Nepal’s chemical fertiliser subsidy bill is likely to shoot up to a record Rs39 billion this fiscal year as import prices have swelled tremendously, officials said.

The government has earmarked Rs31 billion for the import of chemical fertilisers till February-end, Rs15 billion through the annual budget and Rs16 billion as source assurance.

The Ministry of Agriculture and Livestock Development has asked the Finance Ministry for another Rs7.73 billion to procure adequate stocks to prevent shortages during the paddy transplantation season in June.

With that money amounting to nearly Rs39 billion, the government will be able to import 400,000 tonnes of essential plant nourishers.

In 2019 before the Covid-19 pandemic, the government could buy that quantity of fertilisers for Rs10 billion.

The government provides subsidies to the farm sector in a bid to keep inflation at bay by raising crop output. But subsidies have not prevented food inflation from going out of control. In recent months, food inflation has soared by more than 30 percent, according to market analysts.

“Inflation and subsidies—both are rising,” they said.

The price of chemical fertilisers started to increase from the beginning of 2021 due to surging input costs, supply disruptions caused by sanctions (Belarus and Russia), and export restrictions by China, according to the World Bank.

Concerns around fertiliser affordability and availability were further amplified by the war in Ukraine. Fertiliser prices have surpassed their 2008 peaks.

In Nepal, the burden of subsidies will become a test for the new government. The Finance Ministry on Tuesday decided to cut the budget by 20 percent because the country is short of cash.

“The pressure on recurrent expenditure has grown along with increased liabilities for subsidies on chemical fertilisers," the Finance Ministry said in a statement.

Prime Minister Pushpa Kamal Dahal has vowed not to let the country suffer from a chemical fertiliser shortage on his watch.

On January 10, Dahal won a vote of confidence in Parliament, and speaking after the victory, the prime minister “guaranteed” that the government henceforth would not disappoint farmers who have been suffering constantly due to one or the other reason.

“Farmers will get chemical fertilisers. We will also construct a fertiliser plant,” Dahal said.

But government officials are still not confident there will be sufficient chemical fertilisers this year.

In fiscal 2020-21, when fertiliser imports totalled nearly 400,000 tonnes, the country was still short, said an official at state-owned supplier Salt Trading Corporation.

In the last fiscal year 2021-22, imports halved to 200,000 tonnes.

“The country's requirement is 520,000 tonnes—310,000 tonnes of urea, 190,000 tonnes of diammonium phosphate (DAP) and 20,000 tonnes of potash,” the official said.

Prakash Kumar Sanjel, spokesperson for the Ministry of Agriculture, says the total subsidy provisioned by the government for this fiscal year is Rs31 billion which will buy 331,000 tonnes of fertilisers.

“We have requested the Finance Ministry for Rs7.73 billion in additional financing as we may still face a deficit of 90,000 tonnes of chemical fertilisers for the paddy season,” he said. “We are yet to hear from the Finance Ministry.”

According to him, imports of chemical fertilisers as of January-end totalled 155,000 tonnes, including 30,600 tonnes from India that came under a government-to-government arrangement.

The government has so far distributed 125,000 tonnes of fertilisers to farmers. The ministry says a shipment of another 176,000 tonnes is arriving.

Pankaj Joshi, assistant general manager of Salt Trading Corporation, said they would be importing their assigned quota of 106,000 tonnes of chemical fertilisers, which is 30 percent of the total planned imports for this fiscal year.

Another government entity, Agriculture Inputs Company, will import 70 percent of the quantity fixed for this year.

Of the amount ordered by Salt Trading, 27,500 tonnes of urea has arrived at Visakhapatnam Port, India and 20,000 tonnes of DAP has reached Kolkata Port, according to Joshi. “Another 26,500 tonnes will arrive by March-end.”

Last year, the average price of fertilisers tripled. Prices have decreased this year but they are still double compared to the base year 2020.

Chemical fertiliser prices on the global market are still unpredictable.

“An appreciation of the US dollar has also increased the rates. Shipping costs are so high. Bags to pack the fertiliser have also become expensive,” said Joshi.

According to Joshi, they have paid as much as $1,100 for a tonne of urea and $1,340 for a tonne of DAP, inclusive of transport costs.

According to reports, the price of urea in the global market was $360 per tonne in September 2020, which jumped to $1,022 in April 2022. In August 2008, when there was a global food shortage, the price of urea reached $815 per tonne.

In Nepal, urea is sold to farmers at the subsidised rate of Rs14 per kg.

The average price of DAP, the world's most widely used fertiliser, was $434 per tonne in September 2020, which reached $1,056 per tonne in May 2022.

The highest price of DAP recorded so far is $1,218 per tonne in April 2008. DAP is sold to farmers in Nepal at the subsidised rate of Rs43 per kg.

As the situation has gone out of control for Nepal’s ailing economy, the Agriculture Ministry had even proposed increasing the selling price of chemical fertilisers to ensure availability.

“So far, the Finance Ministry has not reached a decision in this regard,” said Sanjel.

Government statistics show that the import of chemical fertilisers plunged by more than half in the last fiscal year ended mid-July 2022 following a fivefold jump in prices.

The import of chemical fertilisers in the last fiscal year stood at 215,000 tonnes, down from 378,000 tonnes in the previous fiscal year. Before that, the annual import of chemical fertilisers used to be more than 400,000 tonnes.

Even though shipments were down by half, the fertiliser import bill crossed Rs22 billion, the highest amount on record.

Despite the shortage of fertilisers, paddy output increased.

Nepali farmers are expected to harvest 5.48 million tonnes of paddy this fiscal year, which is 7 percent more than last year, despite a crippling shortage of chemical fertilisers during the key transplantation period in the monsoon.

Sanjel recently told the Post that there was a severe shortage of chemical fertilisers during the transplantation period, but farmers have reported that they got by because smuggled stock was available.

According to him, the Agriculture Ministry has urged the Finance Ministry to begin the process of importing the soil nutrients for the next fiscal year by this fiscal year. “We are waiting for a decision from the Finance Ministry,” said Sanjel.

The government will not increase retail prices of chemical fertilisers, and has decided to provide adequate subsidies to ensure that the maximum retail prices remain at the present level, sources said.

The government has taken the historic decision that it will not pass on the burden to farmers, they said. Because both urea and DAP are highly subsidised, the selling prices are significantly lower in Nepal, they added.

“The new government fears a backlash from farmers. What is strange is that despite spending so much on fertiliser subsidies, the expected rise in food production has not happened, and inflation has not been controlled,” said Agriculture Ministry officials.

"The subsidies have undoubtedly helped increase output, but they have also resulted in a large budget.”