Frosty's Logs in Developing Horticulturre

Low labour productivity and missing link between farmers and market are the two primary reasons for Bhutanese farming not being profitable.  

The farmers are using no longer economically viable technologies due to which Bhutanese farming has low labour productivity.  This issue is long been known.  It is also known that the problem can be resolved by enabling farmers to use modern technologies and engaging private sector for connecting Bhutanese farms to market.  

While the labour productivity is low, high Custom Duties (CD) and Sales Taxes (ST) are levied on green house, drip irrigation and hybrid seeds which are necessary to promote horticultural enterprise, increase labour productivity and profitability.  This has been a long standing dilemma of horticulture development.  

High costs of production technologies and absence of market a farm gate have been deterrent to creating job for youths in horticulture.  

Inarguably private sector can provide market at farm gate and execute trading beyond Phuentsholing auction yards.  Also the private sector can deliver agricultural technologies and associated inputs much more effectively and efficiently.  

The present system of civil service agencies buying and selling agricultural inputs to which CD and ST are exempted, needs to be reviewed in the light of the cost to the Government and engaging private sector to which CD and ST are levied.  

It is high time that supply of agricultural inputs to farmers be deregulated and let the private sector to do it. 

The Bhutan Trade Classification (BTC) - Customs Tariff and Sales Tax Schedule, 5th Edition, January 2012, has the following provision for Custom Duty and Sales Tax.  

Head	BTC Code	Commodity Description	CD %	ST %
1209	1209.91.00	Vegetable Seeds	50	0

The 50% CD is levied on hybrid vegetables seed imported from third countries, the countries other than India.  

The 50% CD is levied even when the seed is brought from Indian market imported by Indian Companies.  It means tariff restriction is imposed on Bhutanese farmers from using hybrid vegetables seeds from countries like Japan.  

Under the BTC Head 39.17, 30% CD and 10% ST are levied for drip irrigation system. 

Similarly under the BTC Code 73.02, 20% CD and 10% ST are levied for green house.

Fiscal Incentive Policy 2010, General Rule 4.2 says:

If CD and ST are not levied to the private sector just as to the civil service agencies, the private sector, competing in the market, can effectively deliver agricultural inputs at competitive market price to the farmers.  There will be huge cost saving to the Government in terms of civil servants being engaged in buying and selling, subsidy grants, revolving fund, and capital and recurrent annual budget.  

Waving off CD and ST on production technologies and associated agricultural inputs will bring down the cost and improves affordability of the farmers to modern production technologies.

Farmers not been able to use technologies mean Bhutanese farming remaining in-competitive and unprofitable.  Therefore, the policy of levying CD and/or ST on horticultural technologies needs to be looked at in the light that whether it is contributing more to the national economy or there can be more benefit in not levying the CD and/or ST.  

Truly farmers need support in a packaged form.  Waving off CD and ST will bring down the cost of production technologies and associated inputs by 30 to 50%.  Providing capital investment support will shorten the long gestation /turnover period.  Providing credit at lower interest rate enables farmer to pay back the credit and earn profit in shorter period than otherwise possible with high interest rate.  Having insurance scheme for commercial horticulture encourages farmers to burrow and invest.  All these need to be balanced and packaged.

Inherently the green house, drip irrigation and hybrid seeds are expensive and adding high CD and ST makes them even more expensive and unaffordable to the farmers.  If the cost of agricultural production technologies and associated inputs are lowered by waving off CD and ST, its combination with low interest credit being provided by the Government will have synergistic impact on adoption of horticultural enterprise. 

The best practices in promoting horticultural enterprises have been the provision of initial capital investment support and low interest credit in back-ended mode.  These two support mechanisms together with market support needs to be considered together.

The promotional programs purchase hybrid seeds, green house and drip irrigation system and demonstrate to the farmers.  But until appropriate support in packaged form is provided to farmers and private sector, the promotional program may not achieve the objective.

For enabling Bhutanese farmers to use production technologies and connect them to local, regional and global markets we need to do macro-economic research to guide the process of making right policy.  

The horticulture development has not been able to attract private sector investment.  The development programs have been conventionally focusing on welfare rather than agri-business.  The horticulture development projects are less subjected to commercial discipline which blurbs the role of private sector.  

Every 9 out of 10 jobs are said to be provided by private sector.  It is in this sector most jobs will have to be created in the future.  For this reason good framework and support for private sector is inevitable for horticulture development.

The Government has immensely invested on formation of cooperatives.  But the sizes of cooperatives are small and therefore not been able to execute their own sales and marketing.  Given the small size of individual farm, nature of terrain and pattern of settlement, the individual cooperative will always be small.  

The cooperatives so far developed need private sector to provide market at farm gate.  Only then the small scattered cooperatives will succeed.

The high initial investment costs and risks are the primary underlying reasons as why there is low private sector investment in horticulture.  By nature the horticultural enterprise involves high initial investment costs and risks in the early years.  The private sector investors will not bear the high initial investment cost and risk particularly when profitability is not assured.  

To kick start of horticulture development, every aspect including duties and tax regimes, capital investment support, credit interest rate should be looked together.  

The private sector can play a crucial role in creating jobs in horticulture if right policy and regulatory paradigm are in place. 

The right policy and regulatory paradigm can only be assured with continuous public-private dialogue as partners.  Clearly there is a need of a formal structural platform for public-private dialogue. 

The Horticulture Development Policy and Strategy of the Ministry of Agriculture and Forests for 8^th FYP (1995) had proposed for Horticulture Development Board.  A platform such as Horticulture Development Board is necessary to engage private sector as responsible partner for developing horticulture industry transforming every Bhutanese farm to an agri-business enterprise.  

It is only with continuous public-private dialogue at a formal platform there will be integrated policy and packaged support for addressing the challenges of promoting agri-business in horticulture.