Government decides not to increase subsidy under NBS; rollback of increased prices of DAP and other fertilizers difficult

The possibility of a rollback of the massive increase in the prices of di-ammonium phosphate (DAP) and other complex fertilizers is almost over. On April 9, the central government issued an office memorandum keeping the nutrient-based subsidy (NBS) rates for non-urea fertilizers at the same level as that last year (2020-21). According to the memorandum issued by the Ministry of Chemicals and Fertilizers on Friday, the NBS rates of last year (2020-21) will continue in the current year (2021-22) till further orders. The memorandum makes it clear that there is no possibility of any rollback in the 45 to 58 per cent price increase of DAP and other complex fertilizers brought about by the Indian Farmers Fertiliser Cooperative Ltd (IFFCO), Krishak Bharti Cooperative Ltd (KRIBHCO) and private companies effective from April 1, thanks to the rise in raw material prices in the international market. KRIBHCO, Mangalore Chemicals and Fertilizers, Juari Agro and Paradip Phosphate Ltd have raised the DAP price to Rs 1700 per bag (50 kg). As per IFFCO’s new prices, this has gone up from Rs 1200 to Rs 1900 per bag (50 kg).

In an inter-departmental letter sent on April 7, IFFCO has informed of a huge increase in prices. According to the letter, besides DAP, IFFCO has also significantly increased the maximum retail prices of other popular complex fertilizers with different NPKS (nitrogen, phosphorus, potash and sulphur) proportions. These include NPK 10:26:26 (from Rs 1,175 to Rs 1,775 per bag), NPK 12:32:16 (from Rs 1,185 to 1,800 per bag) and NPS 20:20:0:13 (from Rs 925 to 1,350 per bag). The price of NPK 15:15:15 will be Rs 1500 per bag. However, IFFCO has also issued a statement that it has an old stock of 11.26 lakh tonnes of complex fertilizers and this will be sold at the earlier prices. But sources say that this stock will soon be sold out.

According to sources, a high-level meeting was held in the Ministry on Friday regarding the price increase. But the sources mentioned say that the order regarding NBS rates was also issued on the same day that said that the subsidy rates under this scheme will continue at last year’s levels. Given this scenario, the fertilizer producers have no choice other than to increase prices.

You may take a look at the prices of DAP and NPK fixed by KRIBHCO from April 1 in the letter given below.

The central government fixes subsidy rates for non-urea fertilizers under NBS. These rates are on the basis of nutrients and the size of the subsidy is determined on the basis of the quantities of these nutrients present in the fertilizers. As the subsidy is fixed, the retail prices of the fertilizers are determined by the swings in the prices of the raw materials of these nutrients. There has been a massive increase in the prices of the raw materials for DAP and other complex fertilizers over the last six months. As a result, the fertilizer producers have increased their prices.

There is only one way to avoid this increase — that the government increase the subsidy in proportion to the increase in raw material prices. But that has failed to happen and the government’s April 9 order makes it clear that the government is not going to change the NBS rates in the short run. Non-urea fertilizers are decontrolled and the government has no control over their prices, which are determined by the producer companies. On the other hand, urea prices are determined by the government, which offers subsidies to producer companies according to a formula on the basis of the production cost incurred. That is why there is no impact of the swings in raw material prices on the price that farmers pay for urea.

It was on April 3, 2020, that the government had fixed the NBS rates which it has issued an order to continue in the current financial year. As per these rates, Rs 18.789 per kg subsidy is granted on nitrogen, Rs 14.888 per kg on phosphorus, Rs 10.116 per kg on potash and Rs 2.374 per kg on sulphur. Based on these subsidy rates, DAP, which consists of 18 per cent of nitrogen and 46 per cent of phosphorus, gets a subsidy of Rs 10,231 per tonne. Muriate of Potash (MOP), which consists of 60 per cent of potash, gets a subsidy level of Rs 6,070 per tonne while NPK 10:26:26 gets Rs 8,380 per tonne.

Considering the imported price of $540 per tonne and assuming an exchange rate of Rs 74.50 per dollar, the present cost of DAP comes to Rs 40,230 per tonne. Add to this 5.5 per cent customs duty and Rs 3,500 per tonne for expenses like insurance, storage, bagging, freight and dealer margin and the cost goes up to Rs 45,950 per tonne. Deducting the subsidy of Rs 10,231 and adding 5.5 per cent GST, the resultant cost to the company becomes Rs 37,500 per tonne. IFFCO has fixed the new price for DAP at Rs 38,000 per tonne, which comes to Rs 1900 per bag (50 kg). Thus, this price is Rs 500 above the cost price. But, going by the trends of increasing raw material prices in the international market and a weakening rupee against the dollar, even this margin may fade for the company.     

Sources in the fertilizer industry told RuralVoice that there has been a huge increase in the prices of fertilizers and their raw materials in the international market in the last six months or so. The price of imported DAP has reached $550 per tonne at present while it stood at $400 per tonne in October 2020. Similarly, the prices of ammonia and sulphur have gone up from $280 to $500 per tonne and from $85 to $220 per tonne respectively. The price of muriate of potash has gone up from $230 to $280 per tonne while that of urea from $275 to $380 per tonne.

Sources in the industry say that an increase of 45 to 58 per cent in the prices of non-urea fertilizers is bound to reduce their sales. The consumption of the cheaper urea may increase instead of these expensive fertilizers. Which will be harmful both for the farmers and the soil health, because urea cannot be an alternative to these fertilizers. The excessive use of urea, leading to skewed consumption of fertilizers, is a problem that already exists because this affects soil fertility. For the past few decades, however, the government and the industry had made efforts to promote the balanced use of fertilizers. But the rise in non-urea fertilizer prices and no increase in subsidies will be a setback to these efforts. Last year, when the prices of the raw materials for these fertilizers had gone down in the international market, the government lost no time in reducing the subsidy under NBS. In 2020-21, a total of 677.02 lakh tonnes of fertilizers were sold in the country, out of which urea sales amounted to 350.42 lakh tonnes. The proportion of urea sales may only go further up this year. Therefore, it is now for the government to decide on the direction of non-urea fertilizers.