THE IMPACT OF FERTILIZER SHORTAGES ON INDIAN GRAIN OUTPUT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010189-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 20
• Document Creation Date: December 20, 2016
• Document Release Date: July 17, 2006
• Sequence Number: 189
• Publication Date: February 20, 1974
• Content Type: REPORT

 Approved For Release 2007/03/09 : CIA-RDP85T00875R001900010189-9 J --!5"
20 February 1974
CIA/OER
Analysts:
State Dept. review completed
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(5' f~i ;i t; A
..;.T
THE IMPACT OF FERTILIZER SHORTAGES
ON INDIAN GRAIN OUTPUT
Highlights
1. India has a chronically ailing fertilizer industry
and is experiencing added difficulties because of world
shortages of fertilizer and mushrooming prices of fertilizers
and related raw materials, including petrochemicals. In the
current Indian fiscal year ending March 1974, India has used
:bout 2.4 million tors of chemical fertilizer,* 300,000 tons
less than during the previous year (Table 1). About half of
the current supply comes from imports and. half from domestic
production. India has no surplus stocks and only a low level
of working stocks. Consumption during the year ending March
1975 may increase again to about 2.7-2.8 million tons,
depending mainly on the amount that the Indian government
imports.
2. About 200,000 tons of the 300,000 ton reduction this
fiscal year occurred last fall when the winter crops were
being planted. Because of a high-response ratio for fertilizer
used on the winter wheat crop, this shortfall can be e:.nected
to result in about 2 million tons less grain. than otherwise
" rou hoot tiles ._ :Dort fertilizer i'..~ ~cl are fo Ir.a1 n
f10Cal vca?'-, .:pr.L1-.:zrch, anc; tonilag^s are erc sec in metr1c
.l ; V. of %
Ut 4 r CI1 S Y C. 1 `l'.. ? i lO`lic.i' ? ryt(_ l ?" ? nC~ ~c:~. l)
+ ~.11 =_ .~E.'ly ~t....
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w?:culd be harvested this surina. This reduction combined with
the loss attributable to fertilizer deficiencies in last
summer's rice and coarse grain brings the total loss from
this year's grain output to about 2.5 million tons. Total
to be
grain output in the current crop year seems/ estimated at
about 108 million tons by both the US Agricultural Attache
and the Indian government, a reduction from estimates made
several months ago of 110 and 115 million tons. Even an output
of 108 million tons will be a great improvement over 1972/73
crop year when drought held output down to 95 million tons.
Nevertheless, increased output this year will not improve the
low consumption levels because India has exhausted about 10
million tons of government stocks since July 1972 and received
over 4 million tons of grain imports. Moreover, continuation
of unseasonable dry weather experienced in recent weeks and
a repeat of last year's rust attack before the wheat harvest
could further reduce this year's crop.
3. India's domestic fertilizer industry suffers perpetual
shortages of eiectric power, raw materials and spare parts,
problems common to most industries in India. Fertilizer
production capacity has expanded rapidly, but operations now
average only about 70a of capacity. About half of the capacity
consists of publicly-owned factories, which operate far below:
.:~rage efficiency because of management and labor problems.
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Production during the current fiscal year is estimated at
about 1.4 million tons, the same level as last year, but we
estimate that output will increase to about 1.6 million tons
during 1974/75 because of new capacity coming into operation.
4. Indian imports of fertilizer in 1974/75 will be a
function of many factors, of which government decisions will
be the most influential. India's current foreign exchange
position is unusually strong, enough to finance about five
months' imports of all goods at last.year's level. But New
Delhi traditionally has been extremely reluctant to draw on
its reserves, and when faced with rapidly rising import prices
has usually adopted a wait and see attitude. Indian procras-
tination and suppliers' cancellation of contracts during the
fiscal year ending next month caused fertilizer imports to
decline some 200,000 tons from the 1972/73 level of about 1.2
million tons. Although it would be far cheaper, even with
fertilizer prices more than doubled, to buy fertilizer rather
than whew.:, a further decline in Indian fertilizer imports
cannot be ruled out despite some increases in production among
its major suppliers. All in all, we tentatively project
India's fertilizer imports during 1974/75 at 1.2 million tons.
