Among South Asian countries, Nepal has liberalised most extensively during the 1980s and 1990s on both fronts, domestic and external. In South Asia, Nepal has the lowest per capita income, highest dependence of population on agriculture and second highest poverty rate. Also, 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 scenario where the country with the lowest per capita income is perhaps also the most liberalised makes for an interesting case for policy analysis. This article reviews the outcomes from the liberalisation policies followed by Nepal relating to food security. The issue is not the beneficial impact of liberalisation but the limited extent of it and the asymmetric gains across regions in Nepal. Liberalisation seems to have retained the pre-existing regional disparities and might even have worsened it. At an aggregate level, the outcomes from liberalisation seem to have worked. Some important indicators of well-being did improve in the post-liberalisation period. Aggregate indicators of food sufficiency and security (per capita food availability, extent of malnourishment) show improvement since liberalisation. Nepal presents a mixed picture vis-à-vis other South Asian countries. It is doing better on some indicators like extent of undernourished while on some other indicators like stunting of children Nepal is actually doing the worst.

The outcomes from liberalisation have also been different across regions and that’s where the experience in Nepal stands out. The impact of liberalisation on the ex ante ordered regions has also been ex-post hierarchical with the Terai reaping the fruits and remote regions likely to have been hurt. Various evidences exist that point to this clear stratification of winners and losers from liberalisation. The computable general equilibrium models by Cockburn (2001) and Sapkota (2002) clearly show this ordering with mountains being the worse off from liberalisation. 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 programmes in the remote regions.

The markets have failed to cater to the remote areas and the government has to work as a conduit between 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 a greater role. 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 favourably, 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. We recognise the harsh geography and the Maoist turmoil that have made several policies ineffective.

The policy suggestions 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. 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. Bangladesh invested in the integration of markets through roadways and to an extent through waterways. As a result, the benefits of liberalisation there have been much more than in Nepal. (This article is based on the study supported by IFPRI, Washington DC.)