Kharif season has started off on a positive note in terms of fertilizer application. As per statistics released by the National Fertilizer Development Centre (NFDC), urea off-take in April 2018 at 0.37 million tons was the highest in ten years. April 2018 also marks the fourth consecutive month for year-on-year increase in urea off-take, which is also a first.

Urea prices have stayed north of Rs1400 per bag, up 4 percent year-on-year for four months. The subsidy on urea has been continued as the GST has been slashed in the budget. This may be neutral for the farmers, but the fertilizer manufactures are not a happy bunch over this decision. Already irked by the long delays in overdue payment on account of subsidy, many fear that the GST backlog is set to add to the financial woes of the manufactures.

Moreover, international urea prices have also started to increase following the rise in international commodity prices. The international urea price has averaged $280 per ton during 4MCY18, almost 30 percent higher than the same period last year. This offers cushion to the local manufactures in terms of reduced imports pressure. But pricing is least of the manufacturers' concern, being a pass through item at most times. The government would do well to adjust the input and output taxes, in a way that smoothens the cash flow problems of the manufactures.

On the outlook front, it would be difficult repeating the feat of Kharif off-take of last year, as the buying in anticipation had played a huge role back then. The crop season off-take is expected to be more of the same, and the NFDC expects the Kharif season off-take to fall 12 percent short of last year's 3.3 million tons.

Much has not changed in terms of farm yields for many years. On the brighter side, DAP application has continued to improve. Although, it is still far from the ideal level of balanced fertilization, the NP ratio today is much improved from five years ago; thanks mainly to much reduced DAP prices via subsidy, and increased awareness amongst farmers.

The overall fertilizer story in terms of application and off-take is increasingly becoming a non-story. Prices are stable, yields constant, ample gas available to ensure adequate supply. The need of the hour is to look into the cash flow issues of the fertilizer industry, before the sector starts looking like a smaller version of the energy chain.

Copyright Business Recorder, 2018