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Chapter 5 Prices and Profitability of Fertilizers


As fertilizer is an essential input for agricultural production, the Government’s objective is to make this critical input available to the farmers at affordable prices. Until 24th August 1992, the prices of all the fertilizers were controlled, the Government setting the maximum retail prices of various fertilizers. With effect from 25August 1992, the prices of phosphate and potash fertilizers were decontrolled. The prices of urea continued to remain under control. Following decontrol, the prices of phosphatic and potassic fertilizers rose sharply. Since 1997/98 the Government has fixed indicative maximum retail prices of decontrolled fertilizers, uniform throughout the country. Tables 15 and 16 show the maximum retail prices of fertilizers for the last 5 years.

Table 15
Maximum retail prices of fertilizers, by product

(Rs./tonne product)
DAP8 9008 9009 3509 3509 350
MOP4 2554 2554 4554 4554 455
SSP2 500–3 5002 500–3 5002 600–3 5002 600–3 5002 600–3 500
Urea4 6004 6004 8304 8304 830
10–26–267 8807 8808 3608 3608 360
12–32–167 9607 9608 4808 4808 480
14–28–147 8207 8208 3008 3008 300
14–35–148 1008 1008 6608 6608 660
15–15–156 6206 6206 9806 9806 980
16–20–06 7406 7407 1007 1007 100
17–17–177 6807 6808 1008 1008 100
19–19–197 8407 8408 3008 3008 300
20–20–06 8806 8807 2807 2807 280
23–23–07 5407 5408 0008 0008 000
28–28–08 5208 5209 0809 0809 080

Table 16
Maximum retail prices of fertilizers, nutrient basis

FertilizerPrice per kg of nutrientPrices
Rs/kg nutrient


The Government of India fixes procurement / minimum support prices (MSPs) of essential agricultural products for the crop / marketing year in order to keep prices stable. Table 17 shows procurement / support prices of agricultural products for the last 5 years.

Table 18 shows the relationship between fertilizer nutrient prices and output prices. Farmers have to sell more kilograms of paddy rice to buy 1 kg of P2O5 than for N and K2O. In 2004/05, farmers had to sell 2.95 kg of paddy rice to buy 1 kg of P2O5 through DAP. In the case of P2O5 through SSP and complex fertilizers, the ratio was still higher. The farmers had to sell 1.91 kg of paddy rice to buy 1 kg of N through urea, and 1.35 kg of paddy to buy 1  kg of K2O through MOP.


The profitability of fertilizer use has been calculated on the basis of the value of crop output and the cost of the input (fertilizer). The profitability of P2O5 and K2O use has declined significantly after the decontrol of the prices of these fertilizers in 1992. However, with the steady increase in the procurement / support prices of crops over the years and almost stable fertilizer prices, the profitability has increased in the past few years in the cases of all the three nutrients (Table 19).

Table 17
Procurement/minimum support prices of agricultural products

Sugar cane0.

Table 18
Physical returns

 kg of paddy rice required to buy 1 kg of nutrient
N through urea1.961.891.981.911.91
P2O5 through DAP3.032.913.062.952.95
P2O5 through NP/NPKs3.20–5.513.08–5.303.32–5.613.19–5.403.19–5.40
P2O5 through SSP3.06–4.292.95–4.133.07–4.132.95–3.982.95–3.98
K2O through MOP1.391.341.401.351.35

Among the four crops listed in Table 19, in the cases of N and P2O5the value cost ratio is highest for gram, followed by wheat, paddy rice and sorghum. In the case of K2O, the value-cost ratio is highest for gram, followed by sorghum, wheat and paddy rice.


Over the years, the aim in India has been to become and remain self-sufficient in foodgrain production. Fertilizer is the key input that has made this goal achievable. Historically, the prices of fertilizers have been kept below the cost of production and importation. The prices of fertilizers in India, particularly of urea, are lower than in developed and neighbouring developing countries. The objective behind the low prices is to maintain a favourable input:output ratio. The aim of the Government has been to ensure that the farmer receives a price that makes fertilizer use acceptable and remunerative. The Government provides a fertilizer subsidy to fill the gap between the cost of production / import cost plus distribution of fertilizers, and their retail prices. The objective of the introduction of the fertilizer subsidy was: (i) to provide foodgrains to the people at affordable prices; (ii) to insulate farmers from variations in production costs and to ensure reasonable returns from fertilizer use; and (iii) to ensure a reasonable return to the fertilizer industry.

Table 19
Profitability of mineral fertilization for selected crops 2004/05

 Yield increase in per kg of N (kg)Value of yield increase (Rs)Cost of N through urea (Rs/kg)Value/ cost ratio
Paddy rice12.
 Yield increase per kg of P2O5 (kg)Value of yield increase (Rs)Cost of P2O5 through DAP (Rs/kg)Value/Cost Ratio
Paddy rice738.516.22.4
 Yield increase per kg of K2O (kg)Value of yield increase (Rs)Cost of K2O through MOP (Rs/kg)Value/ cost ratio
Paddy rice5.

The subsidy on fertilizers is given to the farmers by routing it through fertilizer manufacturers. The Government of India introduced the Retention Pricing Scheme (RPS) on urea in 1977 and on complex fertilizers in 1979. Under the RPS, a normative cost of production was worked out for each company. The difference between the normative cost of production plus the distribution cost and the retail price represents the subsidy to the farmers. Effective from August 1992, P and K fertilizers were decontrolled. This led to high prices of these fertilizers. The Government introduced a concession scheme to mitigate the increased cost of production. However, urea continued to be under the RPS until 31March 2003. Effective from 1April 2003, the RPS on urea was replaced by the Group Pricing Scheme (GPS). The normative cost of production is now worked out on the GPS basis. Table 20 shows the amount of subsidy provided by the Government on urea and on the concession on P and K fertilizers in the last 5 years.

Table 20
Subsidies on fertilizers

YearIndigenous ureaImported ureaConcession on decontrolled fertilizersTotal
(Rs million)
2000/0194 8001043 190138 000
2001/0280 44047345 040125 953
2002/0377 900-32 250110 150
2003/0481 3901036 560117 960
2004/05101 4324 73050 460156 622

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