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We, Shubham and Minhaj Ahmed herby declare that project entitled, “An analysis on THE FERTILIZERS INDUSTRY” Is an original and
genuine work carried out under the guidance of Prof. G.P. Girish (Faculty Guide) from 9th January, 2012 to 31th March, 2012 in complete fulfillment of Global Business Project subject. We declare that the report submitted by us is a bona – fide study of our own. However, any divergences, if any, found in the project will be completely our accountability. 2|Page
No job is a single man’s work as there are different factors, situations and people combine together to form the background for the accomplishment of any task. The project report bears the imprint of some very significant people, from the foundation, IBS, Hyderabad who are directly or indirectly related in shaping up this assignment. We are extremely obliged and earnestly acknowledge valuable contribution imparted by these eminent people towards the completion of this project. 3|Page
Most importantly, we deeply want to express our profound gratitude and thankfulness to Prof. G.P. Girish for having faith in our endeavors and abilities. Knowledge gained from her will always inspire and encourage us to scale new heights in the future. At the last but not the least, we would like to thank our coordinator, Mrs. Sashikala who has helped us prepare this report.
Content Executive Summary ……………………………………………………….06 ……………………………………………………….06 INTRODUCTION..................................................... .................................................................................. .......................................... ............. 07 HISTORY………………………………………………………………..………09
Earliest Times………………………………………………………...……09
Evolution of Materials……………………………………………………..09
Advent of Fertilizer Technology……………………………………….. ....09
Today………………………………………………………………………10
GROWTH OF THE INDUSTRY……………………………………………....11
............................................................................ ..............................13 ..13 Is fertilizer industry seasonal?................................................ Company’s information ………………………………………………………....14
FERTILIZERS REGULATIONS IN INDIA ……………………………….….16 COMPETITION ASSESSMENT FOR THE FERTILIZER SECTOR …..…17
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Relevant product market…………………………………………………...17
Major producers of fertilizer products…………………………………………18 KEY TRENDS …………………………………………………………………..19 DEMAND SUPPLY GAP…………………………………………………….…20
Urea……………………………………………………………………...… 20
DAP………………………………………………………………………...21
Complex Fertilizer……………………………………………..……………….. .23 COMPARISSION OF SUBSIDY OF IMPORT AND INDIGINIOUS AREA…………..24
SUBSIDY BY GOVERNMENT………………………………………………...27 HEALTH OF THE FERTILIZER INDUSTRY ………………………………28 INFRASTRUCTURAL REQUIREMENTS OF FERTILIZER SECTOR ….29 THE TECHNOLOGICAL AND RESEARCH & DEVELOPMENT ISSUES…….……. ISSUES…….……...30
Stagnation in Technological Front………………………………………...… ..31 CONSUMPTION OF THE BFERTILIZER NUTRIENTS IN THE COUNTRY............32
Options available for the improvement……….…………………………… ....33 New Investment in Fertilizer Sector……………………………………….…..33 SWOT ANALYSIS…..............................................................................................34
Strength…………………………………………………………………… 34
Weakness……………………………………………………………..…. ..37
Opportunities………………………………………………………….… ..39 Threat…………………………………………………………………..… .40
PESTLE Analysis …………………………………………………………..…...41
Political Environment………………………………………………… ......41 Economical Environment…………………………………………………41 5|Page
Socio economic environment……………………………………………..42
Technological Environment………………………………………………42
Legal Environment………………………………………………………..42
Environmental……………………………………………………………. 43
PORTER’s FIVE FORCES MODEL………………………………………... 44
Fertilizer Producers…………………………………………………….…44
Fertilizers distribution ……………………………………………………45
Bargaining power of the suppliers………………………… suppliers……………………………………..… …………..…45
Bargaining power of the buyers………………………………………..… 46
Barriers to entry………………………………………………………..…46
Demand certainty in market and the Rivalry among players.... …….…...46
Conclusion ……………………………………………………………………. 49REFE ……………………………………………………………………. …………………………………………………………………...……...51 …………………………………………………………………...……... RENCES
The overall purpose of this analysis is to signify the growth prospects of fertilizer industry as well as to analyze its importance to our nation’s growth and development. India is primarily an agricultural nation and hence it is fully dependent on agriculture for its operations.
The Government came out with a policy for attracting fresh investment in the urea sector in th e year 2004 based on principle of “Long Run Average Cost” (LRAC). However, it didn’t attract any of the fresh investment investment as return on investment based on the policy was not found so attractive. Moreover, availability of the gas on long term basis had always been limiting factor. New investment policy was notified in September, 2008 under which pricing of urea the from a new investments in f orm 6|Page
of revamps, expansions, Brownfield and the Greenfield projects was a based on import parity price i.e. (IPP) with a provision of a floor and the ceiling. This policy encouraged investment in a revamp of existing units creating a capacity of the producing about 2 million tones of an additional urea. The major constraints in attracting investment in a new urea projects was non-availability non-availability of the gas, uncertainty regarding the price of a gas, pipeline connectivity connectivity for the transporting transporting gas and the uncertainty regarding returns on the investment .
The fertilizer industry is the presents most energy intensive sectors within the Indian Economy and it is also therefore of particular interest in the context of the both local and global Environmental discussions. Increases in the productivity through the adoption of more and more Efficient and also the cleaner technologies in the manufacturing sector will be the most effective in the merging merging economic, environmental, and also also in social development objectives.
A historical examination of the productivity growth in Indian industries has embedded into a broader analysis of a structural composition and a policy changes will help to identify the potential future development strategies and therefore that lead towards to a more sustainable development path. Issues of productivity growth and the patterns of substitution in the fertilizer sector and also in other energy intensive industries in India have been discussed from a various
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perspectives. Historical estimates have been a varying from indicating an improvement to decline in the various sector’s of the productivity.
