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Poverty And Food Insecurity In Nepal Economics Essay

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Published: 1st Jan 2015 in Economics

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Nepal being the poorest country in the world poverty remains one of the crucial development agenda in Nepal since it started its development effort in 1956. Therefore, this review paper analyzes the poverty and food insecurity in Nepal. Macro economic indicators of the country i.e., Gross Development Product (GDP) growth rate and inflation rate shows that the country is historically a low growth country with inflation rate always higher than the GDP growth rate. Therefore, macroeconomic indicators are not in favorable condition to tackle the overarching problem of poverty incidence in the country. Since, 1976/77, poverty incidence is in increasing trend in the country. It was only in 2003/04, some progress in reducing the poverty was reported, which was mainly due to the significantly higher inflow of remittance compared to earlier years, rapid urbanization, and an increase in non-farm incomes. This resulted not only in the decline in proportion of population suffering from poverty but also decline in the absolute number of population suffering from poverty. However, such decline in incidence of poverty was achieved at the cost of increased inequality. The gini coefficient increased from 0.24 in the year 1984/85 to 0.41 in 2003/04. Imbalanced growth in rural and urban areas could be the reason for increase in gini coefficient. Reduction of poverty in urban areas remains always high compared to that of rural areas. Therefore, poverty incidence remains always the highest in Mid-western and Far-western rural hills. Also, poverty and food insecurity is highest among female headed household, dalit and ethnic communities, small landholding households, households engaged in laboring and agriculture. This is mainly due to unequal distribution of resources such as land, social discrepancy, and lack of access to basic social and economic structures. Government has been giving the first priority to the reduction of poverty since eighth five year plan (1992). But the government’s programs are failed to reach the target population. For instance government programs represent less than 10% of the national food deficit. Therefore, expansion of government programs focusing on targeted population is very critical in dealing with the problems of poverty and food insecurity.

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1. Introduction

The perception of poverty has evolved and varies tremendously from one culture to another culture (World Bank, 1990). However, its definition has been evolved overtime in order to encompass a variety of issues, moving from its initial treatment as an economic phenomenon (from Rowntree in 1901) to take on a number of social phenomenon (to HDI by UNDP in 1990 and Amartya Sen in 1999). At present context the definition propounded by Amartya sen is the most commonly used definition. He introduced the concept of “deprivation of basic capabilities” in order to supplement “lowness of income” (Sen, 1999). Thus, poverty has two broad dimensions namely; monetary and non-monetary dimensions of poverty. Monetary poverty is a quantitative measure of poverty using information on income or consumption, whereas non-monetary poverty is associated with the insufficient outcomes with respect to health, nutrition, and literacy, with deficient social relations, and with insecurity, and low self-confidence and powerlessness.

Nepal remains one of the poorest countries in the world in terms of monetary as well as non-monetary dimension of poverty. She remains the poorest country in the South Asia and ranks as the twelfth poorest country in the world in terms of Gross National Income (GNI) with per capita GNI of US$320 in the year 2006 (World Bank, 2008a). The per capita income though reached US$388 per annum in the year 2008, the country still remains one of the poorest countries in the world with the wide income disparities, and poor access by a large section of the population to basic social services (Asian Development Bank, 2008). The poverty being cause as well as consequence of food insecurity, similar is the situation of food insecurity as well. Indicators of food insecurity became worse once the country shifted from being food self-sufficient even net food exporter till late 1970s to food deficit country since the early 1980s. Even during the food surplus period, most of the Hilly and Mountainous districts suffers food deficit situation. At present 17 percent of the population is suffering from malnourishment. The figure is much worse if we consider children under weight for age (percent under age 5) and children under height for age (percent under age 5). Around 48 percent and 57 percent of under-five children are suffering from children under weight for age and children under height for age, respectively. Both the figures are increasing continuously since the UNDP started calculating children under weight for age and children under height for age in 1990 and 1995, respectively (UNDP, 2007; and UNDP, 1998)

Such situation prevails in the country despite the fact that she is receiving significant amount of financial as well as technical assistance from several donor countries as well as multilateral donor agencies since she started its first planned development effort in 1956. Thus, poverty remains the critical issues to be analyzed. Therefore, this paper intends to discuss the historical perspective of poverty and food insecurity incidence based on the literature review. In doing so the paper will start by giving overview of macroeconomics indicators overtime, discuss incidence of poverty, inequality, and food insecurity overtime, and describe program and policies to tackle poverty and food insecurity in the country, and finally draw conclusions.

