The fiscal year may well have started on a slightly dull note in terms of urea and DAP application, but August saw a revival of sorts. Both urea and DAP application saw a sizeable increase of 45 and 33 percent year-on-year, respectively, mainly attributable to the uncertainty around prices back then, which later materialized into reality in September.
The application numbers for September are not here yet, but an increase of Rs200 per bag, would likely have caused some dent to the off-take.
The Kharif season is close to its end, and only a month left in the season, the Kharif off-take for urea has increased by 9 percent year-on-year, at over 2.6 million tons. The season hosts two vital crops, cotton and rice, amongst others. With the manufacturing sector in distress, the onus of growth for FY20 would fall largely on the agriculture growth, which makes the input usage patterns, more important than ever before. While, the farmers’ input prices were extended some relief in terms of subsidized electricity tariffs for tube well use, the cost of fertilizers has risen significantly, which may lead to the government reconsidering its pricing policy, and a mid-term subsidy on urea cannot be ruled out.
The real deal has been the increased cost of fertilizer application this season, which has broken all records. A 9 percent increase in off-take has resulted in 26 percent increase in cost of urea and DAP combined, with the total application cost in first five months of Kharif – breaching Rs150 billion for the first time.
Recall that the urea prices were increased in September 2019 by Rs200 per bag, after the GIDC saga, and the impact is still to be reflected in numbers. There is no denying that the farmers have been given extended relief on some main inputs, especially electricity for tube well use, which should provide some extra breathing space. But that has not really been supplemented by good crops this season and the axe may invariably fall on DAP spending as it goes deeper in the Kharif season.
Farmers have time and again demonstrated that urea remains fertilizer of choice. And farmers will not go beyond a certain threshold to buy more DAP – especially when prices of both commodities are on the rise.
The prices in the international market have remained sticky for quite some time, remaining flattish year-on-year.
The increase at home has been mostly driven by pass on costs of feedstock gas and other taxes on the fertilizer raw material.
With the increase in input cost partially passed on after having absorbed it for two months, food inflation could well be an outcome, as the fiscal rope is too tight to make room for unbudgeted subsidies.