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Rollback of fertiliser price hikes unlikely as Centre keeps subsidy rates unchanged

Indian Farmers Fertiliser Cooperative (Iffco) Wednesday raised its maximum retail price (MRP) for DAP from Rs 24,000 to Rs 38,000 per tonne.

The spike in fertiliser prices - on top of petrol, diesel and LPG - may have both political and economic implications. (Express Photo)

There is no change in the subsidy rates for di-ammonium phosphate (DAP), muriate of potash (MOP) and complex fertilisers, despite companies significantly hiking prices over the last few weeks.

The Centre has decided to extend the existing nutrient-based subsidy (NBS) rates of 2020-21 for the current fiscal as well “till further orders”, said an office memorandum from the Department of Fertilisers issued Friday. This effectively also rules out any rollback of the recent price increases in non-urea fertilisers, even as the Union Minister of State of Chemicals & Fertilisers Mansukh Mandaviya has said that companies will not charge the higher prices “vartaman samay mein (for now)”

Indian Farmers Fertiliser Cooperative (Iffco) Wednesday raised its maximum retail price (MRP) for DAP from Rs 24,000 to Rs 38,000 per tonne. The country’s largest nutrient seller also steeply hiked the MRPs of its complex fertilisers with different nitrogen (N), phosphorous (P), potash (K) and sulphur (S) combinations—from Rs 23,500 to Rs 35,500/tonne for 10:26:26, Rs 23,700 to Rs 36,000 for 12:32:16 and Rs 18,500 to Rs 27,000 for 20:20:0:13.

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Explained

A problem of urea overdose

Indian farmers apply too much urea and too little other fertilisers. The current spike in prices of non-urea fertilisers may worsen this imbalance. The government should raise the subsidy rates on these nutrients and simultaneously hike, maybe even double, urea prices.

The unprecedented price jumps were inevitable for two reasons. The first is a steep rise in international prices of fertilisers as well as raw materials and intermediates. The landed cost of imported DAP alone has surged from below $400 to around $540 per tonne since October.

The second is NBS rates that were last fixed on April 3, 2020, at Rs 18.789/kg for N, Rs 14.888/kg for P, Rs 10.116/kg for K and Rs 2.374/kg for S. Based on these rates, the subsidy on DAP, which contains 18% N and 46% P, works out to Rs 10,231 per tonne. The subsidy on MOP (60% K) and 10:26:26, likewise, are Rs 6,070 and Rs 8,380 per tonne, respectively.

At $540/tonne and Rs 74.5-to-the-dollar, imported DAP costs Rs 40,230 per tonne in Indian ports. Adding 5.5% customs duty and other charges of Rs 3,500 (stevedoring, bagging, insurance, secondary freight, storage, interest, selling expenses and dealer margins) takes that to almost Rs 45,950 per tonne. Deducting the Rs 10,231 subsidy and adding 5.5% goods and services tax would allow companies to sell to farmers at Rs 37,500 per tonne on a no-profit, no-loss basis. That is close to Iffco’s new MRP of Rs 38,000/tonne for DAP.

“Companies are in no position to sell at the old rates, when the subsidy has been kept at last year’s level despite global prices of both product (DAP) and inputs (sulphur, ammonia, rock phosphate and phosphoric acid) shooting up,” said G. Ravi Prasad, a fertiliser industry expert.

The 50%-plus spike in MRPs of non-urea fertilisers, according to him, could lead to a worsening of imbalance in nutrient use by farmers. In 2020-21, retail sales of urea touched a record 350.42 lakh tonnes (lt). That accounted for more than half of the 677.02 lt sales of all fertilisers. With the basic MRP of urea remaining unchanged at Rs 5,360 per tonne—it was last raised in April 2010—farmers may end up applying more of this already overused nitrogenous fertiliser.

Meanwhile, Iffco has clarified that the new MRPs will be applicable only on its fertilisers moved from its plants after April 1. The old stocks already dispatched and lying with retailers—estimated at 11.26 lt—will continue to be sold at the earlier rates. The only hope for farmers now is the Centre announcing higher NBS rates for 2021-22, maybe after the ongoing Assembly elections in West Bengal.

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