Fertilizer Policy Directions and Adjustment Prospects in Nepal (hdl:20.500.13038/FK2/JGYXKS)

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Fertilizer Policy Directions and Adjustment Prospects in Nepal

hdl:20.500.13038/FK2/JGYXKS

Dataverse

2022-05-16

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Govinda Prasad Gewali, 2022, "Fertilizer Policy Directions and Adjustment Prospects in Nepal", https://hdl.handle.net/20.500.13038/FK2/JGYXKS, Dataverse, V1

Fertilizer Policy Directions and Adjustment Prospects in Nepal

hdl:20.500.13038/FK2/JGYXKS

Govinda Prasad Gewali

Dataverse

Thigpen, James

2022-05-16

https://hdl.handle.net/20.500.13038/FK2/JGYXKS

Agricultural Sciences

Despite more than six decades of chemical fertilizer importation and application in Nepal, the country’s agriculture sector has yet to achieve desired and sustainable results. This is partly because the erratic policy environment in the fertilizer subsector often results in short supply and reliance on informal sources. With the exception of a limited period, the government has played the primary role in importation and distribution of fertilizers instead of serving as a regulator. The private sector has taken secondary or insignificant roles due to the lack of a policy environment conducive for their meaningful participation. The latest government policy regulates fertilizer operations with only public sector agencies (Agriculture Inputs Company Limited [AICL] and Salt Trading Corporation Limited [STCL]) allowed to import and arrange transportation to districts. Only farmers’ cooperatives are allowed to purchase and sell to farmers in villages. This situation exists because fertilizers are imported only for the subsidy program with stated rationale to ensure access for smallholder and poor farmers (cultivating up to 0.7 hectares [ha] in the hills and mountain and 4 ha in the Terai) who often encounter difficulties in obtaining fertilizers in an open market environment, mainly due to lack of purchasing power. Increasing access to fertilizer will help address food insecurity through application of fertilizer and increased crop production. However, farmers cultivating above the thresholds, who need more fertilizers and have the potential to play a major role in increasing national production and food security, are excluded from the subsidy program. The government needs to ensure these farmers have access to fertilizers, either with lesser subsidy or at market rates, through a separate arrangement. Starting with a budget allocation of NRs 2 billion (Nepalese Rupees) for subsidization of about 150,000-200,000 metric tons (mt) of fertilizers in 2010, the subsidy budget increased significantly to NRs 4.75 billion in 2016 to import 275,000-300,000 mt, which still does not meet half the annual national demand. This is almost equal to the quantity imported in 1999 under the open market environment in which the private sector played a major role; during this time, fertilizer use per hectare almost doubled due to the increased availability. Despite the positive experiences of deregulated fertilizer operations, because of the existing economic and political context, the current policy environment is likely to continue during the short- to medium-term with a possible increase in budget allocation for the subsidy program; there will be less consideration of financial sustainability, and farmers will not have the option to use their scarce resources for inputs of their choice. Further, the urea selling price is likely to continue to be subsidized heavily (58%). Urea occupies two-thirds of the total imported fertilizers. This will continue a trend toward urea overuse, compromising balanced fertilizer application, worsening limited coordination with extension and research, and contributing to persistent adverse effects on soil fertility. The government’s immediate attention is needed to address these issues. Senior government officials who met to discuss this study see some possibilities of involving qualified private firms in importing and distributing fertilizers in the near future, even under the subsidy program, by making adjustments in the program guidelines, given the saturating financial and institutional capacity of AICL, which has been assigned to import and distribute 80% of the fertilizers; the officials are also considering the possibility of importing more fertilizer by increasing the allocation of the subsidy budget in coming years. Private firms have been keen in taking part in the fertilizer business for many years. The Fertilizer Association of Nepal, with most members from the private sector, is reportedly being activated. The association can liaise with the government and even work as a pressure group in reopening private sector participation in the fertilizer business, starting initially with smaller roles under the subsidy program. This may provide opportunities for the private sector to demonstrate their performance, broaden their roles, and pave roads for eventual movement to deregulated fertilizer operations. The most pressing issues with the fertilizer subsector include sustaining the subsidy program, promoting proper application of fertilizers by restructuring price subsidies on urea, creating an enabling environment for the involvement of the private sector for increased supply, improving compliance with regulatory measures, including controlling the informal market, and taking measures for improving the subsector’s efficiency. While most stakeholders opine that the current regulatory measures are relevant (with the exception of a standard for warehousing, which needs to be established), there is a need for significantly improving the operations of the government’s central and district structures and their capacity for regulatory compliance monitoring and enforcement. Development partners and specialized projects supporting policy reforms can help build the capacity of the regulatory structures, organize orientation programs on compliance requirements to central and district stakeholders, undertake studies on fertilizer operations in consultation with central and district agencies and farmers, and carry out analyses, including evaluation of results and sustainability of the subsidy program in meeting its intended purpose to feed the findings at the policy level in order to convince authorities and create a conducive environment for policy reforms. Such agencies could also assist in: (i) building the procurement capacity of AICL and STCL to shorten the fertilizer importation period and transportation to districts; (ii) developing skills of cooperatives to function as business entities; (iii) carrying out detailed assessment by the government on the relevance of the regulatory measures and adjustment requirements in the medium-term based on consultation with importers, transporters, dealers, retailers, and farmers; (iv) building the capacity of the Ministry of Agricultural Development (MOAD) in annual fertilizer projections; and (v) helping, through deeper engagement with the government, improve and finalize the draft fertilizer act with reform-oriented, transitional-to-actual reform-focused roadmaps.

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