Fertilizer Subsidy Payments
The $25 billion that the USDA allocates to fertilizer subsidy payments does not always reach its intended effect, with frequent misallocation, delays, and inefficiencies.
Subsidies drive much of the agricultural industry, with the US spending roughly $30 billion a year on subsidies and the EU spending $100 billion. However, this spending is not nearly as efficient or well-distributed as they should be.
Context & Challenges
Fertilizer subsidies are particularly important to the smallholder farming economy, in fact without them, it’s likely that many if not most smallholder farms would fail.
India budgeted $700.8 billion rupees, nearly $10 billion on fertilizer subsidies alone for 18/19, a number they exceeded by at least $4.2 billion and that was intended to support their huge smallholder farmer economy and their massive fertilizer industry. Worldwide, there are more than 500 million smallholder farms, supporting more than 2 billion people, and producing 80% of the food eaten in Sub-Saharan Africa and Asia.
Being able to feed the world’s growing population is contingent on the productivity and success of these farms, with many of their operations also being inherently more sustainable than larger commercial farms. As such, the effective distribution of subsidies is inherent to the success of the agricultural industry. The discrepancy between India’s proposed and actual budget begins to point to the unfortunate fact that currently, these subsidies are not meeting their full intended effect.
Despite the sums at hand, subsidies do not always reach their intended effect, experiencing the below challenges among others. They are often delayed by months, and lack of transparency and automation can misallocate them, with some farmers receiving double the allocated amount and others receiving none. The processes of deciding eligibility and tracking utilization are based on incomplete data, meaning that the entire process is marred by inefficiency. Moreover, the number of documents at hand and the number of parties along the distribution chain often results in a siloed and misleading picture of the situation, with not all parties having access to all data in a timely and accurate manner. The below statistics demonstrate the effect of these challenges.
- Subsidies tend to be disproportionately allocated to larger farms – in 2016, small family farms accounted for 90 percent of all farms, but received just 27 percent of commodity payments and 17 % of crop-insurance indemnities
- The Dept. of Agriculture admitted to $3.7 billion in “improper payments” processed since 2004
- The Internal Revenue Service reported that in 2011 $1.1 billion was paid to 172,801 deceased farmers over a six-year period
- One out of four dollars in farm subsidies flowed to recipients who made $250,000 or more annually
Lengthy payout delays lead to planting and harvesting delays, causing farmers to produce smaller yields and incur a myriad costs.
- The Industry
If subsidies are not allocated efficiently, producers cannot always meet demand which inherently limits the industry’s productivity as a whole.
- Government Bodies
Government bodies like the USDA are responsible for subsidies, and for budgeting appropriately for them. If, as was in the case of India, the budget does not meet its goals, then this can have a host of adverse effects.
Taxpayers pay around $234 a year towards agricultural subsidies, on average, some of which might be a sunk cost if subsidies are inefficient.
The Good News
STRATO promises to streamline the delivery, management, and utilization of fertilizer subsidies to augment their effectiveness.
- Consolidating all documents in a single distributed ledger drives efficiency, builds a holistic data-driven picture of the process, and improves communication between parties
- Automatically execute subsidy terms through smart contracts to ensure that the subsidy reaches its intended recipient.
- Reduce delays from 2-3 months to 3-4 weeks
- Build transparency to detect fraud and undue interference
The total of these benefits has motivated India to implement a blockchain system to assist their subsidies system.
- Automatically collect data on applicants and distribution to build oversight
- Implant a subsidy’s logic in a smart contract and automatically trigger execution when an applicant meets certain terms
- Verify the identity of applicants and the movements of a subsidy to minimize fraud
- Create a transparent record of all events to build consumer and taxpayer confidence and trust in the system
Any STRATO insurance solution leverages STRATO’s enterprise-grade features
- RESTful APIs for direct connection of IoT devices to the blockchain network
- Identity Management, OAuth and SSO capabilities for simplified IoT authorization and user login
- Privacy via private chains to keep any competitive/operations data private
- Enterprise Data Modeling for integration of existing and future subsidy calculation models