FERTILIZER PRICING

Subject: Economy

Context: Govt considering subsidy to offset rise in global prices of P&K fertilisers’ raw material.

Concept:

Farmers buy fertilisers at MRPs (maximum retail price) below their normal supply-and-demand-based market rates or what it costs to produce/import them.
The difference between the retail price and production cost/domestic price is given as subsidy to manufacturers.

Present regime – Partial DBT (Since April 2018)

The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
Manufacturers of fertilizers (urea) receive 100% of subsidy after fertiliser is delivered to the farmer, and the latter’s identity viz. Aadhaar is captured on the point of sale (PoS) machine at the dealer’s shop.
Therefore, the subsidy continues to be routed through manufacturers even though the sale of fertilizer is being verified using Aadhar ecosystem
The manufacturers sell urea at the maximum retail price (MRP) controlled by the Centre, which is kept at a low level. They also get subsidy reimbursement on unit-specific basis under the new pricing scheme (NPS).
The MRPs of non-urea fertilizers’ are decontrolled or fixed by the companies. The Centre, however, pays a flat per-tonne subsidy on these nutrients to ensure they are priced at “reasonable levels (based on Nutrient based Subsidy scheme)

Recent proposal:

At present, the Centre is following a “no denial” policy. Anybody, non-farmers included, can purchase any quantity of fertilisers through the PoS machines. It leads to bulk purchase of urea that is used for non agri purposes.
Hence , government is considering to put a cap on the maximum amount of fertilisers anybody can buy during kharif/rabi seasons.