Direcor, PAN Network Pvt. Ltd.
Fertiliser Market in the country
Fertiliser market is a typical example of exploitation of potential of rural Market. Marketing of Fertiliser was highly controlled by Govt. regulations in India. Both Essential Commodities Act (ECA) and Fertiliser Control Order (FCO) govern fertilisers. Under these acts fertilisers have to be marketed only on Generic Name and not by any trade or Brand Name. What the companies normally do is to add their company name with Generic name like Mangala Urea (Mangalore Chemicals and Fertilisers Ltd.) SPIC Urea (Southern Petrochemical Industries Corporation Ltd.). In addition they add a symbol or logo so that rural consumers can recognize the brand.
Since 1991-92, the fertiliser market has undergone a phenomenal change with Govt. decision to slowly phase out the Rs.5000 Cr. subsidy given to fertiliser and decontrol it. Though nitrogen fertiliser is under total control and priced, the prices of phosphatic and potassic fertilisers have gone up substantially due to decontrol. This has pinched many manufacturers and sales have come down. From the past experience this phenomena can be interpreted as temporary and one can hope that demand will pick up in future. The prices of agricultural products have also undergone upward revision in relation to input cost of cultivation. This is expected to offset an increase in fertiliser price. Decontrol opens competition, as all the regional markets are accessible to all manufacturers.
It is likely that fertiliser Industry will be decontrolled fully in near future. The manufacturers and their marketing team have to prepare themselves for such an eventuality when 4 ‘P’s namely Product, Price, Place (Distribution) & Promotion of marketing mix will be in their total control. At present not much maneuverability is possible for the marketers in Product Mix, Price and Distribution at State level but in Promotion certain flexibility exists. Slowly the scenario is changing, some of the manufacturers supply the three nutrients in a proportion that is required by certain types of soils or crops or regions like paddy mixture or sugarcane Mixture. Some of them add certain amount of trace elements like Sulfur to this mixture. In addition, some companies manufacture granulated fertilisers or fertilisers coated with neem which release the nutrients slowly for long lasting action .But in future, depending on soil type and crop requirement, the product has to be designed.
Prices are slowly decontrolled by the Government including the margins for channel members and the companies may offer to their dealers volume discounts or off-season discounts at the most.
In distribution again, the government policies dictate the type, quantum and the area for distribution for each manufacturer. Therefore, the manufacturers do not have much say in distribution of urea. But for other fertilisers the control is going out slowly and most fertiliser manufacturers use their distribution networks to reach the fertilisers to end-users. Traditionally, the Cooperatives and Agro-Industries Corporations played significant role but from 90s onward private trade has taken to the fertiliser distribution in a big way because of attractive margins. A few manufacturers have their own retail outlets also. Sometimes the retailers pass on fractions of their margins to the farmers.
In this scenario, the manufacturers have to think and evolve innovative marketing strategies. It may not be wishful thinking once the fertiliser industry gets completely decontrolled in the near future then all the elements of marketing mix will be under the control of the manufacturers and marketing men, which would necessitate evolution of appropriate strategies.
To develop an effective and meaningful marketing strategy in this vast and highly inhomogeneous market, use of GIS tools will be inevitable not only for distribution network analysis but also for total market analysis.
The present analysis is based on the Dealer Network in West Bengal, the State of one of the largest fertiliser companies in India. In West Bengal their presence is relatively new and they sale nearly 10-15 % of the Urea Consumption of West Bengal.
A detailed discussion with company’s marketing team coupled with spatial and attribute data enabled us to simulate the market in GIS for identification of the most suited distribution Network.
District and subdivision level digitized map with various layers such as National Highway, Main Road, other road, Rail, District headquarters, Main towns and other towns with subdivision level external database of Demography and agriculture like fertiliser consumption, Net area under cultivation, area with various main crops data are used in MapInfo package. The said company’s Distribution Network location has been created on a separate layer on the basis of their location.
The analysis has been made with continuous interaction with marketing personnel to cover the ground reality from their experience. At the time of final selection the location of a town preference is judged on center of gravity basis and its accessibility to the local farmers. This Center of Gravity simulation and accessibility feature matched well in the MapInfo package.
This company started their operations in 1985 and it is the flagship company of a Group with an asset base more than Rs.20 billion. Their 1,000,000 MT Capacity urea plant makes use of state-of-the-art production process in south India. They market MOP, DAP, Zinc Sulphate and Micronutrient mixes along with Urea. They are also involved in the marketing of the full range of farm inputs. Urea is manufactured in the Company’s own plant whereas pesticides are the products of Group companies. The agri-output and seed divisions help the farmers to enhance productivity.
