This document summarizes an analysis of the impacts of global food, fuel, and fertilizer price shocks on Nepal's economy, agriculture sector, poverty, and food security. The analysis finds that the price shocks lead to large reductions in GDP, employment, and agricultural production. Rural and poor households are most severely affected, with poverty increasing substantially and diet quality deteriorating the most for these groups. The document recommends evaluating policy options to mitigate the negative impacts on food systems, poverty, and food insecurity.

1. Version: 7 July 2022
Nepal
Impacts of the Ukraine and Global
Crisis on Food Systems and Poverty
Xinshen Diao, Paul Dorosh, Mia Ellis, Barun Deb Pal, Jenny Smart, Hiroyuki Takeshima, James
Thurlow
International Food Policy Research Institute, Washington DC
These country studies are conducted by IFPRI with financial support from
BMGF, FCDO, and USAID. All studies use data and models developed with
ongoing support from BMGF, USAID and the CGIAR’s “Foresight and Metrics”
initiative. The Nepal case study benefits from working with IFPRI’s South Asia
Region office in New Delhi, India, and local partners.
Xinshen Diao (x.diao@cgiar.org) | Paul Dorosh (p.dorosh@cgiar.org) | James Thurlow (j.thurlow@cgiar.org)

2. Version: 7 July 2022
Overview
• Series of country case studies
• Economywide modeling
• Capture world market shocks
• Estimate impacts on economy, agri-food
system, poverty, food security, etc.
• Simulate policy responses
• Three phases of analysis:
1. Initial data collection and impact assessment
2. Data revisions and analysis of broad policy options
• Cash transfers, food aid, and fertilizer subsidies
• Fiscal implications for national governments
3. In-country engagement and tailored policy analysis
Impact
assessment
Policy
analysis
Country coverage
Countries with IFPRI RIAPA models
May June
July

3. Version: 7 July 2022
Shocks | World Food, Fuel and Fertilizer Prices
World price
Trade share
Direct use
Indirect use
Incomes
How big is the increase in world price?
How important are imports in local market?
Can local producers substitute for imports?
Which sectors use the product as an input?
Which other sectors are affected via supply chains?
What kinds of workers and households earn
incomes within the affected sectors?
Final use Which households consume the affected products?
Impact Channel Considerations World Price Shocks
Source: World Bank Pink Sheets
Global data
11%
-13%
100%
56%
34%
88%
101%
Maize Rice Wheat Palm oil Crude oil Natural gas Fertilizer
Change in real world prices (June 2021 to April 2022)
30 Jun 2021 - 31 Jan 2022 31 Jan 2022 - 30 Apr 2022
30 Jun 2021 - 30 Apr 2022

4. Version: 7 July 2022
Shocks | World Food, Fuel and Fertilizer Prices
World price
Trade share
Direct use
Indirect use
Incomes
How big is the increase in world price?
How important are imports in local market?
Can local producers substitute for imports?
Which sectors use the product as an input?
Which other sectors are affected via supply chains?
What kinds of workers and households earn
incomes within the affected sectors?
Final use Which households consume the affected products?
Impact Channel Considerations Supply and Demand
Supply
(% by source)
Demand
(% by use)
Nepal data
Source: IFPRI Nepal RIAPA Model
94% 96%
78%
4%
22%
96%
Maize Wheat Edible oils Oil products
Imports
Domestic
38%
30%
53%
85%
62%
70%
46%
15%
Maize Wheat Edible oils Oil products
Exports
Final use
Input use
+ Others = 100%
+ + +
1.7% 1.4% 1.9% 2.1%
Products’ share of the
value of total demand
throughout the economy

5. Version: 7 July 2022
Shocks | World Food, Fuel and Fertilizer Prices
World price
Trade share
Direct use
Indirect use
Incomes
How big is the increase in world price?
How important are imports in local market?
Can local producers substitute for imports?
Which sectors use the product as an input?
Which other sectors are affected via supply chains?
What kinds of workers and households earn
incomes within the affected sectors?
Final use Which households consume the affected products?
Impact Channel Considerations Consumption Baskets
Nepal data
Source: IFPRI Nepal RIAPA Model
15.9% 20.3%
9.2%
30.1%
14.0%
45.5%
51.0%
43.2%
53.9%
47.5%
38.6%
36.7%
52.2%
26.7%
44.7%
All households Rural Urban Poor Nonpoor
Composition of household consumption spending
Cereals & edible oils Other foods Non-food goods & services
Note: Cereals & edible oils and other foods includes self-produced products

