Further drop in sector’s share of GDP could widen income disparities and regional imbalances 

Report: Amid agriculture’s falling share of gross domestic product (GDP) of the country, the Asian Development Bank (ADB) has urged Bhutan to prioritise the sector’s development equally like hydropower.

The bank’s latest report “Asian Development Outlook 2015” states that agriculture, which employs 56 percent of the workforce in Bhutan, is the main source of income for farmers.  The share of agriculture to GDP was 24 percent in 2004, but came down to 16 percent in 2013.

“The challenge is to improve the sector to help achieve more balanced and inclusive growth in the economy,” the ADB states.  In recent years though, the contribution of agriculture to GDP has started to stabilize, with only 1 percent decrease from 17 percent in 2010 to 16 percent in 2013.

The decrease in the share of agriculture in GDP is attributed to structural changes from an agrarian economy to a hydropower and service dominated one.  The country’s higher GDP growth rates have been propelled by hydroelectricity and construction, which have a narrow employment base.

The report doesn’t however mention the loss or fallowing of agriculture land because of urbanisation, human-wildlife conflict and rural-urban migration, which many feel are the main factors.

The slow growth of agriculture, some economists feel, is a cause of concern, as it can widen income disparities and regional imbalances in income levels and development.

According to ADB, agricultural production itself grew at an average rate of 2.1 percent per annum in the 1980s and declined to 1 percent in the 1990s.  The growth picked up to 3.5 percent in 2011.

“Since the development of the hydropower subsector began in the 1980s, the share of agriculture in GDP has been steadily displaced,” the report states.

Constraints on agriculture and economic diversification in Bhutan have been attributed to lack of infrastructure, fluctuating yields, inadequate market links, and high transaction costs.  Another constraint to export is difficult entry into potential markets and meeting their quality requirements.

One advantage that Bhutan does have in relation to its neighbours is seasonal diversity, which allows the country to produce a wider range of crops.

The report states that, compared with other landlocked countries, Bhutan fares better on access to foreign market.  The ADB has urged Bhutan to address market constraints and infrastructure challenges to improve agriculture.

“This (addressing market constraints) would help to expand food exports and boost rural incomes.”

The ADB also states that strategic diversification into new markets, particularly the emerging Asian economies, could help expand the export base.

By MB Subba