The shortage of chemical fertilisers in Nepal stems from multiple factors—from lean inventories to poor supply mechanisms and from faulty policies to international pricing factors. These cause chronic distress to the tens of thousands of farmers annually who face other risks like droughts, floods and crop failure.

A comprehensive audit report of the Office of the Auditor’s General has pointed out major policy lapses on the supply and distribution mechanism of chemical fertilisers, a lack of which creates problems for farmers every year, saying that the government itself does not know the country’s actual fertiliser requirement.

Agriculture is the mainstay of Nepal's economy, employing around 60 percent of the total workforce and contributing 25.83 percent to the national economy.

The Ministry of Agriculture and Livestock Development has estimated that the annual demand for fertilisers stands at around 600,000 tonnes.

But the estimate is years old and no study has been done to estimate the actual demand for fertilisers and make forecasts, the report said.

The audit report said that in the last three decades irrigation coverage has increased significantly and farmers are doing three to four crop cycles a year, for which they require an adequate supply of farm soil nutrients. "So the ministry should ascertain or forecast the actual demand," the report said.

“Roughly, we have an estimated requirement of over 1.1 million tonnes of chemical fertilisers annually,” said Bishnu Prasad Pokharel, spokesperson for the Agriculture Inputs Company, the state-owned fertiliser supplier. “We are supplying close to 400,000 tonnes.”

The numbers clearly show a huge gap.

“There is obviously a massive gap in supply and demand. And if the supply system is obstructed, it eventually leads to a severe shortage. We don’t have the buffer stock either.”

As per the Land Resource Mapping Project 1986, Nepal has 3 million hectares of arable land. Out of the total arable land, around half is used for the production of cereal crops, mainly paddy, wheat, maize, millet and buckwheat.

The audit report says that in the last three years, the government has been able to supply only 63 percent of the chemical fertiliser requirement. But that too is based on the demand for 600,000 tonnes.

“Funding is another problem,” said Pokhrel.

A separate report by USAID, an international development agency, has shown that Nepal is highly dependent on smuggled fertilisers and estimates that nearly 70 percent of the 600,000 to 800,000 tonnes of fertilisers consumed in Nepal is improperly imported.

“Many good policies have been enacted f0r the development of the country's agriculture sector, including the national fertiliser policy, but no government has seriously implemented them,” said Hari Dahal, former secretary at the Agriculture Ministry. “Besides, there is no proper coordination among the ministries when it comes to the farm sector.”

The audit report says that nearly a year is spent on procuring chemical fertilisers in Nepal.

According to the audit report, in 2018-19, the average time taken to import and supply fertilisers was 338 days, which is over 11 months. The country imported 366,794 tonnes of chemical fertilisers that year.

In 2019-20, out of nine contractors who got contracts to supply fertilisers, only two were able to supply on time. The remaining seven contractors delayed fertiliser shipment by 203 days, the report said. This year, 359,086 tonnes of fertilisers were imported and the average supply time was 253 days.

In the last fiscal year 2020-21, out of 10 contractors, only three supplied fertilisers on time.

The rest delayed the supply by 17 to 57 days. The average supply period in the last fiscal year was 224 days. Last fiscal year, the country imported the highest-ever 395,959 tonnes of fertilisers, supported by additional imports from Bangladesh through a government-to-government deal.

“That’s insane. The contractors are given 70 days to bring the goods,” said Dahal. “The average duration taken for fertiliser supply being 338 days means farmers missed at least three crop cycles of paddy and wheat, vegetables and spring paddy.”

Pokhrel said following the due process as per the procurement law, it takes at least seven months for the contractors to deliver chemical fertilisers from the day the contract has been signed.

Most of the contractors have never met the target. The report said that congestion in the seaports, bad weather, the problem of railway rakes and issues like a tsunami in the seaports are key reasons behind the delay or fertiliser not coming on time.

The audit report has suggested that the process of inviting tenders should be started from the beginning of the second quarter of each fiscal year [mid-December to mid-January].

Pokhrel said that they have met the target of importing all chemical fertilisers but admitted that they failed to distribute to farmers on time due to delays.

“Generally, if the prices rise in the global market, suppliers prefer to pay fines or lose their performance bond but they don’t supply the committed goods because of the massive gaps in pricing,” he said. “This trend is most apparent during times of crises like the Covid-19 pandemic.”

As chemical fertiliser is a global commodity, the cost can be affected by several economic factors, including supply and demand, responses to prices and global shipments.

Reports suggest fertiliser prices in the global market have been reaching new highs.

According to the audit report, the Agriculture Inputs Company fines the contactors and resumes a new process to buy fertilisers, as a result fertiliser shortages appear during the key crop plantation seasons–paddy during summer and wheat during winter.

For example, according to the audit report, in 2020-21 and the first half of 2021-22, six suppliers appointed by the Agriculture Inputs Company failed to bring 130,000 tonnes of urea and 20,000 tonnes of DAP [Diammonium phosphate].

