Tuesday, February 23, 2010

Remember

Lobbying is really just free speech.

In 1967, then-Prime Minister Indira Gandhi imported 18,000 tons of hybrid wheat seeds from Mexico. The effect was miraculous. The wheat harvest that year was so bountiful that grain overflowed storage facilities.

Those seeds required chemical fertilizers to maximize yield. The challenge was to make fertilizers affordable to farmers who lacked the cash to pay for even the basics—food, clothing and shelter.

Back then, giving cash or vouchers to millions of farmers living all over India seemed like an impossible task fraught with the potential for corruption. So the government paid subsidies to fertilizer companies, who agreed to sell for less than the cost of production, at prices set by the government.

The subsidies were designed to make up the difference between the production price and sale price—and to give the producers a 12% after-tax return on any equity investment.

Fertilizer manufacturing companies sprang up around the country. Nagarjuna Fertilizers & Chemicals Ltd. became one of the most profitable publicly listed companies in India.

In 1991, with the cost of the subsidy weighing heavily on India's finances, Manmohan Singh, then finance minister and now prime minister, pushed to eliminate it. Most fertilizer companies lobbied fiercely to retain the program. Many legislators also resisted ending the subsidy, fearing a backlash from farmers.

"The business interests lobbied and the business interests prevailed," says Ashok Gulati, the director in Asia of the International Food Policy Research Institute, a Washington-based think tank, who was involved in the policy discussions at the time. A last-minute compromise eliminated the subsidy on all fertilizers except for urea.

"That's when the imbalanced use of fertilizers began," says Pratap Narayan, ex-director general of the industry group, the Fertilizer Association of India.

Or at least that's what Socrates said just before he hit the hemlock.

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