Their marketing strategies include adopting methods such as spot demonstrations, adoption of villages, farmer training and kisan melas (agricultural fair) to reach its target institutions, co-operatives and individual farmers. In West Bengal they are relatively new entrants.
West Bengal Market
West Bengal is having total area of 8.6 million hectors out of which 5.5 million hectors is net-cropped area with 171% cropping intensity. Nearly 50 million people are staying in rural area in 37,910 villages. A large number of towns out of total 379 towns are agriculture-based. A little more than 50% of state’s income is from Agriculture. It produces 15% of the total production of rice in the country and is one of the principle rice growing states in India. Other important crops are Potato, Jute, Oilseeds etc.
The scope for increasing fertiliser consumption in West Bengal is enormous which is justified by the following facts:
- In last two decades the Agricultural Growth in West Bengal is substantial in All India Standards.
- Consumption of plant nutrients per unit in West Bengal is 113.7 Kg/Ha where as in Punjab and Andhra Pradesh these are 171 Kg/Ha and 165.5 Kg/Ha respectively.
- In West Bengal only 6 districts account for out of about 18 districts 52 per cent of the total consumption of fertilisers. Thus, there is immense scope for enhancing the fertiliser consumption in other districts.
- In addition, the area under irrigation is also expanding, with investments in minor, medium and major irrigation projects. This will also help increase fertiliser consumption.
Hence, the fertiliser consumption is expected to grow here substantially.
Total nutrient consumption in West Bengal is 1.232 million tons during 1999-2000. In 1993-94 the total Urea, DAP and MOP consumption were 0.708, 0.2 and 0.175 million tones respectively. In 1998-99 total Urea, DAP and MOP consumption were 1.02,0.386 and 0.251 million tons respectively, which are growth of 44%, 93% and 43% respectively. Kharif(crop sown in monsoon):Rabi (crop sown in autumn/winter) share in total fertiliser consumption is around 35:65.
Total number of sale points increased by 1219 during the year from 35,546 during 1999-2000 to 36,765 during 2000-01. The private sector had 92 per cent share in total number of sale points in the state during 2000-01 as against 8 per cent in the cooperative and other institutional channels at the end of 2000-01.
|District||Gross Area (Hect.)||No of Cultivators||N||P||K||Total|
|Uttar Dinajpur *Dakshin Dinajpur||757643||438852||36467||20366||11862||68695|
(* Districts having Dealers)
Existing Distribution Network
The company in question is having its 68 dealers and 8 C&F agents in 7 Districts namely, Uttar Dinajpur, Malda, Murshidabad, Nadia, Burbwan, Hoogli, Midnapur and Calcutta (but Calcutta is not an Agricultural districts). District-wise distribution of existing dealers and C&F agents in West Bengal shown in Map-1.
The total fertiliser consumption of districts under company’s dealer network, is 690970 Mt which is 56% of West Bengal’s total Consumption. But these dealers are supposed to cater to all west Bengal although they are situated only in the 8 districts as per Map 1. From the above map it is evident that all the Distributors are clustered in a very limited area without any logic. Interestingly the selection of the dealers was made in traditionally agriculturally strong districts, on the basis of the traditional businessmen near district head quarter with strong financial capability not on the basis of covering the total market or on the basis of customer spread and covering the total market. The company’s marketing team and field stuff is covering the whole state without much supply support or material availability across the state.
Analysis of the Distribution Network
Now when we see the distribution of actual consumer i.e. the distribution of cultivators in these 8 districts more than 3.5 million cultivators are staying in these districts, which is 59% of the total cultivators of West Bengal. If we take the gross crop area, nearly 59% of the Gross Crop area comes under these districts with dealer network.
That means their total network is covering nearly 56% of the total consumption, 59% of the area where the fertiliser are used and 59% of the customer are covered. Undoubtedly these are strong hold of traditional fertiliser companies present in West Bengal since last 3 Decades.
A detail comparison is required to find out the effectiveness of the dealer network with the market potential. Company’s district-wise dealer network against their sales of Urea & Pesticide is shown in table-2.
As far as their Urea and Pesticide sales are concerned, in both the product segments they are weak in Burdwan, Hoogli and Midnapur districts although all these three districts are strong in agriculture. Consumption of fertiliser in these three districts is more than 30% of the total West Bengal consumption (refer map-2 and table -1). It is also interesting to note that number of dealers chosen in all these districts are not related to the size of the districts (refer Map-1) or potential of the districts.
