In its latest assessment of the world economic outlook, the
International Monetary Fund (IMF) confirms the economic
recovery is proceeding broadly as expected, but most advanced
economies and a few emerging economies still face large
adjustments. Their recoveries are proceeding at a sluggish pace,
and high unemployment poses major social challenges. By
contrast, many emerging and developing economies are again
seeing strong growth, because they did not experience major
financial excesses prior to the downturn. The IMF expects the
world economy to grow by 4.8% in 2010 before falling back to
4.2% next year. And, although financial conditions have begun to
normalize, institutions and markets remain fragile and downside
risks of volatility in financial, currency, and commodity markets
remain elevated.

Volatile grain prices jolted commodity markets in August and
again in October, following unexpected downgrades first to this
year’s global wheat and then corn harvest, stoking fears of a
further rise in staple food prices. In his address to this year’s
World food Day the UN’s Food and Agricultural Organization
(FAO) Director General Jacques Diouf, said, when highlighting
the plight of the world’s 1Bn hungry people, that soaring food
prices and the financial crisis were in part responsible, for such a
“tragic achievement in these modern days.” He called on the
state, civil organizations and the private sector to engage and
unite to help the world’s hungry — so that more food can be
produced in a sustainable way, and get to those who need it
most. He invited people to sign the anti-hunger petition at
In sharp contrast to last year’s dismal performance, fertilizer
prospects have strengthened perceptibly in recent months, partly
due to the need to increase agricultural productivity to satisfy
the growing demand for food but also in response to
unexpected global crop shortages, which along with heightened
speculative activity, weaker dollar, triggered price rallies on the
futures markets for most grains. Rising commodity prices
signalled an improving agricultural market, propelling the
agribusiness sector into the investment spotlight. Shares in
fertilizer companies rose supported by excellent fundamentals,
creating greater investor interest in the companies as potential
takeover targets. Earlier in the year, the International Fertilizer
Association (IFA) forecast fertilizer demand to rise over the
four-year period to 188.3mt (million tonnes) by 2014/15, with
fertilizer use increasing in all the regions except West Asia,
mainly due to early purchases of fertilizers-East Asia, South Asia
and Latin America are expected to contribute to the increase in
world nitrogen demand, while the highest growth for both
phosphate and potash fertilizers is expected to occur in East
Asia. Significant growth of potash is also forecast in North and
Latin America, because of its previous strong contraction. The
IFA expects potash demand to rise by 20% this year, outpacing
demand for both nitrogen and phosphate fertilizers.
Since August, shares in fertilizer companies have risen in
tandem with grain prices due to strong demand for nutrients as
farmers increase fertilizer application rates, boosted by betterthan-
expected returns from grain, with falling crop yields,
providing further incentive to increase the use of fertilizers.

Unlike prices for nitrogen and phosphate fertilizers, potash
prices have struggled for most of 2010, and have only recently
began to improve since October. Share prices in PotashCorp
and its rival Agrium Inc, Mosaic Co and CF Industries Holding
inc have all risen in tandem with grain prices since mid August
PotashCorp closed (Oct 20) in New York at US$145.90 higher
than the US$39Bn hostile bid (based on US$130) made by BHP
Billiton earlier in the year, CF is up by a similar amount, while
Agrium has climbed to US$88.85 and Mosaic US$67.12.
After two consecutive bumper harvests, Russia experienced the
worst drought in over a hundred years, which cut wheat output
and combined with a smaller US corn crop, has reduced global
cereals output to 2.18Bn/t (billion tonnes) in 2010, well below
earlier expectations. Consumption is forecast to grow to
2.24Bn/t, outstripping supply by almost 50mt, and cutting into
historically low stocks.
The benchmark US wheat price (US No 2 Hard Red Winter)
was quoted at US$298/t FOB (free on board) (15 October) up
from US$270/t FOB (6 August) with similar increases for wheat
of other origins. Prices are expected to remain high (some
analysts forecast Chicago futures prices for wheat to remain
above US$6/bu for at least two years) to encourage major
exporters to draw down stocks to potentially tight levels.
