-The Economic Times
Rising fertiliser prices may lead to a drop in demand by 10-15 % this kharif season. The impact will be more on diammonium phosphate (DAP) whose prices are likely to double over last season.
DAP prices have gone up from Rs 12,000 a tonne last kharif to over Rs 18,000 a tonne and are likely to be revised to Rs 24,000 within a couple of weeks. "Yes, there are chances of demand destruction, keeping the rising prices in view. Farmers may cut DAP use by 10-15 %.
Last year also, there was a dip in demand. However, the picture will be clear once sowing begins," said a fertiliser ministry official. The drop in demand will be more apparent in the second half of the monsoon. Initially, companies will sell existing stocks at the older retail price.
"But when old stocks exhaust, new stocks with new price tags will hit the market which will be over 30% costlier. This may squeeze the demand further," said an official of a fertiliser company.
Fertiliser makers are wary of this possbile trend. "High prices normally bring down demand. But we have no other option but to pass on the burden to farmers. However, a lot will depend on the monsoon," said Dr P S Gahlot, managing director, Indian Potash, one of the largest importers of fertiliser in the country.
IPL has recently contracted supply of 500,000 tonne to 700,000 tonne of DAP at $580 per tonne from Phosphate Chemicals Export Association (PhosChem), the largest exporter of concentrated phosphate from North America.
Suresh Krishnan, MD, Zuari Industries , said: "But it's little early for demand projection. Let the monsoon settle down. Whatever the price rise, it'd be only to offset part of our increased input cost," he said.
Besides inducing less use of phosphatic fertilisers, higher DAP prices may result in a shift in usage pattern.
"Farmers need fertiliser at the time of sowing. If DAP becomes unaffordable for them, they may shift to comparatively cheaper single super phosphate and other complex fertilisers. The consumption of urea will not increase due to this. Farmers are now well aware of the ill-effects of the over usage of urea," said Kapil Mehan, managing director, Coromandel International, a fertiliser company.
India imports a quarter of urea, 100% of potash and almost 70% of DAP. Demand for fertiliser normally peaks in summer because farmers heavily invest in nutrients for cash crops such as rice, cotton and sugar cane.
While urea price is still regulated, the government has cut the subsidy on DAP and other fertilisers by 27% since April 2012. The depreciating rupee is compounding the woes of fertiliser companies because the import cost of raw material as well as finished fertilizer has gone up.
The government has projected the country's fertiliser requirement to be at 61.27 million tonne in 2012-13 as against 58.69 million tonne last year. The requirement of urea is expected to be at 32 million tonne, DAP at 13.24 million tonne, potash at 4.69 million tonne and complex nutrients at 11.25 million tonne.