Govt lifts subsidies, trade restriction on fertilizers

JAKARTA (JP): The government has decided to lift subsidies on fertilizers and remove all restrictions to their trade, Minister of Agriculture Soleh Solahuddin said on Wednesday.

The new measures will mean that fertilizers can be imported and distributed to farmers through cooperatives and retailers at the market price.

The state-owned PT Pupuk Sriwijaya (Pusri) previously held a monopoly on the import of subsidized fertilizers.

The financial difficulties currently facing Pusri prompted the government to ease restrictions on the trade last month.

To compensate for the removal of subsidies, 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, Soleh added.

Soleh said 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 to encourage farmers to take advantage of the scheme, which was set up to help them procure equipment and fertilizers.

The government has also lowered interest rates attached to the loans from 14 percent a year to 10.5 percent a year, he added.

He explained that the changes were intended to make fertilizers more readily available to farmers after a period in which they have been in short supply.

"The scarcity of fertilizers was caused by a wide disparity between the government-subsidized price and the market price which resulted in subsidized fertilizers leaking into sectors not entitled to them," he told reporters after a Cabinet meeting at the state palace.

He said the minimum size of farming loans had been recalculated assuming a urea price of Rp 1,115 per kilogram, a Z.A. price of Rp 1,000 per kilogram, a superphospate (SP36) price of Rp 1,600 per kilogram and a kalium chloride price of Rp 1,650 per kilogram.

Until the decision was taken, the government subsidized urea, Z.A. and SP36. Subsidies on all other fertilizers were abolished gradually over a period beginning in 1990, although kalium chloride was once again made available at a reduced price earlier this year in a bid to increase rice production.

All subsidies were intended exclusively for farmers and were limited to food crops and horticulture farming.

However, the resulting price differential proved too great a temptation for those responsible for distribution of the subsidized fertilizers and much of it was sold on at profit to industrial concerns that could afford to pay a greater price.

The subsidized price of urea fertilizer was Rp 450 per kilogram while the market price was Rp 1,250 per kilogram.

Much of the subsidized fertilizer ended up in the hands of plantation companies, resulting in a scarcity among farmers. (das)