²¹

B. Improving the efficiency and targeting of government subsidies:

1. Transition to “smart” subsidies: Gradually move away from the practice of general resource subsidies (especially chemical fertilizers)⁴²) in favor of “smart” subsidies that stimulate:

• Implementation of sustainable and climate-smart agricultural technologies.
• Improving the quality and safety of products.
• Investments in modernization and increasing the efficiency of farms.
• Consider introducing voucher systems to provide more targeted support.³⁸

2. Transparency and accountability: Radically improve transparency, accountability and control in the subsidy distribution system to minimize corruption risks and ensure that subsidies reach farmers who really need them, especially small and marginalized ones. Use digital technologies to track subsidy flows and monitor their use.³³
3. Diversification of subsidy areas: Expand support for the production and use of organic fertilizers³⁶, high-quality seeds of legumes, oilseeds and other undervalued crops³⁶, as well as the development of infrastructure for post-harvest processing, storage and processing of products.

C. Strengthening food security:

1. Support for production diversification: Encourage diversification of agricultural production with an emphasis on growing diverse crops, including those rich in micronutrients, to improve the quality of nutrition of the population and reduce dependence on monocultures.⁴⁵
2. Investments in water resources: Priority attention should be given to the development and modernization of irrigation systems, as well as the introduction of efficient water management technologies to improve production stability and adapt to climate change.¹⁷
3. Development of agrilogistics and value chains: Invest in the creation and modernization of infrastructure for the storage, processing and transportation of agricultural products to reduce post-harvest losses and improve farmers’ access to markets.
4. Targeted support for vulnerable regions: Develop and implement special support programmes for the most food insecure regions (e.g. Karnali) and population groups, taking into account their specific needs.³⁰

D. Stimulating the growth of agricultural exports:

1. Focus on high value added products: Provide support to the production, processing and export of high value-added agricultural products, especially those where Nepal has comparative advantages (cardamom, ginger, tea, coffee, medicinal herbs, organic products).¹
2. Assistance in certification and standardization: To assist Nepalese producers in obtaining international quality and safety certificates for products (Organic, GlobalG.A.P., HACCP, etc.) necessary for access to demanding markets.
3. Development of export infrastructure: Improve logistics infrastructure, including transport corridors, border crossings, and export-oriented warehouse complexes.
4. Marketing and market diversification: Support marketing research, promotion of Nepalese agricultural brands in foreign markets and diversification of export destinations, reducing dependence on traditional markets.

E. Ensuring sustainable and inclusive development of the agricultural sector:

1. Solving the problem of land fragmentation: Explore and implement mechanisms that promote land consolidation (while respecting the rights of smallholders) or the development of effective cooperative forms of farming to overcome the negative consequences of excessive fragmentation.⁷
2. Adaptation to climate change: Integrate climate change adaptation and mitigation measures into all agricultural programmes, strategies and policies, promoting climate-resilient technologies and practices.⁶
3. Strengthening the role of farmers’ organizations: Support and strengthen the role of farmers’ organizations, associations and cooperatives in the planning, implementation and monitoring of agricultural development programs, ensuring their active participation in decision-making.
4. Inclusivity: Ensure gender equality and the active involvement of women and youth in agricultural modernization processes, creating equal opportunities and incentives for them.

Implementation of these recommendations will require long-term commitment, political will, effective coordination among all stakeholders, and continuous monitoring for timely course correction. Only a comprehensive and systemic approach will allow Nepal to successfully modernize its agricultural sector, ensure food security for the population, and realize its export potential for the benefit of sustainable economic development of the country.

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