Nepal is all set to sign a long-term chemical fertiliser supply deal with India following the cabinet’s in principle approval this week in a move to avoid recurring shortages during the peak growing season.

Yogendra Kumar Karki, secretary at the Ministry of Agriculture and Livestock Development, told the Post that a five-year government-to-government agreement would be sealed this month to ensure uninterrupted supply of the vital plant nutrients.

As per the draft accord, Nepal can buy up to 200,000 tonnes of chemical fertiliser, most of it urea, from the southern neighbour annually without following a global tendering process.

“Regarding pricing, a joint secretary-level negotiation team of the two countries will determine the rate before any purchase agreement is made in the respective years. The price will be the below-cost quoted price or tendering of that year, month or day,” Karki said.

Officials at the Agriculture Ministry said that Nepal planned to fulfil at least 30 percent of its annual fertiliser requirement through the government-to-government supply mechanism.

The fertiliser will be brought by state-owned Agriculture Inputs Company. But India has not named the company that will be authorised to sell the product.

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

According to Karki, Nepal had made several deals with India to obtain chemical fertiliser in the past, but they were signed on an ad-hoc basis.

“Nepal will get assurance of supply of fertiliser the same way it has assurance of supply of petroleum products from India. But fertiliser shipments will be made only when there is a crisis, not all the time.”

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

Scarcities have been appearing 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 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 had allocated Rs11 billion to subsidise chemical fertiliser this fiscal year ending mid-July, up from Rs9 billion in the last fiscal year. Nepal imports Rs19 billion worth of soil fortifiers annually.

The budget for the next fiscal year has allocated Rs12 billion for chemical fertiliser subsidies.

Nepali private companies are reluctant to engage in the fertiliser trade due to the high costs and risks involved. Agriculture Inputs Company has been allowed to import 70 percent of the fertiliser requirement and Salt Trading the rest. Both are both state-owned enterprises.

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.

More than seven global tenders called recently by Agriculture Inputs Company for the supply of chemical fertiliser failed to attract bidders as global prices had skyrocketed, officials said.

According to reports, prices of diammonium phosphate, the world's most widely used fertiliser, saw a steep jump in April compared to the same period last year. The global price of diammonium phosphate in April averaged $629 per tonne, up from $413 per tonne in April last year.

The average price of urea in April was $513 per tonne in the global market, a rise from $386 in April last year.

The subsidy amount of Rs12 billion allocated for the next fiscal year is enough to buy less than 300,000 tonnes of chemical fertiliser. Officials said that if the government does not take the issue seriously, a severe fertiliser crisis is imminent.

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. 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.

It 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.

A former secretary at the Agriculture Ministry said 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 itself imports more than 10 million tonnes of chemical fertiliser annually.

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.