IBS-Mumbai

Economics Project

Demand and Supply Analysis on Fertilisers

By: ADITYA SUREKA GUNJAN MALHOTRA

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No Topic Page.IBS-Mumbai Sr. Production and Import) 6-14 3 Elasticity of Demand and Supply 15 23 4 Bibliography Page | 2 .No 1 Introduction to the topic 1 2 Fertiliser and Manures (consumption.

This surplus has been facilitated by the use of chemical fertilizers. India has emerged as the third largest producer of nitrogenous fertilizers. The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. The adoption of back to back Five Year plans has paved the way for self sufficiency in the production of food grains. Bihar and the Fertilizer & Chemicals Travancore of India Ltd in Cochin. The fertilizer industry in India began its journey way back in 1906. In fact production has gone up to an extent that there is scope for the export of food grains.IBS-Mumbai Introduction to the Topic India is primarily an agriculture based economy. The large scale use of chemical fertilizers has been instrumental in bringing about the green revolution in India. In the pre and post independence era a couple of large scale fertilizer units were established namely the Fertilizer Corporation of India in Sindri. Kerala. During this period the first Single Super Phosphate (SSP) factory was established in Ranipet in Chennai. The agricultural sector and its other associated spheres provide employment to a large section of the country's population and contribute about 25% to the GDP. It had a capacity of producing 6000 MT annually. Page | 3 .

The remaining 20 fertilizer plants manufacture complex fertilizers . private and co-operative. These manufacture an extensive range of phosphatic. 29 of these 57 units are engaged in the manufacturing of urea. while 13 of them produce Calcium Ammonium Nitrate and Ammonium Sulphate. The dramatic development of the fertilizer industry and the rise in its production capacity has largely been attributed to the favourable policies.IBS-Mumbai The Indian government has devised policies conducive to the manufacture and consumption of fertilizers. Numerous committees have been formed by the Indian government to formulate and determine fertilizer policies. At present there are 57 large scale fertilizer units. about 72 of them. There are also a number of medium and small scale industries in operation. This has resulted in large scale investments in all three sectors viz. nitrogenous and complex fertilizers. Page | 4 . The following table elucidates the installed capacity of each sector. public.

0 62.33 17. nitrogen and phosphate.08 7.IBS-Mumbai Sl.13 4. usage of chemical fertilizers has an important role to play. Fertilizers Projects and Planning and Administration and Vigilance.61 P 35. it lacks chief plant nutrients like potassium.69 120. promotion and development of the Fertilizer industry.59 Percentage Share 44.27 100. This project focuses on the demand and supply of the fertilisers. No N 1 2 3 Sector P Private Sector Public Sector Cooperative Sector Total Capacity (LMT) N 53. India’s soil though varied and rich is deficient in Page | 5 .65 30.94 34. Movement and Distribution. Though the soil in India is rich in silt. The increase in the production of fertilizers and its consumption acts as a major contributor to overall agricultural development.0 26.98 31.0 The Department of Fertilizers is responsible for the planning. These include Fertilizer Imports. It also takes into account the import and distribution of fertilizers and also the financial aspect. There are four main divisions of the department.73 29. Fertilisers and manures For boosting agriculture output. It makes an assessment of the individual requirements of the states and union territories and then lays out an elaborate supply plan.27 100.13 56. Finance and Accounts.

The New Agricultural Strategy was based on increased use of fertilizers.IBS-Mumbai Nitrogen and Phosphorus which together with organic manure influence crop return. Demand and Supply of Fertilisers Page | 6 . Increase in the population has lead to an usage of larger doses of chemical fertilizers which is the only way to augment the food grains production.

06 2006. Year 1951-52 1970-71 1990.3 million tonnes in 2005-06.91 2000. The consumption has been erratic because of high variability of monsoon conditions.01 2005.IBS-Mumbai Now let us see the demand and supply of the fertilizers over the years in Indian economy. Graphical representation of the data: Page | 7 .5 million tonnes in 1990-91 and likely to be 20.07 Demand (Tonne) 70 2260 12550 16700 20340 21651 Supply(Tonne) Price/Tonne 91 1690 14620 16840 20828 112154 758 1800 2400 4600 4830 4980 Consumption of Fertilizers: The consumption of chemical fertilizers has been growing rapidly since the New Agricultural Strategy was adopted in the 60’s (can be seen in the table) In 1950-51 where it was a mere 70000 tonnes which rose up to 12.

it has granted certain concessions to attract Page | 8 . therefore considerable hesitation and delay in the issue of licences to private parties to set up fertiliser plants. As it takes 8 to 9 years to complete a project from the time of issue of the letter to intent.10000 crores would be required of which about 25 to 30% of the total outlay would be foreign exchange component. There was. There are many reasons for this: • There has always been much delay in the setting up of fertiliser plants in India. The Government of India was never clear about the role of the private sector in the fertiliser industry. Though there has been a growth but its not enough to keep pace with the growth in consumption. It has rose from a mere 39000 tonnes in 1951-52 to over 8 million tonnes in 2005-06. It is estimated somewhat between Rs. causing unnecessary increase in the cost of the project.5000 crores and Rs. There is also a problem of the capital for the programme.IBS-Mumbai PRODUCTION OF FERTILISERS The fertiliser industry has made a rapid progress during the past decade. • • Now that the government has seen the need for an increase in foreign investment.

etc. distribution rights. & 2. But the response was poor mainly because of: 1.IBS-Mumbai foreign capital for the fertiliser industry such as majority equity. Page | 9 . Profitability of exports of fertilisers to India was very high. There was uncertainty with respect to the availability of raw materials. participation.

