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

History so far: By order on Wednesday, August 24, the Union Ministry of Chemistry and Fertilizers issued a memorandum on the implementation of the “One Nation – One Fertilizer” scheme, according to which all fertilizer producers will have to use a single brand and logo. The Center’s Fertilizer Subsidy Scheme, recently renamed the Prime Minister’s Scheme – “Pradhanmantri Bhartiya Janurwarak Pariyoina” (PMBJP).

This announcement drew criticism from Congress, who called it a way of promoting himself as the Prime Minister, calling it the “One Nation, One Person, One Fertilizer” scheme. Party leaders also asked how the scheme would benefit farmers and whether it would prevent fertilizer companies from spreading agricultural knowledge by selling products under one official brand.

What is the One Nation, One Fertilizer Scheme?

Under the scheme, all fertilizer companies, government trade organizations (STEs) and fertilizer marketing organizations (FMEs) will be required to use a single ‘Bharat’ fertilizer brand and logo in accordance with PMBJP.

“The single trade name for UREA, DAP, MOP, NPKS, etc. will be BHARAT UREA, BHARAT DAP, BHARAT MOP, BHARAT NPK, etc. respectively for all fertilizer companies, state trading organizations (STE) and organizations for the marketing of fertilizers (FME), the order of the ministry says. The memorandum outlines the characteristics of the new packaging for companies-

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

• Manufacturer brands may only display their name, logo and other information on the remaining one-third of the field.

The government has also asked fertilizer companies not to purchase old-design bags from Sept. 15, adding that the rollout of new bags under One Nation One Fertilizer will begin on Oct. 2. months to exhaust the old packaging from the market.

What is the center based on?

The price of the most used fertilizer, urea, is government controlled, meaning that all manufacturing companies sell at a fixed MRP that is only 10-20 percent of production costs. The state provides manufacturers with 80-90% of the cost of production in the form of subsidies. The government bill for fertilizer subsidies is huge each year (expected to exceed Rs 2 crore in 2022-23) and second only to food subsidies in terms of spending. Prices for other fertilizers, such as diammonium phosphate (DAP) and potassium chloride (MOP), are not officially controlled by the government, but are subject to a system of subsidies, meaning producers sell at a tacitly set MRP. But companies have so far marketed the product under their own brand name, not under the government’s brand name.

See also: Why did the government introduce Bharat brand fertilizer under the PMBJP scheme?

Industry experts say the government may have thought farmers should be aware of the financial burden they incur by providing fertilizer at a lower price.

In addition to subsidizing companies for production costs, the government also pays subsidies to manufacturers for transportation or the cost of shipping their products to the end consumer. Thus, another argument in favor of launching mono-brand fertilizers is the reduction of transport subsidies, which are estimated to be in excess of £6,000 crore per year. While the government decides where producers can sell their products under the Fertilizer Control (Transportation) Ordinance 1973 thanks to the transportation subsidy provided, producers do not hesitate to sell their products over long distances.

One of the reasons for this movement is the branded demand for fertilizers in specific areas. One rationale is that if manufacturers stop selling urea under separate brand names, the Indian Fertilizer Farmers Cooperative (IFFCO) would not need to move fertilizer between states, thereby limiting fertilizer subsidy costs.

What are the criticisms?

Critics argue that the full commercialization of fertilizers can affect their quality, discourage manufacturers from bringing new and better products to market if there is less opportunity to create a unique brand, and leave them as mere fertilizer importers or contractors. In addition, the government has set the goal of becoming “atmanirbhar” or self-sufficient in terms of fertilizers, which are currently imported in large quantities. Achieving these goals will also mean encouraging Indian firms to stay in business. Many private players such as Tatas and Indo Gulf Fertilisers have exited the urea business in recent years.

See also: Unfertile politics

Many manufacturers have also expressed a reluctance to spend money on a brand they don’t own. “From time to time, some companies may incur costs, but it will be difficult to constantly spend money on advertising when the brand value for that company is zero,” an industry representative told The Hindu BusinessLine.

Another argument is that the state brand will add another layer of regulation to the fertilizer sector, where almost every aspect, from product pricing and cost structure to geographic distribution and sales, is controlled by the state.

With this in mind, industry experts and economists have for some time been calling for further reforms in the fertilizer sector to reduce the huge cost of subsidies and maintain the balance of nutrients in fertilizers containing nitrogen, phosphorus and potassium (N, P and K). which is currently skewed towards urea.

Fertilizer prices remained virtually unchanged in the 1980s and 1990s, and when prices rose, the government faced stiff opposition. In this regard, the growth of prices for urea was stopped. This change, as well as the multiple fixing of the MRP for urea, has disrupted the relative prices of various fertilizers and resulted in a significant shift in favor of urea, which has hitherto only been worth a fraction of the price of other fertilizers such as DAP and MOP. The urea subsidy also led to its diversion to non-agricultural purposes.

In 2010, the government introduced the Nutrient Based Subsidy System (NBS) to address the growing imbalance in fertilizer use in many states, but only non-nitrogen fertilizers (P and K) were transferred to NBS and urea was excluded. This meant that urea prices could not get out of control again. Meanwhile, the bill for fertilizer subsidies continued to rise.

The Chief Economic Adviser noted in the 2016 Economic Review that the fertilizer sector is highly regulated, which is causing serious distortions in the sector. The subsidy, which is intended to help small farmers, the review says, actually benefits a small fraction of them: “24% of the remaining is spent on inefficient urea producers, 41% goes to off-farm needs and abroad; of the remaining 24%, the larger – presumably richer – farmers consume.”

As such, experts are calling for direct benefit transfer (DBS) to farmers and deregulation of fertilizer prices so that the system empowers farmers with greater choice and motivates producers to produce better products. All of this, in turn, will help cut the subsidy bill, they said. While the government has piloted DBT in fertilizers, the massive subsidy targets announced by the government through 2026 do not seem to point to a full scale deployment of the DBT system anytime soon.