Urea price may be increased by 10% but decontrol unlikely anytime soon

Written by Sunny Verma | New Delhi | Updated: Sep 28 2012, 08:52am hrs
The Union cabinet will consider a proposal to hike urea price by 10% early next month even as the fertiliser industry feels a minimum 40% increase is needed to check overuse of the highly subsidised fertiliser. The move follows finance minister P Chidambaram's recent letter to chemicals & fertilisers minister MK Alagiri asking for an increase in urea price. The government, however, has apparently put the plan to decontrol the price of this fertiliser in abeyance.

Subsidised urea has led to farmers excessively using this complex, resulting in an imbalanced fertiliser mix, with low usage of non-urea fertilisers P (phosphate) & K (potash) that were decontrolled in April 2010. Wide disparity between prices of urea and non-urea fertilisers largely a result of the lopsided subsidy regime has adversely affected the fertiliser use mix in the country.

Prices of di-ammonium phosphate (DAP) have gone up by 150% while those of muriate of potash (MoP) have risen by 280% since the introduction of the nutrient-based subsidy (NBS) regime, which saw decontrol of prices of the two. But urea prices have remained constant as the government stepped up subsidy on this fertiliser. As a result, the gauge of balanced fertilisation the NPK ratio has skewed towards excessive use of nitrogen (N) and disproportionately lower use of other nutrients P and K. NPK use ratio widened from 4.7:2.3:1 in 2010-11 to 6.5:2.9:1 in 2011-12, due to steep fall in P & K consumption.

Increase in the price of urea, which would not only reduce the total subsidy requirements, but would also correct the skew between prices of P & K fertilisers and urea, which is resulting in an over-use of urea, Chidambaram said in his letter to Alagiri last week. Chidambaram also asked the chemicals & fertiliser ministry to prepare a concept note on direct cash transfer of fertiliser subsidy to the cultivators. Sources in the fertiliser ministry said the Cabinet will take a fresh call on increasing urea prices, and the hike would be 10%.

The Cabinet deferred a decision to raise urea prices in June after the decision faced political opposition.

Industry players believe there is an urgent need to increase urea prices and to bring them under the NBS regime. Imbalanced usage of fertilisers would affect food output going ahead, while immediately hitting soil fertility.

The price of common salt today is R12 per kg but the urea is available at R5.30 per kg, so the price needs to be brought nearer to salt (at least), Iffco managing director US Awasthi said, indicating that there should be at least 50% increase in the price of urea. He welcomed plans for direct transfer of fertiliser subsidy to the farmers.

Urea is currently priced at R5,340 a tonne, while non-urea complexes like DAP and NPK are ruling at R24,000 and R22,000 a tonne each; leading to excessive use of urea and even smuggling of this fertiliser to other South Asian countries. Fertiliser Association of India chairman A Vellayan believes at least 40% increase in urea price is required to correct the imbalanced use of fertilisers.

At $96 per tonne, India has the lowest urea prices among many countries. Urea is sold at $266 per tonne in Pakistan, $295 in China, while its retail price in the US is $526. International prices are currently in the range of $500-600 per tonne. Urea prices were last revised in 2010 by 10%. Introduction of NBS for P & K fertilisers deregulated prices of these complexes while the subsidy component for them was fixed on per kg of nutrient basis.