YAHAPALANA AND THE ECONOMY Part 13
Posted on August 12th, 2019

KAMALIKA PIERIS

SECTION 3 AGRICULTURE

FERTILIZER (1)

Auditor General’s Department has found that billions of rupees were erroneously credited to the bank accounts of persons who were not farmers under Sri Lanka’s cash transfer scheme for fertiliser and paid out towards untilled paddy lands instead of cultivated ones,  reported Namini Wijedasa in  May 2019.

The subsidy was introduced in 2006 under the Mahinda Chinthana to provide a hundredweight of paddy fertiliser at Rs 350 with the Treasury absorbing the difference. The objective was to raise production, to encourage more paddy cultivation by cutting input cost and to improve the living standards of the farmer community.

In 2016, the subsidy scheme was changed to a cash transfer system, ostensibly to make it more efficient. Farmers were instructed to provide bank account numbers into which money would be credited for fertiliser purchases. The paddy land registers of divisional Agrarian Services Centres were not updated, making it impossible to obtain the correct number of beneficiaries. Nevertheless, estimates were prepared on outdated statistics.

A computerised system was used for the disbursement of cash assistance before the 2017/2018 Maha season. Even under this program, Rs 4.8mn was overpaid to 985 farmers from the Alugolla Agrarian Services Centre which was sample tested. There are deficiencies even after the Rs 375mn facelift.

A circular pertaining to the 2017 Yala set the maximum payment receivable by a farmer for a single season at Rs 25,000. But sample tests found many cases of overpayment. That money could not be recovered.

The Auditor-General had carried out sample surveys in several districts. It found multiple instances of money credited to the accounts of non-farming beneficiaries during the 2016 Yala and 2017 Maha season. In the Bulathsinhala division, for instance, Rs 2.2mn was credited to 441 persons who were not the farmers. In Kalutara, Rs 6mn was paid to 1,170 ineligible persons. In Anuradhapura, 1,684 non-farmers received Rs 18mn. Similar instances were found in Galle and Badulla. During a sample test in 16 districts, the Auditor General also identified disbursements towards uncultivated paddy lands instead of cultivated ones. The amount thus squandered was Rs 1.1bn.

Further, financial assistance was not granted on time, severely inconveniencing farmers who must apply fertiliser at a specific time. There was a procurement fiasco that led to severe delays in fertiliser supply in 2017 and 2018. A total of Rs 5.4bn was paid after the required period of the 2016 Yala and Maha and the 2017 Yala seasons.

FERTILIZER (2)

It was initially planned to import 18,000 metric tonnes of urea for the 2017 Yala season under the accepted procurement procedure. The procurement method followed over three decades was unexpectedly shelved in favor of a new format that precluded equal participation by all suppliers.

instead of calling for bids from prequalified registered suppliers,  the Chairmen of the two State-owned fertiliser companies—Lanka Fertiliser Ltd and Colombo Commercial Fertiliser Company Ltd— decided to import fertiliser through open international bidding on ‘documents against acceptance’ (DA) terms. No reasonable explanation was given for the deviation.

When bids were called in November 2017, only Jat Holdings qualified for the contract to import 72,000 metric tonnes of prilled urea at US$ 327.40 per metric tonne. But the lab reports presented by Jat Holdings proved forged, resulting in the contract being canceled and the crisis emerged as time was running out. The company’s bid security of US$ 240,000 (Rs 42mn) has still not been confiscated.

.On December 11, 2017, the Agriculture Minister, presented a Cabinet memorandum to deviate from procurement procedure and order 36,000 metric tonnes of prilled urea within seven days and without an appeals procedure; and to grant Treasury backing to the State-owned fertiliser companies to open Letters of Credit for the import. It also proposed that the Treasury reimburses the two enterprises in the case of a deficit caused by price fluctuations.

