DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

LIBA BATCH 2010-2012

DEMAND ANALYSIS & FORECASTING

THE FERTILIZER INDUSTRY IN INDIA
Gujarat State Fertilizers & Chemicals Limited

Robinson Dominic, Rani J, Rashi Srivastava ,Ruth Sequeira, Santosh Kumar

The main objective of the working project of the LIBA is to help faculty members,
Sutar
research staff and doctoral students to speedily share their research findings with
8/8/2010
professional colleagues and test their research findings at the pre-publication stage.
LIBA is committed to maintain academic freedom. The opinion(s), view(s) and
conclusion(s) expressed in the working paper are those of the authors and not that
of LIBA.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

ACKNOWLEDGEMENTS

We would like to thank Mr. I.Thiyagarajan Sir for giving us this

opportunity to work on this project. We, as a group are thankful to
him for guiding us on the project and providing us with useful
insight with regard to carrying out the project. Through this
project we have learnt leaps and bounds about demand forecasting
and its causes, implications and usage in the Fertilizer industry in
Indian market context. We, once again thank Mr.I.Thiyagarajan
for his endeavor in the field of experiential learning.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

TABLE OF CONTENTS
Acknowledgements 2
Table of Contents 3
1. Introduction 4
1.1. Objective 4
1.2. About the Global Fertilizer Industry 4
1.3. Evolution of Indian Fertilizer Industry 5
1.4. Domestic Fertilizer Consumption 6
1.5. Production & Import of Fertilizers 7
1.6. Fertilizer Subsidy in India 7
2. Overview of Indian Fertilizer Industry 8
2.1. SWOT Analysis 9
2.2. Supporting agencies 10
2.3. Determinants of Fertilizer Demand 11
2.4. Major Players in Indian Fertilizer Industry 12
2.5. About the Company: Gujarat State Fertilizers & Chemicals Limited 14
3. Demand Forecasting 15
3.1. Forecasting Methods 16
3.2. Demand Forecasting Methodology Used 19
3.3. Calculations 20

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

3.4. Conclusion 21
References 22

1. Introduction
Fertilizer can be described as any substance, organic or inorganic, natural or artificial, which supplies one or
more of the chemical elements required for plant growth. According to experts sixteen elements are
identified as essential elements for plant growth, of which nine are needed in larger quantities and seven
elements are required in smaller quantities.

The domestic fertilizer year is broadly divided into kharif and the rabi season on the basis of the cropping
seasons in agriculture. Fertilizer consumption is evenly distributed in both the seasons. There are three types
of fertilizer - nitrogenous (N), phosphatic (P) and potassic (K). The major Straight nitrogenous fertilizer
produced in India are urea, ammonium sulphate(AS), calcium ammonium nitrate(CAN), ammonium
chloride(A/C). Among these urea is most widely used nitrogenous fertilizer. The main phosphatic fertilizers
produced are Di–ammonium Phosphate and Single Super Phosphate. Muriate of Potash is the most widely
used potassic fertilizer. These (NPK) and other nutrients are combined to produce a range of complex
fertilizer. There should be an appropriate balance in the consumption of different fertilizer nutrients. The
appropriate NPK ratio under Indian soil conditions is regarded as 4:2:1.

1.1 Objective
The objective of this project is to study the techniques employed by major players in the fertilizer industry to
study the trends and make predictions about the demand of various goods. Further, we want to investigate
the difference between theoretical techniques taught in the class and those practically applied.

1.2 About the Global Fertilizer Industry

The global fertilizer industry produces 164 million metric ton of plant nutrients annually and employs
hundreds of thousands of people worldwide. Currently, fertilizers account for at least one-third of all crop
yields and are estimated to be responsible for some 40% of protein consumed by the world population.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

With the progressive economic recovery and a return to more favorable and more stable agricultural market
conditions, world fertilizer demand in 2010/11 is forecast to increase by 4.8% over 2009/10 to 170.4 million
metric tonnes (Mt) nutrients. Demand for N, P and K fertilizers is seen growing by 1.9%,

4.5% and 18%, respectively. The positive agricultural market fundamentals over the medium term are
expected to stimulate world fertilizer demand, which is projected to reach 188.3 Mt in 2014/15. The bulk of
the increase in demand would come from Asia and, to a lesser extent, from the Americas.

In the nitrogen sector, much of the increase in ammonia capacity is associated with new urea capacity, which
is forecast to grow by 51.3 Mt, or 30% over 2009, to reach 222 Mt in 2014. The global nitrogen
supply/demand balance would show a potential surplus of close to 4.7 Mt N in 2010 accelerating to 16.7 Mt
N in 2014.

