THE distribution and pricing of urea seems to be grossly mismanaged. In the last one year, its price has almost doubled if the farmers are to be believed, and increased 70-80 per cent if manufacturers or dealers are to be trusted.
Currently, urea prices range between Rs1,450 and Rs1,600 per bag, depending on the location of the sale. Officially the price is still Rs1,215 ex-mill, and Rs1,235 for dealers’ sale. But every one is out to make windfall, with governments, both federal and provincial, watching as helpless spectators.
The current price scenario is the outcome of both policy mismanagement and market rigging. The price spiral started late last year when the manufacturers increased the price by Rs190 per cent in one go, citing feed gas crisis and its cost for the industry. The government silently allowed the increase, saying the crisis would be over by February when gas supply improves.
Interestingly, fertiliser was the only sector where cost of gas crisis was passed on to consumers — farmers in this case. In other sectors, natural gas became scarce but product prices did not increase.
To make the matter worse, the promised improvement in gas supply never came into effect. It still goes on even when the country suffers scorching heat, and hot humid weather. The price increase has thus become permanent. The subsequent increase of Rs70 per bag was also laid at the doors of gas crisis. On the gas head, the farmers are now paying Rs260 per bag. Given the scale of crisis, there is no possibility of improvement in natural gas supply.
To directly contribute its own share, the government has leaked out but not decided to increase price of feed gas by 96 to 100 per cent, which may increase urea price by around Rs150 per bag. The current price, which ranges between Rs1,450 to Rs1,600 per bag, would thus jump to Rs1,600 to Rs1,750 per bag. Adding market greed, one might be talking of a price of Rs1,850 to Rs2,000 per bag.
The government worsened the impact of the stipulated decision to raise feed gas price by leaking the intended increase to the media. That has created a speculative pressure on the fertiliser market. Price has not yet increased but hoarders and stockists have swung into action and urea has disappeared from the market.
The market manipulators know that they would make Rs200 to Rs300 per bag for a few weeks, if not days, of hoarding. The government attitude can be interpreted in two ways: sheer incompetence or it is part of the money-making effort.
The farmers are convinced that three federal ministries — production, finance and commerce — have joined hands to link domestic urea prices with international market price by completely withdrawing subsidy. And they fear that price would soon shoot beyond Rs2,300 per bag to reach the current international price.
These three ministries either do not order on-time imports, or do not release money or simply delay fertiliser arrival in the country. Once they successfully create shortage, the price goes up a few notches. Once price has increased by a certain level, it is fixed there and stocks are released at the new price. The pattern is repeated when the next critical point of urea consumption arrives, and price is further jacked up.
The pattern, by and large, is going on for the last few years; ever since the government deregulated fertiliser prices at the turn of the century. The farmers and the agriculture sector and the national economy are paying the price. In the last three months, urea off-take decreased by 15 per cent because of price factor and this would impact the national agriculture production.
Unfortunately, all official assumptions about free market and de-regulated fertiliser trade have fallen apart in the last few years. First, when deregulating the trade, the government had pleaded that it would bring efficiency in the market and reduce price. On the contrary, it has created cartelisation and made the market volatile.
Another argument was that once self-sufficiency is achieved in urea, the price would fall. The country not only achieved self-sufficiency last year, but can now export 500,000 tons surplus. The price has doubled with achieving self-sufficiency, and is threatening to go up further.
The government, both federal and provincial, must sit with the industry, farmers and other stakeholders to thrash out how best it can resolve the conflict of interests among various stakeholders and deliver fertiliser to the farmers at stable prices.