Price distortions in fertilisers will not help farming in the long run. Govt can offer acreage-based cash transfers

Source: The post is based on the article “Price distortions in fertilisers will not help farming in the long run. Govt can offer acreage-based cash transfers” published in the Indian Express on 12^th November 2022.

Syllabus: GS – 3 – Issues related to direct and indirect farm subsidies and minimum support prices.

Relevance: About India’s fertilizer consumption.

News: Both the Soil Health Card scheme and mandatory neem-coating of urea are aimed to promote the balanced use of fertilisers. However, the annual consumption of this nitrogenous fertiliser has only risen from 30 to 35 million tonnes (mt) in the last five years.

What India’s recent fertilizer consumption denotes?

Increased Urea and DAP: The sale of urea went up by 3.7% during April-October over the period 2021. The consumption of di-ammonium phosphate (DAP) also increased to 16.9% over the same time.

Decrease in other fertilizers: Sales of all other fertilisers — including complexes containing nitrogen (N), phosphorus (P), K (potash) and sulphur (S) in different proportions – have reduced over the same time.

Farmers not balancing the use of fertilizers: This denotes that Indian farmers are effectively applying just urea and DAP — both high-analysis fertilisers containing 46% N and P respectively.

Why there is little incentive for farmers to buy other fertilizers?

The government has fixed the maximum retail price (MRP) of urea and DAP is around Rs.6000 and Rs.27000 respectively. But the government informally fixed MRPs at Rs 29,000-31,000 and Rs 34,000 per tonne for NPKS complexes and muriate of potash (MOP) respectively.

All this makes a) Increased use of DAP as it has 46% P as well as 18% N, and b) The current NPK ratio is about 13:5:1, as against the ideal 4:2:1.

What should be done to ensure balanced fertilizer consumption?

1) The government should replace subsidies on individual fertiliser products with a flat per-hectare cash transfer, maybe twice a year, 2) Create every farmer an e-wallet account into which the cash transfer can be credited before the kharif and rabi planting seasons. Further, the e-wallet may be used only for the purchase of fertilisers, and 3) The government can maintain a stock of basic fertilisers, including urea and DAP, to keep the price rise in check even in a decontrol scenario.