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Journalism of Courage
2022 saw global prices of fertilisers go through the roof, in the run-up to and post Russia’s invasion of Ukraine on February 24.
Those have since eased considerably. Landed prices of urea imported into India (cost plus freight) are ruling at around $550 per tonne, as against $900-1,000 average in November-January 2021-22, when global demand for food and plant nutrients surged with the lifting of Covid lockdowns by most countries.
Landed per-tonne prices have, similarly, come off their peaks for di-ammonium phosphate or DAP (from $950-960 in July 2022 to $690-700 now) and its intermediates/raw materials: Phosphoric acid ($1,715 per tonne in July-September 2022 to $1,175), ammonia ($1,575 in April 2022 to $900-975), sulphur ($500-525 in April-June 2022 to $180) and rock phosphate ($300-310 in October-November 2022 to $275).
Only prices of muriate of potash (MOP) have stayed elevated at $590 per tonne since the war’s start, more than doubling from $280 till November 2021. This isn’t surprising, given that Russia and its neighbouring ally Belarus together account for roughly 40% of global production and exports of MOP.
The cooling of international fertiliser prices tallies with movements in world food prices. The United Nations Food and Agriculture Organisation’s Food Price Index hit 159.7 points in March 2022. From that all-time high, the index — which is a weighted average of global prices of a representative basket of food commodities over a base period value, taken at 100 for 2014-2016 — has fallen for nine consecutive months. The December 2022 number of 132.4 points was below even the year-ago value of 133.7 points, and the lowest since the 129.2 points of September 2021 (see graph).
The opportunity
The easing of global fertiliser prices has enabled two things.
The first is to significantly improve overall availability: No major shortage of any fertiliser, except MOP, has been reported during the ongoing rabi cropping season. This wasn’t really the case in kharif 2022 and rabi 2021-22, when soaring international prices and the post-war supply disruptions had made it difficult for companies to contract imports of both finished fertilisers and inputs for domestic manufacture.
That situation has changed. Augmented fertiliser availability, coupled with good soil moisture conditions, has helped boost area sown under rabi crops, especially wheat, mustard, maize and masur (red lentil).
World prices cooling off should, secondly, translate into a reduction in the Centre’s fertiliser subsidy outgo. The Narendra Modi government had budgeted Rs 105,222.32 crore for 2022-23, but the actual outgo could touch Rs 230,000 crore, over and above the Rs 153,658.11 crore spent in the previous fiscal. Assuming no new geopolitics-induced supply shocks – the Modi government may not allow retail prices to farmers rise in a year leading to national elections – one can expect the subsidy bill to be within Rs 140,000-150,000 crore in the fiscal beginning April 2023.
The challenge
When the previous Congress-led UPA government introduced a nutrient-based subsidy (NBS) regime in fertilisers with effect from April 2010, a key objective was to discourage farmers from applying too much urea, DAP and MOP. Urea has 46% nitrogen (N), while DAP contains 46% phosphorus (P) plus 18% N and MOP has 60% potassium (K).
By moving away from product-specific subsidy, to one where the government fixed a per-kg NBS rate for each nutrient (N, P, K and sulphur or S), the new regime was expected to promote balanced fertilisation. That would have also meant more use of complex fertilisers (having lower concentrations of N, P, K and S in different proportions) and single super phosphate (SSP, which contains 16% P and 11% S).
The Modi government made coating of urea with neem oil compulsory from 2015-16, to check illegal diversion of the heavily-subsidised fertiliser for non-agricultural uses, including by plywood, dye, cattle feed and synthetic milk makers. Neem oil supposedly also acted as a mild nitrification inhibitor, allowing a more gradual release of nitrogen. Increased nitrogen use efficiency would, in turn, bring down the number of urea bags required per acre.
The above table shows that the NBS did initially lead to a substitution of “high-analysis fertilisers”, particularly DAP and MOP, with SSP and NPKS complexes such as 20:20:0:13, 10:26:26:0 and 12:32:16:0. Urea consumption was flat after 2012-13; it actually fell between 2015-16 and 2017-18, following mandatory need-coating.
Imbalanced application
Those gains have been reversed in recent years.
Since 2017-18, urea consumption has risen from below 300 lakh tonnes (lt) to 350 lt. Consumption of NPKS complexes and SSP in 2019-20 was lower than in 2011-12. There was an increase in 2020-21 and 2021-22. But it was largely due to DAP and MOP shortages/non-availability, forcing farmers to consume P and K more in the form of low-analysis fertilisers. Some even replaced one bag of DAP with one bag each of SSP and 20:20:0:13, together giving nearly the same N and P plus 24% S.
The current fiscal has, however, witnessed a worsening of nutrition imbalances. Consumption of both urea and DAP has shot up, with their sales for the year ending March 2023 likely to top 350 lt and 120 lt respectively. On the other hand, sales of complexes, SSP and MOP have plunged.
N. Suresh Krishnan, chairman of the Fertiliser Association of India, attributes the imbalances to “disturbances in the price hierarchy”. Urea was and is still the country’s cheapest fertiliser, with its maximum retail price (MRP) fixed at Rs 5,628 per tonne since November 2012. Among the non-urea fertilisers, the MRP was normally the highest for DAP and lowest for MOP, while ranging in between for complexes.
But it’s the other way round now. DAP is today retailing at Rs 27,000 per tonne. The corresponding MRPs are Rs 27,000-28,000 for 20:20:0:13, Rs 29,400 for 10:26:26:0 and 12:32:16:0, and Rs 34,000 for MOP.
Non-urea fertiliser prices have technically been decontrolled under the NBS regime. In reality, though, the Modi government has restored price controls and also fixed NBS rates that favour over-application of DAP similar to urea. The present per-kg NBS rates are Rs 98.02 for N and Rs 66.93 for P, while just Rs 23.65 for K and Rs 6.12 for S.
“Why will farmers apply 20:20:0:13 when DAP (18:46:0:0) is cheaper? And what’s the incentive to use MOP, SSP or any complex containing K and S?,” asks Krishnan, adding that the government must ensure proper “price hierarchy” to correct nutrient imbalances.
The road ahead
Two things should be done to prevent DAP “becoming the next urea”, says a Hyderabad-based industry expert.
The first is to restrict DAP use to rice and wheat. All other crops can meet their P requirement through SSP and complexes. The annual consumption of 20:20:0:13 alone is now 50 lt, with Coromandel International (12 lt), Fertilisers and Chemicals Travancore (8.5 lt) and Paradeep Phosphates Ltd (6 lt) being major marketers. The danger is of even this well-accepted fertiliser losing out to DAP because of flawed pricing.
The second is to raise SSP’s acceptance by permitting sale only in granular, not powdered, form. SSP powder is prone to adulteration with gypsum or clay. Farmers can be assured of quality through granules, which will also promote slower release of P without drift during application.
The ultimate aim should be to cap urea, DAP and MOP consumption. India, the expert points out, cannot sustain imports leading to their increasing application. Farmers must, instead, be nudged to use more of low-analysis complex fertilisers and SSP.
