A Bird View of Fertilizer Industry of India

Introduction:

Indian Agriculture is one of the most important sector in the economy of the country. Agriculture in itself contributes more than 18.5 percent of the Gross Domestic Product of the country and around 60 percent people of India are dependent on this sector.

The monsoon also has a very significant impact on the Indian agriculture. Because of the shortage of irrigation system in Indian agriculture most of the farmers depend highly on rainfalls which is uncertain. The amount of rain determines the nature of the crops and also the production. Indian agriculture in the majority of the state is looked after by the State Governments rather than the Central Government. Indian farmers don’t get a sufficient supply of chemical fertilizer for agriculture.  The main objective of the fertilizer industry is to ensure the supply of primary and secondary nutrients in the required quantities.

Global demand & supply scenario of fertilizer :

As per IFA (International Fertilizer Association), the world demand for urea is expected to grow by 123 LMT from a total quantum of 1313 LMT  during 2006 to 1436 LMT during 2010. As against this, the total supply is expected to increase by 298 LMT  from a total quantum of 1344 LMT during 2006 to 1641 LMT during 2010. Table below present the world supply demand balance of urea during 2006 to 2010.

World supply demand balance of urea

(Production in LMT )

	2006	2007	2008	2009	2010
Supply	1343.9	1393.1	1471.6	1514.8	1640.7
Demand	1312.5	1344.7	1382.6	1410.2	1436.0
Surplus	31.4	44.8	89.0	104.6	201.7

Among the major surplus regions, the Middle East will have a surplus of urea in terms of nitrogen of 11.2 million tonnes, East Europe and Central Asia 4.5 million tonnes and Central Europe 0.3 million tonnes by 2010. In socialist Asia, the surplus of urea will touch 1.3 million tonnes N.

The world urea capacity is estimated to grow by an overall 28%, to 180 million tonnes of urea in 2010. In the year 2010 alone, capacity was expanded by 14 million tonnes. Close to 50 projects had come up during the period from 2006 to 2010. The main additions was mostly occurred in West Asia and China.

Keeping in view the surplus availability of urea at global level, it is suggested that the Government should enter into negotiations or encourage Indian fertilizer companies for tying up for long term supplies of urea from the countries which  have surplus urea capacities after commissioning of the urea projects, which are at present under construction.

Indian Fertilizer Industry:

India is primarily an agriculture based economy. The agricultural sector and its other associated spheres provide employment to a large section of the country’s population and contribute about 25% to the GDP.

The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. India has emerged as the third largest producer of nitrogenous fertilizers. The adoption of back to back Five Year plans has paved the way for self sufficiency in the production of food grains. In fact production has gone up to an extent that there is scope for the export of food grains. This surplus has been facilitated by the use of chemical fertilizers.

The Fertilizer Association of India (FAI) has set up a model which is based on several factors that include fertilizer prices, high yielding areas, irrigated areas, fertilizer nutrient prices and previous years’ fertilizer consumption. An estimate of the demand and supply till the end of the 11th five year plan is given in the chart below:

Year	Supply N+P	Demand N+P+K	Demand Supply Gap N+P+K	Demand of K
2007-08	16950	23125	8835	2660
2008-09	17585	24085	9305	2805
2009-10	18595	25035	9405	2965
2010-11	19912	25960	9178	3130
2011-12	19965	26900	10235	3300

[ N = Nitrogen , P = Phosphate,  K = Potasium ]

Today, India stands as the third largest fertilizer consumer and producer of the world. It has been observed that the subsidies on Indian fertilizer have been rising at a constant rate. This is due to the rise in the cost of production and the inability of the government to raise the maximum retail price of the fertilizers.

The increase in the production of fertilizers and its consumption acts as a major contributor to overall agricultural development.

Contribution of Fertilizer industry  in the Indian Economy:

Fertilizer industry has a significant good impact on the development of the Indian agriculture sector. The following points may reflect its contribution.

1. Agricultural development:

With the development of fertilizer industry, Indian agricultural development has been made possible. It has played a vital role in the green revolution.

2. Capital Investment:

Fertilizer industry today has more than Rs. 5700 Cr investment and has become one of the important industries of the economy.

3. Corporate Development:

In the last 30-40 years this industry has become a structured industry. It has made many joint ventures, multinationals and co-operatives which is one of the unique characteristic of this industry development in the nation.

