Need to manage soaring fertilizer prices

What the tea industry is facing today in terms of fertilizer is simply not a ‘storm in a tea cup.’ If not addressed urgently this storm will submerge a flourishing industry that has been one of the main national foreign income earners for over a century.

“The paddy farmer can buy a 50 kg bag of urea at the subsidized rate of Rs 350 whereas we have to pay Rs 2,500,” was the infuriated roar of a top planter in the Kandy district, a view echoed by his colleagues. “Why is this step-motherly treatment given to a trade which is Sri Lanka’s second highest foreign exchange earner?” “Very soon the quality of tea will deteriorate to such an extent the demand for Sri Lankan tea will fall”. “We can contend with blister, drought, labour strikes but cannot contend with this inordinate price hikes.” These were comments made by the industry in Kandy.

Another significant question has arisen while The Kandy Times Business was trying to get further details on the subject; there is a culture of fear among the public to talk about issues which concern their livelihood, their very lives. Why is it that every person who was interviewed spoke, after a reassurance that their anonymity will be protected? Many people related to the business had to be coaxed to give their opinion as they feared repercussions.

Be that as it may, The Kandy Times Business explored the impact on the fertilizer business in the Kandy district due to yet another price hike of fertilizer recently. The response from three private companies that deal in fertilizer was more or less the same. While showroom sales of small quantities of fertilizer have not been greatly affected it is the sale of large quantities of fertilizer that have reduced drastically. Urea is freely available in the ‘black market’ at Rs 1,200 for a 50 kg bag. A ton of urea is delivered to customers for approximately Rs 25,000. It is an open secret that the subsidized urea which the paddy farmers buy for Rs 350 is resold to the black market or simply sold back to the distributor. It was also known that a bag of subsidized urea which should weigh 50 kg often weighs between 40 – 45 kg and the farmer has no means to weigh what he buys on the spot. This ‘cheating’ in the bagging either at the source of packing or by the distributors also boosts the availability of ‘black market’ fertilizer. As of August 2007, the retail price of a bag of urea is Rs 2,500 and a ton costs Rs 50,000.

Fertiliser companies cannot compete with the ‘black market’ and their sales are plummeting. These companies face several problems; they sell goods on credit but find that many of their reliable customers cannot now honour their debts. Cheques bounce; as much as 40% of the cheques given in the recent past have not been honoured by banks, one finance manager said. In addition banks are asking for more surety to open Letters of Credit such as high turnover rates while interest rates on commercial loans are also rising, he said.

“One doesn’t have to be a financial wizard to figure out that involvement in the fertilizer business today could plunge an entire venture down to bankruptcy. I will advise my Board of Directors to down-scale the fertiliser business immediately. There is no reason in investing such large sums of money for little or no returns, what sense does it make to run such high risks?” one official said. This newspaper reliably learns that one leading fertilizer company has already put down its shutters but the company was available for comment. A couple of other major dealers are also considering ‘closing shop’. Fertilizer companies say that the fertilizer subsidies should apply to the entire agriculture sector, not just a few.

Tea smallholdings are entitled to subsidised fertilizer. “Coupons are issued to us to collect our urea and these coupons are valid for a period. More often than not these coupons are issued at times when it is not appropriate to apply fertilizer, like during a drought period, so we’d rather sell that fertilizer than block our money at a time when the fertilizer is not needed,” one smallholder said.

All of the tea planters interviewed could not comprehend why paddy farmers should be given such big subsidies when it was the tea growers who earned the foreign exchange. “Paddy cultivation is important but most of what is produced is consumed locally, whereas tea is produced for the local market as well as for export, making it a highly valuable commodity; is it not reasonable for us to expect some concessions instead of being discouraged continuously?” commented a senior tea planter. “It is a pity because very soon the quality of tea we produce will deteriorate gradually.” Another senior planter in the district explained that it has become impossible to manure his tea fields as they should be. “When we fail to manure at the proper times the yield is low and naturally production declines and of course the trickle-down effect would be that foreign exchange earned will depreciate.” The immediate adverse effects of not fertilizing on schedule are two;

1.The tea leaf becomes leathery as the sap content of the leaf is low resulting in poor quality tea.

2.Yield is low and therefore production is low.

Yet another planter in the district when interviewed remarked that folio spray, which is a liquid fertilizer comprising of urea, zinc and Epsom salt has not been used in the fields for well over three months as zinc, an important component is not available in the country at any price.

“Shouldn’t the state ensure that these essential items are available?” he asked. “Instead, they impose such heavy tax and regulations for imports that it is impossible for any business enterprise to meet this demand.” In these circumstances the state should at least import zinc to encourage the tea growers.