Fertiliser Crisis a Making of Government's Denial
Image Courtesy: The New Indian Express
Indian farmers have been facing a major crisis because of shortages in availability and an unprecedented rise in prices of fertilisers. Fertilisers are a critical input for agriculture, and a shortage in supply can significantly undermine national food security. Given this, India's secured supply of fertilisers is a fundamental strategic interest. Although the government has increased subsidies to decrease prices, this has not resolved the immediate problems. Also, it has not taken any serious actions to deal with the structural causes of the ongoing crisis.
The roots of the present crisis lie in wrong policies adopted over the last two decades that have undermined domestic production of fertilisers led by the public sector and increased dependence on imports and production by the private sector. Given that India does not have vital raw materials for producing fertilisers, strategic planning by the government to secure supplies of raw materials and produce fertilisers domestically has played a historic role in supporting India's food security. Over the last two decades, this has been undermined by an increasing reliance on the import of finished fertilisers and the production in the domestic private sector. In pursuit of immediate profits, the domestic private sector has, however, not made adequate long-term strategic investments.
This vulnerability has come to haunt the country in recent months as disruptions in global supply chains have resulted in a sharp increase in the international price of significant fertilisers. The fundamental vulnerability of India's import dependence needs immediate interventions, along with long-term strategies for increasing domestic production.
RISE OF INTERNATIONAL PRICES
The international price of fertilisers has been rising since 2020. The latest data from the Ministry of Chemicals and Fertilisers shows that, within a year (November 2020 - November 2021), the price of a metric tonne (MT) of urea increased by 230% ($280 to $923) of diammonium phosphate (DAP) by 120% ($366 to $804), of ammonia by 224% ($255 to $825), and of muriate of potash (MOP) by 22% ($230 to $280). Within a month, between October and November 2021, urea prices increased by about 25% ($690/MT to $923/MT) and of DAP by 15% ($682/MT to $804/MT).
DISRUPTION IN SUPPLY FROM MAJOR EXPORTERS
The availability of fertilisers in India has become increasingly dependent on imports. In 2021, imported urea accounted for about 21% (6.4 million MT) of the total available area in the country. The corresponding share for DAP was 55% (4.5 million MT), and MoP was nearly 100% (1.5 million MT).
China has emerged as the most important exporter of DAP to India in recent years. Globally, China accounts for nearly one-third of the total DAP trade and one-tenth of urea. In 2021, 40% of the total Indian DAP imports were from China. However, due to an energy crisis in December 2021, China halted the exports of DAP until June 2022. This is an essential cause of the sharp rise in the international price of DAP.
With an increase in the price of natural gas, the main raw material for nitrogenous fertilisers, Russia, one of the biggest exporters of urea, has cut down exports in December 2021 and banned exports of ammonium nitrate from February 2022.
Also, as noted above, MoP used in India is almost entirely imported. Belarus, one of the significant mop exporters to India (30% of total imports in 2021), is facing sanctions from the United States (US) and European Union (EU). This is likely to affect both its international price and imports to India.
In addition, the recent eruption of hostilities in the Russia-Ukraine crisis and related sanctions by the EU and the US on Russia have resulted in increasing price of crude oil and Natural Gas, disruption in shipping lines and other freight movements. The crisis would inevitably further push the international price of fertilisers upwards and create havoc among the importing nations, including India.
In other words, there is a simultaneous disruption in the supply of all the three most important fertilisers from key exporting countries. In addition to all this, the COVID-19 pandemic and the shortages in the availability of shipping containers continue to aggravate disruptions in the supply of finished fertilisers and key raw materials like rock phosphate and phosphoric acid.
SHORTFALL IN DOMESTIC AVAILABILITY
The fall in imports and shortages in supplies of raw materials for domestic producers has resulted in a crisis in the availability of fertilisers across the country. The data presented in Figure 1 fly in the face of Union Minister Mansukh Mandaviya’s denial in the Parliament of any shortage in the supply of fertilisers. The Minister, instead, blamed the farmers for hoarding and black marketing.
In the case of DAP, shortage started at the beginning of the COVID-19 pandemic (Figure 1). However, instead of listening to the wake-up call and dealing with the structural weaknesses, the government initially treated it as a short-term supply disruption caused by the Covid lockdown, which would vanish once transport disruptions were dealt with. Then as an issue of rising prices, that could be dealt with by temporarily increasing the subsidy. In line with this belief, the government increased the subsidy in May 2021 and October 2021. However, the crisis only worsened, and the shortfall in supply of DAP became more and more acute from one season to the next. Figure 1 shows that the situation with the availability of MoP has been equally grave, and the trends are similar.
Figure 1: Shortfall in monthly availability of DAP and MoP in 2020 and 2021 in comparison with the corresponding month in 2019 (thousand metric tonnes)
The shortage of DAP was most acutely felt in Rabi 2021 as farmers queued up, sometimes for days, in front of fertiliser shops, cooperative societies and government offices. In many districts, rationing was imposed, and farmers were sold limited quantities of fertiliser. In the Lalitpur district of Uttar Pradesh, Bhogi Pal, a 55-year-old farmer, died standing in the queue to buy fertilisers. In Madhya Pradesh, a farmer allegedly committed suicide, unable to obtain fertilisers.
The shortage of fertilisers led to widespread protests in October-November 2021 when the crisis became severe. In the Hansi district in Haryana, farmers went on an indefinite hunger strike. Such protests were also witnessed in Haryana, Punjab, Uttar Pradesh and Bihar.
GOVERNMENT STILL IN DENIAL
Unfortunately, the government has failed to acknowledge this massive crisis and instead undertaken ad hoc measures, focusing on managing headlines. Capital investments in the fertiliser sector are meagre, and there has been no effort to ramp them up. Of the 943 crores allocated for capital investment in public enterprises in the fertiliser sector, in the 2021-22 budget, only 468 crores were spent according to revised estimates. Allocation in the latest budget has been reduced to Rs 654 crores. Although the government brought back price controls through ad-hoc policy changes, the allocation for fertiliser subsidy, the only immediate measure is taken to prevent domestic prices from rising, has been slashed by 25% in the recent budget when compared with revised estimates of 2021-22.
Over the last two decades, misguided policies of successive governments have exposed a key strategic sector to vulnerability and put India's food security in jeopardy. An assured supply of fertilisers can only reduce the burden on the farmers at affordable prices. While price controls and increased subsidies are necessary to prevent fertiliser prices from rising, strategic goals can only be achieved by putting the public sector in the driver's seat of the fertiliser industry and making long term plans for securing raw materials and increasing domestic production.
Suresh Garimella is a senior research associate with Society for Social and Economic Research (SSER). Pawan Jangra has compiled data used in this article. His views are personal.
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