Sharp spike in global fertiliser prices set to hit subsidy bill

The landed prices of ammonia, an imported intermediate used for domestic DAP production, have also climbed from $300-310 to $400-405 per tonne in the last one-and-a-half months.

“The trend of international prices easing off, from the highs scaled immediately after Russia’s invasion of Ukraine in February last year, has clearly reversed,” said an industry source.

At their peak, import prices of DAP touched $950-960 per tonne in July 2022; urea was at $900-1,000 per tonne in November-January 2021-22 (even before the war); ammonia was at $1,575 in April 2022 and phosphoric acid at $1,715 in July-September 2022.

“If the current trend continues, even the $850 per tonne import price fixed for July-September with global suppliers, will have to be reset in the coming quarter,” said the source.

Meanwhile, muriate of potash is still priced reasonably low at $319 per tonne, having fallen from $590 per tonne till March 2023 and $422 in April-June. Russia is keeping the global potash market well supplied for now.

For the Modi government, the trend of reversal of international prices presents two problems.

The first is fiscal. The Union Budget for 2023-24 had provided Rs 175,100 crore towards fertiliser subsidy. Of that, only Rs 45,112.53 crore was spent during the April-June quarter, with falling global prices then promising further savings in the remaining months.

Those calculations may now have to be revisited. In a year that leads to the national elections — expected to be held in April-May 2024 — the government will have no option but to provide more towards fertiliser subsidy, the bill for which touched Rs 2,51,339.35 crore in 2022-23.

Related to this is the second problem, which is political. The Modi government has targeted DAP imports of 6 million tonnes over the next four months, to ensure enough supply in November-December. That is the time for sowing of rabi crops – including wheat, mustard, barley, chana, masur, potato, garlic and jeera – as well as elections in the key states where these are grown.

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“The government wouldn’t want any shortage of fertilisers or visuals of farmers standing in long lines for hours to get the odd bag of DAP or urea at that point. It will definitely go the whole hog to import and budget for higher subsidy, if necessary,” said the source.