12/16/2009

Dr G Raviprasad

5th December, 2009 FAI Annual Seminar, Hyderabad

India-Present Fertiliser Policy Scenario

Urea under fully controlled environment: Phosphatics: partially decontrolled but state-wise MRPs and allocation is fixed by the Central Government Result: Huge difference between international prices of fertilisers and prices to Indian Farmers, and huge wastage of inputs Subsidy: 2008-09 we have spent 1 lakh crore on fertiliser subsidy and nevertheless this year also we will be spending at least half of that It will have an adverse impact on the long run Discussions are on for a nutrient based subsidy system We are also talking about giving subsidy directly to farmers

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What is total decontrol?

A scenario where farmers pay the actual international market price of fertilisers. MRP is open and anybody is free to sell any fertiliser any where in india as long as the product is recognised by Governemnt of India

Scheme of presentation
Prices of raw material- the trend Major fertiliser price trend Expected fertilisers price to farmers after decontrol The expected consumption of fertilisers after decontrol The state wise consumption projection after decontrol The impact on fertliser marketing The strategic intervention

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Import Prices (average) of raw material

900 800 700 600 500 400 300 200 100 0 199899 1999- 2000- 20012000 01 02 2002- 200303 04 Sulphur 2004- 200505 06 Ammonia 2006- 2007- 200807 08 09 200910
148 68 42 144 6852 68 48 432 412 359 195 144 59 34 146 55 56 86 55 90 59 97 61 6176 90 348 341 356 241 449 402 348 270 290 300 461 355 300 300 530 566 620 550 800

125 75

Rock

Phos Acid

Raw material price projection for 2010-11

Rock:150 $ Ammonia:325$
CAGR % 2008-09 2009-10 Rock 16.21 5.2

Sulphur:75-100$ Phos Acid:600 $

Sulphur 27.73 4.95 Ammonia Phos Acid 6.63 5.76 6.06 2.03
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Import Prices (average) of Urea

Urea 500 450 400 350 300 250 200 150 100 50 0

450 344 225 206 151 100 86 131 117 121 238 187 259 249 250

189 177 118

177

19 91 -9 19 2 92 -9 19 3 93 -9 4 19 94 -9 19 5 95 -9 19 6 96 -9 7 19 97 -9 19 8 98 -9 19 9 99 -2 00 0 20 00 -0 1 20 01 -0 20 2 02 -0 20 3 03 -0 4 20 04 -0 20 5 05 -0 20 6 06 -0 7 20 07 -0 20 8 08 -0 20 9 09 -1 0

Urea would have minimum impact and the international price is expected to be stable at 250$ by 2010-11

CAGR % 2008-09 2009-10

Urea 4.94 1.48

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Import Prices (average) of DAP

DAP 1000 900 800 700 600 500 400 300 200 100 0

900

492 248 209 198 207 190 156 241 235 223 206 179 370 267 290 294 174 177 205.5

DAP prices may go up to a level of 400$ by 2010-11 but will never be at 1990-2000 level

19 90 -9 19 1 91 -9 19 2 92 -9 19 3 93 -9 19 4 94 -9 19 5 95 -9 19 6 96 -9 19 7 97 -9 19 8 98 -9 19 99 9 -2 00 0 20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 0

CAGR % 2008-09 2009-10

DAP 8.3 3.18

Import Prices (average) of MOP

MOP 700 600 500 400 300 200 100 0
19 90 -9 19 1 91 -9 19 2 92 -9 19 3 93 -9 19 4 94 -9 19 5 95 -9 19 6 96 -9 19 7 97 -9 19 8 98 -9 19 99 9 -2 00 0 20 00 -0 1 20 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 0

660

460

220 128 132 122 113 116 122 124 117 122 124 123 121 121 163 124

215

258

MOP prices will go up to a level of 500$ by 2010-11 but will remain stable in long run

CAGR % 2008-09 2009-10

MOP 9.02 6.6

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The Impact

Crop wise fertilisers consumption in India

Today our major consumption is on paddy and wheat Which will be hit posing a major threat to food security

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The nutrient use and food grain production gap

