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Escalating Fertilizer Prices and Subsidy Removal

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by Dr Parakrama Waidyanatha

The Maha harvesting of rice is now nearing completion and the strong indications are that this season’s crop decline would be 40% to 50% due to lack of fertilizer. Concurrently, the yields of other crops too are dropping and the tea yields of 2022 could be the worst affected. According available information, whereas the 2021 producer price was only Rs90.33/kg green leaf, the cost of production was Rs94.05 and the corresponding values for 2020 were Rs92.15 and 68.18. On the other hand, increasing the purchase price of paddy to Rs 90 from about Rs 45 per kilogram, even at the prevailing high price of fertilizer, could theoretically double the net returns compared to previous years (Table 2). However all crops are yielding far less this year compared to previous years given the fertilizer scarcity and even when available, the prohibitive costs.

According to the 2021 Global Food Security rating, Sri Lanka has dropped down further from the previous position of 66th a few years ago to the 77th out of 113 countries. Of the food parameters, affordability, availability and quality, the worst decline is in the food availability index, as to be expected, with the current food shortages..

We have been hit by a ‘double whammy’. The decision to totally shift to organic farming or ‘green agriculture’, a term often proudly uttered by the Minister of Agriculture, and the total ban of chemical fertilizer imports without assessing the organic fertilizer availability. Of course the shift to ‘green agriculture’ is not for the love of ‘healthy food’, often uttered by many without knowing the scientific evidence, but because of the shortage of foreign exchange for chemical fertilizer imports. And as seen from the Table 2 below, organic fertilizer will be as costly as chemical at prevailing prices, and not all farmers have the raw material to produce their own organic matter requirements.

Escalating fertilizer prices

The key factors driving fertilizer prices up were a supply shortage in the global market and the growing costs of natural gas, which account for up to 80% of variable costs in producing nitrogenous fertilizers. Faced with the highly expensive energy resources, many European producers had to stop production as they couldn’t compete with counterparts in Russia, countries in the Persian Gulf and northern Africa. As a result, the global supply of fertilizer decreased which led to subsequent price increases. The impact of the Ukraine war is yet to be seen. The COVID epidemic, especially in the west as also the closure of some factories in the U.S due to the bad winter weather during 2021 also contributed to production shortages.

The unprecedented escalating of chemical fertilizer prices globally, as evident from the Table 1, will now make it difficult for the government to provide chemical fertilizer at heavily subsidized rates given the current foreign exchange crisis. In fact the government has, smartly lifted the ban on chemical fertilizer imports handing over the ‘baby’ to the private sector implying that if farmers want they can procure fertilizer at market prices. Then how can the President condone his faulty assertion that if he gives chemical fertilizer with one hand he will have to give the farmer a kidney with the other! Would private sector imported chemical fertilizer not cause the kidney disease? A recent report by the Health Secretary has stated that there is no evidence to implicate agrochemicals in the causation of the Rajarata kidney disease, a position that has been held by the majority of scientists but ignored by the President and the Agriculture Minister.

Table 1.Global Fertilizer Prices (USD/Mt)

The current global prices of not only ammonia and ammonia-based fertilizers(urea) but also of soluble phosphates and potash have increased by 250%.during the last 14 months!(Table 1). Increasing energy costs have also increased mining costs of potash and rock phosphate resulting in their comparable magnitude of increase as ammonium fertilizers. The forecast s that because of continuing supply chain constraints, in particular energy, the fertilizer prices will not come down in the near future.

The overall mean cost of chemical fertilizer at prevailing retail prices is about 24% of the total cost of production whereas it was only about 10% before the price escalation due essentially to subsidies and lower global fertilizer prices.

The data prior to fertilizer subsidy removal presented here are based on those published by the Department of Agriculture in 2019 as those for 2020 and 2021 are not yet available. The farm gate and retail prices of vegetables for 2021/2 were obtained from the Agrarian Research and Development Institute. The prevailing average retail fertilizer price of Rs 8,000 per 50 kg bag was used for 2021/2 calculations. In calculating the 2021/2 net returns which are hypothetical, it has been assumed that the yields were similar to those before the government’s banning of agrochemicals in April 2021. Clearly the farmers obtained much lower yields than before, but the hypothetical calculations were meant only to show that at prevailing farm gate prices, the farmers could have earned far more for many crops had they applied chemical fertilizers even at the current high retail prices. Of course the problem was that chemical fertilizer was not available until recently, and the high producer and retail prices were a result of low production.

