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The Price Of Food Security

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Even as the government gets ready to table the food security bill in the coming Parliament session, its dithering over higher subsidy for imported potash is likely to hurt farmers and the foodgrain production in the country.

Potash is essential for survival of plants in dry conditions and for strengthening their roots and fighting crop diseases. It translates into higher yield. It is also the cheapest option over urea. India, in fact, consumes more than 30 per cent of the global potash production.

At the heart of the debate is the lower rate that China managed to negotiate for potash in the international market. China negotiated a price of $470 a tonne of potash for the year 2011-12. Now Indians too want to procure potash at the same rate.  But so far they have been offered potash at $500 a tonne. Public sector companies like Indian Potash Ltd, IFFCO and Paradeep Phosphates Ltd import potash from countries like Canada, Russia, Israel and Jordan.

International potash producers point out that globally the prices are actually going up. China buying increased it from $400 to $470.

There is a reason for the rising price. China did not import potash in 2009 during what is known as potash holiday. This resulted in reduction of food crop yield by about 20 per cent. A similar potash holiday in the US during 2008-10 resulted in the potash prices going up from $125 metric tonne to $515 metric tonne in that country. "Farmers had to pay 35-40 per cent more than before," says a senior officer in the Agriculture Ministry.

India by delaying potash import is taking a risk. It is true that higher price translates into higher subsidy, but fall in foodgrain production could lead to a higher food subsidy bill. The subsidy tag is already close to Rs 60,000 crore and can be expected to go up to Rs 90,000 crore if production goes down and India has to resort to importing foodgrains. In 2010-11, the Central government gave a subsidy of Rs 54,976 crore. This year, the estimated subsidy on account of agriculture has been set at Rs 49,998 crore.

Also, being a net importer of potash, India needs to keep an eye on the availability of potash globally. Canada has already announced that it has run out of stock. Belarusian potash giant Belaruskali is hit by floods. It had two major floods in late June.

U.S. Awasthi, managing director, Indian Farmers Fertilizers Cooperative Ltd, was recently quoted as saying that India should not pay more for importing potash since "We import over six  million tone of muriate of potash annually, which is more that the 3.5 million tonne imported by China."

Amidst such volatile international market conditions, an analyst says that India should be concerned about the higher price for potash in future.

"Long term vision is required, when such a soil nutrient is critical for higher yield," says Jaipal Reddy, Secretary,  the Confederation of Kisan Organisations (CKO). The Indian government has already paid a price in the recent past. In 2008-09,  when commodity prices increased globally, the government had to shell out $625 a tonne for potash.

"Forget market economics, India needs to secure its potash reserves," says Ajay Jakhar, chairman Bharat Krishak Samaj. Global potash reserve is expected to last for only 40-50 years.

Agri-economists point out that the demand growth is expected to continue in 2012. The procurement prices in the USA have gone up by $30 and in China it is up by $20. This will result in higher potash prices in future. The fact that India has reserves of potash for only a year and that it needs are growing is a fact known to the seller. In a global market, the seller decides the prices of a commodity that is in demand and short supply.  "India, in potash, does not have a bargaining power," says agri economist Vijay Sardana. Nor does India have an alternate technology.

Under such circumstance, an urgent introspection on the price that the government is willing to pay for potash will help farmers and the food security targets.