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

South Asia in IFPRI’s Global Food Policy Report

Drawing on rigorous research and sound evidence, IFPRI’s today released 2012 Global Food Policy Report discusses major food policy developments in 2012 like the increase of agricultural research and development funding, progress toward a green economy, and the drivers of future global food security.Global Food Policy ReportContributing authors P.K. Joshi, director of IFPRI South Asia, and Senior Research Fellow Devesh Roy, covered some of the challenges South Asia faced in 2012 and potential opportunities in 2013 like the ongoing policy challenges and regional trade barriers, and efforts by government to increase inter-country partnerships.

Looking at the past decade South Asia’s average annual growth in agriculture has been 3 per cent, more or less, compared with other Southeast and East Asian countries. Despite achieving self-sufficiency in food grain production last year, Bangladesh, India, and Nepal showcased poor agricultural performance due to a variety of unpredicted weather events like monsoons, flooding, and drought. To address the food security challenge the Bangladeshi government is working on a Country Investment plan that incorporates 12 programs that improve availability, access and utilization of food.

Political uncertainty, weak governance combined with huge implementation gaps, bureaucratic control, regulation and reform delay continues to be an unsolvable puzzle, however, recently a few policy decisions have been made at both country and regional levels that have boosted agricultural growth in South Asia.

Fertilizer subsidy in a major policy distortion in the south Asia region. The Indian subsidy policy in fertilizer led the Nepalese government to increase, by almost double, their fertilizer subsidy for the year 2013. This policy change will benefit farmers by allowing them to buy legal fertilizers at reasonable prices as well as benefiting small, local fertilizer businesses. Another major and controversial issue is related to the release of a genetically modified crop, Bt eggplant, in India. The Bt eggplant, which could help small holder farmers increase production with limited use of pesticides, was barred from release due to food safety, biodiversity and environmental concerns. But recently, a long awaited decision on Foreign Direct Investment (FDI) was approved with an investment cap of 51 percent for multi-brand retail. “FDI in India will strengthen the back-end process with reduction in post harvest losses, increase market efficiency, and give better prices for farmers and consumers,” says Devesh Roy, Senior Research Fellow, IFPRI.

The fourth BRICS (Brazil, Russia, India, China, and South Africa) Summit organized in India showcased efforts that brought these countries together to learn from each other how to meet global challenges and harness emerging opportunities. The South-South cooperation has become an important aspect of reducing poverty and ensuring food security. In a similar effort, the creation of the South Asian Seed Bank by South Asian Association for Regional Cooperation (SAARC) aims to address seed shortage and security issues within the region.

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