Nutrient prices: Non-starter of a cut

Fertiliser makers rule out reduction in DAP rates, despite exhortations from Centre.

Written by Harish Damodaran | New Delhi | Updated: July 7, 2016 9:42 am
DAP is the second most consumed fertiliser after urea. Unlike the latter, only about 40 per cent of it is produced domestically. DAP is the second most consumed fertiliser after urea. Unlike the latter, only about 40 per cent of it is produced domestically.

Union Chemicals and fertilisers minister Ananth Kumar has stated that companies have “agreed” to slash maximum retail prices of non-urea fertilisers like DAP (di-ammonium phosphate) and MOP (muriate of potash) by Rs 2,500 to Rs 5,000 per tonne, even as plantings for the ongoing kharif season have picked up on the back of a good monsoon.

But it seems that apart from the state-owned National Fertilisers Ltd (NFL) and Rashtriya Chemicals & Fertilisers (RCF), no manufacturer is showing any intent to reduce prices, as of now. A cross section of fertiliser firms The Indian Express spoke to ruled out any price cuts, on grounds that the current margins simply did not allow them to do so.

“Landed costs of imported DAP have, no doubt, come down by about $50 to below $350 a tonne in the last 3-4 months. But the entire gain from this Rs 3,400/tonne price decline has been pocketed by the government, in the form of subsidy savings,” said a domestic manufacturer, who did not wish to be identified.

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For 2016-17, the Centre has fixed the concession/subsidy it pays for DAP, whether imported or locally produced, at Rs 8,945 per tonne. This is Rs 3,405 less than the Rs 12,350 per tonne concession rate fixed for the previous fiscal. The fixed subsidy payable on “10:26:26:0”, “12:32:16:0” and “20:20:0:13” — popular complex fertilisers containing varying proportions of nitrogen (N), phosphorous (P), potassium (P) and sulphur (S) — has correspondingly been reduced by Rs 1,924, Rs 2,347 and Rs 2,044 per tonne, respectively.

“Neither farmers nor companies have benefited from falling global prices. We have no problem with all the gains accruing to the government, but it cannot simultaneously also ask us to slash prices. If the government wants farmers to benefit, it could have at least retained the subsidy at the 2015-16 levels and we would have passed that on through reduced MRPs,” the earlier quoted manufacturer added.

Ananth Kumar, on Monday, claimed that companies have “agreed” to cut the MRP for DAP by Rs 2,500 per tonne and that for MOP by Rs 5,000 “with immediate effect”.

“The fact is that we had already cut these for DAP and NP/NPKS complexes by Rs 1,000 per tonne. The Indian Farmers Fertiliser Cooperative did it first on May 25 and others followed suit in June. Indian Potash Ltd (IPL), similarly, reduced MOP prices by Rs 1,000 per tonne from June 1 and by another Rs 4,000 on June 27. How can we bring down MRPs by a further Rs 2,500-5,000?” another industry representative pointed out.

According to him, any move to force down retail prices will “kill” the industry.


At $350 per tonne and 5 per cent basic customs duty plus stevedoring, bagging, wharfage and various incidental charges, the cost of imported DAP at the port itself comes to nearly Rs 26,500 per tonne. Adding to these warehousing, handling, freight, financing, dealer margins and selling expenses takes the total cost to Rs 29,500 or so per tonne. Subtracting the subsidy of Rs 8,945 would permit companies to sell at Rs 20,500, where they make no profit or loss. The present MRPs of Rs 22,700-23,700 enable a decent margin on imported DAP — provided, of course, firms receive the subsidy from government on time, which isn’t the case.

But the margins are way lower for domestic manufacturers, who use imported phosphoric acid and ammonia (0.47 tonnes of phosphoric acid and 0.223 tonnes of ammonia for producing one tonne of DAP). At current landed prices of $600 per tonne for phosphoric acid and $379 per tonne for ammonia, the total cost of sales — after adding 5 per cent customs duty, bagging, freight, interest, dealer margins and other expenses — works out to almost Rs 30,900 per tonne. Netting out the subsidy of Rs 8,945 translates into a no-profit, no-loss price of around Rs 21,950, which the existing MRPs just about cover.

“If MRPs are to be cut further by Rs 2,500 per tonne, it would mean shutting down our units and ‘Make in India’ giving way to ‘Import from China and Saudi Arabia’,” observed a leading domestic DAP and complex fertiliser maker.

DAP is the country’s second most consumed fertiliser after urea. Unlike the latter, only about 40 per cent of it is produced domestically and the balance imported. MOP is completed imported, with about half of it being used for direct application and the rest for manufacturing NP/NPKS complexes.

“The MRP of DAP could be brought down only because we managed to get some phosphoric acid suppliers like Israel Chemicals to reduce their price to $600 per tonne, from $715 levels during January-March. There are a few, mainly OCP of Morocco, still unwilling to supply at $600/tonne,” informed an industry source.

A similar situation prevails in MOP, where IPL successfully negotiated with Belarusian Potash Company to agree to a price of $227 per tonne, cost & freight India, late last month. This was as opposed to the $290 per tonne price being charged by others, including Russia’s Uralkali and the American trading consortium Canpotex.

“IPL immediately passed on the benefits from the lower contracted price. While it is true farmers have not gained from falling global prices, the industry is not to blame for that. If the government wants lower MRPs, it should restore the earlier subsidies or at least do away with the 5 per cent customs duty on phosphoric acid and ammonia, which will also support Make in India,” the source pointed out.

As things stand, no major DAP and complex fertiliser company is in any mood to lower MRPs. NFL and RCF, which have actually agreed (as government companies, they have little choice), are primarily urea manufacturers. The two companies have recently imported about 86,000 tonnes of DAP, which is a fraction of India’s 10 million tonnes annual consumption of this fertiliser. “We saw reports about the government slashing DAP prices by Rs 125 per bag (of 50 kg), but the dealers here tell us that they have received no such communication from the fertiliser companies,” complained Pritam Singh, a farmer from Urlana Khurd, a village in Haryana’s Panipat district.

His disappointment summed it all.

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