<p>During the Rabi crops season (October 2024 – March 2025), many parts of the country are reporting a shortage of di-ammonium phosphate (DAP). DAP is a widely used complex fertiliser that supplies 46 per cent phosphate or P nutrients besides 18% Nitrogen (N). The annual consumption of DAP is around 10 to 11 million tonnes. Against this, domestic production is less than half 4.5 – 4.8 million tonnes. The deficit is made up of imports from countries such as Russia, Morocco, Saudi Arabia, Jordan, Egypt, and China. According to the Department of Fertilisers (DoF), the requirement of DAP during the current Rabi season is assessed to be 5.5 million tonnes. Out of this, 3.3 million tonnes was to be imported and positioned near the consumption areas before the start of the season. But, that was not to be.</p>.<p>During April-September 2024, DAP imports were 1.96 million tonnes down from 3.45 million tonnes during the same period in 2023-24 – less by 1.5 million tonnes. One could argue that many countries from where DAP comes are in the Middle East and the war there has disrupted the normal Red Sea route, forcing re-routing of ships through the Cape of Good Hope, South Africa. That involves a much longer distance and hence, additional time of up to 45 days for ships to reach Indian ports. But it isn’t simply a case of delay. It has more to do with policy issues.</p>.<p>Under the existing policy for non-urea fertilisers (there are 25 grades of such fertilisers including DAP), the Union Government gives a ‘uniform’ subsidy on a per-nutrient basis to all manufacturers and importers under the Nutrient Based Scheme (NBS). Although they are free to fix the maximum retail price (MRP) taking into account the cost of production/import and distribution (or cost of supply) and subsidy, this is subject to scrutiny by the authorities.</p>.<p>In an office memorandum dated January 17, 2024, the DoF has issued detailed guidelines for the evaluation of the “reasonableness” of the MRPs for all non-urea fertilisers covered under the NBS. Effective from April 1, 2023, the guidelines prescribe maximum profit margins allowed for fertiliser companies – 8% for importers, 10% for manufacturers, and 12% for integrated manufacturers (those producing finished fertilisers as well as intermediates such as phosphoric acid and ammonia).</p>.<p>Companies earning “unreasonable profit”, i.e. over and above the stipulated percentages, in a financial year will have to refund the same to the DoF by October 10 of the following FY. If they don’t return the money during the said period, “an interest at 12% per annum is charged on a pro-rata basis on the refund amount from the next day of end of FY (i.e. in case of FY 2023-24, the interest would be charged from April 1, 2024)”.</p>.<p><strong>Pricing conundrum</strong></p>.<p>Such detailed regulations to the point of micro-managing a firm by itself act as a deterrent to smooth running of its business. That apart, the ‘reasonable’ MRP allowed to it by DoF plus subsidy also fixed by the government should fully cover the cost of supply. If it doesn’t, the manufacturer’s/importer’s operations will be rendered economically unviable. This is precisely what has happened with importers of DAP during the current year.</p>.<p>For the Rabi season, the government has announced a subsidy of Rs 21,911 per tonne along with the MRP of Rs 27,000. These two add up to Rs 48,911 per tonne. Against this, the current landed cost of DAP in the country is US $ 645 (around Rs 54,000) per tonne. Add to this, the cost of movement from the port to the consumption point and the distribution cost, and the cost of supply to the farmer would be more than Rs 60,000 per tonne. A firm won’t go for such import only to incur a loss of over Rs 10,000 per tonne.</p>.<p>The crux of the problem is the government has kept MRP unchanged at the level it was three years ago and yet, reduced subsidy allocation for non-urea fertilisers from Rs 112,875 crore during 2022-23 to Rs 60,303 crore during 2023-24, and Rs 48,894 crore during 2024-25. In the process, it ends up impacting supplies as importers don’t find it economical to import. The government can get out of the logjam only when it stops micro-managing the fertiliser business and leaves it to the market forces. As for subsidies, they should be given directly to the farmers.</p>.<p><em>(The writer is a policy analyst)</em></p>
