India is one of the largest consumers of fertilizers globally. DAP or Diammonium Phosphate plays a vital role in meeting the country’s nutrient requirements for higher crop yields. Over the past decade, demand for DAP has surged dramatically driven by increasing agricultural outputs. Maintaining adequate supplies of quality DAP remains a key priority for policymakers.
Increasing crop cultivation
India is home to over 18% of the world’s population but has only 2.4% of the world’s land area. To meet the food demands of its large population, the country has emphasized boosting domestic agricultural production over recent years. The total area under crop cultivation has expanded significantly, with rice, wheat and maize being the main crops. Between 2010-2020, total foodgrain production rose by over 30% to reach a record 305 million tonnes. Higher crop outputs require greater application of fertilizers to boost soil fertility and maximize yields per hectare. This has propelled demand for fertilizers like DAP across key agricultural belts in the country.
Rising foodgrains demand
India Diammonium Phosphate (DAP) is apart from population growth, changing diets as household incomes rise have also raised requirements for foodgrains. Per capita consumption of foodgrains increased from 191 kg in 2010 to 200 kg in 2020. Demand for protein-rich foods like pulses, meat and dairy has grown notably creating knock-on effects for feed grain needs. Meeting this step-up in dietary absorption has necessitated further lift in domestic farm outputs through scientific cultivation practices aided by fertilizers. With DAP being the most suitable fertilizer for various foodgrain crops, its off-take has risen substantially over the past decade.
Import dependency concerns
Though India is the third largest DAP producer globally, its domestic production capacities have struggled to keep pace with the leap in consumption levels witnessed in recent times. The shortfall has had to be supplemented through imports, rendering the country heavily reliant on overseas purchases to satisfy its DAP requirements. In 2020, import dependency for DAP was around 67%. This exposes farmers and the economy to volatile global prices and potential supply disruptions, underscoring the need to shore up domestic production capacity.
Expansion plans underway
The government has recognized the strategic importance of augmenting indigenous DAP manufacturing potential. It aims to reduce import reliance to around 50% by 2023-24 through capacity addition programs. Last year, approval was granted for setting up a new 3 million tonne DAP/Npk fertilizer plant by Paradeep Phosphates at Odisha. This project valued at Rs. 6300 crores if implemented would significantly boost domestic availability. Several other greenfield and expansion initiatives have also been announced recently by industry players such as Coromandel International and Deepak Fertilisers to collectively yield over 2.5 million tonnes of DAP output annually. Timely execution of these production facilities will alleviate availability constraints and stabilize costs for farmers over the medium term.
Pricing distortions
While adequate supply has been a recurring issue for DAP, erratic pricing arising from exposure to global markets is another key concern. India relies on imports for certain raw materials like phosphoric acid whose supply disruptions/higher costs place upward pressure on DAP rates. In 2021, international DAP prices hit record highs amid a global commodity boom, driving up costs for Indian farmers considerably. Domestic wholesale DAP rates shot over Rs. 40,000 per tonne against the government notified support price of Rs. 27,000. The fertilizer industry has petitioned authorities to reduce import duties on raw materials to alleviate unreasonable profits for suppliers and retail price rises faced by cultivators. The pressure to make DAP more affordable yet remunerative for producers has compelled reforms in pricing mechanisms and subsidy allocation.
Going forward, India’s DAP demands are projected to maintain their uptrend driven by sustained crop cultivation area expansion and improving soil health management awareness among farmers. Securing reliable supply sources in a cost-efficient manner will thus remain a macroeconomic policy priority over the coming years. Timely execution of the announced capacity additions should help moderate import dependence and anchor costs better. Synchronizing retail prices dynamically with global rates while safeguarding farmers margins is a balancing act requiring continued reforms. If these issues are addressed proactively, India’s large DAP consumption has significant potential to drive future growth of domestic fertilizer production.
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