2. Overview of macroeconomic indicators

Growth rate of Gross Domestic Product (GDP) including that of agricultural GDP (AGDP) as well as non-agricultural GDP, inflation rate, and changes in per capita income are three macroeconomic indicators considered for this paper. The GDP growth rates were then related with the population growth rate and inflation rate (Table 1). Here, we can see that Nepal is experiencing low GDP growth rate, especially marred by the poor performance of agriculture. During these periods agriculture grew at only around 2.6 percent per annum, which is slightly above the population growth rate of 2.3 percent per annum during the same period. Huge fluctuation in AGDP growth rate is due to heavy dependence on vagaries of weather condition. Consequently growth in agriculture is unpredictable resulting into uncertainty in meeting ever increasing food demand. Besides during all these period inflation rate is higher than GDP growth rate, which is not a favorable condition for national poverty reduction. Optimal target of inflation should be less than 6 percent, which would be the best to minimize the negative impact on long-run economic growth (Khan, 2005). It is also estimated that 6 percent growth rate is essential to reduce Nepal’s high levels of poverty. However, average inflation rate in Nepal is 8 percent. This could have hits the poor disproportionately as they do not hold financial assets that provide protection against inflation. Therefore, despite the achievement of broad macroeconomic stability by the country during these periods, the stability could not translate much in accelerating economic growth, which is a key to poverty reduction.

Table 1. GDP and population growth rate, and inflation rate of Nepal for different periods


Plan period

















Real GDP




































Population growth rate









Source: National Planning Commission (NPC), 1970, 1975, 1980, 1985, 1992, 1998, 2003, and 2008; Pantha & Sharma, 2003

Per capita income measured in terms of per capita Gross National Product (GNP)/Gross National Income (GNI) increased from USD120 in 1976 to USD340 in 2007 (Table 2). It accounts mere 3.5 percent annual increase in per capita income between 1976 and 2007. Such increase is in nominal term and is against 8 percent average rate of inflation. Ranking based on GNP/GNI placed Nepal in 12th position from bottom in the year 2007 along with some other conflict ridden African countries. This is a slight graduation from its 5th position from bottom during late 1980s to late 1990s. However, she remains the poorest country outside Africa since 1991.

All these suggest that the macroeconomic indicators of Nepal, since it started having statistics on it, are not in favorable condition to tackle the overarching problem of poverty incidence in the country.

Table 2. Changes in per capita Gross National Product (GNP)/Gross National Income (GNI) in Nepal from 1976-2007


Per capita GNP/GNI

Ranking from below



9th along with Chad, Burundi and Myanmar



5th along with Malawi, and Bangladesh,



9th along with Bhutan and Lao PDR



5th along with Bangladesh, Lao PDR, Guinea-Bissau, and Malawi






5th along with Bhutan and Guinea-Bissau



5th along with Uganda






10th along with Madagascar






6th along with Rwanda and Tanzania



8th along with Mozambique, and Tanzania



8th along with Angola









12th along with Rwanda



11th along with Uganda



10th along with Chad









12th along with Uganda and Zimbabwe

Source: UNDP, 1990; World Bank, 1990; 1991a; 1992; 1993; 1994; 1995; 1996; 1997; 1999; 2000; 2001; 2002; 2003a; 2003b; 2004; 2005; 2006; 2007; and 2008b

3. Poverty and food insecurity in Nepal

Under this heading we will discuss poverty and inequality, nature of poverty, and food insecurity and its nature.

