THE government’s decision to raise the retail prices of urea by 5pc to recover the ‘full cost’ of imported fertiliser will burden the smallholder farmers, but not by much. Small price jolts don’t matter, even though these may initially pinch small growers rather sharply, provided they are getting the right price for their produce. Under the ECC decision, a weighted average price for a mix of local and imported urea has been worked out through a basket price mechanism to recover Rs30bn in 2024 after both the Centre and provinces — barring Sindh — refused to shoulder the burden of subsidy. The latest urea price increase notwithstanding, the farmers will still be getting the chemical at nearly 35-40pc discount to the import price of Rs6,250 per 50kg bag. Under the arrangement with the industry, the urea manufacturers will lift 220,000 tonnes of fertiliser from the port according to their market share and sell it at the new prices, which is Rs160-171 per bag higher than the current retail rates. Since the new increase aims to recover the cost of imported urea, it shouldn’t impact the producers’ margins.

The authorities had ordered imports to bridge the domestic supply gap, which has already created a big black market in most parts of country. Consequently, the farmers, especially the smallholders, are forced to pay a minimum premium of Rs1,000 per bag on top of the market price. There have also been reports of acute urea shortages in some parts, with farmers queueing up for hours to purchase a few bags. Will the imports be enough to eradicate the black market? That is unlikely. According to some reports, a nexus between fertiliser producers and their distributors is largely responsible for the ‘artificial shortages’, which have been recurring year after year during the winter season when nitrogen is needed in larger quantities for wheat plant growth. Rather than controlling urea pricing, the authorities should focus on eliminating urea unavailability and the black market to provide relief to growers.

Published in Dawn, January 12th, 2024