Nepal has opened a letter of credit (LC) to import up to 50,000 tonnes of chemical fertilizers from India under a government-to-government (G2G) agreement. The earlier plan was scaled back after fertilizer prices started falling in the international market. Imports are considered crucial to reduce fertilizer shortages during the monsoon paddy planting season, which is considered a key period in Nepal's agricultural calendar.

After the ongoing tensions in West Asia disrupted global supply and price increases, affecting the supply chain, the cabinet meeting held on 21 Jestha gave in-principle approval to the Agricultural Materials Company Limited to purchase 80,000 tonnes of chemical fertilizers from India. This one-time purchase package included 60,000 tonnes of urea and 20,000 tonnes of DAP. Nepal had initially demanded 150,000 tonnes from India.

"Although the cabinet approved the import of 80,000 tonnes of fertilizers, we have decided to import only 50,000 tonnes of chemical fertilizers," said Ram Krishna Shrestha, Joint Secretary at the Ministry of Agriculture and Livestock Development and Chairman of the Agricultural Materials Company. He said two reasons have prompted the government to reduce the import volume.

‘The first reason is the availability of financial resources and the second is the decline in prices in the global market,’ he said. ‘We are also hopeful that some suppliers who had suspended supplies earlier will resume shipments as prices fall.’

The decline in international prices has provided some relief to both the government and farmers who are struggling to secure sufficient fertilizer amid market fluctuations. Shrestha said Nepal accepted the quotation submitted by India’s state-owned Rastriya Chemicals and Fertilizers Limited after it was found to be within the cost estimate prepared by the agricultural inputs company. The cost of importing these fertilizers is estimated to be around Rs 7 billion.

‘We have received the necessary budget from the Finance Ministry. Therefore, we plan to transfer the amount to the supplier soon,’ he said. Although the price issue has been largely resolved, delivery remains a major concern. According to officials, the procurement process may take up to 120 days to complete.

Nepal has already requested India to expedite the transportation process, keeping in mind the seriousness and urgency of the farming season. ‘That is our biggest concern,’ Shrestha said. ‘In the Nepal-India Joint Working Group meeting held last week, we have requested the Indian side to expedite the transportation of fertilizer. We are hopeful that the fertilizer will arrive by mid-Bhadau (mid-August). The Indian side has accepted our request.’

Rice is cultivated on about 1.4 million hectares across Nepal. It is one of the most important crops in the country, which contributes significantly to rural income and economic growth. Economists estimate that timely availability of fertilizer is very important as a 10 percent change in rice production can change Nepal’s economic growth by about 0.4 percentage points. Agriculture officials claim that the country will not face a serious shortage of fertilizer this season despite supply challenges. 

According to the Ministry of Agriculture, Nepal currently has about 142,000 tons of fertilizer in stock. However, it is estimated that about 250,000 tons of fertilizer will be required during the planting season alone. “The government may not be able to meet the demand completely, but there should not be an extreme shortage of fertilizer,” Shrestha said. 

The challenge of chemical fertilizers has added to the growing risk to agricultural production due to climate and geopolitical factors. An analysis by the Food and Agriculture Organization of the United Nations (FAO) has pointed to a high risk of agricultural drought associated with ‘El Niño’ conditions in major grain-producing regions, including South and Southeast Asia. 

The FAO said that strong El Niño events have historically caused severe droughts in many major agricultural regions of the world, according to a study of 41 years of satellite images through the ‘Agricultural Stress Index System’. The organization warns that below-average monsoon rains could threaten crop production and food security in vulnerable countries. 

South Asia, Southeast Asia, southern Africa, the Sahel and parts of Central America and the Caribbean are at high risk of drought, the report said. At the same time, disruptions to shipping routes through the Strait of Hormuz, a narrow waterway connecting the Persian Gulf to the Gulf of Oman, have raised the cost of energy and chemical fertilizers globally, putting additional pressure on agricultural economies preparing for planting.

 Although urea prices have recently started to fall, DAP prices are still high. According to the World Bank’s ‘Commodity Market Outlook’, urea prices have risen by 80 percent since February and exceeded $850 per tonne in April, the highest level since April 2022.

Iran has stopped ammonia production as the war between Iran and the US-Israel that began on February 28 has dragged on. Supply pressures have intensified after Qatar also suspended production of urea, ammonia and sulphur due to losses. India has also reduced production of urea and ammonia due to low liquefied natural gas supplies.

Concerns about possible export restrictions from China have further tightened global supplies and weakened fertilizer purchasing power. DAP prices, which had been relatively stable at the start of the year, also rose by 10 percent in April due to rising sulphur costs and tight supplies. China’s export restrictions have added to the pressure.

The World Bank projects DAP prices to rise by about 6 percent in 2026 and fall by about 10 percent in 2027 as new production capacity comes on stream. However, risks remain significant. A prolonged closure of the Strait of Hormuz or renewed export restrictions by major suppliers could disrupt global fertilizer trade and trigger a new surge in prices.

Subsidized urea fertilizer in Nepal is sold through government-designated cooperatives at Rs 18 per kg, while DAP is available at Rs 46 per kg. Compared to the actual market price of urea and DAP at Rs 160 and Rs 162 per kg, respectively, these prices reflect about 92 percent subsidy for urea and 80 percent subsidy for DAP.