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This is why farmers can’t afford fertilisers-G Vishnu
-Tehelka

Policy flaw lets private players jack up prices and siphon off massive government subsidies.

TO DROUGHTS and abject poverty, farmers can add another crisis: sky-rocketing fertiliser prices. The issue has prompted eight chief ministers of large states to seek the intervention of the Ministry of Chemicals and Fertilisers (MoCF) in the matter. Consider, for example, di-ammonium phosphate (DAP) and muriate of potash (MoP), two fertilisers that used to have massive demand in India — now unaffordable by lakhs of farmers across the country. A 50-kilo sack of DAP that cost Rs 9,350 in April 2010, today costs Rs 25,300; and MoP that cost Rs 4,455 in April 2010 today costs a whopping Rs 23,100 — an unbelievable 170 percent and 418 percent rise, respectively. The problem lies in the pricing and subsidy policy that has been adopted by the MoCF.

The startling bit about the existing pricing policy is that Srikant Jena, minister of state, chemicals and fertilisers, has on at least three occasions informed the Department of Fertilisers on how the private players are making massive profits at the expense of poor farmers. Both international players as well as Indian companies have been hiking the prices of fertilisers, taking advantage of the existing pricing policy.

In notes written on 19 March, 15 June and 4 August, the same issue was raised by the MoS. “By decontrolling retail prices of P&K (phosphatic and potassic) fertilisers, it was never the intention of the government that the firms are at their free will to gain undue profits at the cost of poor farmers, and if it is so, government should stop providing subsidy on decontrolled fertilisers,” Jena said in his 4 August note. However, the department has not even begun to recognise the problem, let alone seek an alternative policy.

What’s more interesting is the political conflict it has triggered between Srikant Jena and the Minister of Chemicals and Fertilisers M K Azhagiri. In fact, the differences over pricing-policy turned into a full-fledged war, when in July this year, Azhagiri reportedly wrote to PM Manmohan Singh asking Jena to be removed from the MoS post alleging obstructionism.

The problem is identified by bureaucrats who have worked at the Department of Fertilisers. “The entire industry is in a state of anarchy. The State’s fertiliser policy has absolutely no control over the practices of these private players. The market is completely unregulated and it is the poor farmer who suffers the most,” says a former official with DoF on condition of anonymity. So why is a sector meant to uplift farmers completely unregulated and riddled with crony practices? “They (private players-manufacturers-importers) cite everything, from international prices to the exchange rates as the reason for hike in fertiliser prices. With DAP, for instance, in no way should the hike exceed Rs 21,000. But it still crossed Rs 25,000,” he adds.

According to government figures, the total quantum of fertiliser subsidy released in 2011 was a whopping Rs 65,836 crore. To understand how this works, consider Urea, the highest consumed fertiliser in India. Cost of production of Urea varies from Rs 8,000 to Rs 40,000 per metric tonnes (MT) depending on whether natural gas or Naphtha is being used for production. Currently, the market rate of Urea stands at around Rs 5,300 per MT. The difference between cost of production and the market price of the commodity is paid to the manufacturer by the government.

Ministry officials say Urea is priced at Rs 11,200, with Rs 5,000 as MRP. This means for every MT of Urea, the government pays Rs 7,000 as subsidy. India produces around 22 million MT of Urea, while consumption is around 28 MT (the shortfall of 6 MT is covered through imports). The CAG in its 2011 report noted that due to subsidies given to companies without checking fraudulent claims, a loss of Rs 50,587 crore was incurred to the exchequer. The CAG also claims that between 2007 and 2010, a fertiliser importer company, Indian Potash Limited, got undue concession of Rs 782 crore after fudging its tenders.

Srikant Jena says the current policy itself is self-defeatist for the market. “Once the government fixes the prices on fertilisers and announces it, exporters inflate their prices accordingly — something they wouldn’t do if the government simply asked them for a price quote,” he explains, adding, “Why can’t we just buy the fertilisers at existing market prices, instead of letting the manufacturer determine the price once we declare our base price?” The trend is that exporters start hiking fertiliser prices October onwards as they know base prices are determined by the GoI around January-February every year.

Explaining the method to the madness in the fertiliser sector and pricing, an official in the MoCF says the policy has many loopholes that benefit companies and spell doom for farmers. “On the one hand, Indian private players (manufacturers) jack up their prices to suit the market demand. If the farmer can afford a certain price, that price will be levied. There’s no upper limit, no regulations. The markets have been destroyed because the farmers just cannot afford the prices. Every monsoon, they jack up the prices as both demand and desperation is high,” he adds.

The official also goes on to reveal how the industry is currently pushing for a rise in Urea prices, which will further escalate the prices of DAP and MoP, as Urea is a common ingredient.

Urea itself is subject to massive pilferage and diversion to industries. “Urea as such is always in demand, not just by farmers, but also by various industries. Urea is essential for manufacturers of dye, plywood and even beauty products. Therefore, pilferage is also high. We had a case where a company was using subsidised urea to manufacture pellets that were further sold to the automobile industry as lubricants. Similarly, potash is in great demand from the firecracker industries, hence is subject to pilferage too,” says a senior official at the MoCF. On this subject too, Jena had suggested creating a uniform policy for sale of Urea for industrial purposes that would eliminate pilferage of what is subsidised fertiliser.

PILFERAGE IN the subsidised industries of dye, cream and plywood has become a major headache for the government. It is a problem several in the DoF recognise but are not in a position to change. For instance, in both Gujarat and Tamil Nadu, not less than 30-40 lakh tonnes of fertilisers — all meant for farmers — are diverted to chemical industries every year, concede officials in the MoCF. Further, officials reveal that a good chunk of potash, a key chemical entirely imported, is pilfered, or worse, repacked and exported.

“It’s all circumstantial evidence. For instance, this year Gujarat was drought-hit. But the state kept demanding more and more Urea. In the present Khariff season, nearly 80 lakh tonnes of Urea was demanded. Where did all that Urea go if farmers were just not in a position to use it?” asks Srikant Jena.

One of the biggest loopholes comes in the form of dealers who act as middlemen between farmers and industry. India has nearly 2.5 lakh recognised fertiliser dealers across the country, all nominated by chemical manufacturers. However, the MoS has been pushing for complete government involvement in selection and monitoring of dealers. “Let the appointment of dealers be made by state government and not traders. We need reforms along with subsidies. If we get the mix right, we can easily control Rs 20,000 crore worth of fertiliser subsidy misuse. Government should keep the producers at arm’s length,” says Jena.

Even though the Department of Fertiliser identified problems with the pricing policy in an August meeting, delays as well as difference of opinion between M K Azhagiri and Jena on policy issues is bound to complicate matters further, leaving the farmer bearing the brunt of what’s clearly not just another policy paralysis.

G Vishnu is Correspondent with Tehelka.