Table 2. Fertilizer costs, producer prices and net returns for some crops before and after the price escalation

Fertilizer costs and producer prices

As evident from Table 2 data at the current farm gate (producer) prices, except for rainfed rice, tea and beans the hypothetical net returns have been much higher for the other crops in 2021/2 compared to 2019 because of substantial increase in farm gate (producer) prices consequent on the decrease in production due to fertilizer shortages and exorbitant costs apart from bad weather; and the corresponding increase in retail prices. The farm gate price of paddy increased by two fold with the government defining a paddy procurement price increase of 100%. By contrast, the mean farm gate tea price was 4% lower than the cost of production as pointed out above because of very high comparative increase in fertilizer price. Although the producer prices of brinjal, carrot and most other vegetables too increased several fold the farmers’, earnings were severely curtailed by low productivity due to unavailability of chemical fertilizer.

The writer has reservations regarding the maize yields and production costs as that is a crop cultivated in many parts of the dry and intermediate zones, especially Badulla and Moneragala with substantial returns. It may be because the Dept. of Agriculture’s return calculations are based on dry grain prices whereas a fair share of the crop is sold at comparatively high prices as tender corn cobs.

It should be noted that although, the government is vehemently promoting organic fertilizer under its so called ‘Green Agriculture’ program, except for rice and maize, it is more expensive to the producer than chemical fertilizer at prevailing prices (Table 2).

Judicious fertilizer use

Studies reveal that 60-70% of the applied nitrogenous fertilizer is lost through leaching, runoff and vaporization with most crops. Losses of some other nutrients too could be substantial though not as high as nitrogenous fertilizers. Farmers should be taught the principles of judicious fertilizer use through which substantial reduction in losses and costs could be saved. “Little and often’ is one important principle in judicious fertilizer use.

It would appear that with judicious use, especially application based on soil nutrient levels and crop demand, the fertilizer costs could be substantially reduced. Although there is some effort to promote fertilizer use based on soil and foliar analysis to determine the exacting crop nutrient requirements, it is not adequately popular because of the high analytical costs. The government should strengthen the relevant services and make them available at reasonable costs to farmers. The consequent fertilizer savings could be substantial.

Fertilizer subsidy

The fertilizer subsidy policy has been changing, especially with change of governments. The Government in 2019 continued the policy introduced during the interim Government in 2018 to provide fertilizer at the concessionary prices of a 50 kg bag of any type of straight fertilizer at Rs. 1,000 and a 50 kg bag of mixed fertilizer to  Rs. 1,150.00 for crops other than paddy. The average subsidy borne by the Government on a 50 kg bag of paddy fertilizer then was around 86 percent of the market price.

A comprehensive study ( Ekanayake, H. K. J. 20060: Impact of fertilizer subsidy in paddy cultivation in Sri Lanka. Staff Studies; Central Bank of Sri Lanka, 36 (1 and 2): 73–92.) reveals that the fertilizer subsidy is not a key determinant of fertilizer usage in paddy cultivation. The study also found that there is a relatively higher correlation between fertilizer usage and paddy price than between fertilizer usage and fertilizer price. The author states that ‘the fertilizer subsidy could be withdrawn gradually over time. In its place, appropriate infrastructure and institutional facilities that are required to increase productivity in paddy cultivation and an effective mechanism for marketing the output that would result in favourable prices for paddy may be introduced for a more effective outcome’ The results of this study were also reported to be consistent with the findings of similar research in other countries.

Although the generally accepted view of economists is that governments should not indulge in business, would the above statement imply that if the Paddy Marketing Board is streamlined and effective, the paddy farmer can benefit substantially?

Further, a World Bank study(2013 ) entitled “What is the Cost of a Bowl of Rice” points out that the increase in farmers’ net income is small relative to the fiscal cost of the fertilizer subsidy, and that the government spends between Rs1.4 to 2.4 per acre to increase farm income by only a rupee per acre.

