In FY 22, the total fertilizer production in India amounted to 43.74 million tons, inching up marginally from the year before. There are presently 56 large plants alongside 72 medium and small-scale fertilizer plants, operational in India. Besides the private sector, the public and cooperative sector is also involved in the industry. Major public sector enterprises are National Fertilizer Limited (NFL), Hindustan Fertilizer Corporation Limited (HFCL), Bharmaputra Valley Fertilizer Corporation Limited (BVFZL), Madras Fertilizer Limited (MFL), etc.
Prominent private players involved in the space include TATA Chems, Coromondal Fertilizers, Chambal Fertilizers, IFFCO, etc.
India is the second largest producer and consumer of chemical fertilizers in the world, after China. As an agrarian society, where over 41% of the Indian workforce is employed in the sector and close to one-fifth of the GDP comes from farming, the demand for fertilizers will continue to grow multifold in the times to come.
Meanwhile, there are also numerous challenges in the Indian fertilizer sector, which has adversely impacted domestic production. Close to 18-20 million tons of fertilizers are imported into the country, as domestic production is insufficient to meet the rise in demand.
The entire industry is highly regulated, which means from the supply of raw materials to price fixing to market distribution, the government is involved. Too much of regulations make production cumbersome. (An alternative approach is to operate as an agrochemical company rather than a pureplay fertilizer entity.)
In India fertilizer is a highly subsided business. Around 78% of the retail price is borne by the government. The subsidies have increased in recent times, as after the pandemic global energy & raw material prices have risen sharply.
This looks like an interesting proposition on paper, as subsidies are managed by the government. However, the payments of subsidies are generally not on time, which can affect the cash flow of the fertilizers business. India’s vast and diverse agroclimatic zones have also disrupted the uniformity in the usage of fertilizers. India has 127 agroclimatic zones, which entail the use of fertilizers vary significantly from one place to another. Likewise, the rate of irrigation also differs which entails variation in usages of fertilizers.
There is also a limited supply of raw materials in India, which has further undermined the growth of the fertilizer industry. Nitrogen-based fertilizers manufacturers require Naphtha which is available as a by-product from the petroleum industry. This is one of the reasons, a large number of fertilizers plants are located in Gujarat and Maharashtra, which has petroleum industries operational in big numbers.
Meanwhile, phosphate and Potash based fertilizer manufacturing rely completely on import. Likewise, Sulphur is also virtually not available in India, which again means local producers have to look to international markets.
Indian fertilizer production will continue to thrive despite bottlenecks. India’s growth in population and steadily expanding agricultural output will necessitate the increased use of fertilizers. Increasingly Indian farmers are adopting advanced farming practices and relying more on HYV (High Yield Varieties), which naturally means an increase in fertilizer consumption.
The government also wants to rely less on imports by developing indigenous capabilities. Presently, a large portion of fertilizers and raw materials are imported from Russia and other European countries. The recent Russia-Ukraine crisis has caused disruption in the global supply chain and has further forced the government to build local manufacturing and reduce dependence on imports.
The very nature of the fertilizer industry has also resulted in an increased spotlight on the product category. While it is a critical link in India’s objective of achieving self-sufficiency in food production, it also dons a pivotal role in the industrial ecosystem. It is forward-integrated with the Indian agriculture sector while backward-linked with the petroleum industry. The by-products of the petroleum industry are used as the raw materials for fertilizer manufacturing in India. This underscores the importance of the fertilizer sector and how essential it is to boost local production.
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