A fertilizer price policy mess

A fertilizer price policy mess

A sound fertilizer policy, one that takes into account the interests of farmers and manufacturers alike, is impossible to strike in the conditions that prevail in India. A large part of the blame for a skewed nutrient ratio in the country’s farms can be blamed on the distortions in the relative prices of phosphatic and nitrogenous fertilizers.

As reported in Mint on Monday, the department of fertilizers (DoF) refuses to see matters in this light. It has rejected the Union finance ministry’s proposal to decontrol the price of urea, a much-abused, if necessary, fertilizer. Instead, the DoF now wants to proceed with a new pricing scheme (NPS)—“modified NPS-III". This leaves the fate of the nutrient-based fertilizer policy—announced with much fanfare in the budget this year—uncertain.

Any rational manufacturer of fertilizers would like to compute his costs based on the costs of inputs and other expenses. But that is not how urea prices are calculated in India. The DoF has a complicated procedure on how the selling price of urea is computed. The country has urea-manufacturing plants that employ different technologies (such as gas, naphtha and furnace oil/low sulphur heavy stock-based plants) of different vintages. One key objective in calculating prices is to ensure an “adequate" return to manufacturers while maintaining stable urea price. With the complex manufacturing environment described above, calculating such a price is a nightmare. Any “pooled cost" that may be arrived at by some averaging procedure is bound to be unfair to some manufacturer and also to farmers, especially if the latter can buy imported urea at cheaper rates.

A much more straightforward way of ensuring these objectives would be to allow individual plants to determine their own prices and give the gap between the market selling price and the “fair price" (in the eyes of the government) as a direct subsidy to farmers. This would not eliminate all the price distortions in the pricing of urea, but would certainly reduce them greatly.

It is important that the relative price of urea (compared with those of phosphatic fertilizers) be allowed to rise if the health of India’s artificially fertilized soils is to be restored.

Should the price of urea be decontrolled? Tell us at views@livemint.com