3.1 Poverty and inequality

It was only during the early 1970s that the issue of poverty started taking root in the minds of Nepalese planners, policy makers, and political leaders of all persuasions. Such development was mainly due to the failure of the earlier periodic plans to achieve substantial increase in the national income; thereby improvement in the standard of living of the people (NPC, 1975). Also the interest of the World Bank on Poverty put forth by its President in 1973 could have led to such realization (Nunes, 2008). This can be reflected in the Fifth Five-year Plan (1975-1980), in which the problem of poverty was first introduced and thus, agriculture development received the top priority. It was break-through of the previous trend of giving top most priority on infrastructure. Realizing the fact that huge proportion of population relies heavily on subsistence agriculture, it was assumed that the problem of poverty can be addressed with the increased domestic agricultural production (NPC, 1975). It was during the same time, in 1976-77 that the first carefully documented poverty study in Nepal (Survey on Employment, Income Distribution, and Consumption Pattern-SEIDCP) was undertaken. Since then, three nationally representative surveys namely; Multi Purpose Household Budget Survey (MPHBS) in 1984/85 by Nepal Rastra Bank, NLSS I in 1995/96, and NLSS II in 2003-04 by Central Bureau of Statistics were conducted and were used to make poverty analysis of the country. Besides, Nepal Rastra Bank conducted rural credit survey in 1991/92 confined within the rural areas. In addition, the World Bank and the UNDP are also active in making research on poverty in Nepal.

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Except for the NLSS I and NLSS II, none of the survey share common methodology. Therefore, they are not directly comparable with each other. However, comparison made by Lanjouw and Prennushi (1999) through several simulations showed that there is no evidence of decrease in poverty from 1976/77 to 1995/96. Table 3 shows the incidence of poverty for different periods in the country. The adjusted comparison also showed that though there is rise in poverty, there is no indication of rise in urban poverty incidence, which means that the increase in poverty is mainly taking place in the rural areas. Similarly, within the given limitations, comparison between the adjusted MPHBS and NLSS I, perceptible increase in the poverty can be observed. Here, decline in urban poverty and increase in rural poverty has been reported. Increase in rural poverty incidence was mainly due to increases in poverty incidence in West, Mid-West, and Far-West Regions and in the Eastern Hills that outweighed decline in the incidence in Central Hills/Mountains and Central Tarai (Lanjouw & Prennushi, 1999).

Rural Credit Survey (1991/92) conducted by the Nepal Rastra Bank is directly comparable with NLSS I (1995/96) but the comparison will be valid only for rural areas, which is essential from the view point of poverty being predominantly rural phenomena in Nepal. The comparison showed that the incidence of poverty reached the highest level with the rural poverty incidence of around 50 percent in 1991/92. The cumulative density function (CDF) [1] showed around five percent point lower incidence of poverty in 1995/96 compared to 1991/92. Despite sign of decline in poverty in rural areas, regionally, however, there is no indication of increase in consumption level in Western, Mid-Western and Far-Western Hills of the country; rather there was slight decline in consumption level. This signifies that even the improvement in rural poverty is erratic in terms of regional balance, and there is no improvement in case of Western, Mid-Western, and Far-Western Hills of the country.

The sign of improvement in rural poverty was also realized in the NLSS II (2003/04), and being nationally representative survey, the result of the survey also provided the evidence of decline in poverty in the country as a whole. Significant increase in flow of remittance is the main reason for such decline in incidence of poverty despite the country was suffering severe conflict. The rate of decline in rural poverty compared to urban poverty is remarkably low. Thus, the benefit flow of economic growth and development is skewed more towards urban areas with limited impact on rural poverty.