In the phosphate sector, the global capacity for the main processed phosphate fertilizers is projected to be
42.3 Mt P2O5 in 2014, representing a net increase of 8.2 Mt P2O5 over 2009. Over the next five years, close
to 40 new MAP, DAP and TSP units are expected to be constructed in ten countries

In the potash sector, global sales collapsed in 2009 as major carry-over stocks were available in several
consuming countries. However, a strong rebound in demand and moderate capacity growth should be
picking up in the short term. Widespread interest in new potash capacity has been witnessed in 2010 with
close to 100 projects being carried out in about 25 countries. Potash balances show a sustained surplus
through 2014 but the expected growth in capacity is likely to be absorbed by the forecast increase in
demand.

In the short term, over the next five years, market conditions for phosphate fertilizers, notably DAP,
merchant phosphoric acid, merchant ammonia and sulphur, are seen as relatively balanced due to firm
demand growth and a gradual increase in capacity. Over the period 2009 to 2014, global trade will expand
by 15 to 33%, depending on the nutrient products and regions. In the medium term, the industry is taking the
necessary measures to provide the fertilizer supply needed by farmers worldwide.

1.3 Evolution of Indian Fertilizer Industry

Pre Liberalization

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

In India the per hectare consumption of fertilizer in 1950-51 was less than 1/4th of the global average.
Production was by and large in the purview of public sector and co operative sector.

In 1977 the government introduced the Retention Price Scheme (RPS) with the goals of providing fertilizers
to farmers at reasonable rates without affecting the profitability of the manufacturers. Under this policy the
government would pay the manufacturers, the difference between the administered price (sale price) and the
retention price (cost of production).

Over and above the retention price subsidy, the equated freight subsidy was introduced to enable the
manufacturers to cover the cost of transportation.

Post Liberalization

The policy of economic liberalization has its effect on the fertilizer industry too. The government in a move
aimed at reducing subsidy, decontrolled all the phosphatic and potassic fertilizers in 1992. With this policy
of liberalization, the retention pricing scheme (RPS) which had been introduced in 1977, got confined only
to urea.

Post liberalization, the government strategized a long term fertilizer policy to be completed in three different
phase, beginning in 2000-01 and ending in 2006-2007.

Phase 1: 2000-01 and 2001-02

• Evaluate existing capacity.
• Increase in urea prices from time to time.
• Evaluate the possibility of a coal based expertise.
• Promote joint ventures.
• Finalize policy on fertilizer pricing and capacity enhancement.
• Eliminate distribution controls on urea and augment concession scheme to bio fertilizers.
Phase II (2002-03-2003-04)
• Finalize decision on feedback.
• Long term strategy of increased capacity.
• Decide on extent of protection to local industry.
• Eliminate MRP and encourage productive investment.
• Reorganize the association between the industry and farmers.
• Judicious utilization of fertilizer and greater emphasis on eco friendly fertilizer.
• Establish Fertilizer Policy Planning Board.
Phase III (2004-05-2006-07)
• Removal of MRP
• Define government's role in decontrol setup and with respect to policy relating to LNG.
W T O Implications

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

• The restriction on quantity of fertilizers to be imported has been eliminated from April 1, 2001.The
proposed plan to establish a tariff rate quota (TRQ) for the import of urea has been deferred.
• The Government has planned to impose a higher tariff of 150-200 per cent on imported urea in
future. This would lead to increase in prices of imported urea and be detrimental to the demand
supply gap which is likely augment in future.
Future Trends
• India's demand for fertilizers in 2007-08 was 26 MM tons, which went up to 29 MM tons in 2008-
09 against a supply of 20 MM tons in 2008-2009.
• The demand for fertilizers in 2011-12 is forecasted to be around 35.5 MM tons.
• More fertilizer projects are in the pipeline.
• Gujarat is expected to play a leading role in fertilizer production.
• Indian companies have penetrated the overseas market, signaling a new phase for the industry.
1.4 Domestic Fertilizer Consumption
Chemical fertilizers have played a significant role in the
development of the agricultural sector. The per hectare
consumption of fertilizers in nutrients terms increased
from 105.5 kg in 2005-06 to 128.6 kg in 2008-09.
However, improving the marginal productivity of soil
still remains a challenge. This requires increased NPK
application and application of proper nutrients, based on
soil analysis. Fertilizer consumption for the last five
years is given in Table 8.8.

1.5 Production & Import of Fertilizers

The availability of raw materials and intermediates
has been a major bottleneck in the domestic
production of fertilizers. As there is no domestic
production of muriate of potash (MOP), its
requirement is met fully by import (Table 9.10).
About 85 per cent of raw materials in Di ammonium
phosphate (DAP) or finished DAP and complexes
are also being imported.

