Who said fertiliser cos have reduced prices, asks FAI

Recent news reports suggested that the government announced a cut in prices of fertilisers such as Diammonium Phosphate (DAP), Muriate of Potash (MOP) and Nitrogen Phosphate and Potash composition (NPK).Speaking to CNBC-TV18, Satish Chander of the Fertiliser Association of India (FAI) said stories claiming that prices of fertilisers have been reduced are factually incorrect.He said that the pricing power is with private companies and clarified that the government has asked only public sector companies Rashtriya Chemicals & Fertilizers and National Fertilizers (NFL) to reduce the prices. 
"These two government-owned companies don't constitute even 5 percent of the market and they can’t influence market forces," he said. Private fertiliser companies have to borrow money and pay more than 10 percent interest, he said, implying that they couldn't have reduced the prices.

The cost of imported DAP is USD 330. The domestic cost of production is USD 400, he said. He is hopeful of Brazil market picking up. 

"Prices of raw materials haven’t come down in proportion to the finished products," he said.

As for the impact on the industry, these companies which are domestic manufacturers are also importers of finished products, and hence there won't be an adverse impact, he said.Accodingly the price of DAP was reduced by Rs 125 a bag of 50 kg (Rs 2,500 reduction per tonne), MOP reduced byRs. 250 a bag of 50 kg (Rs 5,000 reduction per tonne) and NPK reduced on an average by Rs. 50 per 50 kg bag (Rs 1,000 reduction per tonne), Chemical and Fertiliser Minister Ananth Kumar said at a press conference on Monday.Below is the verbatim transcript of Satish Chander's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: Can you start off by telling us what was the rationale behind this reduction in prices after so long?A: The story, which is going around is not correct. This is misplaced, we had a meeting with the department of fertiliser officials. They wanted to check about reduction in prices. We told them that we have already reduced the prices ranging from 1,000 to Rs 1,400 in NPK fertilisers and the June itself, we had reduced the prices of the potash agreement which we are able to sign and the full benefit has been passed to the farmers in the form of Rs 4,000 per tonne.This new story which has been circulating is totally misplaced. We have not agreed for any further reduction under the National Biosafety Framework (NBF) policy, it is for the government to fix subsidy rates. Market sizes are determined by the individual companies based upon the market forces. So the prices have been reduced by so and so is not correct.Anuj: If you could explain that point further, you are saying that the pricing power is still with the companies and there is no direction from the government in terms of cutting prices?A: Absolutely, what the government has done is their own public sector undertaking RCF and NFL, they have forced them to reduce the price by so and so, these two companies being public sector owned by the government sector, they can sell fertiliser at any time.Anuj: But market forces wouldn’t mean that others will also have to follow suit in that case. It is a government's way of regulating prices?A: No, absolutely not. These players don’t constitute even 5 percent. They cannot influence the market forces. In fact NFL is not a producer of NPK fertiliser at all, it only produces urea and imports a consignment here and there. So the story which is going around is totally misplaced. We have not agreed, we have only told the government that you are not paying us the subsidy, pay us the subsidy in time, our interest burden is Rs 1,500 per tonne. If you pay us in time, we will further reduce the price and pass on this.So in a way the government is burdening the farmer by not paying the subsidy, we have to borrow the money, we have to pay more than 10 percent interest, per tonne is about Rs 1,500, if they pay us in time, we can further reduce the prices. If international prices go down, we will further reduce the price.Sonia: Some report has stemmed from the fact that the raw materials used to manufacture some of these fertilisers like global phosphoric acid and ammonia prices have come off quite a bit so the expectation is in order to pass that on, there will be a further reduction in eventual fertiliser prices, you are saying that there won't be any more reduction coming through?A: This story is also misplaced. There is a cartel of the international suppliers which is going on, we have told the government and they want the Indian domestic industry to be tripled, they are dumping the DAP at a price which is below their cost of production not reducing the cost of these inputs because you are 100 percent import dependent. So this story that if there is a odd reduction in the DAP parcel here and there which they are doing, the same suppliers, they have the phosphoric assets, they also produce DAP, now that DAP price at which they are dumping even that is not there cost of production. So things have to be appreciated, there is no reduction at all and there is a difference of more than USD 50 between the imported DAP and the DAP even at the reduced prices, which has still not happened.Anuj: What is the current cost of production, the subsidy math and the final price if you could give us some of these numbers?A: There are 18 products, I cannot give you the cost of production.Anuj: The ones in question, two-three big ones.A: DAP prices for the present they have come down. If 1-2 parcel comes down that doesn’t mean that the prices over the year or average price has come down. To give you the specific number, at present, DAP price is around USD 350 imported, domestic cost of production is about USD 400.Now, market in Brazil is picking up, if that happens and this is the lean figure as I mentioned these prices are likely to go up by another USD 20 or so. So it is not a switch on-switch off position that if one cargo comes at a lower price, the whole of the industry, the prices have to come down. 65 percent of the total requirement of NPK fertilisers are still domestically produced and the prices of raw materials have not come down in proportion to the prices of the finished products.Sonia: You said that private companies will still have the pricing power but government companies like RCF etc have been asked to reduce prices over the last many months, what kind of impact would that have on higher volumes for the industry as a whole led by the lower final product prices?A: As far as the impact is concerned, these companies, which are the domestic manufacturers, they are importers of the finished products also. So the way the industry is working, I don’t see any adverse impact unless some measures are taken by the government, which is not as per the policy and are meant to hurt the domestic industry and to promote the imports. If that happens with the policy of the government, we will have to see how it unfolds.