Higher prices could reduce how much Indian farmers use, which could slash exports from several Saskatchewan potash producers
MUMBAI, India — An Indian ministry has proposed slashing potash subsidies by 17 percent in the next fiscal year to reduce the country’s deficit, officials said. It is a move that would hit demand in one of the world’s largest potash importers.
Although global prices have been falling, a reduction in government support in India, which alongside China is the world’s biggest bulk potash importer, will make potash relatively expensive for importers there.
Some company officials said if the proposal was adopted, they would seek lower prices when negotiating annual contracts with global suppliers and also raise retail prices charged to farmers, which would likely lessen demand.
This is despite the need for the nutrient in lentil and other pulse crop production.
Many of the lighter textured and red soils in lentil producing regions are naturally low in plant available potassium and can suffer significant yield reductions when adequate supplies of the nutrient are not present, said the International Plant Nutrition Institute research.
India typically produces about 17 million tonnes of pulse crops annually, but consumes about 23 million tonnes, a consumption rate that is growing by about one million tonnes per year, said leading global exporter Murad Al-Katib of AGT Food and Ingredients, during a producer meeting in Edmonton last month.
“Even good (Indian) crops can’t meet their own demand growth,” he said.
Global potash producers including Uralkali, PotashCorp, Agrium Inc., Mosaic, K+S, Arab Potash and Israel Chemicals have been hoping for robust demand to help counter weak prices.
Asian import prices have fallen about 10 percent in the last 12 months.
India’s fertilizer ministry has proposed fixing the potash subsidy at $115 a tonne for the 2017-18 fiscal year beginning in April, down from $140 per tonne this year, said a senior government official.
He did not wish to be identified, because he was not authorized to talk to the media.
Prime Minister Narendra Modi’s cabinet has to decide on the proposal, said the official, who is directly involved in the decision-making process.
If India were to import four million tonnes of potash in 2017-18, the savings from the proposed subsidy cut would equate to almost US$100 million.
Two other industry officials confirmed the plan.
The Ministry of Chemicals and Fertilizers spokesperson declined to comment.
India relies on imports to meet its annual potash demand of about four million tonnes, but higher prices are expected to limit how much the nation’s 263 million farmers use.
India buys potash in annual contracts usually signed before the start of the fiscal year.
Contracts signed by India and China are considered benchmarks globally and are closely watched by other potash buyers such as Malaysia and Indonesia.
“The subsidy reduction will weigh on the new contract negotiations. We cannot offer higher prices in new contracts due to the proposed subsidy reduction,” said an official who takes part in the negotiation process with overseas miners.
Leading producer PotashCorp last month expressed hopes for a pick-up in demand from India in 2017, while Agrium earlier this month forecast a five percent rise in global potash shipments this year.
Some industry officials in India say the demand outlook is not so rosy and doubted imports of the crop nutrient would exceed four million tonnes if the subsidy cut went through.
Last year suppliers had to sell potash to India at $227 per tonne, down from $332 previously and the lowest in a decade, after India delayed purchases due to sluggish demand.
That allowed importing companies to reduce retail prices, but that could be reversed in 2017-18.
“If the subsidy goes down, then we have no choice but to raise retail prices,” said an official with a state-run fertilizer company. The official declined to be named.
In his budget for the 2017-18 fiscal year, Finance Minister Arun Jaitley kept the overall fertilizer subsidy unchanged at $10.5 billion.
But fertilizer importers said that almost half of the amount would be spent on settling arrears accumulated from 2016-17, necessitating savings.