Graphically Speaking

On fertile ground

Is the tide changing for good for the domestic fertiliser industry?

Published 7 years ago on Mar 27, 2017 1 minute Read

The Modi government’s ambitious target of doubling farmers’ income by 2022 is expected to come as a shot in the arm of the domestic fertiliser industry, which is the world’s third largest in terms of production and second largest in terms of consumption. Currently, domestic production is well below demand, forcing the country to import fertilisers to meet the supply shortfall. In FY16, domestic demand was 66 million tonne against an output of just 37 million tonne. In fact, according to a report by the State Bank of India, production has been growing at a dismal 1.63% CAGR over the past decade against 9% for imports. To meet its goal, agriculture spending by the government is likely to substantially go up, which will benefit all ancillary sectors including fertilisers. Since farmers can’t afford them, fertiliser prices in India are subsidised, accounting for Rs.72,968 crore in FY16, that is 30% of the total subsidies. Earlier, subsidy payment to the producer took six to 12 months. As a result, manufacturers faced a longer cash conversion cycle, which is now being resolved with the implementation of direct benefit transfer. As per the report, fertiliser companies will now move away from a B2B model that relied on dealers and become B2C by directly interacting with farmers. Currently, six players, both state and private, dominate the sector with 70% of total industry revenues. However, since 2011, the decline in subsidy coupled with low international urea prices has dented profitability. Though since last year profitability has started improving, absolute PAT is below 40% of 2011 level. Going ahead, the industry’s fortunes will hinge on how effectively the government implements its policies on the ground and, to a large extent, on a benevolent rain god.