An Economic Evaluation of Fertilizer Subsidy on Paddy Production in Sri Lanka

Abstract

Introduction :

The rice sector plays an important role in the domestic agriculture of Sri Lanka. During the period 2000-2019, annual average contribution of rice farming to agricultural GDP of the country was 20 per cent (Central Bank of Sri Lanka, 2019). The rice sector had been facing unprecedented challenges in Sri Lanka since the early 1960s, such as stagnant yield, diminishing income due to escalation of costs of production, and abandonment of rice lands (Athukorala et al. 2012). These issues were mainly due to low productivity. From the late 1960s to early 1970s the government identified the need to increase productivity of rice farming. Subsidies played an important role in increasing productivity. Besides food security, the government subsidy programmes in a developing country also targets poverty alleviation, rural development, and increased revenue.

The Government of Sri Lanka has entered the chemical fertilizer market since 1962 with the introduction of a fertilizer subsidy scheme. At present, paddy cultivation in Sri Lanka largely depends on subsidies which are not highlighted in policy discussions. Fertilizer subsidy is the most controversial input subsidy program provided for paddy farming. It was initiated in 1962 with the introduction of High Yielding Varieties (HIVs) during the Green Revolution. At present fertilizer subsidies on paddy farming account approximately 50% of the overall use of chemical fertilizer in the country and it is approximately Rs. 40 billion in value (Central Bank of Sri Lanka 2018). Given this background, this study focused on identifying the relative advantage of the fertilizer subsidy scheme of paddy in Sri Lanka.