FocusIndia urea subsidy changes may help govt pay for costly ferts

04 November 2011 11:40  [Source: ICIS news]

By Lauren Williamson

SANYA, China (ICIS)--There is a push to bring urea fertilizer into India’s nutrient-based subsidy (NBS) system but there are concerns that the country would be more susceptible to demand destruction with increasing international prices.

The NBS was introduced in 2010 and only covers phosphate (P) and potassium (K) fertilizers.

But at an International Fertilizer Association (IFA) conference in Sanya, China, attendants on Friday heard speaker Satish Chander, head of the Fertilizer Association of India, proclaim its benefits.

“The NBS has been well received by all stakeholders. It’s good for the country, good for the farmer, good for everyone,” Chander told the crowd.

It’s also good for the government, as it allows the state to recoup more money from citizens after it spends a large portion of the state’s budget on securing imports.

Essentially, the NBS allows the government to import P and K fertilizers in large quantities but adjust the maximum retail price (MRP), or the subsidised price farmers pay, based on the cost of the imports.

Currently, the price for urea is set at rupees (Rs) 1,250/50kg bag ($25/50kg, or $500/tonne), no matter what price the government pays for the imports.

The most recent purchase tender closed on 5 October and was issued by Minerals and Metals Trading Corporation of India (MMTC). Though there were initial indications the country would only buy around 800,000 tonnes, India ended up importing 1.8m tonnes, all for prompt delivery before December.

The urea price was $522-525/tonne CFR (cost and freight), depending on discharge port. This nets back to around $490/tonne FOB (free on board) for Black Sea prilled urea.

Latest Black Sea urea prices have increased to $500/tonne and the market is set to firm in the short term.

If India were to import its annual requirements, roughly 5.5m tonnes, at this price level, the government budget would be dealt a definitive blow. But with the NBS at least the government could pass some costs down to its people by raising the MRP.

In the long term, India hopes to become self-sufficient in urea production, though already it produces 20m tonnes/year. But in the meantime, proponents want the government to approve urea under the NBS, and the government has been actively addressing the matter for several months.

A fertilizer trader close to the situation said, “It’s the minister in power who doesn’t want this change because it’s an election year. He doesn’t want to lose voters. But everyone else wants it so it will happen - it’s just a matter of when.”

Chander told conference delegates that he felt confident it would happen before the country began its 2012 imports. But he issued a warning as well.

“If the [international] prices go up, then there is going to be demand destruction. Farmers will pay higher prices but only to a certain level.”

For more on urea visit ICIS pricing fertilizers

By: Lauren Williamson
+44 (0) 20 8652 3214

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