The variation mainly depends on the time period considered, the source of the data, the type of indices and the econometric specifications used for a reporting productivity growth. Regarding patterns of the substitution most analyses focus on the interfile substitution possibilities in context of a rising energy demand. Not much research has been conducted on the patterns of substitution among the both primary and secondary input factors:
Capital, labor,
energy and
Materials.
However, analyzing the use and the substitution possibilities of the factors and also identifying the main drivers of productivity growth among these and the other factors is a very special importance for understanding technological and a overall development of the industry. In this paper we have contribute to the discussion on productivity growth and the role of the technological change. We have introduce the fertilizer industry in more detail taking into the account industry specific aspects as such structural composition, , technologies, production, energy consumption within the processes, sector specific policies etc.
This following we have to derive both the statistical and econometric estimates of the productivity growth for fertilizer sector over time. For a statistical analysis we have develop the Kendrick and Solow indices ,while for econometric analysis a transom cost function approach using the both cross-state and the national time series data is employed. The results are then have been interpreted within a broader of context of structural and a policy changes in the sector and also other sector main aspect. 8|Page
Future energy have use depends on level of the production and technologies employed. Furthermore, different economic and the policy settings affect structures and also the efficiencies within the sector. And also the final section therefore examines the ongoing changes in fertilizer industry structure. It has been comparing best practice technologies into Indian technologies and identifies potentials and the barriers to adoption of such efficiency improvements.
Fertilizer is defined as any substance which is the organic or an inorganic, natural or artificial, which supplies one or more of the chemical elements required for a plant growth. Carbon, oxygen and the hydrogen are directly supplied by the air and water and therefore not treated as nutrients by fertilizer industry. One of the vital industries for an Indian economy is Indian Fertilizer Industry as it manufactures a very critical raw material for an agriculture which is a
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major occupation of the country. The fertilizer especially has like the ammonia urea plants are energy demanding in the operation.
Earliest Times o
People noted that in the earlier times have first yield on a plot of the land qualitatively surpassed subsequent ones. Thus, there have to be way of maintaining or an even enhancing yield while staying on same plot of the land. Eventually, the people came up with the idea of using the animal manure to do so.
Evolution of Materials o
With the time, natural fertilization has become more refined. For an instance, the ancient Egyptians have added ashes from burned weeds to the soil. Other materials used in ancient times included sea shells, clay, and the vegetable waste.
Advent of Fertilizer Technology o
Starting from an early 17th century, people have researched a other modes of the fertilization, particularly those of chemical nature. For instance, the German-Dutch chemist and the Johann Glauber (c. 1604 to 1670), they have developed the first mineral fertilizer, which has comprised the saltpeter, lime, phosphoric acid, nitrogen, and the potash.
o
By the early 20th century, it was understood that a core plant nutrients are nitrogen, phosphorous, and also the potassium. Nitrogen is also considered as the most needed nutrient--as an essential building block for a assembling amino acids, nucleic acids, and the protein. Plants with a less nitrogen tend to be smaller, less fruitful, and also have more of yellowish color. With that knowledge of the plant chemical needs, the chemical fertilizer industries have experienced significant growth, particularly after the World War I, which have ended in 1918.
Today
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o
Although the organic fertilizers are have still been used today worldwide, chemical fertilizers are has been more popular. Also, the research is still been conducted to reduce the harmful environmental which effects of the fertilizer use, as well as the discovering new, is less costly sources of the fertilizers.
Size of the Industry
57 large fertilizers plants and the 57 large-sized and the 64 medium- and the small-sized chemical fertilizer have been production units in the India producing urea, Complex fertilizer, DAP, Ammonium Sulphate (AS) and the Calcium Ammonium Nitrate (CAN)
Geographical distribution
Cochin, Chennai and Kerala
Output per annum
121.10 lakh MT a year
Percentage
in
world It ranks 3rd in the world of the Fertilizer production
market Market capitalization
25% to the GDP
As on thirty first January 2008, the country has put in a capability of a 56.59 lakh MT of Phosphate and 120.61 lakh MT of nitrogen. Presently, there are nearly fifty six massive sized fertilizers plants in country producing there's a large vary of the nitrogenous, phosphate and therefore the advanced fertilizers. Out of those there are 30(as on date twenty eight that are 11 | P a g e
functioning) units manufacture urea, twenty one units manufacture DAP (Di-ammonium phosphate) and sophisticated fertilizers, five units manufacture low analysis straight nitrogenous fertilizers and remaining nine manufacture ammonium sulphate as a product. Besides these there are seventy two medium and therefore the tiny scale units operating that are manufacturing SSP (Single super phosphate).
The sector wise put in capability is given below:
The
sector-wise
and
Nutrient-wise put
in
capability
of
Fertilizer
producing units
(As on first January2008) are as followed
The fertilizer production has improved from 9.04 MMT in FY91 to 14.63 MMT in FY02. However, throughout the tenth set up amount, the fertilizer production registered a moderate growth and beside it the capability of enlargement on the trade had additionally remained by and huge stagnant.
