Is the enhanced paddy fertilizer subsidy a rational
investment, questions Dr. U. P. de S. Waidyanatha
The recent unprecedented increase in the paddy
fertilizer subsidy was to be expected for reasons of political expedience,
though not economically justifiable. It now amounts to about 80%
of the total cost of fertilizer. In other words, a 50 kg bag of
fertilizer that costs the state about Rs. 1700 is made available
to the paddy farmer at the subsidized rate of Rs. 350. The total
cost of the subsidy to the state is Rs. 6-7 billion per year.
It was even argued that the enhanced subsidy is
an ‘investment’! But it is now evident that this additional
‘investment’ which amounted to about Rs. 2.7 billion
just for the last Maha season compared to the previous (2004/2005),
has borne no return, the paddy production for the two Maha seasons
being of 2.0 and 1.99 billion (provisional figure) tons respectively,
despite an increase of 20% in the paddy fertilizer used last Maha.
A comparison of the production of two seasons
can of course mean nothing, given the numerous factors that can
vary from season to season, but in these two seasons the weather
and extents cultivated have been similar, hence such a comparison
is not unjustifiable. But what is more disturbing is the glaring
evidence that paddy yields over the last 15 years (Fig. 1) have
not kept pace with increasing fertilizer use, due clearly to other
constraints to productivity. Whereas fertilizer use has increased
by 150% during this period, rice production and productivity (yield)
have increased only by 8 to 10% and the extent cultivated has remained
A waste all around
The fertilizer subsidy in that magnitude is thus
irrational and should be reviewed as a matter of priority, given
not only the rapidly escalating fertilizer costs, but also the waste
of precious national resources, waste of farmers’ money and
the increased environmental pollution.
Equally importantly, a nationwide comprehensive
study covering all agro-ecological regions in regard to determining
economically optimal fertilizer requirements, and factors that affect
fertilizer responses, should be vigorously undertaken. Of course
research has already shown that not merely fertilizer, but a total
package of technology, inclusive of fertilizer, that costs the farmer
only about 20% more than his usual (traditional) costs can boost
yields by 70 to 225% and net returns 340 to 650% (Tables 1 and 2).
This implies also that if this package is used extensively, the
country could meet rice self-sufficiency just from the so called
‘granary area´ (essentially the major irrigated schemes),
comprising only about 60% of the total paddy lands of the country.
Thus, had this enhanced subsidy money been alternatively invested
in taking the package to the farmers, the impact on the national
paddy production and farmer income should have been huge.
There is no argument that rationally designed
agricultural subsidies are a sine qua non for reasons of national
food security and for our farmers to be competitive, given the massive
subsidies doled out to farmers of developed countries. It is joked
that it is more fortunate to be born an EU cow than a third world
farmer. An EU cow, for example, receives a daily subsidy of US$
2.2: a Japanese cow is even more fortunate, for if she could save
her one year’s subsidy, she could air-travel business class
round the world once a year! The point, however, is that, those
countries could afford subsidies of that magnitude, but not us,
and our meagre resources should be applied where it pays most.
With fertilizer prices having escalated, the annual
(Yala and Maha) cost of the paddy subsidy is now likely to exceed
Rs. 7 billion, double that of 2004. In order to continue this subsidy
for rice farmers, the urea subsidy has been withdrawn from some
of the other crops. The worst affected would be tea with disastrous
consequences. Already there is the threat of closure of some 300
private tea factories, due to likely reduced production, consequent
on increased fertilizer prices and inadequate fertilizer use that
will leave some 300,000 tea smallholders in the lurch. Indications
are, however, that the government would look into the problem of
other farmers too.
Rice scientists believe that several factors are
responsible for poor response of paddy to fertilizer applied, one
of them being over application of urea (that has been available
cheaply, due to the heavy subsidy on it), and suboptimal application
of the more expensive (non subsidised) muriate of potash and triple
super phosphate, and the consequent nutrient imbalances in the soil.
Equally importantly, repeated shallow ploughing and the resulting
hard pan beneath restricts root spread and penetration into deeper
layers to which nutrients would have leached, restricting optimal
crop growth and productivity. Rice breeders are of the view that
this condition seriously limits optimal productivity of the new
improved varieties. Deficiencies of some micronutrients such as
zinc and sulphur are also believed to constrain productivity in
The right package
The need for a balanced technology package, which
takes into account all factors determining yield, such as tillage,
timely cultivation, fertilizer use, pest, disease and water management
for optimising yields has been amply demonstrated by the Department
of Agriculture, particularly through its ‘Yaya’ (block)
demonstration programmes. The importance of the entire package of
technology for increasing yield, and not merely fertilizer, is also
dramatically shown in the more recent paddy yield optimisation demonstrations
conducted in the North Central Province, under the ADB-funded North
Central Province Rural Development Project. The technology package
comprised: timely cultivation (of the entire ‘Yaya’),
deep ploughing (8” – 10”), application of organic
fertilizers (3 tons/ac) comprising cattle manure, green manure,
straw, and correct inorganic fertilizer mixtures, improved (certified)
seed, integrated pest management and efficient water management.
