Agriculture contributes about 35 percentto the Gross Domestic Product (GDP) of Nepal. But growth inthe sector has been quite volatile in the last decade, totheextent that the lowest and highest growth rates wererecorded in consecutive years. Nepal agriculture ischaracterized by relatively low yields compared toneighboring countries. Furthermore,land isdisproportionately allocated to grain staples (rice, maize,wheat, millet, barley, and buckwheat),despite fruits andvegetables showing relatively higher yields and highergrowth in consumption. A proper understanding of the sourcesof agriculture growth would help identify what kind ofagriculture offers most potential to further reduce povertyand boost shared prosperity.Nepal is increasingly becoming anet importer of food, both in high value foods such asfruitsand vegetables as well as staples such as rice, potatoes,and maize. Expanding exports would require investments ininfrastructure and a conducive regulatory environment tocertify that products from Nepal achieve the variousSanitary and Phyto-sanitary standards of foreign markets.The main objective of this report is to identify policy andinvestment priorities to stimulate agricultural growth forpoverty reduction and shared prosperity. The studyultimately seeks to inform strategic dialogue betweenGovernment of Nepal and the World Bank Group towardsinvestments inagriculture and supporting sectors. The reportprovides building blocks to identify policy andinvestmentspriorities. After a brief Introduction, Chapter 2 examinesthe main drivers of agriculturefor poverty reduction andshared prosperity. The key issues addressed are drivers ofagricultural income, drivers of total factor productivitygrowth, emerging patterns of diversification, degree ofmechanization, and constraints to investments in the sector.Chapter 3 examines the effects of public expenditures infertilizer and seed distribution programs, paying specificattention to effects on: supply of fertilizers, fertilizerapplication rates, retail prices, private sectorparticipation, performance of the distribution chain,relative access between various categories of farmers, andconsistency of the program with inequalities in thedistribution of poverty and food and nutritional security.Chapter 4 generates lessons on policy and investments toexpand exports. Chapter 5 generates lessons on policy andinvestments to substitute imports. Chapter 6 providesoverall recommendations for policy and investmentspriorities, while distinguishing between actions needed tostimulate broad-based productivity growth with actions needfor export promotion and import substitution.
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