Subdued fertiliser demand leading to unsold inventory in Inida

In what has come as a surprise to the government, India’s fertiliser demand for the ongoing kharif season has remained subdued despite the country receiving near-normal monsoon rains till now, after two successive years of drought.Experts believe this is a cause of concern given the expectations around the rural demand playing an important role in putting India on a high growth trajectory.

 

The National Democratic Alliance (NDA) government is projecting a gross domestic product (GDP) growth of 7-7.75% for the current financial year. According to the Central Statistics Office, India’s GDP slowed sharply in the April-June period to 7.1% from 7.9% in the previous quarter.

 

According to a government official who requested anonymity, the low demand for urea—the most often used soil nutrient—may lead to a fall in import to around 7 million tonne (MT) from 8.47 MT imported last year during the complete kharif and rabi seasons. Till August this year, urea imports stood at 3.24 MT compared with 3.06 MT in the comparable period last year.

 

Urea is the most commonly used fertiliser in India as it is much cheaper and highly subsidised compared with other soil nutrients such as phosphorous and potassium fertilisers.

 

“The primary reason behind low demand is the low purchasing power of farmers, who have been severely hit because of two successive drought years. This has affected sales of di-ammonium phosphate (DAP), muriate of potash (MoP) and even urea in some states,” said another government official who also did not want to be named.“The situation has led to poor lifting of key crop nutrients by the states during the current kharif season, as a result of which stocks are lying unused in godowns,” the official added.

 

This comes in a year when NDA has trained its focus on the rural economy and made sure that enough fertiliser is available at retail outlets to meet demand from farmers. The country is expecting a good crop yield despite hopes of above-average rainfall receding.

 

“Fertiliser availability during the current kharif season is very comfortable. Before it started, in the lean months of February and March, extra supply of urea was made to all states for pre-positioning. About 2.14 MT of stock of urea was pre-positioned in the country,” said the first official quoted above.

 

However, the sales this year till June had not been that impressive.“Against a supply plan of 3.86 MT in case of DAP during April-June 2016, sales of around 2.12 MT has taken place. While in case of MoP, total sales of 0.507 MT has been recorded compared with a supply plan of 1.047 MT,” said the second official quoted above said.

 

The ministry of chemicals and fertilizers is hopeful that the stock will get lifted in the rabi season when the situation is likely to improve. The rabi season, or the winter crop, runs through October-March months.

 

Queries emailed to the spokesperson of ministry of chemicals and fertilizers on 21 September remained unanswered. Experts sounded caution.“It is too early to take a call. It could be a temporary blip but it is surely a cause of concern. After monsoon has picked up, demand in fertiliser has not been going up,” said D.K. Shrivastava, chief policy adviser, at consultancy firm EY.

 

“Going by the sales trends from the industry during the current year, channel inventory had been really high. Also, bad monsoon during last couple of years may have affected farmers’ buying capacity,” said K. Ravichandran, senior vice-president and co-head, corporate ratings at Icra Ltd.

 

InfraCircle reported on 18 May about India’s urea imports during the kharif season expected to fall by a third to 2.4 MT compared with the last season due to high domestic production.