The Impact of Fertilizer Subsidy on Paddy Cultivation in Sri Lanka
Economist attached to the Money and Banking Division in the Economic Research Department of the Central Bank of Sri Lanka, LK
Mrs. H K J Ekanayake is an Economist attached to the Money and Banking Division in the Economic Research Department of the Central Bank of Sri Lanka. She has received a B.Sc. Degree in Agricultural Economics from University of Ruhuna, Sri Lanka. She is currently reading for her Masters Degree at University of Monash, Australia. Her current research interests are in the fields of Monetary Policy and Agriculture Policies.
The Government of Sri Lanka has been subsidizing fertilizer for more than four decades. This study attempts to analyse the impact of fertilizer subsidies with reference to paddy cultivation in Sri Lanka. The issue is analysed by employing three separate demand functions for major fertilizers by using simple regression model. Regression results indicate that changes in the prices of fertilizer and paddy do not have a significant effect on fertilizer usage, which points to the fact that the fertilizer subsidy is not a key determinant of the use of fertilizer in paddy cultivation. The study also found that there is a relatively higher correlation between fertilizer usage and paddy price than between fertilizer usage and fertilizer price. These findings suggest that the fertilizer subsidy could be withdrawn gradually over time. In its place, appropriate infrastructure and institutional facilities that are required to increase productivity in paddy cultivation and an effective mechanism for marketing the output that would result in favourable prices for paddy may be introduced for a more effective outcome. (JEL N551, Q19)