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Fertilizer imports rise owing to gap between production, demand

Fertilizer imports rise owing to gap between production, demand
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First Published: Thu, Jan 20 2011. 10 04 PM IST
Updated: Thu, Jan 20 2011. 10 04 PM IST
Unfavourable government policies have led to stagnation in fertilizer production over the past 10 years. This has led to a huge gap between production and demand of fertilizers in India, resulting in steep rise in fertilizer imports.
In FY10, India imported around 17 million tonnes (mt) of fertilizers to meet the demand of around 53 mt.
Also See | At a glance (Graphic)
Burgeoning burden
The government’s fertilizer subsidy burden has catapulted from 11,800 crore in FY04 to 11,800 crore in FY04 to Rs 96,600 crore in FY09. This is primarily due to increased fertilizer imports on account of higher demand not met by stagnant domestic production.
According to the Fertiliser Association of India, the country will require around 45 mt of primary nutrients to produce 300 tonnes of grain to feed the estimated 1.4 billion population by 2025. This indicates a compounded annual growth rate of 4% over the next 15 years and entails a compelling need to improve the country’s fertilizer production.
Subsidy scheme
The latest nutrient-based subsidy (NBS) policy announced for non-urea fertilizers has initiated the decontrol of non-urea fertilizer prices. This is expected to encourage fertilizer manufacturers to source cheaper raw materials and improve efficiency.
Moreover, the policy is expected to improve balanced use of fertilizers, which has eliminated discrepancies in subsidy for the same nutrient in different fertilizers.
Positive outlook
The government is serious about encouraging investments in the fertilizer sector and reducing subsidy burden by means of decontrolling the sector. This is evident from the latest policies by the government, including decontrol of farm gate price for non-urea fertilizers by means of the NBS scheme, increment in urea farm gate price after eight years and linking urea realizations to import price parity of urea for new capacities. It recently reduced subsidy payment under the NBS scheme for non-urea fertilizers, which is expected to put pressure on international fertilizer prices and operating margins of Indian fertilizer companies in the short term. However, over the long term, policy changes will bring operational and working capital efficiencies, which will open new growth opportunities in the sector.
The outlook for Coromandel International Ltd is positive on account of the decontrol of the non-urea space through the NBS scheme, coupled with capital expenditure plans and long-term raw material linkages. Zuari Industries Ltd looks attractive as well on account of operational and working capital efficiency.
Though we have a positive outlook over the long term, we await more clarity on the government’s urea policy.
Edited excerpts by Edelweiss Securities Ltd. Comment at mintmoney@livemint.com
Graphic by Ahmed Raza Khan/Mint
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First Published: Thu, Jan 20 2011. 10 04 PM IST