Fertilizer production grew by a mean a pair of 2.0% throughout FY03-FY07 that can be mainly attributed to the absence of contemporary investment and non-implementation of the amount of 12 | P a g e
comes that were envisaged to be implemented throughout the tenth set up .Where the expansion in production has been sluggish throughout the Tenth set up amount, growth within the fertilizer production declined
Successively throughout FY08 and FY09
As a result, of capability utilization witnessed moderation over the previous couple of years. Nonetheless, the domestic industry's capability utilization as additional or less at a par with the world fertilizer industry's level of capability utilization S.N SECTOR Capacity (lakh MT) Percentage Share
Yes the fertilizer industry is seasonal as in the year 2003 because of Poor monsoon the industry was adversely affected agricultural production and continuously affecting the performance of the Indian fertilizer industry. Although the food grain production has dropped 13.6% to 183 million tones, the fertilizer consumption has fallen by almost 7.1%. Urea demand also fell by over 5.6%. 13 | P a g e
The sales were also less in compare with the further years and the growth of the year 2003 was also 0%.
31/03/2003
31/03/2004
31/03/2005
12
12
12
Net Sales
Rs m
22,105
31,226
36,865
Sales Growth
%
0
41.3
18.1
Major players players
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The development trajectory of agricultural industry is derives its main stimulus from the growth in production of the fertilizers in India. The fertilizer industry has earlier witnessed the preponderance of public sector units of who still retain their status and the major players in the Indian fertilizer market. Coupled with private enterprisers manufacturing fertilizers, India have been emerging as the third largest producer of agro-input. The country also has emerged as one of its largest consumers of fertilizers along with China and USA (United States of America).
The fertilizer sector in India has been a major share among the energy intensive industries of the country. The industry has a shown unparalleled growth in past few years. Though growing in a accelerating rate, the industry is been faced with a number of the challenges, inter alia, and the lack of major plant and resources such as the nitrogen, phosphate and the potassium.
Notwithstanding these specificities, India produces both nitrogenous and also phosphate fertilizers in domestic market. Urea and ammonium are two most popularly manufactured nitrogenous fertilizers in India. The various companies which are dedicated to manufacture of fertilizers have also produce straight phosphate fertilizers such as a single super phosphate and the complex fertilizers such as the di-ammonium phosphate / DAP. The lack of the indigenous reserves of potash in India has stunted the production of the Potosi fertilizers in India.
The Indian fertilizer industries have a capacity of around 56 lakh MT of phosphate nutrient and 121 lakh MT of nitrogen. While the private sector have a huge installed capacity for the phosphate fertilizers, and the capacity utilization of nitrogenous fertilizers is higher in public sector.
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In response to oil price shock in 1973, which led to a overshooting of the prices of imported oil, the Government of India introduced a Retention Price Scheme (RPS) in 1977 for indigenous nitrogenous fertilizer units, to provide a fertilizer to the farmers at a affordable rates without harming the interests to the producers. Under these RPS, the difference between the withholding price and the statutorily notified sale price which was paid as subsidy to the each urea unit.
The retention price used to be the determined based on unit, which differed from the unit to unit, depending on the technology, the level of the capacity utilization, energy consumption, feedstock used, a distance from the various source of feedstock/raw materials etc.
The policy has not only ensured reasonable return on investments for the manufacturers have but also aided to the healthy development of fertilizer industry. The RPS was then later extended to phosphate and to other complex fertilizers in February 1979 and to SSP in year 1982.
The MRP of the P&K fertilizers is been fixed by the government uniformly across the states and total delivered cost of fertilizer was also computed according to their methodology recommended by their Tariff Commission and was also implemented from FY03 onwards. The difference between the tow total delivered costs of the fertilizer at the farm gate and MRP payable by farmers is given by the Central Government as concession subsidy to the manufacturers.
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Relevant product market: A distinction is vital to draw at this time and to say concerning the merchandise profile prevailing within the Indian market place for fertilizers. The four major fertilizers within the fertilizers f ertilizers business in India are:
Urea
Di-ammonium Phosphate
Single Super Phosphate
Muriate of Potash
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Healthy demand growth and the stagnancy in production due to policy and pricing uncertainties result in higher dependence on imports of fertilizers. Demand growth has been aided by price protection of fertilizers in a volatile commodity price scenario. However, the improved farm economics have provided scope for a gradual increase in the prices and reduction in a subsidy.
The domestic demand growth for the fertilizers has a remained healthy on the back of a healthy crop prices and rising nutrient application rates. On the other side, domestic production of these fertilizers has a stagnated on an account of lack of encouraging policies for the fresh investments and the constraints with respect to availability and prices of the raw materials. Consequently, there has been higher dependence on the imported fertilizers and, therefore, an increase in subsidy bills of GoI, particularly during the times of spikes in a commodity prices.
The demand growths have been aided by stable farm gate price regime over the last decades. Farm gate prices of the fertilizers in India has remained largely constant in the year 2000-2010 and even during these periods of sharp fluctuations in fertilizer and also in the input prices, thus leading to higher level of subsidization. 20 | P a g e
Nevertheless, in the rising crop/grain prices should be enable farmers to a absorb of the higher prices of the fertilizers, as reflected to a moderate degree in the year 2010-11, when this fertilizer demand posted a robust growth despite a 5-10% rise in the prices.
Urea: The domestic consumption of the urea has grown steadily at a CAGR of 5.2% during the period from 2004-05 to 2009-10. The production of the urea in this period was remained stagnant at around 20-21 million MT due to the feedstock constraints and the lack of fresh capacity on the account of policy uncertainties.
Due to stagnancy in indigenous production, in the imports grew at a slight significant rate. Even in the recent increase in the farm gate prices (by 10%/ Rs. 480/MT with effect from 1 April 2010) has not affected the consumption levels, as the prices remain unchanged over the last decade while the food grain prices have been increased in the same period.
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Urea consumption witnessed has an increase of 5% in period from April 2010 to November 2010 (8M 2010-11) over the same period in the previous year. ICRA expects have the demand growth in urea to be moderate at 3% due to potential for move towards a more balanced nutrient consumption.
