Wednesday, August 8, 2012

Nepal ranks 79 out of 105 countries in food security

The EIU has come up with a new global food security index by considering three factors (corresponding weights in brackets): affordability (40%), availability (44%), and quality and safety (16%).  The 1996 World Food Summit defines food security as the state in which people at all times have physical, social, and economic access to sufficient and nutritious food that meets their dietary needs for a healthy and active life.

Out of the 105 countries, Nepal’s overall rank is 79 with a score of 35.2 (low rank and high score are better). The overall index is composed of 25 indicators related to the three main factors. The table shows ranking of South Asian countries with the most favorable conditions for food security. Its no wonder that Nepal’s ranking is the lowest in the region in terms of affordability given that the food prices have been higher than non-food prices (see this blog post, and also this, this and this paper).

The report notes that Nepal’s major strength with regards to food security are

  • Nutritional standards
  • Volatility of agricultural production
  • Agricultural import tariffs
  • Food safety (most run by multilateral agencies and NGOs)

And major weakness are:

  • Public expenditure on agricultural R&D
  • Food consumption as a share of household expenditure
  • Gross domestic product per capita
  • Diet diversification
  • Protein quality
Rank Country Score Rank Country Score
62 Sri Lanka 47.4 61 Sri Lanka 45.6
66 India 45 70 India 38.4
75 Pakistan 38.5 78 Bangladesh 33
79 Nepal 35.2 79 Pakistan 32.9
81 Bangladesh 34.6 91 Nepal 22.6
Rank Country Score Rank Country Score
52 India 51.3 56 Pakistan 55.5
58 Sri Lanka 49.2 70 Sri Lanka 46.8
71 Nepal 43.8 73 India 44.2
81 Bangladesh 37.6 74 Nepal 42.6
82 Pakistan 37.4 92 Bangladesh 30.4

Overall, the top five countries having the most favorable conditions for food security are the US, Denmark, Norway, France and Netherlands.

Affordability is composed of sub-indicators namely food consumption as a share of household expenditure, proportion of population under global poverty line, gross domestic product per capita, agricultural import tariffs, presence of food safety net programs, access to farmer financing. In affordability, the US, Switzerland, Netherlands, Norway and Australia are top ranked countries.

Availability is composed of sub-indicators namely sufficiency of supply (average food supply and dependency on chronic food aid), public expenditure on agricultural R&D, agricultural infrastructure (existence of adequate crop storage facilities, road infrastructure, and port infrastructure), volatility of agricultural production, and political instability. In availability, Denmark, Norway, France, the US and Netherlands are the top ranked countries.

Quality and safety is composed of sub-indicators namely diet diversification, nutritional standards (national dietary guidelines, national nutrition plan or strategy, and nutrition monitoring and surveillance), micronutrient availability (dietary availability of vitamin A, animal iron and vegetal iron), protein quality, and food safety (agency to ensure the safety and health of food, percentage of population with access to portable water, and presence of formal grocery sector). In quality and safety, Israel, France, the US, Portugal and Spain are the top ranked countries.

The figure below shows the overall food security index score with respect to per capita GDP, poverty, agriculture infrastructure, and political stability risk. Nepal’s position is marked by a red dot. The yellow dots are South Asian countries. Needless to say, Nepal’s standing is quite low in all of them (except for poverty).

Crowding out of the private sector in fertilizer supply in Nepal

Here is a classic case of distortion of incentives and ‘crowding out’ of private sector in fertilizer supply.

Initially, when there was no subsidy in fertilizer, there was adequate supply in the market despite high prices. Then the Maoist-led government introduced fertilizer subsidy in 2007/08 and started increasing the subsidy amount in successive years. The supply by AICL, which is assigned to procure fertilizer and sell it at subsidized rate, undercut the market price. The private sector importers were unable to compete and survive at the prices offered to farmers by AICL through local cooperatives. Gradually, they got crowded out from the market. Since the government could not allocate adequate funds to subsidize fertilizer, AICL was unable to procure enough of it, leading to acute shortage during peak paddy planting season. AICL is able to meet only 20-25 percent of the demand for fertilizers. See this blog post for more.

Here are excerpts from an interesting piece on the same issue by BR Kaini, a former chairperson of AICL Board:

[…] Various surveys conducted in the past (ASPR in 2000/2001 and OPM in 2001/2002) estimated fertilizer usage ranges from 56.0kg to 58.0kg nutrient/hectare. But if we consider only the amount of fertilizer imported from formal sources for calculating per hectare use of fertilizers, it would be less than 30kg. This clearly indicates that about 50 percent fertilizer used in Nepal is imported from informal sources, which is both illegal and unreliable. Therefore, ensuring an adequate supply of fertilizer to farmers in the country has always been a challenge for the government.

The government has, however, changed fertilizer policies several times in a bid to ensure a smooth supply of fertilizers in the country. In this context, the government has recently re-introduced a subsidy on 25 percent chemical fertilizers of the total requirements. This new subsidy policy is now being implemented and the percentage of subsidized fertilizers is gradually increasing every year.

Nepal’s fertilizer supply growth rate is negative while the demand growth rate is over 15 percent (approximately) every year. AICL is meeting only 20 to 25 percent of the present demand of fertilizers in Nepal. Private importers have almost given up this business because of their inaccessibility to subsidy. Hence; there is a glaring gap between the projected demand and supply of fertilizers. The average supply gap is reported to be around 46 percent. In order to reduce this gap and make fertilizers available to farmers in time, some measures are imperative.

Read the full article here. Kaini also proposes some remedial measures, ranging from a study to estimate the real demand for fertilizer to domestic production and a fertilizer agreement at the regional level.