Fertilizer Sector

WHY IN NEWS?

• Recently, the Union Government has come up with Integrated Plant Nutrition Management Bill 2022 that empowers it to fix maximum selling price of fertilizers and control its quality and distribution.

WHAT IS FERTILIZER?

• Fertilizer is defined as any organic or inorganic substance, natural or artificial supplying one or more of the chemical elements/nutrients required for plant growth.
• They provide macronutrients and micronutrients to the plants for well-balanced growth.
  • Macronutrients
    • Example: Nitrogen, Phosphorus, and Potassium, Calcium, Magnesium, Sulphur etc.
  • Micronutrients
    • Example: Boron, Chlorine, Copper, Iron, Zinc etc

ISSUES IN THE FERTILIZER SECTOR

• Indiscriminate use of fertilizers:
  • Indian farmers use fertilizers without taking into consideration the actual requirement of the crops and existing composition of soil nutrients
  • Urea dominates the sector >> It is the most produced (86%), the most consumed (74%) and most imported (52%).
  • This result in imbalanced use of fertilisers in India >> it is evident from the fact that the current ratio of nitrogen, phosphorus and potassium (N:P:K) in agricultural soil in several states is skewed towards nitrogen.
  • While the desirable ratio of NPK application is 4:2:1, it is 31:8:1 in Punjab
  • Impact of such practice:
    • This imbalance causes problems, right from stagnating or declining productivity to soil sickness, widespread deficiency of secondary nutrients and micronutrients, and soil alkalinity and salinity.
    • Eventually, it results in reduced efficiency of fertilisers, low yields and low profitability for farmers.
  • The reasons for such practices are:
    • Lack of knowledge among farmers.
    • Faulty government subsidy policy favouring excessive urea use.
    • Deregulation of phosphorus (P) and potassium(K)  fertilizer prices >> High and rising prices of phosphate (90% import) and potash (100% import) due to rising import prices >> cap on subsidies for P and K fertilizers >> low usage by farmers.
• Ecological issues:
  • Green-house gas emissions:
    • Chemical fertilisers are currently the major emitters of nitrous oxide gas (N2O), which is a potent greenhouse gas and ozone depleting substance.
  • Nitrogen pollution of surface and groundwater
    • It has reached alarming levels in several states.
    • In parts of Punjab, Haryana and western Uttar Pradesh, nitrate concentrations in dug wells and shallow bore-wells exceed the limits prescribed by the WHO by several times
  • Soil and ground water contamination >> low productivity >> impact on farmer incomes
  • Eutrophication
    • Due to run offs into rivers, lakes etc >> threat to biodiversity.
• Declining soil fertility:
  • Massive deficiency of micro-nutrients, especially zinc
  • Declining usage of organic manure >> soil becoming deficient in organic nutrients.
• Higher subsidy burden on exchequer:
  • Fertilizer accounts for large fiscal subsidies (0.73 lakh crore or 0.5 % of GDP) >> the 2nd highest after food.
• Excessive government intervention in urea sector:
  • Controlled maximum retail price >> encourages diversion and black marketing)
  • Firm specific cost plus subsidy >> inefficient firms get larger subsidies)
  • Consignment specific subsidy to importers
  • Canalization of imports >> only 3 agencies allowed to import >>shortage when domestic production falls
  • Movement control >>Government tells how much to import and where to sell >> leads to corruption, inefficiency etc.
• Diversion of subsidy
  • Extremely low prices urea also lead to its diversion for non-agricultural uses as well as smuggling to neighbouring countries
  • Only 35% subsidized urea reaches intended beneficiaries
  • 30% of subsidized urea are channelized to non-agriculture uses
• Import dependence:
  • Urea production is highly dependent on imported natural gas:
    • Natural gas is used as feedstock and fuel in the urea sector, forming 70 – 80% of the cost of production of urea
    • Out of the 32 urea plants in India, 29 are gas based.
    • Out of total gas consumption of all these plants only less than 40% is being supplied through domestic sources
  • P and K fertilizer:
    • 92% of total P and K fertilizer demand is met through imports in FY20
    • In case of MOP (Muriate of Potash), it is 100%.
  • Import dependence on raw materials for the sector:
    • India imports significant quantities of key raw materials like rock phosphate, phosphoric acid and ammonia.
    • Also, with a limited number of global suppliers, the bargaining power of the Indian fertilizer players with these suppliers is limited to a certain extent >> Thus, the industry faces both availability and pricing issues for key raw materials on a regular basis.
• Inefficient fertilizer manufacturing cooperatives:
  • Most of the fertilizer manufacturing cooperatives are loss-making due to the high-interest burden

INITIATIVES:

