Fertiliser uncertainties

This is going to be a testing year for Indian agriculture. Not because of any bad monsoon: On the contrary, most States — barring Orissa, Assam and parts of Maharashtra — have so far received good and timely rains. The pressure point could, instead, be fertilisers. A 50-kg bag of di-ammonium phosphate (DAP) that used to cost Rs 467.50 before April 2010 — when prices of all non-urea fertilisers were decontrolled — is now worth Rs 600, with some firms even charging Rs 700. Farmgate prices of muriate of potash (MOP) have similarly gone up from Rs 222.75 to Rs 315 a bag and are slated to rise further to Rs 425 from next month (all these rates are net of local taxes). Urea prices, which are still controlled by the Government, have not increased as much, moving up from Rs 241.50 to Rs 268.23 a bag. But with a Group of Ministers giving the go-ahead for bringing urea too under the nutrient-based subsidy regime, farmers may soon have to pay more for this input as well.

The current kharif season and the rabi to follow will mark the first full year where the impact of price deregulation will really be felt on the ground. How farmers will respond to the price increases, whether they will cut back on fertiliser consumption and what that could imply for the production of various crops, are all still uncertain. The situation is compounded by spiralling global prices and supply shortfalls reported in many States. Imported DAP today costs over $650 a tonne, against $525 a year ago, with the landed prices of MOP similarly climbing from $370 to $490. The cumulative effect of all these would be known only in the months to come, as and when the crops in the field are actually harvested.

The blame for the above state of affairs lies largely with the Government, which, for a long period from March 2002 to March 2010, left fertiliser prices absolutely unchanged. What that essentially did was to encourage inefficient and excessive fertiliser use by farmers. Companies, on their part, had no incentive to work closely with farmers and offer customised fertilisers tailored to their specific soil and cropping backgrounds (as these products did not enjoy any subsidy). Today, the danger could be the reverse; farmers might react to the sudden price hikes by drastically reducing consumption. Sales data for April-July, in fact, show a 25-35 per cent drop in offtake of DAP and MOP over the previous year. If this is just a one-off correction that eventually leads to more judicious use of a scarce resource, it may not be a bad thing. Even better would be if it induces farmers to look at the value proposition in any fertiliser and makes companies think beyond urea and DAP.

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