Among South Asian countries, Nepal liberalized most extensively during the 1980s and 1990s on both domestic and external fronts. 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, Nepal has the lowest average tariffs in South Asia and has taken several steps to downsize its public food distribution system and remove a host of agricultural subsidies. The outcomes from these policy reforms in Nepal are mixed. Aggregate indicators of food sufficiency and security (per capita food availability, extent of malnourishment) show improvement in Nepal since liberalization. Relative to other South Asian countries, Nepal is doing better on some indicators, like extent of undernourished population, while on other indicators, like stunting of children, Nepal is actually doing the worst. More importantly, the gains from liberalization across regions in Nepal have been uneven. The reason for such an uneven outcome is lack of complementary policies from the government that would lead to spatial integration of markets (e.g. the creation of physical and marketing infrastructure). Liberalization has in effect reinforced the ex-ante hierarchy across regions in Nepal. The paper then reviews the role and reform of the Nepal Food Corporation (NFC) within this broader context.
