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Fertilizer crisis set to worsen; production cuts may be culprit

Fertilizer crisis set to worsen; production cuts may be culprit
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First Published: Tue, Jun 17 2008. 12 06 AM IST

Updated: Tue, Jun 17 2008. 12 06 AM IST
New Delhi: Recent fertilizer shortages in various parts of the country may be because India’s production of the agricultural input fell by 3 million tonnes (mt) in 2007-08, the first decline since 2003-04, even as companies cut production in the wake of delays in subsidy payments from the government and tighter supplies of key inputs.
The decline, combined with the fact that the country has seen no significant addition in fertilizer input since the early 1990s, has resulted in imports rising to 14mt in 2007-08.
Experts and fertilizer analysts say the situation could worsen in two-three years.
If it persists, the shortage of fertilizers could translate into a fall in farm output. Food price inflation is already high and any decline in agricultural production will result in a further spike in food prices.
FOOD FOR THOUGHT (Graphic)
There is a shortage of fertilizers across the world, and costs have soared with the rising price of crude oil, whose derivatives are used as a key input in fertilizer plants.
The government subsidizes the cost of fertilizer to farmers by fixing a selling price. It then compensates manufacturers for the difference between this and the cost of production, plus a reasonable profit through a fertilizer subsidy.
According to the latest data available on the website of the department of fertilizers, total fertilizer production in 2007-08 fell to 33.2mt compared with 36.2mt in 2006-07. India’s fertilizers secretary, J.S. Sarma, denied that there was any cut in production, while Satish Chander, director general of the Fertiliser Association of India (FAI), an industry body, declined to comment on the fall in production because he said he had not seen the data. Chander, however, added that there could be issues with the availability of fertilizers over the next two years because “there is limited production capacity in the country and no increase in production can be brought about overnight”.
A person associated with the fertilizer business said the situation was actually quite dire.
“There will (soon be) unmet demand for fertilizers in the country,” he said, asking that he not be identified.
According to this person, much of the decline in production is in single super phosphate (SSP) and so-called complex fertilizers, which are combinations of Nitrogen (N), Phosphorus (P) and Potassium (K).
“(The) decline in the production of urea is not very significant. The fall in production (of the rest) is mainly because of the delay in the payment of subsidy dues, lack of a proper freight policy and tight availability of raw materials,” he added.
Subsidy payments have skyrocketed in the past four years from Rs15,779 crore in 2004-05 to an estimated Rs95,000 crore in 2008-09, or 1.9% of the country’s gross domestic product. Last year, the fertilizer subsidy was Rs40,338 crore, including Rs7,500 crore paid through fertilizer bonds, the first such issued in India.
Fertilizer production requires natural gas, naphtha or furnace oil as “feedstock” or a key chemical input, and this accounts for 70-80% of the total cost of production. In the past two years, the prices of liquefied natural gas, naphtha and furnace oil have increased by 198%, 50% and 71%, respectively. Out of the 28 functional urea plants in the country, 12 use naphtha or furnace oil as feedstock.
Prices of other crucial raw materials such as phosphoric acid, sulphur and rock phosphate have gone up by 331%, 867% and 297%, respectively, in the past two years. Retail prices of fertilizers, however, have remained unchanged.
The government on 12 June decided to move to nutrient-based pricing of fertilizers and announced a uniform freight policy for all fertilizers in order to encourage balanced use of the agricultural input.
Experts say that while these policy measures will help, yet they cannot increase the total production of fertilizers in the short term.
“The industry can add up to 3mt of capacity through de-bottlenecking (or making processes more efficient). However, this will take at least 18 months. Any new capacity, even at the earliest, cannot be added before four-five years. Till then, our dependence on imports will continue to rise and since import prices are very high, there will be unmet demand for fertilizers in the immediate future,” added the person associated with the fertilizer business quoted earlier.
Agriculture economist C.S.C Sekhar of the Institute of Economic Growth in New Delhi, said the fall in production is a matter of serious concern for the country.
“Fertilizer consumption in the country has increased over the last two years at a significant rate. In that sense, the fall in domestic production is of far-reaching importance,” he added.
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First Published: Tue, Jun 17 2008. 12 06 AM IST
More Topics: Fertilizer | Agriculture | Oil | Inflation | Food price |