C Land Use and Interlinking of Rivers for Irrigation
Value Added Fertilizers for Enhanced Prdouctivity
Surinder Sud, Y.S. Shivay & Dinesh Kumar
The Fertiliser sector in India is the third largest in the world in terms of both production and consumption. But the average per hectare use of these chemical nutrients is confined largely to a few states and even fewer crops. After stagnating for several years, the overall fertiliser consumption rose perceptibly by about 10 per cent in 2004-05 to reach 18.47 million tonnes (in terms of nutrients), against 16.8 million tonnes in the previous year. But the average per hectare consumption was only around 97 kg in India, against over 157 kg in Bangladesh. 109 kg in Pakistan and 120 kg in Sri Lanka.
Significantly, over half of the total fertiliser consumption is accounted for the five states Uttar Pradesh, Andhra Pradesh, Maharashtra, Punjab and Karnataka and virtually three crops - paddy, wheat and sugarcane - with some nutrients going to cotton and groundnut. The fertiliser use in unirrigated crops, be they coarse cereals, pulses, oilseeds or others, is rather limited.
Indeed, the history of the country's fertilizer industry can be traced back to 1906 when a super phosphate production factory with an annual capacity to produce 6,400 tonnes of active ingredient P205 was set up at Ranipet in Tamil Nadu. However, the subsequent expansion of fertilizer industry, as also growth in consumption, remained rather sluggish for several decades for want of awareness about the benefits of the plant nutrient application, lack of fertiliser responsive crop varieties and inability of the farmers to invest in costly farm inputs like fertilisers.
The turning point in the fertiliser sector came with the availability of the high yielding varieties of wheat and paddy which essentially required fertilisers and water for their optimal performance. This not only triggered off the green revolution in the 1960s but also led to a spectacular jump in fertiliser demand, necessitating higher production and imports. The emergence of new fertiliser factories and the field programmes launched by them to educate the farmers on the efficient use of fertilisers, coupled with availability of crop production credit to the farmers, gave further impetus to fertiliser consumption.
Major investment is setting up of fertiliser plants came in the 1980s and the early 1990s thanks to the HBJ pipeline which made natural gas available for urea production. However, further investments dried up subsequently as the gas availability did not increase further and the overall pricing, supply and demand scenario eroded returns on fertiliser production. In fact, even the installed plants began feeling the pinch of paucity of gas, adversely affecting their capacity utilisation.
But, nevertheless, the total installed capacity of the country's fertiliser industry has risen to 12.27 million tonnes of nitrogen and 5.5 million tonnes of phosphates in 2005-06. The capacity utilisation in the fertiliser industry in 2004-05 was estimated at 92.1 per cent in nitrogen and 74.9 per cent in phosphates. But, the single super phosphate industry has continued to be in doldrums for the past few years with its capacity utilisation dropping in 2004-05 to 47.2 per cent from about 50.2 per cent of the previous year due to unfavourable pricing policies and inordinate delays in price declarations.
Notably, the response of the crops to applied plant nutrients is relatively low in India because of the meagre organic carbon content of most soils. This is attributed to the soils being subjected to crop cultivation over longer period without adequate application of organic manures which help keep the soils healthy. Besides, even in the case of chemical fertiliser application, the use of plant nutrients is weighed heavily in favour of urea.
Though the ideal ratio of consumption of nitrogen (N), phosphorus (P) and potash (K) should be 4 : 2 : 1, the actual is generally far from it. No doubt, the imbalance in nutrient use has tended to narrow down in past few years thanks to conscious efforts to promote the balanced fertiliser application, but it was still quite skewed at 6.9 : 2.6 : 1 in 2003-04. For 2004-05, this ratio is estimated at a little better 5.5 : 2.2 : 1.
Of the three major forms of fertilisers - nitrogenous (mainly urea), phosphatic and potassic fertilisers - nitrogenous fertiliser urea is the only one which can be produced wholly indigenously, without any import component. But the overall urea production potential is constrained by the supply crunch of feedstocks like natural gas, naphtha, fuel oil or others. The costs of all these have shot up in recent time to a level that has upset the economics of fertiliser production.
