The Fertilizer sector in India- Vijay Paul Sharma

Role of Fertilizers in Transforming

Agriculture in Asia:

A Case Study of India

Vijay Paul Sharma, Professor & Chair

Indian Institute of Management

Ahmedabad, India

Email: vijays@iimahd.ernet.in

Paper presented in the Conference on "Agricultural Transformation in Asia: Policy

Options for Food and Nutrition Security" organized by IFPRI and CDRI on September

25-27 in Siem Reap Province, Kingdom of Cambodia

Presentation Outline

Key Trends in Fertilizer Use

Market Structure and Supply-side Issue

The Pricing and Subsidy Environment

The Way Forward

Vijay Paul Sharma

KEY TRENDS IN FERTILIZER

USE

Vijay Paul Sharma

Overview of Indian Fertilizer

Market

3rd Largest Producer & 2nd Largest Consumer

Production: 16.65 million tonnes in 2011-12 (CAGR

1.3% during 2000s)

Consumption: 27.79 Million Tonnes in 2011-12 (>6%)

RISING IMPORTS???

<2 million tonnes in 2002-03 12.4 million tonnes

in 2011-12

Largest Importer of Rock Phosphate & Phosphoric

Acid and 2nd Largest Importer of Ammonia

Vijay Paul Sharma

Urea

50%

DAP

19%

NP/NPK

16%

MOP

9%

SSP

5% AS/CAN

1%

Share of Fertilizer Products in

India

Vijay Paul Sharma Source: FAI (2012)

Total Consumption: ed from <1 million tonnes in

mid-1960s to 28.1 million tonnes in 2010-11 27.8

million tonnes in 2011-12

Per ha Consumption: ed from <10 kg in mid-1960s

to 146.3 kg in 2010-11 144.6 kg in 2011-12

Vast Regional Variations

104.1 kg/ha in West to 215.5 kg in South

56.5 kg/ha in Odisha to 266.1kg in A.P. & 243.6

kg in Punjab

Fertilizer Consumption Trends

Vijay Paul Sharma

Relatively Low Fertilizer Use in

India

0

100

200

300

400

500

Japan China France BangladeshPakistan Sri Lanka USA India World

212.5

400.3

176.8 224

184.7 135.8

121.2 165.8

112.7

Kg/ha o

f arable

land inclu

din

g

perm

anent

cro

ps

Vijay Paul Sharma Source: FAI (2012)

Consumption TE 1989-90 TE1999-00 TE2011-12

Above 200 5

(1.4%)

31

(6.6%)

135

(25.4%)

150-200 21 (5.7) 45 (9.6) 77 (14.5)

100-150 42 (11.4) 94 (20.0) 115 (21.6)

75-100 46 (12.5) 62 (13.2) 57 (10.6)

50-75 70 (19.0) 78 (16.6) 59 (11.1)

25-50 85

(23.1)

80

(17.1)

55

(10.3)

<25 99

(26.9)

79

(16.8)

35

(6.5)

Distribution of Districts according to

Fertilizer use (kg/ha) in India

Vijay Paul Sharma Source: FAI (2012)

All India Plant Nutrient

Consumption Ratio

Year N P2O5 K2O

1981-82 6.0 1.9 1

1991-92 6.0 2.9 1

1992-93 9.5 3.2 1

2000-01 6.8 2.6 1

2002-03 6.5 2.5 1

2008-09 5.3 2.3 1

2009-10 4.3 2.0 1

2010-11 4.7 2.3 1

2011-12 6.5 2.9 1

Vijay Paul Sharma

Partial decontrol of

Fertilizers in 1991-

92 and 2010-1

Source: FAI (2012)

Declining Fertilizer Response

- Irrigated Areas

0

2

4

6

8

10

12

14

16

1970 1975 1980 1985 1990 1995 2000 2005

Response r

ati

o (

kg g

rain

/kg

NP

K)

Source: Biswas and Sharma (2008)

