Fertilizer Subsidy in India:
Key Issues and Concerns
Vijay Paul Sharma, Professor
Indian Institute of Management
Ahmedabad...
Presentation Agenda
Overview of Fertilizer Production and
Consumption Trends
Fertiliser Subsidy Debate: Who Benefits and...
Fertiliser Sector:
Emerging Trends
Vijay Paul Sharma
Overview of Indian Fertilizer
Market
 3rd Largest Producer & 2nd Largest Consumer
Production: 14.7 million tonnes in 200...
Indian Fertilizer Sector vis-à-
vis Global Markets - 2009
India’s Share in Global Imports
World
Imports
Indian
imports
Sha...
Recent Trends
Steep Increase in Consumption BUT
Stagnant Production: Rising Dependence
on Imports/Volatile Markets
Exces...
Increasing Gap between
Production and Consumption
Imports
Production
Consumption
0
10
20
30
40
50
0
5
10
15
20
25
30
2001-...
Relatively Low Fertilizer Use in
India
Vijay Paul Sharma Source: FAI (2013)
Consumption
(kg/ha)
TE 1989-90 TE1999-00 TE2011-12
Above 200 5
(1.4%)
31
(6.6%)
135
(25.4%)
150-200 21 (5.7) 45 (9.6) 77 (...
All India Plant Nutrient
Consumption Ratio
Year N P2O5 K2O
1981-82 6.0 1.9 1
1991-92 6.0 2.9 1
1992-93 9.5 3.2 1
2000-01 6...
Imbalanced Use of Nutrients:
Pre- & Post-NBS Period
State Pre-NBS (2010-11) Post-NBS (2012-13)
Kg/ha N:P:K Kg/ha N:P:K
Pun...
Increasing Multi-Nutrient
Deficiency
Deficiency of at least 6 Nutrients – N, P, K, S, Zn
and Boron
ing Deficiency of Se...
Fertiliser Subsidy Debate:
Who Benefits?
Vijay Paul Sharma
Subsidy Debate??
Fertilizer Subsidy Largely Benefits Manufacturers
Gulati (1990), Gulati & Sharma (1995), Panagariya (200...
Market Power of Top-5 Global
Fertilizer Companies
Company Market Power
N P K
Yara + + + + + + -
Mosaic + + + + + + + + +
A...
Urea Imports by India &
International Prices: +ve Association
Vijay Paul Sharma Source: FAI (2013)
Concentration of Fertilizer
Consumption: States & Crops
Major States: TE2011-12 Major Crops: 2006
Top 5: 54%, Top10: 83% o...
Fertiliser Use on Major Crops
& Farm Sizes: Inverse Relationship
0
50
100
150
200
250
Avg. Paddy Wheat Cotton
Kg/ha
Margin...
Share in Total Cropped Area vis-à-
vis Total Fertilizer Use: Small vs Large
0.0
5.0
10.0
15.0
20.0
25.0
30.0
<1ha 1-2ha 2-...
Impact of Fertiliser Subsidy
on Farm Income
Vijay Paul Sharma
Fertilizer Subsidy & Net
Income from Paddy
-10000
-5000
0
5000
10000
15000
20000
25000
Hy
Pb
Assam
CG
U.P.
Bihar
India
Odi...
Fertilizer Subsidy & Net
Income from Wheat
Vijay Paul Sharma Source: Computed from CACP (2012)
Fertilizer Subsidy Trends
(At Current Prices)
Total Subsidy
Subsidy as % of
GDP
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
0
1000...
Concluding Observations &
Policy Implications
 Fertilizer Subsidy Important for Improving Profitability of
Farming:  Yie...
Concluding Observations &
Policy Implications
 Direct Transfer of Fertilizer Subsidy: Rationale Not Clear
& even Difficul...
Vijay Paul Sharma
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IGIDR- IFPRI - Possible Ways to Rationalize Fertilizer Subsidies, Vijay Paul Sharma, IIM

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Indira Gandhi Institute for Development Studies(IGIDR), and the International Food Policy Research Institute (IFPRI) on
‘Harnessing Opportunities to Improve Agri-Food Systems’ on July 24-25 , 2014 in New Delhi.
The two day conference aimed to discuss the agricultural priority of the government and develop a road map to realise these priorities for improved agri food systems.

