Urea price hike to inflict up to Rs40 billion losses on farmers

LAHORE: Farmers face collective annual losses of over Rs30 to 40 billion on account of persistent increase in urea prices.

The retail prices of urea hover around Rs1,600 across the country, showing a marked improvement since October-November 2017. In about eight months, the price of urea fertiliser has registered up to 30 percent growth or an increase of Rs250-Rs350/bag when compared with October-November 2017 level of Rs1,250-Rs1,300.

According to an analysis, increase of Rs100/bag in one year would mean Rs12 billion additional spending on fertiliser. Hence, on full year consumption basis, the financial impact on growers has been estimated at Rs30 to Rs40 billion.

It has been a double whammy for the farming community on account of spiralling cost of fertilisers in recent past, as diammonium phosphate (DAP) prices increased in addition to soaring urea rates as well. During rabi, DAP sold at Rs2,600-Rs2,800/bag. But, now its prices are at Rs3,300 showing a jump of about Rs500 to Rs700.

Farooq Bajwa, life member, Farmers Associates Pakistan (FAP), claimed that he had purchased urea a couple of days back at an exorbitant price of Rs1,650/bag in Bahawalpur district.

“The DAP fertiliser bag is also as high as Rs3,300/bag, which is too much for a farmer like me,” he observed. “Consequently, instead of applying DAP, I preferred NPK, which is a better option in water shortage as it does not require immediate watering.”

Wary of the ascending cost of inputs, Bajwa blamed fertiliser manufacturers for arbitrary increase in urea price. He said the interim government has shown no interest in curbing price escalation of this major agriculture input.

“The mute Competition Commission of Pakistan (CCP) is acting as a silent spectator in this regard,” he observed. FAP leader stressed the need to check the cost of production of urea manufactures and they were only allowed to fix the price of urea accordingly.

An insider told this scribe that fertiliser manufactures have irrationally been given full liberty in fixing the prices of urea. Certain manufacturers raised price to around Rs1,800 a few years back due to gas non-availability issues.

However, once the gas issue was resolved, these manufacturers continued to sell urea at elevated levels for a certain period. The non-uniform cost of gas also allowed various manufacturers to continue selling urea at a higher price despite having low cost of manufacturing, the FAP member said.

Referring to the price trend, an official of the National Fertiliser Development Centre (NFDC) conceded that urea price has been jacked up by Rs1,550-Rs1,600/bag in the country. This is a steep rise from Rs1,250 price registered in October-November 2017. He added that imported urea was even sold at Rs1,000 per bag at that time. On the other hand, a federal government official on condition of anonymity said the average urea price in the country recorded on June 13, 2018 was Rs1,500/bag while it was Rs1,250/bag in November 2017. Hence, he admitted that an increase of at least Rs250 did occur in the period.

To a question about controlling the urea price, he said that since it was a deregulated commodity, there was no check on price hike. He added that the government monitored the prices of fertiliser, but has no mechanism to keep them at a certain level.

The official said that the withdrawal of subsidy and reduced supplies were some of the factors responsible for price hike. Fewer inventories with the companies and closure of a few plants were among other causes of upward trend in prices.

Spokesman Fertiliser Manufacturers of Pakistan Advisory Council (FMPAC) however downplayed the increase in urea prices. Brigadier (retd) Sher Shah, executive director, FMPAC, termed it an incorrect perception that price was increased in the past.

“The price of urea was reduced to Rs1,400 from Rs1,790 in June 2016. Urea kept selling at around Rs1,200 to Rs1,290 during 2016, 2017 and even in 2018. We had opening prices in January around Rs1,300 plus,” he said, and added that the price cap of Rs1,400 was hardly achieved in May 2018, as international prices have crossed Rs2,000. The increase of Rs100 by manufacturers at the end of May was the result of frustration with subsidy scheme, under which over Rs22 billion were stuck, he said. FMPAC executive director insisted that increase of Rs100 in one year would mean only Rs12 billion additional money spent on fertiliser.

As per official urea outlook for kharif 2018, availability in the season is estimated at 3,115 thousand tons comprising 378 thousand tons left from the previous season, and local production of 2,737 thousand tons. Urea sales are projected to be around 2,813 thousand tons during kharif 2018, reflecting a reserve stock of 302 thousand tons for next season.

DAP started with an opening balance of 190 thousand tons in kharif 2018. Domestic production during the season is estimated to be 381 thousand tons, while exported imported supplies are 345 thousand tons.

Thus, total availability of DAP will be around 916 thousand tons. The estimated demand of DAP during kharif is around 720 thousand tons. There will be buffer stock of 199 thousand tons at the end of the season.