DAP: The dependence of India on the DAP imports increased increased significantly to 60% in the FY 2009-10 from from 10% in FY 2004-05 on account of the steady rise in demand and stagnancy in domestic production due to the raw material constraints as well as the price volatility.
The domestic production witnessed as a moderate decline during these period from 2004 to 2008 on a account of raw material constraints (mainly phosphoric acid and a rock phosphate), while the significant 22 | P a g e
decline was witnessed in FY 2008-09 due to a production cutback in a scenario of crash in a DAP prices in H2, FY 2008-09, which normalized in the year 2009- 10.
While the production levels have a remained volatile, consumption has shown consistently high growth of 23% in 2008-09 and 13% in 2009-10.
The demand growth has slowed down to 5% during 8M 2010-11 over the corresponding period from the previous year due to a greater substitution by complex fertilizers. ICRA expects domestic demand for DAP to grow at a 5% a year while high import dependence should be continue in medium term due to lack of any major capacities.
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The demand for a complex fertilizer have an averaged at around 6% over FY 2008- 10. The trend in a production for the complex fertilizers differs from that of a DAP due to a substitution between the two, depending upon subsidy and international price levels, as reflected in the varying consumption patterns.
A positive development have been the opening up of an imports of complex fertilizers fertilizers with a effect effect from 1 April 2010 and the move towards NBS, which has encouraged the consumption of customized complex fertilizers. As a result of healthy demand growth and higher availability, the demand for complex fertilizers which is increased by 33% in 8M 2010-11 over 8M 2009-10.
The resilience in the demand growth in period marked by an increase in the complex fertilizer prices by Rs. 1,000/tone proves the underlying potential in the sector, according to the ICRA.
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COMPARISSION OF SUBSIDY OF IMPORT AND INDIGINIOUS AREA
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Expansion of the urea capacities which is essential to promote self-sufficiency for India and insulate against the international price cycle. Indigenous gas-based urea is a competitive against imports. Lack of encouraging investment policy has discouraged investment in urea, and thus resulting in higher reliance on imported of urea (of about 20% in 2009-10) and the consequent is high subsidy to outgo, particularly during the times of higher urea prices. Therefore, this is in the interest of the Government of India to promote self-sufficiency in urea, a cost of indigenous, gas-based urea has been largely competitive as a compared to the imported urea and is expected to remain so in future. As seen in the Chart 8, indigenous urea’s have been competitive in the relation to imported urea over the period from the the year 2003- 04 to year 2018-19, even after the factoring in the high-cost urea from liquid, fuel-based units. It may be noted that cost of indigenous urea was marginally higher than the imported urea in year 2009-10 due to moderation in the international urea prices (average of US$275/tone in 2009-10) and increase in the domestic gas prices, which has however reversed in year
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2010-11 with the upturn in the urea prices to US$400/tone. Nevertheless, the rising use of the higher cost gas (such as the R-LNG) remains a concern in regard.
GoI considering modifications in the urea investment policy upon the requests of industry participants; the ability of new policy to address this issue of rising gas costs is critical: Due to the uncertainties with respect to the project returns with the current policy, given the rising gas prices, this GoI is considering changes to the policy, upon the requests of the industry participants, are
1) A Increase in a floor prices 2) Linking of the import parity urea prices to gas prices 3) Increasing percentage linkage and 4) Inclusion of other expenses such as the custom duty, handling and the bagging expenses in addition to the bare of IPP.
The GoI is the expected to announce the changes to the policy in the near term. While the ICRA awaits clarity on the new policy, it believes that the manner in which these new policy addresses the issue of the rising gas costs would be most critical. Therefore, the GoI is also actively considering implementation of the uniform gas pricing (through pooling mechanism), which could have reduce the uncertainty covering the viability of such projects. Availability of the natural gas is critical for a urea industry: The availability of the gas is critical for the growth of the urea industry and the assumes greater importance, given in the rising demand from the existing operations (I.e. conversion of liquid fuel based units)
And incremental capacities. In this regard, the highest priority which is given accorded by the GoI to the urea sector in its gas allocation policy serves as source of comfort. Capital structures of the urea manufacturers are likely to get a depressed due to an expansion plans: Many of the urea manufacturers have envisaged expansion plans, which are expected to be a finalized upon an announcement of a new investment policy.
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ICRA notes that urea operations that are capital-intensive, with estimated investment for a minimum economic size urea project (of 1 million MT) and ranging from Rs. 4000 crore to Rs. 4500 crore. Consequently, companies that have opted to finalize their expansion projects should be witness an increase in their financial risk profiles.
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It may be noted that these subsidy bill witnessed witnessed as a 2.5 fold increase in the year
2008-09 over 2007-
08 due to the peaking of commodity prices, thereby stressing these finances of the GoI. Fertilizer subsidy is expected to show the increase of around 30% from Rs 62000 crore in 2009-10 to Rs 80,000 crore in 2010-11 due to one time increase in APM gas prices for a urea plants and the significant rise in consumption of complex fertilizers. Fertilizer subsidy accounts for a around 40% of GoI’s total subsidy budget, which covers food, fertilizer and the petroleum products. During year 2007-08 and 2008-09,
GoI started a payment of subsidy through bonds, which have suffered from poor liquidity and the discount to the face value, thus affecting the liquidity position of fertilizer companies further, while they were later discontinued upon the requests of the industry participants. Nevertheless, the ICRA takes
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comfort from the fact that subsidy disbursals have been fairly prompt in year 2009-10 and 9M 2010-11 due to the stability in prices and accurate subsidy estimation due to the NBS, respectively.
