THE federal government’s Rs20bn package for providing fertiliser subsidies to farmers is facing hiccups, but it may not meet the fate of a similar package announced last year.

The Rs14bn package announced in the 2014-15 budget could not be implemented because of the manufacturers’ odd refusal to print prices on fertiliser bags — something the government insisted was necessary to ensure transparency and to protect farmers from being cheated.

No consensus could be evolved despite the many meetings that were held throughout the fiscal year, and the scheme was dropped.

This time, the manufacturers have showed no resistance and have agreed to print the ex-Karachi price on bags of di-ammonium phosphate (DAP) in a meeting with food security minister Sikander Hayat Bosan. But they also made it clear that it would take them at least six to eight months to fully implement the subsidy package. This means that some farmers will keep waiting to receive the subsidy.

However, the key snag in the implementation of this year’s package — a one-time subsidy that will continue till the pledged amount of Rs20bn has been spent — is the reluctance of two provinces to pay their share of the package’s cost.

The federal government had earlier announced that it would contribute 50pc of the Rs20bn subsidy while the remaining 50pc would be paid by the provincial governments. The federal government has already transferred its share of Rs10bn to the State Bank of Pakistan. As per the requirement, the Punjab and Balochistan governments have agreed to provide Rs7bn and Rs0.4bn respectively.

Sindh is required to pay Rs2.5bn while the remaining amount is to be provided by Khyber Pakhtunkhwa. But despite several written requests by the federal government, the two provinces have not responded positively. Sindh wants its share to be paid by the federal government, while KP is seeking an instalment plan.

In case they fail to pay their due shares, they will be denying their farmers the benefit of the subsidy, i.e. the growers in Sindh and KP will be buying fertiliser at higher (unsubsidised) rates than their peers in Punjab.

Under a mechanism worked out by the government and fertiliser manufacturers, the amount of the subsidy will be given to the importers and manufacturers who will subsequently pass it on to the farmers. Both sides agreed that the finance ministry will transfer the subsidy amount to the FBR, which will adjust it with the GST against the import of DAP, whereas the local manufacturers of DAP will have to claim the subsidy amount after producing the required quantity of DAP.

A subsidy of Rs500 would be paid to farmers on a 50kg bag of DAP and Rs217 on 50kg bags of nitrophosphate and NPK fertiliser.

Meanwhile, domestic fertiliser producers have raised the price of urea by Rs 159 per 50kg bag after the federal government increased the tariff for feedstock gas by 63pc for old fertiliser plants, 67pc for new plants and 23pc for gas supply for power generation to fertiliser manufacturers, effective from September 1. Now, urea is being sold at Rs1,990 per 50kg bag in the domestic market.

The Trading Corporation of Pakistan (TCP) had completed importing 0.15m tonnes of urea — worth Rs846m — by September to avert any shortage in the domestic market. On the whole, some 157,000 tonnes of urea was purchased at an average price of $293 per tonne. In the first half of this year, about 0.2m tonnes was imported.

The country’s total urea production capacity is currently about 6.5m tonnes, while annual consumption is estimated to be around 5.8m tonnes. But the domestic industry’s production is determined by the availability of gas, which is often in short supply.

While discussing urea imports at a recent ECC meeting, the petroleum minister had offered sufficient imported gas for the local industry for urea production. But the industry rejected the offer, saying it was not feasible to use imported gas due to its high cost. It added that it could accept the proposal if the government agreed to buy locally produced urea at import prices.

In August, fertiliser sales dropped 38pc as the farmers hoped to soon receive the subsidy and did not build their inventories for the next crop. The sale of urea declined 32pc and that of DAP by 72pc. The farmers, however, usually do not need fertiliser during August, as seasonal crops like cotton, sugarcane, rice and corn are ready for harvest by this time.

But they do build up inventories to sow the wheat crop in the winter. In the middle of September, Prime Minister Nawaz Sharif announced the establishment of a subsidy fund worth Rs20bn for essential fertilisers.

Published in Dawn, Business & Finance weekly, November 9th, 2015

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