6. Version: 7 July 2022
Shocks | Fertilizer Response (crop productivity effect)
Adoption
Application
Price
Demand
Response
What share of cultivated land uses fertilizers?
How much fertilizer is being used?
(i.e., fertilizer application rate)
How big is the domestic fertilizer price increase?
How do farmers react to rising fertilizer prices?
(i.e., price elasticity of fertilizer demand)
How do yields change with reduced fertilizer use?
(i.e., fertilizer response ratio)
Impact Channel Considerations Fertilizer Adoption Rate
Source: Estimates from National Living Standards Survey 2010/11, Nepal
Timing When is the fertilizer needed?
Nepal data
45%
21%
80%
57%
2%
4%
13%
34%
7%
7%
55%
7%
86%
Maize
Sorghum & millet
Rice
Wheat
Other cereals
Pulses
Oilseeds
Irish potatoes
Leafy vegetables
Other vegetables
Cotton
Bananas
Tea
Share of cultivated land using fertilizer

7. Version: 7 July 2022
Shocks | Fertilizer Response (crop productivity effect)
Adoption
Application
Price
Demand
Response
What share of cultivated land uses fertilizers?
How much fertilizer is being used?
(i.e., fertilizer application rate)
How big is the domestic fertilizer price increase?
How do farmers react to rising fertilizer prices?
(i.e., price elasticity of fertilizer demand)
How do yields change with reduced fertilizer use?
(i.e., fertilizer response ratio)
Impact Channel Considerations
Crop Calendar
Source: USDA/FAS/IPAD
Timing When is the fertilizer needed?
Planting for Nepal’s 2022 main season in already underway
Nepal

8. Version: 7 July 2022
Results | GDP and Employment
• National GDP and employment decline
• Negative terms-of-trade shock
(i.e., negative effect of higher import prices outweighs positive
effect of higher export prices)
• Rising import costs reduces spending on
domestically produced goods
• Falling production leads to job losses
• Impacts occur throughout the economy
• Agri-food system GDP and employment also fall
• GDP declines in both primary agriculture and off-
farm agri-food sectors
• Larger job losses in off-farm agri-food sectors
• Much larger GDP losses outside of the agri-food
system (equal to two-third of total GDP)
• Job losses outside of the agri-food system are
significant and are mainly in labor-intensive
construction and services
Source: IFPRI Nepal RIAPA Model
Contribution to total change
GDP
Jobs
-0.9%
-0.6%
-0.7%
-0.4%
-1.1%
-2.4%
-1.3%
-0.5%
-2.4%
-3.2%
-3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0%
Whole economy
Whole AFS
Agriculture
Off-farm
Outside AFS
Agri-food
system
Change in GDP and employment due to
food, fuel and fertilizer shocks (%)
GDP Employment
25%
67%
Agriculture
Off-farm
Outside AFS
5%
19%
75%
Note: Model results are for 2022. Employment includes farmers, paid and non-paid workers, and
self-employed persons.

9. Version: 7 July 2022
Results | Drivers of GDP Losses
• Fuel and fertilizer shocks drive most of the decline in
national GDP
• Agri-food GDP losses mostly driven by fertilizer shocks
• Fertilizer directly affects primary agricultural production
• Off-farm adversely affected only by higher food prices,
which raise the cost for food processing and food-related
services
• GDP losses outside the agri-food system driven more
by higher fuel prices
• Higher transaction costs
• Lower consumer demand
Source: IFPRI Nepal RIAPA Model
Contribution
to change
-0.1%
-0.1%
-0.1%
-0.1%
-0.5%
-0.1%
-0.9%
-0.3%
-0.4%
-0.5%
-0.2%
-0.2%
-0.9%
-0.6%
-0.7%
-0.4%
-1.1%
Whole economy
Whole AFS
Agriculture
Off-farm
Outside AFS
Agri-food
system
Percentage change in real GDP due to food, fuel
and fertilizer shocks (%)
Food prices Fuel prices Fertilizer prices & response
12%
56%
32%
Notes: About 50 percent of the effect on agriculture GDP under “fertilizer prices and response” is directly from rising fertilizer,
while the remaining 50 percent is from the productivity shock caused by lowering the use of fertilizer.

10. Version: 7 July 2022
Results | Household Consumption
Source: IFPRI Nepal RIAPA Model
• Household consumption falls significantly
• Losses are much larger than GDP losses as households are
hit twice, by rising prices and falling incomes
• Rising food prices becomes more important for
consumption losses than for GDP losses
• Importance of shocks differs across population groups:
• Fuel shocks important for all households and more
important for urban and nonpoor households
• Earn more income outside the agri-food system
• More import-intensive consumer basket
• Consume products with larger transaction cost margins
• Fertilizer shocks much more important for rural and poor
households
• Rely more on farm incomes
• Consume more domestically-produced foods
• Food prices affect all households and more impact for rural
and urban households
Contribution
to change
-1.1%
-1.2%
-0.7%
-1.7%
-0.9%
-2.1%
-2.0%
-2.3%
-2.5%
-2.0%
-0.7%
-0.7%
-0.7%
-1.2%
-0.6%
-3.9%
-3.9%
-3.7%
-5.4%
-3.5%
National
Rural
Urban
Poor
Nonpoor
Percentage change in real consumption
Food prices Fuel prices Fertilizer prices & response
27%
54%
19%

