Fertiliser sales likely to remain marginal lower in FY22: ICRA

Rating agency

ICRA

on Wednesday said that while the overall fertiliser sales volume decline looks steep in the current kharif season, it expects the sales volume for full FY2022 to be only marginally lower than FY2021.

In a release issued by ICRA it said that primary fertiliser sales volume during the first four months of FY2022 has registered an 11% decline compared to the same period of FY2021, mainly due to the base effect, as during H1 FY2021, fertiliser sales witnessed an upsurge owing to panic buying by farmers following Covid-19 pandemic led lockdown. The overall rainfall, which determines the sowing pattern, has so far been normal in the current South-West Monsoon season with a shortfall of only 2% as on August 6, 2021 in line with the prediction of the Indian Met Department. During June 2021, the rainfall was 10% above the LPA (long period average) whereas in July 2021, the rainfall was 7% below LPA. As for the distribution of rainfall, it has been rather uneven across regions – the southern peninsula has witnessed higher rainfall than LPA while the East and the North-east has witnessed a shortfall of 13%.

Commenting on this, Mr. Sabyasachi Majumdar, Senior Vice President & Group Head at ICRA, said, “Panic buying by the farmers in light of the Covid-19 pandemic lockdown had led to record sales in the kharif season of FY2021 which petered off during the rest of the year as inventory de-stocking at farmer level led to lower offtake in H2 FY2021. The overall kharif sowing this year is down only 2% as of the week ending August 6, 2021, posting a smart recovery after being down 22% by end of June 2021, following the monsoon rains. Moreover, the reservoir levels across regions remain healthy, which augurs well for the sowing during the upcoming rabi season. While the overall fertiliser sales volume decline looks steep in the current kharif season, we expect the sales volume for full FY2022 to be only marginally lower than FY2021.”

As for fertiliser production volumes, they have largely remained stable in the first four months of FY2022 compared to the same period of FY2021 whereas imports have declined by 16%. The combined (production and import) volumes have declined by only 6% in 4M FY2022 whereas the retail sales have declined by 11%, indicating availability of fertiliser inventory with the fertiliser companies. However, with limited availability of DAP (diammonium phosphate) in the international markets and steep rise in import prices, the availability of the same for the upcoming rabi season will remain a key monitorable, as the situation may further exacerbate with China banning fertiliser exports.

Further, adds Mr. Ravish Mehta, senior analyst at ICRA, “Given the continued rise in raw material prices, P&K players have started resorting to price actions to pass on the impact of raw material price increase to farmers. In July 2021, Indian P&K players increased the prices of NPK fertiliser by 3%-6%, while DAP prices remained stable. While DAP, urea and NPK have already witnessed price increases in the international markets, the potash price rise is yet to impact India. We expect the potash prices to rise sharply in any new contract renegotiation that takes place in the industry and also expect the government to take a relook at the subsidy rates for P&K fertilisers – for the ongoing season as well as for the upcoming rabi season to ensure reasonable retail prices for farmers. Further, as fertiliser imports continue to face challenges, the government may have to review the fertiliser availability position, especially for the rabi season.”