MARKET STRUCTURE AND

SUPPLY SIDE ISSUES

Vijay Paul Sharma

Changing Market Structure

145 Fertilizer Plants

29 Urea, 19 DAP and NP/NPK Complex, 1 CAN, 85 SSP, 1

Ammonium Chloride & 10 Ammonium Sulphate

Rising Share of Coops & Pvt. Sector in Fertilizer

Production

Imports: N Canalised; P&K Decontrolled

Vijay Paul Sharma

Sector N (%) P (%)

1981 2011 1981 2011

Public 60.0 25.9 45.6 5.4

Private 29.6 46.8 37.8 64.1

Coops 10.4 27.3 16.7 30.5

Source: FAI (2012)

Stagnation in Domestic

Production

10.9 N

12.3

3.7

P2O5

4.4

0

2

4

6

8

10

12

14

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

Producti

on (

million t

onnes)

N

P

Vijay Paul Sharma Source: FAI (2012)

1.41

N

32.20

9.40

P2O5

53.90

0

10

20

30

40

50

60

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

Share o

f Im

ports

(%

) Consumption vis-à-vis Imports:

Rising Dependence on Imports

Vijay Paul Sharma Source: FAI (2012)

Level of Self-Sufficiency

N

98.7

67.8 P2O5

94.3

46.1 40

60

80

100

19

71

-72

19

81

-82

19

91

-92

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

.09

20

09

-10

20

10

-11

20

11

-12

%

Vijay Paul Sharma Source: FAI (2012)

Fertiliser Pricing Policy and

Subsidy Environment

Vijay Paul Sharma

1. Pre-Retention Price Scheme (RPS) Period (Up

to mid-1970s)

2. RPS Era and Beyond (Late-70s to Early-90s)

3. Post-Economic Reforms (1990s & 2000s)

Decontrol of Phosphatic & Potassic Fertilizers

Introduction of Concession on Decontrolled

Fertilizers

New Pricing Scheme for Urea

Nutrient Based Subsidy (NBS) – Urea Excluded

Decontrol of Phosphatic & Potassic Fertilizers

Direct Transfer of Fertilizer Subsidy to Farmers

1990s

2000s

Fertilizer Sector Policy Evolution

Key Concerns

Decontrol of P & K Fertilizer Prices - Fixed Subsidy &

Floating Farm Gate Price

Very Significant Increase in Prices (DAP: Rs. 9350/MT in

2010 to Rs. 24000 in 2012; MOP: Rs. 4455 to Rs. 12000)

Reduction in Consumption of P&K Imbalanced Use

Urea Still under Govt. Control: No Significant Change in

Price (Rs.5350/MT) for Many Years

Steep Increase in Subsidy Bill

Regulation of Movement & Distribution Controls

Urea - 50% and Decontrolled Fertilizers – 20%

Vijay Paul Sharma

Burgeoning Fertilizer Subsidy

Vijay Paul Sharma

0

2

4

6

8

10

0

20000

40000

60000

80000

100000

120000

1990-91 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 2011-12

% o

f Agri. G

DP

Rs. crore

Fertilizer Subsidy

% to GDP Agri.

Source: GoI (2013)

Economics of Fertilizer Use

0

1

2

3

4

5

6

N P

Kg o

f ric

e /

kg n

utr

ient

1981-82 1991-92 1992-93 2001-02 2011-12

Vijay Paul Sharma Source: FAI (2012)

Likely Impact of Fertilizer

Subsidy Withdrawal

Small and Marginal Farmers likely to be hurt

Marginal Farmers (190 kg/ha) vs Large Farmers (117

kg/ha)

High Input Costs vs High Output Prices Debate – Small and

Marginal Farmers either Self-sufficient or Small Marketed

Surplus

Farm Income to Decline Dramatically if Fertilizer

Subsidy is Withdrawn Completely

Vijay Paul Sharma

The Way Forward

Role of Fertilizers still Important but Need to Address

Some Concerns

Increasing Dependence on Imports: Volatile World Markets

Declining Fertilizer Use Efficiency

Regional Disparities in Fertilizer Use

Consistent Long-term Policy to attract Investment in the

Sector

Address Subsidy and Pricing Issue to Promote Balanced

Use of Nutrients

Better Targeting of Subsidies without Compromising Food

Security Concerns

Vijay Paul Sharma

Vijay Paul Sharma