The Hindu Business Line : Govt working on new DAP subsidy formula

New Delhi, Nov 14 The Centre will take a decision soon on linking subsidy on indigenously manufactured di-ammonium phosphate (DAP) to the landed cost of the imported product. The DAP subsidy is now computed based on the price of the imported inputs, namely potassic acid and ammonia.

“We are working on an appropriate formula to determine the international price of DAP, which could used for computing the subsidy payable to domestic DAP producers. This, in turn, could be based on the previous month’s actual landed price or the average of high and low quotes published in the Fertiliser Market Bulletin (FMB), whichever is lower”, a Department of Fertilisers (DoF) official told Business Line.

No extra outgo

The FMB quotes —based on DAP purchase contracts for various origins and destinations — are normally available on a free-on-board (FOB) basis and are considered fairly reliable. “If we add a notional freight from the country of origin, we can arrive at a realistic landed price of imported DAP at Indian ports. This will ensure no extra subsidy outgo on account of any possible over-invoicing by importers here”, the official said.

He added that the finer details of the formula would be finalised ‘very soon’ by an Inter-Ministerial Group (IMG), consisting of officials from the DoF, Agriculture Ministry and Department of Expenditure. “In principle, we believe it makes more sense to link subsidy on domestic DAP to the imported final product, rather than trying to monitor and verify prices of imported inputs, from ammonia and phosphoric acid to even sulphur and rock phosphate (which are used to make phosphoric acid.” .

Decision awaited

The domestic industry, on its part, is seeking an early decision, considering that negotiations for purchase of phosphoric acid for the coming fiscal are slated around January. For 2007-08, the industry players (Iffco, Coromandel Fertilisers and Zuari Industries) had negotiated a rate of $ 566.25 a tonne cost and freight from global suppliers, such as OCP of Morocco, Foskor of South Africa, Groupe Chiminique Tunisien (GCT) of Tunisia and Industries Chimiques du Senegal. They supply most of the 2.5 million tonnes or so of phosphoric acid imported annually into the country.

DAP price peaks

“Till last year, they had no problem in supplying phosphoric acid at this rate. But with international DAP prices shooting up, they would prefer to convert phosphoric acid into DAP themselves and not supply the raw material”, an industry source said. Since the start of this year,

DAP prices have shot up from $350-$400 to around $600 a tonne, with sulphur rates similarly climbing from $80-$100 to $270-$300 a tonne.

Production costs

Production of one tonne of DAP requires roughly 475 kg of phosphoric acid.

“If from the current landed price of $600 a tonne for DAP, one were to deduct freight of $80, ammonia component of $60 and conversion cost of $30-$40, the phosphoric acid component comes to $430.

Since this translates to around $900 for each tonne of phosphoric acid, why would they supply at $566.25 a tonne today?”, the source asked.

On the other hand, if subsidy on indigenous DAP is linked to international prices, “we could offer a better price, which would make it attractive for them to supply phosphoric acid on a long-term basis.”

More Stories on : Agricultural Policy | Fertilisers

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rise in turnover: Gold, silver, lead, crude rule commodity bourses

New cases of anthrax reported in AP

Spot rubber prices rule steady

Offers at Coonoor tea auctions drop to 10-week low

Gold prices likely to drop below Rs 10,000

Pepper futures move up marginally

Govt working on new DAP subsidy formula

‘Do not lift ban on futures in urad, tur, rice, wheat’

Organic products: Quality Council seeks to be nodal agency