Going forward, part price decontrol and the direct subsidy payment to the needy farmers, although the idea is riddled with a several challenges, which should assist in containing the subsidy outflows of the GoI over the long term.
The GoI has a longer-term goal of making the subsidy payments directly to the farmers instead of manufacturers and traders. The same is prevalent in China, Malaysia and also the Philippines. However, this could be the cumbersome, given the administrative hassles involved with a payment of the subsidy to individual farmers.
The overall health of the urea industry was fairly satisfactory. Almost all the public, private and cooperative sector manufacturing units are making profits. Among the Public Sector Undertakings, RCF and the NFL are operating satisfactorily on the overall basis. No financial crunch is been reported and the companies are undertaking measures for performance and the capacity enhancements. Only the plants at Namrup (BVFCL), MFL and the other FACT units are running under losses.
The reasons for the sickness are mainly on account of the outdated technology, high energy consumption, and also lack of trained manpower. The Department is also exploring various measures for their financial revival and their restructuring.
The first year of the Nutrient Based Subsidy (NBS) regime in P&K sector has a good profitability for complex fertilizer manufacturers. It has been due to the fact that in the first half of year, manufacturers were successful in sourcing raw materials at a price conducive to the subsidy rates are fixed by the
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Government of India. Furthermore, since the NBS policy gives a pricing freedom to the manufacturers, they have increased retail prices in the order to pass on input price increases to the farmers.
With the increase in demand and the corresponding supply of both domestic and also the imported fertilizers, rail traffic in the fertilizers is projected to increase from 45 million tones during year2012-13 to 53 million tones during year 2016-17.
The development and the maintenance of road transport will have to be substantially increased by way of widening and also proper matting of the road to withstand increasing load on the national and the state highways which should be able to take a high capacity trucks.
Port capacities need to be augmented. The existing facilities at a present just about match the needs of the manufacturing units. In particular, special attention is called for at ports like the Vishakhapatnam, Kakinada, Paradeep, Kandla, and Mundra, etc. There is a pressing need for a upgrading and a modernizing the shore support for achieving higher discharge rates through mechanical unloading and the bagging facilities, raising the number and the quality of barges at the anchorage ports and an increase in a warehouse capacity. There There is also imperative need for a creating facility for handling panamax vessels at some selected ports.
To ease the pressure on the rail and roadways for movement of fertilizers to the consuming areas during the peak agriculture season, are the alternatives which are to be looked into.
The inland water transport can provide an alternative mode for transporting fertilizers as it provides a necessary wherewithal like the night navigation, suitability in the transporting higher tonnage, economic 31 | P a g e
and a competitive rate to match with the railways etc. The Further, incentives need to be provided for new investments in the hinterland that is in proximity to the consumption centers.
Indian fertilizer industry has kept a pace with technological development with up gradation and the utilization of better feedstock. It is comparable to a best in the world in terms of efficiency, the capacity utilization, the energy consumption and utilities are like power and water. The industry has been a proactive in the development and propagation of new and more appropriate grades of the fertilizers. It has introduced innovative, coated and a fortified fertilizers, crop specific and the location specific customized fertilizers and a specialty fertilizers to improve the fertilizer use efficiency and an improved agricultural productivity to enhance the income of the farmers.
Almost all the fertilizer producers in country (ammonia‐urea complexes), have an implemented energy saving measures, are producing urea with the minimum possible energy consumption. Sizeable numbers of the fertilizer complexes of older vintage have adopted energy saving measures and are operating with lower energy consumption, which are the economically viable. In the process, almost all the energy saving measures is available to‐day and is being practiced worldwide, and has been implemented in the Indian plants.
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It is an agreed worldwide that, the technology has reached its peak, especially with the regards to process of manufacture. Whatever savings in energy consumption that can be achieved, and also can be in the following areas:
Adopting the plants of very high capacities.
Better efficiencies of machines.
Better Catalysts
Research and the Development Issues
There has not been much of the change in R&D activities during last 5years. The companies are mainly concerned with the trouble shooting, technical audit and the inspection exercises and other short-term problems.
The Department of Fertilizers may be strengthened technically as it can play an important role in the promoting productivity in the new economic environment through the R&D efforts. A fertilizer research institute may also be established on a similar line as of road research institute, the coal research institute, the steel research institute and cement research institute. To carry out the various researches related to fertilizer industry. This research institute should be always maintaining link between the coordination group for R&D as well as suggested above and with various laboratories and other research in institutes and academy.
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The total nutrient consumption was projected as 259.60 lakh MTs for the year 2010-11 by the Working Group. As a result of the continued good weather and the comfortable availability availability of fertilizers, fertilizers, the estimated consumption touched up to 282.83 lakh MTs in year 2010-11 which is higher by about 8.9% over the projected demand.
The growth rate in each year remained significantly high during the first four years of the 11th year Plan.
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Increasing in the trend consumption towards balanced application led to improvement in The N: P: K use ratio. The ratio has been 6.8:2.6:1 at the end of 9th year Plan improved to 5.9:2.4:1 at the end of 10th year Plan which further improved to 5.0:2.4:1 during the 4th year of the 11th year Plan (2010-11). Per hectare consumption of the fertilizer nutrients improved from 92.2 kg at the end of 9 th year Plan improved to 112.1 kg at the end of 10th year Plan which further improved to 145 kg during 201011years.
Change over of the feed stock from naphtha to a natural gas at the earliest. In addition, the following Steps ca be considered. i) The outstanding amounts of the loans given by the Central Government may be converted to equity. ii) The State Government may be advised to reduce the Sales Tax iii) The Phosphoric acid plant should be revamped. iv) Energy saving measures has to be undertaken v) Infrastructure facilities have to be improved.
