An Economic evaluation of fertilizer subsidy on paddy production in Sri Lanka

Abstract

Fertilizer subsidy is one of the largest subsidy programs implemented in Sri Lanka. In 2018, approximately Rs.40 billion was allocated from the national budget for providing fertilizer subsidies for cultivating paddy in the country. The primary objective of this paper is to estimate the costs and benefits of fertilizer subsidy scheme which is implemented over the last 14 years in Sri Lanka. The secondary data covering the period between 2005 and 2018 on value of total fertilizer subsidy, total paddy production and the extent of land used for cultivating paddy was used for the analysis. The result of the study shows a significant variation in the total paddy production and the costs of total fertilizer subsidies which vary from 9 % to 36 % of the value of total rice production (benefits) during the study period. Furthermore, econometric model estimation confirms that total fertilizer subsidies, cultivated land area and regional variation have significant impacts on total paddy production in the country. The results of the study will help the government to understand the effectiveness of the existing subsidy program and design a more appropriate target system in the future.