Opinion China’s export restrictions should make India rethink fertiliser pricing

A good monsoon, with India overall receiving 8.4 per cent above average rain for the current season from June 1 till July 18, has led to brisk sowing of most kharif crops. The comfortable water situation — rainfall was a whopping 106.4 per cent surplus even in May due to the monsoon arriving eight days before schedule — has, however, had a flip side: Reports from the ground suggest shortages of both di-ammonium phosphate (DAP) and urea fertilisers. This is also reflected in stocks of DAP, at 1.3 million tonnes (MT) as on June 30, being lower than the 1.9 MT for the same date in 2024. Urea stocks, too, at 6.1 MT, have been below the corresponding year-ago level of 10.3 MT. Lower stocks relative to higher demand from farmers, courtesy of the monsoon’s early onset and good rains thereafter conducive to sowing, have created supply shortfalls and long queues at many distribution centres.

It’s, however, not just the monsoon-induced demand. No less significant is the China factor. In 2023-24, China supplied 2.3 mt out of the total 5.6 mt DAP imported by India. It also accounted for 2.1 mt out of India’s 8 mt of urea imports. But in the following financial year, imports of both DAP and urea fell to 4.6 mt and 6.9 mt, with those from China falling even more to 0.8 mt and 0.1 mt respectively. Simply put, China’s unpredictable export restrictions have caused a global supply squeeze not only in rare earth elements and magnets used in electric vehicles and consumer electronic devices, but also nitrogenous and phosphatic fertilisers that are essential for crop growth and development. And these hurt India, which imports fertilisers in either finished form or as intermediates or raw materials for domestic manufacture: The country has hardly any mineable rock phosphate or potash reserves, while more than half of its natural gas, the main feedstock in urea, is imported.

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If import dependence is a given, the policy response, too, must adjust to that reality. Unfortunately, that has not been the case with fertilisers, where political considerations have engendered the most perverse outcomes. The underpricing of urea and DAP — farmers are paying for the former almost the same as what they were some 12 years ago — has resulted in their over-application. Also, it has hindered the introduction of new products that allow the same nutrients to be better absorbed by the plants and converted into biomass (yield) or are customised to meet the specific requirements of a crop, soil type and local climate. Compare this with the increasing adoption of electric vehicles, solar pumps and rooftop panels: Would this have been possible had petrol and diesel remained super-subsidised? That lesson is as relevant for fertilisers. The China supply shock presents an opportunity to learn and reform.