THE government’s decision to import urea from China should help curb market volatility at a time when wheat farmers are facing shortages and a spike in retail prices despite record urea sales. Producers have sold approximately 6.34m tonnes of fertiliser this year against their three-year average annual sales of around 6m tonnes due to growth in the commodity’s demand because of increased farm incomes, expansion in the area under cultivation and adoption of hybrids by growers. The first shipment of the farm chemical of 50,000 tonnes will arrive next month. After failing to procure the fertiliser from the international market because of global shortages, the authorities have made a deal with Beijing for ensuring quick supplies probably at discounted prices. But why are farmers facing shortages and compelled to pay a hefty premium to buy the fertiliser despite its record sales? The growth in demand and hoarding for profit may be a factor. Yet the main reason for its unavailability is believed to be the smuggling of urea out of the country owing to the enormous price differential in local and international markets.

A report quoting anonymous official sources has suggested that the government was puzzled over at least 343,000 tonnes of ‘missing’ urea, which is presumed to have been illegally dispatched to Afghanistan. Historically, locally produced urea is sold at substantially discounted prices in comparison to international urea because of the gas subsidy for manufacturers. That difference has now gone up and is an added incentive for urea’s illegal trade. The decision to import urea from China will likely help stabilise the market to some extent but that is only a short-term solution to the problem. The long-term solution lies in reforming the urea market. Most important, and, of course, politically the most difficult, part of such reforms will require ending gas subsidies to the urea producers and charging import parity prices from farmers. At the current rate, this would generate additional revenues for gas companies and the government, a portion of which can be used to provide targeted urea subsidies to subsistence, smallholder farmers who constitute 90pc of the landowners and own 48pc of the country’s total agriculture land. The industry is ready to pay the weighted average cost of gas supplies if urea prices are deregulated and producers are allowed to export its surplus production after meeting domestic requirements. The government should grab this opportunity to reform the urea sector.

Published in Dawn, January 7th, 2022