By Ahmad Fraz Khan
SOMETHING seems to be wrong with the government’s fertiliser – urea and DAP – marketing strategy. In its current setting, it regularly fails to stabilise prices, especially during the critical points of agriculture cycle. Of the two fertilisers, urea price is of particular concern to farmers as all its production has now been localised. With two urea plants coming online recently, the country should have production in excess of the existing demand. But urea prices still keep fluctuating upwards, and sometimes wildly. One of the two cited factors for this fluctuation is loadshedding of gas, which has disturbed the production plans and added to the cost of production. Two big manufacturers estimate the gas impact between Rs190-210 per bag.
They argue that they are suffering three different layers of gas loadshedding – general cut for 45 days instead of 30 days, and different and varying reductions from two fields (Sui and Mari). The cumulative impact has forced them to raise the price and they have promised to bring it down, by adjusting it to receding loadshedding.
The second factor in the increase of price is the market forces. The manufacturers recently increased the price roughly by Rs200 per bag, but traders added another Rs200 to the tally. The total impact thus has come around Rs400 per bag, or 50 per cent jump in price in two weeks.
The first part of the increase, declared by manufacturers, may not be transparent and open to question. But it is at least a declared one, and the manufacturers could be challenged over it.
The second part, however, is undeclared. Neither one can challenge it, nor escape it. This is precisely the point the government needs to work on. It is a fact that urea prices include many variables; credit sale, transportation charges and three to four layers of dealers and sub-dealers. These variables are realities of urea trade, but letting these variables become a source of money minting could be counted as a public policy failure.
This failure is glaring given the fact that all hopes, the government has been generating ever since it deregulated fertiliser prices at the turn of the century, seems to be crashing. The federal government has been telling farmers that once the domestic production exceeds the national requirement, the prices would automatically start stabilising round the year.
The current setting, however, contradicts that assertion. At present, domestic urea production has gone up to 6.7 million tons yearly against the national requirement of 6-6.2 million tons. The country has thus entered a surplus regime with 500,000-700,000 tons.
Once the current gas crunch is over by the first week of February, the government, in all probability, would be convening meetings to explore export options.
But at present, prices are high and hurting farmers and the farming sector.
The urea surplus would not automatically solve marketing issues because of production and consumption patterns; both of them would create shortages and gluts.
Gluts during the summers months, when gas (feed stock) is surplus and shortages in the winter when gas is in short supply. Add crop cycles to this pattern, and smooth supplies would become even complicated.
Production and sale pattern this November defines the risks that the government has to avoid through policy measures. During November, against the traditional requirement of 347,000 tons, the total off-take in Punjab was recorded at 645,000 tons. The dealers purchased this additional urea on the plea that the government was planning reformed general sales tax (RGST) from December, which would make urea costly. The manufacturers’ stocks came to zero and the entire quantity was shifted to dealers. They are making huge profits.
In future, the government’s fertiliser policy must have three prongs: monitoring domestic sales, keeping strategic stocks and lining up on-time imports in case anything goes wrong on the domestic front. This year, the government failed on all the three accounts and the farmer is paying the price.
In future, the government should create an institutional mechanism to monitor fertiliser sale round the year and make its own deductions from the pattern. It failed this year to monitor November sales and line up additional imports to stabilise domestic market.
The other reflection of official policy failure is emptying its own strategic stocks of around 350,000 tons with the National Fertiliser Marketing Limited. Around 150,000 tons were given to dealers and the rest went to provinces hit by flood. The distribution was done while being oblivious to their undesirable results.
Some argue that it was done deliberately to favour urea stakeholders. The farmers would end up paying billions of rupees more and then pass it on to consumers.
To make the matter worse, delayed imports would reach the country sometime in February, when domestic production may normalise.
Surplus or no surplus regime, such policy failures help money minting opportunities to those looking for them at the cost of growers and consumers.