Budgets are being spent at an incredible rate in some departments.  The Ministry of Agriculture presented a supplementary estimate for the fertiliser subsidy in Parliament on Friday.  Five months was all it took to finish the annual allocation of Rs. 15 billion.  Another Rs. 12 billion is being set aside.  The Government is determined to find the money from somewhere, despite many other calls on public finances and a rapidly increasing deficit, so farmers will continue to receive assistance until the end of the year.

Fertiliser is going up in price on the international market, of course.  Urea cost about Rs. 30,000 / MT when this latest scheme was planned in 2005, but in 2008 the price is now approaching Rs. 100,000 / MT.  Other kinds of fertiliser have been subject to even more significant inflation.

But this isn't the only reason for the budgetary problems.  Any discussion of the fertiliser subsidy and its future ought to reference other issues as well.

Fraud appears to creep in at almost every stage of the process and with alarming regularity.  Farmers are accused of reselling their subsidised fertiliser to traders, they blame officials for abusing their positions in the administration of the scheme to demand money in exchange for registration, and public institutions don't seem to be above reproach either.  The Ceylon Fertiliser Corporation was at the centre of a serious allegation only a few months ago, with its former Chairman and Managing Director being indicted for their parts in a conspiracy that is said to have been extremely costly for the Government.

It's hard to guarantee that these things don't happen.  Policing the scheme costs money too.

Private sector involvement doesn't help, it seems.  The Government usually calls for tenders to import fertiliser for it to distribute under the scheme, but the conditions are such that only a few established businesses offer their services.  Substantial guarantees have to be deposited on signing an agreement and credit of up to six months is demanded as well.  It adds to the cost, because interest charges are passed on and rates increased to cover the risk of default.  Companies who do participate have little incentive to compete and keep their prices down.

The Government has also increased the coverage of the fertiliser subsidy.  In 2005, paddy farmers were the only beneficiaries and received bags of 50 kg for Rs. 350.  Tea, rubber and coconut smallholders were included later on with 50 kg bags being sold to them at Rs. 1,200.  It is a major undertaking.  Paddy farmers are now paying less than ten percent of the value at Rs. 7,000 / MT, while Rs. 24,000 / MT for tea, rubber and coconut smallholders is still a long way from the cost price.

Yet this isn't the whole story.  Occasional protests show that neither all paddy farmers nor many tea, rubber and coconut smallholders are benefiting.

Whatever the cause, there can be no doubt about the increasing amount of money being spent on the fertiliser subsidy.  The Government has now allocated Rs. 27.1 billion for this year, while Central Bank figures show expenditure of Rs. 11.0 billion in 2007, Rs. 11.9 billion in 2006 and Rs. 6.8 billion in 2005.  It is vastly more than was the norm in previous schemes.  For example, Central Bank data indicates that no more than Rs. 3.6 million was spent on the fertiliser subsidy in 2004 and only Rs. 2.2 million in 2003.

Budgetary problems encourage policymakers to think again.  The fertiliser subsidy was once regarded as an investment, and higher yields were said to justify the expense to the state, but this argument isn't heard so often these days.

Today, the talk is all about organic farming.  The Government now sees this as a possible way out for everybody.  Biofertilisers are used widely elsewhere, in addition to animal manure, vermicompost and various other substances produced from waste materials.  Yields may drop at first, but they recover to levels comparable with farms using chemical inputs within a few years, if the process is managed properly.  Organic farms tend to do much better in extremes of weather too.  Economically, it works.  Benefits to the environment and public health are added bonuses.  Sri Lanka has real potential here, and Rs. 500 million has been set aside for the promotion of such alternatives this year.  The Minister of Agriculture Development and Agrarian Services recently went so far as to say that farmers who ignored advice designed to help reduce dependence on chemical inputs and burnt straw from their fields wouldn't be given subsidised fertiliser either.  It sounded like he was about to get tough.

Nothing really happens though.  The Board of Investment has signed up a couple of projects for the manufacture of organic fertiliser, but these have absolutely no hope and probably also no intention of serving the masses of paddy farmers or even the rather smaller numbers of tea, rubber and coconut smallholders.  Organic farming is a long way from the mainstream here.

Politics is mostly to blame for this, of course.  Opposition parties know that one of the easiest ways of making trouble for the incumbent administration is to suggest that they are thinking of cutting back on the fertiliser subsidy.  The UNP had another go at this a couple of weeks ago, surely with its eye on the upcoming elections in the North Central and Sabaragamuwa Provinces, with Sarath Ranawaka attempting to stir up farmer leaders at a press conference in Colombo.  Opposition parties might well abandon the fertiliser subsidy altogether, and they certainly didn't show as much commitment to it when they were last in a position to do something, but this doesn't matter a great deal in the rough and tumble of political life.

Belief comes into it too.  The Minister of Agriculture Development and Agrarian Services may be convinced about the viability of organic farming, but many other people aren't.

This isn't really surprising.  Officials had to work hard to persuade farmers to shift from traditional varieties and start applying chemical inputs to their fields during the green revolution, and funds had to be made available.  It would require an equal or probably superior force to convince them to alter their opinions again.  Fertiliser companies now have a vested interest in ensuring that it doesn't happen, and propaganda is everywhere.  The Government is in a worse position as well, after years in which financing for agricultural extension has been allowed to dwindle in accordance with the logic that such services should be provided by the private sector.

Media doesn't help matters.  It cheerfully publishes the press releases of whoever asks for space, usually as if they were the work of its own journalists.

For example, a foreign company has in the last couple of weeks managed to get what looks like an interview with its employees published in all three English daily newspapers.  Experts in agriculture strategy, they say that farming systems in this part of the world need to move into line with developed countries.  Larger plots are more efficient, apparently.  Nobel Laureate Amartya Sen first noted that there was in fact an inverse relationship between farm size and yield back in the 1960s, and this has been confirmed to be generally the case in studies in many different countries to date, including in India, Pakistan, Nepal, Thailand and the Philippines.  There is another important point here too.  The United States, Europe and Japan provide their farmers with an awful lot more money than we are talking about with the fertiliser subsidy.

It isn't easy to get the state machinery to change its ways either.  The Government knows that farmers are wasting much of the subsidised fertiliser anyway, and a survey published earlier this week put the amount lost at 40%, yet officials will probably continue to recommend the same application without reference to soil conditions.

The Government can't just stop the fertiliser subsidy, however strong its belief in organic farming and whatever its budgetary problems.  In 1990, the Asian Development Bank forced exactly that to happen by making it a condition for its first loan to the agriculture sector of $80 million.  Fertiliser nearly doubled in price and it led to a sharp decline in both paddy production and farmer wellbeing, according to records of the Asian Development Bank.  Although usage recovered within a few years, the fertiliser subsidy was reintroduced in 1994.  The Asian Development Bank was horrified and decided to cancel part of its second loan to the agriculture sector of some $60 million, but this had no effect.