DOES the government have the political will and administrative set-up efficient enough to ensure that the Rs1,000 per bag subsidy on Di-Ammonium Phosphate (DAP) fertiliser is passed on to farmers? The farmers are worried because the price of DAP has hit a record high. Unfortunately, previous two experiences of such exercise left them high and dry, letting the manufacturers and importers make windfall profits.

Critics argue that the subsidy is meant for some other businesses. Farmers bodies are on record opposing the DAP price mechanism intended to pass on subsidy to them. Interestingly, the target segment of the subsidy is ignored every time when it comes to working out the mechanism for disbursing the money. No wonder, the money always ends up in wrong hands.

In 2005, when the government for the first time announced Rs16 billion subsidy to bring DAP price down to Rs900, it never happened. The manufacturers and importers got the money by declaring fictitious stocks, which were never verified by any official agency except for verbal audit.

The importers opened new letter of credits (LCs), imported DAP and started selling it at new international price, which, by that time, had gone up. The ministries concerned even did not bother to check who imported how much after getting the subsidy. Even those stocks, which were imported before distribution of subsidy and rise in world price, were sold at the new price. The importers and manufacturer did so with complete impunity.

The farmers cried foul, only to be ignored. The government, on its part, only repeated the process following year and raised the subsidy to Rs20 billion. The outcome was the same. The new promised price was Rs950 per bag, and subsidy was raised to Rs450 per bag. The market price never came down to Rs950, but a large part of the subsidy was absorbed anyway.

This year, the per bag subsidy has been raised to Rs1,000, with the total touching Rs30 billion. The outcome has yet to be seen.

But a majority of farmers is not convinced that it would be any different from last two years. Their pessimism largely stems from the fact that the fertiliser lobby is powerful, involving multi-nationals, influential importers and, above all, the Fauji Fertiliser Corporation (FFC). No wonder, the profits of one big multinational surged by 140 per cent over its last year’s profits. Interestingly, the FFC, which locally manufactures over 35 per cent of consumption, also sells on latest (read highest) international price.

Can the government somehow take the money to the farmers, escaping the financial and political heavyweights? Most probably not!

It should rather become wiser with the disbursement mechanism as the farmers have been arguing. For example, if the government makes subsidy part of wheat price, which almost 90 per cent farmers grow, it can directly put money in their pockets. The farmers argue that if the government declares even 30 per cent subsidy on current price of Rs625 per 40kg, it would not need more than Rs20 billion for making the purchase.

During the recent procurement drive, the Punjab Food Department started the purchase with Rs40 billion and had a target of 4.3 million tons in mind. If the government had added 30 per cent of current price, which is around Rs200 per 40kg, as subsidy, it would have needed another Rs13 billion for purchase – less than half of subsidy, which it has declared now on DAP.

By doing so, it could not only have achieved its procurement targets and attainted the food security, but also had put money directly in farmers’ pockets. The government could not only have saved money on subsidy, it might have actually earned by procuring wheat from farmers at much lower rate, as compared to world price, and later exported it to high end markets where current price is more than double.

By doing so, the government could have provided incentive to farmers to grow maximum wheat and even brought those who do not, for any reason, grow wheat into growers’ net.

The system could be further refined by dividing the purchases into different slabs and declaring more subsidies on the lower slabs to benefit small farmers and progressively reduce the amount with increasing sale.

The government also could have controlled flour prices by releasing wheat to flour millers at a fixed price and curtailed market fluctuations.

Similarly, there have been voices in favour of subsidising agriculture loans or diesel supplies. A mechanism for both of them could be evolved by taking all stakeholders on board. But, unfortunately, that has not been the case. The government should leave the beaten track and think out of box.

Even if the government insists that by subsidising DAP, it could ensure that every bag of the fertiliser has price tag and date of import printed on it. Presently, the price of DAP is advertised in advance and every dealer has banners with price written on it.

The government should also ensure that 35 to 40 per cent of DAP, which is manufactured locally is not sold at the price of imported fertiliser.