A fresh approach needed to manage demand and supply of fertilisers

In view of the importance of fertilisers in Indian agriculture, it is needless to mention that fertiliser supply security is prerequisite to food security. There has been a continuous challenge to ensure timely supply of fertilisers to farmers. Now and then, there are reports of constraints in availability in some parts of the country. India is the second-largest consumer of fertilisers in the world, but lacks the natural resources to manufacture them. It has made India import dependent for meeting almost 90 per cent of the requirement of raw materials to produce fertilisers.

 

Urea accounts for almost 50 per cent of all fertilisers and 82 per cent of nitrogen nutrient consumed in the country. Six new urea plants were commissioned during 2019-22 after a gap of almost 20 years. Urea manufacturing capacity in the country is sufficient to meet nearly 80 per cent of consumption. Additional production from new capacity and enhanced capacity of old plants increased production from about 24 million tonnes in 2018-19 to nearly 31 million tonnes in 2024-25. This reduced urea imports from a high of 10 million tonnes in 2020-21 to 5.7 MMT in 2024-25. But domestic industry is dependent on imported natural gas to the extent of almost 85 per cent of its requirement. Since natural gas supply remains quite steady under long-term supply contracts, capacity utilisation of urea plants is always nearly 100 per cent.

 

 

Increasing demand of urea

 

There has been continuous increase in demand for urea in spite of several efforts of the government, including introduction of nano urea and promotion of organic agriculture. Urea demand has gone up from 31.4 million tonnes to 38.2 million tonnes during the last 6 years.                                

 

With recent closure of a few plants and ever-increasing demand for urea, our dependence on imported urea will increase in coming years. Other than a coal-based plant under construction in Talcher, Odisha, there is no new capacity under construction.

 

There is a need for measures to optimise use of urea. Change in cropping system, improved application practices and water management can increase use efficiency of nitrogen. It should be possible to increase nitrogen use efficiency (NUE) by 10 per cent with enhanced extension services. It means average NUE can be increased from 40-45 per cent to 45-50 per cent in agriculture intensive states. This will save 2.2 million tonnes of nitrogen application equivalent to almost 5 million tonnes of urea. But the overriding factor for growth in use of urea remains artificially low price of urea, which accounts for only 15-20 per cent of cost of production or imports. This has led to excess use of urea by farmers. Though there are no estimates available, such heavy subsidy on urea is also responsible for its diversion to demand centres other than Indian farmers.

 

Therefore, it can be concluded that 5-6 million tonnes can be saved without sacrificing agriculture production. With the average cost of production being in the vicinity of $400 per tonne urea, one can easily see that there are huge savings to be made by farmers and the government on urea subsidy. What is needed is strengthening of extension services by state governments and rationalisation of urea retail price by the Centre.

 

Simultaneously, it should also be ensured that there is adequate investment in existing urea plants to sustain and even increase production. Supply side of nitrogen can also be improved by promotion of production of green ammonia through adequate incentives under various schemes. Incentives under Green Hydrogen Mission equivalent to about $100 per tonne ammonia are not adequate. Green ammonia should be made competitive with imported ammonia and ammonia produced using imported gas. This requires higher incentives in initial years till the cost of green hydrogen decreases and hence green ammonia comes down.

 

Green ammonia can be used to produce urea to the extent possible and other nitrogen containing fertilisers. This will not only reduce our dependence on imported urea and natural gas, but will also be a big step in advancing towards our climate change goals. A technology fund can be established to promote production and use of green ammonia and investment in modernisation of existing ammonia urea plants.

 

India’s capacity to produce phospahtic fertilisers underutilised

 

In case of phosphatic fertilisers, India has a very small quantity of domestic rock phosphate which meets less than 5 per cent of phosphate consumption in the country. Rest is imported either as raw material-rock phosphate or intermediate-phosphoric acid to produce phosphate containing fertilisers. The gap between demand and domestic production is made up with imports of finished products. India has sufficient manufacturing capacity in this segment, but it is not fully utilised either due to lack of availability of sufficient raw materials or commercial reasons. There are only a limited number of countries endowed with large phosphate resources. These countries export both raw materials and finished products.

 

Many times relative prices of raw materials and finished products make manufacture of fertilisers in India unviable. Hence, we continue to import almost 30 per cent of phosphatic fertilisers.

 

Situation has become more critical in view of geopolitical conditions. India has been following the approach to import raw material, intermediate and finished products to mitigate the risk of dependence on import of a single commodity. For the security of supply, Indian fertiliser companies established six joint ventures in Senegal, Morocco, Jordan, Tunisia and South Africa for production of phosphoric acid with buy back arrangements. But availability of phosphoric acid still falls short of the requirement of Indian plants. In the absence of commercially exploitable resources, India is completely dependent on imported potassic fertilisers in the form of Muriate of Potash (MOP).

 

Certainty needed in pricing policy

 

The policy of nutrient-based subsidy should have certainty in the level of subsidy for at least 2-3 years. MRP of these fertilisers should be market determined as is the provision in the policy. This will help the industry to plan and arrange imports of raw materials and finished products in advance. India being the largest importer, moves in the international markets and last- minute entry of Indian buyers pushes up the prices. Certainty in pricing policy will also help companies to sign long-term supply agreements for inputs and products.

 

There are deposits of low-grade rock phosphates in Madhya Pradesh which need to be exploited. This low-grade rock can be beneficiated to higher grade. In fact, there are a few beneficiation plants in Madhya Pradesh, but are not getting the raw rock phosphate to process to high grade rock for production of SSP and DAP. There are also some low-grade potash minerals in Rajasthan and elsewhere which need to be exploited. Even minor sources like sea bittern and sugar industry waste can contribute to availability of potash in a significant way.

 

There is a need for investment in phosphate and potash mines abroad to secure supply of the basic raw materials which will help to better utilise the domestic capacity. In view of the risk associated with acquisition of large mines for phosphate and potash abroad, the government should help to mitigate investment risk and help raise funds for the same. It can establish an investment fund which can participate in equity and debt to enable companies to take up such projects.

 

There is also the need to change the consumption pattern of fertilisers. Enhancing use of organic fertilisers can hardly be emphasised to increase soil organic carbon of soils. This will help to increase the efficacy of chemical fertilisers. Amongst the chemical fertilisers, consumption should be diverted away from urea and DAP in the interest of balanced fertilisation. Products like ammonium sulphate, single super phosphate, triple super phosphate and various complexes need to be promoted. This will also take pressure off from demand of urea and DAP.

 

To conclude, there is a need for a fresh approach to manage fertiliser demand and ensuring supply of fertiliser raw materials and products. Pricing and subsidy policies need to be overhauled to rationalise consumption patterns and incentivise exploitation of indigenous resources. Government should also facilitate investment in modernisation of Indian fertiliser plants and mines abroad. In view of strategic importance of fertilisers, there have to be medium- and long-term plans to avoid any crisis in future.  (The writer is a professor with ICRIER).

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