Of the two types of urea, the import price of prilled urea is higher than that for granular urea.  World market reports show that the free on board (FOB) price of granular urea ranged between US$ 206 and 240 a metric tonne at the time. As of December 14, 2017, the maximum price was US$ 240. Freight and other expenses amounted to US$30 a metric tonne. So, at the most, it should have cost the Government US$ 270 a metric tonne of granular urea. It remains questionable how Sri Lanka imported these stocks at US$ 316.20 a metric tonne, the Auditor General states, calling it an overpayment”. The difference in price was US$ 46.20. And the 54,000 metric tonnes were bought. It was more than the requirement. This amounts to a further uneconomical expenditure” of US$ 17,074,800 at US$ 316.20.

Cabinet approved the proposal and Agri Commodities & Finance FZE got the contract to supply the specified quantity of fertiliser before January 15, 2018, at US$ 316.20 a metric tonne. On the same day, however, a special Cabinet procurement committee annulled the decision.

On December 12, another Cabinet memorandum was submitted. It said that President Sirisena had ordered Ceylon Fertiliser to find a supplier. The paper sought to import 72,000 metric tonnes of granular urea, not the required prilled urea, outside accepted procurement procedure through Agri Commodities and Finance FZE from a port in the Middle East before December 28, 2017, at US$ 316.20 a metric tonne.

Cabinet approved the proposal subject to Treasury concurrence. This was never obtained, a query by the Auditor General revealed. And while the Cabinet memorandum had said Ceylon Fertiliser was told to find a suitable supplier, there was no evidence of such instructions either.

It is not known on what basis Agri Commodities was selected. And no reason was given for why 76,000 metric tonnes of low-priced granular urea was ordered at US$ 316.20 despite 36,000 metric tonnes of prilled urea having been earlier ordered for an identical price.

The delay which started during the 2017 Yala season dragged on till the 2017/2018 Maha season. Lapses in decision-making and procurement caused colossal” expenditure to the Government, the Auditor General states. In the end, fertiliser supply was declared an emergency and high-priced stocks were imported outside procurement procedure in quantities exceeding the requirement.

 To avert a full-blown crisis, Cabinet authorized an emergency purchase of urea at a price much higher than world market rates. The loss to the Government — from paying US$ 46.20 more than the prevailing price for a metric tonne — was Rs 516mn.

The fertiliser requirement for the rest of the months of the Maha Season 2017/2018 was stated in writing to be 36,000 metric tonnes. But 72,000 metric tonnes were ordered. This, too, did not come within the mandated time period. Only 40,500 metric tonnes were received on January 08, 2018 while 32,000 metric tonnes came on January 15. The delay was around 10 days but seemed longer as the cultivation season had already begun, concluded Namini.

PEPPER

The Auditor General’s Department observed in August 2019 that the import of pepper from Vietnam, Indonesia and India under special tax concessions and at lower prices during the harvesting periods has depressed the price of pepper in the local market, while export demand has declined by 77 percent. Tax concessions had been granted for pepper imports without taking into consideration the harvest of pepper in Sri Lanka. AG recommended suspending the import of low-quality pepper to the country.

A surplus of pepper was observed in the local market due to increased imports and the price dropped. The price of black pepper at the local market was between Rs 1,200-1,400 per kilogram in 2015, the purchase price of black pepper remained between Rs 600-800 per kilogram in 2019.

Even though Sri Lanka has exported pepper to Vietnam in the past, pepper had been imported to Sri Lanka from Vietnam since 2016. The total volume of pepper imported in 2018 was 3.39 million kilograms. Eighty percent of that volume had been imported from Vietnam, Indonesia, and India. Pepper had been imported during the period from November to December and April to July, which are the harvesting seasons of pepper in Sri Lanka

Pepper imports have marked a significant increase whilst the pepper exports to the Western and Middle East countries, which pay higher prices, had marked a decline. The demand from 18 Western and Middle East countries for Sri Lankan pepper had marked a decline by 77 percent in 2016 compared to 2015 and again by another 40 percent in 2017 compared to 2016. It is necessary to win these markets again.

Hayleys Free Zone Pvt Ltd had imported pepper in bulk from Vietnam, using various tax concessions. It had thereafter, in 2018, re-exported 2.6 million kilograms of pepper.  Nearly 85 percent of the total pepper exports had been to India at lower prices. As a result, the local market for quality pepper dipped to a low of Rs 400- 450 a kg during the past three years.

