Urea retail prices lag inputs, farm produce

Do you know that urea – the key nitrogenous fertiliser — now retails at a price that is lower than rock salt? You can buy urea from a fertiliser depot at just Rs 5.3/kg, while rock salt from your Kirana store would cost you Rs 6/kg. Urea may, in fact, be the cheapest manufactured product sold in India.

The retail price of urea in India is fixed by the Government. This nitrogenous fertiliser accounts for 58 per cent of the country's fertiliser consumption.

The retail price of urea in India was kept unchanged for over a decade from 2001 to early 2010, after which there were marginal increases.

As a result of this, urea selling prices have kept pace, neither with the cost of inputs that go into its production nor with prices of farm produce that use it as an input.

Raw materials soar

For instance, in the last three years, crude oil prices, from which fertiliser raw materials such as naphtha and natural gas are derived, have shot up at a compound annual rate of 55 per cent.

But urea's retail price has inched up at a compound annual rate of just 2.2 per cent.

This has resulted in urea being sold at a 38 per cent discount to the cost of production (Rs.8.5/kg) incurred by the most efficient domestic producer. Imported urea, which costs roughly Rs 27.5/kg, is sold at a steeper 70 per cent discount.

The difference between cost and selling price of urea are reimbursed as subsidy by the Government.

Prices of urea have not kept pace with the increase in retail prices or Minimum Support Prices (MSP) of farm produce either.

Over the same three year period, rice has seen a 7.2 per cent annual increase in retail prices, wheat prices have gone up by nearly 6 per cent a year and sugar prices have climbed by 11 per cent a year .

Similarly, MSP for Paddy (common variety) was up 6.2 per cent, wheat registered an increase of 5.3 per cent and coarse cereals grew 5.2 per cent.

The government's decision to keep a tight rein on urea prices has meant domestic capacity for urea has not risen significantly in recent years. The result: a larger portion of domestic demand is being met through imports than before.

Given the 43 per cent jump in the international price of urea — from $370/tonne to $530/ tonne (Rs 27.5/kg) since January 2012, India may have to incur a higher import bill to meet its urea requirement. India imports 30 per cent of its urea requirement.

To contain the subsidy bill, the Government may have hike the retail price of urea.

>nalinakanthi.venkataraman@thehindu.co.in

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