LAHORE: The issues relating to price regulation of locally manufactured urea have come under the lens of the ministry of industries and production, although manufacturers believe that they are already selling fertiliser at a discount of Rs900/bag if compared with the international rate.
Adviser for Commerce, Textile, Industry and Production Abdul Razak Dawood is in the process of holding consultation with the industry over pricing mechanism despite the fact that the federal government’s fertiliser policy guarantees a deregulated industry where market forces dictate selling prices, industry people said. They feel that a huge amount of direct benefits to farmers has already been passed on to farmers on price differential with imported fertiliser.
“The industry takes pride in keeping urea prices at a significant discount over imports and for not following the beneficial volatile trends in the international market,” an industry official said on condition of anonymity. “In line with the spirit of fertiliser policy, benefit passed by the fertiliser to the farmers has been significantly higher than the benefit it received in terms of lower feed gas prices.”
An industry’s assessment showed that fertiliser industry has passed on around Rs527 billion in benefits to the farmers by selling locally produced urea at much lower prices than the imported products over the past eight years.
“The benefit passed on to the famers is four times the normalised cost advantage of Rs132 billion that the industry received in the form of reduced feed gas prices,” the industry official added.
Local manufactures have also provided import substitution, saving precious foreign exchange of staggering $17 billion over the same period.
The industry analysis further showed that the local industry also contributes more than Rs45 billion per year to the exchequer in the form of income tax, sales tax and other taxes.
The growth of the fertiliser sector in an organised manner has been equally beneficial to the government as its contribution to the national kitty in the form of various taxes is significant. Moreover, collectively the industry generates direct employment for over 8,500 and indirect employment for far more people, the official said.
The industry official said the industry has been feeling the heat lately due to unsupportive operating environment in spite of such contributions. It has become difficult for fertiliser manufacturers to operate with the imposition of super tax and gas infrastructure development cess and amid non-payment of subsidies and sales tax refunds. Moreover, the industry has also borne the impact of increasing cost pressures as a result of significant inflation and high rupee devaluation.
While local urea manufacturers have absorbed bulk of rising costs of doing business and requirements for recurring dollar denominated capital investments over the years, they have partially passed on the cost pressures in the form of higher urea prices. In fact, urea manufacturers, continue to maintain a significant discount over international urea prices.
The industry official said urea is currently trading in the international market at a price of $301-310/ton, which translates into a landed equivalent price of Rs2,700-2,800/bag, including general sales tax, but domestically-produced urea is sold at a price of Rs1,830/bag, offering a substantial discount of around Rs900/bag.
Urea manufacturers believe that they have been playing a vital role in the development of the agricultural sector for years. They said the government should introduce targeted smart subsidy for subsistence farmers having landholdings of less than five acres. Such farmers group makes 65 percent of all the farmers in the country.
They also want restrictions on importing urea and waivers and exemptions for fertiliser inputs from indirect taxes. The measures will ensure that the local manufacturing industry continues to grow as well as boost the agricultural productivity with a positive impact on the vast majority of small farmers.