Take another look

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 virtually static.

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 some soils.

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.

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