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World Bank Document Roport No. SA-31 Public Disclosure Authorized This report may not be published nor may it be quoted as representing the views of the Bank Group. The Bank Group does not accept resporisibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized A JOINT STUDY WITH THE GOVERNMENT OF INDIA EFFECTIVE DEMAND FOR FERTILIZERS IN INDIA Public Disclosure Authorized March 27, 1972 Public Disclosure Authorized Prepared by: W. B. Donde - Government of India Dorris D. Brown - IBRD ABBREVIATIONS N - NITROGEN IN ANY FORM p _ PHOSPHATE OR P205 ICAR - INDIAN COUNCIL OF AGRICULTURAL RESEARCH IARS - INSTITUTE FOR AGRICULTURAL RESEARCH STATISTICS IADP - INTENSIVE AGRICULTURE DISTRICT PROGRAMME HYV - HIGH YIELDING VARIETY (SEEDS) Kgs - KILOGRAMS M.TONS - METRIC TONS FAI - FERTILIZER ASSOCIATION OF INDIA Rs 7.50 - US$1.00 as used in this report I N D I A EFFECTIVE DEHAND FOR FERTMIIZERS IN INDIA Table of Contents Page PREFACE i - ii SUMKARY Chapter 1 Introduction 1 Chapter 2 Characteristics of Demand for Fertilizers 7 Chapter 3 Projection of Fertilizer Demand 16 Chapter 4 Conclusions and Observations 23 Annexes Annex 1 The Available Data Annex 2 Consumption of Fertilizers N and P by Districts and States - Tables I to XIX Annex 3 Fertilizer Projection by Districts - Tables I to XVI PREFACE This study on Effective Demand for Fertilizers in India originated with the International Bank for Reconstruction and Development, as a part of its work of appraising the economic feasibility of investment proposals for India's rapidly expanding fertilizer industry. The Government of India welcomed the study and arranged participation in it as a joint endeavor. The Ministry of Food and Agriculture constituted an Advisory Committee to work with the joint team for planning and guiding the study. The study was initiated in August 1969 and completed in May 1971. The State Departments of Agriculture provided the data on fertilizer consumption in each district each year from 1959-60 to 1968-69. The Directo- rate of Economics and Statistics in the Ministry of Food, Agriculture, C.D. and Cooperation provided the time series data in area under crops, irrigated area and farm harvest prices. The metearological office, Poona supplied the district data on normal rainfall and its variability. And the experts at the State and Central levels gave valuable information regarding probable changes in irrigation and new agricultural technology. The statistical work and computer operations were performed by the staff at the Indian Institute of Agricultural Research Statistics under the direction of Dr. Daroga Singh. The report is based on the available district data, projected ferti- lizer demand, district by district, up to 1973-74 and for the States and the Nation for 1978-79. The actual consumption for the first two years, 1969-70 and 1970-71, falls well within reasonable limits of statistical error for these years. This gives some confidence in the validity of the projection method and reasonable hope that the actual consumption in future years would also not be very different from the projected figures. All the same, the authors of the report have recognized the limitations of the projection model used and have suggested continuation of the study with special emphasis on the factors influencing demand for fertilizers. The data compiled for each district during the study could be updated every year and supplemented with other information as needed for analysis of fertilizer demand and other agri- cultural development issues. In a study of this type one becomes indebted to a large number of participants in India and in the Bank. A special word of appreciation is due the staff of the Directorate of Economics and Statistics for their work in compiling the data, and Dr. Daroga Singh and his staff at the Indian Institute of Agricultural Research Statistics provided major assistance in the development of the conceptual design, the testing of statistical models and the operation of the computer. Special thanks are due D. L. Ralhan, 3. K. Raheja, and K. S. Krishnan of the IARS and V. V. P. Rao of the Directorate of Economics and Statistical Division for their unstinted Bfforts. Within the Bank, Ben King, Bong Suh Lee and Arun Shourie assisted Ln the conceptual design and review. Many others assisted with various phases - ii - of the work. A special word of appreciation is due each one. However, the authors take full responsibility for the results. W. B. Donde - Economist, Directorate of Economics and Statistics Ministry of Food and Agriculture C.D. and Cooperation New Delhi, India Dorris D. Brown - Agricultural Economist International Bank for Reconstruction and Development Washington, D.C. SUMMARY i. In this study the characteristics of demand for fertilizers were investigated and the results used to project demand for nitrogen (N) and phosphate (P) by districts through 1973/74 