<p>During the Rabi crops season (October 2024 – March 2025), many parts of the country are reporting a shortage of di-ammonium phosphate (DAP). DAP is a widely used complex fertiliser that supplies 46 per cent phosphate or P nutrients besides 18% Nitrogen (N). The annual consumption of DAP is around 10 to 11 million tonnes. Against this, domestic production is less than half 4.5 – 4.8 million tonnes. The deficit is made up of imports from countries such as Russia, Morocco, Saudi Arabia, Jordan, Egypt, and China. According to the Department of Fertilisers (DoF), the requirement of DAP during the current Rabi season is assessed to be 5.5 million tonnes. Out of this, 3.3 million tonnes was to be imported and positioned near the consumption areas before the start of the season. But, that was not to be.</p>.<p>During April-September 2024, DAP imports were 1.96 million tonnes down from 3.45 million tonnes during the same period in 2023-24 – less by 1.5 million tonnes. One could argue that many countries from where DAP comes are in the Middle East and the war there has disrupted the normal Red Sea route, forcing re-routing of ships through the Cape of Good Hope, South Africa. That involves a much longer distance and hence, additional time of up to 45 days for ships to reach Indian ports. But it isn’t simply a case of delay. It has more to do with policy issues.</p>.<p>Under the existing policy for non-urea fertilisers (there are 25 grades of such fertilisers including DAP), the Union Government gives a ‘uniform’ subsidy on a per-nutrient basis to all manufacturers and importers under the Nutrient Based Scheme (NBS). Although they are free to fix the maximum retail price (MRP) taking into account the cost of production/import and distribution (or cost of supply) and subsidy, this is subject to scrutiny by the authorities.</p>.<p>In an office memorandum dated January 17, 2024, the DoF has issued detailed guidelines for the evaluation of the “reasonableness” of the MRPs for all non-urea fertilisers covered under the NBS. Effective from April 1, 2023, the guidelines prescribe maximum profit margins allowed for fertiliser companies – 8% for importers, 10% for manufacturers, and 12% for integrated manufacturers (those producing finished fertilisers as well as intermediates such as phosphoric acid and ammonia).</p>.<p>Companies earning “unreasonable profit”, i.e. over and above the stipulated percentages, in a financial year will have to refund the same to the DoF by October 10 of the following FY. If they don’t return the money during the said period, “an interest at 12% per annum is charged on a pro-rata basis on the refund amount from the next day of end of FY (i.e. in case of FY 2023-24, the interest would be charged from April 1, 2024)”.</p>.<p><strong>Pricing conundrum</strong></p>.<p>Such detailed regulations to the point of micro-managing a firm by itself act as a deterrent to smooth running of its business. That apart, the ‘reasonable’ MRP allowed to it by DoF plus subsidy also fixed by the government should fully cover the cost of supply. If it doesn’t, the manufacturer’s/importer’s operations will be rendered economically unviable. This is precisely what has happened with importers of DAP during the current year.</p>.<p>For the Rabi season, the government has announced a subsidy of Rs 21,911 per tonne along with the MRP of Rs 27,000. These two add up to Rs 48,911 per tonne. Against this, the current landed cost of DAP in the country is US $ 645 (around Rs 54,000) per tonne. Add to this, the cost of movement from the port to the consumption point and the distribution cost, and the cost of supply to the farmer would be more than Rs 60,000 per tonne. A firm won’t go for such import only to incur a loss of over Rs 10,000 per tonne.</p>.<p>The crux of the problem is the government has kept MRP unchanged at the level it was three years ago and yet, reduced subsidy allocation for non-urea fertilisers from Rs 112,875 crore during 2022-23 to Rs 60,303 crore during 2023-24, and Rs 48,894 crore during 2024-25. In the process, it ends up impacting supplies as importers don’t find it economical to import. The government can get out of the logjam only when it stops micro-managing the fertiliser business and leaves it to the market forces. As for subsidies, they should be given directly to the farmers.</p>.<p><em>(The writer is a policy analyst)</em></p>