There were mass street protests by pepper growers, o with the participation of UPFA parliamentarians at Pallebadda on Ratnapura – Uda Walawe Main road in 2017, and in many other places. We have 32291 hectares (78,000 acres) of cultivated pepper smallholdings, and 38 percent of them are in Matale and Kandy Districts. Sizes of smallholdings vary from 3.5 hectares to very small plots more than 100,000 families in the country benefiting from pepper cultivation, and they are affected by inferior pepper imports for reshipment, the protesters said.

Publicity has been given to one particular piece of export. 2800 tonnes of inferior quality black pepper imported from Vietnam has been transshipped to India, under the “made in Sri Lanka ‘ label in 2018,  by a  rogue, said one complainant.  Robberies of this nature are not possible without the blessings of politicians and big wigs in the state machinery. A single ‘parasite racketeer’ has earned Rs 1400 million by exploiting the tax benefit of 0%, for the first 2500 tonnes given to Sri Lanka, to benefit our pepper farmers, announced another. He is supposed to be a brother of a pole-vaulter minister, and it is well known that this Minister is hailed as a friend of the country, even by wild animals of Wilpattu.

TEA INDUSTRY

Tea factory owners are facing bankruptcy in the wake of low yields and poor quality products with some of them forced to close shop as well, said Sri Lanka   Tea Factory Owners Association   They were compelled to pay high interest. About 23 of around 531 proprietary owned factories had closed down due to bankruptcy and about 50 on the verge of collapse while about 12 have been put up for sale by the banks.

Factories were ridden with issues particularly due to the lack of crop as a result of which about 95 percent of them were running under capacity. Factory owners had also raised the issue that a minimum amount of Ceylon Tea is blended with teas imported from Darjeeling and Assam and CTC’s main grades for re-export in a bid to sustain the auction prices.

The factory owners wanted to be brought under the same category as exporters with regard to the Economic Service Charge (ESC). He pointed out that as manufacturers they were compelled to pay 0.50 percent whereas the exporters pay a reduced 0.25 ESC. The ESC payment was to be made for the total turnover but factory owners had to share 68 percent of this turnover with the smallholder and retain the balance. The Treasury should then ideally charge the factory owners only for their share of the earnings.

RUBBER INDUSTRY

Rubber factories owned by Sri Lankan plantation companies, were faced with the threat of bankruptcy as companies receiving BOI concessions had increased the import of liquid rubber, said President of Lanka Plantation and Mercantile Services Union, in April 2019. He said so while taking part in a demonstration organised by the employees of a rubber factory on Mirishena rubber estate, owned by Horana Plantation Company, protesting the decision to close down the factory. A large number of employees had been terminated. The factory usually produced about 2,500 kilos of crepe rubber daily. A large number of other factories would also be closed down in the future.

FALL ARMY WORM (‘SENA”)

In January 2019 it was reported the Fall Army Worm has been reported in all major maize growing areas in Sri Lanka and it was also affecting sugarcane cultivation and there was the fear that it may affect other crops, including rice. 

The Fall Armyworm (Sena) is still spreading across farming areas despite the government’s claim that the severity of threat was abating, All Ceylon Peasants Federation, National Organiser, told the media on February 2019.

The government insists that it has destroyed the pest. I have asked the Department of Agriculture officers to visit Ampara and find out whether the worm has not spread to new areas here. Nothing concrete has been done to eradicate it. The corn prices also dropped and the farmers will have to commit suicide as they did in the early 1990s.” He asked the government to increase the compensation paid to farmers affected by Rs. 75,000 per acre.

Distribution of compensation for farmers affected by the Fall Armyworm (FAW or Sena caterpillar) infestation commenced ceremonially in March  2019, beginning with the Ampara district.  Yahapalana announced that approximately 12,000 hectares of paddy as well as other crops were destroyed due to the infestation of the Sena caterpillar and the affected farmers will receive compensation of Rs. 40,000 per acre. The government has already allocated Rs. 250 million for this purpose and the compensation will be distributed by the Agricultural Insurance Board, 

One farmer said that it is obvious that this attack of the Fall Armyworm is a   biological attack and evidence has been received for farmers to prove it. There are many who are responsible for this. Some companies import seeds for a very low price. The Customs had not done its duty.