Government indecision, on the other hand, could cause them to
fall short of this level.
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;.l t- IL I ILr e..i j i ~&.
Introduction
5. Last year Indian chemical fertilizer consumption
amounted to 2.7 million tons, more than 4 times the amount
used 8 years ago. In its present state of technological
deveAopment, however, Indian foodgrain output from year-to-year
is more influenced by factors other than fertilizer. The
following indexes show that fertilizer consumption has been
increasing at a fairly steady rate while foodgrain output has
been erratic.
Indexes (1964/65 = 100)
Fiscal Year
Fertilizer
Consumption
Foodgrain
Output
1965/66
116
81
1966/67
184
83
1967/68
179
106
1968/69
257
105
1969/70
305
111
1970/71
333
121
1971/72
401
118
1972/73
413
106
1973/74 est.
368
121
6. Various studies show that foodgrain output is more
closely correlated to rainfall than any other factor of
~]rcc ucticIl. Only about one-fourth of the foocigrain area has
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irrigation and in poor weather years, some of the irrigation
also fails. Insufficient monsoon rainfall in 1972/73 was the
major cause of foodgrain production dropping to 95 million
tons from a peak of 108 million tons achieved during excellent
weather in 1970/71. Rainfall also influences the amount of
fertilizer used, area planted, and prevalence of some plant
diseases, all of which in turn have an influence on foodgrain
output. Nevertheless, increased use of fertilizer has
definitely brought higher levels of foodgrain output, parti-
cularly because it contributed significantly to yields of the
ne:ti high-yielding varieties (HYV) of grains. Fertilizer is
most important to the winter wheat crop which accounts for
about a fourth of all foodgrain output.
Production
7. India's fertilizer production in 1973/74 probably will
amount to 1.4 million tons, about the same as in the previous
year (Table Considering new capacity becoming available,
however, we estimate that output in 1974/75 will increase by
about 15% to 1.6 million tons. Three-fourths of the output
consists o'= nitrogen fertilizers.
8. Indian fertilizer plants consistently fall below
exp,~cted levels of output.. Capacity utilization for all
operating plants in 1972/73 '-veraged about 70 of capacity.
Publicly-c:?,ned plants, which account fol- a little more than
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half the total capacity, generally operate well below the
average, while private plants as a group operate well above
the average. Official Indian forecasts of domestic production
in 1973/74 have been revised downward from an original level
of 2.6 million tons. Expectations for 1974/75 production may
be more realistic -- 2 million tons now planned in contrast
to our estimate of 1.6 million tons likely to be produced.
Total capacity by the end of 1973 amounted to 2.5 million tons
in 55 installations. Capacity should jump to 3.7 million tons
by the end of 1974 and increase acain to 4.0 million tons by
the end of 1975. Many of the plants will be completed at the
end of 1974, however, and will contribute very little to
production during these years.
9. In recent years, growth in capacity and output of the
Indian fertilizer industry has been sporadic.
Decisions to build new capacities or to award
contracts for equipment to foreign firms have been made only
after protracted studies and administrative delays. Inter-
ruptions in electric power and shortages of inputs are the most
common causes of production shortfalls. In addition, labor
problems, poor administration, technical problems, and lack
of spare parts impede production. Most of the raw materials
for the phosphate plants are imported and about half of India's
nit._oc?cn production dcuends on imported petroleum and
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10. The high price of imported raw materials may be a
more serious problem to India than the tight world supply of
these materials. For example, Jordan, a major supplier of
phosphate rock to India, reportedly will meet its c.-,:port
commitments. But landed costs of phosphate rock in India have
mushroomed in the last two years.
