Wednesday, June 20, 2012

NEPAL: Fertilizer shortage during planting season

At the height of the planting season, there is acute fertilizer shortage in Nepal. The delay in monsoon has already affected production (maize) in some districts. Add to that the shortage of fertilizer for paddy cultivation, which contributes the most in agriculture GDP (around 21 percent) and also has substantial weight on overall GDP growth. The expected good GDP growth this fiscal year is largely attributed to favorable monsoon last year and high paddy production.

Two versions for the shortage of fertilizer in the market:

  • Farmers allege that the shortage is due to black marketeering of chemical fertilizers and middlemen manipulating the market
  • The government says that the uncertainty over procurement of fertilizers is affecting delivery and supply.

The Agriculture Inputs Company (AIC) is responsible for procuring fertilizers, which are distributed through cooperatives. Previously, Indian Potash Ltd (IPL) was barred from supplying fertilizers after farmers complained of underweight sacks (50 kg per sack) of chemical fertilizers. Of 630,000 sacks of fertilizer procured from IPL, about 430,000 sacks were underweight by between 2 kg and 10 kg.

The government subsidizes chemical fertilizers (about 20 percent of actual cost is subsidized). It allocated Rs 2.5 billion for subsidy for 2011-12 in order to supply 150,000 tons of subsidized fertilizers to farmers. Annual demand for fertilizers is around 700,000 tons while government supplies just about 150,000 tons at subsidized price.

The picture shows farmers queuing up to get hold of fertilizers in Taplejung. It is reported that farmers walked two days to reach the district headquarter to get fertilizer. While demand for fertilizer is around 1200 tons in the district, supply is just about 240 tons.  

Few things to note here:

  • The longer the shortage of fertilizers, the more it will impact agriculture production, which in turn will affect both GDP growth rate and food security situation.
  • The AIC’s negligence in monitoring weight and quality of procured fertilizers should be not treated lightly. The truth needs to come out.
  • The proper utilization of subsidized fertilizers should be a matter of concern to all because these are primarily financed by domestic taxpayers. Even donor’s money might have gone to subsidizing fertilizers. Agriculture subsidy is given with an intent to increase production, boost farmer’s income and support their livelihood, reduce food insecurity, promote agriculture employment, reduce poverty and boost economic growth. While all kind of subsidies impact fiscal balance, fertilizer subsidy is a bit different than subsidy on petroleum fuel and LPG. Technically, it is targeted to poor farmers and leakage is lower than in fuel subsidy.
  • However, there are cases where subsidized fertilizers are being sold not via government depots or cooperatives, but though retail shops. The government officials or agencies take money/commission and supply subsidized fertilizer to private players in district headquarters. Farmers are told that the government depots are running short of fertilizers and are recommended to seek supplies from private players, who charge high price. The collusion between private players and government agencies at the district level impacts supply and leads to mis-utilization of subsidy meant for a good purpose.
  • The immediate priority of the government, also MoF and MoAD, should be to procure adequate fertilizer and supply it to the market.

UPDATE (2012-06-22): Recommended readings on the same issue: