International Conference on
Agricultural Transformation in Asia:
Policy Options for Food and Nutrition
Siem Reap, Cambodia
September 25-27, 2013
Role of Inputs in Agriculture Transformation in
Nepal: Policy Issues and Options
Bishnu Dev Pant
1. Agriculture in Nepal
• Agriculture main stay of economy
o Agriculture contributes around one third
of total GDP
o About four-fifth of the population
depends on agriculture
o It provides net employment to two-third
of country’s population
o Yet, agricultural development is at a
2. Evolution and Use of Chemical Fertilizers
• The use of chemical fertilizers started from late 1950s.
• Formalization of import and distribution of fertilizers
began after the establishment of the Agricultural Inputs
Corporation (AIC) in 1966.
• Subsidy introduced in 1973. It included both a price
subsidy on the fertilizer and a transport subsidy for hill
and mid-hill districts.
• The AIC’s deficit rose to 850 million rupees during the
twenty-three years of subsidy period.
• In 1999, all subsidies were completely removed as this
had a huge financial burden for the government.
o After deregulation, the AIC was dissolved.
o Two companies- the Agriculture Input Company Limited
(AICL), responsible for the fertilizer business, and the
National Seed Company Limited (NSCL), responsible for
crop seed business were established.
o Even then, the AICL has not been successful for importing
fertilizers for fully meeting the country's demands.
o The government’s policy of subsidizing fertilizers for the
small farmers has also been highly ineffective.
o The shortage of fertilizers in the market has forced farmers
to rely on black markets for timely supply.
o Chemical fertilizer use per hectare in Nepal is still one of
the lowest compared to other countries of the region.
Fertilizer use in South Asian
Source: World Bank 2010
3. Informal Fertilizer Trade
• Scientific demand studies of chemical fertilizers have not
been done yet.
• Around 800,000 metric ton of fertilizers consumed in 2011/12, and up
to 86 percent would have been supplied through informal cross border
trade. Formal fertilizer import by AICL is around 200,000 metric ton
• Total import of fertilizer if converted into monetary term will amount
to about $400 mn (i.e. NRs 40 billion approximately), which is
substantial for a country like Nepal.
• The prices of informally imported fertilizers, which is suspected to be
adulterated and of low quality, keep fluctuating depending upon the
availability of AICL imported fertilizers.
• Numerous small local traders from both sides of the border are seen
involved in informal importation of fertilizers. Local agro traders and
agro-vets are found involved in distribution and sales of fertilizers and
seeds to farmers in Nepal.
4. Evolution and implementation of Seed Policy
• Though formal seed production and distribution began in late
fifties, organized seed production and distribution started only
• After 1990, AICL was solely responsible for supply and distribution
of improved seeds in Nepal at a subsidized rate through its own
distribution network across the country. However, it is the private
sector which handles more than 90 percent of formal vegetables
seed trade and supplies significant amount of hybrid maize, rice
and other seeds.
• In recent years, hybrid rice is getting very popular, especially in
Terai districts because of higher yield rate (up to 100% higher) and
covers 10-30% area in central and western Terai respectively.
• About 600 metric tons of hybrid rice estimated to have been
imported from India in 2012 that would cover around 60,000 ha.
Cereal crops (maize and rice) usually enter Nepal through informal
channel via Nepal- India border.
• Hybrid vegetable seeds are imported from Thailand, China, Korea,
Japan and India.
• Even though a large number of hybrid rice varieties enter Nepal,
not all of them are registered with the Seed Quality Control
Centre (SQCC). So far, a total of 17 hybrids have been registered,
all from India, and are being scaled up by their respective
• Recently, Chinese companies also have shown interest to
collaborate in hybrid breeding in Nepal, and have been training
some scientists, but they do not yet have any active program in
• Seed sector is regulated under Seed Act 1988. This act was
however, unable to provide mechanism to fulfill rising demand of
quality seeds including hybrids as well as to address rights of
farmers plant breeders. A new Seed Act 2008 has now been
• In 2002, the government established National Seed Company Ltd.
(NSCL) with objectives to produce, procure (domestically as well
as through imports), process, and sell seeds—from foundation
seeds to improved varieties—on a commercial basis. A number of
other policies and legislations including Community Seed
Guidelines 2009 have been implemented.
5. Major Gaps and Constraints
• Effective seed planning including seed production, marketing and
pricing, performance monitoring, and promotional activities of
superior varieties (OPVS and hybrids) is completely lacking.
• NARC has a lengthy process of price fixation of source seed (BS
and FS ). the hybrid seed companies and private sectors have to
face hassles in getting field tests, monitoring the performance and
securing certificates for varietal registration.
• In view of the capacity and efficiency of AICL, it is not likely that
the AICL will be able to handle all the fertilizer requirements of
• The number of agricultural extension workers is highly inadequate
and is not likely to make much impact in the transformation of
agriculture in Nepal.
• There is a lack of policy to support agricultural mechanization.
• Climate change is a serious threat to agricultural production and
6. Conclusion and Recommendations
• Unless the chemical fertilizers and improved seeds are sufficiently
made available to the farmers in all districts on a timely manner and
the substantial investments on irrigation are made, agricultural
production situation in the country is not likely to improve.
• Seed promotion policy is completely lacking in the country. New
varieties developed by NARC need to be demonstrated to the
farmers immediately after their release. Hence there is a strong need
to establish effective coordination between NARC system and
• There is a need for the government to formulate appropriate policies
and mechanism for undertaking competitive hybrid breeding
program working closely with national and global seed companies.
• There is a need to involve private dealers also in the distribution of
AICL imported fertilizers so that the farmers who really need
fertilizers can be benefitted, and they should also be provided similar
commissions which has been given to the Cooperatives.
The following policy options can be considered for meeting
the increased demand for good quality chemical fertilizers
in the country:
i) The government should consider allowing a number of
private groups to import fertilizers as needed and they
should be given similar incentives and facilities as has been
given to AICL.
ii) In the medium to long term, the government should
encourage Nepali business houses to partner with the business
houses in India or Bangladesh to jointly invest in fertilizer industry in
those countries and should provide a buy- back guarantee for the
required amount of fertilizers within the country.
iii) Another option would be to reorganize and reform AICL
management on the basis of public, private and partnership similar
to Nepal Telecom, so that it can compete with private sectors in
importing and manufacturing fertilizers and distributing to the