Fertiliser choices

Global fertiliser prices are on fire yet again, in tandem with most other commodities. Indian firms have recently contracted di-ammonium phosphate (DAP) imports at $612 a tonne cost and freight, as against $500 a year ago. Landed prices of urea, at $350 a tonne, are also up by $85-90 over last year, while muriate of potash (MoP) suppliers are demanding an extra $150 over the $370 rate negotiated for 2010-11. As a result, the Centre has been forced to raise the nutrient-based subsidy rates on nitrogen, phosphorous and potash, which are benchmarked to the import parity prices of these fertilisers. All that could push up the fertiliser subsidy Bill beyond the budgeted Rs 50,000 crore for this fiscal.

Worrying as they are, the developments should not deter policymakers from the task of pricing reforms. If at all, they reinforce the need to view fertilisers as a scarce commodity. This is more so in a country with limited energy and other raw material resources — be it potash, rock phosphate or sulphur. The original objective of subsidy was to make farmers consume more fertilisers so that they would produce still more. That purpose has outlived its utility: Between 2000-01 and 2009-10, India's annual fertiliser consumption has risen by more than 50 per cent, whereas its farm GDP has correspondingly grown by just 16 per cent. The reason is that roughly 80 per cent of the fertiliser consumed now is made up of only urea, DAP and MoP. Such a narrow product profile and skewed usage pattern, indifferent to soil type, is an obvious recipe for diminishing crop yield response. The solution lies in a subsidy regime that induces farmers to choose the right fertiliser but consume less of it. When studies show that only a third of the nitrogen content in urea gets ‘used' by the plant — the rest leaching down to the groundwater or escaping into the atmosphere — how much would be lost by consuming one bag less? The same quantity of nitrogen can perhaps be delivered more efficiently through complexes or customised fertilisers tailored to the particular soil and cropping background.

In the short run, the Centre may have to absorb some of the impact of the high international prices on its books. At the same time, it should allow farmgate prices to rise gradually by 5-10 per cent each season and persist with this ‘controlled de-control' plan even after the world markets cool down. In the long run, with subsidy becoming incidental, farmers will start looking at ‘value' rather than just ‘price' — and companies, way beyond urea and DAP.

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