Growing Fertilizer Market in Nepal

Landlocked Nepal faces the challenge of low crop productivity due to climate change, depletion of soil fertility, and low fertilizer use. Over the years, there has been a significant shift in the use of inorganic fertilizer in the Terai agro-ecological belt, while use has stagnated in the hill and mountain regions. The low fertilizer use may be partly due to insufficient demand, the shortage of fertilizer-responsive varieties that suit Nepali production environments, limited access to irrigation facilities, or limited market access aggravated by rugged terrain in many parts of the country.

The government is concerned about high prices and the dubious quality of fertilizers sold in the country. It is unclear why the demand for and sale of chemical fertilizer supplied through private, informal channels remain high despite the poor quality of chemical fertilizers.

Divya Pandey/IFPRI

To support the government of Nepal, USAID Nepal, through IFPRI, carried out a study to identify what determines the quantity of chemical fertilizer farmers’ use. The project also studied how variation in chemical fertilizer prices across regions between 2003 and 2010 contributed to variation in chemical fertilizer use and other economic outcomes of farm households during the same period.

Key Findings and Policy Recommendations

Analysis of past policies and panel data from the Nepal Living Standard Survey for 2003 and 2010 show that in Nepal's Terai region, lowering the price of chemical fertilizer is more advantageous for larger farms than smallholder farms. The growth in fertilizer demand has been met by private markets, despite the knowledge that chemical fertilizer from private markets is often inferior and impure compared with the chemical fertilizer supplied by the government, nongovernmental organizations, and cooperatives.

The study outlines the following policy options:

  • increasing the use of chemical fertilizer in Nepal, particularly in the hill and mountain regions, which may require the government to focus on raising returns from the use of chemical fertilizer rather than on reducing the price of chemical fertilizer through subsidies
  • conducting further research on the variation in use of chemical fertilizer between medium- to large-size farms in Terai and those in the hill region, as well as on the interactions between chemical and organic fertilizer and the long-term environmental sustainability of increased chemical fertilizer use
  • enhancing investment in agricultural research and development on production technologies

Read more: Determinants of Chemical Fertilizer Use in Nepal

Farm Size and Effects of Chemical Fertilizer Price on Farm Households

Agricultural Mechanization in Nepal

Agricultural mechanization is one of the key processes that will affect the future of smallholder farming systems in Asian countries, including Nepal, where just 8 percent of farmers use tractors, 26 percent use iron plows, and more than 60 percent of intercultural operations are managed by women. Poor infrastructure is a major constraint on the mechanization of agriculture in Nepal. But providing easy credit and raising awareness of financial intermediaries can help to mitigate those constraints and facilitate mechanization.

Divya Pandey/IFPRI

USAID Nepal, through IFPRI, aims to support the Government of Nepal in improving the policy and regulatory environment by reforming the country’s business regulations and supporting the enactment of farmer- and business-friendly input policies and procedures under the Policy Reform Initiative Project (PRIP). As part of this effort, IFPRI conducted several empirical assessments of the issues affecting the promotion of agricultural mechanization (or agri-mechanization) in Nepal.

One assessment addressed the problems and challenges faced by stakeholders—farmers, agrimachinery providers, producers and fabricators, researchers, and traders—and assessed how the adoption of custom-hired services affects farm households across farms of all size. The main objective of this empirical assessment was to identify policy solutions for the strategic implementation of the agri-mechanization promotion policy passed in 2014.

Approach

To understand the policy questions in depth, the team conducted a literature review, collected primary and secondary data for analysis of mechanization in Nepal, interacted frequently with a variety of stakeholders, and reviewed the policy environment.

Key Findings and Policy Recommendations

The study on agri-mechanization in Nepal found that smallholder farmers are likely to benefit from the adoption of tractors through custom-hiring services. But they may also have incentives to exit farming and specialize in nonfarm income-earning activities. IFPRI researchers found that operators providing machine services lacked training, which contributed to poor demonstrations and low adoption of machine use among farmers. Because the government had not made mechanization a priority in the past, the sector is currently in a developmental state, and mechanization is not widely recognized as a substantial tool for better crop productivity.

IFPRI researchers also analyzed the policies and provisions governing the agri-mechanization sector, and recommended strengthening Nepal’s agri-mechanization promotion policy and focusing on implementation. Issues surrounding taxation (that is, the custom tariff and VAT) also need to be resolved. Finally, the establishment of networks and coordination with other sectoral and cross-sectoral policies and an agricultural mechanization credit policy are needed.

Read more: Effects of Agricultural Mechanization on Smallholders and Their Self-Selection into Farming: An Insight from the Nepal Terai

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