ET Analysis: India counters China's fertilizer export freeze with diplomatic push

Fertilizer shortage has been a war of a different kind with China in which India seems to have finally worked itself out of a hole through a major diplomatic effort. China's decision to stop fertilizer exports to India will go down as among the harshest forms of supply chain weaponisation by Beijing.

It was a provocative move not only because it was timed with the onset of the Kharif season, resulting in major shortage of DAP (Diammonium Phosphate) across states, but also because it forced a crisis on India just when it had launched Operation Sindoor on Pakistan. It's a red flag because India's military leadership has called out China's operational support to Pakistan.

With terror, trade and Trump to deal with on one end, India had to undertake a massive but quiet diplomatic effort over the past few months to ensure sufficient stocks ahead of DAP distribution for the Rabi season that usually starts in July-end. Two countries stood out as unlikely stars in this round of India's fight against China's supply chain pressures - Saudi Arabia and Morocco.

So, here's the status ahead of the Rabi season, for which distribution is set to begin by month-end. India's DAP imports from China were a little over 22 lakh metric tonnes.

India had to knock the doors of Saudi Arabia, the other big supplier for India. After some hectic diplomacy, both sides reached a deal. Saudi Arabia will bridge at least 10 lakh metric tonnes DAP based on a newly formalised long-term contract for over 31 lakh metric tonnes. Similarly, India could work out a deal with Morocco, which would cover 5 lakh metric tonnes, leaving about 7 lakh metric tonnes shortfall. While some of it is likely to be replenished from available domestic stocks, diplomatic efforts are on with Russia to increase its exports. Fertilizer is not under sanctions and, hence, may work for both countries.

In the short term, government estimates suggest that it will have adequate supply in hand ahead of the Rabi season. More deals are in play as India is looking to diversify this supply chain to the extent possible, reaching out to Egypt, Nigeria, Togo, Mauritania and Tunisia.

Back to the China problem. Beijing has been going slow on renewing or signing new fertilizer contracts with India since 2023. As a result, there was a steady increase in supply from Saudi Arabia because Indian companies had started to sense pressure. Costs, however, seemed to favour China.

In May-June, Beijing unexpectedly and suddenly upped the ante on the fertilizer front. What it started doing was just stopped inspecting consignments headed for India. Indian agencies figured out that suppliers had been informally told that India-bound consignments will not be allowed to go. The signal was clear, raising alarm bells in New Delhi which had to get its act together, amid Operation Sindoor, to ensure this remains a one-season crisis and does not roll over, sparking off a domestic storm in its wake.

For now, it appears, India may have managed - between Saudi Arabia, Morocco and, potentially, Russia - the immediate crisis, given that DAP is second most preferred/used fertilizer in India after urea.

UNRELIABLE CHINA
However, the crisis has underlined an urgent need to carefully map India's supply chain vulnerabilities with China across sectors. Because it's clear that China will continuously use its supply chain advantage as a political weapon to pressurize and bend India - worryingly, even in aid of Pakistan.