Table 3. Incidence of poverty in Nepal for different periods


Poverty incidence (percentage)




National Planning Commission-SEIDCP(1976/77)




Simulations under alternative assumption

a) Inflating up the 1977 poverty line to 1995/96 prices using overall index of national urban consumer prices. (NRs. 2 per person per day in 1977 = NRs. 10.97 per person per day in 1995)




b) As in a. but changing definition of consumption for 1996 so as to better match definition applied in 1977




c) Calculating poverty line from the NLSS (1996) data but using a similar methodology to that used for the NPC (1977)




d) As in c) but also changing the definition of consumption in the NLSS (1996) data so as to better match definition applied in 1977




Nepal Rastra Bank-MPHBS(1984/85)a




The World Bank (1991)-Based on data of MPHBS (1984/85 in 1988/89 prices) considering NPC poverty line, which is based on income needed to supply minimum calorie requirement)




Nepal Rastra Bank-Rural Credit Survey 1991/92


Central Bureau of Statistics-NLSS I (1995/96)a




Central Bureau of Statistics (1996)-NLSS I (1995/96)




Central Bureau of Statistics (2004)-NLSS II (2003/04)




Source: CBS, 2005; Lanjouw & Prennushi, 1999; and World Bank, 1991b.

Note: a An adjusted poverty incidence in order to make comparable with each other.

Trends in inequality can be understood by examining the gini coefficient and the share of income by different income category for the given period. Similar to the trend of poverty incidence, inequality in the country is also increasing. Inequality is even increasing despite decline in poverty incidence in 2003/04 (Table 4). Gini coefficient calculated in terms of per capita income has increased from 0.24 in 1984/85 to 0.41 in 2003/04.

Table 4. Income distribution pattern overtime

Share of population

Percentage share of income on

1976/77 (SEIDCP)

1984/85 (MPHBS)

1995/96 (NLSS I)

2003/04 (NLSS II)

First quintile (Poorest)





Second quintile





Third quintile





Fourth quintile





Fifth quintile (Richest)





Gini coefficient





Source: CBS, 1997a; CBS, 2004; NPC, 1983; and NRB, 1989

Note: NA-Not Available.

Share of the fifth quintile (the richest) of the population was in the highest level (59.9%) in 1976/77, which was reported to be 34.6 percent in 1984/985. Such sharp decline in the share might be the result of extensive infrastructure development (transportation, communication, irrigation, and industries) during the period throughout the country, which provided the opportunities to the huge mass of population who otherwise would have been critically isolated. There could be flaws in the measurement itself. Also these were the period of closed economy. Since 1984/85 when the country adopted the stabilization and structural adjustment program, however, the trend was reversed, the share has been increasing and reached 50.3 percent in the year 1995/96 till when economy was liberalized to greater extent, which further increased to 53.4 percent in the year 2003/04. Therefore, this could be the outcome of economic liberalization in the country. Increase in the share of the fifth quintile of the population in 2003/04 was realized at the cost of the decline in the share of the first quintile, second quintile, third quintile, and forth quintile by 47.5 percent, 40.3 percent, 30.1 percent and 10.9 percent, respectively. This indicates that the economic growth in the country is failed to be pro-poor.

Till 1995/96 with no indication of reduction in poverty, the higher population growth rate (2.6 percent per annum) for the period (between 1976/77 and 1995/96) suggests huge increase in number of poor in the country. Therefore, in order to keep pace with the population growth rate, poverty incidence must be brought down from 40 to 25 percent at least to keep the number of poor constant overtime (Lanjouw & Prennushi, 1999). As a result the number of poor has been almost doubled within the period of 20 years-from 1976/77 to 1995/96 (Table 5). In 2003/04, however, decline in the absolute number of poverty is reported even at the poverty incidence of 30.8 percent. This could be due to the fall in population growth rate to 2.25 percent per annum, which otherwise was 2.6 percent per annum).

Table 5. Number of poor people in different periods



Poor population (in ‘000’)




Nepal Rastra Bank (MPHBS)



World Bank/UNDP (based on MPHBS)









Source: CBS, 2005; Cited from Nepal South Asia Center, 1998

Despite the scant improvement in poverty incidence in the country, increasing disparity together with the huge increase in poor population has the detrimental effect to the objective of poverty reduction. Rise in inequality stifle growth, and poverty fall less rapidly than in the case of a more equitable one (Cornia, 2004). Therefore, increased inequality and rise in number of poor have serious ramifications on one’s ability to maintain a sustainable economic growth together with serious threats on social stability (Zhou & Wan, 2003).