Governments have been consistently pursuing policies conducive to increase the availability and the consumption of fertilizers at an affordable price in a country. As a result, the annual consumption of the fertilizers, in nutrient terms (N, P & K ), have increased from 0.07 million MT in year 1951-52 to more than 28 million MT in 2010-11, while the per hectare consumption, which was less than a 1 Kg in 1951-52 has risen to level of 135 Kg currently.
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Consecutive 5year plans has provided importance to the self-sufficiency and the self-reliance in the food grains production and the painstaking efforts in this direction have a resulted in the significant increase in agriculture production and also the productivity. This is an evident from the fact that from a modest level of 52 million MT in year 1951-52, food grains production has a risen to about 240 million MT in year2010-11.
In the success saga of the agriculture sector in terms of a meeting total requirement of the food grains and also a generating export surpluses, the Significant role played by these chemical fertilizers is well acknowledged and established.
The Government came out with a policy for attracting fresh investment in the urea sector in the year 2004 based on principle of Long Run Average Cost (LRAC). However, it didn’t attract any of the fresh investment as return on investment based on the policy was not found so attractive. Moreover, availability of the gas on long term basis had always been limiting factor.
New investment policy was notified in September, 2008 under which pricing of urea the from a new investments in form of revamps, expansions, Brownfield and the Greenfield projects was a based on import parity price i.e. (IPP) with a provision of a floor and the ceiling. This policy encouraged investment in a revamp of existing units creating a capacity of the producing about 2 million tones of an additional urea. The major constraints in attracting investment in a new urea projects was nonavailability of the gas, uncertainty regarding the the price of a gas, pipeline connectivity for the transporting gas and the uncertainty regarding returns on the investment.
Overall analysis of the strength, weakness, opportunities and the threat to the fertilizer sector is as follows:
Strength: 36 | P a g e
Indian technologies, capabilities and experience: The Indian fertilizer plants have adopted a diverse technologies supplied by the various renowned licensers. We have kept pace with the technological advancement elsewhere in world. The single superphosphate plant (ssp) with associated sulphuric acid plant and the granulation plant are indigenously designed, engineered and the constructed.
There are also Indian capabilities in consultancy, design and the manufacturing equipment. The Indian manufacturers are fully geared to be fabricating critical items for the meeting in the international codes and standards.
The fertilizer plants in India have included old design and as well as the most modern ones. These are run by the very well trained and the experienced operation and maintenance staff. Most of these plants can, therefore, lend staff for the construction and commissioning and the trouble shooting in other plants both inside India and as well as abroad. Also, many of the plants have a highly competent Technical Service team which is continuously monitor running of their plants, keenly watch international technical developments in the fertilizer field and the adapt it to their local needs as to run their plants at the optimum levels.
Several fertilizer companies in India have a well equipped research laboratory. These labs are engaged into the R&D activities in the area of catalyst, new and a modified fertilizer products, including the customized and the fortified fertilizers, pollution control, water treatment, materials of a construction, utilization of inferior quality rock phosphate, process modeling and the simulations. Several hundred highly qualified scientists and engineers are employed in about a dozen R&D centers across the country. India offers a very unique opportunity for imparting training and the sharing its valuable experience in all the facets of fertilizer production.
World class industry: Indian fertilizer industry is bench marked as one of the best in the world in terms of operational efficiency, energy consumption, maintenance of the safety and environmental 37 | P a g e
standards. Figure 1 depicts of the considerable improvement in energy consumption between year 198788 and 2010-11.
Large distribution network: Over the years, it has been an Endeavour of the Government and also Fertilizer Industry to make fertilizers available across the country, and including the remote and the inaccessible areas. Currently, there are around 275 thousand sale points across country catering to the need for the fertilizer across the country. Out of these total number of sale points, 77% are in the private channel and 23% in the cooperative and other institutional agencies.
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Extension workforce:
Fertilizer Industry has a great number of extension workforces to take
care of promotion and the extension activities of Industry. Despite of a very limited available resource, in the Industry undertakes various promotional and the extension work. These include, Fertilizers Demonstrations, Critical input packing
demonstrations, Field programmers, Agriculture extension
programmers, Research and development, Farmers service centers, Information technology and Trainings.
Weakness Lack of consistent and conducive policies: The policies formulated from1990s emphasized on the containing fertilizer subsidy rather than a reducing dependence on the imports. Lack of the conducive policies led to stagnation in the domestic capacity and increasing the dependence on the imports in the past few decades.
High imports: Currently there are about 38% of the total fertilizer consumption is fulfilled through the imports. The imports of total finished fertilizers have gone up to 21.7 million tones (Mt) in year 2010-11 from 3.6 Mt only in year 2000-01. Out of 21.7 Mt, the import of urea was 6.6 Mt, DAP 7.4 Mt, MOP 6.4 Mt and the balanced quantity of 1.3 Mt comprised of NP/NPKs, Ammonium sulphate, TSP and the SOP.
Inadequate availability of raw materials/ intermediates: Bulk of the requirement of feedstock for manufacture of the nitrogenous fertilizers is available from the domestic sources. During the year 2010-11, about 13.5 million tones ammonia was produced in the country and around 1.7 million tones of ammonia which was imported to supplement the requirement of the ammonia for the production of the DAP/ complex fertilizers. In addition to this about 2.64 billion SM3 (8 million SM3 per day) of LNG was also imported to supplement in the increased requirement of the gas.
