Fertilizer Crunch – a Perennial Issue in Nepal

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Context:

Nepal and India on 01 March 2022, signed a government-to-government (G2G) deal to procure chemical fertilizers for the next five years. The memorandum of understanding (MoU) signed by Govinda Prasad Sharma (Secretary at Nepal’s Ministry of Agriculture and Livestock Development) and Rajesh Kumar Chaturvedi (Secretary at India’s Ministry of Chemicals and Fertilizers) assures to provide at least 30 percent of the country’s annual domestic fertilizer requirement. As per the MoU, Nepal can now buy 150,000 tons of crop nutrient which includes – 100,000 tons of urea and 50,000 tons of diammonium phosphate till the end of ongoing fiscal year (FY) 2021/22. Similarly, the country can purchase 170,000 tons in the second year, followed by 195,000 tons in the third and 210,000 tons in both the fourth and fifth year. Likewise, the price rate for fertilizer is to be determined through a joint steering committee, consisting of representatives from both Nepal and India.

Commentary:

The new MoU between Nepal and India on chemical fertilizer is a breakthrough achievement for Nepal, particularly its agricultural sector. Fertilizer supply has always been acutely low in Nepal, particularly due to its high dependency on both formal and informal imports to sustain its internal/domestic demand. According to the Ministry of Agriculture and Livestock Development (MoALD), Nepal’s total demand for chemical fertilizer stands at 600,000 metric tons (MT) (as of February 2022), wherein 25 percent is domestically produced and the rest 75 percent is imported from neighboring nations. Within the same figure, one-third of the total demand is imported through formal channels and the rest via informal procedures such as illegal cross-border smuggling. While the government has assigned two state-owned companies – the Agriculture Inputs Corporation Limited (AICL) and the Salt Trading Corporation Limited (STCL) to import and distribute chemical fertilizers (at a subsidized rate); their inefficiency, lackluster management practices, procurement discrepancy and corruption has plagued the farming sector. Moreover, the duo-monopoly exerted by them has profoundly restricted private companies from entering the fertilizers market. In addition, the existence of a cartel culture, presence of middlemen and heavy customs duty has also demotivated private companies and enterprises. All of this has left the fertilizer market unregulated with severe product crunch; ultimately hampering farmers – their produce and their productivity.

Agriculture is the main driver of Nepal’s economy, contributing around 25 percent to the national economy and employing around 60 percent of the total workforce (as of February 2022). Yet farmers always bear the brunt of inadequate chemical fertilizers and plant nutrient supply during harvest/crop season. Considering this, the MoU signed by Nepal with India is anticipated to lessen the woes of domestic farmers and producers. However, the nation cannot completely rely on it to fulfill its fertilizers needs. Newer avenues must be adopted to prevent future fertilizer crisis/crunch including – stronger G2G negotiations with other fertilizers exporting countries such as China, Turkey, Egypt, and the Gulf nations to reduce import dependency on India; storing buffer stocks to ensure fertilizer supply even during desperate or unforeseeable periods; strengthening both procurement procedure and human resource management at AICL and STCL particularly with regards to imports; ensuring equitable distribution channels by acknowledging the role of private sector in fertilizers market; and encouraging private investments in domestic fertilizer industries.

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