Are you struggling to come to grips with the chemical fertiliser ban amidst a macroeconomic crisis? If so, you are not alone. We had similar questions about the policy: Whether the ban can solve the Balance of Payment(BOP) crisis; can we go 100 percent organic overnight and ensure food security or can we save dollars [...]

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Chemical fertiliser ban: A policy blunder?


Are you struggling to come to grips with the chemical fertiliser ban amidst a macroeconomic crisis? If so, you are not alone. We had similar questions about the policy: Whether the ban can solve the Balance of Payment(BOP) crisis; can we go 100 percent organic overnight and ensure food security or can we save dollars by restricting fertiliser imports, and many more. Since seeking advice from experts is the best, we organised a webinar with four experts, Prof. Premachandra Athukorala (Australian National University), Prof. Herath Gunathilake (Asian Development Bank), Prof. Jeevika Weerahewa (University of Peradeniya), and Prof. L.M. Abyewickrama (University of Ruhuna). In this article, we summarise views expressed by experts at the webinar.

Chemical fertiliser ban amidst a BOP crisis

Sri Lanka faces the worst BOP crisis since independence. Many pin the blame on the pandemic. However, COVID-19 is only a trigger factor. Sri Lanka’s economy was already in a vulnerable state even before the pandemic for two reasons. First, Sri Lanka experienced a domestic resource gap (domestic resource gap = domestic absorption – domestic production) for a prolonged period. We haven’t seen a current account surplus in the last 33 years. Second, Sri Lanka’s external debt accumulation rose steeply over the past. In 2020, external debt as a percentage of GDP was 63.7 percent. A significant external debt component originated from high-cost debt alternatives – loans with high-interest rates of about 8 percent – in the previous 15 years. Before that, loans were taken at a concessionary interest rate of about 1-2 percent. Further, the external debt as a percentage of exports, namely the B/X ratio, was 350 percent in 2020. The debt service as a percentage of government revenue was 63 percent. Such dire economic conditions left the government with fewer policy options to address the crisis. However, most strikingly, the government keeps denying the problem and continues to use “hand-to-mouth” policies such as import controls. So far, the agriculture sector appears to be a critical victim of the import control agenda – turmeric, green gram, palm oil, and chemical fertiliser.

 Import controls insulate an economy from the rest of the world. As a result, world market prices or quality changes will not transmit to the country. Therefore, countries impose import controls only when such regulations are necessary to protect human, animal, or plant life. The examples are import bans associated with bird flu, F&M disease, and COVID-19. Does chemical fertiliser and pesticides impose such a threat? Apparently not. During the pandemic, to promote safe and healthy food and safeguard food supply, the EU ensured access to fertiliser. Recognising the environmental pollution caused by chemical fertilisers, Australia, Canada, and Japan have taken steps to promote environmental quality and food safety via programmes to impose standards and regulations and labelling of chemical fertilisers. Bhutan and Cuba, the two countries widely cited in the fertiliser debate, though taking steps to cut down chemical fertiliser use, still use chemical fertilisers. Thus, we must understand that none of the countries in the world has completely abandoned chemical fertiliser use.

The slogan: “100 percent organic”

Out of the total agricultural land, only 1.5 percent is organic globally and it is 2.5 percent in Sri Lanka. Why is organic farming less common? It requires technical know-how and a conducive economic, financial, social, and political environment. Using a simple model of pollution control, Prof. Gunathilake explained the optimum fertiliser use. In the graph, the Y-axis measures cost, and the X-axis measures the quantity of pollutant. The downward-sloping curve, Marginal Abatement Cost (MAC), shows the additional cost of reducing a unit of pollution. The upward-sloping curves, Marginal Damage Cost (MDC), show the additional cost of a unit of pollutant (MDC2 recognizes the environment’s assimilative capacity). We consider chemical fertiliser as the pollutant. At point a, the quantity of fertiliser and MDC equals zero (zero fertiliser cause zero damage). However, abatement cost is extremely high at a. At point c, fertiliser quantity is 100 percent, but MDC is extremely high. Hence, both a and c are inefficient. The optimum solution occurs at b, where MDC equals MAC. Thus, zero chemical fertiliser is not the optimum solution. A mix of both organic and inorganic fertilisers is the best option to meet sustainable agriculture goals.

The slogan: toxic-free food or food security?

Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life. Food self-sufficiency exists when local production meets the local food requirement. Thus, food self-sufficiency doesn’t mean people can afford food.

There are four dimensions to describe food security; food availability, food access, food utilisation, and food stability. Currently,Sri Lanka’s food availability is at a satisfactory level. However, Prof. Weerahewa explained, if we expect a 30 percent yield reduction due to the fertiliser ban (and imports of animal-based sources remain unchanged), calory, protein, and fat availability may reduce by 14 percent, 12 percent, and 10 percent, respectively. We know healthy diets are expensive. Approximately, an energy-sufficient diet costs Rs. 100, nutrient-adequate diet costs Rs. 200, and a healthy diet costs Rs. 1000. Organic food is priced around 30 percent higher than conventional food, and low-income earners will find it hard to access them even if we succeed in converting conventional agriculture into organic. Without a premium price, organic agriculture will not be financially viable as yields are generally lower. Due to lower farm incomes, food accessibility will be threatened.

Cost of energy-sufficient diet, nutrient-sufficient diet, and health diet

Food utilisation is measured by hunger and malnutrition indices. Low household income is the main reason for hunger and malnutrition in Sri Lanka (Weerahewa et al., 2020). Lower farm income will reduce the affordability of a nutritious diet. Food stability is already affected by the pandemic. Prof. Weerahewa says if local production is decreased by 30 percent owing to the unavailability of chemical fertilisers, the cereal import dependency might increase from its current level of 30 percent to 50 percent.

Missing points

In implementing a fertiliser ban, the government ignored complementarity between land, labour (domestic inputs), and inorganic fertiliser/pesticides (imported inputs). Crops may expect yield reductions due to less or no chemical fertilisers. Such yield reductions will have spillover effects on raw material suppliers, collectors, transport agents, processors, wholesalers, retailers, consumers and may diminish export competitiveness. Further, 70 percent of the total population in Sri Lanka lives in rural households, and they either directly or indirectly involved in agriculture. Low yield and low income may lead to a surge in rural unemployment and poverty.

Import controls strengthen the middlemen and resource misallocation through rent-seeking behaviour. Hence, creation of monopolies and malpractices in fertiliser production and hoarding are likely outcomes. Restriction of intermediate inputs goes against the government’s declared objective of promoting import substitution. Policy instability discourages both domestic and foreign investment. Good economic institutions and stable policies are vital in creating an enabling environment for investment.

Better policy alternatives

Prof. Athukorala underscored that the economy calls for a comprehensive crisis response strategy. To meet short-term debt repayment obligations, the government buys time by arranging SWAPs with central banks, issuing sovereign bonds, and encouraging the private sector to borrow foreign currency under the Central Bank guarantee. SWAPs and bond issuance adds an extra burden to the debt crisis. It is impossible to rely on import control without compromising a massive economic collapse and social upheaval. The negative impacts can be higher because the Sri Lankan economy has become much more enmeshed with the rest of the world. Foreign currency debt has already put sharper limits on how much debt the country can issue.

We need concessionary international financial support to minimise adjustment pain and buy time until BOP conditions improve and, more importantly, for international confidence building. Can we rely on China? Unlikely, based on the recent experience of Zambia, Laos, and Pakistan. Engaging with IMF is an option yet politically sensitive. Expenditure reduction must be the centerpiece of the reform package. Absorption reduction needs to be combined with policies to switch supply from non-tradable to tradable to bring down the B/X ratio. Of course, it is impossible to completely rule out the need for carefully designed tariff-based import compression in the short term. For instance, revisiting fertiliser policy.

Lift the chemical fertiliser ban,
eliminate fertiliser subsidy

The Ministry of Agriculture has two policy documents, “Overarching Agriculture” and “National Agriculture Policy,” to address agriculture sector issues. However, an “import ban on chemical fertilisers” is not listed as an option in any of the above policy documents. The first step towards an optimal fertiliser policy is lifting the ban on chemical fertilisers. Revisiting and re-designing of standards for all types of fertilisers, strict implementation, and monitoring are required. The subsidy on chemical fertilisers should be gradually reduced. Economists estimate that fertiliser price elasticity is approximately -1 (if fertiliser price increase by 1 percent, fertiliser use will decrease by 1 percent). Even if it is less than 1, we can expect a reduction in fertiliser use if we remove the fertiliser subsidy. The fertiliser issue is critical, but a chemical fertiliser ban is not the option.


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