4. Regional development:

Gujarat, Maharashtra, Punjab, Uttar Pradesh, Andhra, Assam, Bengal, Rajasthan, Bihar are the states who have many plants of fertilizers. [These states’ economy has a high impact of fertilizer units.]

5. Employments:

This industry has provided shelter to 3.5 lakh families in the last fifty years directly and a number of supporting industry during the last three decades.

Investment in the fertilizer sector:

The fertilizer sector attracted huge investment in the past, particularly between mid 70’s and 90’s. However, there was hardly any investment during the 10th Plan. The total investment in the fertilizer sector by the end of 2005-06 was Rs.25,923 crore. With the accelerated growth in the Indian economy, other sectors have high rates of return on investment, but the fertilizer sector has failed to attract more investment due to low returns.

To increase the capacity of urea by about 12 million tonnes  to a total of 31.5 million tonnes by 2011-12, India will need to invest at least Rs.36, 000 crore in the sector at current capital costs.

Sickness in the fertilizer industry:

Fertilizer Industry in India has mainly five sick units. They are badly in need of Coal /Gas/LPG. If these units get raw material they will contribute to the agricultural sector of the nation. These sick units includes HFC, FCI, MFL, FACT and PPCL. Which are located in the Eastern Region of the country [will result in some parity in the creation of production capacity of urea in the states of Bihar, West Bengal, Chhattisgarh, Jharkhand and Orissa, which do not have any urea plant at present].  It is envisaged that revival of these closed urea units in Eastern India will add an additional urea capacity of  50 LMT per annum.

The reasons for the sickness of FACT are mainly the of outdated technology of the plant, high energy consumption norms, large manpower and high fixed costs of the new ammonia plant (900 MTPD).

The reasons for losses of MFL are due to the fact that the ammonia plant is not operating at full capacity due to non-matching capacity of urea plants and the NPK plant is operating at low capacity due to high cost and inadequate availability of phosphoric acid.

The cost of production is higher than the  amount received by the company through MRP and concession. Its depreciation charges are high compared to the norms of the group in which it has been placed under the NPS. A package for restructuring of MFL and to sort out the problems of FACT is under active consideration of the Department of Fertilizers.

Infrastructural requirements of the fertilizer sector:

(a) Ports:

Most ports face severe capacity constraints in handling high volumes on a sustained basis. Accepting the Mundra port, no other port is currently able to handle with Panamax vessels. With the movement by sea from the CIS countries and the US gulf increasingly being taken up through these large vessels, accepting and handling them at Indian ports has become a severe limitation. To supplement the efforts of major ports that handle 60-70% of the finished fertilizers, improvements in the existing minor ports will be more economical than creating new ports.

(B) Road transportation:

The development and maintenance of road transport will have to be substantially increased by way of widening and proper meeting of road to withstand increasing load on the national and state highways which should be able to take high capacity trucks.

(C) Railway:

Railway facilities and port-rail connectivity need to be strengthened significantly during the Plan period if timely availability of fertilizers is to be ensured.

(D) Waterways:

There is a need to provide a thrust to the development of inland waterways and coastal shipping for movement of fertilizers.

(E) Storage:

In view of the competing demands for a number of agro-products, it will be desirable to strengthen the warehousing infrastructure to meet the changing needs of the country during the Eleventh Five Year Plan. This is more so because fertilizer demand has a definite peak and non peak distribution of demand and is not amenable to JIT  (Just In Time) inventory planning.

Challenges of Fertilizer units working in India:

Efficiency:

The demands of fertilizers have increased and are increasing day by day. To meet the requirement the units have to increase its productivity through researches, reducing wastages and by handling the material carefully. It is also found that the productivity of the Indian units is not in the line of the developed countries.

Investment:

Considering the high demand world over, this industry is required to invest more capital. The co-operative sector has its own limitations for the investment but other units can generate funds through the open market.

Capacity:

The demand of the fertilizer industry is increasing and to meet the demand of the market, the industry is required to expand its capacity. There is a high potential demand even from the underdeveloped countries for the fertilizers and to meet them there is an urgent need to increase the capacity of the plants. Again it requires more investment.