11. Version: 7 July 2022
Results | Changes in Inequality
• Differential effects on poor/nonpoor households drive
changes in inequality:
• Fuel shocks causes larger consumption losses for all
households and more so in the bottom two quintiles
• Fertilizer shocks affect the lowest quintile more than top
two quintiles
• Food prices also have more impact on the lowest quintile
• Overall, inequality rises
• Larger consumption losses in poorer quintiles driven by all
the three shocks, causes inequality to increase significantly
Source: IFPRI Nepal RIAPA Model
-6.0%
-5.5%
-5.0%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Q1 Q2 Q3 Q4 Q5
Percentage change in quintile consumption
Food prices
Fuel prices
Fertilizer prices & response
Combined food, fuel and fertilizer shocks

12. Version: 7 July 2022
Share of population
falling into poverty
Results | Poverty
• Poverty rises significantly
• Headcount rate up 4.5% points
• 1.3 million people pushed into poverty
• Larger increase in poverty in rural areas
• More than four-fifths of expanded poor population
• Larger increase in rural poverty headcount rate
• Rural population much larger than urban population
• Mainly driven by fuel shocks
Source: IFPRI Nepal RIAPA Model
Contribution
to change
1.5%
1.1%
1.6%
2.0%
1.5%
2.2%
1.0%
0.8%
1.0%
4.5%
3.4%
4.7%
National
Urban
Rural
Change in poverty headcount rate (%-point)
Food prices Fuel prices Fertilizer prices & response
416
63
354
583
88
496
274
47
225
1,272
198
1,074
National
Urban
Rural
Change in poor population (1000s)
Food prices Fuel prices Fertilizer prices & response
33%
46%
22%
16%
84%
Urban
Rural
Note: About 15% of the country’s population have adult equivalent consumption levels that fall below the US$1.90 poverty
line. The poverty rate is higher in rural, about 16%, than in urban, about 10%.

13. Version: 7 July 2022
• Global price shocks have differential effects on the
cost of six food groups for a healthy reference diet
• Reference diet is the EAT-Lancet’s “healthy” diet
thresholds for the six major food groups
• Rising prices for edible oils (in added fats) and cereals
(in staples) increase the cost of the recommended
healthy diet, while falling incomes reduce demand for
vegetables, fruits, dairy, and proteins (meats & fish)
and thus, lower their real costs
Results | Diet Quality
Source: IFPRI Nepal RIAPA Model
• Rising food prices and falling incomes cause diet quality
to worsen for many households
• Prior to the crisis, few households had consumption levels
and diversity needed for a healthy diet
• Rising food prices become much more important for
worsening diet quality than income impacts, and it is a
leading factor for 3.8 million people to become deprived in
at least one additional food group for a healthy diet
• Rural population accounts for most of the deterioration in
diet quality
-0.1%
0.3%
-0.3%
-0.4%
-0.2%
-1.1%
1.6%
Net change in
cost of healthy
diet
Contributions of
food groups to
change
Change in the real cost of a healthy
reference diet caused by rising world
prices (%)
Added fats
Proteins
Dairy
Fruits
Vegetables
Staples
11.2%
11.5%
15.2%
9.7%
45.7%
6.7%
Shares of six food groups in
total cost of a healthy diet
prior to the crisis
Added fats
Proteins
Dairy
Fruits
Vegetables
Staples
3,410
580
2,830
3,841
679
3,162
National
Urban
Rural
Number of people to become deprived in at least one
additional food group for a healthy diet (1000s)
Food prices Fuel prices Fertilizer prices & response

14. Version: 7 July 2022
Headlines
• Food, fuel and fertilizer shocks lead to large reductions in
GDP and employment in Nepal
• Agri-food system adversely affected, alongside the broader
economy
• Agriculture is particularly at risk to fertilizer shocks, esp. if it
leads to lower fertilizer use in the current season
• Poor and rural households are especially vulnerable
• Larger income losses
• Greater increase in poverty (esp. number of poor people)
• Larger contribution to the deterioration in diet quality
• Next steps
• Evaluate policy options available to governments and
development partners to mitigate impacts on food systems,
poverty, and food insecurity (e.g., cash transfers, food aid,
fertilizer subsidies, fiscal support, etc.)
Impact
assessment
Policy
analysis
Country coverage
May June
July