US Dollars per Metric
Ton of Nutrient (P2D5)
Source of Percent
Shipment 1972 1974 increase
Florida 60.16 175.09 191
Morocco 55.60 221.39 296
Although the above prices to not apply to all shipments of
phosphate rock to India, they are believed to reflect accurately
the order of magnitude changes that have occurred in landed
costs. As a result, India may forego some fertilizer materials
or may cut other essential imports.
Fertilizer Imports
11. The chronic shortfalls in plans for domestic
production of fertilizers have forced India to import a
growing share of -the total fertilizers used in recent years.
Imports nearly doubled between 1970/71 and 1972/73 (Table 3).
They accounted for 450,; of total fertilizer consumption in the
latter year. c?e tentatively estimate imports during 1974/75
will be slightly below the 1972/73 level of 1.2 million tons,
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although information available at present is far from fi_m. *
In any case, an estimate attributed to India's Ministry of
Petroleum and Chemicals putting anticipated 1974/75 fertilizer
imports at two million tons appears to be very unrealistic
unless the government initiates much more aggressive purchasing
policies. At present, information available indicates that
India already has scheduled at least 600,000 tons of imports
during 1974/75. The government realizes that each ton of
fertilizer imported could mean 10 tons less grain imports, or
a saving of 5 times the cost of the fertilizer. Nevertheless,
the government traciitionaliy adopts a wait and see attitude.
12. Urea is by far India's major nitrogen fertilizer import,
followed by calcium ammonium nitrate. Major suppliers of urea
include Japan (more than one-fourth of the total), Saudi Arabia,
Kuwait, Poland, Bulgaria and the USSR. Romania is a major
supplier of calcium ammonium nitrate. Imports of ammonium
sulfate come chiefly from the USSR, Japan and Italy. Phosphate
fertilizers, which are imported in the form of complex
fertilizers containing two or more nutrients, come mainly from
the United States, Canada and West Germany. All of India's
potash fertilizers must be imported; Canada, East Germany and
West Germany ieing the principal suppliers at present, but the
USSR, the largest world producer, recently agreed to supply
30,000 tons or about 105, of India's potash needs.
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13. Prospects for increased imports of fertilizer in
India in 1974 will depend mainly on India's success in
negotiating contracts with Japan, the USSR and Eastern Europe.
During the last half of 1973 Japan and some East and Pest
European suppliers reportedly failed to meet fertilizer export
commitments to India. In some cases, shipments by East
European suppliers appear to have resumed following India's
agreement to cover skyrocketing shipping charges. The extent
to which undershipments in 1973 will-be made up, however,
remains uncertain. Moreover, in the past, India often sought
to purchase fertilizer at bargain prices, a practice that
probably will make it difficult to negotiate for imports in
today's tight market.
14. There are, however, a few signs that the world
fertilizer situation may be easing slightly, even though
demand cannot be fully satisfied. For example, Japan now is
expected to meet 97% of its 1973/74 export commitments for
urea and 80% of those for ammonium sulfate. The USSR, Bulgaria,
Poland and Romania all are expected to increase production of
fertilizers substantially in 1974 and may have greater
fle.xibility to increase e::ports of fertilizer. The USSR
recently agreed to ship India 138,000 tons of fertilizer
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15. At least 3 months is required to buy fertilizer abroad,
ship it to India, and distribute it to the villages. The
summer crop, which accounts for about 40% of fertilizer
consumption is planted during May-July coinciding with the
arrival of the southwest monsoon. Fertilizer imports not
already underway probably will arrive too late for the early
planting, but arrivals during May-July could still be used
for areas with late planting or for 2nd and 3rd fertilizer
applications. The winter crop is planted in November and
December. This gives India about 8 months to arrange Purchases
and shipping. Recent indications of improved supplies of
fertilizer in world markets, albeit at high prices, indicates
that India has perhaps an even chance to locate import
supplies for the winter planting if she acts during the next
few months. India has shown no indication in the recent past,
however, that it has either the inclination or the ability to
act quickly even in the face of a serious threat.