Strategie Grains lifted its estimate for the EU’s wheat shipments
by 500,000/t to 17.8mt in October, saying the region would
“need to export its entire availability in order to meet demand
on the world market in the wake of Russia’s export ban and the
slump in export volumes from Ukraine.”
PRICE IN 2011/12

While the global stocks-to-use ratio for wheat is over 26%, the
stocks-to-use ratio is much tighter for corn and forecast to fall
below 16%, with corn market fundamentals remaining
precariously balanced. Major exporter stocks are down by 60%
to 31mt, while corn stocks, in the US, the major producer and
exporter, almost halved. Goldman Sachs, expect both the global
and US corn stocks-to-use ratio, to fall below the USDA
estimate, creating an even tighter environment, with corn prices
up to $6.25/bu over the next three-, six-, twelve-month horizon.
“Although we expect some demand adjustment to the tighter
balance and higher prices that we forecast, strong corn use for
ethanol in the US and export demand, will contribute to further
tighten the corn balances,” the bank said. Exports would be
underpinned by the likelihood of weaker crops in South
America, where ‘La Niña’ may decrease production prospects
further. Ethanol plants, even at current corn prices, are enjoying
“favourable” production and blending margins. Additionally, the
recent decision by the US Environmental Protection Agency
(EPA) to raise the blend of ethanol to gasoline from 10% to 15%
is also seen as bullish for corn. Whereas, livestock feed is the
one exception where consumption may decrease, the bank
forecast less substitution of wheat with corn than previously
expected. Corn export prices No 3 yellow rose by over
US$74/t to US$254/t FOB (15 October) from $180/t FOB (6
August). Meanwhile, at the Chicago Board of Trade (CBOT) the
December futures contract for corn closed at US$5.731/2/bu
(20 October).
With planting for next year’s crop is under way in the northern
hemisphere countries, global wheat production is forecast by the
Macquarie bank to grow by 5% in 2011. Farmers in the EU, US
and Canada are expected to expand wheat plantings at the
expense of other crops, to capitalize on firmer prices. Russia’s
wheat production, is estimated at 51.2mt (45mt) next season
reflecting a fall in winter sowings to13M/ha — drought held back
early plantings.
The smaller Russian crop, while covering domestic needs will
be insufficient to return Russia as a dominant force in exports.
Exports are forecast at 9mt — half the level of last year, and
unlike previous years Russia’s ability to influence the global
wheat market-with its strong price competition curbing
international wheat values — less likely to occur in 2011/12.
Uncertainty remains over when the Russian wheat export ban
will be lifted, but the potential threat this posed to prices has
decreased. (CBOT) December wheat closed at US$6.83/bu (20
The actual rate of corn consumption over the next six months
and the size of the South American crops will have a significant
impact on US acreage needs in 2011. And, while more corn
acres will be needed in 2011, the degree of acreage competition
for spring planted crops will be influenced by winter wheat
seeding decisions to be revealed in early January. Jerry Gidel, at
North America Risk Management, said US corn sowings need to
rise 4–5m acres “to just project a modest recovery in supplies
for next year.” America’s corn inventories are set to fall in
2010/11 to below 23mt, their lowest since the 1990s
representing less than 8% stocks-to-use ratio. Don Roose, US
Commodities, pegged extra sowings up to 6m acres, noting that
with America also the world’s top producer of soybeans, and
stocks also at relatively tight levels, would intensify competition
for acres until spring, and partly the reason why soybean prices,
already supported by strong Chinese demand, have risen —
CBOT November soyabeans closed up at $12.12/bu (Oct 20).
A combination of rising costs of natural gas in the Ukraine,
factory shutdown in Iran, lower production levels due to
maintenance issues in Europe, the FSU and Argentina, strong
nitrate market in Europe and surging grain prices contributed to
more bullish demand prospects for nitrogen. With new projects
beyond 2010, likely to be subject to greater scrutiny the IFA
expect nitrogen supply to reach 158.5mt N with demand rising
to 141.7mt N providing a surplus by 2014.
