Financial Times

Question mark over fertiliser subsidy
Despite government announcements that the price of urea fertiliser will be reduced from May 1, private sector importers are in a quandary because they have not got any official intimation of the move up to Friday morning and the subsidy is said to be inadequate.

Farmers are urgently in need of fertiliser as they have to draw stocks to prepare their fields in early May. The government has announced that the retail price of urea should be brought down to below Rs. 600 per 50 kg bag from May 1 from the current price of Rs. 800 - 850 per 50 kg bag.

The subsidy is to be increased by Rs 5,000 to Rs 14,000 per MT from the existing Rs. 9000 per MT. Importers are expected to pass the benefit of the higher subsidy to farmers. The subsidy will also be extended to existing stocks.

But importers said they could not reduce prices without official intimation from the government and that the subsidy would have to be raised to Rs 15,500 a tonne for them to break even. Finance Ministry officials declined comment. National Fertiliser Secretariat officials were unavailable for comment.

Importers said the subsidy has been calculated by taking the world market price of urea at US$ 203 per tonne while they have stocks bought at $210. Furthermore, the announced subsidy is not enough to cover the cost of transport to paddy growing areas.

"The season has started and farmers will have to buy fertiliser now," a private sector importer said. "But we cannot incur a loss and sell below cost. Furthermore, if the world market prices go up the government will have to increase the subsidy."

Fertiliser is imported by the private sector under license and importers are believed to have stocks of around 40,000 MT. Last year, total fertiliser sales amounted to 592,000 metric tonnes, with imports consisting of 514,000MT.

Fertiliser sales fell last year after prices rose with the reduction in government subsidy and higher world prices which reduced usage among farmers. Importers also called for the removal of the 15 per value added tax on fertiliser as a way of bringing down the retail price.

Industry officials warned that reducing the price of fertiliser alone through subsidies would not solve all the problems of farmers and that it could create an imbalance in the nutrient levels of rice plants.

Fertiliser accounts for 15-20 percent of a farmer's total cost of production. Bringing down the price of urea might prompt farmers to use more of that fertiliser and less of other types which provide other nutrients."When you lower the urea price farmers will start using only urea because it is cheaper but they will not apply the balance nutrition. This creates an imbalance in the soil and plants will not get a balanced nutrition," an industry official said."The result could be that the paddy plant will not be a healthy one but be weak and be susceptible to pest and fungus attacks.

Then farmers will have to pay extra on agro-chemicals. Furthermore, yields could also start dropping. The effect would not be seen at once but over a period of time."Instead of subsidising the cost of fertiliser, the government should give farmers a guaranteed price for his produce."

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