A triple whammy for farming sector

The hikes in prices of petrol, electricity and gas tariffs are bound to hit the agriculture sector, driving the crop costs to unprecedented levels

A triple whammy for farming sector


he back-to-back announcements jacking up energy prices in the last few weeks will have a far-reaching impact on the economy. The triple whammy due to hikes in prices of petrol, electricity and gas tariffs, however, is going to hit the agriculture sector particularly hard in 2022-23, driving costs of production of wheat, rice and sugarcane to unprecedented levels. Consequently, food prices may reach new heights in the upcoming financial year.

Between May 16 and June 16, petrol and diesel prices went through the roof rising from Rs 149.86 per litre to Rs 233.89 per litre and from Rs 144.15 per litre to Rs 263.31 per litre, respectively. The massive price raises require that the consumers pay a staggering 56.07 percent more on account of petrol and a whopping 82.66 percent for diesel, all within a month.

The heavy dependence on large amounts of fossil fuels that power farming machinery, and are used for pumping water and for transport involves direct expenditure by the growers in an agricultural economy. Vast volumes of diesel oil and petrol are used at planting, cultivating, irrigation, harvesting, processing and distribution stages.

As far as indirect impact of such a massive cost escalation is concerned, each and every input will become dearer for farmers.

There is a similar story in case of electricity with the upward revision of electricity tariff. According to an announcement made by the National Electric Power Regulatory Authority (NEPRA) on June 2, the base power tariff has been increased by 47 percent from the previous Rs 7.91 per unit. With the proposed increase, the national average base tariff will go up to Rs 24.82 per unit from July 1, against the existing determined national average tariff of Rs 16.91 per unit being implemented for the financial year 2021-22.

The cost of electricity will rise further with the application of 17 percent GST to the new base tariff taking the per unit cost to around Rs 29 per unit. The tariff was said to have been raised by Rs 7.9078 per unit on account of rising fuel prices, capacity cost and the impact of the rupee’s depreciation. As per the procedure, NEPRA forwarded the decision of revising power tariff to the government for final notification. It will be effective from July 1.

Electricity is used in the farming sector mainly for running tubewells. Farmers are already perturbed over the increase in electricity tariff made during the last year. With the latest hike, they will be left high and dry amid extreme water shortages that have forced them to draw more underground water to meet the irrigation needs in the absence of sufficient canal water. Like increased price of petroleum products, high cost of electricity will indirectly contribute towards an increase in prices of every agricultural input.

Natural gas is the major raw material for manufacturing fertiliser. The Oil and Gas Regulatory Authority (OGRA) on June 4, determined a 45 percent increase in the prescribed prices of natural gas for the 2022-23 fiscal year to meet revenue requirements of the two gas utilities. The main reason for the increase in prices is said to be high international oil prices and the currency devaluation and unaccounted for gas losses and capital expenditure.

The revised energy tariffs and rising fuel prices have direct as well as indirect impact on minimum retail price (MRP) of 50 kg bag of various fertilisers. With up to 45 percent increase in gas tariff, 47 percent hike of electricity base charges, and 56 and 83 percent surges in petrol and diesel prices, respectively, a financial impact of around Rs 450 to Rs 500 on cost of manufacturing urea fertiliser has been estimated. This means that if the price of gas and electricity are going to be raised on July 1, after getting a nod from the federal government, urea fertiliser, which is the most widely used nutrient in the country, will cost farmers between Rs 2,400 per bag and Rs 2,450 per bag up from the current price of Rs 1,950 per bag.

There is also the fear that some of the will be discouraged to apply costly chemical fertilisers. The negative impacts of potential price hike on fertiliser offtake have been a reality. Farmers are known to have cut use of costly nutrients following every significant price hike. This results in lower crop yields, further exacerbating the food inflation.

According to one estimate, the higher cost of energy will raise the cost of wheat production – involving ploughing, levelling, seed application, irrigation, fertiliser use, harvesting, threshing and transportation plus expenditure on agricultural inputs – to Rs 77,500 per acre from last year’s expenses of Rs 47,432. This will require raising the procurement price of wheat to Rs 2,700 to Rs 3,000 per maund (or 40 kg) from Rs 2,200.

The wheat price in the open market has already touched Rs 2,800 per maund. The price of the new corn crop has risen to Rs 2,300 to Rs 2,400 per maund from last year’s Rs 1,200 to Rs 1,400. Similar is the case with rice, cotton and sugarcane.

Given the state of affairs, growers feel powerless and demoralised. Many are of the view that the cost of production has become unbearable and made farming unfeasible.

They demand the government provide subsidies to farmers with small and medium land holding (up to 25 acres) on agriculture inputs instead of spending billions of rupees on subsidising wheat flour, edible oil for end consumers.

If government takes steps to reduce the cost of production for farmers, it will directly contribute towards increasing production due to greater use of farm inputs, resulting in subsequent low prices for the produce. In such a situation, the government will not need to provide huge subsidies on wheat flour or sugar because supply and prices of food products will ease on the back of better production.

The writer is a senior reporter based in Lahore

A triple whammy for farming sector