The IFA forecasts global ammonia capacity to grow by 4% per
annum to 224.1Mt NH3 by 2014. Close to 65 new plants are
under construction or planned to be commissioned during this
period, with about 23 new facilities in China alone. In Argentina
an ammonia plant in Tierra Del Fuego, the first in the region and
capable of producing 1,500mt daily, is backed by a joint venture
of China’s Shaanxi Coal & Chemical Industry Group Co Ltd,
Shaanxi Xinyida Investment Ltd and Jinduicheng Molybdenum
Group Co Ltd, expected to be the largest Chinese investment in
Argentina. While in Brazil, the US engineering company KBR Inc.
signed a contract with Petrobas, state-owned oil company, for
an ammonia plant in Tres Lagoas, capable of producing 2,200mt
per day. KBR is expected to license its production process and
provide basic engineering services as well as technical consulting
for the project, similar to the deal for the ammonia plant in
Tierra del Fuego. The majority of these projects are associated
with increases in downstream capacity for urea and, to some
extent, industrial AN and processed phosphates, with only a
small fraction as merchant ammonia supply. The main additions
to capacity would occur in East Asia (China and Vietnam), Africa
(Algeria and Egypt), West Asia (Qatar, Iran and Saudi Arabia) and
South Asia (India and Pakistan). Several other countries will add
capacity or are expected to restart mothballed or idled units.
Although prices are up by 30% over last year, the ammonia
market has been relatively subdued with prices at or close to
their peak. FSU prices (15 October) are unchanged around
US$415/t FOB Yuzhnyy, US$425/t FOB Baltic. In the Middle East
the latest spot offer to India reflects around $415–420/t FOB.
With European demand for ammonia reduced and spot
requirements for the US fall season diminishing.
BETWEEN 2009 AND 2014

Urea surpassed ammonia as the nitrogen fertilizer of choice for
US farmers, due to flexibility and price. Demand for urea is
expected to remain strong, October to December shipments to
the US are expected to be heavy and likely to favour urea given
high UAN and ammonia prices, with trade expected to be up
600,000/t on last year. Prices for urea, following the USDA
report, which cut its estimate for US corn yields, have risen for
most origins-Yuzhnyy prilled urea prices US$340/t FOB for
November, Egypt granular prices US$370-372/t FOB US
granular urea US$360/t FOB Gulf-the price the uptrend in prices
that began in June, although briefly stalled in August, appears to
be on course.
Over the last decade, close to 90% of the growth in nitrogen
products came from urea. According to the IFA by 2014, about
55 new plants are planned to come on stream, of which about
20 in East Asia. Global urea capacity is forecast to grow to
222.1mt urea in 2014 (excluding China 144.6mt). Total available
supply is forecast to rise to 193.4mt, with total demand to rise
to 174.5mt. The IFA says the potential surplus in the period up
to 2014 is relatively marginal, representing 3% of global supply,
but this ratio is expected to rise to 10% in 2014. The potential
imbalance would be caused by massive additions to capacity and
slower growth in nitrogen fertilizer application.

Uralkali the Russian potash producer forecast a “solid recovery”
in global demand for potash this year, followed by “sustained
demand in the long-term” expected to near-double to 60mt by
2012, increasing prices and restoring profitability to the potash
industry. The group forecasts that the potash revival will be led
by North America with demand almost doubling to 8.7mt
(+142%), China to remain the biggest single-country market with
demand of 8.9mt up 59%. Elsewhere gains are noted for Europe
and FSU 10mt (+79%), South East Asia and Oceania 8mt
(+142%), Latin America 8mt (+142%), Middle East & Africa
600,000/t (-25%). But the company warned that growth could
be stalled, if it limits the potash industry’s ability to raise output:
“Greenfield projects being developed by junior companies could
be cancelled due to difficulties in raising capital,” Uralkali said.

