GLOBALLY, urea is in short supply and its prices have soared to levels not seen before; the whole world is feeling the shock. The story in Pakistan is quite the opposite — yet the end storyline similar.
The production of the chemical peaked at an all-time high of 6.3 million tonnes in 2021 thanks to the uninterrupted gas supplies to the urea plants last year on revised government policy. This compared with an annual average demand of around six million tonnes for the last three years. However, the wheat farmers have been facing urea shortages since sowing began and paying a hefty premium of up to Rs1,000 per 50kg bag over and above the officially fixed rate of Rs1,750.
Lately, the growers are reported to have indulged in panic buying, hoarding the fertiliser for its application in the coming weeks. That mustn’t sound surprising since the shortages — even if artificial, created by the hoarders — are real for the farmers, especially the smallholders whose life between two crops depends on the outcome of their hard work.
Questions being asked if Sindh — or federal govt — controls country’s borders
It was in October when the government decided to import 100,000 tonnes of urea. No one responded to the tenders. Later, it turned to China, the largest exporter of urea, to import the chemical on a government-to-government level at a discounted price of $600 per tonne to ease pressure on the market. The first shipment of 50,000 tonnes is expected to arrive next month, when, in the words of the ministers and industry, Pakistan would have a surplus of 4.4 million tonnes next month and 8.2 million tonnes in March.
“With record sales last year, the inventory levels of urea have dropped to around 50,000 tonnes. As a short-term measure, the government has ensured provision of adequate gas at the back of which the industry would be producing around 600,000 tonnes per month going forward, with an opening stock of 50,000 tonnes on top of that,” a senior executive of a urea company told Dawn on Saturday.
The government has also asked the manufacturers to increase their daily supply in the market by 50,000 bags to 450,000 bags for managing the current demand. “For last three years, the urea demand for January, February and March has been around 487,000, 416,000 and 349,000 tonnes, respectively, which means that the inventory levels should improve (over the next couple of months) owing to surplus production and supply. Having said this, the decision to import urea should ease the supply pressure,” he added, refusing to give his name.
For now, the government appears to be regaining its control over the crisis. But is it? The question remains: why did the crisis arise in the first place despite record output against the demand? There are multiple factors.
The improved farm incomes — 59pc for wheat farmers and 47pc for sugarcane growers — last year on the back of better yields and higher market prices are encouraging farmers to use higher quantities of fertilisers to get better output. The domestic urea prices remain at the 2012 level, meaning its share in input costs has drastically reduced over the years. At the same time, the area under wheat cultivation has reached a record 24.3 million hectares depicting a significant growth of approximately two million hectares in the last couple of years. This equates to over four million acres improvement in the area under cultivation. Another factor that has boosted the urea demand is the whopping increase in the prices of DAP fertiliser, which have trebled to over Rs9,000 a bag, forcing many to replace it urea to save money.
Nonetheless, the major reason for the shortages remains its hoarding for quick and higher returns and smuggling to Afghanistan owing to massive price differential of up to Rs9,000 a 50kg bag between local and international markets. “At the current international rate, a truckload of 50-tonne urea yields additional profits of around Rs8 million if sold out of the country. Not a bad incentive for smugglers,” the executive said.
A recent report suggests that at least 343,000 tonnes of urea have been taken out of the country to Afghanistan. The scarcity created thus afforded urea traders here to hoard the chemical and charge premium from the farmers.
The government ministers blame the PPP government in Sindh for the situation and smuggling, saying the province was not helping the centre control it. “That may be so. But the borders are controlled by the federal government. Why didn’t it move into action to stop smuggling and hoarding when the farmers started complaining of shortages in November? If it can catch truckloads of the farm chemical being driven out of the country, it could also do so at the start of the wheat sowing and prevent the crisis from developing,” a progressive grower from Sheikhupura wondered.
He said the PTI government has been facing a governance crisis. “We have faced serious sugar and flour shortages under the present administration despite the fact we had sufficient stocks. Nothing has changed. They are not ready to learn.”
On Friday, the manufacturers claimed in the presence of the ministers for energy and industry that they had transferred around Rs400 billion in their profits to the farmers by selling urea at a fraction of its international price.
While imports may assist the government in overcoming the crisis, the industry rightly says the long-term solution to the issue lies in reducing the gap between domestic and international prices. “Studies suggest that Pakistan is short of gas but not for low BTU gas used for manufacturing urea. As a long-term strategy, the government should maximise use and allocation of low BTU indigenous gas for the fertilisers sector. This would ensure that not only there is adequate availability of locally manufactured urea, but Pakistan may even export the commodity as well since we have 0.7 million tonne capacity that is surplus to our requirements,” the executive quotes above said.
Published in Dawn, January 9th, 2022