While the pandemic has delivered a supply shock to the global commodity markets, driving the prices of goods in Pakistan up, the fertilizer industry continues to work at 2012-13 level prices, Fertilizer Manufacturers of Pakistan Advisory Council has claimed.
The locally produced urea is selling at less than 60 per cent of its price in the international market, giving support to the agricultural sector of Pakistan.
It is worth mentioning that the agricultural sector contributes 24 per cent to Pakistan’s Gross Domestic Product (GDP) and according to data, half of Pakistan’s employed labor force works in industries directly or indirectly related to it.
In such a scenario, the fertilizer industry plays an important role in the continuous upward development of this primary sector of the economy, and according to stakeholders, the reason for such an ever-evolving fertilizer sector is the 2001 Fertilizer Policy of Pakistan.
Pakistan was a fertilizer importing country till 2001, and going back to the 1970s, the country imported more than 50 per cent of its fertilizer. However, things got better for the sector after the 2001 policy.
Fertilizer Policy 2001 was a major push for the sector as it incentivized manufacturers and encouraged the setting up of new plants by introducing a gas price that enabled them to compete with the Middle Eastern fertilizer exporters in the domestic market.
This reportedly acted as a tool that increased the local supply of fertilizers, enough to meet the agriculture sector’s demand. The success of the industry was followed by more investment in the sector, leading to growth.
Two decades later, as the pandemic struck the world and the global accessibility was limited, the totally self-sufficient fertilizer sector enabled Pakistan to record agricultural sector growth of 2.77 during the fiscal year 2021 (FY21).
Success of 2001 Policy
Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) believes that the supply of affordable, locally manufactured urea has allowed improved consumption of the input by the farmers, leading to higher crop yields.
FMPAC argues that the 2001 policy attracted investments, and thus increased self-sufficiency of the fertilizer sector, in extension aiding the food security in Pakistan. The policy led to Rs162 billion worth of local investment leading to the increased production capacity of 1.92 million tons per annum.
FMPAC claims that Pakistan, a net importer of urea till 2011, did not import urea in 2020 as the domestic industry has a capacity of around 7 million tons compared to the average annual demand of 5.8 to 6 million tons.
The policy also opened up export avenues of up to 1 million tons that can immediately fetch around $400 million, without making any additional investment.
As the locally produced urea is around Rs 3000 cheaper per bag compared to the international market, Rs300 billion is being delivered to the farmers in value. The industry is delivering 2.4 times more benefit to the nation by ensuring urea prices are significantly lower than the gas price advantage, FMPAC reported.
It must be remembered that the local production has resulted in farmers in Pakistan being in a much better situation than those in countries like India. While farmers in other countries suffered Urea shortage due to trade restrictions, abundant supply of locally produced cheap urea to farmers in Pakistan shielded local farmers from international fluctuations and led to growth in the agriculture sector of Pakistan.
Policies by Imran Khan
The most appreciable policy by the PTI government has been the reduction in urea prices by Rs400 per bag. This policy was supported by the fertilizer industry in 2020 as the industry announced the reduction in order to provide relief to the farmers.
Some of the other policies by the Imran Khan government to support the sector include the Rabi Package of Fall 2020. It was a price floor set by the government where the Minimum Support Price (MSP) of wheat was increased to Rs 1650 per 40 kg from Rs 1400 per 40 kg in the 2019-20 season.
Additionally, a subsidy of Rs 1000 per 50 kg bag of diammonium phosphate (DAP) and other P & K fertilizers, weedicides at Rs 250 per acre, and fungicides at Rs 150 per acre were offered under the Rabi Package.
Similarly, the Kharif Package of February 2021 offered a DAP subsidy of Rs1,500 per acre for rice and cotton crops.
Lastly, the much important Kamyab Kissan Programme by Imran Khan worth Rs100 billion, where the farmers will be equipped with technical and financial assistance to help them overcome the shortage of resources, such as equipment and tractors, to boost agricultural productivity.
It is however worth mentioning that since nearly 60% of DAP is imported in Pakistan, local DAP prices have also surged to new highs, hovering between PKR 5,700-5,800/bag, and manufacturers have been forced to pass these on these rising import costs. If Pakistan did not have sufficient urea production capacity, a similar situation would have been faced for urea prices as well.
While the policies look good on paper, the industry claims that they have so far failed to materialize due to a lack of clarity on the implementation of the subsidy mechanism.
The farmer community has urged the government to finalize DAP subsidy implementation and immediately disburse funds to support the global competitiveness of country’s agricultural sector.
The fertilizer sector demands some action on the release of Rs60 billion of GST rebates and subsidies outstanding since 2016. This would increase the sector’s cash flow and aid the sector by decreasing its borrowing costs.