Rising prices, weak rupee turn DAP imports into a losing proposition

In the first cabinet meeting of the new year, chaired by Prime Minister Narendra Modi, it was decided to continue the special subsidy of ₹3,500 per tonne on di-ammonium phosphate (DAP). This government decision raised hopes that the price of DAP fertilizer will remain stable, enabling farmers to continue purchasing it at ₹1,350 for a bag of 50 kg. However, despite the special subsidy, fertilizer companies may face losses exceeding ₹3500 per tonne if the price is maintained at ₹1,350 per bag.

Highly placed sources told Rural Voice that the Ministry of Fertilizers convened a meeting with fertilizer companies on Thursday, urging them to maintain the price of DAP at ₹1,350 per bag. This has increased pressure on fertilizer companies not to hike DAP prices. On the other hand, rising DAP prices in the international market and the rupee's depreciation against the dollar could make importing DAP a loss-making proposition for these companies, even with the special subsidy.

The government has announced the continuation of the special subsidy at ₹3,500 per tonne in addition to the subsidy provided under the Nutrient Based Subsidy (NBS) scheme. This special incentive, initially provided from April 2024 to December 31, 2024, has now been extended until December 31, 2025. However, it will be reviewed quarterly, and decisions may be taken based on these reviews.

According to industry sources, the current international price of DAP is approximately $630 per tonne. The government has pegged the dollar rate at ₹83.23 for determining the special subsidy, though the rupee has weakened to ₹85.78 against the dollar as of January 3. Combined with a $70 per tonne increase in DAP prices, the import cost of DAP has surged by approximately ₹7,500 per tonne, leaving fertilizer companies to absorb losses despite the special subsidy.

Under the NBS scheme, the government provides a subsidy of ₹21,911 per tonne on DAP, supplemented by the ₹3,500 per tonne special incentive. With the current selling price of ₹27,000 per tonne, the total realisation for the fertilizer companies comes to ₹52,411 per tonne. However, at the global price of $630 per tonne and the rupee at ₹85.78 per dollar, the import cost of DAP has risen to ₹54,041 per tonne. Additionally, costs such as a 5% customs duty, port handling, bagging, and dealer margins further increase the financial burden.

Industry insiders told Rural Voice that even with the NBS subsidy and special incentive, fertilizer companies will incure a losses of about ₹3,500 per tonne on DAP import. This financial strain could impact the volume of DAP imports in the coming months, making it uncertain how much DAP will be imported despite the continuation of special incentive.

DAP is primarily used as a basal dose during sowing. As of December 15, 2024, the national stock of DAP stood at 9.2 lakh tonnes, compared to 13 lakh tonnes during the same period in 2023. The annual domestic consumption of DAP is approximately 100 lakh tonnes, making it the second most widely used fertilizer after urea. However, country dependency is about 90% for DAP as finished product and as raw materials for its domestic production.