May 22, 2014 / 8:44 PM / 4 years ago

Indian fertilizer producer IFFCO looks for revised subsidies

NEW YORK, May 22 - India’s largest fertilizer producer, Indian Farmers Fertiliser Cooperative (IFFCO), expects the country’s new government to shake up its fertilizer subsidy program, possibly spurring greater phosphate and potash use to boost crop production.

Two major fertilizer suppliers to the world’s second-biggest wheat producer, Potash Corp of Saskatchewan and Mosaic Co, also said on Thursday they expected changes by the Narendra Modi government to the subsidy program, which is a big factor in how much fertilizer Indian farmers buy.

“I think we’ll see a shift in government to more balanced application,” said Manish Gupta, IFFCO’s director of strategy and joint ventures, at BMO’s Farm to Market conference in New York.

“Something will surely happen on this.”

Modi thundered to electoral victory on Friday in a seismic political shift that gives his party a mandate for sweeping economic reform.

Changing the subsidy program is critical if India is to maximize crop production, Gupta said. Indian fertilizer companies rely entirely on imported potash and heavily on phosphate produced elsewhere.

Since 2010, India has reduced its subsidies for potash and phosphate. That has resulted in urea becoming a more attractive option for farmers relative to the two other fertilizers, leading to an imbalance of nutrients in the soil.

The subsidy program “probably can’t get any worse,” said Potash Corp Chief Financial Officer Wayne Brownlee, speaking at the BMO conference. “When you have the first majority government in 30 years there is an opportunity for sound policies to prevail over impulse politics.”

India is the biggest global phosphate importer and a top consumer of potash. Slack Indian fertilizer demand is one reason for a plunge in profits by Potash Corp and Mosaic.

It is unlikely that India, facing a deficit, can afford to raise subsidies for potash and phosphate. But it could cut the urea subsidy or target subsidies only to poorer farmers, Gupta said, although he noted that tinkering with urea prices was politically sensitive.

Both Potash Corp and Mosaic forecast increased Indian imports even before the election result.

Potash Corp said in January that it expects India to import 3.7 million to 4.2 million tonnes of potash from all suppliers in 2014, up from 3.1 million last year, due to thin Indian inventories and a small bump in consumption.

Mosaic sees phosphate imports jumping to about 9 million or 9.2 million tonnes of phosphate in 2014, up from 8 million.

Change to subsidies may take awhile, Mosaic Chief Financial Officer Larry Stranghoener said in an interview.

“We would love to see a fundamental change in the subsidy system. I think that may be a bridge too far for a new government to take on immediately.”

A trend toward urbanization, along with higher incomes and demand for more protein-rich food, has made India, China and Southeast Asian countries key growth markets for grains and fertilizer. (Additional reporting by Nicole Mordant in Vancouver; Editing by Tom Brown)

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