Fertilizer Contracts Not Enough To Meet Needs.

Indian companies have failed to contract diammonium phosphate (DAP) and muriate of potash (MoP) in quantities adequate to meet domestic needs, despite the subsidy on non-urea fertilizers having been raised for the second time since February,

Each year, India requires about 7 million tonnes (mt) of DAP and 6 mt of MoP, most of which is imported, either as a finished product or at an intermediate stage—phosphoric and sulphuric acid or the raw material, rock phosphate.

Since March, Indian companies have sought to import 1.8 mt of DAP but there are no MoP import contracts, officials said.

While the government has not yet notified the second upward revision, companies have been informally allowed to import DAP and MoP at benchmarked prices of $612 and $420 per tonne, respectively.

DAP is used in conjunction with or as a substitute for urea, and MoP is primarily used for crops such as sugarcane and rubber.

“Although less than a fourth of the total domestic consumption of DAP has been contracted for import, we are confident that the country will not be short on phosphatic content,” said an official of the department of fertilizers (DoF), on condition of anonymity. “As for MoP, we’re not particularly concerned, as it is used primarily for cash crops.”

Sudhir Panwar, a professor at the University of Lucknow, disagrees.

“Potash is important for root development in plants, and is, therefore, used in the sowing season. Its non-availability would have an adverse impact on crops in regions withsub-normal rains,” he said. “Also, growth and development of almost all crops except pulses would be negitively impacted.”

On 11 April, the Fertilizer Association of India (FAI) said that if international prices of MoP did not soften, the industry would have to take a potash “holiday”, referring to a situation where a particular commodity is not imported.

In 2010-11, the benchmarked price for DAP was fixed at $500 per tonne, and for MoP at $370 per tonne. The international spot price for DAP hovers at $610-630 per tonne and for MoP at $400-430 per tonne.

In a 19 November notification, DoF fixed a subsidy of `12,960 per tonne for DAP and `12,831 for MoP for 2011-12. This would have allowed private companies to import DAP and MoP at or below the benchmarked prices of $450 and $350 per tonne, respectively.

As companies had failed to contract the fertilizers at these levels, in March the government had raised the benchmarked prices to $580 per tonne for DAP, and $390 per tonne for MoP.

As India subsidizes fertilizers, the procurement price is a function of the subsidy the government offers on various categories of fertilizers. Most importers finalize contracts for the following fiscal by January or February.

The issue of fixing the subsidy for decontrolled fertilizers has generated much debate within government circles. On 23 December, Mint reported that junior minister for chemicals and fertilizers, Shrikant Jena, had circulated an internal note arguing that the proposed procurement price be “significantly reduced” from the $370 per tonne that Indian companies are paying this fiscal. Jena was of the view that the procurement price for MoP should not be higher than $300-320 per tonne.

In an internal note that Mint reviewed, Jena asked the ministry to determine whether international suppliers of DAP and MoP are negotiating the “India price through only one of the major suppliers like Phoschem and Canpotex... If this is true, we need to examine as to whether these arrangements in international trade are legal in the context of free trade practices, WTO (World Trade Organization) agreements, and anti-trust laws of USA, and take appropriate action for derecognition of such entities, wherever desirable”.

Source : livemint.com