Nepal has lifted a partial ban on the import of certain dairy items, including whey and cheese, from India. The decision follows a bilateral agreement reached during the Nepal-India Inter-Governmental Committee (IGC) meeting on Trade, Transit, and Cooperation to Combat Unauthorised Trade, held in Kathmandu this January.

The Ministry of Agriculture and Livestock Development had initially imposed the ban in February 2024, restricting the import of buttermilk, cheese, butter, pasteurised milk, and other dairy products, primarily from the Indian brand Amul.

The move, recommended by the Dairy Development Corporation (DDC) and other domestic stakeholders, aimed to protect local dairy farmers and ensure timely payment for their milk.

However, the government has now revised its stance. “We have allowed specific businesses to import products that are either not produced domestically or are produced in limited quantities,” said Shabnam Shivakoti, joint-secretary at the ministry. Interested businesses must apply for approval before importing, she added.

During the IGC meeting, Indian officials raised concerns over Nepal’s import restrictions on dairy products. In response, Nepal agreed to reconsider its position on items with low domestic production, such as whey.

“Domestic production of whey is negligible,” Shivakoti noted. She explained that even before the IGC meeting, Nepal had permitted imports of certain dairy products on a case-by-case basis, provided traders submitted the necessary documentation.

“With many varieties of cheese not produced in Nepal, we’ve now streamlined the import process,” she said. She added that the ministry used to examine both the import history and domestic availability before granting import permissions.

Shivakoti acknowledged that local manufacturers have not been able to meet the required quality and quantity standards demanded by the market. Although restaurants and hotels have expressed willingness to purchase local products, they insist that the quality must match that of imported goods.

“For example, Pizza Hut has said they are ready to buy domestically produced cheese if it matches the quality of imported varieties,” Shivakoti said.

Major consumers like hotels, restaurants, and airlines, which require dairy products in large volumes, are now applying for permission to import items under the whey and cheese category.

Dairy suppliers catering to these businesses are also seeking clearance from the ministry.

“Different products under the cheese category—such as sliced cheese, diced cheese, powdered cheese, cream cheese, mozzarella cheese, and others—are now allowed for import,” Shivakoti said.

Nepal currently produces only soft cheeses under the Yak and Kanchan brands of the DDC. A few private firms and the DDC also produce mozzarella cheese, but Shivakoti said their products do not meet international standards.

According to the Department of Customs, Nepal imported 87 tonnes of whey worth Rs14.96 million and 125 tonnes of various cheese products worth Rs86.66 million in the first ten months of the current fiscal year.

The policy to impose a ban was part of a broader effort to support the struggling domestic dairy industry. While milk production has increased, consumption has fallen sharply. Insiders attribute the decline to shrinking household incomes. The price of milk has surged to Rs110 per litre, up from Rs76 in 2019.

As domestic consumption wanes, unsold stockpiles of butter and powdered milk have grown, worsening the financial crisis in the dairy sector. The DDC, among other processors, owes millions of rupees to farmers, many of whom have gone unpaid for months.

To address the crisis, the government has provided the DDC with a Rs600 million credit facility to settle its debt to farmers. Yet, the financial strain continues to deepen. DDC's outstanding dues have ballooned during the flush season, which begins in December and leads to a surge in milk supply.

Currently, payments to farmers have been pending for over four months, with DDC’s dues nearing Rs1 billion dating back to January. At the peak of the season last year, unpaid dues reached as high as Rs1.5 billion.

In the face of falling domestic demand, the DDC has begun exploring export options. According to officials, exporting butter to China is already underway.

Broader economic challenges, including rising unemployment, declining income levels, and increasing youth migration, compound the dairy industry’s troubles.

These factors have led to stockpiles of unsold products and prolonged payment delays to farmers, creating a cascading crisis for one of Nepal’s most vital agricultural sectors.