Roots of a crisis

| Updated on October 29, 2021

Domestic fertiliser capacities need to be shored up to rely less on imports   -  MUSTAFAH KK

Recent flare-up in global phosphatic fertiliser prices highlights the need for structural fixes

With the South-West monsoon beating a late retreat, farmers preparing to sow their rabi crop early to take advantage of soil moisture, are now facing a new challenge — shortage of phosphatic fertiliser. While the Centre has been insisting that there is no ‘real’ shortage, reports of farmers in Punjab, Haryana and Madhya Pradesh scrambling to procure DAP (Di-Ammonium Phosphate) under police watch and the Centre setting up a war-room for real-time monitoring, suggest that the situation on the ground is not comfortable. While official data shows that supplies of DAP for October were above requirements, opening stocks of both DAP and complex fertilisers were significantly below usual levels at the start of this rabi season, with DAP stocks at less than half of last three years’ average in end-September, while complex fertiliser inventories were 25 per cent lower.

A slow build-up of factors appears to have precipitated this situation. One, a runaway rise in global prices of phosphatic fertilisers and their inputs have shorted profit margins of domestic producers and importers. Though DAP and complex fertilisers are ostensibly ‘decontrolled’, producers/traders are forced to sell them far below production costs, with the Centre compensating for the losses through subsidies. Relatively benign global prices of phosphatics for the last six years allowed manufacturers to keep their selling prices stable while the Centre kept a tight lid on its subsidy. But the sharp spiral in global prices in the past year has upended this equation. The landed cost of DAP hovers well above $700 a tonne now compared to $380 last October. The Centre’s diktat on not hiking prices has dented profit margins for producers/traders. China’s unexpected move to ban fertiliser exports after its energy crisis, has aggravated the situation.

The Centre has been alive to the situation and has hiked subsidies in May and October, with the subsidy on DAP more than doubling this year. But the Centre does not have unlimited fiscal headroom. Therefore, the immediate solution appears to lie in allowing manufacturers/importers to effect moderate price hikes, while expediting imports. The episode also highlights the need for structural fixes. Though India does not enjoy any particular cost advantage in manufacturing DAP or complexes, domestic capacities may need to be shored up to reduce over-dependence on imports. The Centre must see if mothballed capacities for DAP and NPK can be revived, as has been done for urea. Subsidy rates for locally produced phosphatics need to be fixed higher than for imports. In the long run, nutrient-based subsidies can level the playing field between urea, DAP and NPK. Allowing decontrolled fertiliser-makers inflation-linked price hikes will further Atmanirbharta.

Published on October 29, 2021

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