The Hindu : Business News : Time has come to unbundle fertilizer industry
The Indian fertilizer industry is today faced with a crisis of sorts. The increasing burden of subsidy and its non-competitive nature is making the industry redundant. It is also slowly killing industrial units which are reporting sick one after the other. The Indian Farmers Fertilizer Cooperative Ltd (IFFCO), world's largest cooperative, has been in the forefront to reach out to the farmers. In an interview with Sujay Mehdudia, IFFCO Managing Director Udhay Shankar Awasthi shares his concerns about the future of the fertilizer industry and the strides made by IFFCO since 1967.
How important is the need for reforms in the agriculture sector to meet the challenges of food crisis in the country today?
The basic model of agriculture only looks at culture of production. India has had a problem of food security in the past but has gone away during the three decades. Today, things have changed. What has happened is that our soil has become less responsive to fertilizers due to imbalance in fertilizer use and intense agriculture. Agriculture productivity and response to fertilizer use has come down.
It is time to look at rejuvenating the soil. Time has come to remove all controls on agriculture. Farmers are not getting an appropriate price for their crops. Farmers cannot sell their produce beyond their State. They should have the right to sell their produce anywhere in India and where the price is highest. Give agriculture the status of industry.
What are major challenges faced by agriculture? What role is IFFCO playing to help farmers in the field of fertilizers and bringing technology closer to them?
Agriculture today is facing an onslaught of climatic extremes, higher input cost and fluctuation in output prices. This has led to plateauing and/or decline in crop productivity and food availability for majority of population. The climatic extremes include simultaneous occurrence of drought and or flood in one or the other parts of country, thus limiting agricultural production. As a result, food prices are increasing, limiting its availability affecting human and animal health. Farm productivity should include overall farm production that includes oilseeds, sugarcane, fibre crops, fruits and vegetables and flower crops. IFFCO has been doing pioneering work in helping farmers and has lately launched "Save the soil campaign".
It is also working to correcting imbalanced use of nutrients and promotion of integrated nutrient management; timely availability of inputs in adequate quantity at consuming points and incorporation of crop residue in soil and use of farm waste for preparation of organic manure on the farmers' fields. IFFCO provides weather insurance, Sankat Haran Bima Yojna, for the farmers under which the farmer's fertilizer purchases are insured by IFFCO.
We have the IFFCO Kisan Sanchaar. We are giving him five messages free everyday through mobile phones. We have formed goat rearing, fisheries and horticulture communities where we give messages over the mobile phones including weather prediction. The effort is to empower them with knowledge.
What has been the impact of recent rupee depreciation on IFFCO and has it made imports costlier. Are you planning to raise prices of fertilizers?
The rupee has devalued by about 20 per cent in the last five months and has gone up to over Rs.50 now. This has led to a hike of Rs.3,500 per tonne in imported DAP fertilizer price. We have taken a Rs.300-crore hit on our balance sheet but we are not raising the prices. The prices that we charge today are quite large enough and any further increase is not feasible. We worked on management of foreign exchange but did not pass on the burden to farmers. Prices have gone up since September; we have not raised a single rupee since October. We don't intend to pass on the increased cost to farmers till March 2012. We are working on a price strategy with importers that would make it not necessary to hike prices this year also.
Is IFFCO looking to tap new supply sources for less reliance on existing suppliers in Canada, Russia where potash is found in abundance?
The fertilizer industry is not a rich industry. We are just surviving on hand-to-mouth. I don't have access to market. We produce 85 lakh tonnes of fertilizers and, as of today, I have no long-term debt. We cannot access the market as we are a cooperative. Potash needs big investment. We have been requesting the Government to provide some kind of sovereign fund at a lower interest rate through some mechanism. Or the government should invest in potash projects through one of its PSUs to ensure potash security as we don't have potash resources.
There are no big potash projects coming up in other countries than the traditional markets. We cannot set up potash projects as we do not have surplus money. The Government should find a solution to this.
Can you throw some light on your overseas ventures and what kind of JVs and investments you are
looking at?
We are running a joint venture in Senegal and another one in Oman. One of our plants for phosphoric acid is coming up in Jordan. We have a joint venture with a Canadian company for oil and gas in Argentina. We have a small potash project coming up in Peru.
We have a phosphate exploration mine in Australia. Some of these projects are running, some are getting clearances and some are on the drawing board stage. We have just got clearance for the Jordanian mines project. We plan to achieve a production/marketing target of 15 million tonnes per annum, with an annual turnover of Rs.30,000 crore. Our current production capacity is 8.58 million tonnes and our turnover during 2010-11 was Rs. 21,195 crore.
What ails the fertilizer industry in India?
In our country, we have over-stretched our companies and institutions. We get too much busy in the nitty gritties. Business is not run on nitty gritties but on entrepreneurship and the capacity to take risk. The Government wants to reward itself and that is what ails the industry. I have never seen such a frustrating experience in my life than what I see in Indian fertilizer industry. Every effort is being made to kill this industry and nobody is prepared to look at the pain of anyone of us.
The plants are running old and need huge investments. Time has come to give direct subsidy to the farmers and unbundle the fertilizer industry.