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1.6 Fertilizer Subsidy in India

The subsidy on fertilizers is passed on to the farmers in the form of subsidized MRPs. The growth of the
Indian fertilizer industry has been largely determined by the policies pursued by the government. The
government exercised extensive controls on the pricing, distribution and movement of fertilizer. The
government currently controls the distribution of manufactured urea to various regions through the Fertilizer
Control Order and the Fertilizer Movement (Control) Order under the Essential Commodities Act. Fertilizer
demand in India is very price–sensitive. With the objective of providing fertilizer to farmers at affordable
prices and at the same time encourage investment in the fertilizer industry; the Retention Pricing Scheme
was introduced in 1977. Under the scheme, the domestic fertilizer manufacturers were assured of a return of
12 per cent on their net worth and the difference between the statutorily notified sale price and the retention
price (cost of production as assessed by the Government plus the return on net worth) was paid as subsidy.
The retention prices are fixed, unit-wise, taking into account the cost of the project, vintage of the plant,
feedstock, consumption norms etc. Consequent to the implementation of the policy, the fertilizer sector
witnessed rapid investments and capacity additions. However, the rise in maximum retail price fixed by the
government did not keep pace with the increasing cost of production, resulting in an increased subsidy
burden on the government. With a view to reduce the subsidy on fertilizer, the distribution of phosphatic,
potassic and complex fertilizer was decontrolled in August 1992. This was followed by de–canalization of
their imports. The immediate fall out of this move was a sharp increase in selling prices of phosphatic and
potassic fertilizer, making them unaffordable to farmers. Consequently, there was a substantial drop in their
consumption. In order to cushion the impact of increase in prices of these fertilizer and to arrest decline in
their consumption, the Government granted several concessions to phosphatic and potassic fertilizer. The
government also introduced maximum retail price for these fertilizer but the movement and distribution was
left outside its control. The urea segment is still subsidized under the Retention Price Scheme.

The details of fertilizer subsidy over the last few years are as below:-

2. Overview of Indian Fertilizer Industry

India is primarily an agriculture based economy. 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.

The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. India has emerged as the
third largest producer of nitrogenous fertilizers. The adoption of back to back Five Year plans has paved the
way for self sufficiency in the production of food grains. In fact production has gone up to an extent that
there is scope for the export of food grains. This surplus has been facilitated by the use of chemical
fertilizers.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

The large scale use of chemical fertilizers has been instrumental in bringing about the green revolution in
India. The fertilizer industry in India began its journey way back in 1906. During this period the first Single
Super Phosphate (SSP) factory was established in Ranipet in Chennai. It had a capacity of producing 6000
MT annually. In the pre and post independence era a couple of large scale fertilizer units were established
namely the Fertilizer Corporation of India in Sindri, Bihar and the Fertilizer & Chemicals Travancore of
India Ltd in Cochin, Kerala.

The Indian government has devised policies conducive to the manufacture and consumption of fertilizers.
The dramatic development of the fertilizer industry and the rise in its production capacity has largely been
attributed to the favorable policies. This has resulted in large scale investments in all three sectors viz.
public, private and co-operative.

At present there are 57 large scale fertilizer units. These manufacture an extensive range of phosphatic,
nitrogenous and complex fertilizers. 29 of these 57 units are engaged in the manufacturing of urea, while 13
of them produce Calcium Ammonium Nitrate and Ammonium Sulphate. The remaining 20 fertilizer plants
manufacture complex fertilizers and DAP. There are also a number of medium and small scale industries in
operation, about 72 of them. The following table elucidates the installed capacity of each sector.

The Department of Fertilizers is responsible for the planning, promotion and development of the Fertilizer
industry. It also takes into account the import and distribution of fertilizers and also the financial aspect.
There are four main divisions of the department. These include Fertilizer Imports, Movement and
Distribution, Finance and Accounts, Fertilizers Projects and Planning and Administration and Vigilance. It
makes an assessment of the individual requirements of the states and union territories and then lays out an
elaborate supply plan.

Though the soil in India is rich in silt, it lacks chief plant nutrients like potassium, nitrogen and phosphate.
The increase in the production of fertilizers and its consumption acts as a major contributor to overall
agricultural development.

2.1 Swot Analysis:

Fertilizer sector is a very crucial for Indian economy because it provides a very important input to
agriculture. The fertilizer industry in India has played a pivotal role in achieving self – sufficiency in food
grains as well as in rapid and sustained agriculture growth. India is the third largest producer and consumer
of fertilizers in the world after China and the United States. The growth of the Indian fertilizer industry has
been largely determined by the policies pursued by the government. The government exercised extensive
controls on the pricing, distribution and movement of fertilizers.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

The industry is capital intensive and the production process energy intensive with the combined cost of
feedstock and fuel accounting for anywhere between 55 and 80 per cent of cost of production, depending on
the type of fertilizers. The growth trajectory of the Indian fertilizer industry has camouflaged the impending
challenges with which it is faced. Growth and development of agriculture in India derives a significant
stimulus from the fertilizer industry. Agricultural milieu in India could be jeopardized by the uncertainties in
the fertilizer industry. The government is faced with the piquant situation, which demands a balance between
the needs of the farmers and the fertilizer manufacturers. The challenges before the Indian fertilizer industry
relate to the incertitude in the supply of fertilizers. There has been a surge in the demand for fertilizers in the
past few years. Good monsoonal showers have led to the growth in agriculture, inadvertently increasing the
consumption rate of fertilizers. However, the robust growth in consumption propensity has not been met
with the required surge in fertilizer production. This has widened the gap between the demand and supply of
fertilizers, which has led to an increase in the dependence of the country on imports. This also reflects on the
lack of realizing of the domestic capacity utilization of the reserves in the country.

