The Union Cabinet on January 1, 2025 approved the extension of a one-time special package of Rs 3,500 per metric tonne (MT) on di-ammonium phosphate (DAP), a fertiliser crucial for India’s food security.
This subsidy, with financial implications of Rs 3,850 crore, was originally set to expire on December 31, 2024 and will now continue until “further orders to ensure the sustainable availability of DAP at affordable prices for farmers”.
While the government’s decision aims to contain the global rise in DAP prices, fertiliser companies reliant on imports face economic challenges due to the rupee’s continued depreciation against the dollar. The recent slide — from Rs 83.56 in mid-September to Rs 85.78 per dollar in early January — has raised import costs, exacerbated by the Red Sea crisis that drove up fertiliser costs throughout 2024.
The current subsidy does not fully offset the impact of rupee depreciation, leaving fertiliser companies grappling with losses.
DAP, the second-most consumed fertiliser in India after urea, is primarily used in crops such as wheat, mustard and pulses. It is an important nutrient for plant growth.
DAP prices have remained unchanged at Rs 1,350 per 50-kilogramme bag or Rs 27,000 per tonne for the past two years, supported by government subsidies under the Nutrient-Based Subsidy (NBS) scheme, based on their nitrogen, phosphorus, potassium and sulphur content.
The NBS rate for DAP for the 2024-25 Rabi season (October 2024 to March 2025) is Rs 21,911 per tonne for fertiliser companies, approved by the government in September 2024. The special subsidy of Rs 3,500 per tonne applies in addition to the NBS.
Fertiliser companies are now entitled to a gross realisation of Rs 52,411 per tonne (Rs 27,000 market price + Rs 21,911 NBS subsidy + Rs 3,500 special subsidy).
Technically, the government has not done any major change in the overall support as the subsidy was already in place till December 31, 2024 and it is simply being continued now.
The rupee has depreciated sharply, surpassing 85 per dollar on December 19, 2024 and reaching a life-low of 85.80 intraday on December 27. On January 3, 2025, it fell by 5 paise to 85.75 against the US dollar. This, among other things, has caused fertiliser companies to lose money on DAP imports, which can impact imports and could also lead to a shortage of this crucial fertiliser.
Overall, in 2023-24, India imported 70.42 lakh metric tonne of urea and 106.53 lakh metric tonnes of phosphorous and potassium fertilisers.
In the case of DAP, imports account for approximately 60 per cent of the country’s total consumption of this phosphorous fertiliser.
The landed import cost of fertiliser is now $632 per tonne in the global market, with the rupee’s current depreciation against the dollar adding around Rs 1,400 per tonne to the cost. Thus, with the weak currency inflating the DAP import price, companies are hesitant to import, as it has become unsustainable.
“We have been heavily impacted by the rupee crisis since December. Whenever the subsidy calculation was done, it was based on the fiscal situation at the time. But now that the rupee has weakened, we are losing money,” said a fertiliser company source.
At an exchange rate of Rs 85.78 per dollar, the landed import cost for DAP is Rs 54,213 per tonne, which rises to around Rs 60,000 per tonne after accounting for dealer margins, port handling and customs duties, said a member of the Fertiliser Association of India (FAI).
However, the gross realisation for fertiliser companies remains at Rs 52,411 per tonne, resulting in losses of around Rs 7,589 per tonne.
“If the government had withdrawn the Rs 3,500 special package, prices would undoubtedly have risen because the companies are losing money,” said the FAI source.
“So, while this decision has helped farmers in some ways, DAP has now become a loss-making business for the industry. The government will have to either increase the ad hoc subsidy or allow industry to raise the maximum retail price of fertiliser; otherwise, imports are unlikely to arrive,” they added.
Industry data indicates a 30 per cent decline in DAP imports during the April-October period of the current fiscal year. The ongoing crisis could exacerbate DAP shortages similar to those seen during the Rabi sowing season in October and November.
While the major demand for DAP will be in October next year, experts warned that a sustained import slowdown could impact Kharif and summer crops in northern states, where DAP demand is also significant.
The crisis has renewed calls to reduce dependency on imported fertilisers and to focus on alternatives such as nano urea, nano DAP and single super phosphate to manage the total nutrition of crops.
“There are many sources, but we need to see how scalable they are and how effective they are at replacing conventional fertilisers,” Rajneesh Pandey, deputy general manager, marketing, IFFCO (Indian Farmers Fertiliser Cooperative).
“As an agriculture-oriented country, we must develop our systems for providing crop nutrition and reduce reliance on imports. The government’s initiatives in nano fertilisers are a step in the right direction, but scaling these alternatives is crucial,” Pandey said.
However, questions remain about the efficacy of both nano urea and nano DAP in terms of yields and nutrient content, among others.