The fiscal year has not started on a bright note in terms of fertilizer application. Both urea and DAP witnessed drop in application, by 6 and 33 percent, year-on-year, respectively. The Kharif season is close to its end, and only two months left in the season, the Kharif off-take for urea has almost stayed stagnant, having increased by less than 1 percent year-on-year, to under 2 million tons.
The season hosts two vital crops, cotton and rice, amongst others. With the manufacturing sector in distress, the onus of growth for FY20 would fall largely on the agriculture growth, which makes the input usage patterns, more important than ever before. While, the farmers' input prices were extended some relief in terms of subsidized electricity tariffs for tube well use, the cost of fertilizers has risen significantly, which may lead to the government reconsidering its pricing policy, and a mid-term subsidy on urea cannot be ruled out.
With almost the similar amount of urea applied during the ongoing Kharif season to date, farmers had to incur 20 percent additional cost for only 2 percent additional input application. The combined urea and DAP application cost for the Kharif season, with two month remaining, has crossed Rs120 billion, with 23 percent year-on-year increase in urea cost, and 16 percent year-on-year rise in cost of DAP application. Recall that FY19 also had the highest ever fiscal year spending on fertilizers, with a miniscule increase of just 1 percent year-on-year in volume terms.
There is no denying that the farmers have been given extended relief on some main inputs, especially electricity for tube well use, which should provide some extra breathing space. But that has not really been supplemented by good crops this season and the axe may invariably fall on DAP spending as it goes deeper in the Kharif season.
Farmers have time and again demonstrated that urea remains fertilizer of choice. And farmers will not go beyond a certain threshold to buy more DAP – especially when prices of both commodities are on the rise.
The prices in the international market have remained sticky for quite some time, remaining flattish year-on-year. The increase at home has been mostly driven by pass on costs of feedstock gas and other taxes on the fertilizer raw material. Whether the increase in input cost is compensated by higher support prices, or whether the input will be subsidized to lower the cost, remains to be seen. Food inflation could well be an outcome, as the fiscal rope is too tight to make room for unbudgeted subsidies.