Until recently, potash prices had remained unmoved by the
summers spike in futures prices and lagged those of nitrogen and
phosphate fertilizers, but strong demand encouraged the
Belorussian Potash Company, Uralkali marketing arm, to raise
prices of nutrient up to US$420/t from October, up from an
average of US$353/t for potash shipments in the first half of
2010. PotashCorp anticipate stocks could approach historical
lows this quarter, while demand was set to remain firm, with
Brazil at the start of its soybean sowing season, and India buying
consistently. Separately, Canpotex, the North American potash
cartel of which PotashCorp is a member, revealed its largestever
Indonesian contract, to supply a consortium led by palm oil
giant Wilmar International with 3.75mt from 2011–2015. And
recently (20 October) signed a three-year contract with
Sinofert, the Chinese fertilizer giant, to supply 3.1mt of potash
worth US$2.2Bn. The agreement upholds the practice of longterm
contracts between sellers and buyers, which is supportive
for potash export prices, according to Moscow-based UralSib
analysts. And, while prices are capped under the agreement,
there is scope for them to rise to a maximum of $545/t next
year, $695/t in 2012 and $791/t in the last year of the
agreement, significantly above current prices of $350-420/t.
The wave of takeovers and mergers and restructuring of the
sector over the past year look set to continue — although longterm
agreements may be helpful to Canada’s PotashCorp in
defending the company from Anglo-Australian mining giant’s BHP
Billiton’s ongoing US$39Bn hostile bid. Uralkali is also at the
centre of speculation of a tie-up with Russian rival Silvinit. Firsthalf
company results show an 89% rise to 8.4Bn roubles in
earnings, which beat analysts’ forecasts.
Despite widespread interest in several potash related
projects in more than 25 countries, the IFA potash capacity
survey identified 20 expansion projects by current producers
and about eight greenfield projects by new producers, but
concludes that most projects are likely to be delayed.
Nevertheless global potash capacity is forecast to increase from
42.9mt K20 in 2010 to 54.7mt K20 in 2014, representing an
additional 13mt of capacity mostly in Canada and Russia. New
tonnage will emerge in Argentina, Chile, China, the Republic of
Congo, Israel, Jordan and Laos. IFA demand forecast for potash
is expected to rise from an estimated 29.9 to 35.8mt K20 by
2014, matched by supply growth.

While the cost of DAP production is currently well above the
historical average, due to tight phosphate rock market (double
the average) and strong prices of ammonia and sulphur, prices of
DAP and other phosphate-based fertilizer have soared by
approximately US$95/t as grain futures rose in response to crop
concerns in western Canada and Russia, according to Mosaic’s
Chief Executive Officer Jim Prokopanko. Diammonium
phosphate was sold for US$431 on average in the first quarter
2010, 55% more than a year earlier. While sales of phosphates
rose 6.9% to 3.1mt because of strong demand in North America
and Brazil. Diammonium phosphate prices for immediate
delivery in Florida have increased 66% this year.
Global shipments of DAP and MAP have risen in 2010, India
continues to be the major player accounting for approximately
one-third of global consumption and more than 40% of trade,
and plans to import approximately 7mt, about 13% more than
last year. While domestic DAP and MAP shipments in the US
are also up approximately 9% compared to this time last year.
US stocks of DAP and MAP reached a record low of 683,000
short tonnes in August 2010, some 33% below the five-yearaverage.
Strong domestic demand and sales to India are cutting
into stocks. While there is continued concern that China may
restrict exports of phosphate-based fertilizers after record
shipments in July and August reduced domestic inventories, “We
believe officials will take whatever measures are necessary,
including more restrictive export policies, to ensure adequate
supplies of competitively priced phosphate for domestic
farmers,” said Mike Rahm, Mosaic Co.’s chief market strategist.
Despite Mosaic’s earnings per share of 67 cents in the three
months through August, trailing the 71-cent average, estimated
by a group of analysts, net income nearly tripled to US$298m
from US$101m a year earlier, while sales increased 50% to
US$2.19Bn. Mosaic (64% owned by Cargill Inc.) share price rose
to US$60.80 at 4:15pm New York Stock Exchange.

