Land use changes and economic effects of alternative fertilizer policies: A simulation analysis with a bio-economic model for a Tank Village of Sri Lanka

Abstract

CONTEXTUntil May 2021, the policy regime of the Government of Sri Lanka was to import and provide chemical fertilizer at subsidized rates to small-holder farmers. On May 6, 2021, the government imposed a ban on import of chemical fertilizers and subsidy was directed to organic fertilizers. Due to heavy protests by the farming community, the import ban was lifted in November 2021. By that time, fertilizer prices in the world market had sharply escalated making chemical fertilizers quite an expensive source of nutrients. OBJECTIVEThe objective of this paper is to assess the implications of different fertilizer policy scenarios on land use, profitability, shadow prices of resources, and environmental damages in paddy, maize and vegetable- based cropping systems in the Dry Zone of Sri Lanka. METHODA bio-economic model was developed and simulated for five policy scenarios for the Mahakanumulla tank village in the Dry Zone of Sri Lanka demonstrating (i) conventional agriculture, (ii) enhanced availability of organic fertilizers, (iii) removal of subsidy on chemical fertilizers, (iv) premium prices for chemical fertilizer free produce, and (v) a composite shock accommodating (ii), (iii) and (iv) above. The above simulations were run “with” and “without” water constraints to depict tank village systems and similar systems under major irrigation schemes respectively under varying limits of chemical fertilizers. Paddy, maize and vegetable, cultivated using two technologies, i.e., intensive use of chemical fertilizers and intensive use of organic fertilizers, were taken as decision variables. RESULTS AND CONCLUSIONSThe results of the analysis showed that under the conventional agriculture scenario, paddy and maize cultivation was the preferred choice for profit maximizing farmers in the tank village. When chemical fertilizers were restricted, farmers abandoned paddy and maize cultivation. Chemical fertilizers were available in sufficient quantities, even without a subsidy, profits reduce only by 13.56%. Maximum returns from crop cultivation were reaped when chemical and organic fertilizers were available in sufficient quantities and a premium price for products cultivated with organic fertilizers is secured. The cost of restricting chemical fertilizer application is severe in agricultural systems where water is abundant. SIGNIFICANCEA policy environment that secures markets for chemical fertilizer free food products is needed to make cropping systems more financially and environmentally sustainable. Stringent restrictions on quantity limits on chemical fertilizers use can affect profitability of cropping systems with no significant gains in environmental quality.