Complex fertiliser crunch to stay if subsidy support isn't eased: Industry

Alternatively, non-DAP complex fertiliser makers will take a hit on their margins by not passing on the increased cost of production to the final consumer--the farmer

The acute shortage of di-ammonia phosphate (DAP), just when sowing of rabi crops is about to pick up, might get transferred to NPK, MoP and other grades of complex fertilisers due to the lopsided subsidy policy favouring the former, trade and industry sources said.

Alternatively, non-DAP complex fertiliser makers will take a hit on their margins by not passing on the increased cost of production to the final consumer, which in this case is the farmer.

DAP is the second most used fertiliser in the country, after urea, and is extensively used at the start of the rabi season for crops such as potatoes and chana.

Different grades of Nitrogen (N), Phosphorus (P) and Potassium (K) and also Muriate of Phosphate (MoP) are used alternatively to DAP.

In DAP (K is almost negligible but phosphorus is more). Urea has highest concentration of nitrogen

Already, due to acute shortage of DAP, retail prices of NPK and MoP have gone up which industry players say is inadequate even after the latest round of subsidy support which was largely for DAP.

Half of India’s domestic DAP consumption is produced domestically while the remaining is imported. In the case of NPKS (‘S” stand for sulphur), 80-90 per cent is produced domestically, while the rest is imported.

As far as DAP is concerned, data shows that as on September 30, 2021--just at the start of rabi sowing season--India had about 2.07 million tonnes of DAP stocks, which was almost 59 per cent lower than the same period last year.

NPKS stocks in the country on that day were at 3.24 million tonnes, or 10 per cent lower than last year, while MOP stocks were at 0.96 million tonnes, 53 per cent less than last year (see chart).
 

From October 18 to March 2022, India will require another 5.25 million tonnes of DAP, 5.46 million tonnes of NPKS and 1.55 million tonnes of MoP, apart from 16.91 million tonnes of urea as per an assessment made by the fertiliser ministry.

DAP and other complex fertiliser stocks dropped as companies cut down on imports of both raw materials and finished products because of sharp increase in international rates which made imports unviable even after subsidy support.

In the case of ammonia industry sources said that CFR prices went up by around $150 per tonne between last announced subsidy support in June and the latest one in October, while potassium prices have gone up by around Rs $220 per tonne in just the last one month.

Similarly, prices of phosphoric acid have gone up by more than 50 per cent to $1,160 per tonnes from $755 per tonnes between March 2021 and September 2021. In the latest negotiations, industry players are expecting another $100 per tonne increase in phosphoric acid prices.

To address the problem, the Centre a few days back approved an additional subsidy of Rs 28,655 crore on phosphatic and potassic (P&K) fertilisers to ensure that farmers get nutrients at affordable prices during the rabi sowing season.

This was in addition to the Rs 14,775 crore of extra subsidy provided in June for Di-ammonia phosphate (DAP) after their prices soared in the global and domestic markets.

The latest round of subsidy increase, according to an official statement, will give Rs 438 per bag benefit on Di-Ammonium Phosphate (DAP) and Rs 100 per bag benefit each on NPK 10-26-26, NPK 20-20-0-13 and NPK 12-32-16. 1 bag=50 kg

But, industry players said for DAP it means covering most of the increase in production cost which will enable industry to keep the retail price at Rs 1200 per bag, but for NPKS, it will translate into just covering a portion of the rise in production cost which has gone up Rs 400-600 per bag depending upon the grade.

“In case of NPKS, the production cost has gone up by around Rs 400-600 per bag depending upon the grades, while the subsidy support is in the range of Rs 100 per bag, which means either the retail price will go up or else companies will have to take it on them. But, in case of DAP, the subsidy of Rs 438 per bag is good enough to cover current rise in production costs but whether it will be enough to take care of future needs remains to be seen as international cost of both raw materials that goes into making DAP and also the finished products are going up,” a senior industry official said.