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Higher subsidy on DAP fertilizers
Read more on - Polity | Economy | Schemes | S&T | Environment
- The story: The government hiked the subsidy on DAP fertiliser by 137%, in a policy change. It was faced with a possible revival of farmer protests — this time over fertiliser prices — and the 137% increase in the subsidy on di-ammonium phosphate (DAP), from Rs 511.55 to Rs 1,211.55 per 50-kg bag may help.
- DAP fertilizer: DAP is the second most commonly used fertiliser in India, with its sales of 119.13 lakh tonnes (lt) in 2020-21 next only to the 350.42 lt of urea. Farmers apply this before or at the time of sowing, as it is high in phosphorus (P) that stimulates root establishment and development – without which plants cannot grow to their normal size or will take too long to mature.
- DAP contains 46% P and 18% nitrogen (N). While there are also other phosphatic fertilisers – single super phosphate (SSP), for instance, has 16% P and 11% sulphur (S) – DAP is the farmer’s preferred choice.
- This is similar to urea and muriate of potash (MOP), which again have very high N and potassium (K) content of 46% and 60%, respectively.
- Subsidy process: The maximum retail price (MRP) of urea is currently fixed at Rs 5,378 per tonne or Rs 242 for a 45-kg bag. Since urea-making companies have to sell at this controlled rate, the subsidy is variable. It is the difference between the cost of manufacturing or import and the fixed MRP. The MRPs of all other fertilisers are decontrolled and decided by the companies themselves. The government only gives a fixed per-tonne subsidy. So the subsidy is fixed, while the MRPs are variable.
- Non-urea fertilisers: So is subsidy same for all such non-urea fertilzers? The answer is no. These fertilisers get a nutrient-based subsidy or NBS, whose rates vary across nutrients.
- For 2020-21, the Centre fixed the NBS rates at Rs 18.789/kg for N, Rs 14.888/kg for P, Rs 10.116/kg for K and Rs 2.374/kg for S.
- Depending on the nutrient content in different fertilisers, the per-tonne subsidy varies. Since one tonne of DAP contains 460 kg of P and 180 kg of N, the subsidy is Rs 10,231 (6,848.48 plus 3,382.02). Likewise, the subsidy on MOP (60% K) was Rs 6,070 per tonne, while Rs 2,643/tonne for SSP and Rs 8,380/tonne for the popular ‘10:26:26’ NPK fertiliser.
- Why noise over DAP: The DAP subsidy was Rs 10,231 per tonne or Rs 511.50 on a bag of 50 kg. Most companies were selling this fertiliser to farmers at around Rs 24,000 per tonne or Rs 1,200/bag. They could do it when international prices — of both the final product and the imported raw materials such as rock phosphate, sulphur, phosphoric acid and ammonia — were at reasonable levels. Landed prices of DAP in India were below $400 per tonne or Rs 29,000 till October 2020. Adding 5% customs duty and another Rs 3,500 towards port handling, bagging, warehousing, interest, trade margins and other costs took it to about Rs 34,000 per tonne. After claiming the subsidy of Rs 10,231 per tonne, companies could sell at the said MRP of Rs 24,000/tonne.
- Then came the global price shock, as prices surged, as part of the bull run in commodities.
- Since October 2020, the average import (cost and freight, Indian ports) prices of DAP have risen from $395 to $570/tonne, while shooting up from $275 to $365 for urea, $230 to $280 for MOP, $280 to $550 for ammonia and $85 to $210 for sulphur. That made it unviable for companies to sell at the old rates.
- End result: This steeply raised MRPs. The Indian Farmers Fertiliser Cooperative (IFFCO) announced a hike in its MRP of DAP from Rs 1,200 to Rs 1,900/bag and also for 10:26:26 (Rs 1,175 to Rs 1,775/bag), 12:32:16 (Rs 1,185 to Rs 1,800/bag) and 20:20:0:13 NPKS (Rs 925 to Rs 1,350/bag). These hikes were effective from April 1. Since non-urea fertilisers are decontrolled, nothing stopped them from do so. But with West Bengal Assembly elections, the industry was told to keep these on hold. IFFCO, for one, declared that the higher MRPs will be only for the newly produced or imported fertilisers. The old stocks would continue to be sold at the earlier rates.
- The day of reckoning: As the old stocks started running out, the companies began selling the new material at the higher rates. April being a lean month, the extent of price increase did not matter to anyone, including farmers, until home purchases for ensuing kharif planting season started picking up from mid-May. The focus naturally fell on DAP; having to pay an extra Rs 700/bag — on top of Rs 21-22 per litre increase for diesel since April 2020 – was obviously too much.
- Solution by govt.: The Department of Fertilisers had, on April 9, notified the NBS rates (nutrient-based subsidy) for 2021-22. Despite international prices soaring, these were kept unchanged from last year’s levels. It left companies wit little choice but to go ahead with the MRP hikes. But since it became politically difficult, the Cabinet more than doubled the subsidy on DAP from the existing Rs 10,231 to Rs 24,231 per tonne. The Department of Fertilisers notified a higher per-kg NBS rate for P (Rs 45.323, as against the earlier Rs 14.888), even while not increasing these for the other three nutrients (N, K and S). This will enable companies to sell DAP to sell at the earlier MRP. They may not be able to do so for other non-urea fertilisers, be it MOP, SSP or complexes containing N, K and S. In the case of MOP, the retail prices were raised from an average of Rs 850 to Rs 1,000/bag in February itself. With the subsidy remaining at Rs 303.5/bag, there’s unlikely to be any rollback.
- Summary: The DAP prices not going up is good news, as farmers are ready for sowing operations with the arrival of the southwest monsoon rains. Politically, the govt. did not want a major revival of farmer protests.
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