Steps taken: • • Government has been promoting the consumption of fertilizers through heavy subsidies. we can come to a conclusion considering the fertilizer consumption pattern. Promotion of balanced use of fertilizers (through a fertilizer promotion scheme) Setting up of soil testing laboratories in various parts of the country for proper soil testing and so on. Consumption of fertilizer in India per hectare in 1950-51 was negligible but increased to 104. Netherlands (275 kgs). Therefore.IBS-Mumbai IMPORTS OF FERTILISERS As internally there has been a shortage of fertilisers the government is highly depended upon the imports. Page | 10 . Ensuring adequate supplies of wagons through high level coordination with the railways provision of short term credits to states for the purchase and distribution of fertilizers. over the last three decades: i. Large imports are carried as there is scarce use of foreign exchange and subsidies which resulted in vigorous policy of setting up fertiliser within the country. Absence of assured supply of water which is a primary condition for the applications of chemical fertilizers is lacking over large parts of ii. The corresponding figures for some developed countries were: South Korea (400kgs). due to fertilisers becoming scare and because of oil crises there been a drop in the imports. Special measures are also taken to streamline distribution of available supplies through better transport regulated supplies to priority crops and areas specified by the State Governments. Japan (340kgs).5 kgs in2005-06. It has been a tremendous growth from 2.7 million tonnes in 1990-91 to 5. • • • Despite of all this India’s position is much behind other progressive countries.25 million tonnes in 2005-06. Internationally too .

. Roughly if we see. cattle urine which has valuable manorial properties is completely wasted. account for 2/3rd of fertilizer consumption. Beside. the more use of this will help in making organic manures available to the cultivator. Since out of 70% only 20% is being consumed of the total fertilizers. Also a great scope for the manufacturer is there as he can compost from the urban waste. farmer’s training programmes. The programme includes field block demonstrations. forest litter and other waste materials and also for use of green manures. v.22450 crores during 2006-07.. Rabi crops (food and non-food) which contribute to 1/3rd of agricultural production. iv. This type of provision to the rural population will help to increase the availability of farmyard manure. one third of cow dung is not collected and one third is used as fuel by the villagers. This is largely due to more assured availability of irrigation of subsoil moisture for rabi crops. opening additional soil testing laboratories and additional retail outlets. If it is mixed with cow dung the available manure will be about 400 million tonnes. the government has sanctioned a National Project and Development of Fertilizer use in Low Consumption Rain fed area’s in 60 identified districts in 16 states. At present. vi. The sharp increase in the international fertilizer prices has compelled the government to divert attention to greater use of organic manures. and the amount actually collected and used is about 340 million tonnes.4400 crores in 1990-91 and to Rs.eg.IBS-Mumbai country and this acts as a hindrance to their more rapid consumption in India. Page | 11 . There has been a steep rise in fertiliser subsidies from Rs.600 crores in 1979-80 to Rs. government has been taking steps in recent years to increase the consumption of fertilizers in these areas. iii. The use of plant nutrients received scant attention in the past.

it means “the change in”. ELASTICITY OF DEMAND AND SUPPLY Demand for a good depends not only on its price. where. but also on consumer income and on the prices of other goods.IBS-Mumbai This will help in reducing our dependence on chemical fertilizer as it is naturally available to us. Specifically. Page | 12 . The percentage change in the variable divided by the original level of the variable. Elasticity measures the sensitivity of one variable to another. Likewise. it is a number that tells us the percentage change that will occur in one variable in response to a 1-percent increase in another variable. In fact. supply depends both on price and on variables that affect production cost. means “percentage So X means “the change in the variable X”. simply means “percentage change in Q” and change in P” The symbol is the Greek capital letter delta . Price Elasticity of Demand: It is the percentage change in quantity demanded of a good resulting from a 1-percent increase in its price. there is growing awareness among farmers of the importance of organic farming. say from one year to the next.

 Price of the product: Here. As we know that if the demand is elastic. it is elastic in nature i. if we get fertilisers at a subsidy rate provided by the government the elasticity will be lower.IBS-Mumbai Elasticity of Demand:  Number and closeness of substitutes : Here. This means that companies will have various options available which will lead to fluctuation of the price.e for organic fertiliser which is very rare to find due to firstly wrong government policies and no support from them either. Page | 13 . the number of substitutes for fertiliser is more i. secondly due to high variability of monsoon conditions in India. Therefore. an increase (decrease) in price will lead to decrease (increase) in total revenue.e it has more substitutes.

Page | 14 . the percentage change in the quantity demanded of one good divided by the percentage change in the price of a related good. Here. It can be positive or negative.IBS-Mumbai ELASTICITY OF DEMAND CROSS PRICE ELASTICITY INCOME ELASTICITY CROSS PRICE ELASTICITY: A measure of the responsiveness of the demand for a good to changes in the price of a related good. the cross price elasticity will be positive because goods are having substitutes available.

ELASTICITY OF SUPPLY: The responsiveness of supply changes as there is a change in the price. our product is a normal good and in it.e one cannot do without the product.IBS-Mumbai INCOME ELASTICITY: A measure of the responsiveness of the demand for a good to changes in consumer income. Necessary goods have income elasticity less than one. It is elastic if they react quickly to the change in price. it is a necessary good i. the percentage change in quantity demanded divided by the percentage change in income. It is inelastic if the suppliers don’t adjust to the change in price. Page | 15 . INCOME ELASTICITY NORMAL GOODS INFERIOR GOODS NECESSARY LUXURIOUS Here.

Rubinfeld and Prem L. Daniel L.IBS-Mumbai BIBLOGRAPHY Microeconomics 7th edition by Robert S Pindyck.P. WIBLOGRAPHY www. Mehta Irrigation and other agricultural inputs Indian Economy – K.investopedia.com www.economywatch.M Sundharam and Ruddar Datt.com/indian-fertilizer-industry/ Page | 16 .

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