Spiralling urea prices

Post Source: Dawn Economic and Business Review

By Afshan Subohi



Khalid Subhani, CEO, Engro Fertilisers said, “We need to understand that there exists a massive shortage of fertiliser which has built pressure on price.It is highly unfair. Some of it is mismanagement.” - File photo


The growing urban disenchantment with the ruling PPP government might be niggling. The spiralling fertiliser prices may hurt the party that depends on the rural and semi-urban vote bank.

The low application of costly fertiliser by an average grower may depress the country’s crop performance. Falling farm productivity/production could threaten food security and may starve the domestic industry (already operating much below its capacity) fed on agricultural raw materials. It dashes hopes of an early economic recovery.

The latest Pakistan Economic Survey states: “Given the enormous price inducement the agriculture sector is likely to spearhead the economic growth”.

“The high fertiliser prices have a potential to undo farmers’ gains from commodity price hike over the past three years. If the government falters, the size of all major crops could be much smaller than expected”, commented an analyst.

The fertiliser prices have persistently been rising since the democratic government took over in 2008. However, the trend has become more pronounced over the past one year. A bag of urea priced Rs800 in May 2010 now sells at Rs1800 or more, at the retail level. The controlled price of a bag is Rs1300. Five years back the same bag was available for less than Rs300. The trend is the same in other varieties.

The stakeholders are stuck to their position. Growers demand easy availability of the key farm input at affordable rates. A frustrated bureaucrat-turned-grower from Sindh rejected the impression that the PPP cares for the farmers or the rural economy. “If PPP cares for the rural community it must restore gas supply to fertiliser industry and monitor the market to bring the urea bag rate back to Rs1000”, he said.

Punjab growers sounded angry. They blamed the “fertiliser cartel” for playing with the market, having neutralised the government by using its financial prowess. “If the fertiliser companies are getting a rough deal, how have they managed to do so well? Pick up the balance sheet of any of three listed giants who share over 70 per cent of urea market amongst themselves, (Fauji 49, Engro 16, Dawood Company seven per cent in 2010), their rising profits and growing size would belie their claims of being wronged by the government”, Khawaja Shoaib of Farmers Vision Forum commented from Multan.

Khalid Subhani, CEO, Engro Fertilisers said that the growers anxiety is understandable but the industry is also losing out in the current scenario of gas curtailment as fertiliser plants are not operating at their full capacity. Besides repeated closures owing to gas supply suspension push up operating costs and escalate risks in continuous process plants handling hazardous material and gases. He felt the lack of awareness and communication on the issue results in fertiliser industry being labeled as a culprit.

“We need to understand that there exists a massive shortage of fertiliser which has built pressure on price. If one urea bag priced by the company at Rs1378 (after Rs20 per bag for the dealer), should be available to the customer at Rs1398 while it is selling at Rs1800. It is highly unfair. Some of it is mismanagement. Yes, we support the government’s efforts to enforce a fair price”, Subhani said.

“We, however, understand that a solution would be to improve the fertiliser supply. That could be done either by increasing imports or hiking domestic production. For imports, the government will need to spend more on expensive fertiliser, rather than spare resources to foot the subsidy bill to let the commodity be available at affordable prices”, he explained.

“If the cash-strapped government cannot afford that option, the other choice is to use the cushion of 20 per cent idle capacity in domestic fertiliser industry by restoring consistent gas supply to fertiliser plants”, he concluded.

A grower from Multan felt that the assemblies are dominated by absentee landlords who lease out their land and become indifferent to the cost of farm inputs and the price of the output. This explains their apathy towards pressing agricultural issues. The traders attribute the price hike to market forces, implying that it is a natural outcome of high demand and low supply. Experts and analysts found the explanation too simplistic. Many blamed hoarders and black marketers for the
fertiliser crisis.

“I can name names but risks are prohibitive. All I can tell is that a nexus of producers, traders, provincial and federal officials of the relevant ministries collude to manipulate the market to their advantage. They do not care for the people or the country or distinguish between fair and foul. All they care for is the accumulation of wealth”, a source in agri input business in Punjab said.

Some industry sources made a case for fertiliser to be the most deserving sector of gas for its comparative advantage.

They called for adoption of a fair and transparent formula that distributes gas to all sectors based on their economic value.

Many attempts to contact the key player Fauji and some others like Pak Arab, Fatima Fertiliser, did not succeed. The government, on its part, did take notice of the fertiliser issue. Keeping the constraints on gas supply in view, the Economic Coordination Committee (ECC) of the Cabinet in May 2011 directed the TCP to import fertiliser to ease the supply of the commodity and stabilise prices. The Federal Commerce Secretary, Zafar Mehmud when contacted said: “TCP is importing fertiliser to bridge the demand supply gap.” He did not want to say anything more on the subject.

“The situation should improve in the days ahead as the first fertiliser ship is unloading at Karachi Port and the next is on its way. Yes, we are aware of problems being faced by the fertiliser industry and trying to resolve it”, Aziz Ahmed Brohi, federal secretary industries told Dawn over telephone. “The industry is in the private sector; what can we do if prices start scaling up? We cannot fix prices in a market economy”, he added.

“A sector that survives on government guarantees and subsidised raw material has to behave. The law dictates that it needs to consult the government before announcing increase in unit price. The fact is that the industry is taking advantage of a weak

government paralysed by private interests pulling it into different directions”, said an expert.

Khalid Mirza, ex-chairman Competition Commission felt criticism against the fertiliser industry is misplaced. “If an industry is doing well we must not necessarily see it with suspicion. The trend of profit in the fertiliser industry is in sync with the global trend. Why punish a sector for succeeding?”

“I do not believe in direct public intervention in the market. May be, the government should allow private fertiliser companies to import gas directly to suit their needs now that gas has become scarce”, he commented offhand.


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