India's farmers are likely to face a sharp rise in farmgate prices of fertilizers in the coming months as the country faces a severe shortage of fertilizers, a development that could eventually pressure buyers into importing more oilseeds and pulses in the next marketing season, analysts told S&P Global Commodity Insights.
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India has been facing severe shortage of supply since the tensions between Russia and Ukraine started escalating in late February.
Russia, which accounts for around 13% of global fertilizer production, is a key supplier of several varieties of fertilizers to the world, including India.
It temporarily banned fertilizer exports earlier this month, which gave a boost to already higher fertilizer prices, analysts said.
Higher input costs in farming inevitably filters through and impacts production costs of grains and other agriculture commodities, and also leads to farmers planting less than planned.
So far, farmers are facing challenges in procuring non-urea fertilizers such as di-ammonium phosphate (DAP), muriate of potash (MOP) and nitrogen-phosphorus-potassium (NPK) varieties.
As of the end of February, India had 8.12 million mt of DAP fertilizers, 1.9 million mt of MOP fertilizers and 7.7 million mt of NPKS fertilizers, sharply lower than the upcoming demand for the kharif season, a government official said.
According to the official with the fertilizer ministry, India would require 65.4 million mt of DAP, 23.4 million mt of MOP and 58.3 million mt of NPKS varieties of fertilizers in the upcoming kharif season.
India still has a surplus of urea-based fertilizers.
As of February-end, the country had 25.5 million mt of urea available with it while the requirement is projected at 19.8 million mt.
"We can still make further imports to close the gap in demand and supply as we have some time left before the sowing season is expected to begin," another official said.
India usually starts plantation for kharif crops in June-July.
"We are more concerned about the pricing to be honest as to how international and domestic prices will turn out to be in coming times. International prices for MOP, DAP have gone up by 30%-40%, how much of this will be translated for farmgate will depend on the fertilizer subsidy scenario going ahead," Bhanu Patni, senior analyst at India Ratings and Research, said.
India has been considering working out a mechanism to pay Russia in Indian currency. Under the proposed system, ruble could be deposited in an Indian bank account after converting it to rupee or vice versa.
Further discussions are likely on the proposed payment mechanism after the Russian foreign minister visits India on March 31.
Likely impact on kharif crops
If the prices keep rising sharply, Indian farmers will see an increase in farmgate prices of nutrient-based fertilizers, and that may impact crop sowing.
"If the government does not increase subsidy, the farmgate prices will increase and will also translate into inflation. The farmer might also shift to other alternative fertilizers such as SSP," Patni said.
A sharp rise in fertilizer prices may lead to a decrease in sowing area in summer pulses, like pigeon pea, and oilseeds like groundnut and soybeans.
A decrease in the sowing area might translate into a decline in production, and that may force the country to move for imports of pulses and oilseeds in the next marketing season, traders said.