Factors Affecting the Fertilizer Supply and Prices in India

After the green revolution, in 1960, India started using High Yielding Variety (HYV) seeds, tractors, irrigation facilities, pesticides, and fertilizers to boost up production. Since then, the production rate has been rising continuously. Even after half a century, The Economic Survey of India 2020-21 report stated that in FY20, the total food grain production in the country was recorded at 296.65 million tons—up by 11.44 million tons compared with 285.21 million tons in FY19.

Agricultural production majorly depends on the quality and cost of fertilizers in use. One of the main components of making fertilizers is urea — the same thing which is in the headlines recently due to its rising prices. Relation of urea with agriculture means, hike in its cost will consequently affect the price of food on our table. Today, we will discuss what the responsible factors for urea price growth are — or why urea prices are rising.

Heavy Imports and Low Production

In the FY2016-17, approximately 2.86 million Muriate of Potash (MOP) MOP was consumed, out of which the majority was imported. Only 16 per cent of the total demand for water-soluble fertilizers is met through domestic production in the country, while a major portion is being imported because there have not been any breakthroughs. Advances in the technologies used in the industry coupled with high production cost.

However, multiple fertilizer manufacturers have started working to map the flow of the fertilizer’s industry by analyzing the installed capacity, utilization rate, imports, exports and re-exports. It will help them understand the trade flow of the industry. Their continued efforts of analysing the insights on rising imports, difference in domestic and imported prices are making them able to bridge the gap.

Wrong Usages of Fertilizers

NPK (nitrogen, phosphorus, potassium) are three chemicals used in agriculture as fertilizer. Plants require at least 17 nutrients to grow and thrive. The NPK ratio should be 4:1:1. Punjab, however, has 61:19:1 on the NPK scale. The cost of using urea is low, so farmers use it more often, which causes irregularity, thus lowering the yield. Farm subsidies should also examine the overall benefits to agriculture. Overuse of fertilizers is agriculture's greatest challenge. In 1950, when less NPK was used, the yield was higher. More NPK is being used currently, resulting in lower yields. Natural farming should enhance the organic component of the soil. Understanding the usage pattern of fertilizers can help peasants in identifying the right products with technical specifications.

Raw Material Availability

Due to fluctuating prices and the availability of raw materials, the fertilizers industry in India faces some serious challenges. Supply and demand factors are primarily responsible for fertilizer price fluctuations. The country is also handicapped by the lack of natural resources necessary for fertilizer production. The supply of natural gas in the country is insufficient for the production of urea.

Government Policies

Fertilizer certification and proper standards remain a major problem for the fertilizer industry in India. Raw materials and finished products are subject to the same import duties at present, but raw materials should enjoy a lower customs duty than finished products to promote production in India. The market does not currently require a certification process.

Distributors and Retailers

There is a rapid increase in demand for speciality fertilizers. To sell water-soluble goods, distributors are forced to participate in the process of fertilizers. Despite the growth in the overall sales of water-soluble fertilizers in India, some companies are facing major challenges due to wrong usage and the decline in sales in their respective grades.