India Restricts Fertilizer Consumption Amid Rising Costs
· Bloomberg HT
Facing soaring import costs fueled by the global energy crisis and disruptions in the Strait of Hormuz, India is imposing quotas on fertilizer sales to alleviate a subsidy burden that has reached $31 billion.
Record Cost Pressure on Fertilizer Subsidies
Disruptions in global fertilizer and energy shipments are forcing India to re-evaluate its agricultural support policies. According to information reported by Bloomberg, India's fertilizer subsidy bill for the current fiscal year is expected to exceed the budgeted INR 1.71 trillion, reaching approximately INR 3 trillion, or about $31 billion. The Indian Council of World Affairs estimates that if Middle East conflicts prolong, the bill could hit a record INR 3.32 trillion, and even if tensions ease, spending will reach INR 2.42 trillion. While farmers pay only INR 266.5 (approximately $2.80) for a 45 kg bag of urea, this amount is less than one-tenth of the government's import cost in April.
Strait of Hormuz and Global Supply Crisis
Iranian tensions and shipping restrictions in the Strait of Hormuz are directly pressuring the critical route that supplies about one-third of global urea trade and one-fifth of liquefied natural gas supply. India had to pay nearly double the pre-war price in its April fertilizer tender. In addition to more than doubling the cost of imported fertilizers, securing natural gas for domestic factories has also become significantly difficult. Although prices in the June tender fell to less than half of the April levels, uncertainties in supply security have accelerated foreign exchange outflows, pushing the Indian rupee among Asia's weakest currencies.
Farmer Sales Limit and Quota System
Seeking to alleviate the budget burden and supply deficit, the New Delhi administration has begun to directly limit purchases of subsidized chemical fertilizers. In some states, the monthly purchase quota per producer has been capped at 50 bags, while farmer cooperatives have also adopted a restricted sales policy. The new distribution model implemented is initially being tested in 40 districts, requiring producers to place advance orders based on their land size and the types of crops they cultivate. The government, aiming to prevent sales for purposes other than agricultural needs, has simultaneously approved an annual 10 million-ton domestic urea production program that will expand existing capacity by one-third.
Modi Government's Goal to Reduce Consumption
In statements made in May, Indian Prime Minister Narendra Modi emphasized the urgent need to reduce chemical fertilizer use, calling on farmers to halve their consumption. Despite India's urea consumption exceeding that of the US and Brazil combined, smallholder family farms, with an average size less than one hectare, are showing resistance to this transition due to concerns about yield and income loss. Furthermore, government-guaranteed procurement policies for wheat, rice, and sugarcane are structural impediments that make it difficult for producers to switch to alternative crops requiring less fertilizer.
Organic Carbon Alarm in Soils
Excessive and unbalanced chemical fertilization practices are causing irreversible environmental damage to the country's agricultural lands. According to data from the Indian Ministry of Agriculture, in the 2025-2026 season, over half of the more than 9 million soil samples examined in laboratories were found to have organic carbon levels below critical thresholds. While excessive nitrogen fertilization pollutes groundwater and rivers, it also fuels the emission of nitrous oxide, a potent greenhouse gas. The ministry is conducting a large-scale awareness campaign aimed at limiting fertilizer use alongside the monsoon season planting.
Drought, Monsoon, and Food Inflation Risk
In addition to the tightening of fertilizer supply, climatic conditions also threaten agricultural harvest expectations. According to meteorological data, last June was the driest period in the last 12 years, and monsoon rains are expected to remain below normal until September. Official indicators reveal that food prices, which constitute more than one-third of the consumer basket, rose by approximately 5.5% year-on-year last month. Concerns are rising that both the tightening of fertilizer supply and the expected decline in crop yields due to drought will drive up global prices for essential agricultural products, particularly rice, which India exports to global markets.