By Rajendra Jadhav and Mayank Bhardwaj
MUMBAI/NEW DELHI (Reuters) - The financial squeeze on India's farmers is set to worsen because of record high fuel prices and surging costs of fertilisers, posing a challenge to Indian Prime Minister Narendra Modi in an election that must be held by May.
The rise in input prices could not have come at worse time for farmers, already grappling with falling domestic product prices due to rising yields and abundant harvests.
Yet, the government has few easy options to respond. Rival global producers have complained about Indian state support and falling global farm product prices undermine export prospects.
Indian farmers voted overwhelmingly for Modi in 2014. But a fall in rural incomes risks damaging that support next year.
Thousands of farmers marched on New Delhi on Tuesday to demand better prices for their produce. Police responded with teargas and water cannon. Farmers suspended their protests after talks with officials that ran into early Wednesday morning.
But their demands and those of other agriculture workers, who together make up about half India's 1.3 billion people, have not gone away.
"Although we have decided to end our protest, we still believe that the government is not serious about addressing the concerns of the farmers," Anil Talan, national secretary of farmers body Bhartiya Kisan Union, said after the march.
Diesel prices have surged 26 percent this year, making tilling fields, harvesting and transporting crops expensive for India's 263 million farmers who mostly use diesel tractors.
Alongside rising diesel costs, prices of key fertilisers such as potash and phosphate have jumped nearly 15 and 17 percent respectively in a year, as companies pass on the rise in global prices and the impact of the weak rupee to farmers.
India, the world's second-biggest producer of staples such as rice and wheat, imports all its potash needs and relies on foreign supplies for nearly 90 percent of the phosphate it uses.
"It's a double whammy for farmers who have to bear the brunt of lower crop prices and higher input costs," said Devinder Sharma, an independent food and trade policy analyst, saying this explained "why farmers' anger has come to the fore."
Diesel demand is rising as farmers have started harvesting summer crops. After tilling, they will plant wheat and rapeseed, the main winter crops.
Union official Talan said the government needed to prop up commodity prices and keep a lid on farmers' costs to support the agricultural industry, which accounts for about 16 percent of India's $2.6 trillion economy.
COUNTING THE COST
"Because of higher diesel prices I need to spend nearly 20 percent more on harvesting soybean but soybean prices have crashed this year," said Uttam Jagdale, a farmer from Pune, about 150 km (94 miles) south of Mumbai.
Nilesh Sable, a cane farmer from Sangli in the western state of Maharashtra, said fertiliser prices were rising each month.
Fertiliser firms say they have little choice but to pass on at least some extra costs due to a sharp fall in the rupee and a 20 percent rise in international potash and phosphate prices.
"Still, we are not passing the entire burden to farmers," said an official with a state-run fertiliser company, asking not to be named in line with government policy.
Greater farm efficiency is partly to blame. Mechanised farming, high-yielding seed varieties and increased use of pesticides have pushed up harvests. Output of most crops has soared to record levels each year.
India's production of pulses, such as lentils and beans, surged to 24.51 million tonnes in the year to June 2018, up from 23.13 million tonnes in the previous 12 months.
Imports of pulses, such as lentils from Canada, Australia and Russia, fell to 1.2 million tonnes in the financial year to March 2019, the lowest since 2000/01 and well below the 6.6 million tonnes imported in 2016/17 after back-to-back failures in the monsoon.
Plentiful supplies extend to other crops. India is set to surpass Brazil as the world's top sugar producer in the 2018/19 season, but rising output has driven down local sugar prices by 15 percent and left mills nursing losses.
In bid to help the sector, the government unveiled measures last week such as transport subsidies and incentives to export at least 5 million tonnes of sugar. Brazil, Thailand, Australia and other rival producers were quick to complain.
Vegetable prices, especially onions, cabbage and tomatoes, have also fallen 25 percent from last year, largely because of overproduction. Without enough refrigerated trucks, excess production cannot be stored.
Domestic milk prices dived more than 25 percent in the past year, but a global glut has made Indian exports uncompetitive.
Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities in Mumbai, said India needed to find markets abroad to reduce its inventories.
"But exports will not be easy, as global prices are depressed, and there is no export parity for most commodities," he said.
(Additional reporting by Promit Mukherjee; Editing by Martin Howell and Edmund Blair)