The Hindu Business Line : Widening the field

Proposals in the 2008 Union Budget may fuel strong demand and open up new business opportunities for fertiliser makers, in the form of greater flexibility and differentiation possibilities for their products. For one, the Budget has taken a decided rural thrust — doling out substantial loan waivers to farmers, promising them continuing access to credit and sharply hiking outlays on irrigation and rural development projects. These measures, combined with already buoyant trends in farm product prices, are likely to sharply enhance the purchasing power in the hands of farmers, meaning stronger offtake of agri-inputs such as fertilisers.

Second, the proposal to replace the present product-based subsidy regime for fertilisers with a nutrient-based one has been reiterated in the Budget. Manufacturers of complex and phosphatic fertilisers may be the major gainers from such a move. A nutrient-based regime would mean that subsidy would be computed on the basis of the nutrient mix (between N, P, K as well as other nutrients) in each product rather than on the basis of a ‘fixed’ rate for urea, DAP, MOP and so on.

This may establish a more level playing field between manufacturers of phosphatic and complex fertilisers such as Coromandel Fertilisers, Deepak Fertilisers, GSFC, GNFC and RCF (which have so far been constrained by a low subsidy element on their “N” component), and urea manufacturers.

This may allow room for reduction in the selling prices of complex and phosphatic fertilisers, helping their offtake.

A nutrient-based regime will also open up greater differentiation possibilities for the entire sector, as producers will be able to roll out a wider range of products customised to specific regions, crops and soil conditions, without tailoring their products only to the subsidy element.

A larger number of fertiliser products may also become eligible for subsidy (only 15 types of fertilisers are now covered) benefiting manufacturers of micro-nutrients such as Aries Agro.

A nutrient-based subsidy regime may also allow more transparent benchmarking of selling prices and subsidy on fertilisers to input costs.

However, it should be noted that this proposal is still on the drawing board; implementation will require consensus from different cross-sections of government as well as the industry. The Budget has also reduced customs duty on key fertiliser inputs such as sulphur and phosphoric acid. But as most of these costs are passed through to the subsidy bill, this may not have material margin implications for the players.

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