The Finance Ministry has agreed to provide Rs3 billion to the Agriculture Ministry to import extra chemical fertiliser to make up for reduced purchases necessitated by a stronger US dollar and price hike in the global market last year. But the exchequer will only give the money if the subsidy is slashed and a distribution plan is submitted.

Tej Bahadur Subedi, spokesperson for the Agriculture Ministry, said that the Finance Ministry had asked them to reduce the subsidy given to farmers and prepare a procurement and distribution plan amid concerns that the subsidised fertiliser has not benefitted the target group. The government provides a 50-60 percent subsidy on urea.

Subedi said that they had prepared a procurement and distribution plan.

But reducing the subsidy on chemical fertiliser is a political issue, he said. Fearing a public outcry, the Agriculture Ministry has asked the Cabinet how to deal with the matter. “The Cabinet has asked us to work some more on it.”

The government imports chemical fertiliser worth Rs16 billion annually, and demand has been growing sharply. This fiscal year, the government has set aside around Rs6 billion for fertiliser subsidies. Private companies in Nepal are reluctant to trade fertilisers due to their high costs and risks involved.

State-owned Agriculture Inputs Company and National Trading Limited handle all imports and distribution.

The government also controls prices. According to Subedi, they had targeted to procure 286,000 tonnes of chemical fertiliser for this fiscal year, but due to the appreciation of the US dollar and price increase in the global market last year, they were able to buy only 225,000 tonnes. “As the amount is not sufficient to meet the annual demand, we were forced to seek additional money to finance imports.”

The extra cash will enable us to procure another 165,000 tonnes of fertiliser for the upcoming paddy planting season in June, he said. The 30,000 tonnes of fertiliser currently in stock with Agriculture Inputs Company and National Trading Limited will be distributed for spring crops, he added. With the additional deliveries, the supply of chemical fertiliser is expected to reach a record 390,000 tonnes this fiscal year. In the last fiscal year, the government had imported 355,000 tonnes of chemical fertiliser.

Subedi said that global fertiliser prices in 2018 had jumped $80-90 per tonne to $409 per tonne. Besides, the Nepali currency has depreciated by around 10 percent last year, increasing the import value.

Fertiliser prices in the global market fell to $326 per tonne at the start of 2019. “The lower rate and stable US dollar will enable us to procure more fertiliser this fiscal year,” he said.   

The ministry’s statistics show that the distribution of chemical fertiliser reached 298,677 tonnes in fiscal 2014-15. During that year, the average fertiliser consumption was recorded at 96.63 kg per hectare, the highest consumption so far.

However, fertiliser imports plunged to 135,493 tonnes in 2015-16 due to a trade embargo by India. An ensuing shortage and summer and winter droughts led to Nepal’s farm sector seeing a negative growth of 0.19 percent for the first time in 2015-16.

In 2016-17, the supply of chemical fertilisers reached 330,000 tonnes due to a fall in global prices and stocks that remained unused due to the Tarai agitation and subsequent trade embargo in 2015-16.

According to the Agriculture Ministry, the annual demand for chemical fertilisers currently stands at 723,000 tonnes. Subsidised fertilisers cover only one-fourth of the country’s total requirement, and the rest is met by informal imports, or shipments smuggled through the porous border with India.

A study conducted by the Finance Ministry in 2006 put the share of informal fertiliser imports at 71.6 percent of total supplies.