Another important factor that has led to the stunted growth of the fertilizer industry is the rise in prices of the
feedstock. The fertilizer industry is dependent on gas for the production of urea and phosphoric acid for the
production of phosphatic fertilizers and DAP. The country imports its inputs from other countries. The
overseas suppliers of raw materials realize the predicament of the Indian fertilizer industry and have started
exploiting the shortage through clever pricing. In recent years, some of the private companies, dedicated to
the production of fertilizers have affectively taken stakes in the overseas sources of raw materials. Although
this has aided the industry, it has however been unable to reduce the government's burden of subsidizing the
rates. The fertilizer industry is remained protected under the umbrella of the Retention pricing scheme of the
Indian government. The government has introduced policies to decontrol the prices but delayed the
implementation of the parameters that have not augured in favor of the industry. As a result, fertilizer
subsidies continue to mount and are expected to cross Rs. 50,000 crore in the year 2008. The pricing of the
fertilizers are also dependent on the freight charges that are Baltic dry index. The small size of the older
plants and the low efficiency of the public sectors also pose as drawbacks of the industry. Recent policies of
the government are directed towards revamping of these industries and restoring them to health. The
fertilizer industry is faced with other challenges inter alia infrastructural bottlenecks and the uncertainties in
government policies. The delay in decision making and obscurity in setting parameters are among some of
the major drawbacks of the government policies directed towards the industry. To retrieve the health and
growth of the fertilizer industry, the government of India is in need of long term realistic policies that would
enable the industry to overcome the challenges and survive the present impasse.

2.2 Supporting Agencies:

Fertilizer Association of India (FAI)

FAI provides the catalytic role for improving efficiency and productivity in fertilizer production, distribution
and use. The major areas of FAI's multifarious activities may be grouped as follows:

1. Govt.-Industry Interface

FAI acts as a bridge between Industry and Govt. by maintaining close contact and rapport with
concerned Ministries and Agencies like Ministry of Agriculture; Ministry of Fertilizers, DGTD,

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

MMTC, ISI, State Govt., ICAR ,CSIR etc. FAI acts as a focal point for industry problems. Data on
various industry problems are collected and collated for taking up the issue with the appropriate
authority. FAI is invariably represented in all important Govt. Committees/Panels relating to
fertilizer and agriculture.

2. International Relations

FAI maintains close liaison with international bodies like FOOD & Agriculture Organization of the
United Nations (FAO), Fertilizer Industry Advisory Committee (FIAC), World Bank; United
Nations Industrial Development Organisation (UNIDO); International Rice Research Institute
(IRRI); International Fertilizer Industry Association (IFA); The Fertilizer Institute (TFI); The
Sulphur Institute (TSI); Fertilizer Advisory Development and Information Network for Asia and the
Pacific (FADINAP); International Fertilizer Development Center (IFDC); National Fertilizer &
Environmental Research Center, USA; National Fertilizer Development Center (NFDC);
International Food Policy Research Institute (IFPRI) etc. FAI participates in various International
conferences and is also invited to different international Fora to present for discussion, papers on
topic of importance to developing countries in the fertilizer field. FAI has also undertaken studies
sponsored by other developing countries.

3. Developmental Activities

FAI provides various foray for exchange of views and cross fertilisation of ideas for all those
concerned with fertilizers in various disciplines, through Group Discussions, Workshops, Think
Tank Meetings and Seminars at Regional, National and International levels. The FAI Annual
Seminar held in December every year has assumed an International status, and is attended by a large
number (1300-1400) of senior managers connected with the Industry and administrators in the Govt.
connected with policy issues from India and abroad.

4. Documentation

FAI acts as a clearing house for technical, commercial and statistical information concerning the
industry by maintaining an up to date library and documentation service, and disseminate
information on various facets of the fertilizer industry within and outside the country. FAI provides
regular information and write-ups to the National Press and professional and specialized
publications in India and abroad.

5. Training

FAI provides training programmes at all levels and in all the disciplines of the industry. These
training programs, mostly residential of one/two weeks duration are well established and apart from
meeting internal needs, attract regular participation from other developing countries. Many
participants are sponsored by U.N. agencies like FAO, FIAC. Some of the regular training programs
are for fertilizer marketing executives, logistic and sales promotional programmes for maintenance
engineers and need based programs are periodically organized on subjects like advance

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

instrumentation, management of rain fed areas, and management development programme for senior
managers, etc.