• Direct Benefit Transfer (DBT) system for fertilizer subsidy:
  • DBT system was rolled out in a phase wise manner across all States and Union Territories from September 2017
  • Under the fertilizer DBT system, 100% subsidy on various fertilizer grades is released to the fertilizer companies, on the basis of actual sales made by the retailers to the beneficiaries.
  • Sale of all subsidised fertilizers to farmers/buyers is made through Point of Sale (PoS) devices installed at each retailer shop and the beneficiaries are identified through Aadhaar Card, KCC, Voter Identity Card etc.
• New Urea Policy (NUP) 2015
  • Objectives of the policy are:
    • To maximize indigenous urea production.
    • To promote energy efficiency in the urea units.
    • To rationalize the subsidy burden on the Government of India.
  • Salient features
    • The government will cover the entire cost of natural gas, which is the main feedstock of urea.
    • Movement plan for P&K fertilizers has also been freed to reduce the monopoly of few companies in a particular area so that any company can sell any P&K fertilizer in any part of the country.
    • Rail freight subsidy has been decided to be given on a lump sum basis so that the companies economize on transport >> This will help farmers and reduce pressure on the railway network
  • Achievements of NUP:
    • The production of urea during the year 2017-18 was significantly higher than the production of urea during 2013-14.
• Neem coating of urea
  • The Department of Fertilizers has made it mandatory for all the domestic producers to produce 100% urea as Neem Coated Urea (NCU).
  • The benefits of use of NCU are:
    • Improvement in soil health
    • Reduction in usage of plant protection chemicals
    • Reduction in pest and disease attack
    • An increase in yield of paddy, sugarcane etc.
    • Negligible diversion towards non-agricultural purposes.
    • Due to slow release of nitrogen >> nitrogen use efficiency (NUE) of Neem Coated Urea (NCU) increases resulting in reduced consumption of NCU as compared to normal urea
• New Investment Policy 2012
  • The Government made amendments in New Investment Policy in 2014 to facilitate fresh investment in the urea sector and to make India self-sufficient in the urea sector.
• Policy on promotion of city compost
  • Under the policy, assistance of Rs 1,500 per tonne of city compost will be provided to fertilizer companies for marketing and promotion of city compost.
  • Compost manufacturers willing to market city compost were allowed to sell city compost in bulk directly to farmers.
• Use of space technology in fertilizer sector
  • Department of Fertilizers commissioned a three year Pilot Study on ‘Resource Mapping of Rock Phosphate using Reflectance Spectroscopy and Earth Observations Data’ by National Remote Sensing Centre under ISRO
  • Preliminary data processing for the phosphate mapping is completed.
• Nutrient Based Subsidy (NBS) Scheme
  • Under NBS, the government fixes subsidy on an annual basis based on the weight of the different macro/micronutrient (N, P, K, S, etc) contained in the fertilizer
  • Manufacturers or marketers are allowed to fix the Maximum Retail Price (MRP) at a reasonable level
  • It aims at ensuring the balanced use of fertilizers
  • But the biggest drawback is that urea is not covered under the scheme
• Zero-budget farming:
  • In the Union Budget 2019-20, the government emphasised on ‘zero-budget farming’ that reduces dependency on chemical fertilisers.
• IT based initiatives:
  • Integrated Fertilizer Management System (iFMS)
    • The fertilizer sales are monitored online through web based iFMS by concerned stakeholders like DoF, state agriculture departments and fertilizer companies.
    • The portal facilitates real time online tracking of fertilizer movement, real time tracking of sale of fertilizers at subsidized rates to farmers through PoS devices etc.
    • Under Aadhaar enabled Fertilizers Distribution System (AeFDS), it is mandatory for the retailers to sell subsidized fertilizers through PoS devices.
  • e-Urvarak Dashboard
    • The dashboard is developed by Department of Fertilizers to provide real-time information about the position of supply/availability/ requirement of various fertilizers at national, state and district levels
• Gas Pooling Policy, 2015
  • All urea units would get gas at a uniform price.
  • It seeks to change the industry dynamics in the urea sector by leveling gas costs for all player

WAY FORWARD:

• Decontrol the urea sector:
  • Decontrolling urea will promote balanced fertiliser use, improved soil health and will reduce subsidy burden.
• Shift the focus from urea
  • Government must take efforts in producing and promoting a balanced spectrum of NPK fertilisers as well as micro-nutrients such as sulphur, zinc, boron, iron, manganese and copper
  • Efforts must be made also to promote the use of organic manure, bio-fertilisers and city compost.
• Shift in approach:
  • Assess the sector not in terms of the volume of fertilisers it produces but by analysing the improved soil health and better yield.
• De-canalising urea imports
  • This would increase the number of importers and allow greater freedom in import decision-would allow fertiliser supply to respond flexibly and quickly to changes in demand.
• Bringing urea under the Nutrient Based Subsidy program (NBS)
  • This would allow domestic producers to continue receiving fixed subsidies based on the nutritional content of their fertilizer, while deregulating the market would allow domestic producers to charge market prices
• Better targeting for subsidies:
  • Better targeting through imposing a cap on the total number of subsidised bags each farmer can purchase.
  • Thus, small farmers would still be able to get all their urea at subsidized prices but large farmers may have to pay market prices for more purchases
• Promoting new and innovative fertilizers
  • Promotes controlled release urea, water soluble and liquid fertilizers and nano fertilizers.
• Regulatory reforms
  • Need for an establishment of Fertilizer Development and Regulatory Authority(FDRA)
• Need to create awareness for the optimal level of fertiliser use among farmers:
  • The soil health card can be a good vehicle for accomplishing this objective
• Digitization of land Records
  • Without setting right the land records, it will be impossible to transfer the fertilizer subsidy to intended beneficiaries

BEST PRACTICE:

• Home delivery facility of fertilizers in Andhra Pradesh:
  • Under this system, farmers after biometric authentication can order fertilizers from RBK (Rythu Bharosa Kendra) in their village and fertilizer will be delivered at their door step.

PRACTICE QUESTION:

Q. ‘Due to the neglect and non-cohesive policies of Government, the fertilizer sector with the exception of urea manufacturers has found itself in the abysmal condition’. In this context analyze the role of domestic fertilizer sector in boosting farm output and upgrading the soil health in the country