Fertiliser sales in India are expected to increase during the upcoming rabi season after a spell of insufficient monsoon rain in several parts of the country forced farmers to curb purchases.
An erratic southwest monsoon left some regions with deficit showers and others with normal to excess rainfall. As a result, fertiliser sales were weak during the kharif crop season (June-July sowing) and the fertiliser industry hopes the deficit rainfall will be made up over the next few months.
Fertiliser sales volumes were steady in the first quarter of FY24 and last year as production increased. Sales were little changed at 63.9 million tonnes while output rose 11 percent to 48.7 million tonnes, according to data from the Fertiliser Association of India. In Q1, consumption stagnated at 11.2 million tonnes and production climbed 12 percent to 12.4 million tonnes.
Earnings, subsidies
“The sowing of major crops is over and we anticipate at least a 2-3 percent increase in sales volumes this year,” said a senior officer of FAI, which represents manufacturers, distributors and other stakeholders of the industry.
“Fertiliser consumption could move up during the rabi season.”
The southwest monsoon has been deficient in Gangetic West Bengal, east Uttar Pradesh, parts of the northeast, Madhya Pradesh, Kerala, Karnataka, Telangana and Andhra Pradesh. Many states received below-normal rainfall in August.
The fertiliser industry expects more showers in September, the last month of the southwest monsoon, and during the northeast monsoon that follows.
Fertiliser companies said earnings are unlikely to be affected by the cut in subsidies this year.
“Lower subsidy will not affect the profitability of fertiliser companies. As sales have remained flat, overall profit numbers may not be affected,” Saklani said.
The government reduced fertiliser subsidy by 22 percent to Rs 1.75 lakh crore for FY24 as raw material and energy prices softened. Even the subsidy for urea, which is usually higher than that for nutrient fertilisers, was about 15 percent lower at 1.31 lakh crore.
The government had increased the subsidy in the past couple of years to offset rising raw material and energy costs arising out of the Covid-19 pandemic and the Russia-Ukraine war. The subsequent drop in energy prices helped companies dependent on natural gas for production to cut costs.
The higher subsidy and fertiliser imports and supply of raw materials enabled many companies to perform better last year. Fertilisers and Chemicals Travancore Ltd. (FACT), a state-owned company, posted its highest net profit of Rs 613 crore and turnover of Rs 6,198 crore in FY22.
“Streamlining of raw material production, prompt marketing strategies, consistent subsidy schemes of the government, cooperation of the employees – all helped in achieving record performance,” said Kishor Rungta, chairman of FACT.
The company, which was making losses four years ago, has not just turned the corner but has also become the top public sector fertiliser company in terms of market capitalisation at over Rs 30,000 crore. The company intends to increase production by 500,000 tonnes to 1.5 million tonnes and turnover to Rs 8,000 crore after the completion of a new plant by next year.
The country currently produces more urea than DAP (diammonium phosphate) and NPK (nitrogen, phosphorus and potassium) fertilisers, while potash and some phosphate fertilisers are imported. Urea prices are controlled by the government and it is the cheapest and most consumed fertiliser in the country.
At Rs 5,628 per tonne set by the government, the price of urea has been unchanged for many years. Although sales of other fertilisers are decontrolled, the government has given them an indicative price for receiving subsidies.
The industry is worried that excess use of urea has reduced soil productivity. To promote other fertilisers, the industry has been advocating a market-based retail pricing system.
“The government should bring down the difference in the prices of urea and NPK fertilisers to increase the use of the latter," Rungta pointed out.
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