DOES Pakistan have a policy on urea fertiliser? The policy posture keeps changing every now and then, even within a sowing period, leave alone a season or year.
As powerful lobbies take charge, the government adjusts it position accordingly rather to pursue a consistent policy.
Implementation of any such policy is entirely a different subject given the level of governance in the country.
The way recent imports were handled and political cronies allowed to making money clarifies confusion that government creates in the market. To meet domestic deficit, the government decided to import 1.3 million tons of urea during this Rabi season at a cost of over $600 million.
The government also provided more 50 per cent of cost as subsidy to ostensibly keep the prices down. Against import price of Rs2,950 per bag, it fixed the price at Rs1,350 per bag. It ended up subsidising price differential with over Rs30 billion.
However, as things turned out to be later, the entire subsidy amount went down the drain as political cronies hijacked the entire market. They got and sold permits for purchase without investing any money and benefited from a huge differential between market and official prices.
According to market watchers, these people, with right political connections, were able to mint around Rs7 billion because of price difference.
It may make political sense for the government, but does that make economic sense for the state? Though urea demand is normally inelastic, the exceptional increase of 250 per cent in price did affect the consumption and its application came down by a enormous 30 per cent late last and early this year.
With those stocks stuck with the dealers or political cronies, the government has decided to increase the price from Rs1,350 to Rs1,600 per bag. These political favourites would thus be facilitated on two accounts: make money on previous stocks as well as on new ones. The government is already planning more imports citing fudged figures of domestic stocks and Kharif requirements. After all, it is considered to be an election year.
Instead of regulating domestic urea market, the government is becoming part of the problem. The domestic fertiliser market, in its current setting, has some structural faults.
The industry makes its own non-transparent calculations when it suffers gas shortages, and increases prices at will. It neither is ready to print price on bags to bring some sanity in the market nor wants to control dealers’ mafia that makes windfall on every possible pretext.
Differing gas price for different manufacturers makes the market skewed for most, if not everyone. On top of it, gas loadshedding also differs for every manufacturer. The one that suffers the most loadshedding sets the price, which is naturally the highest, and the rest follow it.
The recent announcements of profits by manufacturers must be an eye opener for every one. All of them suffered grossly on production because of gas crises but still were able to increase their profits many folds.
The problem needs to be solved for the benefit of everyone, industry and farmers including.
But the government seems to have an entirely different agenda. First, to raise revenue through ever-expanding tax regime, and secondly, to facilitate the market take as much slice of the pie as it can. In recent months, the government slapped 16 per cent general sales tax on the sector and dealers’ mafia added almost 30 to 40 per cent to the price.
It needs to come up with a long-term transparent fertiliser policy that helps rejuvenate agriculture and economy. No one opposes industry making money, but no one supports exorbitant profiteering. The traditional logic of free market — demand-supply equation — is turning out to be a misnomer because a few players — manufacturers and dealers — control the supply chain that can be easily manipulated, and, in fact, is done regularly.
Had that logic been operative in it all transparency, Pakistan, being a surplus urea country, could not have suffered as much on pricing as it did this winter. Thus, the new policy must regulate the entire market without strangulating it.
The industry must shoulder its responsibility. If it hides behind free market logic to protect itself from the government intervention, it should also realise that the same logic dictates putting price tag on the bag.
It is time for the government and the industry to sit down with farmers’ bodies to chalk out a long-term fertiliser policy and restore sanity in the fertiliser market.