Right time for mkt-linked DAP rates with minimal farmer impact: FAI chief

FAI chief S Sankarasubramanian says buying fertiliser assets abroad could keep value capture outside India; FY27 subsidy requirement may be lower as global prices are softening

The current financial year (FY26) has so far been rather good for the fertiliser sector with strong monsoon and rise in crop acreages leading to robust demand. In an interview with Business Standard, Fertiliser Association of India (FAI) chairman and MD and CEO of Coromandel International S Sankarasubramanian said India needs to move towards a more market-driven pricing formula. Edited excerpts

 

This year has been a year of good sales for industry as well as imports. One reason was monsoon; another reason was good crop acreage. Was there a price factor also in the play which is playing into the whole thing that prices are too low for farmers that they are easily going for DAP and urea?

 

In terms of volumes, consumption growth has been very moderate. In urea, it is just around two per cent. So it’s not that consumption has surged. Also, capacity creation cannot happen overnight. Our phosphatic plants are already operating at 100 per cent and for urea is above 95 per cent. But there has been an additional demand push due to increased crop acreage, especially crops like maize that consume more urea. This lifted the volume. Additionally, inventory rebuilding played a major role.

 

Last year we began the year with lower stock levels, so ahead of the rabi season we needed to rebuild inventory. So part of the import volumes has gone into restoring stock levels. On the surface, it may appear that imports surged because production was down or consumption jumped, but consumption grew only marginally. This was primarily inventory build-up to meet rabi demand.

 

India’s NPK ratio is skewed toward nitrogen. Has pricing played a role?

 

Yes, pricing has definitely influenced the imbalance. Urea prices have been kept very low, and DAP prices have also been capped in recent years. The government did this deliberately to protect farmers from global price volatility — especially because India is a major player in the global DAP market, and our purchases can influence prices.

 

When global prices surged due to geopolitical reasons, the government absorbed the shock instead of passing it on to farmers. This pushed up subsidy requirements.

 

After NBS (Nutrient-Based Subsidy) was introduced, subsidy on phosphatics had fallen from 65 per cent to nearly 30 per cent.

 

But in the last few years, because of the additional support to DAP, subsidy share has gone back up. But long term, this may not be sustainable.

 

For balanced nutrition, we need a market-oriented approach.

 

When prices are capped, farmers naturally prefer higher-phosphorus products like DAP over lower-phosphatic NPKs because DAP becomes relatively cheaper. This distorts the ideal NPK balance.

 

So both urea and DAP have been under price caps, and DAP is now almost government-controlled?

 

In the last two-three years, yes. And this has mainly happened after Covid and the supply disruptions that followed. Traditionally, northern India used more DAP, but recently the share of NPKs has risen sharply even in the North. The NP/NPK-to-DAP ratio has shifted from 50:50 to about 65:35. Farmers understand balanced nutrition; we just need to restore price parity quickly to encourage this shift.

 

What kind of parity are you talking about? Should DAP prices be raised to match NPK prices?

 

Not necessarily raise — make it market-oriented. At one point, global DAP was above $800, and passing that on fully would have taken retail prices to Rs 2,400–Rs 2,500 per bag. But now global prices are softening because global commodity prices, like corn, are down. Farmers globally cannot afford high fertiliser prices in market-based systems, so the international market naturally adjusts.

 

So as global DAP prices come down, India will also see price softening. That will be the right time to restore market alignment, with minimal impact on farmers. This supports balanced nutrition.

 

With the subsidy given recently (from October onwards), are you still making losses on importing DAP?

 

The government has provided a one-time advantage-disadvantage compensation package, which helps cover the high import costs. Without it, companies would face heavy losses. This support has been essential.

 

What is the total subsidy number expected this year?

 

The budgetary allocation is around Rs 1.68 trillion. But with elevated DAP prices, the final number may be closer to Rs 1.90 trillion. Final numbers will be clear closer to the Budget.

 

Next year, with softening global prices, do you see the subsidy allocation reducing?

