Making subsidies sustainable

Wednesday, 11 May 2011 00:00 - - {{hitsCtrl.values.hits}}

It has been estimated that the Government will spend an extra Rs.10 billion on the proposed fertiliser subsidy that will include all crops. This brings the total subsidy to Rs. 50 billion and creates an additional challenge of ensuring that these funds are used as efficiently as possible.

Government policy is focusing on fertiliser subsidy to promote food security within the country in the face of increasing prices, leading to escalating cost of living. The intentions are positive, but whether the outcome will give credence to this is yet to be seen. Traditionally fertiliser subsidies tend to have limited effect and come laden with issues of wastage and corruption.

It is obvious therefore that the distribution systems have to be carefully monitored to make sure that the fertiliser is dispensed to deserving individuals. Assistance to small holders is appreciated but putting fertiliser in the right mixture to the right plants is also important to increase production. This is clearly a challenge since the problems of food security run deeper than subsidies.

If the trade network in Sri Lanka is made efficient, then the producers would have the opportunity to increase their profits and use that money to fertilise their crops. For paddy cultivation alone, Sri Lanka every year on an average consumes a total of 350,000 metric tonnes of urea, 125,000 metric tonnes of PSP Phosphate Fertiliser and 110,000 metric tonnes of MOP or Muriate of Potash.

With regard to other crops, Sri Lanka consumes urea amounting to 203,000 metric tonnes, PSP amounting to 9,600 metric tonnes and 138,000 metric tonnes of MOP per year. These are hefty amounts that the government cannot repeatedly give as handouts. It cannot be maintained in the long term and comes at a cost to other investment needs.

Fertiliser is mainly imported from China. Given the initial cost of manufacturing fertiliser and the difficulty in transporting the sulphuric acid etc., it is more economical and efficient to import fertiliser. The most amount of fertiliser is used in the North Central, Eastern, Northern, Wayamba, Hambantota South, Moneragala, Uva and Badulla areas and some parts of Ratnapura, Kandy and Matale.

Furthermore, the potential land for paddy cultivation stands at 870,000 hectares. During the Yala harvest, Sri Lanka harvests about 540,000 hectares of paddy land and for the Maha; a total of 740,000 hectares of land is cultivated for paddy.

It stands to reason that the trade network must be upgraded so that a larger benefit is returned to the producers. If more value addition is given especially for fruits and vegetables, post harvest losses are minimised. If increased technology is used and better logistics are provided, then the need for fertiliser subsidies would surely minimise. Such measures would also be sustainable and in the long run reduce the responsibility on the government while achieving food security for the country.

Subsidies have been used repeatedly in Sri Lanka’s political history to gain votes. Rs. 50 billion in public money is a significant amount that should be used for the sustainable development of Sri Lanka. It is also important that the entire industry should benefit in the long term from such an investment and become productive so that such handouts can be minimised and industries become self-sustaining for the food security of Sri Lanka.