'One nation, one fertiliser' policy to badly squeeze margins of manufacturers: Report

The new fertiliser policy is going to adversely squeeze the margins of the manufacturers, warns a report.

The government announced the 'one nation, one fertiliser' scheme recently, under which all subsidised fertilisers will now be sold under the 'Bharat' brand across the country.

With this, the government intends to reduce the criss-cross movement of fertilisers (urea, di-ammonium phosphate, and potash have fixed nutrient content as specified under the fertiliser control order and which does not change with brands) that will eventually help reduce freight subsidy bills and improve the availability.

While the policy will have allround impact, including on farmers, distributors, manufacturers and the government itself, the maximum impact will be on the margins of the manufacturers, Crisil said in a note on Wednesday.

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The agency's interactions with farmers across suggest they prefer certain brands, but overall, their brand loyalty is weak. In contrast, farmers don't switch brands easily when it comes to pesticides and seeds. In case of fertilisers, farmers quickly go for alternatives if their preferred brand is not available on time.

Distributors, while acknowledging low brand loyalty, say certain fertiliser brands have built very strong trust with farmers, so implementation of the new scheme may be a challenge initially.

For manufacturers, the scheme is likely to adversely impact margins. They'll have to build strong marketing and promotional strategies to maintain their share and grow, which will add to selling expenses and thus impact margins.

Additionally, industry interactions suggest that basic fertiliser brands have been used as umbrella brands to push forward premium and specialty fertilisers to farmers, says the report.

With the scheme, charging a premium for certain fertilisers will not be that easy, and new launches will be a more costly affair as there would be no established brand base to promote new products. Thus, the scheme will adversely impact the sales of high-margin products and lead to higher marketing expenses and lower margins, concludes the report.