Hindus believe that rudraksha, the dried seeds of Elaeocarpus ganitrus tree that grows in the foothills of the Himalayas, are made from the tears of Lord Shiva and hold them sacred. Although there is no such story in Buddhism, the depiction of the Buddha, like many sacred figures in the region, wearing rudraksha beads also made them special for Buddhists. Nepali traders largely sold the seeds to Hindus in India, but that has changed in recent years.

For Nima Tamang, 27, seeds are synonymous with trade with the Chinese. “I sold 10,000 kg of seeds to the Chinese in 2020,” he said, against a previous annual average of 2,000 kg to 3,000 kg, earning 3.5 million Nepalese rupees.

Since 2014, Nepalese farmers and traders have capitalized on Chinese demand for rudraksha and bodhichitta seeds, which Buddhists use as prayer beads. The market for the two products is a microcosm of the overall trade dynamics between the two countries, in which Nepal exports raw materials and has little influence on trade mechanisms.

The deepening of bilateral relations over the past decade has allowed Chinese buyers to purchase seeds directly from farmers and middlemen like Tamang. But Tamang’s financial success in 2020 didn’t last: Chinese travel restrictions to stop the spread of Covid-19 led to a sharp drop in demand and prices, leading to massive losses for Nepalese farmers and traders . Nepal’s lack of a trade-focused policy means sellers can’t do much more than wait for Chinese buyers to return.

Nepal-China trade

The overall trade balance between the two countries is heavily tilted in favor of China. Nepal imported 211 billion Nepalese rupees from China between mid-July 2021 and mid-April 2022, according to the Nepal Customs Department. In contrast, Nepal’s exports to China amounted to 622 million Nepalese rupees during this period.

Nepal’s main exports to China are carpets, medicinal plants, hand-drawn paintings and sculptures. Rudraksha seeds were the 10th most valuable export category in the 2020-21 financial year, with the country exporting 2,80,874 kg.

Much of the recent discourse on Nepal’s trade with China has revolved around Chinese exports and investments in the country. Little attention has been paid to the possibility of increasing Nepal’s exports, either through value addition or through policy reforms.

As a result, Nepal exports materials such as rudraksha seeds and yarsagumba (a caterpillar-mushroom fusion with medicinal properties) in their raw form. In an April 2021 report, the World Bank said Nepal’s “untapped export potential” is 12 times its current value and the country has missed exports to China worth more than 2. $2 billion between 2010 and 2017.

Chinese buyers

“Nepalese farmers started selling rudraksha seeds to the Chinese around 2013-2014,” Tamang said. Chinese demand has changed the fortunes of rudraksha farmers in eastern Nepal’s Sankhuwasabha and Bhojpur districts, where the seeds come from, and middlemen like Tamang who can speak Mandarin.

Tamang said, “The Chinese paid high prices for rudraksha seeds – sometimes even up to 1 million to 1.5 million Nepalese rupees per kilogram. Seeing the benefits, I got into the business about three years ago, as I was already a Chinese speaking guide. »

While India is a major market for seeds, Chinese buyers dominate and set prices as they offer higher rates for the most common varieties.

The rudraksha market is primarily an informal trading activity and therefore actual export figures may be much higher than indicated in government reports. The variation in prices of rare rudraksha seeds compared to average seeds, which only sell for around 100 Nepalese rupees per kg, adds to the complexity.

Trade in bodhichitta and rudraksha seeds is currently not governed by any formal policy, except for the payment of forest royalties and municipal taxes. Sellers believe Nepal needs to create policies to control prices and formalize trade so that it does not lose revenue.

But official industry neglect, which could have allowed sellers to pocket untaxed income, has other consequences.

Pandemic restrictions

The Covid-19 pandemic has led to a collapse in the rudraksha trade, showing how, without effective policy and institutional support, a commodity export market can falter.

Because Chinese buyers dominate the market, they can determine the price of rudraksha seeds, which means sellers like Tamang must sell at the prices they offer. In economic terms, this is described as effective monopsony – when a key buyer is so dominant that it can fix the terms of trade.

This situation intensified when Covid-19 restrictions made it difficult for Chinese nationals to travel to Nepal. Borders have been closed and all flights from China have been cancelled. Only a few buyers managed to squeeze in via Doha and Dubai, and offered prices well below those of previous years. Nepali farmers had no choice but to sell the seeds at low prices because they had no buyers who could replace the Chinese.

“We have to sell at Chinese offer prices,” Tamang said. “No one but them made a profit in 2021.”

According to the Customs Department, in the financial year 2018-2019, Nepal exported 4,44,722 kg of rudraksha seeds to China worth about 86.7 million Nepalese rupees, at an average value of 195 Nepalese rupees per kg. For 2019-20, however, rudraksha exports to China fell to 2,64,390 kg, valued at around 39.2 million Nepalese rupees, at an average value of 149 Nepalese rupees per kg. In the financial year 2020-21, while the exported quantity increased to 2,80,874 kg, the export value fell to 26 million Nepalese rupees, at an average value of 93 Nepalese rupees per kg. Indeed, in three years, the average price has more than halved.

Such low prices meant significant losses for those working in the business. Tamang lost 700,000 Nepalese rupees to 800,000 Nepalese rupees in 2021. “I stored 300-400 kg of seeds in a hotel room because of the losses,” he said. Until trade and border restrictions are lifted, he doubts the business will return to previous levels.

Nepal Export Problems

China has granted duty-free access to more than 8,000 products from Nepal, but former commerce secretary Purushottam Ojha says strict rules of origin criteria make it difficult for Nepalese products to enter the country. the framework of the program. Other hurdles include the difficulty of certifying and labeling food in Mandarin.

Connectivity issues due to the high cost of transporting exports to China overland is another reason for Nepal’s export lag cited by Ojha. Sea freight is no better: costs have almost quintupled per container since the start of the pandemic.

Nepal’s trade with China has also lagged because trade deals are not being implemented in practice, including the much-vaunted 2016 deal that broke India’s monopoly on supplying goods. oil tankers in Nepal. Similar concerns have already been raised over an agreement signed in March on the export of Nepalese silage (silage made from partially dried grass), signed during the visit of Chinese Foreign Minister Wang Yi. With China, “implementation on both sides is also an issue,” said Krishna Acharya, economics editor at Kantipur newspaper, “just like the political will to facilitate exchanges on both sides”.

What emerges from the example of the rudraksha trade is Nepal’s inability to move up the export value chain with such agricultural and forestry products, and to manage systemic shocks such as pandemic restrictions.

“Quality control infrastructure is crucial to increasing Nepal’s value-added exports, especially in agriculture,” according to the World Bank’s April 2021 report. “Investments are needed in infrastructure, equipment and human resources to certify that its products meet the various requirements of sanitary and phytosanitary standards of major regional and global export markets.”

The future of commerce

While the focus is on the formal part of China’s Belt and Road Initiative, the rise of informal trade is a natural result of China’s growing contact with its neighbors. As Michael Yahuda and other scholars have noted, Chinese foreign relations are both trade and motor driven. The management, or mismanagement, of trade plays a huge role in how countries like Nepal approach their relationship with China.

Yet the limits of regulatory mechanisms in Nepal are specific to the country itself. The lack of regulation of rudraksha seeds predates the spike in prices due to Chinese demand. A 2016 study on forest products value chain analysis noted the “lack of government involvement” beyond royalty collection in the rudraksha seed market.

He recommended the government to pass laws to certify seed quality while interacting with farmers and traders to “develop a pragmatic policy” for trade. Six years later, the situation according to traders remains unchanged.

This article first appeared on The Third Pole.