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.
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.
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.