Smart subsidy a perfect solution to rising input cost of small farmers

October 24, 2019

LAHORE: Smart subsidy on fertilisers is the only and most appropriate solution to counter rising farm input costs for farmers and increasing farm output price for consumers, an industry official...

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LAHORE: Smart subsidy on fertilisers is the only and most appropriate solution to counter rising farm input costs for farmers and increasing farm output price for consumers, an industry official said on Wednesday.

If the government evolves well thought-out strategy, they might provide free urea to the small farmers with holdings of up-to five acres by incurring same cost of imported urea amounting to Rs44 billion. “With similar arrangement, government may provide urea at a discount of Rs860 at Rs1,140/bag to farmers with holdings of up-to 12.5 acres,” Engro Fertiliser Ltd Chief Financial Officer Imran Ahmed said on Wednesday while talking to journalists.

The targeted subsidy was a perfect way whereby poor farmers might sustain inflationary pressures and help grow agriculture in the country. The low cost of production would lead to lowering prices of agriculture produces for consumers. The best thing was that smart subsidy provides the most benefit to farmers and consumers at least cost to the government, he said.

PTI government earlier last year shared a vision to provide smart subsidy to three million small farmers having up to five acres of landholding. PTI’s 100 days agenda elaborated in National Financial Inclusion Strategy (NFIS) was comprised of a blueprint of smart subsidy scheme. Under the plan, government had to finalise the scheme, its budget along with firming up monitoring mechanism and implementing payments to farmers by July 2019. But it could not be materialised due to reasons best known to the policy makers, he recalled. Presently, government was spending over Rs44 billion or $300 million on import of urea coupled with subsidy on producing RLNG-based urea whereas this money might alternately be spent much wisely through smart subsidy, giving huge relief to small farmers. PTI government had the right vision to support small farmers through smart subsidy. However, they lost focus on the plan that they themselves presented in the NFIS.

They were currently heavily subsidising urea production but this directionless step was leading to just increasing inventory of urea with no benefit to the farmer in terms of reducing farm input cost and consumer in terms of reducing farm out cost.

They need to bring the focus back on what they committed for the welfare of small farmers. They need to ensure that the benefit was passed on to small farmers and not to big landlords who were earning a lot of profits but do not even pay taxes on that agricultural income. Sharing another proposal, he said, government would need just eight billion rupees if it wants to provide Rs400/bag subsidy to over five million small farmers having up-to five acres of landholding each. This amount was significantly lower than the expenditure of Rs44 billion on imports of urea and LNG for urea manufacturing, he maintained.

He was of the view that smart subsidy would unlock the true potential of small farmers. In Pakistan, landholding was concentrated in hands of 10 percent rich landlords who own over 50 percent of farm land.

The remainder 90 percent of farmers have very small landholdings, which highlights the significance of small and subsistence farmers in the country. In this scenario, the subsidy given by the government on urea produced on imported RLNG was directly and disproportionately benefitting the large farm owners and landlords whose agricultural income remains untaxed, the Engro official said. Had the efforts been deployed to provide “smart” subsidies, the subsistence farmers would have benefited significantly at much reduced cost to the country.

Such targeted subsidy would also enable the usage of balanced nutrients in the country. Yields of major crops in Pakistan have remained below peer averages and one of the reasons was the lack of application of balanced nutrients as required by crops for optimum growth.

The targeted subsidy programme introduced by the Punjab government that awarded direct payment to small-scale farmers for P & K fertilisers has had a very positive impact and has resulted in a significant increase in the use of these critical soil nutrients in the last couple of years. It was thus imperative, that any subsidy mechanism was equitably managed to ensure a more meaningful impact, he observed.

The subsidy disbursement mechanism should be the same as was introduced in 2017. The mechanism should essentially be sticker-based so that it could be executed through a web portal. The portal would enable fertiliser marketing companies to generate unique codes for their products and enable the farmers to redeem a certain number of bags per CNIC. The subsidy proceeds would then be transferred into the farmers’ easy paisa accounts, he explained.

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