COWS FROM AUSTRALIA (1)

Ministry of Rural Economic Development had imported high- yielding pregnant milch cows from Wellard Rural Exports Pvt. Ltd., Australia. They had arrived in November 2017. These cows were imported as part of an initiative by the Ministry of Rural Economic Development. The Ministry had ignored the warnings given by the Department of Animal Production and Health that cows from Australia carried highly contagious and deadly diseases.

3,030 of these cows were distributed to 46  middle-scale dairy farmers around the country. Investors paid Rs. 200,000 per cow and the government contributed Rs. 265,000.  The dairy farmers were told that these cows would produce 20 liters of milk a day on average. They were advised to get rid of the Sri Lankan animals they already had.

the Presidential Commission of Inquiry into the corruption of the Yahapalana government was told that these cows carried the deadly Bovine Viral Diarrhoea (BVD) virus infection, which was new to Sri Lanka.  The cows also had fasciola hepatica (common liver fluke) a disease that had not been detected in Sri Lanka since 1973. Fasciola hepatica could affect humans as well.

These cows were in bad shape when they landed here, the dairy farmers said. A number of cows died, while a number of calves aborted or were stillborn. Dairy farmers had complained about the matter to the authorities.

They pointed out that BVD was known as the ‘dairy industry’s silent killer’ since cows carry BVD throughout their lives and infect others. In foreign countries, such animals are immediately killed. We also suggested that we follow similar procedures, but the government ignored the suggestion. The calves live in many of our farms. This is a threat to our dairy industry.

The government also failed to send the diseased cows back to the supplier. The Ministry was not prepared to ask Wellard to pay compensation nor was it prepared to obtain compensation from the Cabinet, complained to the farmers.

Many farmers testified that they were plagued by financial difficulties due to loans taken by them to take part in this government-subsidized scheme because the cows produce less milk than what was promised.

Kingsley Walter Senanayake, who had thrice won the award for the best milk farmer of Matale, yesterday, told the Presidential Commission of Inquiry  probing corruption in the current administration that he was plagued by financial difficulties due to loans taken by him to take part in this government-subsidized scheme to introduce high-yielding imported pregnant cows, in 2017. I took part in the project because of the assurances given by the Ministry but now I am in debt. I had never been in debt before.”

. “We were assured by the Ministry of Rural Economy, that the Ministry would ensure that the farmers received cattle feed at a concessionary rate of Rs. 40 a kilo and that steps would be taken to procure the milk produced at a higher price. However, we were never given subsidized cattle feed and I soon discovered that I was making a loss.” Senanayake said that he had bought 16 cows and six of them had died. 

Senanayake said that it cost him about Rs 30 to 35 to produce a liter of milk from local milch cows and it fetched about Rs. 65. “To maintain a local milch cow, on average, I spend about Rs. 350 a day and I can earn about Rs. 603 daily. For an imported cow given to me by the Ministry, I have to spend about R. 1,100 per day but I can make only about Rs. 1,088. This is when they produce the most amount of milk.” The imported milch cows consumed about 10 kilos of cattle feed a day and that alone costs over Rs. 600.

He had drawn a loan of Rs. 10 million from the Commercial Bank to finance the project and since the project had been a complete failure he had not been able to pay back the loan for eight months. The bank keeps telling me that it would sell the land I mortgaged as it wants to recover the loan.

Wellard Rural Exports Pvt. Ltd. Australia and its local agent Foresight had provided the plan for constructing cattle sheds to all farmers who took part in the project regardless of the climate and geography. “Wellard assured that they would provide medical facilities for two years. But these cows died between 8 and18 months and I feel that if they had responded on time when I complained, some of the cows could have been saved.

