Fertilizer Industry Analysis

Today, Indian Fertilizer Industry is developing in terms of technology. Indian manufacturers are adopting advanced manufacturing processes to prepare innovative new products for Indian agriculture. India has entitled as the third largest producer and exporter of nitrogenous fertilizer. The tremendous demand of fertilizers has led the country to invest huge in the public, co-operative and in private sectors. At present, India has more than 63 large sized plants of fertilizers, manufacturing wide assortment of fertilizers including nitrogenous, phosphatic, Ammonium Sulphate (AS), Calcium Ammonium Nitrate (CAN) urea, DAP and complex fertilizers.

Apart from it, there are other 64 small and medium scale Indian manufacturers producing fertilizers. MICHAIL PORTES FIVE FORCES MODEL : Mchail Porter has putforth the model to analyse the industry on the basis of five factors which are common to all industries. The analysis of fertilizer industry on the basis of this model is explained further. THREAT OF NEW ENTRANTS:- LOW Entry barriers are high. 1. Supply side economies of scale- Present fertilizer industries both public and private sector enjoy the benefit of scale economies of scale. The cost per unit is low. 2.

Demand side benefits of scale-the buyers i. e. farmers are having faith on the fertilizers they are using. They communicate to each other the results of fertilizers. Hence always has tendancy to buy what others are buying. Hence for new entrant it is difficult to break this attachment. 3. Customer switching costs- It is high. When farmers are using any fertilizer,they are well known about the results, also for that fertilizers they have tie up with the o-operative societies, they can get it on credit basis also. Hence the cost of switching to other brand is high. 4.

Capital requirement- Fertilizer industry is high energy consuming industry, thus it requires huge capital investment. 5. Incumbency advantages independent of size-The existent players have good distributional channels, experience over the years, faith of farmers in their fertilizers which is incumbency advantage over the new player. 6. Restrictive Government Policy- for a new entrant in fertilizer industry it is very difficult to get a land as there are many restrictions from Ministry of Environment. 7. Social issues- people living near the fertilizer production plant may oppose it because of health related matters.

Bargaining power of supplires: High Fertilizer industry is energy intensive industry. The selection of the basic techniques is based on several factors – Target product range (N/P/K ratio) – Raw material basis – Quality parameters – Flexibility of process – Size of production plant – Integration with other processes – Economic The other inputs required are chemicals, heavy machinery, labour,etc. For the suppliers of energy fertilizer is not the only option. This is not the only source of revenue for them. Hence their bargaining power is high. The switching cost of fertilizer producer for the technology part of it is high.

Also the fertilizer producer has to depend upon the suppliers of chemicals, these are many but the quality raw material is the key in production. The other strong point on the part of suppliers is that they can get into forward integration. Thus bargaining power of suppliers is high. THE BARGAINNG POWER OF BUYERS: HIGH The buyers here are the farmers, distributers like Krishi Seva Kendra, co-operative societies thus the customer size is very high. 1. Agriculture is the backbone of Indian economy and fertilizers use the key operation in agriculture. 2.

Also government has to keep control on the prices of the fertilizers being the important factor of production in farming. 3. Farmers are price sensitive because fertilizer cost accounts for large portion of crop production. 4. But even though the prices are high, farmers have to use them to get high production. Hence they prefer to buy them from co-operative societies which provide at concessional rate with credit facilities. 5. Also variety of substitutes are available like FYM, compost, green manures, biofertilizers which along with increasing production protect the soil fertility. Thus, the bargaining power of buyers is high here.

THE THREAT OF SUBSTITUTES: MODERATE A wide range of substitutes are available. They are as follows- 1. Bio-fertilizers, 2. manures(FYM,cattle dung), 3. ,green manures(vegetable,household waste), 4. vermicompost(Roundworms) 5. A wide range of mixed fertilizers. The prices of these organic fertilizers are low compared to inorganic fertilizers. As Indian rural farmers are price sensitive they can go for these substitutes. Also it protects the soil from getting deteriorated, reducing soil fertility. But, the cost of switching to the substitute is high. Hence, the bargaining power of buyers(farmers) is moderate.

RIVALRY AMONG THE EXISTING COMPETITORS: HIGH Below the list of Public Sector Fertilizer Company in India 1. Brahmaputra Valley Fertilizer Corporation Limited 2. Hindustan Copper Limited 3. FCI Aravali Gypsum And Minerals India Limited 4. Hindustan Fertilizer Corporation Limited 5. Madras Fertilizers Limited 6. Neyveli Lignite Corporation Limited 7. Paradeep Phosphates Limited 8. Rashtriya Chemicals and Fertilizers Limited 9. Steel Authority of India 10. The Fertilizer Corporation of India LimitedSome rivals in the private sector are as follows-1. Bhilai Fertilizers & Agrochemicals(BEC), ANAND 2. Bicco Agro Products3. Coromandel Fertilizers4.