The bulk of the phosphatic fertiliser is produced from the imported raw material like phosphoric acid or other intermediaries. The indigenous availability of rock phosphate is inadequate besides being of indifferent quality. For potassic fertilisers, the country depends almost entirely on imports as it does not have any indigenous source of potash.
In the case of urea production, naphtha dominated as the feedstock of the industry in the 1960s and 1970s. Subsequently, thanks to the availability of the gas from the Bombay High, the preference shifted towards natural gas as the energy consumption in gas based plants was less than that in the naphtha based fuel oil based plants. The cap investment in setting up gas based plants was also relatively low. Thus, nearly 60 per cent of the installed urea production capacity is now natural gas based though naphtha based plants still account for about 30 per cent of the output. But, due to the increased demand of natural gas from other potential consumers and the increase in its cost, liquefied natural gas (LNG) in now being contemplated as the feedstock for urea plants.
What is noteworthy is that the development of indigenous technology for fertiliser production has managed to keep pace with the growth in the fertiliser industry over the years. The available technology now pertains to almost all aspects, including planning and development of process know-how, design engineering, expertise in project management, and execution of the projects. The Indian consultancy organisations, too, have grown in tandem with the fertiliser industry and are now capable of undertaking execution of fertiliser projects right from the stage of conception of commissioning of the plants. However, there still is need for further research and development effort, especially in technological innovations to slash energy requirement of ammonia and urea plants to cut down production costs.
Indeed, the main problem besetting the Indian fertiliser sector is the lack of consistent, long term policies concerning pricing and controls on fertilisers. The inclusion of fertilisers in the list of essential items under the Essential Commodities Act has given the government the powers to fix prices expose distribution controls on fertilisers.
Under the fertiliser pricing policy, first measure that aimed at providing fertilisers to the farmers at affordable price and ensuring adequate returns to the fertiliser producer was the retention price cum subsidy scheme introduced in 1977. Under this, the difference between the statutory notified maximum retail price and the cost of production - as assessed on the basis of 12 per post tax returns - was paid as subsidy to the manufacturers.
This scheme worked quite smoothly for a long time. In fact, it helped the country achieve near total self sufficiency in the production of urea and 85 per cent self sufficiency in di ammonium phosphate (DAP) by the late 1990s. But, certain discrepancies were noticed in its implementation of this scheme which made it imperative to search for an alternative pricing policy. It was felt that this policy had encouraged the factories to show inflated production costs to hike their returns.
This led to the appointment in 1997 of a high powered committee, headed by Professor C.H. Hanumantha Rao, to review the retention price scheme and suggest a possible alternative pricing policy. This committee recommended in its report it April 1998 the replacement of the retention price scheme with a uniform normative referral price for the gas based units and grant of feedstock differential cost reimbursement for the unit based on naphtha, fuels oil or other feedstocks.
However, even before the government could take a decision on the recommendations of this committee, the Expenditure Reforms Commission (ERC) came up with the recommendation of an annual seven per cent increase in the farm gate price of urea and a group based concession scheme for the fertiliser industry. It envisaged classification of the urea units into five groups based on feedstock and vintage of the plant and fixing of a price for each group computed on the basis of weighted average retention price of all the units in that group. It also mooted phased decontrol of distribution of urea.
Though the government decided to implement the recommendations of the ERC, barring the one concerning periodic hike in farm gate prices of fertilisers, but the problem of pricing of urea was indeed far farm resolved. It was soon realised that the main drawback of the group average based retention pricing methods was that it created gainers and losers among the urea producers. As such, it amounted to rewarding inefficiencies and punishing efficiencies. Thus, the search for a proper pricing policy for urea continued, resulting in appointment of more committees. The process is still continuing.
