KATHMANDU

Nepal's acute fuel shortage is causing serious concern among local food traders about its impact on food prices.



"The shortage of fuel has been affecting the cost of our transportation. We can expect further increases in food prices which could heavily affect poor families," Ravi Sharma, a local food trader, who supplies rice and other food from the Terai region (fertile plains of southern Nepal) to the hill areas of the country, told IRIN in the capital.



Many food traders explained that commodity supplies had seriously deteriorated and expected the situation to worsen.



Transportation costs have increased by almost 27 percent over the past six months, in turn feeding into food prices, which have risen by 20-30 percent, according to the UN World Food Programme (WFP). People are buying smaller quantities and cheaper food items.



Nepal depends on fuel imports from India and sells petrol, diesel and kerosene at highly subsidised rates, at huge financial cost to the government's Nepal Oil Corporation (NOC).



The cash-strapped NOC, which runs on a monthly loss of more than US$22 million, had no option but to increase fuel prices by 25 percent last month, resulting in nationwide protests.





Impact of price hike



But Nepal's food insecurity was already critical before the global food crisis: 41 percent of its population (27 million) are undernourished and half its children stunted from chronic lack of food, according to the UN food agency, which is concerned that acute malnutrition is approaching 20 percent in some parts of the Terai where people should have access to food through the markets.



"An inverse relationship between rising food prices and food intake can be observed for the extreme poor and poor wealth groups. This may result in higher malnutrition rates," warned a new report, Market and Price Impact Assessment Nepal , by WFP and the Nepal Development Research Institute (NDRI), released on 28 July.



The assessment was conducted in more than 40 districts through the WFP Food Security Monitoring and Analysis System (FSMAS) by its team of 30 field monitors as well as six NDRI enumerators. FSMAS collects and analyses price and market information in most of the poorest and food-insecure districts of Nepal.



According to WFP, the poorest 20 percent of the population spend as much as 73 percent of their income on food, against an average 59 percent for the rest.



Sharp increases in the price of coarse rice and cooking oil will have major repercussions on the food security status of the poor, said the report. According to the traders questioned, in the next six months the biggest price increase was expected in coarse rice, the staple food for most Nepalese.



"The problem could get worse in the hills and mountain regions where the price of food is already 10 times more expensive than in the Terai," said food trader Sharma.



Economic challenges



High prices in food are posing a serious challenge to Nepal's economy, according to the report, which warned of a serious risk of stagflation, where low growth (around 3.5 percent) is combined with rising prices.







Photo: Olivia Kemp/WFP Children in poor villages of the far west of the country are at risk of malnutrition

The country also just emerged from a decade-long armed conflict (1996-2006) and the government structures are very weak, said political analysts.



"Improvements in living standards are urgently needed to avoid civil unrest that may threaten the new government," explained the report.



WFP costs rise



According to WFP, its operational costs have increased by at least 26 percent due to the rise in food and transportation costs. The scarcity of fuel is one of the principal logistical challenges the agency faces.



Its food for work programmes, under the protracted relief and recovery operation (PRRO), procure a significant amount of food locally.



Most of WFP's food aid is distributed in the hills and mountains. "With adequate funding, the PRRO will provide food support to 1.25 million food-insecure people. This activity is to be expanded in the short term to provide coverage to the 2.5 million rural poor who need immediate food support," stated the WFP/NDRI report.



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