Published in The Sunday Times
As Sri Lanka banned the usage and import of chemical fertiliser for agriculture production – for both domestic agriculture and plantation agriculture -, I too received many requests from some of my regular readers to write about its economic implications. However, my response in writing on the fertiliser issue in this column got delayed. It’s because I had no subject knowledge to evaluate the impact of the “overnight” transition from chemical fertiliser to organic fertiliser on agriculture productivity. So far Sri Lanka has been a country which used to pour out excessive chemicals – fertiliser, pesticides and weedicides – over its agriculture produce and to pay for that in various ways.
I don’t think there is anyone who would refuse to consume chemical-free food; we all like to switch from chemical-laced food to organic food, and there is no dispute about it. According to the survey findings of Verite Research, even the farmers – about two-thirds of the surveyed – were supportive of the government’s move towards organic agriculture.
Perhaps, Sri Lanka would be honoured too as the No. 1 country in the world which took a bold step to produce chemical-free agriculture; our agricultural crops including plantation crops would be able to claim a premium price in global markets. Before we get there, however, we have a fight between good and evil – the fight that has already begun. I pray that “good will defeat evil”, but let’s have a look at it in detail.
While I was waiting for some facts and figures, I had to engage in a couple of discussions related to “environmentally-harmful” policies in Sri Lanka and elsewhere. As many “poor” countries in the world have been meddling with such environmentally-harmful policies such as fertiliser subsidies, fuel subsidies, and energy policies, the issue has been a topic of interest all over the world.
International environmental experts were stunned, after they heard that one of the environmentally-harmful policies of Sri Lanka – the fertiliser subsidy, is no more. Their instant response was a question that depicted their shock as well:
“What? It is great, but is it possible to change it overnight?”
“Well, it’s already done – overnight!”
Fertiliser subsidy to the paddy sector was a historical “in-kind grant” that was replaced with a “cash grant” in 2016. This replacement was guided by studies at the Central Bank which revealed a series of unpleasant issues associated with the prevailing subsidy scheme: These issues included the over-use of fertiliser, delays in distribution channels, corruption practices by both farmers and officials, as reported in the Annual Report 2014 of the Central Bank.
The change was also appreciated in UNDP’s Biodiversity Financing Initiative (BIOFIN) Workbook 2016 where it was captioned in a special place as an example for the rest of the world: “…Sri Lanka revisited its policy on fertilisers, refocusing support towards ecological and public health objectives.” However, the policy was reversed in 2019 not for any economic reasons. Now, here we are with a bold step in another direction.
I don’t know how much of organic fertiliser is needed to substitute chemical fertiliser in order to get the “same” agricultural yield per acre. An equally important question is whether the cost or the price of that amount of organic fertiliser is as same as or higher than chemical fertiliser in order to get the same yield. Moreover, I do not know whether organic fertiliser is available locally or can be made available as much as the agriculture sector needs; if not the country has to import it in the same way we imported chemical fertiliser.
If it is the same amount of foreign exchange, we have to spend now to replace chemical fertiliser imports with organic fertiliser imports, obviously there is no extra burden on our external finance. But if it is more than earlier, obviously, there is. Further, it is a question as to how this affects the government’s fiscal burden on fertiliser subsidy; it’s not clear whether the government has abandoned the subsidy scheme or not.
If it is being carried out further then the government has to spend on the fertiliser subsidy either in-kind or in cash. If it is the case, depending on the way that the government works out this issue and on the amount of spending on organic fertiliser, its burden on the budget will be determined. It is not necessary to elaborate but right now the country is faced with a critical foreign exchange shortage as well as a budgetary problem along with other related issues.
While these questions remained unanswered, I came across some vital information from the Faculty of Agriculture of the University of Peradeniya. As per this information, which was published in the Sunday Times on July 18, due to the new fertiliser policy the present agriculture yield is likely to fall by 30 to 50 percent in different sectors; the sectors include paddy with forecasted reduction by 30-35 percent and, tea plantations by 50 percent.
When we examine the implications of the yield reduction, we also need to be aware of our baseline scenario as well. Let me recall some of the facts regarding our agriculture sector which I have discussed several times in this column: A fascinating comparison that I did a couple of times was based on an average farmer’s earnings in Sri Lanka and two other small countries in the world – Netherlands and Israel.
While a Netherlands’ farmer earns US$ 6,488 a month and an Israel farmer earns $8,960 a month, a Sri Lankan farmer earns $263 a month, as their value-added contribution to the GDP. In fact, the Sri Lankan figure should be even lower, if we have data to keep the plantation companies aside. We can look at it here and there, and everywhere to explain these differences, but as I have done, all explanations can be reduced into one fundamental issue – too many people in too small farm plots producing too little! While in the Netherlands, there are 200,000 farmers and in Israel 40,000 farmers in the agriculture sector, Sri Lanka has 2.2 million farmers!
As a result, Sri Lankan farmers are poor and, they continue to remain poor, irrespective of fertiliser subsidies, administered price ceilings, import protection and other government supports. They have also been using fertiliser excessively, not only because it is subsidised, but also because it is the only way to maximise yield for at least survival.
It is in this context that we have decided to make an abrupt change from chemical fertiliser usage to organic fertiliser usage. And the anticipated outcome is that here is our organic agriculture output of which the yield is smaller. Perhaps, we will be spending more for that as individuals as well as the government.
Poverty and inequality
At the end of the day, we have chemical-free “good food” for domestic consumption; it’s a good thing! The other side of the coin is, as productivity declines farmers would be poorer than before; it’s a bad thing. However, you may also anticipate secondary implications. As a nation, it is not unwise to anticipate food shortages and increase in food prices; I must say that Sri Lanka has been a country with high food prices in the region. Therefore, there will be “good food” for the rich who can afford to it, but not so easily for the poor. Besides, we shouldn’t ignore the possibilities for a further increase in poverty and inequality.
By the way, all above implications are possibilities, while some of these possibilities will come to pass. The actual outcome must be understood from research of the experts who know the subject; if not we can just wait and see until it all happens.