KARACHI: Sales of diammonium phosphate (DAP) have plunged sharply as government has yet to announce a mechanism for providing Rs400 per bag subsidy to farmers.

Finance Minister Ishaq Dar had announced Rs14 billion subsidy for DAP in the budget 2014-2015 without giving any clear indication as to how the subsidy would be passed on to farmers.

Industry sources said phosphate fertilisers are stuck in warehouses due to announcement of subsidy by the government in June. Dealers have also stopped buying DAP as they fear that farmers may demand concession.

This situation has emerged when it is time for Kharif crop sowing, especially rice.

Farmers have suspended buying DAP and are waiting for subsidised, this may have a negative impact on rice production and will also affect Pakistan’s ability to compete in the rice export market, sources said.

In the absence of any clear mechanism, DAP sales plunged 52,000 tonnes in June 2014, the lowest Kharif season sale after 2010 when only 45,000 tonnes was sold in June.

However, DAP off-take in June 2013 was 150,000 tonnes.

July sales may also remain very low which would certainly affect Kharif agricultural productivity, especially rice on which 100,000 tonnes of DAP was not applied in June only as compared to last year. Lower consumption of DAP in July may trigger huge problem for rice crop.

DAP is the most critical fertiliser at sowing period of each crop. It has been handled effectively and efficiently by private sector since 2008 without any interference by government.

Sources said this whole situation has cropped up due to lack of consensus between DAP importers and the government on how to pass on the subsidy.

The government is planning to inject Rs14bn subsidy in a market size 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, said another source. The government’s effort to control the import and prices of DAP would affect industry’s ability to import as import price offers are generally valid for a maximum of 24 hours in international market.

Freight for transporting DAP bags from Karachi to Punjab is around Rs200 per bag.

With the government insisting on one price across Pakistan instead of the current freight based pricing, farmers in Sindh will end up subsidising the farmers in Punjab and KP by at least Rs200 per bag.

Industry sources said that Pakistan needs to import over 500,000 tonnes of DAP for Rabi season in the next 30-40 days to take maximum advantage of China’s low tax window. Simultaneously, India also has to buy 1.75 million tonnes of DAP in the same period.

With this immense buying competition and regulatory controls of the government, there are high chances that Pakistan may not be able to achieve purchase of 500,000 tonnes of DAP. This will lead to shortage in Rabi season.

In 2012 the total DAP consumption was approximately 1.2 million tonnes out of which around 640,000 tonnes was produced locally and 600,000 tonnes was imported to meet the gap. Similarly in 2013, the total DAP consumption stood at 1.6 million tonnes out of which 745,000 tonnes was produced locally whereas around 755,000 tonnes was imported to fill the gap. Similarly around 0.9-1.1 million tonnes of DAP imports are required during 2014.

Published in Dawn, July 12th, 2014