After an almost lackluster performance for the past couple of years, the fertilizer industry has come into the reckoning with many stocks bouncing back sharply from their lower levels. This has put a number of stocks from this industry into the limelight just before the upcoming Union Budget 2020. It has also drawn our attention to the returns this industry has given in and around the budget for the last couple of years to determine whether one can bet on these stocks. However, before we go on to analyze how these stocks have performed, we need to have a brief overview of this industry and understand the role the government has played in its development and the challenges it currently faces.
With more than 1.3 billion people or roughly 18 percent of the world’s population, India is the second-most populous country in the world after China. However, in comparison to its population, the agricultural land and freshwater resources in the country are pitifully low, accounting for a mere 4 percent of the global resources. This understandably results in a lot of pressure on the resources of the country to produce enough food, livestock feed and fiber for its massive population. However, this challenge also presents a massive opportunity for companies such as those in the fertilizer business to play a critical role in the endeavor of feeding the country.
India is the second-largest consumer of fertilizers in the world. Among the various types of fertilizers used, urea is by far one of the most consumed in India as a source of nitrogen. The Indian government is working towards increasing the production of urea in order to achieve self-sufficiency and end imports by 2022. On the other hand, DAP, which is the second most widely used fertilizer after urea accounts for just 9-11 percent of the production in India. Thus, there is a glaring lack of balance in the use of urea and other nutrient-based fertilizers.
Government Support Measures
Considering the role the fertilizer industry plays in terms of assuring food quality for the country, it should come as no surprise that this industry is highly regulated and monitored by the government. The sale, price, and quantity of fertilizers have been regulated by the Fertiliser Control Order (FCO) which lays down what substances qualify for use as fertilizers in the soil, product-wise specifications, and procedure for obtaining registration as a manufacturer of fertilizers. Additionally, the government has been offering heavy subsidies to this industry over the years by reimbursing the difference between the cost of production and the price at which the fertilizer is sold to the beneficiaries.
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