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THE CONTEXT: The “food versus cars” dilemma arises from the increasing use of phosphoric acid, a crucial ingredient in di-ammonium phosphate (DAP) fertilizers, for producing batteries in electric vehicles (EVs). This shift poses a significant concern for Indian agriculture, which relies heavily on imported nutrients like DAP, as phosphoric acid is diverted from fertilizers to EV battery production.
PHOSPHORIC ACID AND FERTILIZER PRODUCTION
Current Situation:
- India is the largest importer of phosphoric acid globally, accounting for over 45% of world trade.
- India consumes 10.5-11 million tonnes of DAP annually, second only to urea consumption.
- Over 50% of India’s DAP supply comes from imports.
Import Data (2022-23):
- DAP imports: 6.7 million tonnes ($5,569.51 million)
- Phosphoric acid imports: 2.7 million tonnes ($3,622.98 million)
- Rock phosphate imports: 3.9 million tonnes ($891.32 million)
- Total import value: Over $10 billion
Major Import Sources:
- DAP: China, Saudi Arabia, Morocco, Russia
- Phosphoric acid: Jordan, Morocco, Senegal, Tunisia
- Rock phosphate: Morocco, Togo, Algeria, Egypt, Jordan, UAE
THE “FOOD VERSUS CARS” DILEMMA
Emerging Trend:
- Phosphoric acid is increasingly being used in lithium-iron-phosphate (LFP) batteries for electric vehicles.
- LFP batteries supplied over 40% of global EV capacity demand in 2023, up from 6% in 2020.
Impact on Fertilizer Supply:
- China, a major DAP supplier to India, is diverting more phosphoric acid to LFP battery production.
- This trend could reduce the availability of phosphate fertilizers globally.
INDIA’S VULNERABILITY
Domestic Production:
- India has limited phosphate reserves (31 million tonnes) and annual production (1.5 million tonnes).
- Heavily dependent on imports for phosphate fertilizers and raw materials.
Recent Challenges:
- DAP imports dropped 51% (April-August 2024 compared to the same period last year).
- China’s export restrictions have contributed to supply constraints.
GOVERNMENT POLICY AND MARKET DYNAMICS
Pricing and Subsidies:
- Government-fixed MRP for DAP: Rs 27,000 per tonne
Current subsidy structure:
- Basic subsidy: Rs 21,676 per tonne
- Average rail freight reimbursement: Rs 1,700 per tonne
- One-time special incentive: Rs 3,500 per tonne
- Total realisation for companies: Rs 53,876 per tonne
Market Realities:
- Landed cost of imported DAP: Approximately Rs 61,000 per tonne
- Companies incurring a loss of over Rs 7,100 per tonne on DAP sales
THE WAY FORWARD:
- Reduce or Eliminate Customs Duty: India could reduce or eliminate customs duties on imports of key raw materials such as ammonia, phosphoric acid, rock phosphate, and sulphur. This measure would help lower domestic fertilizer production costs and make it more competitive against imports.
- Promote Nano DAP: The government is considering promoting nano DAP as a cost-effective and indigenous alternative to conventional granular DAP. This could reduce reliance on imports and potentially lower costs for farmers while maintaining crop yields.
- Increase Domestic Production: Encouraging domestic fertilizer production through policy support and infrastructure investment could reduce import dependency. This includes setting up joint ventures overseas to secure raw material supplies, particularly in countries like Morocco with abundant phosphate reserves.
- Renegotiate International Trade Terms: India could explore renegotiating terms of trade under WTO agreements to allow for higher import duties on certain finished products, thereby protecting domestic industries from unfair competition.
- Diversify Import Sources: To mitigate risks associated with geopolitical tensions and supply chain disruptions, India should diversify its sources of phosphate imports beyond traditional suppliers like China and explore long-term supply arrangements with other countries.
- Enhance Subsidy Framework: Rationalizing the subsidy framework to ensure it effectively supports both domestic production and importation of fertilizers could help stabilize prices and availability. This might involve adjusting subsidy levels based on changing international market conditions and domestic needs.
THE CONCLUSION:
India must secure raw material supplies, particularly phosphates, through international collaborations and joint ventures. Additionally, the country should focus on developing fertilizer products with higher nutrient efficiency to reduce dependency on traditional fertilizers like DAP and urea.
UPSC PAST YEAR QUESTION:
Q. The adoption of electric vehicles is rapidly growing worldwide. How do electric vehicles contribute to reducing carbon emissions, and what are the key benefits they offer compared to traditional combustion engine vehicles? 2023
MAINS PRACTICE QUESTION:
Q. Discuss the implications of the “food versus cars” dilemma on India’s agriculture and economy, focusing on diverting phosphoric acid from fertilizers to electric vehicle batteries.
SOURCE:
https://indianexpress.com/article/explained/explained-culture/emmy-awards-2024-9570668/
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