Agriculture: Blessing Or a Curse?

Though the agriculture sector boasts of higher Labor Force Participation Rate, the economic output and contribution to GDP remains marginally low

The agriculture sector in Bhutan absorbs a large number of the population under its banner as employed persons, meaning, a huge Labour Force Participation Rate (LFPR). However, its contribution to the economic output of the country remains relatively low, manifested by a negative growth in the primary sector mainly driven by lower crop productions and deceleration of growth in livestock.

In 2022, it generated 43.4% of the total employed persons while its contribution to GDP was only 14.7%. This development occurs in line with a global trend, as the Bhutanese economy also undergoes a transition from the agriculture sector to the industry and service sectors.

The gap in agriculture productivity decreased to 4.5%, from 7.5% high in 2018. This transformation is accompanied by a shift in the economy from the primary sector to the secondary and tertiary sectors, reflecting broader changes in the economic efficiency. Alternatively, this indicates that more labor has been shifting from the agricultural to more productive sectors, which has the potential to enhance economic output.

The agriculture sector also exhibits other concerning elements, such as disproportionate distribution in terms of region and gender. First, majority of the working population in rural areas are employed in the agriculture sector, constituting approximately 64% as of 2022. Second, the service sector employed the largest share at 76.6%, followed by the industry sector at 19.4% in urban areas in the same review period.

Although the Bhutanese economy has been witnessing an increase in the Gross Value Addition (GVA) from agriculture sector in the last six years, the share of employment in this sector has been declining at a steady rate. From a GVA of 12.9% and 51.3% employment share in 2017, the former has increased to 14.7% and the latter declined to 43.4% respectively in 2022.

Notwithstanding the transformation in the agriculture sector, it is still a major concern, as large numbers of the labor are still concentrated in agriculture while the output remains same with meager improvement. The agriculture productivity gap indicates a skewed labor allocation in the economy. In addition, while measuring sectoral per capita income earnings relative to the GDP per capita, despite increase in agriculture output in 2022, GVA per capita in the agriculture sector (Nu 267,588) is about 10.4% below GDP per capita (Nu 298,479). Like 2021, even in 2022 GVA per capita of non-electricity industry (Nu 1,063,256) and service sectors (Nu 976,117) are more than 3 times higher than the GDP per capita.

Finally, the proportion of female workers (53.3%) working in the agriculture sector was comparatively higher than their male counterparts at 36.1% in 2022. Furthermore, more than 70% of female employment in rural areas was engaged in the agriculture sector compared to 5.5% in urban areas.

In terms of LFPR by area, labor force participation was still higher in rural areas (65.2%) compared to urban areas (59.7%). Higher rural LFPR was driven by higher rural female labor participation (57.6%) against 46.8% in urban areas, indicating higher gender disparity in LFPR. This occurs as female workforce in urban areas engages in family duty whereas their rural counterparts are actively engaged in agricultural activities. Since the onset of the COVID-19 pandemic, the economic downturn has significantly affected the labor market situation. For instance, the GDP grew by 5.2% in 2022, marking a 0.8 percentage point increase compared to 2021.

In terms of the labor productivity, agriculture sector also exhibited comparatively lower productivity than industry and service sectors. Driven by electricity sector and capital intensive in nature, the labor productivity in the industry sector is higher than the agriculture sector. The overall labor productivity in 2022 was 98.1% against 97.8% in 2021. Amongst these, the agriculture productivity during the same period was recorded at 95.5% and 99.3% in both industry (excluding electricity & water) and service sectors.

Numbers & economic support ratio

In numbers, the total unemployed populations were recorded at 18,198 persons in 2022 (5.9%), compared to 16,254 persons in 2021 (4.8%). The number of unemployed persons in the past three years has shown a noticeable increase compared to the previous years.

As per the Population and Housing Census of Bhutan (PHCB) 2017, the estimated population for 2022 is 763,249, about 1% growth from 2021 comprising of 397,731 males (52.1%) and 365,518 females (47.9%). Correspondingly, in the LFS 2022, the working age population (15 years and above) is estimated at 484,965, which constitute 63.5% of the total population. On an average, there are six potential workers for every ten persons, reflecting higher level of economic support ratio for Bhutan.

Labour force participation

In 2022, 178,983 of the working age population remained economically inactive, which accounts for 36.9% of the working age population. From the economically inactive population, 35.5% of it is engaged as students or trainees, 33.4% attending family duties and 16.7% belonged to the old age group. In terms of inactive population by age group, 39.9% are youth between 15-24 age bracket, followed by 20% of old age population (65 years and above). During this period, the LFPR decreased to 63.1% compared to 69.1% last year. This is largely contributed by exit of labor force as indicated by the increase in inactive population of persons attending family duty (33.4%) in 2022 from 16.6% in 2021. There has been decrease in female labor force by 29,646 persons, resulting to 53.5% of female LFPR in 2022 compared to 65.3% in 2021. On the other hand, there was a marginal increase in the male LFPR by 0.3 percentage points, taking the male LFPR to 73.4%.

The traditional farming methods and the topography in Bhutan pose significant challenges in increasing productivity and impediment to commercial farming as well. Overall, the mean working hours of the employed persons are 53 hours per week at the national level whereas workers in agriculture sector works for 56 hours per week while industry and service sectors work for 54 hours each. This, in general is higher than the Labour and Employment Act of Bhutan 2007 and International Labour Organization’s (ILO) standard of maximum of 48 working hours in a week.

Despite higher labor productivity and lower mean working hours, the growth intensifying sectors like electricity and financial sectors have a small share to employment creations. At the same time, other economic sectors like transport & communication, construction, wholesale & retail trade, and manufacturing, have a lower contribution to employment generation relative to its GDP. Therefore, agriculture sector, hotels and restaurants continue to remain as the key sectors that have the potential to generate employment in the economy.

Meanwhile, the underemployment rate in 2022 stood at 4.9% which is an upward of 0.2 percentage points from 4.7% in 2021. Underemployment is largely prevalent in rural areas with 84.3% of the underemployed persons dwelling in the rural areas.

Underemployment is primarily driven by financial constraints, as there are large numbers of people who want additional work for additional income. Of the total 14,209 underemployed persons, about 95% are willing to work for additional income.

The overall unemployment rate also rose from 4.8% in 2021 to 5.9% in 2022, reflecting a 1.1 percentage point increase. Similarly, the youth unemployment (unemployed persons aged 15-24 years) rate also increased to 28.6% (8,496) in 2022 from 20.9% in 2021. The increasing numbers of new entrants in labor market after completion of schools, colleges and training centers resulted in the increase of unemployment rate, particularly for the youth in 2022 compared to previous years. In 2022, there were 5,670 students entering the job market compared to 2,976 in 2021. In addition, the reduced business activity and investment in the economy further deteriorated the labor market situation in the country.

Tashi Namgyal from Thimphu