Softening of global prices of fertilisers and import cost of liquefied natural gas (LNG), a key ingredient in manufacturing of urea in recent months, is expected to reduce the fertiliser subsidies significantly in FY24.

The government is also exploring options of entering into a long term agreement with several countries to source fertiliser, a move that would reduce the cost of imports of soil nutrients.

As per initial estimates, the fertiliser subsidy, which is estimated at a record Rs 2.53 trillion 2022-23 because of high global prices due to Russia-Ukraine conflict, is likely to decline by more than 30% to around Rs 1.8 trillion in the next fiscal.

In terms of volume, imports account for a third of domestic soil nutrients consumption of around 65 million tonne (MT) annually.

“Looking at the current scenario, the budget estimate for 2023-24 for fertiliser subsidy of Rs 1.79 trillion would be adequate,” Arun Singhal, secretary, department of fertiliser told FE.

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He added that long-term contracts being signed with several countries will ensure a certain amount of price stability, even as geopolitical uncertainties are still to recede.

Officials said that natural gas prices, which constitute 85% of the domestic cost of production of urea, have moderated to $14.5 million metric BTU (mmbtu) from around $25 mmbtu in October 2022.

Of total annual demand of 35 MT of urea, close to 29 MT is domestically produced and the rest is imported.

Trade sources said that imported urea prices which rose to $980/tonne in April 2022 had declined by 196% to $ 330/tonne this month.

Global prices of diammonium phosphate (DAP) have dropped by 32% to $680/tonne this month from $1,000/tonne in April 2022. The country imports about half of its annual requirement of 10 MT of DAP.

Around 15% of NPK fertiliser requirements are met through imports. The domestic Muriate of Potash (MoP) of 1.5 MT is met solely through imports (from Belarus, Canada and Jordan, etc).

“We are increasing domestic production and making long term arrangements for imports with exporter countries. It will give us an opportunity to get fertiliser at our price,” fertiliser minister Mansukh Mandaviya recently stated.

Indian companies have signed a series of long-term deals with Morocco, Saudi Arabia, Canada, Russia, Oman, Israel and Jordan for importing crop nutrients. These agreements for long term sourcing of soil nutrients constitute about 30% of total requirement.

In January, 2023, four fertiliser firms – state-run National Fertilisers Limited and Rashtriya Chemicals and Fertilisers Ltd and Chambal Fertilisers and Chemicals Ltd and Paradeep Phosphates Ltd from the private sector – signed a memorandum of understanding (MoU) with Morocco’s OCP Group for annual imports of 1.75 MT of phosphorus (P) and potassium (K) fertilisers.

In October, 2022, Rashtriya Chemicals and Fertilizers Ltd signed MoU with K Plus S Middle East FZE DMCC, a subsidiary of Germany’s K+S Minerals and Agriculture GmBH for supply of around 0.1 million tonne (MT) of MOP annually till 2025 at a discounted India specific price.

Coromandel International, Chambal Fertilizers and Indian Potash Limited in September, 2022 signed an MoU with Canpotex, Canada for import of potash.

In August last year, India and Saudi Arabia had signed a pact for an annual supply of 2.5 MT of ammonia and DAP, NPK fertilisers till 2025.

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In case of urea, farmers pay a fixed price Rs 242 per bag (45 kg) against the cost of production of around Rs 2,650 per bag. The balance is provided by the government as a subsidy to fertiliser units.

The retail prices of phosphatic and potassic (P&K) fertiliser, including diammonium phosphate (DAP) were ‘decontrolled’ in 2020 with the introduction of a ‘fixed-subsidy’ regime as part of Nutrient Based Subsidy mechanism announced by the government twice in a year.

At the G20 Summit in Bali last year, PM Narendra Modi had said “today’s fertiliser shortage becomes tomorrow’s food crisis.”