Date : 09/06/2023

Relevance – GS Paper 3 – Agriculture – Fertilizer

Key Words – CACP, NBS, NPS, DBT

Context

The Commission for Agricultural Costs and Prices (CACP) has recommended the Centre to bring urea under the nutrient-based subsidy (NBS) regime to address the problem of imbalanced use of nutrients.

About the Recommendations –

• The recommendations come four months after the government told Parliament that there was no proposal to shift urea to NBS, a scheme introduced in 2010, which links subsidy to the nutrient content of fertilizers.
• “Fertilizer response and efficiency has continuously declined over decades mainly due to imbalanced use of nutrients, deficiency of micro and secondary nutrients and depletion of soil organic carbon, while fertilizer subsidy has been rising,” said the CACP report.
• The commission, thus, recommends that steps should be taken to bring urea under NBS regime to address the problem of imbalanced use of nutrients, noted the report, Price Policy for Kharif crops, The Marketing Season 2023-24.

Current status of Urea subsidy –

• Urea Subsidy – As per the government definition, “The difference between the delivered cost of fertilizers at farm gate and net market realization by the urea units is given as subsidy to the urea manufacturer/importer by the Government of India.”
• Urea is covered under the New Pricing Scheme.

Why there was a need for a New pricing system for Urea –

• The main motive is to curb diversion. Being super-subsidised, urea is always prone to diversion for non-agricultural use — as a binder by plywood/particle board makers, cheap protein source by animal feed manufacturers or adulterant by milk vendors — apart from being smuggled to Nepal and Bangladesh.
• The scope for leakage was more in the earlier system, right from the point of dispatch till the retailer end.
• With DBT, pilferage happens only at the retailer level, as there is no subsidy payment till sales are made through POS machines and subject to the buyers’ biometric authentication.

Why CACP recommended to bring Urea under NBS–

• Disproportionate use of urea in agriculture over the years has been one of the primary reasons for worsening plant nutrient imbalance.
• Keeping urea out of NBS essentially means that the government has retained direct control over MRP of urea and its subsidy.
• The MRPs of other fertilizers have been under indirect control by virtue of NBS policy. Manufacturers of these fertilizers have the freedom to fix MRP within “reasonable limits”, and a fixed per-tonne subsidy linked to their nutrient content is given.
• This has caused their MRPs to increase over the years, whereas urea’s price has remained unchanged.
• This has led to tilting of the usage of fertilizers in favor of urea because farmers have overused it, owing to its low pricing, thus resulting in deteriorating soil health.
• While the price of urea was fixed at Rs 5,360 per metric tonne (MT), the price of DAP (Di-ammonium phosphate) was at Rs 27,000 per MT in April. Given this difference, sales of urea touched 11.77 lakh metric tonnes (LMT) in April. On the other hand, sales of DAP and NPK were recorded at 3.02 LMT and 2.62 LMT, respectively, according to figures from the Ministry of Chemicals and Fertilizers.

Major Concerns of CACP

• Given the fact that India is one of the largest producers and consumers of fertilizers in the world and its consumption has increased significantly over the years. However, fertilizer response and efficiency has continuously declined over decades mainly because of imbalanced use of nutrients, deficiency of micro and secondary nutrients and depletion of soil organic carbon.
• The main cause of the nutrient imbalance is price distortions resulting from fertilizer subsidies, which have grown dramatically and continue to increase rapidly.
• It also recommended a cap on the number of subsidized bags of fertilizers per farmer, as has been done for subsidized LPG cylinders.
• The CACP said this would reduce the government’s subsidy burden, releasing resources to invest in agriculture research and development and infrastructure development.

Conclusion–

• It can be implemented easily since sale of subsidized fertilizers to farmers is made through Point of Sale devices installed at retailer shops and the beneficiaries are identified through Aadhaar Card, KCC, Voter Identity Card etc.
• Meanwhile, global fertilizer prices have eased from their 2022 peaks but still remain at historically high levels.
• High and volatile international prices of fertilizers and raw materials remain a big challenge for ensuring timely and adequate availability of fertilizers at affordable prices to farmers, which cab be reformed at some extent by implementing recommendation given by CACP.

Source – Down to Earth