Subsidy:

According to the agreement with the WTO, Indian industry is required to reduce the subsidy given on the price of fertilizers. Due to this the prices of the fertilizers will go up and it may not be within the reach of the poor farmers. This may affect the industry adversely.

New fertilizer policy:

The new fertilizer policy of the Indian government is also one of the important challenging factors for the industry. The main provisions of the policy are as follows:

• Make Urea free from control by 2006
• Introduction of group reward of 2001
• Increased prices of Urea every year by 7%

Productivity:

It is found that the agricultural productivity of Indian land is inferior to the developed countries. Even the size of the farm in India is  small so the use of the fertilizer is not found proper by the Indian farms.

Liquidity:

The fertilizer industry in India is depended on the Government subsidy, Moreover the efficient usage of the various resources is not found proper among the various units. This results in the insufficient financial liquidity for the units.

Competition:

After globalization Indian market is open for the foreign companies. This results in high competition for the Indian companies. Indian production cost is very high as well quality is also required to improve to match the international standard. This affects the industry adversely.

Future prospects of the Industry:

India’s food grain requirement to feed the estimated population of 1400 million by 2025 will be 300 million tonnes (based on rice, i.e. unhusked paddy rice). There will be a corresponding increase in requirement of other crops such as cotton, sugarcane, fruits and vegetables. The country will require about 45 million tonnes of nutrients (30 million tonnes of food grains and 15 million tonnes of nutrients for other crops) from various sources of plant nutrients, i.e. fertilizers, organic manures and bio fertilizers.

The further increase in crop production will have to come from an increase in yields as there is limited scope for increasing cultivated area. The yields of the majority of the crops are relatively low and there is great potential for increasing them through the increased use of inputs such as fertilizers. Fertilizer use will remain key to the future development of agriculture.

The handling of increasing quantities of fertilizers will put pressure on storage, handling facilities and transport. Fertilizer promotion will have to include activities that promote not only increased rates of use but also better balances between the nutrients and higher efficiency. Attention also needs to focus on the availability of credit, an essential factor in ensuring the availability of fertilizers to farmers.

India will continue to be a major importer of raw materials, intermediates as well as finished products. The fertilizer product pattern is unlikely to change in the near future, and urea and DAP will continue to dominate fertilizer production. Attention will need to be focused on ensuring the availability of good-quality micro nutrient fertilizers.

Conclusion:

I. The government is contemplating complete decontrol in phase manner by 2006-  07.

II. Quantitative restrictions on fertilizer imports have been removed since April 1, 2001.

III. The implications of present policy environment for fertilizer sector in India is not promising. There are possibilities that domestic production and consumption of fertilizers may decline.

IV. The policy considerations which are likely to be implemented may result in making the domestic production of fertilizers unviable.

V. At present there is wide demand-supply gap in urea.

VI. A switch over in feed stock from naphtha to LNG for urea is envisaged depending on its availability and price.

VII. High energy cost do not permit further expansion in urea capacity within the country, joint ventures abroad are likely to be developed.

VIII. For phosphate/potash also, joint ventures abroad are likely to be developed as there is no potential reserve within the country.

Suggestion for creation of a technology mission in fertilizers :

The pattern of usage of fertilizers in India may change if the application of fertilizers is balanced and according to the soil and crop requirements. If the percentage of usage of phosphatic and potassic fertilizer increases then the demand of urea will undergo change. It is therefore; felt by this Sub Group that this aspect needs to be looked into by experts. It is therefore, suggested that a technology mission on fertilizers may be constituted comprising of experts from agricultural research institutes and agricultural universities to study the changes in patterns in the usage of fertilizers in years to come.

References:

• Fertilizer Association of India
• International Fertilizer Association
• Companies’ Annual Reports
• Economic Times
• Financial Express
• Abbreviation :
• Fertilizer & Chemicals Travancore of India Ltd. (FACT)
• Fertilizers Corporation of India (FCI)
• Hindustan Fertilizer Corporation Limited (HFC)
• Pyrites, Phosphates & Chemicals Limited
• Madras Fertilizers Limited (MFL)
• Paradeep Phosphates Limited (PPL)
• Neyveli Lignite Corporation Ltd. (NLC)
• Hindustan Copper Limited (HCL)
• Steel Authority of India Limited (SAIL)

By

Dr. Kamlesh S. Dave

Email: ksdave3-at-yahoo.com