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Fertiliser crunch looms: High global prices, no new import contracts

Supply squeeze mainly in phosphatic and potassic nutrients, ahead of kharif planting season.

There is no availability issue — at least during the kharif season — in urea, where India produces 24-25 mt out of its yearly consumption of 34-35 mt. (File)

WITH GLOBAL prices surging and hardly any imports contracted since Russia’s invasion of Ukraine, India is facing a tight supply position in fertilisers, especially of phosphatic and potassic nutrients. This, even as retail food inflation has hit a 16-month-high of 7.68 per cent in March and kharif crop plantings are to commence from June.

The country’s opening stocks as on April 1 are estimated at around 2.5 million tonnes (mt) of di-ammonium phosphate (DAP), 0.5 mt of muriate of potash (MOP), and one mt of complex fertilisers containing varying proportions of nitrogen, phosphorous, potash and sulphur (NPKS).

India annually consumes 9-10 mt each of DAP and NPKS complexes, besides 4.5-5 mt of MOP. Roughly 45 per cent of sales happen during April-September and 55 per cent in the balance October-March period.

“Farmers are now busy with marketing of their rabi (winter-spring) crop. They will require fertilisers before kharif sowing takes off with the arrival of the southwest monsoon rains. The Government has to ensure an adequate level of stocks towards end-May/ early-June,” said industry sources.

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There is no availability issue — at least during the kharif season — in urea, where India produces 24-25 mt out of its yearly consumption of 34-35 mt. Also, while urea is sold at a controlled basic maximum retail price (MRP) of Rs 5,360 per tonne, companies are fully compensated for their higher cost of manufacturing or importing this fertiliser.

The problem is mainly with non-urea fertilisers. Their MRPs are decontrolled in theory, with the Centre only paying manufacturers/ importers a fixed per-tonne subsidy based on nutrient content. But in practice, companies have not been allowed to freely set MRPs of these “decontrolled” fertilisers.

DAP, MOP and the popular ’20:20:0:13′ NPKS fertiliser are currently being retailed at Rs 27,000, Rs 34,000 and Rs 28,000 per tonne, respectively. Companies are further getting per-tonne concessions of Rs 33,000, Rs 6,070 and Rs 15,131, respectively, on these fertilisers — translating into a gross realisation of Rs 60,000, Rs 40,070 and Rs 43,131, respectively.

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According to the industry, these realisations are too low to manufacture or import at today’s international prices. The quoted price (cost plus freight) of DAP imported to India is about $1,250 (Rs 95,000) per tonne — it is $700-750 (Rs 53,200-57,000) per tonne for MOP and $780 (Rs 59,280) per tonne for ‘20:20:0:13’. The gross realisations, thus, don’t cover even the landed cost of imports.

“Adding 5 per cent customs duty, 5 per cent GST and other costs (stevedoring, bagging, storage, primary rail and secondary road freight, interest, insurance, dealer margins and profit) will take the total DAP price close to Rs 110,000/tonne. Why will anyone import if it means losing Rs 50,000 on every tonne?” sources said. Nor will the Centre allow the MRP to go up by Rs 50,000 per tonne.
Companies have already hiked DAP prices this month, from Rs 24,000 to Rs 27,000 per tonne.

DAP import prices have soared to $1,250 per tonne, from $550-560 a year ago and $920-930 before Russia’s invasion on February 24. So has the import price of phosphoric acid — an intermediate used to manufacture DAP and other fertilisers containing ‘P’ — to $2,050 per tonne, from $876 a year ago and $1,530 before the war.

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In the case of MOP, Indian Potash Ltd and a few others had contracted up to 2 mt material from Canada, Israel and Jordan at $590 per tonne for supplying till December. This was, again, before the war; current landed prices at $700-750 per tonne are way above year-ago levels of $275-280.

“No new import contracts have been signed in the past two months. Companies aren’t sure whether the government will increase the subsidy/ concession rates commensurately or permit them to charge higher MRPs,” the sources said. Efforts to negotiate lower prices of DAP and phosphoric acid with overseas suppliers such as Morocco’s OCP Group, too, haven’t borne fruit so far.

So, what’s the solution?

An industry expert, who dealt with a similar international supply crisis during 2008-11, felt that the Centre should officially suspend — maybe, for a season or two — the so-called nutrient-based subsidy regime in non-urea fertilisers.

“Since their MRPs have de facto been brought under control, paying fixed per-tonne subsidy no longer makes sense. Let companies import the finished fertilisers or inputs at the ruling world price and the difference vis-à-vis the government-set MRP be paid, as with the urea subsidy,” the expert said.

Secondly, the Centre should promote use of single super phosphate (SSP) and complexes such as ’20:20:0:13′ and ’10:26:26:0′. SSP has less ‘P’ than DAP (16 per cent versus 46 per cent), but it contains 11 per cent ‘S’ that is absent in the latter. Farmers can substitute DAP with SSP and ‘20:20:0:13’. MOP (containing 60 per cent ‘K’) can similarly be replaced by ‘10:26:26:0’, which also has 10 per cent ‘N’ and 26 per cent ‘P’.

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“A concerted campaign is needed to wean away farmers from high-analysis fertilisers like DAP and MOP, which will not greatly impact crop yields. Companies can, then, import rock phosphate, phosphoric acid and MOP to produce more of SSP and complexes,” the expert said.
Officials from the Department of Fertilizers were not available for comment.

 

First published on: 15-04-2022 at 04:00:12 am
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