Brahaminical Political Parties have No Sympathy for the Helpless peasantry in crisis as Urea prices set to shoot up 40%.Rural world is to be destroyed.
Urea prices are set to soar by as much as 40 per cent. An inter-ministerial consultation process is expected to begin next week, before the Cabinet takes a final call.Farmers in India use about 28 million tonne of urea annually, of which 6-8 million tonne is imported. The uptrend in prices of imported urea and that of feedstock necessary for domestic production has pushed up the government's subsidy bill for the sector to nearly Rs 100,000 crore, from the budgeted Rs 54,000 crore.
The government has also announced a Nutrient Based Subsidy (NBS) on P&K fertilisers (such as DAP and MOP) with effect from April 1, 2010, to boost indigenous production. Earlier this month, a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee cleared a proposal to free prices of urea and bring it under the NBS policy. As per the proposal, the government has decided to raise urea prices by 10 per cent in the first year of the policy, following which the industry would be free to determine prices. Presently, urea continues to be governed by the New Pricing Scheme—III (NPS—III), which has been extended provisionally until further orders.The proposal has the backing of the finance ministry, which is keen to limit the fiscal breach. Urea, which accounts for over half of country's total fertiliser consumption of 52 million tonne, is the only soil nutrient whose price is controlled by the government. Urea prices were last revised up in April 2010 to Rs 5,310 a tonne from Rs 4,830. The government pays producers the difference between the retail price of urea and its production cost as subsidy.
Last year, it notified a nutrient-based subsidy regime for fertilisers, but kept politically sensitive urea out of it. Currently, the amount of subsidy for each of the nutrients - phosphates and potassium- is provided to the producer or importers at a fixed rate. Manufacturers are free to price these decontrolled fertilisers in line with international prices, as India relies on imports to the extent of 90% for phosphatic fertilsiers and 100% for potassic ones. Because of hardening global prices, the domestic prices of non-urea fertilisers, chiefly di-ammonium phosphate, have risen sharply after the switch to nutrient-based subsidy. This has led to indiscriminate use of urea by farmers much to the chagrin of domestic manufacturers and soil experts. Overuse of urea has also created soil imbalance, leading to decline in soil fertility.
Green Revolution was introduced to do the groundwork for Free Market economy.Big Dams, Infrastructure, Fertilsers, Genetically Modified seeds, Nuclear Energy, pesticides and chemicals should be credited to Green revolution which set the ground for MNCs and Foreign Capital Inflow.Reforms drive is targeted to the Mulnivasi Bahjan inhibited Rural world living on farming and agri based livelihood. Busines Line reports that Decontrol of phosphatic and complex fertiliser prices has triggered foreign investors' interest in fertiliser makers like Chambal Fertilisers, Coromandel International and Rallis among others. The move comes even as the Government has not been able to formulate a policy for deregulation of urea prices, despite approval from an Empowered Group of Ministers. Foreign institutional investors (FIIs) have increased their exposures to fertiliser stocks in the recent quarters. This is even as they have pruned their holdings in interest rate-sensitive sectors such as auto, capital goods and infrastructure among others.
RCF SEES BIG JUMP
Rashtriya Chemicals and Fertilizers Ltd (RCF), in which the Government owns 92.5 per cent, has seen the biggest jump in FII holding. The FIIs have more than tripled their stake to 0.19 per cent of the total holding over past two quarters. Analysts attribute the rising FII interest in fertiliser firms mainly to the decontrol of non-urea fertiliser prices last year. The Government, last fiscal, had brought all non-urea fertilisers under the Nutrient Based Subsidy (NBS) regime and freed them from price controls. This has provided pricing power for fertiliser firms and helped them post better profit margins.
FREE PRICING
"The impact is visibly evident in the past four to five months when the prices of fertilisers such as DAP (diammonium phosphate) have shot up and the Government has not interfered," said Mr Tarun Surana, Research Analyst at Sunidhi Securities. Prices of DAP have shot up from Rs 12,000 per tonne to Rs 18,200 per tonne in the past four to five months, Mr Surana said. The monsoon-dependent fertiliser sector is largely considered defensive in nature in line with FMCG and consumption segment. "Good monsoons this year has resulted in strong demand," Mr Surana said.
UREA DECONTROL
"FIIs start accumulating whenever they anticipate some big announcement. Since there is talk of urea decontrol, which may happen next year, they are accumulating fertiliser stocks and will continue to do till it (decontrol) happens," said Mr Kishore P. Ostwal, CMD, CNI Research. Urea is the only fertiliser that remains under Government control. The Group of Ministers in August had referred the urea decontrol policy to the Cabinet Committee on Economic Affairs. Reports suggest that the Prime Minister's Office has directed the Fertiliser Ministry to accelerate the urea decontrol policy, amidst resistance from the Fertiliser Minister, Mr M.K. Azhagiri, to the proposed move.