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IGIDR- IFPRI - Possible Ways to Rationalize Fertilizer Subsidies, Vijay Paul Sharma, IIM

  1. 1. Fertilizer Subsidy in India: Key Issues and Concerns Vijay Paul Sharma, Professor Indian Institute of Management Ahmedabad, India Email: vijays@iimahd.ernet.in Vijay Paul Sharma
  2. 2. Presentation Agenda Overview of Fertilizer Production and Consumption Trends Fertiliser Subsidy Debate: Who Benefits and What’s Impact of Subsidy on Farm Income Concluding Observations & Policy Implications Vijay Paul Sharma
  3. 3. Fertiliser Sector: Emerging Trends Vijay Paul Sharma
  4. 4. Overview of Indian Fertilizer Market  3rd Largest Producer & 2nd Largest Consumer Production: 14.7 million tonnes in 2000-01 to 16.65 million tonnes in 2011-12 16.06 million tonnes in 2012-13 Consumption: 16.7 Million Tonnes in 2000-01 28.12 Million Tonnes in 2010-11 25.58 in 2012-13 RISING IMPORTS??? <2 million tonnes in 2002-03  12.4 million tonnes in 2011-12 Vijay Paul Sharma
  5. 5. Indian Fertilizer Sector vis-à- vis Global Markets - 2009 India’s Share in Global Imports World Imports Indian imports Share of global trade Rank Rock Phosphapte 19.6 5.3 27.0% 1 Phosphoric Acid 4.4 2.6 59.1% 1 Sulphur 28.6 1.8 6.3% 6 Ammonia 14.4 1.6 11.1% 2 Vijay Paul Sharma
  6. 6. Recent Trends Steep Increase in Consumption BUT Stagnant Production: Rising Dependence on Imports/Volatile Markets Excessive Use in Certain Areas BUT Low Level of Consumption in Some Widening Imbalance in Nutrient Use Vijay Paul Sharma
  7. 7. Increasing Gap between Production and Consumption Imports Production Consumption 0 10 20 30 40 50 0 5 10 15 20 25 30 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Imports(%ofCons.) Production/Consumption(Mn Tonnes) Vijay Paul Sharma Source: FAI (2013)
  8. 8. Relatively Low Fertilizer Use in India Vijay Paul Sharma Source: FAI (2013)
  9. 9. Consumption (kg/ha) TE 1989-90 TE1999-00 TE2011-12 Above 200 5 (1.4%) 31 (6.6%) 135 (25.4%) 150-200 21 (5.7) 45 (9.6) 77 (14.5) 100-150 42 (11.4) 94 (20.0) 115 (21.6) 75-100 46 (12.5) 62 (13.2) 57 (10.6) 50-75 70 (19.0) 78 (16.6) 59 (11.1) 25-50 85 (23.1) 80 (17.1) 55 (10.3) <25 99 (26.9) 79 (16.8) 35 (6.5) Vijay Paul Sharma Source: FAI (2013)
  10. 10. All India Plant Nutrient Consumption Ratio Year N P2O5 K2O 1981-82 6.0 1.9 1 1991-92 6.0 2.9 1 1992-93 9.5 3.2 1 2000-01 6.8 2.6 1 2002-03 6.5 2.5 1 2008-09 5.3 2.3 1 2009-10 4.3 2.0 1 2010-11 4.7 2.3 1 2011-12 6.7 3.1 1 2012-13 8.2 3.2 1 Partial decontrol of Fertilizers in 1991& 2010 Source: FAI (2013)
  11. 11. Imbalanced Use of Nutrients: Pre- & Post-NBS Period State Pre-NBS (2010-11) Post-NBS (2012-13) Kg/ha N:P:K Kg/ha N:P:K Punjab 241.6 19.1 : 5.9 :1 250.2 61.8 : 19.2 :1 Haryana 209.4 20.5 : 7.1 :1 207.6 61.4 : 18.6 :1 Tamil Nadu 211.1 2.1 : 0.9 :1 164.6 3.9 : 1.5 :1 A.P. 252.8 3.9 : 2.1 :1 189.3 7.1 : 2.8 :1 West Bengal 160.4 2.0 : 1.4 :1 163.1 2.9 : 1.6 :1 Bihar 173.5 5.8 : 1.9 :1 192.3 30.8 : 10.1 :1 Orissa 59.3 3.3 : 1.7 :1 90.3 6.2 : 2.4 :1 Gujarat 174.1 6.9 : 2.9 :1 109.6 13.2 : 3.4 :1 All India 144.1 4.7 : 2.3 :1 128.3 8.2 : 3.2 :1 Source: FAI (2013)
  12. 12. Increasing Multi-Nutrient Deficiency Deficiency of at least 6 Nutrients – N, P, K, S, Zn and Boron ing Deficiency of Secondary & Micro-nutrients – Limiting Crop Response to NPK Application Extent of Nutrient Deficiency  N (89%); P (80%), K (50%); Sulphur (41%);  Zinc (49%); Boron (33%), Iron (12%), Manganese (5%), Molybdenum: 13% Vijay Paul Sharma