Almost all fertilisers imported by Nepal are brought through the Kolkata port in India via rail to Birgunj and by trucks to Biratnagar and Bhairahawa. The report said that dependency on a single importing point or Kolkata port only has been resulting in delays.

The report has suggested finding alternative ports by amending the existing bilateral treaty to bring fertilisers from Kandala in Gujarat, Visakhapatnam in Andhra Pradesh and other seaports in India.

The government allocated Rs11 billion in fertiliser subsidies for the last fiscal year. The value of total imports hovers around Rs19 billion annually.

The Salt Trading Corporation has been authorized to import 30 percent of the country's fertiliser requirement and the Agriculture Inputs Company imports the rest.

Another factor affecting the smooth supply is the poor domestic supply mechanism. National Fertiliser Policy 2002 recommends maintaining an inventory of about 20 percent of the estimated annual fertiliser consumption as a buffer stock. But it has never been implemented.

The audit report said that the country does not maintain an adequate buffer stock. As per the provision, there should be a stock of at least 120,000 tonnes to avoid shortages.

The report shows that in 2015-16, the Agriculture Inputs Company had maintained a buffer stock of 92,817 tonnes, which decreased to 27,245 tonnes in 2020-21.

“But the demand is so high that we can’t maintain a buffer stock,” said Pokhrel.

In many districts, farmers are normally forced to buy urea smuggled in from India by paying a black market price of Rs50 per kg if a shortage appears, according to Agriculture Ministry officials.

According to the report, the cost of urea was Rs750 per sack [50 kg] or Rs15 per kg in the last fiscal year. Similarly, the price of diammonium phosphate (DAP), the world's most widely used phosphorus fertiliser was Rs44 per kg.

Chemical fertiliser was introduced into Nepal in the early 1950s with the introduction of a small quantity of ammonium sulphate from India, imported by private traders. This was followed by the National Trading Limited importing ammonium sulphate from Russia until the mid-1960s. Until then, the level of chemical fertiliser use was quite low.

But the use of chemical fertiliser in Nepal is still the lowest in South Asia. The consumption of chemical fertiliser in Nepal is 87 kg per hectare.

According to Dahal, in 2018, consumption of chemical fertilisers in Bangladesh was 318 kg per hectare, followed by India 175 kg per hectare, Pakistan 156 kg per hectare and Sri Lanka 138 kg per hectare.

“Based on the statistics of fertiliser consumption and productivity, it shows how important fertiliser is for increasing productivity,” he said. “But there are environmental issues as well. So we cannot overuse chemical fertiliser.”

According to Dahal, the alternative is to balance the chemical and organic fertiliser components.

But the audit report, based on a survey, said that 90 percent of the farmers are ignorant of using chemical fertilisers and 97 percent of farmers across the country have never done a soil test.

"Farmers are using fertilisers based on suggestions from the sellers and their own estimates,” the report said. "Farmers are not made aware of the ways to use fertilisers in a balanced way. This will not increase productivity but will instead increase the acid level that deteriorates soil fertility."

As per the requirement set by the ministry, the intake of DAP and urea in paddy crops is 108 kg and 87.5 kg per hectare, respectively.

To promote organic manure, the ministry had allocated a budget of Rs250 million in 2019-20, but the five companies listed to produce organic manure did not meet the standard. As a result, the budget remained unspent.

“The government should encourage farmers to use organic manure in order to reduce the dependency on chemical fertilisers and keep the soil and environment healthy,” said Dahal.

The Agriculture Inputs Corporation under the Ministry of Agriculture was set up in 1966.

Initially, according to reports, Nepal used to import fertilisers from India. Later on, it began importing fertilisers from the international market. After the introduction of Agriculture Inputs Corporation, demand for and use of fertiliser started to increase.

With the growing demand for fertiliser and the continuous rise in international fertiliser prices, the government was forced to bear an increasing financial burden as a subsidy allocation.

Being a politically sensitive issue, the government was also hesitant to make price adjustments. As a result, this situation aggravated the corporation’s losses and it became unable to import fertilisers as per the demand, leading to a short supply.

To partially offset the fertiliser shortages during the 1970s and 1980s, Nepal had even obtained additional fertilisers via foreign aid from several countries, including Japan, Germany and Finland.

The subsidy on fertilisers was completely withdrawn in 1999. Then the local market prices of fertilisers were determined by international import prices. When international prices increased rapidly, the prices for fertilisers in the Nepali market often were more than double the prices in the Indian market. Therefore, because of a porous border and its weak regulation, informal imports from India to Nepal flourished at an unprecedented scale.

The government reintroduced fertiliser subsidies on March 25, 2009, after the global food crisis in 2008. It is currently being distributed through around 7,500 dealers across the country.

Dahal suggests two alternatives to end the chronic shortage of chemical fertilisers–exploring the government-to-government deal options with Bangladesh, India and China, whichever is convenient, and maintaining a buffer stock by constructing warehouses.

The erstwhile KP Sharma Oli administration had planned to construct a chemical fertiliser factory to end the recurring fertiliser shortages in Nepal.

“But we don’t require costly chemical fertiliser factories,”said Dahal adding, “The need of the hour is coordination.”