A person familiar with this development told Business Line, "With international prices going up, it has necessitated an increase in the maximum retail price for urea. This will help domestic companies to get better returns and invest further." The urea price was last revised on April 1, 2010, from Rs 4,830 a tonne to Rs 5,310 a tonne. He claimed that such a move is likely to get support from the Finance Ministry as this will reduce its subsidy burden. On apprehensions of an adverse impact on inflation, the source pointed out that the contribution of fertiliser in the cost of production for farm output has come down significantly over the past few years. In fact, the industry claims that the cost of fertiliser in the overall cost of agriculture produce has come down from 11 per cent to 9 per cent. Urea is the only controlled fertiliser, where the difference between the cost of production of urea as assessed by Fertiliser Industry Coordination Committee (known as the retention price) and the statutorily fixed sale price is paid as subsidy under the Retention Price-cum Subsidy Scheme. Such a scheme ensures uniform sale price to the farmers besides a reasonable return (12 per cent) on capital investment to the manufacturers.
According to various estimates by the Government and the industry, subsidy on urea is in the 60-75 per cent range, depending on the fuel used for production. On the other hand, subsidy on imported urea has gone up to 90 per cent, industry sources claimed. At present, of the total demand of nearly 28 million tonnes, 21.5-22 million tonnes are met through domestic sources. Mr U.S. Awasthi, CEO, IFFCO, said that the existing price level is unsustainable and is hurting investment prospects. No new investment in capacity addition in urea has taken place since 1997. He said the price revision will stop indiscriminate use of urea which, in turn, is good for the soil and ground water.
He also believed that a 40 per cent price hike is justified as farmers, in any case, pay Rs 400 per 50-kg bag in many places because of various reasons, including middle-men. A 40 per cent hike would take the price to nearly Rs 7,500, which is close to the current actual market price, he added. India imported 18.4 lakh tonnes of urea and 30.64 lakh tonnes of other fertilisers, including di-ammonium phosphate (DAP) and muriate of potash (MOP), during the April-July period this fiscal. The country imported a total of 66.10 lakh tonnes of urea and 131.78 lakh tonnes of other fertilisers in the entire 2010—11 fiscal, according to government data. The import of DAP stood at 20.16 lakh tonnes till July in the current fiscal, as against 74.11 lakh tonnes in the 2010—11 fiscal. Import of MOP in the first four months of this fiscal stood at 3.05 lakh tonnes, compared to 45 lakh tonnes in the previous fiscal.
The country had imported 1.06 lakh tonnes of MAP (mono—ammonium phosphate) and 6.37 lakh tonnes of various grades of fertilisers till July in the 2011—12 fiscal. Domestic production of urea is stagnant at 210 lakh tonnes. To encourage phosphatic and potassic (P&K) fertiliser production in the country, the government has reduced customs duty on phosphoric acid, an important ingredient, from 5 per cent to 2 per cent.
The government has also announced a Nutrient Based Subsidy (NBS) on P&K fertilisers (such as DAP and MOP) with effect from April 1, 2010, to boost indigenous production. Earlier this month, a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee cleared a proposal to free prices of urea and bring it under the NBS policy. As per the proposal, the government has decided to raise urea prices by 10 per cent in the first year of the policy, following which the industry would be free to determine prices. Presently, urea continues to be governed by the New Pricing Scheme—III (NPS—III), which has been extended provisionally until further orders.The proposal has the backing of the finance ministry, which is keen to limit the fiscal breach. Urea, which accounts for over half of country's total fertiliser consumption of 52 million tonne, is the only soil nutrient whose price is controlled by the government. Urea prices were last revised up in April 2010 to Rs 5,310 a tonne from Rs 4,830. The government pays producers the difference between the retail price of urea and its production cost as subsidy. Last year, it notified a nutrient-based subsidy regime for fertilisers, but kept politically sensitive urea out of it. Currently, the amount of subsidy for each of the nutrients - phosphates and potassium- is provided to the producer or importers at a fixed rate. Manufacturers are free to price these decontrolled fertilisers in line with international prices, as India relies on imports to the extent of 90% for phosphatic fertilsiers and 100% for potassic ones. Because of hardening global prices, the domestic prices of non-urea fertilisers, chiefly di-ammonium phosphate, have risen sharply after the switch to nutrient-based subsidy. This has led to indiscriminate use of urea by farmers much to the chagrin of domestic manufacturers and soil experts. Overuse of urea has also created soil imbalance, leading to decline in soil fertility.
Green Revolution was introduced to do the groundwork for Free Market economy.Big Dams, Infrastructure, Fertilsers, Genetically Modified seeds, Nuclear Energy, pesticides and chemicals should be credited to Green revolution which set the ground for MNCs and Foreign Capital Inflow.Reforms drive is targeted to the Mulnivasi Bahjan inhibited Rural world living on farming and agri based livelihood. Busines Line reports that Decontrol of phosphatic and complex fertiliser prices has triggered foreign investors' interest in fertiliser makers like Chambal Fertilisers, Coromandel International and Rallis among others. The move comes even as the Government has not been able to formulate a policy for deregulation of urea prices, despite approval from an Empowered Group of Ministers. Foreign institutional investors (FIIs) have increased their exposures to fertiliser stocks in the recent quarters. This is even as they have pruned their holdings in interest rate-sensitive sectors such as auto, capital goods and infrastructure among others.
