Tax reform reduces use of agri-inputs in Nicaragua

The 2019-2020 agricultural crop was developed with less fertilizers and fewer agrochemicals. At least 220,000 quintals of fertilizers, which are key to raising yields, stopped reaching the agricultural fields of Nicaragua as a result from the impact of Tax Agreement Law reform, said Mario Hanon, vice president of the Nicaraguan Association of Formulators and Agrochemical Distributors (Anifoda).

 

Agri-input prices skyrocketed with the tax reform, which entered into force on February 28, 2019. Fertilizers increased up to 17% and agrochemicals between 20 and 30%, said Anifoda. The effects of the low usage of these products will be felt this year, Anifoda warned.

 

"The main reason why sales fell was because of the tax reform; the reform was approved in February and the agricultural cycle starts between April and May, the reform then affected the entire cycle," said Hanon.

 

The representative of Anifoda estimates that on average, there was a fall of 11% in the sale of agrochemicals and 5% in fertilizers. "It is important to note that as the reform affected agrochemicals more, the fall in sales was greater than that of fertilizers," he said.

 

And although sales declined due to the reform, the industry did not report a drop in revenue. In 2019, the total sales of the industry generated US$220 million, similar to the revenue obtained in 2018, but this is due to price increases that would have compensated for the reduction in volume.

 

The price increase was due to an increase in the tax burden or the elimination of exemptions, that is to say that a large part of the revenue collected from sales will be transferred to the treasury.

 

Anifoda pointed out that the increase in agri-input prices had a strong impact on coffee and peanuts, the key agro-export products.

 

Coffee was the most affected crop, according to Anifoda's records, as this sector stopped buying 8,000 tons of fertilizers in 2019, which will have a negative effect on the 2020-2021 cycle.

 

And by having lower fertilization and agrochemicals in coffee, there could be a stronger outbreak of rust or other diseases because the plantations become prone to diseases.

 

Also, Hanon said that this year, the sales of agrochemicals and fertilizers would be expected to remain the same as last year and this could only get worse if there is another tax reform introduced, which he believed was unlikely to occur.

 

The Ortega regime last year implemented an aggressive tax reform in the search for $300 million to address the fall in tax collection as a result of a two-year recession. The reform involved removing tax benefits from productive activities and created a more cumbersome mechanism for producers, but not importers, to access exemptions.