IFPRI – Nepal’s predicament: Delay in fertilizer imports and its implications on upcoming paddy season

Country:
Nepal
India
Focus Region:
Asia and the Pacific
Focus Topic:
Agricultural Value Chains / Agri-Businesses
Market / Trade

As a landlocked country with limited trading options, Nepal has faced exceptional adversities due to its over-reliance on Indian ports – which have suffered disruptions during the COVID-19 crisis. This has impacted Nepal’s fertilizer imports, hence creating uncertainties for Nepalese farmers ahead of the upcoming paddy season.

 

Following a surge in COVID-19 cases, India and Nepal announced a complete lockdown in March. While both countries have been reeling from economic consequences of the shutdown, Nepal’s problems have been aggravated due to its dependence on Indian seaports. The country’s landlocked status makes it exceedingly reliant on Indian transit routes to access international markets. It is also currently a low-income country with a high dependence on agricultural production and no significant domestic fertilizer industry, meaning that imports are the sole source for ensuring fertilizer as an input for farming. The outbreak of COVID-19 and the subsequent lockdown has created a precarious situation for Nepal as its fertilizers sit at Indian ports, unable to reach the country and its farmers.

According to early estimates, there is a demand for about 0.6 to 0.8 million metric tons (MT) of chemical fertilizers every year in Nepal (Hoyum, 20121 as cited in USAID, 2014 ). Planned imports for the current financial year are approximately 0.45 million MT, with urea being the highest component. The market is regulated, and the entire procurement and distribution process is carried out by two authorized companies: Krishi Samagri Company Ltd, also known as Agriculture Inputs Company Ltd. (AICL) and Salt Trading Company Ltd. (STCL). The import portfolio of AICL and STCL is in the ratio of 70-30% of the total fertilizer stock.

FERTILIZER IMPORTS STALLED AT INDIAN PORTS

AICL was in the process of inviting bids for tenders to supply fertilizers from Indian ports to Nepal when the lockdown was announced on 24 March. The tender submission process has since been delayed for over two months as administrative activities have slowed down. While the company reports having enough Diammonium Phosphate (DAP) stock, they are uncertain whether the current urea stocks will last the upcoming paddy season. STCL faces a similar predicament, with one-third of its current year imports of urea and DAP stocks stranded at the Indian ports of Kolkata and Kandla since April.2

Indian ports have been allowed to continue operations under the lockdown to ensure smooth flow of goods across the country.  However, they are doing so with bare minimum staff, and this lack of labor has hindered its cargo handling. Operations such as packaging and loading the imports onto transportation vehicles have been drastically impacted. Kandla port, for instance, is facing an acute labor shortage as its migrant laborers have started leaving for their homes; the shortage has consequently impacted the handling and dispatching of fertilizer imports. The DAP batch of AICL that arrived at the Kolkata Port on 8 April has not yet been dispatched to Nepal due to similar labor shortage.

An extension of the current “new normal” could continue to stall fertilizer imports, thereby adversely affecting the forthcoming paddy transplantation in the western regions of Nepal. The movement of imports from Indian ports to Kathmandu takes a minimum of 15 days, leaving Nepal with relatively less time to ensure distribution, prior to transplantation. Several challenges remain even once the fertilizers reach Nepal’s border points. As per a STCL official, significant work will have to be carried out in the form of transfer to various sales depots as truck movements remain limited in border towns due to surge in COVID-19 cases.

SPILLOVER EFFECTS ON FARMING HOUSEHOLDS

More than two-third of the population in Nepal depends on agriculture as a means of livelihood (ILO,  2016). Farmers operate on small landholdings, with limited access to agriculture inputs. Accessibility is also determined by geographical hierarchy as hilly terrains are difficult to reach. The region’s income is closely tied to remittances as around 56% of all households reported receiving transfers from abroad. However, remittance-generating migrants currently stuck abroad are without work, which a recent World Bank brief suggests could lead to a 14% reduction in overall remittances. This sharp decline will have serious bearing on the purchasing power of agricultural households and their capacity to buy farm inputs.

The initial phases of lockdown in Nepal curtailed farmers’ movement and access to inputs, as agrovets and cooperatives opened for fewer hours. The agrovets we talked to also indicated a shortage of seeds for paddy and maize, and pesticides. Reliance on monsoon leaves farmers with no scope to alter the paddy transplanting timeline based on fertilizer access. Limited input access and low working capital availability can spell disaster for the farmers.

The current situation will also have significant implications for the informal fertilizer trade across Indo-Nepal border. Almost 60-70% of total fertilizer supplies in Nepal are through informal trade (ADB, 2004;  Kathmandu Post, 2018). Farmers in the Terai region rely significantly on informal markets across the border for their fertilizer needs. It will be important to study the impact of COVID-19 on informal markets in order to holistically assess yield and income losses that the farmers will likely face.

Trade blockades such as the current one may push Nepal to explore options to reduce dependence on Indian routes for international markets and look forward to other routes such as the proposed Trans-Himalayan Railway corridor under the Chinese Belt Road Initiative.

WAY FORWARD

There are a few potential corrective measures that Nepal can initiate. The first hurdle is the movement of fertilizers from Indian ports. While STCL and AICL have placed requests with the Indian government for the transit of fertilizers from the ports, on-ground movement remains constrained. It is important, therefore, that Nepal steps up supply-chain management to expedite the transit of stalled imports. The government may have to engage with New Delhi to ensure allocation of labor to cargo handling and transport systems at the ports on an urgent basis. Meanwhile, the country will have to create robust screening systems at border entry points for fertilizer movements.

The relief measures announced by the Nepali government enable families to register themselves as beneficiaries. However, there aren’t any concrete measures aimed specifically for the agriculture sector. As other sectors face unemployment and migrants head back home, the burden on agriculture will increase. Credit supply needs a boost to equip farmers to make input purchases for the current and upcoming crop seasons. Paddy season is the most crucial for Nepal’s economy, and its farmers certainly cannot afford a crop failure.

The pace of policy engagement between the two nations on the fertilizer supply front will be a decisive factor for kharif agriculture production in Nepal. A quick resolution of the issue will be in the best interest of farmers.


1 Hoyum R A. 2012. Nepal Fertilizer and Plant Nutrient Assessment. USAID

2 Based on personal communication with AICL and STCL officials.

SOURCE:
International Food Policy Research Institute (IFPRI)
AUTHOR:
Smriti Saini
COVER PHOTO:
Flicker/ Fabien Zorin