Otherwise, the industry will collapse and become extinct in the next five years.
The Indian fertilizer industry is today faced with a crisis of sorts. The increasing burden of subsidy and its non-competitive nature is making the industry redundant. It is also slowly killing industrial units which are reporting sick one after the other. The Indian Farmers Fertilizer Cooperative Ltd (IFFCO), world's largest cooperative, has been in the forefront to reach out to the farmers. In an interview with Sujay Mehdudia, IFFCO Managing Director Udhay Shankar Awasthi shares his concerns about the future of the fertilizer industry and the strides made by IFFCO since 1967.
How important is the need for reforms in the agriculture sector to meet the challenges of food crisis in the country today?
The basic model of agriculture only looks at culture of production. India has had a problem of food security in the past but has gone away during the three decades. Today, things have changed. What has happened is that our soil has become less responsive to fertilizers due to imbalance in fertilizer use and intense agriculture. Agriculture productivity and response to fertilizer use has come down.
It is time to look at rejuvenating the soil. Time has come to remove all controls on agriculture. Farmers are not getting an appropriate price for their crops. Farmers cannot sell their produce beyond their State. They should have the right to sell their produce anywhere in India and where the price is highest. Give agriculture the status of industry.
What are major challenges faced by agriculture? What role is IFFCO playing to help farmers in the field of fertilizers and bringing technology closer to them?
Agriculture today is facing an onslaught of climatic extremes, higher input cost and fluctuation in output prices. This has led to plateauing and/or decline in crop productivity and food availability for majority of population. The climatic extremes include simultaneous occurrence of drought and or flood in one or the other parts of country, thus limiting agricultural production. As a result, food prices are increasing, limiting its availability affecting human and animal health. Farm productivity should include overall farm production that includes oilseeds, sugarcane, fibre crops, fruits and vegetables and flower crops. IFFCO has been doing pioneering work in helping farmers and has lately launched "Save the soil campaign".
It is also working to correcting imbalanced use of nutrients and promotion of integrated nutrient management; timely availability of inputs in adequate quantity at consuming points and incorporation of crop residue in soil and use of farm waste for preparation of organic manure on the farmers' fields. IFFCO provides weather insurance, Sankat Haran Bima Yojna, for the farmers under which the farmer's fertilizer purchases are insured by IFFCO.
We have the IFFCO Kisan Sanchaar. We are giving him five messages free everyday through mobile phones. We have formed goat rearing, fisheries and horticulture communities where we give messages over the mobile phones including weather prediction. The effort is to empower them with knowledge.
What has been the impact of recent rupee depreciation on IFFCO and has it made imports costlier. Are you planning to raise prices of fertilizers?
The rupee has devalued by about 20 per cent in the last five months and has gone up to over Rs.50 now. This has led to a hike of Rs.3,500 per tonne in imported DAP fertilizer price. We have taken a Rs.300-crore hit on our balance sheet but we are not raising the prices. The prices that we charge today are quite large enough and any further increase is not feasible. We worked on management of foreign exchange but did not pass on the burden to farmers. Prices have gone up since September; we have not raised a single rupee since October. We don't intend to pass on the increased cost to farmers till March 2012. We are working on a price strategy with importers that would make it not necessary to hike prices this year also.
Is IFFCO looking to tap new supply sources for less reliance on existing suppliers in Canada, Russia where potash is found in abundance?
The fertilizer industry is not a rich industry. We are just surviving on hand-to-mouth. I don't have access to market. We produce 85 lakh tonnes of fertilizers and, as of today, I have no long-term debt. We cannot access the market as we are a cooperative. Potash needs big investment. We have been requesting the Government to provide some kind of sovereign fund at a lower interest rate through some mechanism. Or the government should invest in potash projects through one of its PSUs to ensure potash security as we don't have potash resources.
There are no big potash projects coming up in other countries than the traditional markets. We cannot set up potash projects as we do not have surplus money. The Government should find a solution to this.
Can you throw some light on your overseas ventures and what kind of JVs and investments you are
looking at?
We are running a joint venture in Senegal and another one in Oman. One of our plants for phosphoric acid is coming up in Jordan. We have a joint venture with a Canadian company for oil and gas in Argentina. We have a small potash project coming up in Peru.
We have a phosphate exploration mine in Australia. Some of these projects are running, some are getting clearances and some are on the drawing board stage. We have just got clearance for the Jordanian mines project. We plan to achieve a production/marketing target of 15 million tonnes per annum, with an annual turnover of Rs.30,000 crore. Our current production capacity is 8.58 million tonnes and our turnover during 2010-11 was Rs. 21,195 crore.
What ails the fertilizer industry in India?
In our country, we have over-stretched our companies and institutions. We get too much busy in the nitty gritties. Business is not run on nitty gritties but on entrepreneurship and the capacity to take risk. The Government wants to reward itself and that is what ails the industry. I have never seen such a frustrating experience in my life than what I see in Indian fertilizer industry. Every effort is being made to kill this industry and nobody is prepared to look at the pain of anyone of us.
The plants are running old and need huge investments. Time has come to give direct subsidy to the farmers and unbundle the fertilizer industry.
Otherwise, the industry will collapse and become extinct in the next five years.
