Nepal moved a step closer to signing a long-term chemical fertiliser offtake agreement with India as it prepared to send a draft of the proposed contract for review and comments to the southern neighbour on Tuesday.

Yogendra Kumar Karki, secretary at the Ministry of Agriculture and Livestock Development, told the Post they had received India’s initial comments on the planned accord.

“We are sending our response to the Indian government through the Foreign Ministry on Tuesday,” he said. Once India gives the nod, the draft will be tabled at the cabinet for its in-principle approval before signing the deal for the delivery of fertiliser through a government-to-government supply mechanism, he added.

Nepal revived long-stalled talks for a chemical fertiliser offtake agreement with India in December last year under which it will buy a fixed amount over a long-term period to avoid recurring shortages during the peak growing season.

Kanchan Raj Pandey, joint secretary at the Ministry of Agriculture, said that Nepal planned to fulfil at least 30 percent of its annual fertiliser requirement through the government-to-government supply mechanism.

“We have planned to sign the supply agreement for a minimum of three years or a maximum of five years. It will depend on the negotiations.”

Pandey said that Nepal had made several deals with India to supply chemical fertiliser in the past, but they were signed on an ad-hoc basis. “This agreement will assure supply of fertiliser in the same way like petroleum products which India has been sending to Nepal.”

Chemical fertiliser has become a political commodity, and Nepali farmers have been plagued by regular shortages when they need the plant nutrients the most, severely slashing their income and hitting the country’s economic growth which largely depends on agriculture.

Scarcities have been recurring annually during the peak crop planting period, especially in recent years with more Nepali farmers going into commercial farming which has pushed up demand.

When the border with India was tightened due to the Covid-19 pandemic, Nepali farmers were put into a right panic as smuggled fertiliser stopped coming. They have habitually depended on the contraband to make up for the shortfall in legitimate supplies.

The crippling effect of the shortage was seen in paddy production this year as Nepali farmers were prevented from performing better even when they had an abundant labour supply and the monsoon rains were the best in the past three decades.

The government has allocated Rs11 billion for the chemical fertiliser subsidy this fiscal year, up from Rs9 billion in the last fiscal year. Nepal imports Rs19 billion worth of chemical fertiliser annually.

Nepali private companies are reluctant to engage in the fertiliser trade due to the high costs and risks involved, and all imports and distribution are conducted by Agriculture Inputs Company and Salt Trading, both state-owned enterprises.

“The long-term agreement is basically to ensure that Nepal has an adequate buffer stock,” said Pandey. He added that if the shipments imported through the regular procurement process fell short of the requirement, additional quantities obtained through the government-to-government deal would be supplied to farmers.

The government is working to create buffer stocks of chemical fertilisers in each of the seven provinces to ensure that farmers have an adequate supply at all times.

It normally takes six months to procure chemical fertiliser following a global tender call under the Public Procurement Act. And in case the procurement is cancelled due to price volatility or other factors, it leads to havoc in the farm sector.

The new arrangement made through a government-to-government deal need not go through a lengthy procurement process, and it will ensure that farmers have adequate supply during times of shortages, according to ministry officials.

Pandey said the government had written through its diplomatic missions and embassies to key chemical fertiliser exporting countries, including Oman, to sign a long-term supply agreement. “But since it’s easy to bring the farm nutrient from India, we decided to appoint it as the supplier.”

In 2009, in a bid to end the perennial shortages, Nepal signed an agreement with India for 100,000 tonnes of chemical fertiliser (60,000 tonnes of urea and 40,000 tonnes of DAP) annually at import parity prices. The pact allowed Nepal to purchase fertiliser directly without going through the six-month-long tendering process.

Shipments came to a stop in 2015-16 due to protests in the Tarai and an Indian blockade, and the agreement too expired at the end of 2017. In 2018, Nepal had proposed to renew the agreement to procure chemical fertiliser for at least five years at import parity prices.

The proposal was in line with the 10-year Prime Minister Agriculture Modernisation Project introduced in 2017 which aims to boost farm output substantially.

The Agriculture Ministry had proposed importing 150,000 tonnes of fertiliser (100,000 tonnes of urea and 50,000 tonnes of potash) in the first year, that is 2018.

The ministry had planned to import 170,000 tonnes in the second year under a government-to-government deal, 195,000 tonnes in the third year and 210,000 tonnes each in the fourth and fifth years.

The expected government-to-government pact has been pending since December 2018, when Nepal submitted the first draft of the proposed memorandum of understanding.

According to a former secretary at the Agriculture Ministry, they had sent the proposal and several rounds of discussions had been held. But India refused to provide chemical fertiliser at the import parity price.

“India told us clearly that it couldn't supply the product at the import parity price, and that it could not give the same treatment to Nepal that it gave to its farmers,” the official said.

The matter made no further progress. “Since it would have been expensive for Nepal to buy fertilisers from India at the export parity price, talks on a long-term agreement did not move ahead,” the former secretary said.

India also imports over 10 million tonnes of chemical fertiliser annually.

“The prices, transportation and management costs will all be sorted out during the negotiations,” said Pandey.

A study conducted by the Finance Ministry in 2006 put the share of informal fertiliser imports at 71 percent of total supplies.

Various parliamentary committees have instructed the government to set up plants to produce chemical fertiliser in Nepal; but feasibility studies carried out by Investment Board Nepal showed that domestic demand was too small to achieve economies of scale, making them unviable.

According to the Agriculture Ministry, Nepal's annual requirement of chemical fertiliser stands at more than 700,000 tonnes while imports amount to around 300,000 tonnes. Demand for chemical fertiliser has shot up following the spread of commercial agriculture.