New Delhi: Rising prices and a decline in farm incomes have hit demand for fertilizers, meaning there will not likely be a shortage of the farm nutrients in the busy sowing season starting in June. It’s the first time in five years that fertilizer demand and supply will be in harmony.
Sales and consumption figures available with the government and the industry indicate that the next couple of quarters beginning April 2012 may see little or no shortages in the availability of both urea and non-urea fertilizers. The maximum retail price (MRP) of all non-urea fertilizers was freed in April 2010, and since then prices of key fertilizers such as di-ammonium phosphate (DAP) and muriate of potash (MoP) have more than doubled. As as result, analysts said, the consumption of non-urea fertilizers has dropped 15% to 25.6 million tonnes in the first nine months of the current fiscal.
While DAP currently sells at Rs18,000 per tonne, MoP sells at Rs11000 per tonne.
While a spurt in non-urea MRP has resulted in a fall in their demand, this has still not resulted in a big rise in the demand for urea, said Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance. Urea consumption in the first quarter (April to June) of the current fiscal grew 25% from the year earlier but over the next two quarters, demand for the fertilizer weakened. Urea consumption grew by just over 2% in the second quarter (July to September) of 2011 and actually shrank 2% in the third quarter (October to December).
“This clearly means, that although non-urea consumption has declined, that itself has not resulted in an uptake in urea consumption,” said Surana.
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Mint’s Aman Malik says a combination of rising prices and falling farm incomes mean India may not face a shortage of fertilizers for the first time in five years.
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Rising prices of non-urea fertilizers has meant that farm incomes have declined, which in turn may have hit demand for urea as well, said Sanjay Jain, director at Taj Capital Partners Pvt. Ltd. “Farmers have been reluctant to pick up costly fertilizers,” said Jain.Urea, whose MRP is still regulated, continues to be the dominant fertilizer and accounts for 55-60% of the total fertilizer consumption in the country.
Reduced urea consumption by farmers has resulted in a significant inventory build-up with stockists and dealers, according to Surana. “This inventory build-up will ensure that at least in the first two quarters of the coming fiscal, major fertilizers will not be in short supply, something not seen in the last four-five years,” he said.
Foreign suppliers will affect production cuts to ensure that global prices of non-urea fertilizers don’t come down much, said Jain. “International cartels which control trade in phosphorous and potash are already cutting back on production,” said Jain. “These cartels want to ensure that India does not get the upper hand in controlling international prices.”
Indian influences international prices since it accounts for almost half of the global export market. While it’s the single largest importer of DAP, it’s the second largest importer of MoP.
Even if international prices of non-urea fertilizers do soften, the effect would be nullified by the fact that the government has announced a reduction in the subsidy it offers on these fertilizers, said Sudhir Panwar, a professor of at the University of Lucknow and an expert on farm issues.
The long-term contract price at which Indian companies import fertilizers is a function of the subsidy that the government offers. In January and February, the government had successively announced a reduction in subsidy on all non-urea fertilizers. The subsidy offered on DAP had been brought down to Rs14,350 per tonne from Rs19,763 per tonne and on MoP had been reduced to Rs14,400 per tonne from Rs16,054 per tonne.
“The reduction in subsidy would ensure that the MRPs of DAP, MoP and other non-urea fertilizers would remain steady at best,” said Panwar.
If prices remain steady, demand for urea would eventually rise, as such fertilizers would “simply become too costly for the farmer to afford,” Panwar said.
aman.m@livemint.com