Nepal has followed India's suit by banning letters of credit (L/Cs) for food exports.

The governments of both countries are concerned about domestic food security as essential foodstuffs worldwide grow scarcer and more expensive.

L/C halt

Nepal has banned exports of all food grain. The ban follows reports that rice and wheat shipments were being exported via border towns at very high prices, thus forcing prices up in the domestic market.

Following the decision, the central Nepal Rastra Bank instructed all financial institutions to halt issuing L/Cs as of 7 May.

Document scrutiny

The bank also asked exporters to submit documents for scrutiny of prices, quantities and shipment dates of commodities.

Nepal is heavily dependent on India for food supplies but exports wheat flour to Tibet in China and basmati rice to Bangladesh.

Food shortages

Since India banned its rice exports prices of rice, wheat and flour have spiralled in Nepal by 25-30 per cent, triggering fears of acute food shortages.

The Indian government in February announced the complete prohibition of exports of non-basmati rice to strengthen supplies in the domestic market and withdrew concessions given to rice exporters using L/Cs. (DC World News, 22 February 2008)

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