160 140 120 100 80 60 40 20 0 250 200 150 100 50 0

Prices of Fertilisers after De control

19 90 -9 19 1 91 -9 19 2 92 -9 19 3 93 -9 19 4 94 -9 19 5 95 -9 19 6 96 -9 19 7 97 -9 19 8 98 19 -9 9 99 -2 00 0 20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 6
Net area sown( million ha) Food grain production( million mts) Net Irrigated area( million ha) Nutrient Million mts

Net area sown is static, irrigation has improved, nutrient Consumption has gone up but production is dwindling

PRICES OF FERTILISERS PER BAG:NOW UREA DAP COMPLEX MOP SSP 250 485 375 225 230

AFTER DECONTROL 600 1100 1000 1000 350

Urea and SSP only would be in the affordable range

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The possible consumption pattern after decontrol

State wise consumption during 2007-08 and after decontrol numbers in '000 mts UREA States AP Haryana Punjab Gujrat Karnataka UP West Bengal TN Maharastra Bihar Orissa MP Chattisgarh Others All India 07-08 2512 1828 2570 1805 1253 5254 1167 915 2130 1852 447 1425 501 2304 25963 After 07-08 Decontrol 1758 1280 1799 1264 877 3152 700 549 1278 926 224 713 251 1152 15922 694 515 688 669 437 1324 378 335 552 312 170 579 135 708 7496 DAP COMPLEX MOP SSP TOTAL After Decontrol 3398 1674 2295 2064 1814 4358 1647 1164 2757 1195 417 1633 521 2079 27016

After 07-08 Decontrol 416 309 413 401 262 662 189 168 276 125 68 232 54 283 3858 1408 41 33 404 785 704 641 316 1208 153 154 233 111 377 6568

After After After 07-08 07-08 07-08 Decontrol Decontrol Decontrol 845 25 20 242 471 352 321 158 604 61 62 93 44 151 3448 449 29 57 179 358 116 275 477 326 105 95 71 62 281 2880 225 15 29 90 179 58 138 239 163 63 57 43 37 169 1501 154 46 35 67 25 134 300 51 436 20 7 553 135 324 2287 154 46 35 67 25 134 300 51 436 20 7 553 135 324 5217 2459 3383 3124 2858 7532 2761 2094 4652 2442 873 2861 944 3994

2287 45194

Consumption pattern will move from DAP to lower grade Complex and straight fertilisers.The states will behave Differently as far as the consumption is concerned

Fertiliser consumption-the imbalance

Average Recommendation as per ICAR Acreage Estimated consumption P K 000 ha N P K 90 50 35 43813 3943170 2190650 1533455 100 50 40 27994 2799400 1399700 1119760 60 30 30 8472 508320 254160 254160 80 50 40 7894 631520 394700 315760 20 60 23191 463820 1391460 0 60 26512 1590720 0 0 200 60 275 5150 1030000 309000 1416250 60 24 24 9144 548640 219456 219456 60 30 30 12340 740400 370200 370200 60 40 792 47520 31680 0 60 40 40 5506 330360 220240 220240 200 150 150 7492 1498400 1123800 1123800 14.13 7.91 6.57 14.4 5.5 2.6

N Paddy wheat barley maize pulses oilseeds sugarcane cotton Milet Jute Fruits Vegetables Total million mts Actual million mts

Decontrol may further create imbalance as consumption of N may again go up

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Product: Blanket to targeted approach

Innovative products: low wastage high productivity; value for money. High nutrient containing products like DAP , complexes -in assured irrigation areas Rainfed agriculture - low nutrient products like SSP Companies need to innovate to introduce new grades of DAP which contain 17% nitrogen and 40 % P, thus reducing the cost per bag. Introduction of products with lower P for top dressing in complexes i.e 24: 6:12 or 19:4: 19 or 21: 0:21, Products like ammonium sulfate in granular form, along with granular potash can be introduced Micronutrient fortified products Product proliferation and clutter will be the first phase after decontrol, and only a few products will survive.

Pricing
Going to be the most critical factor Price war prevailed even in controlled environment In the new scenario all the fixed parameters will now become freed and consequently absolute price wars will prevail for some time. Conceptually companies with strong brands will try to market their products close to their manufacturing sites and will attempt at increasing their market shares. Financial exposure will go up abnormally. Market risks will go up leading to greater costs. Higher borrowing costs or higher debt leading to disrupted supplies of raw materials cost of collections will go up significantly.