In conclusion, as evident in Table 2, the cost of the subsidized fertilizer in 2019 was 10.6% of the total cost of production that in 2022 without subsidy is 17.1%. However, because of the doubling of purchase price of paddy as also the highly escalated producer prices of other arable crops consequent on corresponding escalation of retail prices due to supply shortages, the increased fertilizer prices or subsidies had little bearing on the producer margins which were substantially higher in 2021/2 In other words, in this situation the fertilizer subsidy has no overwhelming impact on the cost of production of arable crops, and the government’s decision to ban the chemical fertilizer subsidy could lead to farmers moving towards more remunerative crops from rice, especially in the Yala season, in the Dry Zone, when it is more practical. However, the high retail prices is a huge burden to the consumer.

As pointed out above the increased cost of production by 4% over the producer price is would be devastating to the tea industry. The exorbitant fertilizer costs is reducing tea productivity substantially and the government should put in place either a price support scheme for the producer or a fertilizer subsidy which should only be 1-2% of the tea export earnings.

Escalated fertilizer prices should make rain fed rice farming especially in the wet zone unprofitable as seen in Table 2, implying that these paddy fields should be diversified into more profitable crops. In any case wet zone contributes only an insignificant quantity of rice to the national supply.



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BRICS emerging as strong rival to G7

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It was in the fitness of things for Indian Prime Minister Narendra Modi to hold a special telephonic conversation with Russian President Vladimir Putin recently for the purpose of enlightening the latter on the need for a peaceful, diplomatic end to the Russian-initiated blood-letting in Ukraine. Hopefully, wise counsel and humanity would prevail and the world would soon witness the initial steps at least to a complete withdrawal of invading Russian troops from Ukraine.

The urgency for an early end to the Russian invasion of Ukraine which revoltingly testifies afresh to the barbaric cruelty man could inflict on his fellows, is underscored, among other things, by the declaration which came at the end of the 14th BRICS Summit, which was held virtually in Beijing recently. Among other things, the declaration said: ‘BRICS reaffirms commitment to ensuring the promotion and protection of democracy, human rights and fundamental freedoms for all with the aim to build a brighter shared future for the international community based on mutually beneficial cooperation.’

It is anybody’s guess as to what meanings President Putin read into pledges of the above kind, but it does not require exceptional brilliance to perceive that the barbaric actions being carried out by his regime against Ukrainian civilians make a shocking mockery of these enlightened pronouncements. It is plain to see that the Russian President is being brazenly cynical by affixing his signature to the declaration. The credibility of BRICS is at risk on account of such perplexing contradictory conduct on the part of its members. BRICS is obliged to rectify these glaring irregularities sooner rather than later.

At this juncture the important clarification must be made that it is the conduct of the Putin regime, and the Putin regime only, that is being subjected to censure here. Such strictures are in no way intended to project in a negative light, the Russian people, who are heirs to a rich, humanistic civilization that produced the likes of Dostoevsky and Tolstoy, among a host of other eminent spirits, who have done humanity proud and over the decades guided humans in the direction of purposeful living. May their priceless heritage live long, is this columnist’s wish.

However, the invaluable civilization which the Russian people have inherited makes it obligatory on their part to bring constant pressure on the Putin regime to end its barbarism against the Ukrainian civilians who are not at all party to the big power politics of Eastern Europe. They need to point out to their rulers that in this day and age there are civilized, diplomatic and cost-effective means of resolving a state’s perceived differences with its neighbours. The spilling of civilian blood, on the scale witnessed in Ukraine, is a phenomenon of the hoary past.

The BRICS grouping, which encompasses some of the world’s predominant economic and political powers, if not for the irregular conduct of the Putin regime, could be said to have struck on a policy framework that is farsighted and proactive on the issue of global equity.

There is the following extract from a report on its recent summit declaration that needs to be focused on. It reads: BRICS notes the need to ensure “Meaningful participation of developing and least developed countries, especially in Africa, in global decision-making processes and structures and make it better attuned to contemporary realities.”