6. Publications

FAI publications are internationally accepted as authoritative sources of reference material. Regular
monthly publications are Fertilizer News, Fertilizer Marketing News, FAI abstract services, Khad
Patrika (Hindi monthly) and few journals in Regional Languages. Special issues of 'Fertilizer News'
are brought out on technology, marketing and agronomy. Annual review giving details of production
and consumption in India and Situation Paper brought out as supplement to Fertilizer News in
August and December every year. FAI's Annual publication 'Fertilizer Statistics' is considered as a
reference book on Indian fertilizer and agriculture which contains detailed information on
production, distribution, consumption, prices and related statistics from India as well as abroad.
Proceedings of various Seminars, Workshops and Group Discussions are also published. Besides
regular publications, several ad-hoc publications like Handbooks on Technology, Marketing and
Usage; Crop Booklets; Fertilizer (control) Order, Fertilizer Scene in India, Soils of India; Fertilizer
Warehousing, International Prices & Related Statistics, Sulphuric acid Statistics, Bio-fertilizer
Statistics, etc. have been published, and are periodically updated. The Fertilizer Association of India
(FAI) was setup in 1955, and registered as a company. FAI is the national representative body of all
fertilizer manufacturers in India comprising public, private, joint and cooperative sectors. It is a non
profit, non-trading organization of fertilizer manufacturers, distributors, technologists,
plant/equipment manufacturers, research institutes and other interested in fertilizers.

2.3 Determinants of Fertilizer Demand

1. Rainfall and irrigation facilities:

Adequate and well – diversified rainfall gives the farmers confidence to invest in fertilizers along
with well – equipped irrigation facilities.

2. Relative prices of fertilizers:

Indian agriculture is characterized by small holdings and demand for fertilizers tends to be price –
sensitive. If there is significant price differentiation between fertilizers, demand will move in the
favour of the cheaper fertilizers, even if it’s not the most appropriate one.

3. Cropping pattern:
This determines the need and timing of fertilizers purchases.

4. Government policy:
Government policies and framework influences pricing, production and distribution of fertilizers.

5. National Income & Growth:

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It determines the demand for agricultural output & hence the demand for agricultural inputs
including fertilizers.

2.4 Major Players in Indian Fertilizer Industry

Some of the public sector undertakings in this sector are mentioned below:

1. Rashtriya Chemicals and Fertilizers Limited (RCF) - This Company was incorporated in the year
1978 consequently after the reorganization of the Fertilizer Corporation of India. The company has its
units in Trombay and Thal.
• Sales: The sales turnover (including traded products) during the year 2008-09 wasRs.8455.32 Cr.
During the period April-December 2009 is Rs.4281.01
• Financial Results: During the year 2008-09, the Company reported a net profit (after tax) of Rs.
211.58 Crore. During the period April-December, 2009, the Company has made a net profit (before
tax) of Rs. 240.65 Crore & net profit after tax of Rs. 165.45 Crore.
1. National Fertilizers Limited (NFL) - This Company was incorporated on 23rd August, 1974. It had
two nitrogenous plants during its inception at Bathinda and Panipat.
• Sales performance: The Company, during 2009-10 (up to December 2009) sold 25.80 lakh tonnes
of Urea & 167 tonnes of Bio-fertilizers. NFL recorded its ever-best sales turnover of Rs.3768 crores
which includes a record sale of industrial products worth Rs.117 crores. During 2008-09 the
company sold 33.77 LMT of urea.
• Financial Performance: NFL registered a Profit before tax (PBT) ofRs.187 crore and Profit after
tax (PAT) of Rs.124 crores during 2009-10 (up to December 2009).
1. The Fertilizers and Chemicals Travancore Limited (FACT) - Incorporated in the year 1943, FACT
is dedicated to the production of Ammonium Sulphate. The company has two established plants at
Cochin.
• Sales Performance: During 2008-09, total income was 2209.72Cr. on 8.33 LMT of Fertilizers and
0.12 LMT of Caprolactam .During the current financial year up to December 2009, the total sale of
NP Fertilizers is 5.28 LMT, 1.10 LMT of AS and 0.27 LMT of Caprolactam. The Company has
handled a total quantity of 83375 MT of urea at Cochin Port which is an all time record. During the
period FACT has launched new products like organic manure and crop specified mixture for
coconut, banana, rubber etc.
• Financial Performance: In 2008-09, the company earned net profit of Rs.42.95 Cr. (including
extraordinary items of Rs.221.16 Cr.). The company has earned net loss of Rs.63.39 Cr. till
December, 2009.

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1. Madras Fertilizers Limited (MFL) - MFL was registered in the year 1966. The company has its plant
in Chennai and is dedicated to the production of ammonia, complex and bio-fertilizers and urea. MFL
utilized 76% of its capacity to produce 368.5 thousand tons of Urea in 2005-06. The company produced
208.2 thousand tons of complex fertilizers using 25% of its capacity.
• Sales Performance: The sales performance of the company is given below: December2009 was
3,06000
• Financial performance: During 2008-09, the Company ended up with a net loss of Rs 145.38 Cr.
During the year 2009-10 the Company is likely to end up with a loss of Rs 32.28 Cr.

