These are exciting times for the Indian fertilizer industry. On the back of food grain output rising by 16mt (million tonnes) to a record 234mt in 2010/11, the country, having received excellent rains, is expecting agricultural production in the current season ending March 2012 rising between 6.5% and 7.5%.
Even then close to double digit rate of food price inflation remains a major concern for the government. The phenomenon caused by a supply side problem and flaws in food distribution chain, the government has given a call for a second green revolution. The first one in 1960s ended the country’s abject dependence on food imports. The next revolution to also include pulses and oilseeds, where the country’s import dependence is high, besides rice and wheat will depend on breakthrough discoveries in farm laboratories.
The government in the meantime has introduced nutrient- based subsidy for phosphatic fertilizers after urea to usher in balanced nutrition for improvement in soil health and crop productivity. Fertilizers to be needed in larger and larger volume are, however, becoming an increasingly expensive input. For the farmers to get optimum benefits from the nutrient use, the government need to put in place an effective extension programme of interface between farm experts and growers. At the same time it should go on extending the command area of irrigation.
What is good for the Indian fertilizer industry, which is the world’s third largest after the ones in China and the US, is that recent policy initiatives have met with universal approval. In the current year’s budget, the government has maintained import duty at 5.2% on most kinds of fertilizers or its raw materials and 2.1% on sulphur. Duty free imports of naphtha and fuel oil are allowed. According to a CRISIL Research report, Indian fertilizer use rose at a compounded annual growth rate (CAGR) of 4.2% between 2005/06 and 2010/11 from 42.1mt to 52.4mt, not least due to growing alignment of government policies with industry needs.
Particularly gratifying is the smart increase in application of complex fertilizers, including diammonium phosphate (DAP) in 2010/11 following the introduction of nutrient based subsidy policy, wherein subsidies are given on the basis of nutrients sold and not on final products. CRISIL Research further says that in six years to 2015/16, the Indian consumption of complex fertilizers will grow at a CAGR of 9.6% to 44.8mt. During this period, however, urea use will rise at a CAGR of 4.4% to 34.5mt.
CRISIL data will, however, stand for revision if one goes by 2010/11 consumption statistics provided by Coromandel International, the country’s leading fertilizer producer. It says that Indian consumption of all nutrient based fertilizers last year was 59mt, including 28.2mt of urea, 11.3mt of DAP, 10.2mt of complex fertilizers, 5.8mt of muriate of potash and 3.5mt of SSP and others. As Indian agriculture benefited from an extended monsoon last year, plant protection chemicals sales clocked a high growth of 20%. In the meantime, the global fertilizer use was up close to 4% in 2010 when world nutrient-based fertilizer production increased by 11%. Experts, however, point out that in the event of the share of transgenic crops in India’s total farm output keeps on rising then the per hectare consumption of fertilizers will see a smart rise. In any case, India’s per hectare nutrient use of less than 110kg leaves much scope for improvement.
Incidentally, the government virtually snowed under the
burden of subsidy for food and fertilizer has opted for partial decontrol of urea prices. An attempt is made in this exercise to link the subsidy element to per unit of fertilizer sold. Earlier, the urea subsidy was calculated based on the difference between the retail price fixed by the government and what was considered to be remunerative. The question now is, if because of progressive freeing of prices, fertilizers become expensive in the hands of farmers will not that stand in the way of India’s target of an annual 4% sustainable growth of farm output? But the government here has worked out its economics right. Farmers will be more than compensated for any rises in input costs, whether on account of fertilizers, pesticides, seeds and water, by suitable revisions of minimum support prices of agricultural products.
Last year India saw an “unprecedented increase in import of fertilizers,” according to Coromandel International. Against an import of 5.8mt of DAP, SSP and TSP during 2009/10, its imports rose to 7.4mt last year. Imports of urea rose to 6.6mt from 5.2mt, of MOP to 6.3mt from 5.2mt and of complex and other fertilizers to 1.2mt from 200,000 tonnes. But the country’s imports of phosphatic fertilizers are likely to fall in the current year both due to availability constraints and prevailing high world prices. It is now routine that Indian or Chinese buying will be a big mover of fertilizer prices in the world market.
The challenge for India is to grow urea capacity at an accelerated rate to reduce dependence on imports. In view of this, the government has accorded high priority in allotment of gas coming from new discoveries to fertilizer units. At the same time, some Indian companies are going to countries where gas is available cheap for making urea. One recent example is India government owned Rashtriya Fertilizers and Chemicals getting ready to build a 3,500 tonne a day urea plant in Ghana using gas from a new discovery in the offshore Jubilee fields. The same company is also exploring the possibility of forming an alliance with Saudi Arabian Ma’aden group which is to invest $3bn in phosphatic fertilizer project at Al Khabra with provision for an assured long-term offtake of a portion of production at prices agreed periodically. At the same time, other Indian groups are going all out to secure uninterrupted supplies of phosphoric acid and potash by way of promoting joint ventures offshore or buying large equity in foreign companies producing such raw materials.
Kunal Bose