Govt decision to lift fertilizer subsidy hailed

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)