Urea prices skyrocket as gas subsidies vanish, wheat crop at risk

LAHORE: Farmers are facing a sharp rise in the cost of urea, the most widely used fertilizer, as gas prices soar and subsidies are slashed, threatening their livelihoods and food security, analysts and farmers said.

Urea prices have surged by 350 percent since March 2021, while the government's support price for wheat, the main staple crop, has increased by less than half in the same period.

The latest hike came on Friday, when Engro Fertilizers Ltd, one of the country's largest producers, raised its urea price by Rs882 per 50 kg bag to Rs4,649, while Urea prices for both FFC and FFBL stand at Rs3,767/bag and Rs5,489/bag, respectively.

The disparity in urea price would effectively mean the prevailing of a higher price in the market, further eroding farmers' buying power. Since March 2021, urea prices have been jacked up from Rs1,698 per bag to as high as Rs5,489.

In contrast, the support price of wheat has since increased from Rs 2,200 per 40 kg to

Rs4,000. The fertilizer sector has blamed unprecedented high prices of natural gas, a key ingredient of the manufacturing process, as the main culprit behind the spike in urea price. Engro claimed that with the latest price revision, the company has adjusted urea prices by 23 percent against gas prices escalation of 175 percent for fertilizer manufacturers on SNGP and SSGC network.

Interestingly, gas tariff for fertilizer companies on MARI network remains subsidized, which has created price distortion with multiple urea prices and provided the middlemen an opportunity to earn excessive profits of billions of rupees. Much to the dismay of farmers, it will always promote the selling of urea at higher prices.

It is pertinent to mention here that in-line with the International Monetary Fund’s (IMF) recommendation of eliminating cross-subsidies to fertilizer producers, the government has announced a gas price hike for the sector.

As per the latest OGRA notification, prices of feed and fuel gas have been increased by 175 percent and 1 percent respectively for fertilizers. The new rate of gas is Rs1,597/mmbtu for both feed and fuel. While the MARI notification is awaited, it is expected that pricing will eventually be uniform for all players.

It is also a fact that domestic urea prices still remain at a significant discount compared to international prices in the past but that picture will likely change going forward and the gap between international and domestic prices may vanish.

This aligns with the long-awaited demand to make the sector deregulated so that the efficient players stand out. Distortion and lopsided urea market have put forth challenges for the industry as well as farmers. Growers are especially worried about the high cost of chemical fertilizer as they are braving an extraordinary jump in farm nutrient rates.