West Asia Conflict Casts Shadow Over Nepal's Fertilizer Supply

An escalation of conflict in West Asia and subsequent disruptions in the Strait of Hormuz are creating new risks for Nepal’s fertilizer supply, potentially threatening the upcoming rice planting season.

The strait, a crucial maritime route for global commodity shipments, has seen increasing instability. This has already impacted both the production and transportation of fertilizers, with international prices surging by up to 30 percent between late February and early March. Given that nearly one-third of the world's seaborne fertilizer passes through this waterway, the disruption is exerting significant pressure on global supply chains, on which landlocked Nepal is heavily reliant.

According to an official from the Agriculture Inputs Company Ltd., the heightened tension has created uncertainty over the shipment of approximately 92,000 metric tons of urea and DAP (di-ammonium phosphate) en route from Russia, Saudi Arabia, and Oman.

"Nepal has already imported the fertilizer needed until mid-July, so there is less chance of an immediate impact on the paddy crop," the official stated. "However, if the conflict extends for one-and-a-half months, managing the supply will become very difficult."

Given the agriculture sector's substantial contribution of 25.16 percent to Nepal's Gross Domestic Product (GDP), as noted in the Economic Survey 2022/23, any fertilizer shortage could have cascading effects on the broader economy.

The UN Conference on Trade and Development (UNCTAD) reports that approximately 1.33 million tons of fertilizer are exported through the Strait of Hormuz each month. A prolonged closure of this route could lead to a global fertilizer deficit, threatening crop production worldwide.

Ishwar Koirala, president of the Nepal Fertilizer Dealers Association, highlighted Nepal's particular vulnerability, stating that 60 to 70 percent of the country's imported fertilizer comes directly or indirectly from the West Asia region. Key source countries include Saudi Arabia, Oman, Tunisia, Morocco, and Egypt.

The price surge is already being felt. The Nepal Fertilizer Dealers Association reports that the international price of urea has reached approximately $565 per metric ton, and DAP is at $829 per metric ton. In normal circumstances, these prices hover around $330-$370 and $610-$630 per metric ton, respectively.

Government Maintains Sufficient Stock for Now

Despite global pressures, the government maintains that Nepal's immediate needs are covered. Joint Secretary at the Ministry of Agriculture and Livestock Development, Dr. Ram Krishna Shrestha, stated that Nepal currently has about 183,000 metric tons of fertilizer either in stock or in the import process. This quantity, he said, should be sufficient to meet demand at least through the upcoming paddy season.

"Looking at the current stock and the fertilizer in the import pipeline, there is no immediate problem with supply management," Dr. Shrestha said, adding that some shipments are currently arriving via the Kolkata port, railway, and Raxaul border point.

The ministry has already contracted two companies to supply roughly 92,000 metric tons of fertilizer through a two-year tender process. Additionally, procurement for about 300,000 metric tons for the next fiscal year is underway. Under normal conditions, it takes approximately 225 days from the start of the procurement process for fertilizer to arrive in Nepal.

For the current fiscal year, the government has allocated Rs 28.82 billion to subsidize 550,000 tons of fertilizer, covering up to 65 percent of the cost for farmers.

Long-Term Concerns Loom

While the immediate supply appears stable, concerns remain for the future. Nepal's annual fertilizer demand is roughly 800,000 tons. The government subsidizes about 500,000 tons, with farmers purchasing the remaining 300,000 tons from the private sector or the Indian market.

A prolonged international disruption could lead to higher prices and reduced supply, experts warn. "If fertilizer becomes more expensive, farmers' production costs will rise," Dr. Shrestha explained. "Some farmers may reduce fertilizer use, leading to lower crop yields and potentially impacting food security in the long term."

He also noted potential indirect effects, such as on supplies from China, which relies on raw materials from the Middle East. Furthermore, any fertilizer supply crisis in India, a major importer itself, would almost certainly have severe repercussions for Nepal.

Nepal has a history of facing periodic fertilizer shortages and delays, often leaving farmers without sufficient supplies during the critical paddy and wheat plantation seasons. The current international crisis now adds another layer of complexity to this persistent challenge.