 

If global prices soften — and they are expected to — then subsidy requirements may decrease. Global phosphoric acid and rock phosphate prices are linked to DAP; so if DAP softens, these should fall too.

 

There are some recent spikes in sulphur and ammonia prices. Ammonia went up due to shutdowns by major Middle East producers, but if they resume production, prices should normalise. Sulphur too has risen recently but is expected to soften soon.

 

But overall, directionally, we need to move toward a more market-driven pricing framework, similar to NPK pricing.

 

How much has been the impact of this rupee on your imports and prices and pricing of the product?

 

The rupee rate has a significant impact. But if it is hedged by the government, how much the rupee falls will be fully covered. They cover it at the time of announcement of subsidy. But then again, the rupee has depreciated subsequently also.

 

So this impact is not getting factored in. And this is hitting your margins, because if you were importing phosphoric acid at around that Rs 88/$, now you are importing at Rs 91/$ exchange rate.

 

Some of it can be balanced through product-mix adjustments, but currency depreciation does hurt. This gets corrected when NBS rates are revised every six months.

 

Some industry players say India should buy assets abroad or enter joint ventures instead of depending on imports. Is that a better model?

 

Overseas assets can be part of the strategy, but there isn’t any free lunch. Value capture often happens where processing occurs — if you build plants abroad, much of the value remains there. Also, transporting low-P blends (like 20:20) from overseas is expensive and often uneconomic compared to higher-P products like DAP. So it makes sense to customise grades domestically to suit Indian soils and logistics.

 

A pragmatic approach is a mix: secure rock or mining concessions abroad (possibly via government-to-government arrangements to reduce sovereign risk), while building downstream acid and blending capacities in India. To get self-sufficiency in phosphates, we need to make lots of structural changes as well.

 

What structural changes are needed for phosphates?

 

The key raw material constraint is phosphoric acid production. India can build phosphoric acid facilities — many companies are capable — but producing acid creates gypsum by-products, and we currently lack efficient evacuation and utilisation routes for gypsum.

 

We’ve proposed policy fixes: for instance, gypsum-based products are taxed at 18 per cent GST, and we’re asking for a reduction (to around 5 per cent) to encourage domestic use. It makes little sense to import gypsum while domestic gypsum is under-utilised. If we secure rock phosphate supplies (through imports or overseas mining), build phosphoric acid capacity here, and solve gypsum evacuation, we capture more value in India — from manufacturing to taxation — instead of exporting raw material value overseas.

 

And what is happening with urea? Few years back we were told that India would become self-sufficient in the next five years. Then we were told that once nano comes, we would become self-sufficient. But, leave alone self-sufficiency, our import volumes are only growing?

 

As long as this pricing of urea remains the same, which is a sensitive subject for any government to handle, the consumption will go up significantly. But I believe that the government is seriously looking at it. Two days back, they talked of ensuring that consumption of urea is linked to the acreages and the pilot that they started on this. Though these policy reforms are tough to implement, I sincerely believe that in the next two-three years India should become self-sufficient in urea.

 

Finally, the nano question. Are they the future and what about the questions about its efficacy?

 

I don't know who is working behind all the negativity on nano products and why. We should have the patience to leave it to the farmers to take a call. And the farmers will make a change over a period of time. See, DAP farmers have accepted nano because the price of a bag of DAP is around Rs 1,350, while nano DAP costs just around Rs 650. He is saving 600 rupees. He has got convenience.

 

Nano will stay. We are, we will not leave it as an industry. We will push for, in fact I am planning to have a separate forum within FAI purely to look at nano. Also, it will require huge extension activities to push nano. Currently, for 14 crore farmers or farmer families, we just have around 200,000 extension people.

 

Will nano replace conventional fertilisers entirely?

 

No — it won’t eliminate conventional fertilisers immediately. Replacement will be gradual and partial. Nano products are improving (e.g., increased N content), but their early versions were less concentrated than conventional urea. Even so, high-efficiency products will significantly reduce volumes over time and must be promoted as part of a diversified fertiliser ecosystem: blends, organics, micronutrients, and precision application technologies.