  13. 13. Fertiliser Subsidy Debate: Who Benefits? Vijay Paul Sharma
  14. 14. Subsidy Debate?? Fertilizer Subsidy Largely Benefits Manufacturers Gulati (1990), Gulati & Sharma (1995), Panagariya (2001) Gulati & Narayanan (2003), etc.  Comparison of Domestic & International Prices  Assuming World Price: US$150-200/MT; Actual: US$200->550/MT  Assuming Competitive Market Structure of World Industry  Industry Concentration Very High; Strong Cartels  India Small Country: No Impact on World Prices  Significant Impact on World Prices: Positive Association between Indian imports and World Prices  Fertilizer Subsidy Benefits Large Farmers and Commercial Agriculture Vijay Paul Sharma
  15. 15. Market Power of Top-5 Global Fertilizer Companies Company Market Power N P K Yara + + + + + + - Mosaic + + + + + + + + + Agrium + + + + + + + PotashCorp + + + + + + + + Kali & Salz Group + + - + + Vijay Paul Sharma
  16. 16. Urea Imports by India & International Prices: +ve Association Vijay Paul Sharma Source: FAI (2013)
  17. 17. Concentration of Fertilizer Consumption: States & Crops Major States: TE2011-12 Major Crops: 2006 Top 5: 54%, Top10: 83% of Total Use Top 5: 78% of Total Use
  18. 18. Fertiliser Use on Major Crops & Farm Sizes: Inverse Relationship 0 50 100 150 200 250 Avg. Paddy Wheat Cotton Kg/ha Marginal Small Semi-medium Medium Large Vijay Paul Sharma Source: GoI (2012)
  19. 19. Share in Total Cropped Area vis-à- vis Total Fertilizer Use: Small vs Large 0.0 5.0 10.0 15.0 20.0 25.0 30.0 <1ha 1-2ha 2-4ha 4-10ha >10ha Share(%)inTCA/Fert.Use Share (%) in TCA Share (%) in Fert. Use Vijay Paul Sharma Source: GoI (2012)
  20. 20. Impact of Fertiliser Subsidy on Farm Income Vijay Paul Sharma
  21. 21. Fertilizer Subsidy & Net Income from Paddy -10000 -5000 0 5000 10000 15000 20000 25000 Hy Pb Assam CG U.P. Bihar India Odisha Ktk A.P. W.B. TN Jhar Rs/ha Current 2010-11 W/O Subsidy Vijay Paul Sharma Source: Computed from CACP (2012)
  22. 22. Fertilizer Subsidy & Net Income from Wheat Vijay Paul Sharma Source: Computed from CACP (2012)
  23. 23. Fertilizer Subsidy Trends (At Current Prices) Total Subsidy Subsidy as % of GDP 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14(RE) 2014-15(B) Subsidy(%ofGDP) Subsidy(Rs.Crore) Vijay Paul Sharma Source: GoI (2014)
  24. 24. Concluding Observations & Policy Implications  Fertilizer Subsidy Important for Improving Profitability of Farming:  Yields &  Cost of Production  Subsidy Concentrated in Few States & Crops But More Benefits to Small and Marginal Farmers  Higher Usage of Fertilizer/ha  Higher Area under Fertilizer-Intensive Crops  Higher Share in Fertilizer Use vis-à-vis Share in Total Cropped Area  Complete Withdrawal of Fertilizer Subsidy will Make Farming Unprofitable  Need to Contain Subsidies: Huge Fiscal Burden, Declining Fertilizer Use Efficiency, etc.  Better Targeting and/or Rationing an Option Vijay Paul Sharma
  25. 25. Concluding Observations & Policy Implications  Direct Transfer of Fertilizer Subsidy: Rationale Not Clear & even Difficult to Implement (Informal Tenancy, Working Capital Constraint, 152 Manufacturers vis-à-vis 136 Million Farm Households, etc…..)  Rationalize Pricing of Fertilizers (Urea) & Effective Extension Services to Promote Balanced Use of Nutrients  Special Focus of Micro- and Secondary Nutrients: Need Strong Policy Support  Step Up Domestic Production Capacity: Dependence on Imports – Highly Volatile Markets & Strong Cartels Vijay Paul Sharma
  26. 26. Vijay Paul Sharma
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