Global phosphoric acid capacity is forecast to rise to 55.5mt
P205 in 2014, with almost 90% dedicated to domestic
downstream processing. Main additions to domestic capacity
will occur in China, Saudi Arabia and Morocco. New merchant
capacity is expected to come on stream from stand alone units
in Jordan, Morocco and Tunisia. Global supply of phosphoric acid
estimated to rise to 47.1mt P205 with close to 40 new MAP,
DAP and TSP units constructed in ten countries-over half in
China, Algeria, Morocco, Tunisia, Saudi Arabia, Bangladesh,
Indonesia, Vietnam, Brazil, Venezuela and Kazakhstan. Three
quarters of this expansion will be for DAP capacity. The IFA
expect global demand for processed phosphates to grow by 5%
per annum, to reach 43.6mt P205. For DAP annual surpluses are
expected to average 2.5mt. IFA estimate that all new supply
additions will be absorbed by growing demand.
Brazil aims to shake off dependence
on imported fertilizer
Vale’s billions, couple with Petrobras natural gas, should allow
Brazil to attain self sufficiency in fertilizer in a few years’ time.
Seventy per cent of its needs are now imported, writes Patrick
Seventy per cent of the 24mt (million tonnes) of fertilizer
used each year in Brazil, the world’s fourth-largest consumer of
the product, is imported annually at a cost of about $9 billion
Shaken by the surge in the price of the crucial product in
2008, which pushed up the cost of producing grains and food,
cut farmers profits and reduced export earnings, the government
wants the country to become self sufficient as soon as possible.
With its coffers bulging with cash from sales of iron ore, Vale
has created a separate fertilizer company, which has ambitions to
become one of the world’s top three companies in this industry
in a few years’ time. Vale Fertiliser has operations in several
countries, apart from in Brazil itself.
In April this year, Vale paid the Bunge trading company, until
now Brazil’s largest producer of fertilizer, $5 billion for its
facilities. Vale plans to spend about $12 billion in the next few
years on pushing up output of phosphates, about 55% of which is
now imported, and to make a start on the more difficult task of
producing much more potash.
Ninety per cent of the 4mt of potash consumed in Brazil
each year is now imported, and only one mine is operating
Large amounts of natural gas have started to come ashore
from several deep sea fields, the majority associated with oil. A
few very large fields contain only gas, so will have a longer life.
This has encouraged the Petrobras oil company, most of
whose gas is now used to generate electricity, or by industry, to
announce that it is to build three large fertilizer plants at points
along the coast where the gas will come ashore. The gas will be
converted into urea, the raw material needed to make nitrates.
A Russian company also plans to build a urea plant in the
heart of the soya growing area in the state of Mato Grosso do
Sul, adjacent to the pipeline which brings natural gas from
Until now, Petrobras’s gas, often priced at near twice world
levels, has been too expensive to be used to make fertilizer. As a
result, Brazil imports a far higher proportion of the nitrates used
now than it did 15 years ago.
Soils over much of Brazil are relatively poor, their nutrients
washed out by frequent torrential rains, so a massive 400kg of
fertilizer needs to be applied on each hectare every year to
maintain productivity. This is ten times as much as farmers in
the fertile Pampas area of Argentina have to apply.
Fertilizer forms more than a third of the cost of producing
maize, a quarter of the cost of growing soyabeans and a
significant proportion of the cost of producing sugar cane,
coffee, fruits and cotton. When farmers economize on fertilizer
after a rise in price, yields invariably fall the following year.
Brazil is one of the few countries with sufficient unused land
on which to plant more crops, both grains and sugar cane, so
demand for fertilizer is set to grow by about 6% a year for the
foreseeable future.
The policy of the Canada-based Potash Corporation and its
associates to keep the price of potash and nitrates artificially
high by restricting supply, which caused the price spike in 2008
when demand soared and prices tripled, has attracted bidders
such as BHP to the company. They feel the industry would be
better served by letting the market set prices. High prices have
also stimulated large users such as Brazil to embark on a large
round of investments.
