The government is likely to import 600,000 tons of urea immediately for the remaining Kharif season and Rabi 2012, fearing that urea shortage will trigger hoarding and black marketing, sources close to Deputy Prime Minister told Business Recorder.
The sources said that the Ministry of Industries (MoI) had also recommended that the price of imported urea be reduced to Rs1,450 from Rs1,600 per 50kg bag to facilitate growers.
Interestingly, the ECC increased the price of urea to Rs1,600 from Rs1,300 per bag on March 13 this year on the recommendations of same Ministry which was now trying to bring it to Rs1,450.
The sources said that efforts were also being made to allow the Trading Corporation of Pakistan (TCP) to do price matching with the lowest bidder in the “national interest”. The sources said that the MoI convened a meeting of all stakeholders on June 21, 2012, two days after that meeting Secretary Ministry of Petroleum informed that five out of 10 urea plants had been shut down and there was no hope of gas restoration in the near future. Therefore, subsequently urea shortage was to be met through imports.
The MoI had sought attention of the federal government to the following facts in the context of urea demand and supply underscored by provisional agriculture departments and stakeholders ( i) to meet the food needs of growing population it should be ensured that agriculture inputs are available at affordable rates to growers and (ii) due to unprecedented gas crunch supply to five SNGPL and SSGCL based urea plants has been suspended. As such in spite of having enough installed capacity to meet local urea needs, the government has no choice but to resort to expensive imports.
Five urea plants on SNGPL were down from June 19 this year. Four of the five urea plants at 100 per cent gas supply produce 207,000 tons. In case of four months of closure, 814,000 tons loss in production will take place.
One urea plant on SSGPL at 100 per cent gas supply produces 38,000 tons of urea in 30 days. In four months its total production could be 152,000 tons. This implies that the total loss in four months from disclosure of five plants would be 966,000 tons.
As per production by the Planning Commission, by the end of October this year, 523,000 tons will be left. Taking into account SNGPL plants total closure continuing this will reduce to (523,000-966,000 million tons which shows 443,000 tons of urea will be less than requirements in November 2012.
Therefore, prudence demands that 600,000 tons is imported to maintain strategic reserves of around 500,000 tons immediately discouraging speculation, hoarding and black marketing of urea.
According to sources, the spirit of subsidy on imported urea is to bring it within reach of small farmers ensuring its affordability. Subsidy on imported urea is not having the desired effects as the price of imported urea remains beyond the reach of small farmers as seen from 20 per cent less urea being consumed in May 2012 against consumption figures for May 2011.
The ministry is of the view that in case imported urea price is kept at par with domestic urea price then there is no need for the government to spend scarce foreign exchange.
Market forces may meet the urea gaps by increasing its rates. The Ministry also argues that the government strategy of offering imported urea at a good price to farmers had resulted in high off-take and high productivity. Similarly, affordability will increase its off-take which will increase food security and lessen dependence on costly food imports and enhance opportunities for food ”exports” instead. This will raise the standard of living of small farmers across the country and give a boost to the national economy.