Rising DAP, potash prices dampen kharif yield prospects

As prices of diammonium phosphate (DAP) and complex fertilisers have surged in the intentional market in recent months, domestic fertiliser companies have hiked prices for the upcoming kharif season steeply, in a move that could reduce crop yield as farmers resort to excessive use of subsidised fertiliser urea instead.

Prices of phosphatic and potassic fertilisers are determined by the market as subsidies provided by the government are minimal and fixed. These fertilisers are mostly imported.

Fertiliser cooperative IFFCO hiked prices of DAP and complex fertilisers by 46-58% for supplies from new global contracts for inputs, compared to the rabi season. It has, however, said that about 11.26 lakh tonne of complex fertilisers would still be sold at old rates since these were manufactured prior to the hike in global prices of the key raw material.

“We at IFFCO will ensure that there is enough material in the market with old rates and I have instructed the marketing team to sell only previously packed material with old rates to farmers. We always take decision by keeping a farmer-first approach,” IFFCO’s managing director US Awasthi said in a statement on Thursday.

An internal letter from IFFCO’s marketing director Yogendra Kumar to managers informing them about the new rates had gone viral, generating a strong reaction on social media.

“We at IFFCO, take strong objection [to] tweets or news linking any political party or government for increase in price of complex fertilisers (mixture of N, P, K and S). They are decontrolled, hence, [there is] no linkage to any political party or government,” Awasthi said.

The new prices of complex fertilisers are tentative as the international prices of the raw materials are yet to be finalised by companies, he said. “Indeed, there is a sharp increase seen in the trends of international raw material prices.”

The landed costs of imported DAP is now at about $540 per tonne (Rs 40,281), up from around $400 in October. Similarly, the prices of intermediates such as ammonia and sulphur have also gone up from around $280 and $85 per tonne to $500 and $220 per tonne, respectively. Muriate of potash (MoP) rates have surged to $280 from $230 during the same period.

The government deregulated prices of potash and phosphatic fertilisers in 2010 by agreeing to pay a fixed amount of subsidy to be decided at the beginning of every year. Fertiliser companies are allowed to fix the MSP of these non-urea crop nutrients based on market rates. The country is fully dependent on import for potash, while 80-90% of phosphatic fertiliser is imported to make DAP.

India’s fertiliser consumption in FY20 was about 61 million tonne — of which 55% was urea — and is estimated to have increased by 5 million tonne in FY21. Since non-urea (MoP, DAP, complex) varieties cost higher, many farmers prefer to use more urea than actually needed.

The Centre has not changed the maximum retail price (MRP) of urea since 2012, when it was increased by Rs 50/tonne to Rs 5,360/tonne. The MRP of a 45 kg bag of urea is Rs 242 and that of a 50 kg bag is Rs 268, all prices exclusive of charges towards neem coating and taxes as applicable. Compared to this, a 50 kg bag of DAP costs Rs 1,900.

The government’s total outgo on fertiliser subsidy has been pegged at Rs 79,530 crore for FY22, of which Rs 58,767 crore has been budgeted only for urea.