Govt mulls urea price hike, voucher subsidy amid gas crunch

LAHORE: The government is considering a gradual increase in the price of urea fertilizer by more than 50 percent and offering subsidies to farmers through vouchers or digital payments, as it struggles to cope with the rising cost of natural gas, the main raw material for urea production, officials said on Saturday.

The proposal, which has not been finalised yet, would increase the price of a 50kg bag of urea to Rs7,000 from the current Rs4,000, and provide a subsidy of Rs3,000 rupees per bag to eligible farmers,

"To make it affordable for farmers, the government is weighing options to subsidise the urea bag by Rs3,000 through vouchers/scratch cards," an official said. However, many believe this procedure has largely been proved ineffective in Punjab as many farmers were unable to get the subsidy amount either due to procedural issues or lack of knowledge, etc.

Owing to the bigger subsidy amount and the flawed disbursement mechanism, availability of cheap urea may become even a bigger issue in the future, virtually pushing this vital farm nutrient out of reach of end-users, farmers and industry stakeholders warn.

They believe that there is a dire need to make outside involvement minimal in claiming subsidy. For this purpose, as an option, QR code-based transactions could be promoted through an app at all stages of sale with an incentive of fiscal premium. It may help farmers get subsidised urea transparently, especially at the purchase stage, through direct incentive-based digital transactions.

As another option, the government could introduce a transparent online subsidy disbursement system at the manufacturing stage. It is relatively easier to implement and with third-party inspection and review down the supply chain, farmers can get urea at subsidised rates.

Plus, urea manufacturers should be allowed to import LNG independently whenever deemed feasible to ensure availability of natural gas on a sustainable basis. They should also be allowed to invest in gas pipelines wherever needed to get local or imported gas. Keeping in view the long term requirement of ammonia, they should also be allotted a block in Thar Coal for exploring fertiliser manufacturing.

Growers have already seen the price of urea ballooning in the last year as it more than doubled in value. It is a harsh reality that the upward trend in urea prices is now a constant factor with increasing dependence on LNG in the foreseeable future, making the farm nutrient unbearably expensive for growers. In this challenging scenario, policy makers, with consultation of stakeholders, should vigorously explore ways to enhance natural gas availability, potential coal/coal-gas use, diversifying nitrogen sources etc, with a view to checking urea prices within a desirable level.

Otherwise, farm output is bound to suffer as the lesser application of urea may become a permanent downside for crop productivity.

The spokesperson of Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) said that the system of direct subsidy to the farmers through various means is not in place. The Punjab system has miserably failed and farmers have serious reservations over the mechanism.

He claimed that the domestic industry has always protected farmers against the volatility of the international market which has been selling urea at 500 percent to Pakistani industry in the recent past. Thus, exposing the farmers to the international prices in one way or another will be disastrous for the poor farmers. India, in the neighborhood, has not been able to adopt any direct subsidy mechanism. Any direct transaction through whatever means may not enable the farmers to buy fertilizer, he insisted.

The exaggeration of subsidy to fertilizer is in fact the price the govt is paying for its indecisiveness in providing natural gas available with Mari, which is dedicated for the fertilizer industry as per policy.

FMPAC spokesperson further claimed that there is no subsidy provided to the fertilizer industry. Fertilizer manufacturers are paying a weighted average rate of Rs780 per mmbtu for raw gas of low btu (feed 80 percent & fuel 20 percent) as against the wellhead price of Rs545 +10 excise duty per mmbtu, generating substantial positive GDS of Rs30 billion per annum.

In the light of the above, he observed, the proposed system for direct subsidy in the garb of deregulation of fertiliser production is nothing but a retrograde policy recommendation which may lead to the destruction of the fertiliser and agriculture sectors.

Khalid Khokhar, president of Pakistan Kissan Itehad, stressed the need to develop a long-term strategy for creating a balance in demand and supply of domestic urea to avoid recurring shortages, besides ensuring uniform urea pricing nationwide to deter middlemen from exploiting price differentials. He also called for establishing a prompt decision-making mechanism in case of any shortfall to protect farmers from exploitation during short supply scenarios.

The PKI leader particularly urged the need to devise an effective mechanism to mitigate the effects of fertilizer price hikes sustainably, moving away from the inefficient sticker-based subsidy scheme that has failed to benefit farmers. Considering the challenges being faced by small farmers, he said, urea prices should not be more than Rs3,000 per bag to keep the farming business economically viable for the farmers.