Cors mntion
16. Based on current estimated of 1973/74 rrcduction and
imports, cirsurntion of fertilizer in 1973/74 was about 2.4
million metric tons, a reduction of 300,000 tons from 1972/73.
Th shortages, especially those stemming from imports, were
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most serious in the second half of 1973. Thus , we estimate
that the summer planted crops probably received 100,000 tons
less, and the winter planted crops, 200,000 tons less than
the previous year.
17. Availability in 1974/75 may return to the 2.7 million
ton level, and the supply will again be available for the
normal 40:60 seasonal pattern of application. This predicted
level of fertilizer consumption in 1974/75 falls far short of
planned targets and also short of Indian demand at controlled
prices. Nonetheless, it suggests that fertilizer shortages
will be no worse in 1974/75 than they were in earlier years.
Effects
18. The effect of a fertilizer shortfall on foodgrain
production depends on the crops and seasons affected because
of varying fertilizer response ratios. One ton of fertilizer
used on the H'-'V of wheat under controlled water conditions
during the winter season is estimated to produce 12-15 tons
of additional grain. One ton of fertilizer used on summer
crops, mainly rice and coarse grains, probably yields only
half as much grain. This greater ii^portance of fertilizer on
.winter wheat is the problem with the 1973/74 crop: the
estimated 200,000 ton fertilizer shortfall for the 1973/74
winter crop could reduce output 1.8 to 2.25 million tons
;'::is st:ertage contributed significantly to a
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possible overall reduction in the 1973/74 crop of 2.2 to 2.8
million tons below what it might have been had fertilizer
supplies not declined. Likewise, if 2.7-2.8 million tons of
fertilizer becomes available in 1974/75, the additional supply
could produce about 3 million more tons of grain.
19. Whether or not the fertilizer-induced grain shortfall
this year compels additional grain imports depends largely on
the overall size of the grain harvests and whether the
government feels that sizable foreign exchange expenditures
on additional grain imports are necessary. Initial estimates
made last fall of the 1973/74 grain harvest were for a record
crop. The Indian government estimated that the favorable
monsoon would enable the 115 million metric ton grain target
to be met, while the US Agricultural Attache who is generally
more realistic in forecasting the size of the Indian crop,
placed it at about 110 million metric tons. In both cases,
the estimators had some indications of the extent of the
fertilizer shortage for the winter crop, which makes up 40-45%
of the total annual cutput. Greater fertilizer shortages
than were anticipated and abnormally dry weather during January
have hurt winter crop prospects. A late January press report
stated that the :Ministry of Agriculture is now estimating the
1973/74 crop at only 108 million tons which seems reasonable.
Continued poor weather conditions during the coming two months
~ -1t
could 1d fu_ rt,duce `. the e.~ st-ir;,~
... _~c.~ t;e r~?c.. ~ rt ae r .~e.
?.1. t ~~~ ju
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20. Even if India harvests 108 million tons of ,rain this
crop year, per capita consumption levels will not improve from
last year's drought level. At the beginning of the drought in
mid-1972,private stocks were large and the government had 9-10
million tons of buffer grain stocks. Since the, private stocks
have been drawn down and government stocks depleted. In
addition, the Indian government imported 4.2 million tons of
grain during calendar year 1973 and has arranged import of
only 1.9 million tons during the first half of'l974.
21. Sharply increased fertilizer prices may force India's
1974/75 fertilizer import bill to as much as $500 million
compared with an estimated $200 million in 1973/74. Failure
to'secure fertilizer imports could lead to costlier grain
imrcrts next year. Taking into consideration estimated 1974/75
o.L1. imports of $1.1 billion, petroleum and fertilizer imports,
together may cost an estimated $1.6 billion, nearly half of
1974/75 export earnings. To help finance these expensive
imports, India will almost certainly seek additional foreign
aid and debt rescheduling; draw down foreign exchange reserves
which now amount to about $1.1 billion; seek financial support
from the INF; and pare imports where possible.