Of twelve demonstrations that were conducted, two that showed the
highest (Nabadawewa tank) and lowest (Hiripitigama tank) paddy yields
are given below in Tables 1 and 2.
In the case of what is referred to as the ‘Maximum
Yield Plot,’ the farmers applied optimum inorganic and organic
fertilizer, required to achieve a target yield of 200 bushels/acres
and also other inputs, whereas in the case of the medium yield plots,
the farmers did not plough deep as prescribed, applied only little
or no organic manure and inorganic fertilizers only adequate to
push yields from the traditional average level of 70-80 to 120 bushels/acres.
The traditional yield plots are those where there was no intervention
in the farmers’ usual (traditional) practices.
What is most significant is that for a small increase
of Rs. 3000 - 4000/ac in the cost of production, the net returns
increased dramatically. For example, even in the case of the lowest
average yield situation at Hiripitigama tank, the net incomes for
the ‘Medium Yield Plot’ and ‘Maximum Yield Plot’
were Rs. 9500 and 12,000/acre respectively over the ‘Traditional
Yield Plot” (Rs. 3500/ac). The corresponding increases were
far more dramatic for Nabadawewa being Rs. 18,750 and Rs. 26,000/ac
respectively over the Traditional Yield Plot ((Rs.4000 /ac).
Very similar results have also been reported recently
from the Mahaweli System C under the Mahaweli Upgrading Project,
where yields of the order of 120-180 bushels/ac (6-9 MT/ha) have
been achieved for four consecutive seasons. Because of the higher
cultivation costs associated with the technology package, farmers
were compelled to seek credit (Rajarata and UVA Development Banks),
each farmer (1 hectare) borrowing Rs. 10,000 on average. Over 99%
of the 3,300 farmers promptly settled the loans after harvest.
Although on a national scale such magnitudes of
productivity and incomes may not be achievable, it is more than
evident that a well-organised technology transfer campaign with
this package, and access to credit should cause very substantial
yield increases. About half of the cost of the fertilizer subsidy
(say Rs. 3 billion), if invested in demonstrating the technology
package could theoretically cover the total cost of cultivation
of over 150,000 demonstrations each one acre. This is equivalent
to 7% of the annual national paddy cover. Imagine the impact of
such an exercise on the farmer uptake of the new technology!!
Invest in infrastructure
The government should also invest far more than
it does now in developing infrastructure and operations of procurement,
storage and milling, even reallocating part of the fertilizer subsidy
allocation. This should ensure the farmer getting a fairer price
for his paddy than he does now. There is much to be desired in the
current paddy purchasing operations. Its year after year ad hoc
interventions have had little impact in securing fair prices for
the farmers. For example, although the guaranteed purchase price
for last Maha was set at Rs. 18.50 per kg for paddy, the actual
prices tumbled to Rs. 10 and below, at least in several districts
such as Polonnaruwa, Hambantota and Matara, and HARTI’s Food
Commodity Bulletin for March 2006 reported that the current price
of all categories declined by 11 to 27%. The government’s
purchasing efforts continue to fail to adequately mitigate the monopolistic
intervention of the handful of large millers and collectors, who
resort to various unscrupulous means such as delaying procurements
until prices drop. Non receipt of funds on time by Cooperatives
and Agrarian Service Centres, lack of staff dedicated for procurements
and adequate storage facilities at the latter are some of the reasons
quoted by HARTI for the ineffectiveness of government’s intervention.
The paddy purchasing and milling should be broad-based, facilitating
the entry of new players for storage and milling, assisting small
millers to expand their storage and milling operations, and relieving
them from the current state of indebtedness of many.
Most importantly, a scheme should also be in place
to compulsorily register farmers with millers for the supply of
paddy, and monitor stocks to reduce hoarding. There is thus a need
to objectively reappraise state support for the paddy sector, so
that national resources are used optimally to the benefit of farmers.
Let hard technical and economic facts take precedence
in making decisions, now that there is no election in the near horizon.
The government should think seriously of developing a strategic
plan to reduce the excessive subsidy over the next few years. For
this the farmers’ goodwill is necessary. That would come forth
if they are made aware of the issues at hand.