The above are worthy goals that need to be pursued vigorously by global actors that have taken upon themselves the challenge of easing the lot of the world’s powerless countries. The urgency of resuming the North-South Dialogue, among other questions of importance to the South, has time and again been mentioned in this column. This is on account of the fact that the most underdeveloped regions of the South have been today orphaned in the world system.

Given that the Non-aligned Movement and like organizations, that have espoused the resolution of Southern problems over the decades, are today seemingly ineffective and lacking in political and economic clout, indications that the BRICS grouping is in an effort to fill this breach is heartening news for the powerless of the world. Indeed, the crying need is for the poor and powerless to be brought into international decision-making processes that affect their wellbeing and it is hoped that BRICS’s efforts in this regard would bear fruit.

What could help in increasing the confidence of the underdeveloped countries in BRICS, is the latter’s rising economic and political power. While in terms of economic strength, the US remains foremost in the world with a GDP of $ 20.89 trillion, China is not very far behind with a GDP of $ 14.72 trillion. The relevant readings for some other key BRICS countries are as follows: India – $ 2.66 trillion, Russia – $ 1.48 trillion and Brazil $ 1.44 trillion. Of note is also the fact that except for South Africa, the rest of the BRICS are among the first 15 predominant economies, assessed in GDP terms. In a global situation where economics drives politics, these figures speak volumes for the growing power of the BRICS countries.

In other words, the BRICS are very much abreast of the G7 countries in terms of a number of power indices. The fact that many of the BRICS possess a nuclear capability indicates that in military terms too they are almost on par with the G7.

However, what is crucial is that the BRICS, besides helping in modifying the world economic order to serve the best interests of the powerless as well, contribute towards changing the power balances within the vital organs of the UN system, such as the UN Security Council, to render them more widely representative of changing global power realities.

Thus, India and Brazil, for example, need to be in the UNSC because they are major economic powers in their own right. Since they are of a democratic orientation, besides pushing for a further democratization of the UN’s vital organs, they would be in a position to consistently work towards the wellbeing of the underprivileged in their respective regions, which have tremendous development potential.

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Queen of Hearts

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She has certainly won the hearts of many with the charity work she is engaged in, on a regular basis, helping the poor, and the needy.

Pushpika de Silva was crowned Mrs. Sri Lanka for Mrs. World 2021 and she immediately went into action, with her very own charity project – ‘Lend a Helping Hand.’

When launching this project, she said: “Lend a Helping Hand is dear to me. With the very meaning of the title, I am extending my helping hand to my fellow brothers and sisters in need; in a time where our very existence has become a huge question and people battling for daily survival.”

Since ‘Lend a Helping Hand’ became a reality, last year, Pushpika has embarked on many major charity projects, including building a home for a family, and renovating homes of the poor, as well.

The month of June (2022) saw Pushpika very much in action with ‘Lend a Helping Hand.’

She made International Father’s Day a very special occasion by distributing food items to 100 poor families.

“Many are going without a proper meal, so I was very keen, in my own way, to see that these people had something to keep the hunger pangs away.”

A few days later, the Queen of Hearts made sure that 50 more people enjoyed a delicious and nutritious meal.

“In these trying times, we need to help those who are in dire straits and, I believe, if each one of us could satisfy the hunger, and thirst, of at least one person, per day, that would be a blessing from above.”

Pushpika is also concerned about the mothers, with kids, she sees on the roads, begging.

“How helpless is a mother, carrying a small child, to come to the street and ask for something.

“I see this often and I made a special effort to help some of them out, with food and other necessities.”

What makes Pushpika extra special is her love for animals, as well, and she never forgets the street dogs that are having a tough time, these days, scavenging for food.

“These animals, too, need food, and are voiceless, so we need to think of them, as well. Let’s have mercy on them, too. Let’s love them, as well.”

The former beauty queen served a delicious meal for the poor animals, just recently, and will continue with all her charity projects, on a regular basis, she said.

Through her charity project, ‘Lend a Helping Hand,” she believes she can make a change, though small.

And, she says, she plans to be even more active, with her charity work, during these troubled times.

