The bitter pill of Neem on Urea

It has been nearly two years since the Government made it mandatory for urea manufacturers to produce neem-coated urea. This was applied up to a minimum of 75 per cent of their total production of subsidised urea which was 35 per cent earlier. This decision was primarily taken to stop subsidised fertilisers being diverted to non-agriculture purposes. Currently, a ton of urea is coated with 400 ml of neem oil. We tried to analyse the urea industry post this development and effect on players.

It was noticed that because of neem coating, urea works slowly but completely. Urea contains 46 percent nitrogen. Normal urea dissolves rapidly and due to this, two-thirds of nitrogen is released due to air or in the ground. Urea dissolves gradually from neem coating and it keeps the crop green for a long time. This reduces the use of urea. With the reduction in the use of urea, the use of other fertilizers is also reduced. So this means that with neem coating the per hectare usage of Urea was reduced as the urea was better utilized.

This led to twin benefits of decrease in usage of urea and also increase in grain yield. Government expects food grain production in 2016-17 to be 271.98 million tonnes against the previous year's 251.57 million tonnes. Use of urea decreased to 149 kg per hectare in 2015-16 from 152 kg in 2014-15, where as the income increased to 2042 kg in 2015-16 from 2028 kg in 2014-15.

According to this estimate, production of rice, wheat, maize, pulses and cotton has remained at the highest level so far. Along with urea, the sale of DAP (dye ammonium phosphate) and nitrogen, phosphorus, potassium and sulfur has also seen decline. Only MPO (Muriate Of Potash) has seen increase in sales.

Revenue of the fertiliser industry was down by 15 per cent in this fiscal because of fall in urea prices. However, industry's profitability was moderate as the operating margins at 10.8 percent in nine months of this fiscal compared to 8.4 per cent during the same period in last fiscal, because of the availability of raw materials at lower price.

With revenue from urea seeing a decline, many big players like Coromandel International with substantial presence in South India, are diversifying into growing crop protection market. We see that with government impetus and direct subsidy transfer in pipeline, players are moving into organic crop protection which is showing good growth.