Some of the private companies producing fertilizers in India are mentioned below:

1. Khaitan Chemicals and Fertilizers Limited - This Company produces single super phosphate
fertilizer and sulphuric acid. The fertilizer is manufactured in the granular form in this company. Khaitan
Chemicals and Fertilizers Limited has its office in Indore.
2. Mangalore Chemicals - This is the only company in the state of Karnataka that is engaged in the
manufacturing of chemicals and fertilizers. The plant has an annual turnover of more than Rs. 800 crore.
3. Nagarjuna Fertilizers - With their office at Hyderabad, this company is engaged in the production of
fertilizers and agro-chemicals. It also engages other activities such as refining petroleum, finance and
power.
4. Zauri Chambal - An undertaking of the K.K Birla Group, this company engages in the production of
fertilizers such as urea, hybrid seeds, cement and chemicals. The company also provides engineering
solutions and home finance. The company was established in collaboration with the US Steel
Corporation. The company has established NPK plant, DAP plant, urea plant and ammonia plant in the
country.
5. BEC Fertilizers - This Company is dedicated to the manufacture pf agro-inputs that will facilitate the
agricultural sector. The company manufactures the product ANAND single super phosphate along with
other micro-nutrients, plant hormones and chemicals for the protection of plants. The company has
established its unit in Bilaspur, Uttar Pradesh.
6. Gujarat State Fertilizers &Chemicals Limited - This multiproduct company is dedicated to the
production of fertilizers such as ammonium sulphate, urea, DAP and NPK. It also produces water
soluble fertilizers. Along with fertilizers, the company is engaged in the production of bio-fuels, bio-
fertilizers, plant tissue culture and petroleum.

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7. DSCL - The primary business of this company based in North India is the manufacture of urea and other
farm inputs such as DAP, chemicals and pesticides.

2.5 Gujarat State Fertilizers & Chemicals Limited

Gujarat State Fertilizers and Chemicals Limited had been established in 1962 with the motive to not only
provide quality products like fertilizers and chemicals, but also to prioritize care and service towards its
customers, employees, society, and the environment.

Gujarat State Fertilizers and Chemicals Limited have made an outstanding contribution towards the progress
of the Indian fertilizer industry. As a matter of fact, the company is focused on supporting farmers in all
respects and ensures the supply of the best quality fertilizers to them. Its vision is to become a globally
known, innovative company, utilizing the best of technology and producing high quality products.

Such developments have already begun in the field of agriculture with the manufacturing of high-end
fertilizers. The products manufactured are a result of extensive research and innovative ideas to keep up pace
with the urgent and current demands of the market. Apart from fertilizers, GSFC produces plastics, fibers,
petrochemicals, chemicals, and industrial gases.

GSFC is committed to meeting international standards in its products. Here are some of the value added
features that are typical to GSFC's expertise:

• Superior quality

• Quick delivery services

• Attractive and efficient packaging

• Caring customer services

• ISO: 9001 certification of products

• Innovation in products

The fertilizers manufactured at GSFC are Urea, Phosphate, Di-Ammonium, APS, NPK, Ammonium
Sulphate, Water Soluble Fertilizers, Micro Mix, and Gypsum. GSFC fertilizers are marketed through a
considerable number of distributors at Maharashtra, Karnataka, Haryana, Rajasthan, Punjab, Gujarat,
Madhya Pradesh, Andhra Pradesh, and Uttar Pradesh.

Urea is meant for a large variety of soils and crops and is often used as a nitrogenous fertilizer. Ammonium
Sulphate is used for paddy and tobacco and is a slow releasing nitrogenous fertilizer. Di-ammonium

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Phosphate helps in even and generous distribution of P2O5 in the soil and releases DAP slowly.

Other fertilizers manufactured by GSFC are enlisted as under:

• Water Soluble Fertilizers - Sold under the brand Sardar Nitrisol, it is used for improving quality of
crops like cotton, tobacco, sugarcane, tea, vegetables, pulses, fruits, oil seeds, vegetables, and
cereals.

• Micro mix - For crops like oil seeds, cotton, fruits, tobacco flowers, and vegetables.

GSFC is currently into a joint venture with the Gujarat government, known as the Gujarat Narmada Valley
Fertilizers Company. On the social front, GSFC is involved in organizing medical camps, blood donation
camps, eye check-up camps, and sport camps. It has provided street lights, built schools, and has supplied
funds for naturals.

3. Demand Forecasting
Marketing practitioners regard forecasting as an important part of their jobs. Sales forecasting was ‘one of
the most critical’ aspects, or a ‘very important’ aspect of their company’s success.

People often use the terms ‘demand’ and ‘sales’ interchangeably. It is reasonable to do so because the two
equate when sales are not limited by supply. Sometimes it is appropriate to forecast demand directly. For
example, a Manufacturer might extrapolate
historical data on fertilizer sales to predict
demand in the week ahead. When direct
prediction is not feasible, or where uncertainty
and changes are expected to be substantial,
marketing managers may need to forecast the
size of a market or product category. Also, they
would need to forecast the actions and reactions
of key decision makers such as competitors,
suppliers, distributors, collaborators,
governments, and themselves – especially when strategic issues are involved. These actions can help to
forecast market share. The resulting forecasts allow one to calculate a demand forecast. These forecasting
needs and their relationships are illustrated in Figure.