We wish Pushpika de Silva all the very best, and look forward to seeing more of her great deeds, through her ‘Lend a Helping Hand’ campaign.

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Hope and political change:No more Appachis to the rescue

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KUPPI on the current economic and political crisis: intervention 1

by Harshana Rambukwella

In Buddhist literature, there is the Parable of the Burning House where the children of a wealthy man, trapped inside a burning house, refuse to leave it, fearful of leaving its comfort – because the flames are yet to reach them. Ultimately, they do leave because the father promises them wonderful gifts and are saved from the fire. Sri Lankans have long awaited such father figures – in fact, our political culture is built on the belief that such ‘fathers’ will rescue us. But this time around no fathers are coming. As Sri Lankans stare into an uncertain future, and a multitude of daily sufferings, and indignities continue to pile upon us, there is possibly one political and emotional currency that we all need – hope. Hope is a slippery term. One can hope ‘in-vain’ or place one’s faith in some unachievable goal and be lulled into a sense of complacency. But, at the same time, hope can be critically empowering – when insurmountable obstacles threaten to engulf you, it is the one thing that can carry you forward. We have innumerable examples of such ‘hope’ from history – both religious and secular. When Moses led the Israelites to the promised land, ‘hope’ of a new beginning sustained them, as did faith in God. When Queen Viharamahadevi set off on a perilous voyage, she carried hope, within her, along with the hope of an entire people. When Martin Luther King Jr made his iconic ‘I have a dream’ speech, hope of an America where Black people could live in dignity, struck a resonant chord and this historical sense of hope also provided inspiration for the anti-Apartheid struggle in South Africa.

This particular moment, in Sri Lanka, feels a moment of ‘hopelessness’. In March and April, this year, before the cowardly attack on the Gota Go Gama site, in Galle Face, there was a palpable sense of hope in the aragalaya movement as it spread across the country. While people were struggling with many privations, the aragalaya channeled this collective frustration into a form of political and social action, we have rarely seen in this country. There were moments when the aragalaya managed to transcend many divisions – ethnic, religious and class – that had long defined Sri Lanka. It was also largely a youth led movement which probably added to the ‘hope’ that characterized the aragalaya. However, following the May 09th attack something of this ‘hope’ was lost. People began to resign themselves to the fact that the literally and metaphorically ‘old’ politics, and the corrupt culture it represents had returned. A Prime Minister with no electoral base, and a President in hiding, cobbled together a shaky and illegitimate alliance to stay in power. The fuel lines became longer, the gas queues grew, food prices soared and Sri Lanka began to run out of medicines. But, despite sporadic protests and the untiring commitment of a few committed activists, it appeared that the aragalaya was fizzling out and hope was stagnant and dying, like vehicles virtually abandoned on kilometers-long fuel queues.

However, we now have a moment where ‘hope’ is being rekindled. A national movement is gathering pace. As the prospect of the next shipment of fuel appears to recede into the ever-distant future, people’s anger and frustration are once again being channeled towards political change. This is a do-or-die moment for all Sri Lankans. Regardless of our political beliefs, our ideological orientation, our religion or class, the need for political change has never been clearer. Whether you believe that an IMF bailout will save us, or whether you believe that we need a fundamental change in our economic system, and a socially and economically more just society, neither of these scenarios will come to pass without an immediate political change. The political class that now clings to power, in this country, is like a cancer – poisoning and corrupting the entire body politic, even as it destroys itself. The Prime Minister who was supposed to be the messiah channeling international goodwill and finances to the country has failed miserably and we have a President who seems to be in love with the idea of ‘playing president’. The Sri Lankan people have a single existential choice to make in this moment – to rise as one to expel this rotten political order. In Sri Lanka, we are now in that burning house that the Buddha spoke of and we all seem to be waiting for that father to appear and save us. But now we need to change the plot of this parable. No father will come for us. Our fathers (or appachis) have led us to this sorry state. They have lied, deceived and abandoned us. It is now up to us to rediscover the ‘hope’ that will deliver us from the misery of this economic and political crisis. If we do not act now the house will burn down and we will be consumed in its flames.

Initiated by the Kuppi Collective, a group of academics and activists attached to the university system and other educational institutes and actions.

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