Partial freeing of fertiliser prices leads to urea overdose

Subsidy cap on only non-urea fertilisers causes drop in use of these varieties

Ajay Modi / New Delhi Apr 09, 2012,
Source : Business Standard
It is not only petrol where consumption growth has fallen sharply after decontrol and regular price increases, leading to rise in diesel demand. With the government capping subsidy for fertilisers other than urea, consumption of both DAP (diammonium phosphate) and MOP (muriate of potash) is witnessing a rare drop, reacting to high prices.

Consumption of DAP has declined for the first time since 2002-03, while MOP consumption is estimated to have declined an unusual 28 per cent in 2011-12. However, consumption of urea, whose price continues to be outside the nutrient-based subsidy or NBS scheme, has increased, causing a mismatch in balanced fertiliser usage.

NBS was put in place from April 1, 2010, two months before the government decontrolled petrol prices. Under NBS, subsidy is given on the basis of the nutrients in the product — nitrogen, phosphorus, potash and sulphur — directly to farmers. This did away with the maximum retail price (MRP) at which fertiliser companies were to sell their produce.

Earlier, the MRP was fixed, while subsidy was floating; now, the subsidy has been fixed and MRP floats. However, urea continued to be under the MRP regime.

With NBS, the government was hopeful of more sensible use of urea. However, contrary to expectation, urea consumption continues to remain high. Urea is still the cheapest fertiliser available, as its price is capped and those of other nutrients rose after being decontrolled. As with diesel, urea decontrol remains a government intent.

“Since the reimbursement per kg of nutrient under the NBS mechanism is fixed, regardless of cost of production or import, companies have to recover anything above the fixed component from the farmers. By the time the NBS was announced and imports could be finalised, international prices went up sharply. We were caught in that cycle and due to higher international prices, there was no choice but to pass on the increase,” said Ajay S Shriram, chairman and senior managing director of DCM Shriram Consolidated Ltd.

Take the case of DAP. Prior to NBS, its prices to end-consumers were fixed at Rs 9,350 per tonne. Currently, it is Rs 20,300 per tonne, an increase of 117 per cent, thanks to global prices and a depreciating rupee. The country meets around 40 per cent of its fertiliser requirement through import, primarily in non-urea fertiliser and is self-sufficient in urea.

The price movement in the case of MOP is even sharper. Against the pre-NBS price of Rs 4,450 per tonne, the current price is Rs 12,040 per tonne, a rise of 170 per cent. However, urea prices have remained stable, after just one increase of 10 per cent under the NBS. Currently, it is Rs 5,310 per tonne. In fact, the urea price has seen just one increase in about a decade.

Shriram said the higher price under NBS has led to a mismatch in balanced fertiliser consumption. “Farmers are ignoring the desirable ratio and going for a higher ratio of urea. This is not healthy for the soil,” he said.

“It is the first time that time that such a sharp drop has been seen in consumption. High prices have triggered this phenomenon. Earlier, farmers were insulated from any price fluctuation. NBS has changed this,” said P S Gahlaut, managing director of India Potash, the country’s biggest MOP importer. He said the industry needed to step up its education programme to promote balanced use of fertiliser.