3.2 Nature of poverty

Poverty in the country exists in a wide variation depending on the rural-urban divide, geography, gender, and ethnic groups and occupational castes (UNDP, 2005). Poverty incidence, gap, and severity analysis of the country suggest that poverty is more rampant, deeper, and severe in rural areas, and much worse in the Hills and Mountains. Poverty incidence in the rural areas, where 85 percent of the population lives, is 34.6 percent that accounts 95.3 percent of the poor in the country. Moreover, the recent decline in poverty incidence is favored more in urban areas. Overall decline in incidence of poverty in urban areas from 1995-96 to 2003-04 is 56 percent, whereas the figure for rural areas is only 20 percent (CBS, 2005a and 2005b). Similarly, poverty rate is the highest in rural areas of Mid-Western, and Far-Western Development Regions. Poverty incidences in the regions are 44.8 percent and 48 percent, respectively. Also more than 25 remote districts in the Mid-Western and Far-Western, Hills and Mountain regions have the poverty incidence of 45-60 percent. In terms of ecological region, Hills is experiencing the highest incidence of poverty with 34.5 percent population living below poverty line (CBS, 2005a). Poverty in such areas is primarily due to the stagnation in the growth of agriculture, which is the main source of income and employmentn (NPC, 2003). In addition, unequal distribution of land, and lack of access to basic social and economic infrastructure is also responsible for prevalence of poverty in the country (Prennushi, 1999; and SAAPE, 2003).

Besides rural-urban, geographical and ecological variation, poverty also greatly varies according to caste and ethnic groups in the country. Most of the poorest of the poor belong to the Dalit, and ethnic communities who have been historically excluded from policy influencing and decision-making opportunities because of their caste and ethnic position (SAAPE, 2003). Such exclusion is mainly due to dominance of Hindu caste hierarchy in Nepalese society. There is an unequal caste system that divides people into four vertical hierarchies with Bahun on the top, Chhetris second, Baishyas third and Dalits at the bottom. Caste position attains by the birth limits the possibility of upward mobility forcing them to involve in the hereditarily designated occupation like blacksmith, tailoring, laboring etc. Due to this, they continue to lag behind in their income and asset levels, educational achievement and human development indicators, which restrict them to derive benefit from any new opportunities created by development activities. This is supposed to be the reason why the lowest consumption level exists among low-caste Dalits with the highest poverty incidence of 46 percent followed by ethnic communities with the poverty incidence of 43 percent (UNDP, 2005).

Poverty also varies according to land ownership and major sources of livelihoods such as own-farm agriculture, agricultural labor, and non-farm activities. Households headed by agricultural wage laborers, and self-employed in agriculture made up the poorest, and second poorest groups, respectively (UNDP, 2005). Seasonality in agriculture leading to underemployment and absence of regulation regarding the working hours and wages of agricultural workers forced them to work on low wages and unhealthy working conditions further intensifying poverty and hunger among these groups (Aryal & Awasthi, 2004).

Negligence of rural areas of Mid-Western and Far-Western Hills from historic time, being far from the center of power, relatively high population pressure on farm land as well as difficult terrain, adverse climatic conditions, and limited infrastructure development hinder development process; thereby impacting on poverty reduction in these regions. It was only in 1972 when the state introduced the concept of regional development. In addition, pattern of growth in Nepal has not been pro-poor. Most of the growth took place outside agriculture (which is the main source of livelihood for 65.6 percent of country population) and outside the rural areas where 85 percent of the population and 95.3 percent of the poor resides (CBS, 2005a). There was 6 percent growth rate in non-agriculture sector since 1990, whereas, agriculture sector was growing at the annual growth rate of only 2.3 percent per annum, about the same rate as population growth (MOAC, 2007; and NPC, 2003). Due to these reasons, there is no perceptible improvement in rural per capita income for a long period to make difference in reducing rural poverty.