Moreover, we are assuming that the existing dealers are covering one entire district, but in reality the scenario is different from district to district. In many districts dealers locations are closely clustered. In Map-2 the Distribution Network is present on actual fertiliser consumption thematic map, which shows market gaps as well as over crowding nature of the Network on district level consumption.
|District||No of Dealers||Average of 3 years
sale of Urea (in MT)
|Average of 3 years sale
of Pesticide ( Rs.in 000)
The net result is in one hand large area is uncovered and on the other hand competition among company’s own dealers. From 1992 onwards the company is facing severe competition for DAP and MOP and other plant nutrient products apart from their Pesticide products, matching Urea target is also becoming challenging.
Breaking the district market in to subdivision level gives better understanding of the market and helps to identify the best-suited dealer location. There are 48 Subdivisions out of which only in 18 subdivisions the company’s dealers are present. Again in these 18 subdivisions, few subdivision like Burdwan Sadar and Malda sadar have as high as five locations covered by their dealers.
The main problem is the absence of fertiliser consumption data in subdivision level or block level. But with other subdivision level data like cropping pattern, irrigation and demography helped us to by pass this problem.
If we calculate the subdivision level fertiliser consumption as proportional to their area of respective district’s consumption against area, the total consumption in these 18 subdivisions works out to 540,233 MT, which is 44% of the total consumption of West Bengal.
The company is selling average 13% of the total urea consumption of West Bengal and for other products their market share is less than 10%. When their main goal is market expansion then interestingly their own dealers are competing with each other in the limited market area of 7 districts /18 subdivisions.
The recommended Network
In reality any district or subdivision does not restrict dealer’s domain of sales. Inter district sales are common phenomena here. At the same time their locations nearer to the consumers i.e. cultivators are essential to enhance the total sales. Therefore, identification of the proper sales-points across the state covering more than 90% of the cultivators and the gross crop area in more cost-effective way is most important.
To cover the total present and future market identification of the potential subdivision is necessary. With the help of subdivision wise data of cultivators number, total khariff (sown in monsoon) paddy and jute area as representative of kharif crop area, Total area of Potato and winter paddy as representative of Rabi(sown in autumn/winter) Crop area and total irrigated area subdivision wise are used in this study. Separate weighted averages have been given to these factors on the basis of their respective importance.
On the basis of above factors and their weighted averages a fertiliser sales potential index has been created, thematic map has been created (refer map-3). This has helped the market potential segmentation to be viewed on geography to make market segmentation more meaningful to the company.
On the basis of this potential map the location of New Dealer network has been established.
In the above Thematic Map-3 the ranges was created on the standard deviation method on the potential index data. Apparently Purulia and Malda seem to be very potential although the people associated with West Bengal Agriculture know they are not. But it has been done on the basis that these districts potential is judged alongside the Subdivisions of other districts. That means, for Purulia and Malda the Cumulative figures of above factors were taken unlike other districts.
The ideal location for a dealer in subdivision will be the centroid of that subdivision polygon, ideally the same is the center of gravity of that market. But there may not be any locality on the centroid. Therefore, the location has been chosen on the basis that the nearest town to centroid which is well connected by road and/or rail and a market place for that area. But in certain subdivisions, considering other factors like forests or closeness of the existing network area, the selection cannot be near the centroid at all. In this process 18 new locations have been recommended where immediate dealers are required to cover the potential fertiliser market of that subdivision. These locations are shown on the backdrop of their potential market (refer map-3). The subdivisions with less than 23-index point are not considered.
In this new dealer network the reorganisation of the C&F Agent has become essential. Considering the potential and the recommended dealer network the C&F agent location has to be changed for logistic support to the new network. In this scenario we recommended to change C&F agent at Islampur and select a new C&F agent at Siliguri.
After the detailed study the marketing professional of various companies have been consulted to find out from their field experience in West Bengal about the suitableness of these locations. The response is highly encouraging. When we are looking at their present network in the backdrop of this study, it is realized that restructuring of the present network is also essential. Instead of fighting on a limited market created by traditional mindset, the market opportunity can be exploited more effectively not only for present market but also for the future which are to be done slowly.
In rural marketing the use of Business Geographics will provide a very important tool to the marketers in India.
- Rural Marketing, Enviorenment, Problems and strategies by T P Gopalaswamy
- Statistical Abstract by Bureau of Applied Economics & Statistics Government of West Bengal
- Annual Review of Fertiliser Production and consumption by Fertiliser Association of India.
- District Statistical Handbooks by Bureau of Applied Economics & Statistics Government of West Bengal
- Fertiliser and Agriculture Statistics, Eastern Region by the Fertiliser Association of India.