RCF SEES BIG JUMP
Rashtriya Chemicals and Fertilizers Ltd (RCF), in which the Government owns 92.5 per cent, has seen the biggest jump in FII holding. The FIIs have more than tripled their stake to 0.19 per cent of the total holding over past two quarters. Analysts attribute the rising FII interest in fertiliser firms mainly to the decontrol of non-urea fertiliser prices last year. The Government, last fiscal, had brought all non-urea fertilisers under the Nutrient Based Subsidy (NBS) regime and freed them from price controls. This has provided pricing power for fertiliser firms and helped them post better profit margins.
FREE PRICING
"The impact is visibly evident in the past four to five months when the prices of fertilisers such as DAP (diammonium phosphate) have shot up and the Government has not interfered," said Mr Tarun Surana, Research Analyst at Sunidhi Securities. Prices of DAP have shot up from Rs 12,000 per tonne to Rs 18,200 per tonne in the past four to five months, Mr Surana said. The monsoon-dependent fertiliser sector is largely considered defensive in nature in line with FMCG and consumption segment. "Good monsoons this year has resulted in strong demand," Mr Surana said.
UREA DECONTROL
"FIIs start accumulating whenever they anticipate some big announcement. Since there is talk of urea decontrol, which may happen next year, they are accumulating fertiliser stocks and will continue to do till it (decontrol) happens," said Mr Kishore P. Ostwal, CMD, CNI Research. Urea is the only fertiliser that remains under Government control. The Group of Ministers in August had referred the urea decontrol policy to the Cabinet Committee on Economic Affairs. Reports suggest that the Prime Minister's Office has directed the Fertiliser Ministry to accelerate the urea decontrol policy, amidst resistance from the Fertiliser Minister, Mr M.K. Azhagiri, to the proposed move.
A person familiar with this development told Business Line, "With international prices going up, it has necessitated an increase in the maximum retail price for urea. This will help domestic companies to get better returns and invest further." The urea price was last revised on April 1, 2010, from Rs 4,830 a tonne to Rs 5,310 a tonne. He claimed that such a move is likely to get support from the Finance Ministry as this will reduce its subsidy burden. On apprehensions of an adverse impact on inflation, the source pointed out that the contribution of fertiliser in the cost of production for farm output has come down significantly over the past few years. In fact, the industry claims that the cost of fertiliser in the overall cost of agriculture produce has come down from 11 per cent to 9 per cent. Urea is the only controlled fertiliser, where the difference between the cost of production of urea as assessed by Fertiliser Industry Coordination Committee (known as the retention price) and the statutorily fixed sale price is paid as subsidy under the Retention Price-cum Subsidy Scheme. Such a scheme ensures uniform sale price to the farmers besides a reasonable return (12 per cent) on capital investment to the manufacturers.
According to various estimates by the Government and the industry, subsidy on urea is in the 60-75 per cent range, depending on the fuel used for production. On the other hand, subsidy on imported urea has gone up to 90 per cent, industry sources claimed. At present, of the total demand of nearly 28 million tonnes, 21.5-22 million tonnes are met through domestic sources. Mr U.S. Awasthi, CEO, IFFCO, said that the existing price level is unsustainable and is hurting investment prospects. No new investment in capacity addition in urea has taken place since 1997. He said the price revision will stop indiscriminate use of urea which, in turn, is good for the soil and ground water.
He also believed that a 40 per cent price hike is justified as farmers, in any case, pay Rs 400 per 50-kg bag in many places because of various reasons, including middle-men. A 40 per cent hike would take the price to nearly Rs 7,500, which is close to the current actual market price, he added. India imported 18.4 lakh tonnes of urea and 30.64 lakh tonnes of other fertilisers, including di-ammonium phosphate (DAP) and muriate of potash (MOP), during the April-July period this fiscal. The country imported a total of 66.10 lakh tonnes of urea and 131.78 lakh tonnes of other fertilisers in the entire 2010—11 fiscal, according to government data. The import of DAP stood at 20.16 lakh tonnes till July in the current fiscal, as against 74.11 lakh tonnes in the 2010—11 fiscal. Import of MOP in the first four months of this fiscal stood at 3.05 lakh tonnes, compared to 45 lakh tonnes in the previous fiscal.
The country had imported 1.06 lakh tonnes of MAP (mono—ammonium phosphate) and 6.37 lakh tonnes of various grades of fertilisers till July in the 2011—12 fiscal. Domestic production of urea is stagnant at 210 lakh tonnes. To encourage phosphatic and potassic (P&K) fertiliser production in the country, the government has reduced customs duty on phosphoric acid, an important ingredient, from 5 per cent to 2 per cent.
Palash Biswas
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