Although at least $1.5 billion has to be invested for each
million tonnes of potash or phosphates produced each year,
sometimes up to twice that, the raw materials needed are not in
short supply.
Until recently, producing fertilizer in Brazil was given little
priority and the activity was left to the trading companies,
notably Bunge and Cargill, who imported raw materials and
blended them close to ports such as Santos.
But the sharp hike in prices associated with the food scare in
2008 — something which it now seems could be repeated again
soon, alerted the government — which has made fertilizer a
Vale and Petrobras will have access to low cost loans, under
the official ‘Accelerated Growth’ or PAC programme.
The trading companies recognized that they did not have
massive resources which will be needed if supply is going to
keep pace with demand, so they decided to sell.
This will cause major changes, as the trading companies have
traditionally supplied farmers with fertilizer on easy terms in
exchange for the undertaking that grains would be delivered to
them when they are harvested.
As well as the investments Vale plans for Brazil, the company
has recently bought two large potassium projects in Argentina,
one from Rio Tinto, as well as a phosphate mine in Peru. It also
plans to produce fertilizer in Canada and Mozambique
Steam will be pumped down 1,200 metres into the reserves
in Argentina, in order to force the flow of a saline mixture to the
surface, where it will be refined. For this to be possible, large
amounts of natural gas will be needed in a process which may be
copied in the Amazon region, where large reserves of natural gas
are also available.
The only potassium mine now operating in Brazil, close to
the shore in Sergipe state in the north east, now produces
850,000 tonnes a year. Although Vale has the concession to
operate the Sergipe mine until 2017, the mine is actually owned
by Petrobras, and this has already caused some tension between
the two companies, both anxious to join in the rush to produce
more fertilizer.
Indian government encourages fertilizer companies to invest abroad
What has inflation got to do with fertilizers? A lot, writes Kunal
Bose in Calcutta. In a deficient monsoon year, foodgrains
production takes a hit causing the prices of essential
commodities to rise steeply as India has experienced again and
again. One of the three principal reasons why even when rains
are sufficient, Indian farm production shows marginal growth is
because of low application of fertilizers per unit of land and a
skewed nature of its use in terms of nutrients. But use of
fertilizers at the desired level will demand adequate supply of
water. This calls for creation of a good irrigation network,
including micro irrigation in dry land areas.
Thanks to raging food price inflation causing grave concern to
New Delhi, the government has decided to go
for a second green revolution in which much
attention will have to be paid to the domestic
fertilizer industry. As the new nutrient-based
subsidy formula creates ideal conditions for
fresh capacity to be created through both
greenfield and brownfield routes, fertilizer
companies, dependent on imports of
phosphoric acid and rock phosphate, are
encouraged to make appropriate investments
abroad for buying raw materials security. The
lead in this area has been taken by the Indian
Farmers Fertiliser Cooperative (IFFCO), which
after successfully establishing joint ventures in
Oman and Senegal, is building a phosphoric acid
plant in Jordan using the JV route. The back-up phosphate
mining project handled by Australian company Legend is
progressing well.
In yet another trailblazing move, IFFCO has become an equity
owner of the Canadian GrowMax Agri Corporation with
provision of 50% buyback of potash. India being totally
dependent on imports of muriate of potash, IFFCO has entered
into memoranda of understanding with Petrochem of the US
and PhosAgro of Russia for uninterrupted supply of this variety
of fertilizer. The search for raw materials security is also leading
several others in the private and public sectors to go and build
plants, mostly as JV partners, in countries with plentiful supply of
rock phosphate and potash.
