Nutrient Facts: Crash in global fertiliser prices bring little gains to Indian farmers

MRP paid by farmers in India for DAP (exclusive of taxes) has remained practically flat at Rs 20,000 per tonne. It actually rose as high as Rs 26,500 per tonne in 2012-13 and hovered around Rs 24,000-25,000 in the next three years, before settling at current Rs 20,500 levels.

Written by Harish Damodaran | New Delhi | Updated: July 13, 2017 7:36 am
global fertiliser prices, fertiliser prices, international oil prices, crude oil price, petrol price, diesel , indian express news, india news, business news, economy One measure of the gains to the exchequer from benign global prices, whether for oil or fertilisers, is the effective subsidy outgo. (Source: Pixabay)

Indian consumers, we know, haven’t really benefitted from the crash in international oil prices over the last three years and more. Between May 26, 2014 — when the present government took over — and now, the average price of crude imported by domestic refiners has plunged from $ 108.05 to $ 45.64 a barrel. The same period, however, has seen no corresponding reduction in the retail prices of petrol (from Rs 71.41 to Rs 63.93 per litre) and diesel (from 56.71 to Rs 54.74 per litre) in Delhi. The main reason for it has been the simultaneous increase in the specific excise duty on both petrol (from Rs 9.48 to Rs 21.48/litre) and diesel (from Rs 3.56 to Rs 17.33/litre). The revenue gain to the exchequer from the additional levy, taking annual consumption at 3.2 crore kilo-litres of petrol and 9 crore litres of diesel, comes to over Rs 162,000 crore a year.

But oil isn’t the only commodity where the benefits from lower global prices have not been fully passed on to consumers. Less well-known is the story of fertilisers, where the decline in international prices, as the accompanying table shows, goes back to even before the Narendra Modi government assumed office.

Since 2011-12, the average landed cost of di-ammonium phosphate (DAP) at Indian ports has fallen from over $ 650 to about $ 370 per tonne — a dip of 43 per cent in dollar terms or 23 per cent after factoring in the rupee’s weakening. But the maximum retail price (MRP) paid by farmers in India for DAP (exclusive of taxes) has remained practically flat at Rs 20,000 per tonne. It actually rose as high as Rs 26,500 per tonne in 2012-13 and hovered around Rs 24,000-25,000 in the next three years, before settling at current Rs 20,500 levels.

In the case of muriate of potash (MOP), the MRP at Rs 11,000 per tonne now (excluding taxes) is below the average Rs 12,000-plus for much of 2011-12. Like for DAP, its retail prices peaked at Rs 24,000 per tonne during October-December 2012 (when the United Progressive Alliance was in power), before easing to below Rs 18,000 by 2013-14 and Rs 15,000 in 2015-16, and further to Rs 11,000 towards July last year. But this overall decline (from Rs 12,000 to Rs 11,000 a tonne) is still nowhere compared to the halving of global MOP prices (a one-third fall in rupee terms) since 2011-12.

Why have lower world prices — of nutrients as well as inputs/intermediates such as ammonia, phosphoric acid and sulphur — not translated into cheaper fertilisers for farmers? The answer is simple: Just as for oil, the gains from the global price decline have primarily been pocketed by the government. While in oil, that has happened through higher taxes, in fertilisers, it has taken the form of subsidy savings.

Between 2011-12 and 2017-18, the per tonne subsidy on DAP – the concession paid to manufacturers and importers – has come down from Rs 19,763 to Rs 8,937, and from Rs 16,054 to Rs 7,437 for MOP. A similar subsidy rationalisation, to the extent of 50 per cent or more, has happened in single super phosphate and complex fertilisers containing varying proportions of nitrogen, phosphorus, potash and sulphur.

Read | Goods and Service Tax: A bad deal, say fertiliser makers

Simply put, the real beneficiary of lower international prices of both fertilisers and intermediates — landed costs of phosphoric acid and ammonia today are $ 567 and $ 241 per tonne, as against their respective highs of $ 1,080 in October-December 2011 and $ 825 in October-December 2012 — has been the government, rather than farmers or even the industry.

The story isn’t markedly different in urea, the country’s most subsidised and widely-consumed fertiliser. Imported urea is at present landing in India at below $ 210 or Rs 13,550 per tonne. Although higher than the MRP of Rs 5,360 per tonne for non-neem-coated urea, the wedge between the two has considerably narrowed down since 2011-12. At that time, the MRP for urea was Rs 5,310 (marginally lower), while the imported material was landing at an average of $ 475 or Rs 22,678 per tonne (substantially higher). The reduced gap has again meant significant subsidy savings for the government.

One measure of the gains to the exchequer from benign global prices, whether for oil or fertilisers, is the effective subsidy outgo. In 2012-13, the Centre’s petroleum subsidy bill amounted to Rs 96,879.87 crore. That, in turn, could fund only part of the estimated ‘under-recoveries’ of Rs 161,029 crore on petro-product sales by oil marketing companies. In 2016-17, under-recoveries were just Rs 22,738 crore, with the Centre’s petroleum subsidy at Rs 27,531.71 crore. And the additional tax revenues being generated from petrol and diesel today far exceed any subsidy given on LPG and other oil products.

As for fertilisers, the fall in international prices has basically helped cap the Centre’s subsidy outgo on this account at Rs 70,000 crore since 2011-12. The subsidy on non-urea fertilisers has, in fact, come down from Rs 36,088.58 crore in 2011-12 to Rs 19,000 crore in 2016-17. While the urea subsidy has risen from Rs 33,924.12 crore to Rs 51,000 crore, it isn’t alarming considering that domestic retail prices have hardly been raised over these five years and more.

Net-net, for the farmer, there has been no loss, but no gain either from lower global prices. For the government, though, there has only been gain. And real gain.

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