Firming up of prices, a sharp rise in cash-based sales impact the farm-input market

Firming up of prices of pesticides by 5 to 10 per cent; unusually high demand for fertilizers; sharp rise in cash-based sales of both fertilizer and pesticide, replacing credit – Covid-19 and lockdown left a series of impact on India’s farm-input market in April-May, ahead of the Kharif season.

There is disagreement as to what led to a rise in cash sales, benefiting companies; but evidence of “panic buying” cannot be ruled out.

Normally, credit takes a lead role in farm input trade. It flows from companies to the retailer via a distributor or dealership network. The collection starts with sowing (July for Kharif) when the farmer finally lifts the products. The trade channel is generally common for both fertiliser and pesticide.

Duration of the credit differs depending on the time of delivery. Those who are taking early delivery (ahead of a season) get a longer time to pay. A smaller section of trade, who can afford, makes cash advances and gets discounts on supplies. For pesticide, such discounts hover between 1.5-2 per cent a month.

Confusing trend in fertiliser

Ideally, cash availability should have been scarce during lockdown and trade should have depended more on credit. Just the reverse happened in April-May 2020. Industry-wide cash sales dominated this season.

“Our cash sales are more (this fiscal)”, says Yogendra Kumar, Director, Marketing of IFFCO, that alone meets nearly 24 per cent of India’s fertilizer demand. That’s not all April and May put together the industry as well as IFFCO sold 33 per cent more fertilizer. Industry sales were up by 45 per cent in April – clear two months ahead of demand season.

Kumar rules out panic buying. He relates sales growth to higher sowing areas and better cash availability to farmers due to better price support for winter crops like potato, sugarcane, oilseed etc. which are harvested during January-March.

“There was no panic buying. The government ensured that agri-input sales resume within a few days of the beginning of lockdown.” He said.

Satish Chandra, director of Fertiliser Association of India (FAI), didn’t comment on cash sales but he confirmed there is no shortage of fertilizer in the country. To further ensure availability, the Centre issued two import tenders.

Complex equation

Dealers in the agrarian districts of West Bengal, however, confirm that panic buying triggered the unusually high demand for fertilizer and pesticide much ahead of the start of the season.

With Covid impacting global trade since February, the market was abuzz with the possibility of a supply shortage. As the transport logistics suffered in the early days of lockdown in March, the trade went out to stock requirements as early as in April – when farmers barely needed inputs.

“All the sales that you see are stored in the pipeline, not an ounce is used,” said Subhasis Pal, a distributor of fertilizer and pesticides in Malda.

It is not clear who did what. But ground information suggests, agri-input trade practically stopped operating on credit in April and May, taking advantage of the buying rush and leading to high cash sales to companies.

There is no concluding evidence as to how trade managed extra cash. Some feel the moratorium on bank payments was used to pay companies. Some others point out that traders deprived a section of suppliers of paying for others.

Supply constraint in pesticide

Smaller pesticide companies, who were importing technicals from China to make formulations locally, definitely suffered.

As industries in China went into lockdown, imports practically stopped between February and April. Naturally, they missed the production cycle for Kharif demand, creating an availability concern in the market. The collection of such companies also suffered, as trade used cash to pay companies which assured supply.

The benefit went to large companies, who are into backend manufacturing, but only partially. On the one hand, their cash collections increased, prices firmed up, and they could pass on increased cost due to logistics issues. But such gains are neutralized by several other factors.

According to Maheshkumar Khambete, GM-marketing of Indofil Industries, one of the top players in the agro-chemicals sector, before lockdown one-third of company’s supplies from the factory to depot and total supplies from depots to customer (distributor) were moving in part-load by truck.

The practice is now scrapped due to availability concern of trucks and firming up of rentals. Supplies to depots are sent in full truckload. From depot despatches to various distributors are clubbed in one truck. This has sent transportation costs soaring (up by 35 per cent as in early June) and delayed movement, adding to the supply concern.

Shortage of active ingredient

The story doesn’t end there. The disruption in supply-chain is forcing the company to feed the market at 60 per cent of its capacity. “Right now, I have products, but supplies are suffering due to on-availability of packaging material,” Khambete said.

The biggest problem is though India is the world's fourth-largest producer and fifth largest exporter of pesticides, it is almost entirely dependent on China for the supply of active ingredients which is the raw material to produce technical pesticides. The situation is similar to pharmaceuticals and is linked to cost considerations.

The over-dependence is now hurting the sector. Khambete said, seven or eight technicals like glyphosate, acephate, emamectin, oxyfluorfen are in short supply. Though imports from China recently resumed, the volumes were yet to pick up.

The net result is that supply constraints are unlikely to be over till end-July. Considering July and August are peak demand season, prices are expected to remain up by 5-10 per cent this season.

Among the positives, Khambete is expecting Covid to influence some global producers to shift contract manufacturing from China to India.

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