The Hindu Business Line : Nutrient-based fertiliser subsidy regime may trigger product innovations

New system
In this regime, there may be more scope for offering ‘value proposition’ products, tailored for particular crops and soil-moisture conditions.

Harish Damodaran

New Delhi, Aug. 4

The proposed move from a product-based to nutrient-based fertiliser subsidy regime is likely to induce companies to broaden their production portfolio and offer customised ‘value proposition’ products to farmers.

Currently, there are 90-odd products listed under the Fertiliser Control Order, though in practice hardly 15 are effectively sold in the country. These include urea, di-ammonium phosphate (DAP), muriate of potash (MoP), single super phosphate (SSP) and 11 complexes with defined nitrogen (N), phosphorous (P) and potassium (K) contents.

“In the present regime, it is viable to market only the 15 fertilisers, since the Government grants subsidy only on these (by footing the difference between the controlled sale price and cost of production). There is nothing stopping companies from making other fertilisers, but these cannot compete with the subsidised products in the market,” sources said, pointing at the example of urea.

Why urea?

The sale price of urea, which contains 46 per cent ‘N’, is now fixed at Rs 4,830 per tonne. That translates into Rs 10,500 per tonne of nutrient. As against this, ammonium sulphate, a decontrolled fertiliser with 20.6 per cent N, retails at over Rs 6,400 a tonne. The cost of delivering one tonne of N through ammonium sulphate, thus, comes to over Rs 31,000 per tonne, rendering it uncompetitive vis-À-vis the highly subsidised urea.

“The system, the way it is forces farmers to consume ‘N’ solely in the form of urea, just as ‘K’ can be delivered only through MoP. Nor do companies have incentive to launch new fertilisers or incorporate micronutrients and other improvisations to existing ones. If the objective is to provide nutrients for healthy plant growth, it should be left to the companies to design products to suit different soil environments and crop requirement,” the sources noted.

The sheer inflexibility of the product-based subsidy regime is borne by the fact that roughly 81 per cent of India’s ‘N’ requirement is now met by urea, with DAP and ‘low analysis’ fertilisers contributing the balance 18 per cent and one per cent, respectively. By contrast, in other countries, only 35 per cent of ‘N’ is estimated to be sourced from urea, with 56 per cent coming from ‘low analysis’ fertilisers, six per cent from direct ammonia and three per cent from DAP.

Niche products

But even within the current system, some companies have introduced niche products attracting no subsidy. For instance, Mosaic India Pvt Ltd — controlled by the US agri-business major Cargill — has since 2006-07 been marketing “K-Mag”, a fertiliser having 22 ‘K’, 11 magnesium and 20 sulphur. “K-Mag” is selling at Rs 550 per 25 kg bag or Rs 22,000 per tonne. This is as against Rs 4,455 per tonne for MoP, with 60 per cent ‘K’.

“Despite lower K content and higher price, the product has been lapped up by tobacco and tea growers. This is because unlike MoP (potassium chloride), K-Mag is a low chloride fertiliser, making it more suited for these chloride-sensitive crops. It also has sulphur that is released slowly, adding to overall nutrient efficiency,” the sources said.

In a nutrient-based subsidy regime, there would be increased scope for offering such ‘value proposition’ products, tailored for particular crops and soil-moisture conditions.

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