The Hindu Business Line : "Policy changes will make subsidy more transparent"<br>Mr V. Ravichandran, President, Coromandel Fertilisers

Investment World - Interview
Industry & Economy - Fertilisers

"Policy changes will make subsidy more transparent"
Mr V. Ravichandran, President, Coromandel Fertilisers

Aarati Krishnan

GM crops have eliminated one kind of pest. In the natural order of things, when one pest is eliminated, there are always others to take its place. There has been robust demand for certain molecules alongside with the expansion in GM acreage.

COROMANDEL Fertilisers maintains a low profile. But when it comes to business, it is not short on aggression. The company has used the acquisition route to establish a stranglehold over the markets for agri-inputs in the south and east.

Through a management contract with South Africa-based Foskor, the company is hoping to expand globally as well. It was among the first players to sew up long-term supply arrangements for fertiliser materials. Business Line spoke to Mr V. Ravichandran, the company's President, on prospects for the year. Excerpts:

This season has seen above normal rains both in the south-west and north-east monsoon seasons. What impact has this had on fertiliser offtake?

We have seen very good growth rates in fertiliser offtake this season, especially as our key markets in the South — Andhra Pradesh, Karnataka and Tamil Nadu — have had very good rains.

We expect between 12 and 20 per cent growth in fertiliser offtake this year in southern India. What is more, the rains have bolstered the storage position in the reservoirs, besides improving ground water level and this should help sustain good growth rates in fertiliser demand over the next two-three years.

Would you say the same for pesticide offtake?

Not really. This has been an indifferent year for pesticides because the heavy rains have washed off many of the pests. Pesticide consumption may be down by 25-30 per cent this season.

We have seen two successive years of good growth rates in fertiliser consumption. Is fertiliser consumption becoming resilient to inadequate monsoons?

I would not say that. The year 2002-03, a bad monsoon year, saw poor offtake of fertilisers. The year 2003-04 was better. Growth rates picked up 2004-05 onwards on the back of an excellent monsoon.

However, going into the future, with implementation of many irrigation projects in Andhra Pradesh and Karnataka, there will be less vulnerability.

A new policy formulated by the Abhijit Sen committee has suggested linking the subsidy on DAP and complex fertilisers to the landed cost of imported products.

Will this have a negative impact on profitability of producers such as you?

No. On the contrary, we welcome the policy, as it would introduce greater transparency in the process of determining subsidies.

Under the present system, the subsidy is computed on the basis of prices of the two key imported inputs — phosphoric acid and ammonia. Each year, we have protracted negotiations with suppliers and then with the Government to get them to accept the contracted price for inputs, while calculating subsidy. Sometimes, the Government does not accept the contracted price that the industry enters into, as they perceive it to be high. If the new policy is accepted, the input prices for the subsidy calculation will be derived from the landed cost of imported DAP.

This will introduce transparency into subsidy calculations without protracted negotiations each year. Under the new policy, producers who have a long-term relationship with their suppliers will be able to perform better. We, as cost efficient producers, will certainly benefit.

Will you also alter your product mix between DAP and complex fertilisers for better profitability?

We have always done that. In fact, we no longer manufacture DAP and focus entirely on different grades of complex fertilisers.

In fact, we have one of the most flexible product baskets among the phosphatic fertiliser manufacturers and are consistently fine-tuning the mix.

You have small equity stakes in Foskor and Groupe Chimique Tunisien, major suppliers of phosphoric acid. Do these tie-ups enable you to secure raw materials at better prices?

No, there is no price advantage. These tie-ups help us get an assured supply of raw materials at contracted prices. Secure raw material availability has helped us operate our plants at full capacity this year helping us to take advantage of the robust demand.

You have secured a management contract to operate Foskor's facilities. What fees does Coromandel earn from this contract?

We earn a management fee of $500,000 a year. But, this apart, the terms of the contract also allow us to acquire a 14 per cent equity stake in Fostoria the end of three years (without any cash investment), if we fulfil our commitments as per the business agreement with Foskor. This three-year period ends in 2007-08.

In the pesticides business, multi-nationals seem to have cornered a larger share of the business through branded specialty f

ormulations. Genetically modified (GM) cotton seeds are also said to be eating into the market of traditional generic products. What are your plans for the crop protection business?

For one, we have diversified across crops and pests in order to reduce the risks associated with the performance of a single crop — we have specialised products for crops such as paddy and chilli, apart from cotton.

We try to concentrate on products where we have a cost advantage in manufacture and actively explore export opportunities for technical grade pesticides.

For instance, we are the second largest producer of Endosulfan technical in India and one of the top five in the world. We are also the only manufacturer of phenthoate in India.

Second, we leverage on our distribution network to market products on behalf of MNCs such as BASF, FMC and so on. As for GM crops, they have eliminated one kind of pest. But this also presents us with opportunities to deal with other kinds of pests. In the natural order of things, when one pest is eliminated, there are always others to take its place.

For instance, there has been robust demand for certain molecules such as Endolsulfan and Acephate, alongside with the expansion in GM acreage. We have capitalised on this.

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