No fertilizer subsidy for Sri Lankan exports

on april 6, 2006, the Sri Lankan government, on April 6, 2006, withdrew fertiliser subsidy on tea, rubber and coconut -- the country's primary commodity exports. The decision, however, was rolled back two weeks later due to protests from producers. But this time it came with a rider. Subsidy on all three products was restored but only for small farmers with landholdings less than two hectares. Moreover, with the new revised subsidy of Sri Lankan rupee (lkr) 750 per 50 kg, urea fertilisers would now be sold at around lkr 1,200 per 50 kg, compared to lkr 1,050 earlier.

The paddy sector, which consumes 65 per cent of the subsidised fertiliser, was left untouched by the subsidy withdrawal. The ministry of agriculture development had informed importers in a letter that subsidy would be confined only to paddy. "The provision of fertiliser at subsidised prices will remain with the paddy sector and distribution will come under the purview of the two state fertiliser companies with immediate effect (April 6)," the letter said.

Tea industry hit The tea industry, which consumes 20 per cent of the subsidised fertiliser, has been adversely hit by the decision. The subsidy issue will continue to have an impact on thousands of hectares owned by plantation companies which account for more than 40 per cent of total tea production in Sri Lanka. According to the planters association president Kavi Seneviratne, plantation companies would lose more than lkr 50 million per company annually due to the increased cost of fertiliser, resulting in the possibility of tea yields dropping due to reduced fertiliser use. He also said that the leaf quality -- one of the reasons why Sri Lankan or Ceylon Tea is so well received in world markets would decline.

The government, however, is firm on the issue of subsidies. Treasury secretary P B Jayasundera said the government was not in a position to subsidise the private sector any more. The planters association says the policy is not in accordance with other agriculture-dominated countries. "In all tea-producing countries, Europe and us, subsidies are provided to agriculture whether state or private enterprises," said Malin Gunatillake, secretary-general of the planters association.

Tea factory owners said that removal of the subsidy had added to other serious problems and had put the fate of 300 private factories at stake. "We may be forced to close our factories due to high costs if the government doesn't respond," said Edward Welikala of the private tea smallholders factories association. The association's president, Padma Nanayakkara, said: "We simply cannot manage. Costs have gone up due to various reasons and the withdrawal of subsidy has added to our problems."

Factory owners are still unclear about the revised subsidy plan. "We don't know how this would be administered. We have paid for all the costs of production (including fertiliser) and then add it to our costs when we process the green leaf from the farmers," Nanayakkara said.

The decision is a blow to coconut growers as well. Faced with rising costs, coconut growers had urged the government to increase subsidy by lkr 5,000 per tonne of urea in addition to the then current subsidy of lkr 7,800 per tonne. But what they got in return was a complete turnaround by the government, with subsidies being scrapped altogether and then a lousy deal.

No-win situation Fertiliser imports in 2005 were 529,000 mt, up from 510,000 mt in 2004. The government's expenditure towards fertiliser subsidy is lkr 6.8 billion annually. However, Seneviratne says that the loss in foreign exchange earnings could be more than what the government would lose if a subsidy was given. The subsidy will directly affect the quality of the produce and in case of tea, the quality of leaf would suffer.

The government is clearly in a no-win situation and has not offered any concrete reasons to abandon subsidies. The two state companies that have been given sole rights of imports and distribution have failed in the past. Private fertiliser importers on the other hand claim that they handle more than 75 per cent of the imports. With such kind of an imbalance, the issue is set to hit the exports sector with the tea industry being the worst sufferer.

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