Corruption and Nepal’s chronic fertiliser crisis


It is nothing new that Nepal’s farmers this year faced an acute fertiliser shortage. That there were kickbacks involved is also not a revelation. This will not be the first time there is a paddy production shortfall because of the lack of fertiliser.

More importantly, it is bound to happen again next year because there is no political will to tackle the root of the problem --  collusion between government officials and their cronies to siphon the allocated budget and profit from payoffs.

This year, the companies hired to import fertiliser, Shailung Enterprises and Honiko Multiple, defaulted on their contracts, citing the lockdown as an excuse. That the powerful owner of one of these companies is the landlord of NCP chair Pushpa Kamal Dahal has not gone unnoticed.

Rise of rice in Nepal, Krishna Dev Joshi and Santosh Upadhyay

Nepal agro imports all time high, Ramesh Kumar

Last week, the Patan High Court stayed an order by the government’s Agriculture Inputs Company Limited (AICL) to confiscate the Rs50 million deposit of Shailung and Honiko for failing to supply imported urea in time.

Despite a healthy monsoon this year, Nepal’s rice production is not expected to rise because the consignment of chemical fertiliser did not arrive at the start of the paddy season. India has frozen export of fertiliser, and Prime Minister K P Oli made an SOS call to Bangladesh Presient Sheikh Hasina on 1 September to “loan” Nepal 50,000 tons of fertiliser.

By the time the fertiliser arrives, the rice will be ready for harvest. Besides, Nepal’s annual fertiliser demand is up to 800,000 tons. Failure to apply urea layering on time worried farmers across the country as the transplanted paddy fields did not receive required nutrients.

Critics say the lockdown is not an excuse. Because after March, the government made no visible effort to have the consignment released from Kolkata’s customs warehouse, did not have adequate buffer stock, and failed to line up alternative sources in time for paddy transplanting in late June. Farmers therefore crowded fertiliser distribution centres for the limited supplies available, risking Covid-19 infection.

Back to the future of farming, Editorial

Despite lofty promises made by the ruling Nepal Communist Party (NCP) to aim for agriculture self-sufficiency, the fertiliser scandal tells a different story. Nepal’s chemical fertiliser output is negligible, leaving it completely reliant on imports, mostly from India.

The government’s singular focus on chemical fertiliser also means that alternatives with organic nutrients have been side-lined (see box, below). Farmers are trapped because they have abandoned traditional seeds for imported hybrids which require chemical inputs to yield optimum harvest.

The Covid-19 crisis has exposed this alarming reliance on imported chemical fertiliser, and Nepal’s inability to manufacture its own. This week, a Parliament committee instructed the government to set up plants to make Nepal self-sufficient in urea.

However, feasibility studies carried out by the Investment Board Nepal with Infrastructure Development Corporation Karnataka (IDECK) show that Nepal’s domestic demand does not have the economy of scale to produce fertiliser.  A third-party evaluation of the IDECK report led by Dil Bahadur Gurung calculated that it would cost upwards of Rs72 billion to set up even a small fertiliser factory.

“The reliance on natural gas piped from India or Bangladesh to these factories would add to the cost, and it would be viable only if it could produce up to 2 million tons of fertiliser a year,” says Gurung. However, talks with Bangladesh and China regarding natural gas pipelines broke down, while a proposed pipeline from Gorakhpur in India has been sidelined due to frosty bilateral relations.

Using electricity to fix nitrogen from the air will be even costlier, with estimates to set up such factories tagged at upwards of Rs144 billion. It would need a new hydropower plant dedicated just to supply the fertiliser factory.

“Such electricity-powered fertiliser factories are only found in some countries and are not understood to be cost-effective,” Gurung explained.

The small amount of domestically-produced chemical fertiliser is 25% costlier than the imported product, and India’s planned construction of a urea plant at Gorakhpur with an annual output of 800,000 tons would not make it viable for Nepal to even export its surplus fertiliser.

The chronic shortage of fertiliser in Nepal is due to a government duopoly controlled by the parastatals Salt Trading Limited and Agricultural Inputs Company Limited (AICL) with an import ratio of 30:70 of the total stock. With the freeze in Indian imports, AICL is now inviting bids for the transport of the chemical fertiliser on loan from Bangladesh. Nepal’s market is also diluted by smuggled fertiliser and informal imports through the open border.

Former secretary of the Ministry of Agriculture Uttam Kumar Bhattarai says the surest way to prevent a fertiliser crisis in the coming years is to stockpile it so that it can meet demand during times of shortage and until Nepal become self-sufficient.

Why not go organic?

The ruling Nepal Communist Party (NCP) government has often proclaimed its commitment to organic agriculture. But it is just rhetoric, the government has made no policies to favour organic fertiliser and regulation of pesticides. In fact, it continues to subsidise imported chemical fertiliser to the tune of Rs11 billion this fiscal year.

Farmers who use high-yield hybrid seeds are dependent on chemical fertiliser for higher yield and the subsidy. Many say organic fertiliser would not give the same yield.

This is disputed by organic fertiliser manufacturers like Gandaki Urja in Pokhara, which say the right kind of organic fertiliser and nitrogen-fixation intercropping can improve paddy yield.

With its daily production of up to 5 tons, Gandaki Urja is the largest producer of organic fertiliser in the country. Its founder Kushal Gurung says the government subsidy has made organic fertiliser less attractive to farmers.

“Even when the market faces a severe shortage, demand for our fertiliser has not changed,” says Gurung. “Organic fertiliser remains limited to rooftop farming and gardening because the government has made agro-chemicals cheaper.”

Despite the subsidies, cartelling, middlemen and customs charges cause a sharp markup in price to Rs1,500 per kg of chemical urea. Gandaki Urja sells directly to farmers at a uniform price of Rs30 per kg, yet it struggles for a foothold in the market.

Gurung says government subsidy has “ruined the habit” of farmers, driving them away from organic products even during this crisis. Meanwhile, Gandaki Urja’s stockpile has grown to 200 tons after failing to find buyers, and has even been forced to scale down on production despite the fertiliser demand.

Another entrepreneur Sitaram Pahadi has invested Rs5 million to set up a plant to make organic fertiliser from animal waste in Sindhuli district. The raw waste is collected from many Tarai districts and goes to collection pits where it stays for 30 days until ready. All of Sitaram's activities have been people-run, with no real assistance from any governing body.

Kushal Gurung says the government could have easily bought up the stock of organic fertiliser and distributed it to farmers to meet the shortfall. That would have cost only Rs300 million – a fraction of what the government is spending on chemical fertiliser import this year.

He adds: “Organic fertiliser has long-term environmental benefits as it increases the fertility and productivity of soil, while harvests are healthy and safe to consume. Organic fertiliser also encourages local production and consumption.”

Pahadi agrees that organic fertiliser would be cheaper, reduce Nepal’s import bill and bring financial and ecological benefits to farmers. He adds: “There are no specialized skills to learn when making organic fertiliser, so realistically anyone can work”.

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