Like Coromandel International, India’s leading producer of
phosphatic fertilizers including diammonium phosphate (DAP),
complex fertilizers and single super phosphate (SSP), has made a
strategic investment of $29m to acquire 15% equity in Tunisian
Indian Fertiliser Company. The phosphoric acid plant that the
Tunisian company is building should be ready for commissioning
in the first quarter of next year. A Coromandel official says that
the strategic investment is to “secure uninterrupted supply of
phosphoric acid for our operations in India.” India is importing
annually about 5mt (million tonnes) of rock phosphate and 2.5mt
of phosphoric acid. Two Deloitte Touche Tohmatsu India officials
say, “overseas suppliers of raw materials are aware of the
predicament of the Indian fertilizer industry and they have
started exploiting the shortage through clever pricing.”
This will explain the keenness of the highly cash-rich
government-owned NMDC to acquire rock phosphate and
potash resources abroad. Interestingly, NMDC happens to be
India’s leading producer and exporter of iron ore. But are not
Anglo Australian BHP Billiton and Brazilian Vale keen to have
bigger and bigger potash resource in their portfolios? The world
has only recently witnessed how fiercely BHP, which owns 8mt
of potash capacity pursued takeover of the 12mt-capacity Potash
Corp of Canada with a $38.6bn bid, though not with success.
The provincial government of Saskatchewan was opposed to yet
another Canada’s industrial icon falling into foreign hands. There
also was speculation that one of the three Chinese groups,
namely, aluminium giant Chalco, state-backed chemicals company
ChemChina and Sinofert in which Potash Corp has ownership of
22% could make a counter-offer in an attempt to secure supply
of a vital crop nutrient. India, being totally import-dependent for
this nutrient, was a keen watcher of Potash Corp saga. In the
meantime, both India and China are showing interest in buying
parts of Belarusian state-owned potash miner. Any capacity
consolidation attempt among producers of
potash will invariably set off alarms among big
importers like China and India.
Even while the Indian per-hectare use of
fertilizers is still not impressive enough, the
sheer volume of consumption makes the
country one of the world’s biggest markets for
chemical nutrients. It has been seen again and
again that anticipation of Indian and Chinese
import demand moves the prices of fertilizers
in the global market. The Indian government’s
latest Economic Survey says “the per-hectare
consumption of fertilizers in nutrients terms
increased from 105.5kg in 2005/06 to 128.6kg
in 2008/09. However, improving the marginal
productivity of soil still remains a challenge. This requires
increased N (nitrogenous) P (phosphatic) K (potassic)
application and use of proper nutrients, based on soil analysis.”
IFFCO managing director U.S. Awasthi says as the Indian
demand for fertilizers during 20010/11 could climb up to 60mt,
the country’s imports will rise in tandem. Neither the growth in
fertilizer capacity, thanks to gas supply constraints and controls
on nitrogen has kept pace with demand rise nor does the
nutrient application follow the ideal pattern. What is not helping
the cause of soil productivity improvement is the high use of
nitrogen but low application of P and K. Urea, that is nitrogen,
constitutes around 80% of Indian fertilizer use. Experts,
however, say this skewed use of nutrients will get corrected as
India takes steps to break stagnation in farm productivity. Last
year, the country raised fertilizer use to 53.3mt from 50.7mt in
2008/09. This was partly met by domestic production of 36.8mt
(against 33.2mt in 2008/09), including 21.1mt of urea, 4.2mt of
DAP and 11.5mt of complex fertilizers and SSP.
The shortfall in domestic supply was met largely by imports
of 16.5mt, including 5.8mt of urea, 5.8mt of DAP and 4.9mt of
MOP. According to industry officials, this year the country could
end up importing as much as 8mt of DAP. The Indian import
demand accounting for over 40% of global trade in DAP has a
major bearing on its prices. The challenge for the country is to
produce sufficient food for a growing population. Like P and K,
urea needs to be decontrolled and brought within the scope of
new subsidy formula. It is only in April that after a decade retail
urea prices were raised by 10%. Remember, foreign investment
in the Indian fertilizer industry has been shy because of controls,
which now are being phased out. The government is also
required to give adequate linkages of natural gas from the new
massive finds at Krishna-Godavari basin in Andhra Pradesh. After
all, gas is the preferred feedstock for fertilizers the world over
because of cost considerations.