Time to fix fertiliser policy

Decontrol urea, and subsidise farmers directly

The decontrol of phosphatic (P) and potassic (K) fertilisers through the introduction of a nutrient-based subsidy (NBS) regime in April 2010 was considered a significant stride towards reform. Similar measures were promised for urea, the most-consumed nitrogenous (N) fertiliser. The euphoria over these changes has now waned; their intended objectives have not been met. On the contrary, the worst fears expressed by the antagonists of these policy changes — that fertiliser prices would spiral out of control — seem to have come true. The retail prices of the key phosphatic fertiliser, di-ammonium phosphate (DAP), have soared from Rs 9,000 to nearly Rs 24,000 a tonne in the past two years; those of the main potassic fertiliser, muriate of potash (MoP), from Rs 4,500 to Rs 17,000 a tonne.

Doubts have also arisen over whether subsidy on decontrolled fertiliser is reaching farmers. Thus Minister of State for Fertilisers Srikant Kumar Jena has suggested that manufacturers of DAP and MoP should be asked to furnish costs data and other relevant facts to prove that subsidy payments are being passed on. Of course, it can be argued that both DAP and MoP are almost wholly import-dependent and that their costs have therefore escalated due to the rupee’s depreciation. The government’s recent move to reduce subsidy on these fertilisers by 10 to 24 per cent is linked with this price surge. However, this doesn’t quite negate the doubling and even tripling of their farm-gate prices. Oddly, international prices of these fertilisers have been stable — if anything, they’ve softened a bit in recent months.

The government’s unease over this issue is, therefore, not unfounded. The major worry is that high prices would force the farmers to cut down the use of P and K and increase that of N (urea) whose prices have remained static for the past two years, disturbing the much needed balance in the use of plant nutrients. Such an imbalance is, in fact, already visible as the N:P:K use-ratio is estimated to have deteriorated in 2010-11 to 10:4:1, against the ideal 8:4:2. Worse still, this ratio may get skewed further in the current kharif; in a poor monsoon, farmers may not invest in more expensive inputs. The sales of these fertilisers are already reported to be down by 30 to 50 per cent in recent weeks. Unfortunately, any reduction in nutrient use is bound to worsen the already none-too-bright prospects for kharif production.

The government thus cannot postpone further the most sensible solution: bringing all fertilisers, including urea, under the NBS regime, and giving subsidies directly to farmers instead of routing them through the fertiliser industry. This reform would, in itself, help restore the price parity so essential for ensuring a healthy balance in fertiliser use. Without that balance, soil fertility — and thus crop productivity — may permanently decline.