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Non-urea fertiliser prices rise again, no relief for farmers in sight

If the government revises its subsidy allocation during the year, there may be some respite for farmers
Farmers facing the brunt of rising retail prices of non-urea fertilisers like di-ammonia phosphate (DAP), muriate of potash (MoP) and notrogen, phosphorus and potassium (NPK) could have been saved had the Centre enhanced the quantum of subsidy allocated under the nutrient-based subsidy regime (NBS).

Increasing the subsidy on non-urea fertilisers along with compensating urea firms for rising pooled gas price could disturb the Centre’s fiscal maths. 

But given that the fertiliser prices have gone up in the rabi season as well, it’s a call which the government needs to take quickly. A decision before November-end could help in absorbing a part of the price spike as fertiliser consumption after that is almost nil. 

Companies said the government hasn't revised the fixed subsidy for non-urea fertilisers under the nutrient-based subsidy regime for 2018-19 despite an increase in input cost. This is why many companies have been forced to pass on the brunt of rising input costs to the farmers.

In case of DAP, rough estimates show that retail price has risen by almost 30 per cent between the 2017 kharif season and the 2018 kharif season, while in case of MoP and NPK, the price increase has been in the range of 15-60 per cent, depending on the combination.

There isn’t any big relief for farmers from the fertiliser sector in the ongoing rabi sowing season as well, as prices have continued to move northwards.
According to an assessment done by rating agency, ICRA, DAP prices rose by 12-13 per cent from the kharif season of this year to the rabi sowing season, while MoP rates have gone up by 25-30 per cent from the kharif to the rabi season.

For an average farmer, this has nullified the impact of the Centre’s much-talked-about fixing of an MSP which is 50 per cent more than the A2+FL cost of production. The cost calculations wouldn’t have factored in such a steep increase in fertiliser prices.

Industry players and market watchers said one of the reasons for the price spike in non-urea fertiliser is that input costs of DAP and NPK have risen sharply since the last one year. In case of MoP, the contract rates have risen manifold in the last one year.

The sharp depreciation in the rupee against the US dollar has also made import of key raw materials costly, thus impacting the retail price. Most key inputs for DAP and NPK are imported and any jump in international rates has a direct bearing on them.

In case of DAP, the imported price of phosphoric acid has risen by almost 34 per cent in the July to September quarter of Fy2018-19 to $758 metric tonnes.

As phosphoric acid is an important constituent of DAP, fertiliser companies have been forced to pass on to the impact to consumers. In the rabi season, too, things havent changed much.


From $758 a tonne last month, phosphoric acid prices have now risen to around $800 per tonne, which when coupled with the impact of a weakening rupee is further pushing up the import cost of this crucial raw material.

Price of ammonia, which is another key ingredient of DAP, has gone up by almost Rs 721 a metric tonne between the second quarter of 2018-19 and the third.

According to estimates, these two components together have made DAP costlier by another 12-13 per cent in the rabi season for farmers as compared to kharif 2018.

In the case of MoP, the annual contract price for the period of September 2019 to June 2019 was settled at $290 per tonne, which is almost $50 more than last year’s price.

An ICRA study shows that as a result of the increased contract rates and currency depreciation, the retail price of MoP in the rabi sowing season is projected to further increase by 25 per cent from the existing Rs 12,400 a tonne.

“Government subsidy hasn’t gone up from the budgeted Rs 700 billion for 2018-19, a reason perhaps why fertiliser companies are passing on the entire impact of rising input cost to farmers,” said K Ravichandran, senior vice-president of ICRA.

Government subsidy

A major reason why fertiliser companies have passed on the entire burden of the rising DAP, MoP and NPK to the farmers is that the Centre hasn’t revised the subsidy given to them under the NBS in 2018-19 despite an increase in input cost. For the 2018-19 financial year, the government has fixed a subsidy of Rs 18.90 per kg for nitrogen, Rs 15.21 a kg for phosphoric acid, Rs 11.12 a kg for potash and Rs 2.722 a kg for sulphur.

Though this is more than the subsidy fixed for 2017-18, given that international prices of major inputs that goes into the making of DAP and NPK has risen in the last one year, the subsidy is looking inadequate. On a per tonne basis, this subsidy turns out to be between Rs 6,000 and 9,000 per metric tonne depending upon the product mix of complexes.


Unless the government, in its supplementary demand for grants, increases the quantum of fertiliser subsidy from the Rs 700 billion allocated in Budget 2018-19, industry players said they don’t have any other option but to pass on the price hikes as there is a limit to which they can take a hit on their margins.

“If the government revises its subsidy allocation during the year, there may be some respite for farmers or else we don’t have any other option but to pass on the increase. This is because the industry is not in a position to absorb such a sharp hike in input cost,” said a senior industry official.

Urea problem

In urea, which is the largest fertiliser used in India, there hasn’t been an increase in retail price for farmers as it is regulated by the government. But sharp increase in pooled gas prices due to the rise in imported price of regasified liquefied natural gas (R-LNG) since the last financial year could upset subsidy projections. According to industry sources, in 2017-18, R-LNG prices increased by 16 per cent year-on-year, while the same has continued in 2018-19 as well.

Under the pooled gas price mechanism, all fertiliser units get natural gas at the same price. This enables them to compete based on their efficiency in energy savings. As on September 2018, around 57 per cent of the total gas consumed by the fertiliser sector was in the form of imported R-LNG, a reason why its increase has pushed up pooled gas rates.

A weak rupee along with growing Chinese demand are two factors which are being blamed for the rising pooled gas prices for the fertiliser sector. Unless the government releases additional subsidy for the fertiliser sector in 2018-19, the unpaid subsidy at the end of 2018-19 could easily cross Rs 400 billion.

The amount was around Rs 330-340 billion at the end of 2017-18. This was adjusted from the allocation made in 2018-19.


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