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In regard to the phosphates, bulk of the requirement of a raw materials/ intermediates is met through the imports. Currently, about 6.4 million tones of rock phosphate and 1.8million tones of sulphur have been imported. The availability of the rock phosphate from domestic sources is around 1.6 million tones. Domestic availability of sulphur is about a million ton. During the year 2010-11, about 2.1 million tones of phosphoric acid was imported i mported Entire requirement of potash is met through imports.
International prices of fertilizers and raw materials are volatile. These are not the governed by the cost of production and the margin, but influenced by the demand and also supply. The availability of the imported materials is in the hands of a few suppliers. Sourcing them is a big challenge to the Indian Fertilizer Industry.
Limited product diversification: FCO contains a long list of the fertilizers of more than an 80 products. However a few products are marketed on which the subsidies are allowed. These include Urea, DAP, DAP Lite, SSP, MOP and the 18 grades of complex fertilizers. Out of these, bulk of the share is comprised of the Urea, DAP and MOP. Urea accounts for 78 percent share of N consumption and the share of the DAP in total P is about 62percent. Increasing use of high analysis fertilizers has a resulted in multi-nutrient deficiencies in the soil.
Dependence on subsidy: The government of India ensures ensu res supply of the fertilizer to the farmers at a reasonable rate. The retail prices of the fertilizers are significantly lower than the cost of the production/ imports. The difference between cost of production/ imports and retail price is that the paid as subsidy to the farmers. The amount of the subsidy increased from Rs.13.8 thousand crores in the year 2000-01 to Rs. 99.5 thousand crores in year 2008-09 and Rs. 65.8 thousand crores in year 2010-11. The rising amount of subsidy is due to increase in the cost of production/ imports against the lower MRP.
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Low profitability: The profitability of the fertilizer sector is significantly lower than the other core sectors. And also the profitability of the best performing companies in the fertilizer sector is far lower than the other core sectors of the economy.
Table given below gives an example of the profitability and the return on net worth in some of the best performing fertilizer company’s vis-à-vis power, steel, cement, petroleum and the coal sectors of the country.
High interest cost: Rate of interest is high in India both for borrowing in the short term to meet the working capital requirement as well as the term loan for a long term compared to the developed countries. High interest cost a enhance the cost of production.
Infrastructure facilities: Adequate infrastructure facilities are not available in India when a plant is set up in the specific location.
Opportunities
If the quality is good then the customer will buy your product. By B y improving the quality of the products, industry can attract more and more customers and can also retain the customers by satisfying their needs. There is no quota restriction by the WTO since 2005, so there are more chances of the the ex por t. Availability of the gas from Iran can increase in the production of plants and the industry can fulfill the demands.
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The Government is giving a support s upport to the fertilizer sector… As the demand is high as comparing to the supply, fertilizer sector has an opportunity to expand the capacity to fulfill the local demands. As India is an agricultural agricultural country and the farmers are getting awareness about balanced use of fertilizer, demand of fertilizer has to increased
Threats
As the natural gas is the main raw material, and load shedding of the natural gas is big threat. Imported fertilizer is available at a very cheap price than local fertilizer. The changing political condition in the country is a big threat to the fertilizer industry. Prices of fuel and the gas have increase enormously. Global prices of the fertilizer products are also have been increasing which is causing the increase in fertilizer prices in country. Bio fertilizer is main threat to the industry because it is very cheap and also its environment friendly. The Government policies are not consistent regarding in the fertilizer industry.
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Political Environment
Latest budget was favorable for the agricultural sector.
India has a quite big number of the fertilizer manufacturers widely as we are Mostly in to the primary sector
Subsidies are given on the fertilizers in order to promote this industry.
Economical Environment
Agricultural sector is highly dependent on India’s economy and hence has a high demand in their production
A High returns are expected from this industry as the raw materials are abundant in the nature (nitrogen and phosphate)
Inflation is a threat as it increases in the prices of the fertilizers and government has to issue further subsidies
Many farmers do not have proper disposable income for the purchase of the fertilizers and hence credit facility is preferred
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Socio economic environment
Huge population of India is dependent on the agriculture and hence on the fertilizer industry
Life styles and the technological innovations are forcing farmers to use inorganic fertilizers to yield at a high rate
Income among the farmers is not uniformly distributed and hence it is a concern.
Technological Environment
Inorganic fertilizers are leading the market due to their high yield
Many new innovations are taking place in the developing of new varieties of fertilizers
Government is spending high on efficient crop productivity and the consistent yielding crops.
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Legal Environment
Restrictions are issued on some of the fertilizers are banned as they tend to cause soil pollution
Inorganic fertilizers cause the land land to give a high yield but have a permanent damage to to the soil regarding the minerals so government is taking sufficient measures to avoid it
Taxation is very low in the fertilizer industry as primary sector is directly dependent on it.
Environmental
Research proved that the organic fertilizers cause no harm to soil and hence should be preferred.
Government should issue norms in the promoting organic varieties of fertilizers.
Disposal of the waste by fertilizer industry is a growing concern as they are a highly harmful to the environment.
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Once on the top of discussion concerning on the makers is evident that we've currently apply Porter’s 5 forces model.
This is the framework for industrial analysis, determines the competitive intensity, attractiveness of market.
Fertilizer Producers:
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Bargaining power of the suppliers LOW
Consumer Base HIGH
Rivarly among players LOW
Barriers to entry HIGH
Bargaining power of the buyers LOW
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materials Suppliers; and the Buyers are Distributors. Distributors. Here, Suppliers are the Raw materials
Bargaining power of the suppliers-LOW:
Price and supply of key inputs like
natural gas is regulated in India. As far as the raw materials are concerned, about the both pricing and supply of them are highly regulated by government.