All these poverty and disparities prevail in the country despite the fact that the country has been implementing poverty reduction policies right from the initiation of plan development since the year 1956 in the form of infrastructure development. Poverty reduction receives the top priorities and is absorbing the significant amounts of foreign aid as a percentage of Gross National Product (GNP) since Fifth Five-year Plan (1975-1980) to date. However, the achievements are far below the expected and the country’s efforts towards poverty reduction are considered to have failed miserably with unchecked poverty growth till 1995/96, and then creating serious income gap afterwards (CBS, 2005a; and SAAPE, 2003).

This suggest that poverty in Nepal is a complex and of diverse nature, and is associated with location (with lack of physical and social infrastructure), gender, caste/ethnicity, land ownership, occupation, and low economic growth inter alia. Huge concentration of the poor in rural areas makes rural poverty the core issue of poverty in Nepal focusing on Far-Western and Mid-Western Hills of Nepal. Therefore, several literatures made recommendation for the study of poverty focusing more on rural poverty in order to gain thorough understanding of poverty in the country, which helps in achieving the goal of poverty reduction through realistic planning. Also to cope with the possible consequences of increasing disparity, a better understanding of the root cause of income disparity within the rural areas became the most important issue (Adams and He, 1995; Bourguignon, 2004; Cornia, 2004; Kakwani, 1997; Litchfield, 1999; Nissanke and Thorbecke, 2005; Thorbecke, 2004, Wan, 2001; and Zhou & Wan, 2003). All these led to increasing interest in the sources of income inequality in developing world together with the absolute poverty analysis.

3.3 Food insecurity and its nature

It was only in the early 1980s that food security as such entered the formal development agenda of Nepal following the world’s attention to the food problem during the late 70s. Therefore, expansion of agriculture production to meet the domestic food demand remains the center point of the policy choice since then. Such policy was adopted also due to the agricultural production growth rate being not in pace with the population growth rate and exportable surplus of food grain experienced proportionate dwindling. The sixth five-year plan (1980-85) sets an important objectives of fulfilling the minimum needs of the people together with increasing production at faster rate, and increasing productive employment opportunities (NPC, 1980). Later on, in 1985, following the directive of the King on the occasion of the Silver Jubilee Celebration of the Panchayat System, the programme for the fulfillment of Basic Needs was prepared and made public. The document defined basic needs in terms of food (2250 kcal per capita per day), clothing, housing with kitchen and toilet, education (primary education for all children under the age of 10 years and higher education for as many adults as possible), health, and security. The document, however, lacked the quantitative target to be achieved within the given period i.e., from 1985 to 2000 (NPC, 1985). Furthermore the program was discontinued due to political change in 1990, transformation from partyless panchayat system of multiparty democracy.

Despite the target of high agricultural growth, the country which previously was the net food grain exporter started to become a net importer since 1987/88 (Koirala & Thapa, 1997). Between the periods of 1974 to 1992, the country experienced the sharp decline in per capita gross food production from 376 Kilogram (Kg) to 277 Kg (APROSC & JMA, 1995). Throughout the 90s, the country was under food grain deficit situation (Figure 1). The figure 1 depicts that the country started attaining food grain self-sufficiency from the year 2000 and maintained it only till 2004/05. The annual growth rate of food grain production for the period was 2.4 percent per year, which is below the growth rate of the food grain requirement (3.2 percent) of the country for the given period (CBS, 1997b; FAO & WFP, 2007; and MOAC, 2005). Agriculture in the country solely being dependent on weather, only 15 percent of the cultivated land is irrigated year round, is a major factor behind huge fluctuation in the production despite expansion of the area under cultivation during the period (NPC, 2003). In addition, supply of essential production input such as improved seeds, fertilizer, and pesticides is not regulated in terms of quality, quantity, and timely availability.

Growth rate of food grain production between the period: 2.44% per year

Growth rate of food grain requirement between the period: 3.18% per year

Figure 1. Food grain production and requirement of Nepal (1987/88-2006/07*)

Source: CBS, 1997b; FAO & WFP, 2007; and MOAC, 2005.

Note: Total production figure for 2006/07 is estimated amount.

The country predominantly being agriculture dependent, which is suffering the ever-rising huge trade deficit with quite higher import growth rate compared to the e


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