Bloomberg

OAO PhosAgro, Russia's largest producer of phosphate-based fertilizers, agreed a $1.5 billion three-year supply deal with India to compete with North-American producers Mosaic Co. and Potash Corp. of Saskatchewan Inc.

PhosAgro signed the agreement with the Indian Farmers Fertiliser Cooperative and Indian Potash Ltd., India's biggest importers, during Prime Minister Vladimir Putin's visit to the nation, the Russian company said today in an e-mailed statement. It plans to supply 20 percent of the 6.6 million metric tons of diammonium phosphate, or DAP, India needs to import each year. More than half the labor force in India, the world's most populous nation after China, works in agriculture, according to the CIA World Factbook. From April 1, the government will allow farm-gate prices for fertilizer to fluctuate with international markets, potentially boosting earnings for producers.

"The contract is three years long and based on a price formula," PhosAgro Chief Executive Officer Maxim Volkov said by phone from India, declining to give further details of the pricing. "Such a long contract is a precedent in the industry. It should help PhosAgro retain market share in India."

Moscow-based PhosAgro said in the statement its deal will challenge Mosaic and Potash Corp., the main suppliers to India through the Phosphate Chemicals Export Association. India will spend about $11 billion on fertilizer subsidies in fiscal 2011, Finance Minister Pranab Mukherjee said Feb. 26.

Volatile Prices

DAP, which improves the acidity of soil, gained to as high as $1,300 a ton in 2008, then plummeted to below $300 a ton and is now rising back, Marina Alexeenkova, an analyst at Renaissance Capital, said in Moscow. "The parties want to hedge themselves from the volatility of the DAP market," she said.  PhosAgro declined to disclose the volume it will supply or price per ton. DPA prices vary from $310 a ton in Jordan to $550 a ton in Pakistan, according to Bloomberg data.

The company is controlled by Russian billionaire lawmaker Andrei Guriev, who bought the company from Mikhail Khodorkovsky, a jailed oil tycoon. The producer had 95 billion rubles ($3.2 billion) of revenue in 2008, according to PhosAgro data.