Fertiliser off-take, as presented in the statistics for May 2012 released by the National Fertiliser Development Centre depicts a bleak state of affairs.
The Kharif season started on a weak note and the numbers for May strengthen the notion that crop harvests have faced delays in major areas on one hand, while on the other, farmers are also creating fiscal space for themselves in the anticipation of probable floods in coming months.
The nitrogenous fertiliser off-take for May fell to its lowest tally in the past eight years to a menial 0.37 million tons. Moreover, in comparison to last year, Mays urea off-take is down by 20 percent, despite a slight reduction in urea prices. Sky-rocketing urea price is the oft-cited reason for less than optimal urea off-take, but urea prices have considerably eased off of late, but farmers are simply not lining up to buy more fertiliser.
In fact agriculturists appear in consensus over expectations of price reductions in the near future. Given the record inventory levels that fertiliser manufacturers are sitting on along with the ample availability of imported fertiliser in the local market, it is obvious that the fertiliser market is more skewed in the buyers favour at this time than it has ever been.
But, urea prices may not reduce significantly from the current levels despite record high inventory levels, as local producers will now be paying rates, significantly higher in terms of feedstock gas after the imposition of Rs.300/mmbtu Gas Infrastructure Development.
The local urea manufacturers may not be able to pass on the entire impact of the increased gas cost given the supply situation, but a decrease in prices does not seem to be on the cards. The manufacturers still face extended gas curtailment on rotational basis, which sends the signal that the urea price may have already bottomed out at least for the remaining Kharif season.
Thats said, urea off-take will pick up pace sooner or later, regardless of the prevailing price levels because farmers will eventually have to replenish nitrogen deficient soil with urea. This is not good news for balanced fertilisation though as DAP off-take for May 2012 was at the lowest in 15 years, at a paltry 26,000 tons. Should urea off-take gather pace as expected DAP demand will reduce further as the farmers have shown tendency to use all urea and little or no DAP, when urea prices are high.
To encourage balanced fertilisation, the government needs to play its role. Providing subsidy on DAP may not be an exercisable option anymore given the current fiscal constraints, but ensuring gas supply to urea plants can help a great deal towards an improved fertiliser mix. Not only will it reduce the import bill, but also will reduce local urea pries significantly and would provide room enough to the farmers to apply the much needed DAP.