COWS FROM AUSTRALIA (2)

There have been five investigations into the matter.  First, the Ministry appointed a committee to evaluate the phase I of this cow scheme. That was not to inquire into the disease issue but to move on to phase II of the project. The committee met in January, February, and March and prepared the report. The team only visited six farms, out of 66, before preparing their report. On receiving the reports, the government then paid an advance to import another batch of 15,000 cows.

Questioned by the Presidential Commission of Inquiry the chairman said did not possess any minutes of the meetings or a list of farms the committee had visited. The committee had visited six farms. He could remember the names of two owners. , but I can’t remember the names of the owners of other farms I visited’. He also said that he wasn’t sure how many cows he had observed.

This Committee told the Presidential Commission of Inquiry that they had found the cows to be weak, but they had not taken into consideration whether the animals suffered from serious diseases. When asked by the Commission about the possibility that the cows were weak because they were suffering from the disease the chairman said, “I don’t know. I don’t know about diseases. Checking diseases is not my specialty.”

The main problem according to the investigating committee, was the feed. “The main issue was food. Farmers thought they could give feed that they give to local cows. But these imported cows weigh about 400 kilos and need about 50 kilos of feed. Most farmers were not educated on the need to grow grass or to stock feed. We could see that the cows were not getting enough feed by looking at their bodies.

 The second issue with the cows,  said the committee,  was that farmers hadn’t done enough to place the cows in a climate similar to where they came from. He added that the sheds built for cows were not suitable.  However, they had been built according to a design provided by Foresight, Sri Lankan agent for Wellard.

The second investigation was by the government Veterinarians. They conducted their own inquiry and they too gave evidence before the Presidential committee. They, however, knew about disease and informed the Committee  “Our officers kept tabs on those animals and they found several cows with  BVD when they commenced investigations. Soon after they found live eggs of fasciola hepatica in cow dung”.

The Vet dept of the Ministry, made inquiries and  it then emerged that the Chief Veterinarian Officer of Australia  had informed  his Director of Animal Production and Health  that the animals sent to Sri Lanka, were from a farm that had been free from BVD for one year, but on November 22, 2017, a lab report showed that 21 cows had been infected with BVD. They delayed sending the report to the Sri Lankan officials, Chief Animal Quarantine Officer, Sri Lanka got this report only on January 10, 2018, and Director,- Livestock Planning and Economics saw this only two weeks later.

The Vets said that it was clear that Wellard had been aware of the lab report before shipping the cows to Sri Lanka because they had removed the cows diagnosed with BVD from the shipment. However, the cows which had been with them were sent. “It was the responsibility of Wellard to send Sri Lanka healthy cows.  The Ministry could have taken action. “Unfortunately nothing happened.”

Further according to the relevant quarantine  Act,  every animal imported to Sri Lanka shall be subject to quarantine for a minimum period of thirty days. While usually they were held in one designated location, in this case, the cows were sent to various farms across the country, before the end of the quarantine period. This kind of thing has never happened before”.

The third investigation came from Australia. A team of auditors from Export Finance Australia arrived in Sri Lanka in July 2019 to conduct an independent assessment at the farms that took in milch cows.  They selected 15 farms out of 67. The local dairy farmers said the Australian team had visited some farms and attempted to find fault with farming practices there.

Fourthly, the Presidential Commission of Inquiry investigating corruption in the current administration, announced in July 2019  that they will commence an inspection tour of farms which have got 3,030 substandard imported Australian cows from the government. They will also inquire into claims that the cows are suffering from Bovine Viral Diarrhoea (BVD), hitherto not found in Sri Lanka.

Lastly, Minister of Public Reform and Public Distribution Dr. Harsha de Silva dismissed allegations that the government had distributed 3,030 substandard imported Australian cows among 46 investors and dairy farmers in 2017. The Minister said, in July 2019, that he had visited several farms on his way to Sri Pada. He said he could not recall the names of the farms he visited, but on one farm, a farmer got nearly 40 liters of milk each per day from the cows imported from Australia”. But on some farms, the cows were in pretty bad shape. My conclusion is that farms that were able to maintain the cows properly, got bigger yields than those which were not properly maintained, he said.  ( CONCLUDED)

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