DAP is a widely used complex fertilizer that provides 46% of phosphate or P nutrients besides 18% of Nitrogen (N). Annual consumption of DAP is 10 to 11 million tons.
During the Rabi crop season (October 2024 – March 2025), many parts of the country report a shortage of di-ammonium phosphate (DAP). DAP is a widely used complex fertilizer that provides 46% of phosphate or P nutrients besides 18% of Nitrogen (N). Annual consumption of DAP is 10 to 11 million tons. Against this, domestic production is less than half of 4.5 – 4.8 million tons. This debt is made up of imports from countries like Russia, Morocco, Saudi Arabia, Jordan, Egypt, and China. According to the Department of Fertilization (DoF), the DAP requirement during the current Rabi season is estimated to be 5.5 million tonnes. Of this, 3.3 million tons had to be imported and placed near the processing areas before the start of the season. But, it was not to be.
In April-September 2024, DAP imports were 1.96 million tonnes from 3.45 million tonnes in the same period in 2023-24 – down from 1.5 million tonnes. One could argue that most of the countries where DAP originates from are in the Middle East and its war has disrupted the normal Red Sea route, forcing ships to be diverted to the Cape of Good Hope, South Africa. That involves a very long distance and hence, an extra time of up to 45 days for the ships to reach Indian ports. But it’s not just a matter of delay. It has a lot to do with policy issues.
Under the existing policy on non-urea fertilizers (there are 25 grades of such fertilizers including DAP), the Federal Government provides ‘uniform’ subsidy on the basis of nutrients to all producers and importers under the Nutrient Based Scheme (NBS). Although they are free to fix the maximum retail price (MRP) by considering the cost of production/import and distribution (or supply cost) and subsidy, this is subject to scrutiny by the authorities.
In an office memorandum dated January 17, 2024, the DoF issued detailed guidelines for the evaluation of the “appropriateness” of MRPs for all non-urea fertilizers under NBS. From 1 April 2023, the guidelines set the maximum profit allowed for fertilizer companies – 8% for importers, 10% for manufacturers, and 12% for integrated producers (those who produce finished fertilizers and intermediates such as phosphoric acid and -ammonia).
Companies that earn “unreasonable profit”, i.e. more than the calculated percentage, in a financial year will have to return the same amount to the DoF by October 10 of the following FY. If they do not repay the money within the said period, “12% interest per annum is charged on the basis of the repayment amount from the next FY end date (ie in case of FY 2023-24). , interest will be charged from April 1, 2024)”.
The price paradox
Such detailed regulations go to the extent of treating the company itself as a hindrance to the proper functioning of its business. That apart, the ‘reasonable’ MRP approved by the DoF and the subsidy set by the government should fully cover the cost of supply. If not, the producer/importer’s activities will be made economically unviable. This is exactly what happened when I brought in DAP this year.
For the Rabi season, the government has announced a subsidy of Rs 21,911 per tonne and an MRP of Rs 27,000. The two add up to Rs 48,911 per tonne. Against this, the current import cost of DAP in the country is US $ 645 (about Rs 54,000) per tonne. Add to this, the cost of transportation from the port to the point of consumption and the cost of distribution, and the cost of supplying the farmer can be more than Rs 60,000 per ton. The company will not seek such import only to incur a loss of more than Rs 10,000 per tonne.
The root of the problem is that the government has kept the MRP unchanged for the past three years, however, reduced the subsidy allocation for non-urea fertilizers from Rs 112,875 crore in 2022-23 to Rs 60,303 crore in 2023-24, and Rs. 48,894 crore during 2024-25. In this case, it ends up affecting supply as importers do not get the savings of importing. The government can only get out of the logjam if it stops managing the fertilizer business and leaves it to market forces. As for subsidies, they should be given directly to farmers.
(The author is a policy analyst)
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