Punjab is the breadbasket of Pakistan and also the largest consumer of fertilisers. At least 70 per cent of all the compost marketed in the country is sold and consumed in the province and thus it is also the worst victim in case of any pricing or availability crisis.
The total national demand for urea for both Kharif and Rabi crops is 6.1 million tonnes, while the production capacity is 6.5mt. Despite this more-than-demand production, the country, and of course Punjab, is continuing to face fertiliser shortages owing to various factors.
Provincial agriculture high-ups say they had conveyed to the federal authorities about the urea shortage in November last year before the peak offtake for the wheat crop. But the compost either remained in short supply or was sold at higher rates throughout the Rabi season. The federal government was again informed well in time about the province’s urea requirements of 2.330mt for Kharif 2022.
The month-wise breakup of the projected demand was 300,000mt for April, 400,000mt for May, 470,000mt for June, 440,000mt for July, 410,000mt for August, and 310,000mt for September, respectively. However, for May, the urea supplies were 269,695mt against the demand of 400,000mt, 32.58pc less than the requirement. The gap between demand and supply was squeezed for June as 455,546mt urea was received against the requirement of 470,000mt.
Despite the heatwave and canal water shortages that continued till the first week of July, acreage of major crops is on the rise and thus the high demand for urea and nitrogen compost
Justifying the growing demand for the soil nutrient, Director-General Agriculture (Extension) Dr Anjum Ali says that despite water shortages acreage of major crops is on the rise and thus the high demand for urea and nitrogen compost.
Cotton has been sown on 3.696 million acres against the target of 4m acres. Last year, 3.168m acres had come under the white lint. Likewise, paddy plantation is set to be over 6.34m acres against the target of 5.0m acres, autumn corn sowing will claim 1.2m acres and sugarcane (both spring and autumn) 2m acres.
The heatwave and canal water shortages that continued till the first week of July aggravated the fertiliser availability problem and increased the urea consumption over and above the projected demand. Urea availability becomes critical at peak stages of both Rabi (December-February) and Kharif (midMay-July) crops as most of the urea-producing plants are located outside the province beyond its monitoring control.
Calcium Ammonium Nitrate (CAN) is being produced at a rate of 70,000 tonnes per month with the cotton crop as its major beneficiary and thus is supplementing nitrogen supplies in addition to urea in Punjab.
However, the hoarding and smuggling of whatever quantity of available compost is compounding the problem to the disadvantage of the farmers. Dr Anjum Ali claims that during the last six months an on-spot fine of Rs 20.497 million has been imposed and 290 FIRs (First Information Report)registered in the drive against hoarding and overcharging.
The Economic Coordination Committee (ECC) has recently approved a further increase of Rs400 per bag of urea putting an additional burden of Rs48 billion on farmers in an abortive bid to bridge the whooping over Rs7,000 per bag price difference between the local and international markets and thus check fertiliser smuggling.
An as anti-smuggling measure and to ensure a smooth supply of urea in the local market, the Ministry of Industries & Production has suggested a framework to the provincial governments after consultations with industry representatives. These include the distribution of urea fertilisers by dealers on presentation of relevant documents by farmers to ensure equitable distribution, issuance of receipts to buyers and the establishment of dedicated help-lines to monitor complaints related to overcharging by dealers.
The notified urea fertiliser retail price is at Rs1,850 per 50kg (the raise approved by the ECC is yet to be passed by the cabinet). The measures were necessitated because the market price of urea is hovering between Rs2,200 and Rs2,700 primarily due to the smuggling of the heavily subsidised compost despite the reduction in the rates by the manufacturers. The Fertiliser Manufacturers of Pakistan Advisory Council said last Friday that the maximum retail price of urea has been fixed at Rs2,200 per bag.
The government and fertiliser executives agreed that a coupon-based mechanism would be introduced in which prices of urea would be increased in line with the gas cost. The small farmers would though be protected through a direct subsidy via coupons to ensure that the grant for domestic farmers remains within the country.
However, the farmers already availing subsidy worth Rs1,000 per bag of DAP (Di-ammonium Phosphate) through the coupon system are apprehensive of the mechanism. Mian Umair, a leader of a faction of the Kissan Ittehad Pakistan, points out certain flaws and delaying tactics in the system that force the farmers to sell their coupons to agents for a paltry sum.
The higher amount of subsidy will further attract vested interests to finding new ways to manipulate the system for robbing deserving farmers of their rights.
The urea supply-side turbulence does not end here. There is an ongoing dispute between the government and the industry over a lack of measures to settle payments for outstanding subsidies, which also includes the sales tax disparity issue that is destabilising the market. A meeting between the industry’s representatives and Finance Minister Miftah Ismail failed to reach any conclusion on settling the dispute.
The government owes the industry about Rs80bn in paybacks. This includes subsidy receivables amounting to Rs19.2bn for the 2016-18 period, while general sales tax refund worth Rs60bn also remains unpaid and the volume is growing, causing a cash flow challenge for the industry, which is paying between 5 to 17pc input sales tax against 2pc output sales tax.
Another issue that is facing the industry and causing concern among consumers is an inconsistent gas supply to the urea manufacturing plants. The problem may be solved by bringing the price of feed gas for urea manufacturers at par with the general industrial gas tariff but this will lead to a further increase in fertiliser prices and the government may ill-afford its political cost.
There are four major producers of fertilisers — Fauji Fertiliser, Engro Fertiliser, Dawood Hercules, and Fatima Fertilisers. Engro Fertilisers claims they are receiving gas under the Petroleum Policy 2012 at the highest rate of over Rs1,100 per metric million British thermal unit (mmBTU), whereas RLNG-based players are paying Rs830 per mmBTU, impacting their profitability significantly.
Published in Dawn, The Business and Finance Weekly, July 18th, 2022