As India enters the rabi sowing season, farmers in many northern states face a shortage in fertiliser supply, primarily because of a spike in the cost of raw materials used to manufacture crop nutrients.
This has forced the government to once again announce an additional net subsidy of Rs 28,655 crore and instruct fertiliser makers not to raise prices.
What we know so far
Farmers from some of the biggest agricultural states, including Rajasthan, Punjab, Haryana and Karnataka are facing a severe shortage, mainly of Di-ammonium Phosphate (DAP) fertiliser.
DAP contains nitrogen and phosphorus that are the primary nutrients for crops. It is used before the sowing season arrives.
In Rajasthanm, for example, during April-September this year, the central government supplied only 3.07 lakh tonnes of DAP against the demand of 4.50 lakh tonnes in the state. Also, against the demand of 1.50 lakh tonnes in the month of October, 68,000 tonnes of DAP has been approved. This has led to a shortage of DAP in the state.
As per data available with the Department of Fertilisers, at end-September, the stock of all categories of fertilisers was less than that of the same period last year.
The all-India stock of urea was 5,245 thousand metric tonnes (tmt) as of September 30, 2021, compared to 5,590 tonnes in the corresponding period last year. The DAP stock was 2,075 tmt as against 5,023 tmt a year ago. The stock of NPK (nitrogen, phosphorous, potassium) fertiliser was 3,241 tmt, compared with 3,600 tmt, while MOP (muriate of potash) stood at 963 tmt compared with 2,024 tmt.
Why the shortage?
To put it simply, it is because of rising global prices. The raw materials used to make fertilisers, like potassium, nitrogen and phosphorous, are not immune to the surge in worldwide commodity prices. This has led to a slump in the supply. Commodity market traders and companies also cancelled or rolled over contracts.
According to a recent media report, the landed price of imported DAP in India was $675-680 per tonne (cost plus freight), compared to $370 at this time last year. MOP was imported at $230 per tonne a year ago, whereas it is available for not less than $500 today.
This also means that fertiliser manufacturers are in a situation where they will either be forced to increase the prices of reduce production.
It is, in effect, a vicious cycle dictated by market forces.
What is the government doing?
Officials in the state governments are in constant touch with their central counterparts. The media report said Fertiliser Minister Mansukh Mandaviya has directed all manufacturers not to increase retail prices of DAP and other phosphatic fertilisers as part of the government's efforts to ensure the availability of crop nutrients at affordable prices during the ongoing Rabi season.
Mandaviya is also learnt to have made it clear that the Centre will not tolerate any price "cartelisation" among fertiliser companies.
On October 12, the Cabinet Committee on Economic Affairs approved an additional fertiliser subsidy of Rs 28,655 crore, including Rs 5,716 crore as a special one-time package for DAP, for the rabi period.
This adds to an additional fertiliser subsidy outlay of Rs 14,775 crore which the Centre had announced in May. These two increases, totalling Rs 43,430 crore, will take the fertiliser subsidy bill for 2021-22 to Rs 1.23 lakh crore as against a budget estimate of Rs 79,530 crore.
Ahead of the crucial elections in agrarian states like Punjab and Uttar Pradesh, the fertiliser shortage has become a matter of priority for the central government and drive it for more proactive measures.