Lessons from a Fertiliser Shortage

India is facing a significant shortage of di-ammonium phosphate (DAP) fertiliser, which has led to long queues at distribution centres and even police deployment to manage the crowds. The shortage, coupled with higher prices than the government-fixed maximum retail price (MRP), has exposed the failure in short-term planning, the inadequacies of price control mechanisms, and the broader issues with fertiliser subsidy policies.

Fertiliser Shortage and Poor Planning

• Shortage of DAP Stocks: The shortage of DAP fertiliser, which is crucial for early-stage crop development, has become particularly severe this year. Despite an estimated demand of 60 lakh tonnes (lt) during the rabi season, there were only 15-16 lt in stock on October 1, far below the required 27-30 lt. This indicates a significant failure in advance planning and stock management.
• Decline in Domestic Production and Imports: Domestic production and imports of DAP have been inadequate, with only 21.5 lakh tonnes produced (down from 23.3 lakh tonnes in 2023) and just 19.7 lakh tonnes imported during April-September 2024 (compared to 34.5 lakh tonnes in the same period in 2023). This shortfall has exacerbated the fertiliser crisis, leaving farmers scrambling for the commodity.
• Farmers' Struggle Amid Shortage: Farmers are struggling to obtain DAP in time for the sowing season, particularly for crops like mustard, potato, and wheat. The shortage has come at a time when good monsoon rains and higher crop prices have encouraged farmers to plant, but the lack of availability of fertiliser is severely limiting their ability to do so.

The Impact of Price Controls and Subsidies

• Price Controls and Their Impact on Imports: The government-imposed price control of Rs 27,000 per tonne for DAP, combined with a subsidy of Rs 21,911, has made imports unviable. The actual landed cost, including bagging and distribution, totals around Rs 65,000 per tonne, creating a significant gap that discourages fertiliser companies from importing DAP.
• Fertiliser Subsidy Crisis: The subsidy structure for DAP is not covering the actual costs involved in importation and distribution, leading to artificial shortages. Farmers are reportedly paying up to Rs 350 more than the government-fixed MRP of Rs 1,350 per 50-kg bag, highlighting the negative consequences of the price control mechanism.
• The Case for Policy Reform: The DAP crisis underscores the inefficacy of price controls and product-specific subsidies. It is argued that instead of continuing with these outdated mechanisms, a more efficient approach would be to offer a flat per-acre subsidy to all farmers, incentivising competition among suppliers and improving fertiliser availability and quality.

Practice Question

Q. Examine the issues arising from India’s fertiliser subsidy policy and price controls, particularly in the context of the current DAP shortage. What reforms are needed to address these challenges and ensure a sustainable fertiliser supply?