Why the fertilizer subsidy should be removed: key factors that actually derive the fertilizer demand in paddy sector of Sri Lanka

This paper examines the factors affecting demand for fertilizer in paddy production in Sri Lanka. A panel-data analysis (1990-2011) reveals that demand for fertilizer is negatively affected by the price of fertilizer and the price of seed paddy and positively by the price of labour. Despite strong demand for fertilizer in commercial paddy production, the impact of the subsidy on demand is low. Results indicate that mechanization will prevent overuse of fertilizer and a seed paddy subsidy will ensure self-sufficiency in rice production. We recommend that the fertilizer subsidy be removed from non-commercial areas in the short-term and from commercial areas in the long-term.