Govt decision to lift fertilizer subsidy hailed

JAKARTA (JP): Agriculture analysts hailed the government's recent moves in lifting its subsidies on fertilizers and ease their trade restrictions but questioned private traders readiness to supply enough fertilizers to the domestic market.

The Center of Agriculture Policy Studies' executive director H.S. Dillon said the government's subsidies on fertilizers was flawed and should have been discontinued a long time ago.

Dillon told The Jakarta Post that the high disparity between the domestic subsidized prices of fertilizers and their international market prices had encouraged many parties to misuse the subsidy for their own benefit.

He said that the subsidy often did not reach the targeted recipients, the small farmers.

Much of the urea fertilizer was exported while the subsidized Kalium Chloride (KCl) fertilizers were sold to oil palm plantation firms instead of the farmers, he said.

"The government should not maintain subsidy on input such as fertilizers while the prices of rice, the output, are currently released under the market mechanism," Dillon said.

He warned that the sudden liberalization in fertilizer trade could hamper market which had long been monopolized by state- owned fertilizer firm PT Pupuk Sriwijaya (Pusri).

The financial difficulties currently facing Pusri has prompted the government to lift subsidies on fertilizers and remove all restrictions to their trade starting Dec.1.

Private companies are now allowed to import fertilizers and distributed them to farmers through cooperatives and retailers at the market price.

"Will the market function well after so many years under monopoly? It's right that we have been late in opening the markets and it's good to open it, but the players should have been prepared also."

The Indonesian Fertilizers Association chairman Soy M. Pardede said that it would be very difficult for private traders to import fertilizers nowadays due to their lack of liquidity in this time of economic crisis.

"Besides, many of the existing fertilizers distributors would not be tempted to import fertilizers and then distribute them to farmers because farmers would not settle payments until they receive farming loans from the government," he said.

Bungaran Saragih from the Bogor Institute of Agriculture also welcomed the government's decision to lift the subsidy on fertilizers as it had never been effective in helping the farmers.

Nevertheless, Bungaran suggested that the government continue to help farmers by other means as the current crisis had significantly reduced their purchasing power.

"The government should focus efforts on helping farmers in other ways," he told the Post.

The government has raised the producer floor price of unhusked rice to between Rp 1,400 and Rp 1,500 per kilogram from Rp 1,000 per kilogram to compensate for the removal of subsidies.

The government has also raised the minimum value of subsidized farming loans to Rp 2 million (US$266.7 million) per hectare from Rp 1.49 million and has lowered interest rates attached to the loans from 14 percent a year to 10.5 percent a year to encourage farmers to take advantage of the scheme, which was set up to help them procure farming equipment and fertilizers. (gis)