Dayal Fertilizers5. Deepak Fertilisers and Petrochemicals Corporation Limited. 6. Gujarat State Fertilizers & Chemicals7. Indo Gulf Corporation Ltd – A Aditya Birla Group Company 8. Krishak Bharati Cooperative Limited 9. Nagarjuna Fertilizers 10. Paradeep Phosphates Limited| 11. | 12. | 13. | | | The players in the industry are many both in public and private sectors, and they are more or less of equal size, hence competition is very high,. Also, the growth in the industry is largely influenced by government policies. Government exercises extensive control on prices, distribution, movement of fertilizers which keeps the prices moderate.

Natural gas is main feedstock in producing nitrogenous fertilizers which is available in less quantity. Hence, the existing players have to fight for their share for natural gas. The exit barriers are very high,As The industry is capital intensive and the production process energy intensive withthe combined cost of feedstock and fuel accounting for anywhere between 55 and 80per cent of cost of production, depending on the type of fertilizers. As the fixed costs are high and marginal costs are low it creats pressure on thr players to cut down the prices below the average price to gain the market share.

The, the competition among the existing players is very high. MARKET ATTRACTIVENESS: GLOBAL MARKET- * Between 2010 and 2015, some 55 urea units, 20 potash expansion projects and 40 processed phosphates facilities are planned for completion worldwide. * The industry has spent close to US$40 billion on new capacity for all three major nutrients since 2008. IFA estimates that another US$80 billion will be invested between 2011 and 2015, with the highest levels of production, sales and consumption seen to date occurring in 2011. * Global urea capacity is projected to expand by 30% between 2009 and 2014 to 222 Mt.

During the same period, world potash and phosphates capacity is forecast to grow by 25% and 31%, respectively. INDIAN MARKET- * India is third largest producer and consumer of fertilizers after China and USA * After at least a decade’s hiatus, India’s fertilizer industry is set for a wave of investments of up to $10 billion (around Rs47,000 crore) as existing manufacturers seek to expand capacity and new project developers move in to take advantage of government policy initiatives and demand-supply mismatch. * It costs up to $1. 25 billion to set up a 1.

3 mt fertilizer plant. Saipem is supplying the technology and engineering expertise for Matrix Fertilisers and Chemicals Ltd’s proposed plant in West Bengal. * Rising foodgrain consumption has fuelled demand for fertilizers in India, which depends on imports to meet most of its fertilizer requirements. The country relies on shipments from overseas for 21% of the urea, 67% of the phosphorous-based fertilizer and 100% of potash-rich fertilizer consumed in the country, according to the ‘Indian Fertiliser Outlook 2010’, a report released by Fitch Ratings India Pvt.

Ltd in February. * The entire agriculture system has to gear up to increase the productivity of food items. * Reliance Industries Ltd, India’s most valuable company and biggest by revenue, has evinced interest in entering the fertilizer industry. * Incumbents such as Indian Farmers Fertiliser Cooperative Ltd (Iffco), Krishak Bharati Cooperative Ltd (Kribhco), Rashtriya Chemicals and Fertilizers Ltd, Indo-Gulf Fertilizers and Chemicals Corp. Ltd, Chambal Fertilisers and Chemicals, Zuari Industries Ltd and Tata Chemicals Ltd have expressed interest in expanding capacity.

* In farms across Punjab, the country’s bread-basket, farmers used 24 times more nitrogen-based fertilizer than potassium in the fiscal ended March 2009, according to The Indian Journal of Fertilisers. * India produced 21. 1 mt of urea, 4. 2 mt of DAP (diammonium phosphate) and 800,000 tonnes of complex fertilizers in fiscal 2010. * Still, in order to meet domestic demand, the country will have to import 11. 6 mt of fertilizers, including 3 mt of urea this year, minister of state for chemicals and fertilizers Srikant Jena told Parliament in August. STRATEGIES FOR NEW ENTRATS: 1.

New player should have to come up with organic fertilizers which will enhance the crop yield along with increasing soil productivity and fertility. E. g. BGA fertilizer for paddy crops, microbial fertilizers(azatobactor,rhizobium), FYM,etc 2. The new player can go for giving farm demonstrations on the use of fertilizers. 3. Also, he can go for making tie ups with the large farmers, village co-operative societies so that other farmers will use them. 4. Instead of going for producing inorganic fertilizers at the first time he can go step by step by producing organic fertilizers in first place.

5. If the new player can invest large capital or he is already in some related business, he can go for production of inorganic fertilizers by getting experience of existing players. 6. For promotion, he can participate in various agricultural exhibitions. Like KISAN. 7. Also,along with supplying fertilizers . the new player can go for providing other farm inputs at concessional prices like pesticides, fungicides,farm equipments,etc. Conclusion: Michael porters’ five forces model enable us to identify the competitive strategy to be adopted while entering into new industry.

If the new player follow the above strategies it will able to sustain and grow within the competition. INFERENCE Hence,food security – having enough food to feed a growing population remains one of the greatest challenges facing humanity. As societies grow and flourish, citizens demand greater access to a diverse menu of nutritious foods and fertilizer is at the heart of that equation. In fact, experts estimate that 40 to 60 percent of the world’s food production is made possible through the effective use of fertilizer.