AT a time when sowing for kharif crops has begun, availability of DAP, a critical input, is abundant but there is an eerie wait-and-see atmosphere in the market, and few growers are willing to buy the fertiliser.

The reason is the stuck-up subsidy of Rs14bn on the sale of DAP (diammonium phosphate) provided in the budget 2014-2015. No one in the finance ministry has so far spelled out how it will reach its beneficiaries.

If the purpose is to prevent the subsidy from falling in the hands of middlemen, it is a positive approach. Since nobody is certain how it will be distributed and be affected, the industry has put the bulk of fertiliser in the godowns, and farmers are reluctant to buy it on a pre-subsidised price. So, DAP sales dropped to 52,000 tonnes in June 2014, the lowest kharif season sale after 2010 when only 45,000 tonnes was transacted.

One may note that the use of fertilisers has become sine qua non in any cropping strategy that seeks higher yield and quick returns. Such a strategy leads to intensive cultivation, which in turn, leads to unabated depletion of soil fertility due to mining of the essential plant nutrients from the soils. The result is that almost 100pc soil in Pakistan is deficient in nitrogen; 80-90pc in phosphorus and 30pc in potassium.

No one in the finance ministry has so far spelled out how the Rs14bn subsidy on DAP provided in the budget 2014-15 will reach its beneficiaries

Generally, two types of fertilisers are in use — urea, to remove the deficiency of nitrogen and DAP for the deficiency of phosphate. However, there is also a minor use of potassic fertilisers. The farmers mostly use nitrogenous fertilisers without caring much about the use of phosphatic and potassic fertilisers. The unfavourable ratio of these two is also responsible for decrease in wheat production in certain areas.

In a meeting held on June 25 of senior federal and provincial bureaucrats and representatives from fertiliser industry with federal minister for food security Sikander Bosan in the chair, there was a consensus that Rs400 per bag subsidy will be given to farmers on imported DAP. It was pointed out that out of Rs14bn, half of the amount will be paid by the federal government while the remaining Rs7bn will be equally shared by the provinces.

But the industry high-ups refused to prevail upon the dealers to comply with this decision and sell the product at the printed price. They made it clear that they cannot control dealers. But they came out with a strange suggestion to settle the subsidy issue. According to them, the entire allocated amount should be deposited in an escrow account and each supplier should submit claims to get the subsidy.

A suggestion on which there was near-consensus between the ministries concerned and the industry in recent two meetings is to exempt DAP from General Sales Tax. The suggestion says that the government can exempt DAP from GST and pay Rs14bn directly to the FBR as GST. In this way farmers will get fertiliser at subsidised rates without involvement of dealers. The only merit of the suggestion is to exclude the middlemen but it will essentially benefit the industry more than the farmers, if at all. The federal gover­nment intends to inject Rs14bn subsidy in a market of over Rs150bn and wants full control on price, sales, imports and other activities of DAP to ensure that the benefit of subsidy goes to farmers. The government’s effort to control the import and prices of DAP would affect industry’s ability to import.

Meanwhile, at the behest of the Trading Corporation of Pakistan (TCP), Saudi Basic Industries Corporation (SABIC) has suspended urea supply because there is no shortage of the commodity with sufficient stocks in the domestic market. In March this year, a commercial agreement was signed between the TCP and SABIC for the supply of urea against $100m credit facility being provided by the Saudi Fund for Development So far some four consignments of cumulatively 120,000 tonnes urea had arrived from Saudi Arabia during April-May this year. The remaining quantity is expected to arrive during July 2014-March 2015 till the utilisation of the entire credit facility.

Published in Dawn, Economic & Business, July 21st, 2014