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India Fertilizer Production and Imports
(in- f,000 metric tons nutrients l/
177,/7 i 1,066
1971/72 1,239
197.`/7.4 1,386
1973/ 7.i -Ost. 1,400
1974 /i est. 1,600
Imports
(N, P205, K20)
633
690
1,219
1,000
Production
and Imports
Can,1Till) 1:.i (.)II
N, P205, K20)
(N,
P2U5, "'20)
1,699
2,177
1,929
2,621
2,605
2,699
2,400
2,400
1,100-1,200 2,700-2,800
2,700-2,800
1. :C r. r_ 11:,1ir_g nitrogen (N , phosphate P205 , and potash (K2O) fertilizers.
2. >_ i.l-:zrch.
3. Cc,,.,, )Lion exceeds production and imports during 1970/71-1972/73 because surplus
were. drawn down. Such stocks probably were depleted by March 1973.
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Production of Fertilizer in India
(in 1,000 metric tons of nutrients)
Fiscal Year 1/
Nitrogen
Phosphate
Total
1970/71
838
228
1,066
1971/72
949
290
1,239
1972/73
1,054
332
1,386
1973/74 est.
1,100
300
1,400
1971 /73 est. 2/
1,240
346
1,600
1. April-March.
2. Capacity utilization assumed for the 1974/75 production
estimate is as follows: utilization of new nitrogen and
phosphate fertilizer capacities will be 30% the first year,
and 40% the second year after the start of commercial
operation. Capacity utilization beyond, this period will.
average 70% for nitrogen and 60% for phosphate..
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Indiz.n Fertilizer Imports
(in 1,000 tons of nutrients)
P 0
K 0
Fiscal Year 1/
2 5
2
Total 2/
1970/71
482
32
119
633
1971/72
462
241
267
690
1972/73
691
211
316
1,219
1973/74 est.
N.A.
N.A.
N.A.
1,00
1974/75 est.
N.A.
N.A.
1,100-1;200
1. April-March
2. Figures may not add due to rounding.
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Indian Fertilizer Consumption
(in 1,000 metric tons of nutrients)
By nutrients
P 0
K 0
Fiscal Year 1/
N
2 5
2
1970/71
1,487
462
228
1971/72
1,755
563
302
1972/73
1,779
587
332
1973/74 est.
N.A.
N.A.
N.A.
1974/75 est.
N.A.
N.A.
N.A.
By seasons
1970, 71
1971/72
1972/73
1973/74 est.
1974/75 est.
(Kharif)
Sumer Planted Winter Planted
(Rabi)
924
1,253
1,092
1,529
1,060
1,639
960
1,440
1,100
1,600-1,700
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Total 2/
2,177
2,621
2,699
2,400
2,700-2,800
Total
2,177
2,621
2,699
2,400
2,700-2,80
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Effect of 1973/74 Fertilizer :shortfall
(Metric Tons
Nutrients)
(Metric Tons)
Lstimated-I~Od I lon
Shortfall in Shortfall in of 1973/74 Grain Crop
Fertilizer Consumption Fertilizer Consumption Attributable to
Comp:paror1 to 1972/73 for Grain Crops 1/ Fertilizer Deti.cicnc:i.cs 2,
1973 flux i-.i~r
P1:;nting 100,000 75,000 450,000-600,000
1973 11tiinLer
11la.It:.i1" g 200,000 150,000 1.8 - 2.25 million
Total 1973/74
Harvest 30),000 225,000 2.25 - 2.85 million
1. t~ ~sur %s that 75% of fertile a consumption is on grain crops.
2. T.ssu-res that one ton of fertilizer produces 6-8 tons output for summer planting, and
12-15 tons for the winter planting.
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