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Distribution
companies have to come together to survive post decontrol and streamline their distribution set up. Distant markets will not be serviced by companies. Therefore the real aspect of product exchange has to be adopted whereby; companies will be producing two or more brands from the same location, leading to shared marketing concepts.

Imports
Imports will play a key role, from the point of pricing and availability. Once availability increases and demand comes down automatically, pricing pressures will enter the matrix upsetting the equilibrium. Mature companies will be able to balance Imports will always be used by the government to bridge demand supply gaps in specific areas or at specific times so that industry does not profit abnormally.

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Market Development
Chaotic scenario in the field since all companies would be anxious to create brand pull This will have serious backlash and the customer I,e the farmer will be left without any direction ,and the products and strategies will be less understood . Buying behaviour of farmers will drastically change and the entire consumer behaviour will need to be revisited. As the issues evolve solutions will be emerging, and time alone will be a witness to all changes.

Strategic intervention

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Product to Solutions
Till now the fertiliser application is based on certain available grades in the market and farmers go for blanket application Currently grades and brands are region specific In total decontrol, the sale of fertilisers will be substituted with total nutrient solutions. Micronutrient fortified fertilisers, customized fertilisers, water soluble fertilisers, bio fertilizers, organic fertilizers etc will be marketed to provide comprehensive nutrient solutions which are cost effective. In fact the traditional 50 kg, bag may be replaced by dosages per acre and they may be stage and location specific.

Understanding customer behaviour

Present cost of fertilisers: 30 to 40 % of the total cost After decontrol: economics comes ahead 0f added benefits or aesthetics The increased cost of fertilisers can result in two activities. Reduced chemical fertilizer application :poor food grain output. apply the cheapest: imbalanced chemical nutrition Dealer now loses his ability to influence and the focus shifts to farmers Companies will revive extension programmes. Crop productivity will become a key rallying point and use of macro, micro and trace elements will set in. Soil analysis, crop husbandry, correct plant nutrition, appropriate plant protection and mechanization will be the buzz words.

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Product versatility
Companies with versatile product offerings will have an edge Companies with a single product will cease to exist or partner with bigger ones. Business will no more be volume driven but versatility and value driven. Companies that offer total plant nutrition will score Organic products, high concentrate fertilisers, micronutrients, low grade fertilisers, plant protection chemicals, specialties, mechanization, retail etc will come into picture Price becomes a critical factor, Farmers in rainfed areas will opt for cheaper nutrient bags like SSP, low grade complexes and compost rather than opting for high grade fertilisers. Rainfall and precipitation will also decide the type of fertilizer used. If monsoon is on time and good the farmer will try using high concentrate fertilisers like DAP,

Cash cycle
Working capital becomes an important factor in the fertilizer industry. Only agile profitable companies will be able to generate funds at competitive terms. Companies with fast moving products will realize money faster from the market They can purchase raw material at competitive prices: greater negotiating capability. Such companies will enjoy price advantage: greater flexibility. Faster cash cycle is the key

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Human Resource
The days of completing sales at rail heads or offices will come to an end Crop stage, prices of output, irrigation, competitor stock, brand strength, publicity campaigns have all to be studied and marketing personnel have to increase their level of contact with farmers. Marketing will assume a more significant role as it becomes the single fund raising source

competition
Competition from emerging technologies: GM crops, enzyme based products, seaweed based products and many more. All input companies will compete for a share in farmers wallet. Products using recombinant DNA route promising fixing atmospheric nitrogen, phosphorous releasing bacteria/ products, low grade potash will all enter From competition, companies have to adopt cooptetion Agility and alacrity will be the key nutrition revolution should happen after the long cherished green revolution

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Market Development
Current methods like wall paintings, trolley paintings, hoardings etc can no longer survive in isolation: need for integrated communication. Targeted and relationship marketing will prove to be the cutting edge Data about farmers, size of holdings, crops cultivated, irrigation source etc will gain importance. Call centers will form an important farmer touch point Decision support systems will also be used to guaranteed yield if farmers subscribe. Training programmes will be more holistic and will aim at improved crop productivity rather than disjointed bursts of product advertisement.

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