For a timely supply of fertilizers for Nepali farmers, the subsidy scheme needs reform

Like every year, Nepali farmers this year faced an acute shortage of chemical fertilizers during the paddy plantation period. Due to the shortage of diammonium phosphate (DAP) and urea, farmers were unable to reap the benefits of the timely monsoon. Salt Trading Corporation and Agriculture Inputs Company Limited (AICL) are the chief importers of fertilizers in Nepal. But the state-owned enterprises have time and again failed to supply fertilizers on time. With the short supply of fertilizers affecting plantation every year, the government’s plans to establish a fertilizer production plant in the country is afoot. In the meantime, the government could take policy measures in engaging the private sector in fertilizer import and reform the subsidy scheme in order to alleviate farmers’ woes.

AICL blamed its private contractor Shailung Enterprises for the shortage of fertilizers this year. As the SEO, alongside Salt Trading, enjoys a monopoly in importing fertilizers, they have little incentive to improve its performance. The state-owned enterprise has repeatedly failed to supply fertilizers on time, with farmers and taxpayers bearing the brunt of its underperformance. Taking measures to invite the private sector can create competition for the SEOs. However, the introduction of the private sector solely will not solve the problem. Nepal’s fertilizer market is highly influenced by India, which offers heavy subsidies on agricultural inputs, including fertilizers, which directly affects the competitive advantage of the Nepali private sector.

With this backdrop, one of the ways out to the short supply of fertilizers is to reform the government’s subsidy scheme. The current subsidy scheme is often criticized for benefitting large scale farmers, while smaller farmers are unable to reap its benefits. The government allocated NRs 11 billion this year for the fertilizer subsidy, the highest subsidy so far. The scheme makes DAP and urea available to the farmers at NRs 46 and NRs 14 respectively. However, the increasing allocation has not necessarily helped farmers in need. The current subsidy is channeled to importers via AICL and Salt Trading Corporation. To ensure that farmers are directly benefitted from the subsidy, the government can introduce a voucher system. If farmers were given agriculture input vouchers, which directly channels the subsidy to farmers, instead of the state-owned enterprises, the farmers would have more choices in purchasing fertilizers. This can help farmers choose from suppliers and sellers that are most efficient in meeting their fertilizers needs.

The timely and sufficient availability of fertilizers can help farmers yield better. With the government’s current subsidy scheme billions of taxpayers’ money is being inefficiently by the state-owned enterprises. Thus, reforming these subsidies is important to help Nepali farmers. If you are interested in learning more about policies that can make the supply of fertilizers easier in Nepal, I recommend you read a 2015 paper published by Samriddhi Foundation here.

Bidhyalaxmi Maharjan

Bidhyalaxmi is working as Research & Communications Assistant at Samriddhi Foundation. She is a Master of Arts student at Madan Bhandari Memorial College.

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