SUKOHARJO/JAKARTA, Indonesia (Reuters) - Millions of dollars worth of subsidized fertilizers meant for small Indonesian farmers are being sold to big plantations, such as palm oil and rubber, at huge profits by state-backed retailers, a government report viewed by Reuters shows.

Farmers prepare rice seedlings for replanting in a village in Sigi regency, Central Sulawesi, Indonesia on January 26, 2016 in this photo taken by Antara Foto. REUTERS/Basri Marzuki/Antara Foto

A shortage of cheap fertilizers at a time when an El Nino weather event is threatening harvests could hurt food supplies in Southeast Asia’s largest economy, scuppering President Joko Widodo’s self-sufficiency targets that are already under pressure due to rampant corruption in the farm sector.

According to the yet-to-be-published government report, parts of which were seen by Reuters, as much as 30 percent of subsidized fertilizers were misallocated in some areas of Indonesia last year.

Investigators with the ombudsman found subsidized fertilizer being sold at as high as 2,500 rupiah ($0.1854) per kg in 2015, around 40 percent above the state-set price but below the non-subsidized 4,200 rupiah that plantations must pay.

“The kiosks are selling fertilizer to plantations and not to the small farmers,” said an investigator, who declined to be named as the report, based on data from five key rice-growing districts on three different islands, had not been finalised.

Disorderly distribution and scant oversight have also allowed many of the country’s 44,000 state-approved farm retailers to collude amongst themselves to sell subsidized fertilizers at higher prices, the investigator added.

Suwandi, head of the information and data center at the agriculture ministry, said: “Basically, we do not tolerate any discrepancy in the field. It probably happened case by case, but we encourage local governments to strengthen supervision.”

“In 2015, there were 40 cases processed by law enforcement. It is better now. Before farmers were complaining about fertilizer scarcity, now not as much.”

Hasil Sembiring, the ministry’s director general of food crops, also said he had not heard of any problems in distribution this year.

“If it happens, please report it as soon as possible and if possible please report where it happened and when,” said Sembiring, who is in charge of monitoring crop production and in contact with farmers on issues such as fertilizer distribution.

Some farmers, however, say the situation this year remains pretty much the same as in 2015.

“We are only getting about half of our subsidized fertilizer,” farmer Setyarman told Reuters via a translator at his home in Sukoharjo, Central Java - a rice-producing region.

“Distributors and retailers hold on to their stock and when there is a scarcity they sell it at higher prices that most small farmers can’t afford.”

In Sukoharjo alone, at least $1.58 million of subsidized fertilizers did not make it to their intended beneficiaries in 2015, according to the report.

LIMITED SUCCESS

The subsidized fertilizer scheme is Indonesia’s biggest farm support program at 30.1 trillion rupiah, accounting for around half of this year’s agriculture budget. It allows only small farmers with 2 hectares or less of land to buy government-supported fertilizer at below-market prices.

But its success has so far been limited as evident from the fact that annual rice crop output has held at around 36 million tonnes since 2011 despite a 60 percent jump in subsidies.

In fact, last year local rice prices rose 13 percent, versus a 16 percent drop in the Asian benchmark, partly due to the misallocation of subsidized fertilizers. Around 74 percent of Indonesia’s 14.14 million rice farming households own less than 1 hectare of farmland, statistics bureau data shows.

State-owned fertilizer company, PT Pupuk, has tried to resolve distribution problems by making subsidized products pink so they are easy to identify, but experts say retailers can easily wash or mix the products to make them the normal white.

“We work hard to prevent the subsidized fertilizer from going into the wrong hands,” said company spokesman Wijaya Laksana. “But ... we simply can’t work alone to prevent this from happening again. We need help from local authorities.”

Subsidized fertilizers are produced by state-owned firms in volumes that are determined by parliament with inputs from farm groups. This is sent to 2,485 distributors and 274 farm cooperatives, who with the help of government officials then decide how much is to be distributed to the 44,000 retailers.

In Sukoharjo, an employee at government-approved distributor Subur Makmur said retailers were hiking prices of subsidized fertilizers to cover “operational costs”.

For rice farmer Setyarman, the increasing cost of fertilizer means fending for himself to ensure a good harvest. “Our only alternative now is to use organic fertilizer that we make ourselves.”