06 July 2016 14:19:03 IST

Fertiliser price cut not to impact private players

Move a knee-jerk reaction as price cut is largely on account of Government push

While the pick-up in monsoon rainfall and consequent reduction in the rain deficit over the last few days brought some relief to agri stocks, the announcement by the Government early this week regarding a reduction in the price of complex fertilisers, has led to a sharp fall in the price of fertiliser stocks.

Fertiliser Minister Ananth Kumar indicated that public sector majors — National Fertilisers (NPL) and Rashtriya Chemicals and Fertilisers (RCF) — and privately held India Potash, have agreed to cut the prices of Dia-ammonium phosphate (DAP) and Muriate of Potash (MOP) by ₹2,500 and ₹5,000 a tonne respectively.

But is the concern justified or is it more an overreaction?

Knee-jerk reaction

Well, it seems to be more a knee-jerk reaction. This is because the decision by these three players to cut prices of phosphatic fertilisers is largely on account of push from the Government.

With the monsoon rainfall 12 per cent below the expected long period average as of June end, the Government seems keen on providing some respite to the farming community.

But the move to reduce prices may not change the dynamics of the sector, because these players collectively account for less than 10 per cent of the total complex fertilisers market.

Subsidy pricing

While news reports suggest the possibility of price cuts by other private sector producers of phosphatic fertilisers, the fact remains that there is no obligation on their part to reduce the prices.

As per the nutrient-based pricing for phosphatic and potassic fertilisers announced in March 2010, the government had agreed to provide a fixed subsidy amount for various types of P&K fertilisers, decided at the beginning of the fiscal year. The subsidy amount would vary with the cost of inputs, international prices of fertilisers and currency exchange rate. And fertiliser producers would be free to fix the sale price.

Post the de-control in 2010, the sale price of complex fertilisers such as di-ammonium phosphate, have jumped by almost 2.6 times — from about ₹ 9,350 a tonne in 2008-09, it now costs about ₹ 25,000 a tonne.

Government control

But while the price of phosphatic fertilisers has been decontrolled, urea continues to be under the clutches of the Government. The sale price of urea has seen only a marginal increase, from about ₹ 4,830 a tonne in 2010 to ₹ 5,380 currently.

While the subsidy on urea is a whopping three fourth of the cost of production, it is much lower — at about a fourth of the cost — for complex fertilisers. Thanks to the massive subsidy, the consumption skew towards urea has only increased, making it the most widely used fertiliser that accounts for almost 60 per cent of the country’s total fertiliser consumption.

Since the introduction of Nutrient Based Subsidy (NBS) in March 2010, its usage has been rising steadily while the consumption of non-urea fertilisers has sharply declined.

Soil deterioration

This has further increased the demand for urea. Its consumption in India has increased from 26.6 million tonnes in 2008-09 to 29.8 million tonnes in 2013-14.

The excessive and irrational use of urea has only led to further deterioration of the nutrient imbalance in the soil. While the ideal Nitrogen:phosphatic:potassic (NPK) ratio is 4:2:1, the current proportion stands at 6.5:2.9:1. In addition, it has also resulted in mounting subsidy burden on the Government.

Is there a solution?

So, how does one reduce the disparity in pricing and consumption?

Well, reducing the price of phosphatic and potassic fertilisers may be not be the ideal long term solution. Rather the Government should implement NBS in urea, by decontrolling its sale price. This will not only help check the fertiliser’s misuse but also reduce the subsidy burden on the Government.