Farmers in Derivative Markets: A Helping Hand!

Nepal is an agro-dominated economy wherein 35% of the total GDP is contributed from this sector. 

Rice fields in Changu Narayan village in Nepal.

According to the latest data from the World Bank, 28-30% of the total land of Nepal is cultivable. Keeping in mind the scope and the potential of the agricultural sector in an economy such as ours, how can a derivative market benefit the farmer’s productivity levels?

With each passing year, the farmers in Nepal are facing various obstacles from the market. From various studies conducted on a domestic and international front, monstrous hiking of the prices from the middlemen remains the predominant factor. A farmer produces their produce at a certain cost. But when the middleman gets their hands on these products, the price is inflated to unimaginable levels. In short- these middlemen are not providing the right prices for the produce when the product reaches the consumers.

The case of black cardamom furnishes the best example. Poor farmers are compelled to sell their products at much lower rates immediately after the harvest, when the general scenario is just the opposite. 

Nepal, despite being the world’s largest exporters of cardamom, has not been able to reap the benefit out of the immense potentiality. Lack of proper knowledge among the farming community has been the major hurdle and thereby, the middlemen are taking advantage of this scenario. So, what can a derivative market contribute to make this market a thriving one is a big question.

The derivative markets of Nepal should start with few basic steps. Firstly, the lack of knowledge among the farming community remains the major hurdle. In this regards, the farmers can be directed to trade their agricultural products in the derivative market so that they can get the right price  rather than selling their hard produced crops at lower prices. But, given the current practices, is it possible?

According to Integrated Regional Information Networks, commonly known as IRIN, agriculture in Nepal is facing problems due to under investment, lack of research and usage of obsolete technologies in the sector. Also, decline in the resource allocation from government from 3.7 percent of total government spending 10 years ago to 2.6 percent in year 2013 in the agricultural sector has hampered the development of the agricultural sector. If those cultivable lands are used again by educating the farmers about the long term benefits, then they will not need any loans or any other financial support. By educating farmers, the derivative market can also provide avenues for the enhancement of the economy.

The day is not far when a farmer from a corner in our economy, confidently stores his produce in a warehouse and proceeds to the exchange to auction it. But the question arises-When? 

Written by: Shristy Shakya

The article was published in The Himalayan Times on 28th December, 2014. Link to the article