3.1 Forecasting Methods

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

Forecasting methods and the relationships between them are shown below, starting with the primary
distinction between methods that rely on judgment and those that require quantitative data.

Demand forecasting techniques are broadly divided in two categories: judgmental and statistical. Each of the
methods is described in following sections.

Methods Based on Judgment

Unaided Judgment:
It is common practice to ask experts what will happen. This is a good procedure to use when,

• experts are unbiased,

• large changes are unlikely,
• relationships are well understood by experts (e.g., demand goes up when prices go down),
• experts possess privileged information,
• Experts receive accurate and well-summarized feedback about their forecasts.

Delphi: To forecast with Delphi the administrator should recruit between five and twenty suitable experts
and poll them for their forecasts and reasons. The administrator then provides the experts with anonymous

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

summary statistics on the forecasts, and expert’s reasons for their forecasts. The process is repeated until
there is little change in forecasts between rounds - two or three rounds are usually sufficient. The Delphi
forecast is the median or mode of the expert’s final forecasts.

Structured analogies: The outcomes of similar situations from the past (analogies) may help a marketer
to forecast the outcome of a new (target) situation. For example, the introduction of new products in Indian
markets can provide analogies for the outcomes of the subsequent release of similar products in other
countries. People often use analogies to make forecasts, but they do not do so in a structured manner. For
example, they might search for an analogy that suits their prior beliefs or they might stop searching when
they identify one analogy.

To use the structured analogies method, an administrator prepares a description of the target situation and
selects experts who have knowledge of analogous situations; preferably direct experience. The experts
identify and describe analogous situations, rate their similarity to the target situation, and match the
outcomes of their analogies with potential outcomes in the target situation. The administrator then derives
forecasts from the information the experts provided on their most similar analogies. There has been little
research on forecasting using analogies, but results are promising.

Game theory: Game theory has been touted in textbooks and research papers as a way to obtain better
forecasts in situations involving negotiations or other conflicts. Despite a vast research effort, there is no
research that directly tests the forecasting ability of game theory.

Judgmental Decomposition: The basic idea behind judgmental decomposition is to divide the
forecasting problem into parts that are easier to forecast than the whole. One then forecasts the parts
individually, using methods appropriate to each part. Finally, the parts are combined to obtain a forecast.

Judgmental bootstrapping: Judgmental bootstrapping converts subjective judgments into structured

procedures. Experts are asked what information they use to make predictions about a class of situations.
They are then asked to make predictions for diverse cases, which can be real or hypothetical. For example,
they might forecast next year’s sales for alternative designs for a new product. The resulting data are then
converted to a model by estimating a regression equation relating the judgmental forecasts to the information
used by the forecasters. The general proposition seems preposterous. It is that the model of the man will be
more accurate than the man. The reason is that the model applies the man’s rules more consistently.

Judgmental bootstrapping models are most useful for repetitive complex forecasting problems where data on
the dependent variable are not available (e.g. demand for a new telecommunications device) or data does not
vary sufficiently for the estimation of an econometric model. Once developed, judgmental bootstrapping
models provide a low-cost procedure for making forecasts.

Expert Systems: As the name implies, expert systems are structured representations of the rules experts
use to make predictions or diagnoses. For example, if local household incomes are in the bottom quartile,
then do not supply premium brands.

Expert systems forecasting involves identifying forecasting rules used by experts and rules learned from
empirical research. Developing an expert system is expensive and so the method will only be of interest in
situations where many forecasts of a similar kind are required. Expert systems are feasible where problems
are sufficiently well- structured for rules to be identified.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

Simulated interaction: Simulated interaction is a form of role playing for predicting decisions by people
who are interacting with others. To use simulated interaction, an administrator prepares a description of the
target situation, describes the main protagonist’s roles, and provides a list of possible decisions. Role players
adopt a role and read about the situation. They then improvise realistic interactions with the other role
players until they reach a decision; for example to sign a trial one-year exclusive distribution agreement. The
role player’s decisions are used to make the forecast.

Intentions and Expectations Survey: With intentions surveys, people are asked how they intend to
behave in specified situations. In a similar manner, an expectations survey asks people how they expect to
behave. To forecast demand using a survey of potential consumers, the administrator should prepare an
accurate and comprehensive description of the product and conditions of sale. He should select a
representative sample of the population of interest and develop questions to elicit expectations from
respondents. Bias in responses should be assessed if possible and the data adjusted accordingly. The
behavior of the population is forecast by aggregating the survey responses.