Bargaining power of the buyers-LOW:
Each company has adequate numbers of the
distributors under them. Some of these bigger players like NFL have been nationwide coverage as far as a distribution is concerned. Other producers like the Gujarat State Fertilizer ltd. have tended to restrict themselves in a certain areas.
Thus only a few producers having a control over the total supply and hence the bargaining power of the distributors is too low. Switching to the costs for distributors is still low, given to the generic 48 | P a g e
nature of the fertilizer products and the lack of differentiation thereby. Still, there is a large number of a distributors compared to only a few producers keep bargaining power of customers at a low level.
Barriers to entry – HIGH:
Highly capital extensive nature and the stringent government
policies restrict induction of new players.
Demand certainty in market and the Rivalry among players – LOW: Producers prices for urea are generally set as with mutual consensus, as is evident by the uniform prices across the sector.
Factors such as a hike in the input prices play important role in setting up of the prices and therefore mutual consensus over a pricing. The domestic price has been remaining lower than international prices mainly because of direct subsidy given by the government to the manufacturers.
Here Fertilizer Distributors are Suppliers are producer, Buyers are farmers.
Threats of the substitutes – LOW: Urea remains the dominant nitrogen-based fertilizer while DAP is leading phosphate fertilizer in India. The tendency for others fertilizers to the substitute these main products is limited. Nitrogen, phosphate and the potash cater for different nutrition needs.
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Therefore these should appropriately to be considered as complementary products rather than a substitute. Meanwhile, the chemical fertilizers themselves have a very far wider appeal worldwide and are also considered to be the key component in the crop cultivation and growth.
Bargaining Power of the Suppliers- HIGH: As there are few suppliers of fertilizers in every region. After applying Porter’s five forces model upon the fertilizer producers, it can be accurat ely inferred
that industry is highly concentrated and the industry participants have been enjoying great influence on the other factors. The circumstances thereby certainly favor domestic fertilizer producers as far as the Porter’s five forces model is in concerned.
The situation is opposite for distributors. Unfavorable factors include the high bargaining power of the suppliers. Distributors remain under a heavy influence of a few large producers for products like urea. Meanwhile, the producers reserve and exercise the right to induce their market practices over distributors and also the right to expel ex pel non-compliant distributors from their network. Aspects which are in the favor for the distributors include high barriers to the entry due to an already saturated in market. Low level of the rivalry among the distributors also have prevails due to the limited area covered by the each player.
Fertilizer producers also have provide prescribed retail prices to the distributors which further have restrain the tendency of any an y rivalry. Lastly, only the factor which favors both producers and the distributors is that of low bargaining power of ultimate end consumer, and the farmer.
Although the government provides heavy support to this consumer through variety of budgetary and the regulatory measures, it should be noted that the adverse market practices is exercised either by the producers or by the distributors of potentially result in offsetting the massive government
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support. Therefore, it is too imperative for their regulatory bodies to fully ensure that the unfavorable practices to be curtailed.
As was pointed in the beginning, the profit maximization motive is a part and the parcel of the free market mechanism.
Therefore, the regulators should have strike a balance in terms of the intervention. One more important element which should be pointed out here is the domestic fertilizer sector does not and rightfully cannot function the completely on an free market mechanism, which is owing to the active and persistent government intervention that is undertaken with aim of the eventually providing relief to the farmer That being said, that the sector should be assessed by differently than other sectors which are operate or should be operated through a mechanism of free markets
Governments have been consistently pursuing policies conducive to increase the availability and the consumption of fertilizers at an affordable price in a country. As a result, the annual consumption of the fertilizers, in nutrient terms (Nitrogen, Phosphorus & Potassium ), have 51 | P a g e
increased from 0.07 million MT in year 1951-52 to more than 28 million MT in 2010-11, while the per hectare consumption, which was less than a 1 Kg in 1951-52 has risen to level of 135 Kg currently.
Consecutive 5year plans has provided importance to the self-sufficiency and the self-reliance in the food grains production and the painstaking efforts in this direction have a resulted in the significant increase in agriculture production and also the productivity.
This is an evident from the fact that from a modest level of 52 million MT in year 1951-52, food grains production has a risen to about 240 million MT in year2010-11. In the success saga of the agriculture sector in terms of a meeting total requirement of the food grains and also a generating exportable surpluses, the
Significant role played by these chemical fertilizers is well acknowledged and established. The Government came out with a policy for attracting fresh investment in the urea sector in the year 2004 based on principle of “Long Run Average Cost” (LRAC). However, it didn’t attract any of the fresh investment as return on investment based on the policy was not found so attractive.
Moreover, availability of the gas on long term basis had always been limiting factor. New investment policy was notified in September, 2008 under which pricing of urea the from a new investments in form of revamps, expansions, Brownfield and the Greenfield projects was a based on import parity price i.e. (IPP) with a provision of a floor and the ceiling. 52 | P a g e
This policy encouraged investment in a revamp of existing units creating a capacity of the producing about 2 million tones of an additional urea. The major constraints in attracting investment in a new urea projects was non-availability of the gas, uncertainty regarding the price of a gas, pipeline connectivity for the transporting gas and the uncertainty regarding returns on the investment.
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Equitymaster.com: IndianFertilizer.com The Hindu: Business News: Time has come to unbundle fertilizer industry Fertilizer Industry, India Fertilizer Industry | Economy Watch IFA: International Fertilizer Industry Association - Supply chains / Sustainable development / SUSTAINABILITY / Homepage / IFA India's strong demand to stimulate the international fertilizer market-Alibaba Trade Forums
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