Distributive policy

Explained | What is the Centre’s One Nation One Fertilizer Policy?

The scheme drew criticism from the opposition who branded it an exercise in ‘self-promotion’

The scheme drew criticism from the opposition who branded it an exercise in ‘self-promotion’

The story so far: In an order on Wednesday, August 24, the Union Department of Chemicals and Fertilizers issued a memo announcing the implementation of the “One Nation One Fertilizer” program under which a single brand and logo for fertilizers will be required. be used by all manufacturers under the Centre’s Fertilizer Subsidy Scheme was recently renamed as the Prime Minister’s Scheme – “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP).

The announcement drew criticism from Congress who called it a way for the prime minister to promote himself, calling it the “One Nation, One Man, One Fertilizer” program. Party leaders also questioned how the program would benefit farmers and whether it would prevent fertilizer companies from engaging in extension activities because they would be selling under one official brand.

What is the One Nation One Fertilizer program?

Under this program, all fertilizer companies, State Trading Entities (STEs) and Fertilizer Marketing Entities (FMEs) will be required to use a single “Bharat” fertilizer brand and logo. within the framework of the PMBJP.

“The single brand name for UREA, DAP, MOP and NPKS etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. for all Fertilizer Companies, State Trading Entities (STEs) and Fertilizer Marketing Entities (FMEs) respectively,” the ministry order said. The note outlines the specifications of the new packaging for business-

  • The new brand name “Bharat” and the PMBJP logo will cover two-thirds of the front side of the fertilizer package

  • Trademarks can only display their name, logo and other information on the remaining 1/3 of space

The government also asked fertilizer companies not to source old bags from September 15, adding that the rollout of new bags under One Nation One Fertilizer would start from October 2. The order added that companies would have four months to exhaust old packaging from the market.

What is the Centre’s raison d’être behind this?

The price of the most widely used fertilizer, urea, is controlled by the government, which means that all manufacturing companies sell at a fixed MRP, which is only 10-20% of production costs. The government provides 80 to 90 percent of the cost of production to manufacturers as a subsidy. The government fertilizer subsidy bill is huge every year (expected to exceed Rs. 2 lakh crore in 2022-23) and only second to food subsidy in terms of expenditure. For other fertilizers like diammonium phosphate (DAP) and muriate of potash (MOP), although prices are not officially controlled by the government, they fall under a subsidy system, which means that manufacturers sell around a tacitly fixed MRP. But the companies have until now been selling the product under their own brand identity and not the government’s.

Also Read: Why Government Introduced “Bharat” Brand Fertilizer Under “PMBJP” Program?

Industry experts say the government may have felt farmers should know the financial burden it incurs by providing fertilizer at a cheaper rate.

In addition to paying subsidies to companies for the cost of production, the government also pays manufacturers subsidies for freight – or the cost of getting their products to the end user. Thus, another argument for launching single-brand fertilizers is to reduce transport subsidies, estimated at over ₹6,000 crore per year. As the government decides where manufacturers can sell their products under the Fertilizer (Movement) Control Order, 1973, due to the transportation subsidy provided, manufacturers are not shy about selling over longer distances.

The demand for fertilizers by brand in specific areas is one of the reasons for this movement. One reason is that if manufacturers stop selling urea separately under individual brands, there would be no need for Indian Farmers Fertilizer Cooperative (IFFCO) to move fertilizers between states, thereby limiting fertilizer subsidy expenditures.

What are the reviews?

Critics argue that the complete commoditization of fertilizers could impact their quality, discourage manufacturers from bringing newer, more effective products to market if there are fewer opportunities to build a unique brand identity, and left as mere importers or sub-contractors of fertiliser. In addition, the government has expressed goals to become “Atmanirbhar” or self-sufficient in fertilizers, which are currently imported in large quantities. Achieving these goals would also mean encouraging Indian companies to stay in the sector. Many private players such as Tatas and Indo Gulf Fertilizers have exited the urea business in recent years.

Read also: Not a fertile policy

Many manufacturers have also expressed reluctance to spend on a brand they don’t own. “Once in a while, some companies may bear the expense, but it will be difficult to continually spend on advertisements where the brand value for that company is zero,” an industry official told The Hindu BusinessLine.

Another argument is that a government brand will add another layer of regulation to the fertilizer manufacturing industry where almost every aspect – from product pricing to cost structure to geographic distribution and sale – is government controlled.

Contextualizing this, industry experts and economists have been calling for more reforms in the fertilizer sector for some time to reduce the huge subsidy bill and maintain a nutrient balance in nitrogen-containing fertilizers. , phosphorus and potassium (N, P and K), which is currently biased in the direction of urea.

Fertilizer prices remained fairly stagnant in the 1980s and 1990s and when prices rose the government faced stiff opposition. Faced with this, the rise in urea prices reversed. This change, and the fixing of the MRP for urea several times, disrupted the relative prices of various fertilizers and resulted in a big shift in favor of urea, which so far costs a fraction of the price of other such as DAP and MOP. The subsidization of urea has also led to its diversion for non-agricultural uses.

In 2010, the government introduced the Nutrient Based Subsidy (NBS) system to address the growing imbalance in fertilizer use in many states, but only non-nitrogen (P and K) fertilizers were transferred to the NBS and urea was left out. This meant that the price of urea could no longer be deregulated. The fertilizer subsidy bill, meanwhile, has continued to rise.

The Chief Economic Advisor noted in the 2016 economic study that the fertilizer industry is heavily regulated, causing a major distortion in the industry. The subsidy which is intended to help small farmers, according to the survey, in fact benefits only a small proportion of them: “24% is spent on urea producers which are inefficient on the others, 41% diverted to non-agricultural and overseas uses; of the rest, 24% is consumed by larger, probably wealthier, farmers.

Experts therefore call for a direct transfer of benefits (DBT) to farmers and the removal of the price of fertilizers, so that the system empowers farmers with a range of choices and motivates manufacturers to produce better products. All of this would in turn help reduce the subsidy bill, they say. While the government has tried DBT in fertilizers on a pilot basis, the massive subsidy targets announced by the government until 2026 do not seem to indicate a full roll-out of the DBT system any time soon.