Conjoint analysis: By surveying consumers about their preferences for alternative product designs in a
structured way, it is possible to infer how different features will influence demand. Potential customers
might be presented with a series of perhaps 20 pairs of offerings. For example, various features of a personal
digital assistant such as price, weight, battery life, screen clarity and memory could be varied substantially
such that the features do not correlate with one another. The potential customer is thus forced to make trade-
offs among various features by choosing one of each pair of offerings in a way that is representative of how
they would choose in the marketplace. The resulting data can be analyzed by regressing respondents’
choices against the product features. The method, which is similar to bootstrapping, is called ‘conjoint
analysis’ because respondents consider the product features jointly.

Methods Requiring Quantitative Data

Here historical data is needed and mathematical methods are used for forecasting.

Extrapolation: Extrapolation methods use historical data on that which one wishes to forecast.
Exponential smoothing is the most popular and cost effective of the statistical extrapolation methods. It
implements the principle that recent data should be weighted more heavily and smoothes out cyclical
fluctuations to forecast the trend. To use exponential smoothing to extrapolate, the administrator should first
clean and de-seasonalise the data, and select reasonable smoothing factors.

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

Quantitative Analogies: Here expert opinion is used to identify the situation which is similar to the
current situation and the data about that is available.
3.2 Demand Forecasting Methodology Used:

Extrapolation:
• Linear Trend Analysis based on past 5 years sales of Gujarat Fertilizers & Chemicals

Net Sales Change

Year (In MT) Rate dx dx^2 dy dy^2 dx*dy
0.03600510 - 1240822222
2005 1373289 6 -2 4 111392.2 1 222784.4
0.02344881
2006 1405491 5 -1 1 -79190.2 6271087776 79190.2
0.18064149 3052002012
2007 1659381 8 0 0 174699.8 0 0
-
0.03410850 1394779896
2008 1602782 2 1 1 118100.8 1 118100.8
-
0.13746036 - 1044856041 -
2009 1382463 6 2 4 102218.2 1 204436.4
Total = 7359568948
10 9 215639
Limited.
• Two period moving average

3.3 CALCULATIONS:
Regression Coefficient (X on Y):
bXY=dXdX/dX2

bXY=21563910=21563.9

Y-μY=b*X-μX

Y-148481.2=21563.9*X-2007

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

Y=21563.93X-41794066.1

Regression Coefficient(Y on X):

bYX=dXdY/dY2

bXY=21563973595689489=0.00000293

Correlation Coefficient:

R2=bXY*bYX

R2=21563.9*0.00000293 = 0.0632
Expected Demand in Various Years:
• 2011 : Y=21563.9*2011-41794066.1=1570936.8 MT
• 2012 : Y=21563.9*2012-41794066.1=1592501 MT
• 2013 :Y=21563.9*2013-41794066.1=1614064.6 MT

3.4 CONCLUSION

The Fertilizer Association of India (FAI) has been set up a model which is based on several factors that
include fertilizer prices, high yielding areas, irrigated areas, fertilizer nutrient prices and previous years'
fertilizer consumption. An estimate of the demand and supply till the end of the 11 th five year plan is given
in the chart below:

Year Supply Demand Demand Supply Demand of K

N+P N+P+K Gap N+P+K

2007-08 16950 23125 8835 2660

2008-09 17585 24085 9305 2805

2009-10 18595 25035 9405 2965

2010-11 19912 25960 9178 3130

2011-12 19965 26900 10235 3300

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 DEMAND ANALYSIS & FORECASTING THE FERTILIZER INDUSTRY IN INDIA

Today, India stands as the third largest fertilizer consumer and producer of the world. It has been observed
that the subsidies on Indian fertilizer have been rising at constant rate. This is due to the rise in the cost of
production and the inability of the government to raise the maximum retail price of the fertilizers. The
population of the country is rapidly increasing at 1.5% annually. This requires higher production of food
grains. The total cropped area is only 30% of the net geographical area, which is not enough for increasing
the agricultural productivity. Now, the main focus is on the improvement of the farm income, for which the
fertilizer industry needs to lay more stress on the agricultural activities in the country. This will also help to
improve terms between the government agencies and the fertilizer industry in India.

This study indicates that the demand for fertilizers is likely to increase by approximately 17% by 2013 for
Gujarat State Fertilizers & Chemicals Limited.

References
Economic Survey 2009-10
http://fert.nic.in/index.htm
http://www.google.co.in/#q=fertilizer+industry+india+2009&hl=en&safe=active&ei=oaNNTP-
IGszCrAfut5W5Dg&start=30&sa=N&fp=d7d27f2b23b31a64
http://www.tradechakra.com/indian-economy/gdp.html
http://www.tradechakra.com/indian-economy/industries/fertilizers.html
http://ezinearticles.com/?Fertilizer-Industry-in-India-Contributes-25-Percent-to-GDP&id=2790604
http://www.economywatch.com/indian-fertilizer-industry/
http://www.smallkitchengarden.com/history-of-fertilizers-industry-in-india-2/
http://chemicals.indiabizclub.com/info/fertilizers
http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/Fertilizers.htm
http://bx.businessweek.com/fertilizer-industry/view?url=http%3A%2F%2Fwww.economywatch.com
%2Findian-fertilizer-industry%2F

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