ISLAMABAD: Dealers and stockists are taking advantage of the confusion resulting out of price disparity among different urea brands available in the market, with the result that the impact of GIDC reduction is not reaching the farmers.
The government had decided to reduce Gas Infrastructure Development Cess (GIDC) applicable on fertiliser manufacturers by Rs400 per 50kg bag on January 5 in a bid to reduce urea prices by a similar proportion.
The Fauji Fertliser Company (FFC) reduced urea prices by Rs300 per 50kg bag while Engro Fertiliser (Efert) slashed Rs160 per 50kg bag. As a result, the new rate of FFC urea is Rs1,740 per bag while that of Efert is at Rs1,880 per bag.
However, the real impact of the cess reduction has not reached the farmer since the urea needs for Rabi crop has almost ended. Meanwhile, dealers have started to accumulate their stocks taking advantage of lower rates.
“The decision by the government was very late as urea was required between mid of January to first week of February,” said Chaudhary Bashir Ahmed Sahi of Kunja area in district Gujrat.
“The next requirement in large quantity will be at the start of Kharif seasons for paddy. However, dealers are the beneficiary of low rates and are now selling Fauji and Engro brand urea at around Rs1,850 per bag,” Mr Sahi said.
Commenting on the situation, he recalled how a dealer suggested that he should invest Rs1-2 million in urea. “He said the rates will be higher by around Rs200- 300 per bag as Kharif season nears,” he added.
There are around 3,500 fertiliser dealers in Pakistan. Up to 65 per cent of them are in Punjab and the remaining mainly in Sindh. Majority of them are depriving the farmers from the benefit of GIDC reduction.
Efert announced that it had passed on the full benefit of the government’s decision and reduced the price by Rs160 per 50 kg bag.
Engro Fertilisers invested in a new fertiliser plant on account of which it receives gas under fixed price contracts which do not attract GIDC.
Whereas Fauji decided to reduce prices by Rs300 per 50kg bag as it awaits the government’s decision on fresh increase in gas pricing before it can transfer the full impact of Rs 400 per bag.
Meanwhile, technical experts also note that small farmers are less likely to gain the benefits as dealers would lower the prices as they were balancing between new rates and the existing inventories at higher price.
“Urea sales has hit rock bottom in January 2020 with sales standing at 0.26 million tonnes compared to 0.56m tonnes in January 2019. Whereas the average urea sales in the last two-years was 0.50 million tonnes,” said analyst Sunny Kumar at Topline Securities
He added that it was all because the dealers made higher purchases in December 2019, which was the industry recorded sale of 1.4m tonnes – highest ever in a month on the rumours that gas prices would be increased for fertiliser industry.
“They bought huge quantities in 2019 at the rate of Rs2,000 per bag now many of the dealers do not have the capacity to increase their stocks therefore many would seek fresh purchases at reduced rates with the help of investors, and they would sell it at higher rates during paddy plantation.” He further commented that the government’s decision to manage urea prices through GIDC reduction has not been effective in transferring the benefit to farmers. “High levels of profits are being enjoyed by urea dealers,” he added.
Published in Dawn, February 15th, 2020