With the federal government having failed to decide the amount and mode of subsidy on Di-Ammonium Phosphate, the fertiliser market is in a tailspin. Stocks are dwindling at a rapid pace, and importers uncertain about the sale price of the fertiliser are not placing orders, while the time for consumption is getting close.

It all started with Punjab asking the federation to find ways for bringing the cost of crop production down. It took two proposals to the federation; either withdraw the general sales tax (of around Rs14bn) on DAP or contribute an equivalent amount to subsidise the fertiliser.

The federation, under pressure from the international lenders, refused to withdraw the GST, but agreed to subsidise DAP. It asked Punjab to arrange its contribution, which the province duly announced in its last budget (Rs5bn) and went back to the federation for pooling in its bit.

That’s where things got stuck. Two months and three meetings down the line, things are still being debated: how to ensure the subsidy gets to farmers, how much money should be spared, for how long the subsidy regime should remain operative, how to absorb international price fluctuations, if any, during the subsidy period and, finally, how to check the hoarders if subsidy is limited to Rabi (when 70pc of DAP is consumed) season.

The mode of subsidy has never benefitted the farmers, especially the smaller ones. All that money normally goes to the manufacturers, importers, dealers and middlemen

While these issues are still being thrashed, the market availability is deteriorating. The country normally keeps 70,000 tonnes of strategic stocks of DAP. In its July opening balance, the quantity was down to 53,000 tonnes. It came down to 13,000 tonnes by the start of August and by September there would be a huge deficit of 127,000 tonnes.

This steep slide in stock is because of importers’ decision to suspend imports owing to the government’s indecision. The government wants them to print price and subsidy amount on each bag separately; but it is not ready to factor in international price fluctuations. Nor is it ready to announce the timeframe for subsidy. If it is limited to Kharif, how would it ensure the subsidised DAP is not hoarded for the next six months to mint money the following season?

Their wait has triggered fears among the farmers. If the federation delays its decision for another fortnight, the Rabi crops may be facing a huge risk.

So far, the mode of subsidy has never benefited the farmers, especially the smaller ones. All that money normally goes to manufacturers, importers, dealers and middlemen, and these are documented. The government needs to convince the international lenders to allow it to withdraw GST on fertiliser so that it can provide a level playing field to all farmers and also enhance productivity.

By doing so, as importers say, it would bring the price down by almost 20pc. Only then it would be able to check hoarding and force importers to print the price because it would not be time-specific facility.

With due respect to its international commitments, the government needs to plan according to its ground realities, not for commitments that are not linked to its soil. It is a fact that the Punjab alone has 6.5m acre of sodic and saline lands. Over the 70pc of its soil is categorised as marginal to poor. This requires a regular use of nutrients.

Those nutrients are now heavily taxed and out of reach of a majority of farmers. The cropping pattern only accentuates the problems. All four major crops – wheat, rice, cotton and maize – are nutrients guzzlers. Taxing the nutrients is a sure recipe for unsustainable agriculture.

The government, instead of buckling under lenders’ pressures, needs to convince them that to promote productivity, soil nutrient is the first vital step.

Published in Dawn, Aug 4th, 2014