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Among South Asian countries, Nepal has liberalized most extensively during the 1980s and 1990s on both fronts, domestic and external. Nepal is a least developed country with a gross national product of US $235 per capita in 2001 and second lowest per capita wealth in the world. In South Asia, Nepal has the lowest per capita income, highest dependence of population on agriculture and second highest poverty rate. At the same time, on an average, Nepal has the lowest tariffs in South Asia and has taken several steps to downsize its public distribution system and remove a host of agricultural subsidies. This twin scenario where the lowest per capita income country is perhaps also the most liberalized makes for an interesting case for policy analysis. This paper reviews the outcomes from the liberalization policies followed by Nepal relating to food security.

The issue at hand is not the beneficial impact of liberalization but the limited extent of it and the asymmetric gains across regions in Nepal. Liberalization seems to have retained the pre-existing regional disparities and might even have worsened it. The central thesis of the paper is that as far as Nepal’s liberalization is concerned, the devil is in the details. At an aggregate level, the outcomes from liberalization seem to have worked. Some important indicators of well being did improve in the post liberalization period. Aggregate indicators of food sufficiency and security (per capita food availability, extent of malnourishment) show improvement in Nepal since liberalization. Nepal presents a mixed picture vis-à-vis other South Asian countries. It is doing better on some indicators like extent of undernourished population while on some other indicators like stunting of children Nepal is actually doing the worst in the region. In particular, since the 1990s the per capita nutrient availability has also improved in Nepal.

The caveats are that many other indicators that are equally relevant for food security like agricultural productivity have shown little or no improvement (for example agricultural productivity). Most importantly, the fruits of liberalization have been shared as unevenly as the prior distribution of economic well being across different regions. Nepal is a landlocked country with a uniquely hierarchical geography. The country is divided into three ecological regions, the mountains, the hills and the terai. These regions are extremely diverse in terms of share in population, arable land, food grain production and the extent of malnourishment and under nourishment. They exhibit different degrees of amenability to markets and access to food.

The outcomes from liberalization have also been different across regions and that’s where the experience in Nepal stands out. The impact of liberalization on the ex ante ordered regions has also been ex post hierarchical with terai reaping the fruits and remote regions likely to have been hurt. Different evidences exist that point to this clear stratification of winners and losers from liberalization. The computable general equilibrium models by Cockburn (2001) and Sapkota (2002) clearly show this ordering with mountains being the worse off from liberalization. The evolution of poverty measures and the household surveys reveal a similar pattern. The reason for such an uneven outcome is itself lack of complementary policies from the government that lead to spatial integration of the markets (creation of physical and marketing infrastructure). In other words, having not invested in spatial integration, the rationale for government intervention continues in the form of creation of safety nets and support programs in the remote regions. That the government policy is often targeted in the opposite direction with a greater coverage of the terai is a different matter.

Consequently, even after downsizing and border reforms, the importance of the government continues in a real sense. The markets have failed to cater to the remote areas and the government has to work as a conduit between the food surplus and deficient regions. In the past, there were traditional arrangements that mitigated the food security concerns. Increasingly, as the traditional mechanisms have diminished in importance, the markets have not assumed the role thereof. The void is there for the government to fill.

With the role of the government in distribution and in providing safety nets being intact, the question is how has the government fared in this role? Where is the scope for improvement? Similarly, how does the marketing and handling efficiency of the government compare with that of the private sector? If it does not compare favorably, then it calls for realignment with greater role of the private sector (substitution or partnership).

The evidence suggests that despite several policy changes, reforms including some simple ones are desirable. Some policy changes are easy to implement and can still yield first order gains. The change in the mode of transport from air to ground is one such change. Also, we find that the government is inefficient relative to the private sector. There is a clear basis for partnership between private and public sector in sharing transportation and storage facilities. Though the policies of government are inefficient on various counts, we do not want to underestimate the role of some exogenous factors. In particular, we recognize the harsh geography and the Maoist turmoil that have madeseveral policies ineffective.

The policy suggestions for Nepal can be clubbed into two categories. The short to medium run policy should be directed towards greater involvement of the private sector in handling/storage and marketing. The need is to create incentives for greater private sector participation. This could take the form of sharing transportation and storage facilities. Given the adverse geography of the country, the biggest element of subsidy for the government has been on transporting grains. The government has relied excessively on air transport for shipping grains. Shifting to ground transportation will not only reduce costs but also create employment. This, by itself will contribute to food security.

Ultimately in the long run, the government has to take steps for the greater spatial integration of the markets. It has to create marketing and physical infrastructure. Proposals for creating a pulley link between different regions have been in the discussion but have not been implemented. The contrast of Nepal with the experience of Bangladesh is quite stark here. Bangladesh invested in the integration of markets through roadways and to an extent through waterways. As a result, the benefits of liberalization there have been much more even than in Nepal.

In the policies discussed above, the current insurgency and political uncertainty stands as a roadblock. Not only has it affected the atmosphere for private enterprise adversely, implementation of government programs and feasibility of certain policies themselves have been put to question (like transporting grains using ground). At the same time, the extremely scarce government resources have been diverted to military purposes.

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