KATHMANDU: The issues of improving the scenario of sub-sistence farming, increasing productivity and commercialisation of agriculture are a major agenda of the govern-ment. However, little success observed in these areas suggests that there are several practical bottlenecks in the implementation.
One such bottleneck lies in the fertiliser scenario. Over the years, the use of chemical fertilisers has increased tremendously in Nepal and as subsidised chemical fertilisers dist-ributed by Agriculture Inputs Company Limited (AICL) have not met the total demand of farmers,
it is being met by informal means of import.
Introduction of fertilisers
Fertiliser use increased steadily, especially after the establishment of a public enterprise, the Agriculture Input Corporation (AIC), now AICL, in 1966. The AIC was the first to import chemical fertilisers from the inter-national market. From 1973 to 1999, the government
introduced price and transport subsidies on chemical fertilisers because of price increase in the inter-national market.
As the demand for fertilisers increased, the government was unable to meet the subsidy requirement and with Asian Development Bank’s loan condition for second agriculture product-ion loan (SAPL), the government completely removed subsidies on chemical
fertilisers by 1999. With almost a decade long deregulation period beginning 1997, private companies were encouraged to import chemical fertilisers in a fair market.
However, due to price fluctuations in the inter-national market and the open border with India that allowed farmers to bring in fertilisers by informal means, the supply of chemical fertilisers did not improve. Additionally, the quality of fertilisers being acquired by informal
means was not up to the standard. The government reintroduced subsidies on fertilisers again in 2009.
Current scenarioCurrently, the major importer and distributor of fertilisers in the country is AICL. However, the government, which had allocated Rs 2.5 billion for fertiliser subsidies for 2011-12, can only subsidise 150,000 tonnes, whereas the demand is for around 700,000 tonnes. With inadequate allocation of funds and very limited private companies partaking in the fertiliser trade, farmers have insufficient supply of fertilisers even while planting the main crop.
Additionally, AICL’s performance has been questioned when it was recently discovered that it was being provided underweight sacks of chemical fertilisers by Indian Potash Limited (IPL), but AICL still continues to procure fertilisers from the same company. On the other hand, farmers have resorted to informally bringing fertilisers from India at the cost of facing harassment by security forces at
the border and an extra cost of paying bribes and their own transportation.
Field for private playersGiven the context of the huge portion of demand that goes unmet and cons-equences that AICL mono-poly has created, introducing private players in the market for timely and quality supply of fertilisers can be a good option. To discourage informal trade, security situation at the border should be improved so that the private sector can flourish under a fair and competitive open market.
Private companies are likely to initially find it difficult to enter the market and compete against subsidised government fert-
ilisers. With the government subsidising 20 per cent of the cost of the chemical fertilisers, private company supplies will be more
expensive but with demands not being met by AICL, private companies will eventually find a market.
Farmers might be willing to pay for locally sold ferilisers at a cost higher than the subsidised government rate when considering the hardships they face in terms of waiting for the subsidised fertilisers (which they might not ever receive in many cases), problems at
the border and the cost of transport for illegal import from India.
Quality control issues
However, learning from the past when farmers faced losses due to substandard fertilisers supplied by the private sector, quality check officers or some other quality assurance mechanism should be put in place. Evident from other sectors of the Nepali economy such as the Nepal Oil Corporation, providing subsidies is not a sustainable solution, rather only a long-term trap that eventually leads to scarcity. Therefore, the government should promote the private sector and provide them incentives to enter the market.
Improving access to quality inputs will be the first step towards improving yield for farmers. Farmers will not be able to produce crops if they do not have access to basic farming necessities. Thus, there is a need to improve the fertiliser market in Nepal by encouraging private sector to enter the market. With gradual improvement in fertiliser inputs, there can be a shift from traditional subsistence farming to commercial farming and eventual improvement in the productivity of the agriculture sector.
(The author is a research assistant at Samriddhi, The Prosperity Foundation and can be reached at pradipan@samriddhi.org)