Where phosphatic and potassic fertilisers are concerned, the policy framework has remained as fluid as that for the urea sector. The first major policy intervention in this sector came in August 1992 when, on the recommendation of a joint parliamentary committee, the government decontrolled the phosphatic and potassic fertilisers.
But, responding to the demand for keeping the farm gate prices of these nutrients low, the government soon introduced an ad hoc scheme for providing concession on the actual market price of these fertilisers. The price concession was applicable to both indigenously produced as well as imported fertilisers. Thus, though the decontrol move was aimed primarily at reducing fertiliser subsidy, but this objective could not be fulfilled as the subsidy level remained high due to the price concession.
This policy for the phosphatic and potassic fertilisers has continued since then with some minor modifications. In 2004-05, the government decided to change the methodology for recognising the price of imported phosphoric acid for determining the concession. It opted for normative prices instead of the one negotiated by the industry with the foreign suppliers.
An expert group has now been set up under the chairmanship of the Planning Commission member, Professor Abhijeet Sen, to revisit the pricing policy for the phosphatic fertilisers.
The single super phosphate (SSP) fertiliser, the only phosphatic fertiliser that also contains sulphur which is generally deficient in the Indian soils, is facing a peculiar problem. This fertiliser has been separated from the phosphatic and potassic fertilisers for the fixation and quarterly review of the concession on the sale price. As such, while the effective retail prices of other decontrolled fertilizers are fixed by the Union government, that for SSP are determined by the state governments. The delay in changing the retail prices in response to the changes in the cost of imported raw materials and intermediaries for the production of SSP often result in financial crunch in this segment of the fertiliser industry. This also results in occasional shortage in supplies as witnessed in 2005.
All this apart, which is really significant is the country is dependent, albeit partly, on the imports of all kinds of fertilisers and their raw material to meet its requirement and is likely to remain so in future. Though the demand for urea was almost stagnant in the past several years till 2003-04, obviating the need for imports, but the surge in demand subsequently has again made urea imports imperative. Consequently, about 0.64 million tonnes of urea was imported in 2004-05. Almost an equal quantity of DAP was also imported during that year. The import of potassic fertilisers, notably muriate of potash (MOP), was far higher at about 3.41 million tonnes. The international prices of fertilisers were quite high in 2004-05.
However, if the annual agricultural growth has to be stepped up to four per cent to achieve an annual gross domestic product (GDP) growth of eight per cent and above, the fertilizer consumption would have to be increased. The studies on the response of crops to fertiliser application had indicated that 1 kg of fertiliser causes crop yield to go up by 10 kg (in foodgrains like wheat and paddy). Of late, though this response has tended to decline due to several ecological and technological factors, the increase in yield is still believed to be as high as six to 7 kg per kg of applied fertiliser.
The economics of fertiliser application, however, is quite dynamic as it is a function of the prices of fertilisers and the crops which keep changing. But the time series data collected by the Fertiliser Association of India (FAI) shows that over the years the quantity of foodgrains required to buy a kg of fertilisers has gradually declined due to steady increase in the procurement prices of foodgrains without much rise in fertiliser prices. This indicates that the economics of fertilisers use has become more favourable over a period of time.
The FAI data reveals that 72, about 3.79 kg of paddy, required to buy one kg of nitrogen. But in 2004-05, a kg of nitrogen could be purchased only with 1.91 kg of paddy. Similarly, in the case of wheat, the economics of fertiliser consumption has improved substantially. While in 1970-71,
- 2.64 kg of wheat was required to buy a kg of nitrogen, in 2004-05 only
- 1.64 kg wheat was needed for that purpose. Similar is the trend for phosphatic and potassic fertilisers as well.
No doubt, organic farming (without the use of any chemical through fertilisers or pesticides) is gaining in popularity the world over. The demand for the products grown without chemical inputs is also swelling. But the prices of such products are relatively high and they are meant only for a niche market segment. The use of fertilisers cannot indeed be dispensed with, considering the growing requirement of food, fiber and fuel wood which needs to be met through produce of the land.