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The state’s move to slash fertilizer subsidies next year by 35 percent will drive an increase in retail fertilizer prices but farmers will get some relief from a rise in the price the government pays for rice, the Coordinating Ministry for the Economy announced on Friday.

The ministry’s deputy for industry and trade, Edy Putra Irawadi, said prices for subsidized urea fertilizer would rise by 50 percent at most, with an overall price rise of 40 percent. The House of Representatives had called for a 100 percent hike as part of a program to boost domestic fertilizer production.

According to next year’s state budget, the fertilizer subsidy will be cut to Rp 11.3 trillion ($1.2 billion) from Rp 17.5 trillion this year.

Agriculture Minister Suswono said on Friday that subsidized fertilizer prices needed to be hiked because the last increase was in 2006. “It has been three years since the last increase,” Suswono said, adding that the fertilizer price rise would be followed by an increase in rice prices to compensate farmers.

Suswono disagreed with Edy’s estimation of the price hike, saying the government would raise the price for urea fertilizer as much as 30 percent from Rp 1,200 to Rp 1,560 a kilogram.

To help compensate farmers for the fertilizer hike, the price for rice that will be bought by the National Logistics Agency (Bulog) will be raised 10 percent from Rp 4,400 to Rp 4,840 per kg. Suswono said the increase would allow small-scale farmers to continue to profit on rice crops.

On the program to revitalize state fertilizer producers, Edy said six factories would be built next year. PT Pupuk Kalimantan Timur has committed to build five new plants and PT Pupuk Sriwidjaja will construct one. These new plants will consume less gas per ton of fertilizer produced. At present, some facilities consume 24 million British thermal units per ton.

The Industry Ministry’s director general for agriculture and chemical industries, Benny Wahyudi, said the fertilizer firms would fund the expansion through commercial banks rather than direct government aid.

“The government will take part by providing a maximum 30 percent tax cut on corporate income levies for six years in order to help attract investors,” Benny said.

Hidayat Nyakman, president director of Pupuk Kaltim, said fertilizer producers would follow the government’s directive on prices. “If they say we can only raise fertilizer retail prices by less than 50 percent, we’ll obey.”

Minister of Industry MS Hidayat said last week that fertilizer producers’ chief demand from the state was not funding but a stable supply of gas.

“Our main problem is the gas supply. We have spoken to [upstream energy regulator] BPMigas about this but we haven’t gotten a response,” Hidayat said. “It doesn’t matter if the government won’t fund revitalization because we would get it from banks. But how will the revitalization succeed if we are still dealing with gas [shortages]?”