and by States and for all-India for 1978-79. The 1973/74 projected demand of 2.4 to 2.9 million tons of N and 1.2 to 1.5 million tons of P is similar to and supports the Fourth Plan targets. The sale of 4.0 to 5.2 million tons N and 2.0 to 2.6 million tons P was projected for 1978/79. These numbers may be compared with sales of 1.2 million tons N and 0.4 million tons P in 1968/69. The projections exceed probable domestic production by 0.5 to 0.9 million tons of each nutrient each year during the decade; this amount would need to be imported. These projections are sensitive to assumptions regarding a continued increase in the use of HYV seeds, added irrigated area and favorable cost-price relation- ships. The projections for P based as they are on an assumed ratio of 2 N to 1 P are subject to a wider range of estimating error. State and district projections are more sensitive than the national projections to changes in the assumptions and weights used. ii. Projections were based on a close examination of the factors that influenced changes in sales during the ten years up to 1968/69. During this period demand was influenced most by the cultivator's previous experience from the use of fertilizers (the learning process) and the area irrigated and planted to selected crops known to have consumed most of this material. These factors explained 70 to 90 percent of the changes in demand. Other factors, not measurable with the available data and assumed to be important, included the availability and use of agricultural credit, market and transport facilities and promotional efforts. iii. The above factors were used to project demand for N plus P for each district, after making appropriate assumptions regarding changes in their growth rates. Inherent in these assumptions were the investments needed and time required to expand irrigation resources, develop and adopt new techno- logies, increase the availability of agricultural power-and expand the agri- cultural input and commodity marketing systems. It was assumed that cost/ benefit relationships would be about the same as observed during 1967 to 1969. In some districts assumptions included improvements in agricultural credit and transportation resources. iv. For this study, time series agricultural data for each district were assembled. It is suggested that these data be up-dated each year and supple- mented by additional information as needed to continue the study of demand for fertilizers. Factors such as multiple cropping and application of ferti- lizers to crops not usually fertilized would change the values of independent variables in the future. Particularly, a technological break-through in respect to paddy, pulses, oilseeds and cotton among the specified crops would change the projections, as the past influence for some of these crops on ferti- lizer demand had been low or insignificant. The dry farming program is yet another area which would make a difference in future demand. Further studies should concentrate on the farm business unit to determine the factors influencin6 the cultivator's expenditure for fertilizers. Also the role of agricultural credit, market facilities, promotion activities, and transportation resources may be delineated. Assemblying and analyzing the data each year would provide guidance in achieving fertilizer targets and plan objectives and would be most rewarding for the future of Indian agriculture. Chapter I - INTRODUCTION 1.01 The role of fertilizers as an important input needed to achieve increased agricultural production has been fully established and accepted. Growth in agricultural output depends largely on the quantities of fertili- zers used with each crop in combination with water from irrigation and rainfall, seed, and other inputs. 1.02 Capital investment in India's fertilizer industry exceeded Rs. 5600 million ($ 750 million) in. 1969. Capital required for the proposed expansion of the industry over the next five to ten years exceeds this amount. In- vestors in the industry are concerned about the probable demand for the nation and also for each market region served by each factory engaged in the manufacture and sale of fertilizer materials. The returns to capital invested in each factory and the industry are substantially reduced if ferti- lizers are produced and marketed below about 80 percent of plant capacity. 1.03 Using a pragmatic approach, this study projects demand for fertili- zers, district by district, and year by year to 1973-74 and then for 1978-79. Government and fertilizer industry planners and investors would be the major users of these projections. In the 10 years ending with 1968-69, sales of nitrogen (N) had expanded at 27 percent per year while sales of phosphate (P) had expanded at 31 percent per year. In this study some of the factors that influenced these changes have been identified, weighted and used to estimate future sales.
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