india fertilizer

Whilst POZ's Slurry pipeline is a massive capital expense, the fluctuations in RP pricing is leading the fertilizer companys (and Indian government) to look for RP assests and secure more consistent pricing.

INDIA NEWS FEBRUARY 24, 2010, 11:13 P.M. ET

"A second and long term function should be to represent relevant fertilizer units as a consortium in acquiring strategic assets producing key raw materials such as rock phosphate and ammonia. Both these steps will ensure that the input costs going into the fertilizer subsidy calculations are themselves optimal."


http://online.wsj.com/article/SB126706939446851287.html?mod=googlenews_wsj

By KRITI MEHRA and SOUMITRA SHARMA

AFP/Getty Images

File photo of technicians working on an assembly line for Honda City automobiles at a Honda car factory in Greater Noida some 45 kms east of New Delhi on March 12, 2009.

India aims to achieve annual economic growth of 10%. This aggressive target mandates examination to gauge whether the government's approach is aligned to its goal. Has India actively looked for new opportunities? Are our policies led by a long term vision to make our industries stable and globally competitive? Against the backdrop of Friday's budget, we attempt to answer these questions within the purview of the manufacturing sector.

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Fertilizer

The fertilizer industry continues to occupy a major space in the budget. The main problem underlying huge subsidy bills and loss-making public sector units such as Madras Fertilizers and Fertilizers and Chemicals Travancore is the large fluctuations in the prices of raw materials such as rock phosphate and sulfuric acid. Public sector undertakings, in particular, lack both skills in managing contracts and hedging price movements as well as the initiative to acquire stakes in assets that produce these commodities.

In the upcoming budget, the government should set up a central Fertilizer Commodity Management Agency. This agency should centrally manage all commodity procurement related activities for public sector fertilizer units. It should broadly serve dual functions. First, this agency should hedge commodity price fluctuations through sophisticated financial instruments such as futures contracts, optimize the mix of spot and long term procurement, put options, costless collars and fixed price swaps. A second and long term function should be to represent relevant fertilizer units as a consortium in acquiring strategic assets producing key raw materials such as rock phosphate and ammonia. Both these steps will ensure that the input costs going into the fertilizer subsidy calculations are themselves optimal.

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This was a glimpse into the abundance of untapped potential in the manufacturing sector and the steps needed to unleash that potential. India therefore looks forward to a futuristic budget that can accelerate India's economic growth towards the target GDP.

About the authors

Kriti Mehra is currently pursuing a post graduate program in management at the Indian School of Business, Hyderabad. Prior to ISB, she was working in the business development division of a leading IT Services firm. Kriti holds a keen interest in corporate strategy and organizational behavior.

Soumitra Sharma is currently pursuing a post graduate program in management at the Indian School of Business, Hyderabad. Prior to ISB, he was working in the corporate finance advisory division of a consulting firm.