A sharp rise in fertiliser prices

AS the Kharif cropping season is set to commence from April 1st, prices of fertilisers have increased creating an unrest among farmers across the country.

Importers and dealers have raised prices of different fertilisers including Di Ammonium Phosphate (DAP) and Mono Ammonium Phosphate (MAP) by over 60 per cent. Growers complain that dealers suspended supplies of these and other fertilisers before raising their prices.

Importers and dealers say they have increased prices of DAP and MAP after a sharp rise in global prices and also because the government had not made it clear after December 2006 whether it would continue to provide Rs250 per bag subsidy on import of fertilisers. (The government has set aside Rs12 billion in the current fiscal year’s budget to provide subsidy on the import of fertilisers).

On March 19, however, the government announced to continue the subsidy. But growers complain that as the market is still waiting for the notification of the decision, increase in the prices of fertilisers remains effective.

In Karachi, the price of a 50-kg bag DAP has risen to Rs1322 from Rs802 and that of a 45-kg MAP has gone up to Rs1277 from Rs742. In Lahore, price of DAP has shot up from Rs870 to Rs1390 per bag whereas the price of MAP has increased from Rs810 to Rs1345 per bag.

The bulk of DAP is imported and the fertiliser producing companies re-package it for local supply. “Whereas one leading company does not sell fertilisers directly to growers, the other does only on a selective basis”, says Dr Bashir Ahmed Nizamani, Vice President, Sindh Abadgar Board.

This creates room for dealers and middlemen to resort to hoarding, with the company concerned distancing itself from the charge. This is exactly what has happened. Growers claim that DAP prices have been raised at a time when two million bags of this type of fertilizer are available within the country.

Growers also complain that the importers are selling on higher prices not only the fresh lots of imported fertilisers but also the old ones that were imported at cheaper rates. Importers deny this charge saying that they were forced to increase prices after their international prices rose about 50 per cent within the last three months.

They say that the international prices of fertilisers have risen from $310 per ton to $450 per ton. This has happened as the demand for fertiliser is projected to rise in the US on the back of a 60-year record high planting of corn. The US is encouraging higher production of corns for using it in the production of ethanol , the use of which as a blending agent in petrol would minimise its oil import bills.

An increase in international prices of fertiliser can impact on local prices. . But had the government clearly stated its stand on import subsidy immediately after December 2006, importers would not have indulged in speculation.

The government is all set to start releasing the Rs250 per bag subsidy on imported DAP hoping that importers would also revise downwards their newly set prices . Importers say the decision to keep Rs250 per bag subsidy on DAP would not help much, adding that because of high international prices they need a subsidy of Rs520 per bag to reduce prices of imported fertilisers to their previous levels.

Market watchers say, however, that the 60 per cent increase made in fertilizer prices are not sustainable, and the prices would fall for two reasons. First, both DAP and MAP are used more in Rabi crop than in Kharif and second, fresh consignments of imported DAP are expected to arrive next month thereby improving the supplies.

In fiscal year 2005-06, Pakistan imported 700,000 tons of DAP the bulk of which was imported in Rabi season and a small percentage in Kharif.

Regardless of whether the prices would remain at their current levels or decline in near future, growers’ complaint of fertilisers hoarding should be investigated. “If dealers raise the prices of old stocks on the excuse of increase in international prices, the farmers remain helpless. They cannot make extra bucks if international prices of a commodity goes up after they have sold out their produce,” laments Mr. Ibrahim Mughal, Chairman Agri Forum Pakistan, a Punjab-based agriculturists lobby.

“Businesses in Pakistan usually indulge in hoarding of a commodity for some time and selling it at exorbitant prices afterwards. This very practice has been at the heart of the sugar, wheat and cement crises we have seen in this country.” Time has shown that this is more of an administrative issue than the offshoot of a loose monetary policy. When the State Bank was pursuing a loose monetary policy two three years ago that was misused by businesses to advance hoarding and speculation. But now with a tight monetary policy in place, what encourages hoarding is that there is no fear of any punitive action.

Fertiliser is a key agricultural input and if its prices rise too fast, farmers either use lesser amount of quality fertiliser or try low-quality substitutes. In both cases, crops’ yield falls.

Kharif is the sowing season for three major crops, namely rice, cotton and sugarcane. Besides, small cereal crops like maize, mash, mong, bajra and jowar are also produced in this season. Any shortage of fertilisers in these crops and the subsequent fall in their yield would lower agricultural growth Growers estimate a total requirement of 670,000 tons of DAP and MAP fertilisers in the Kharif season.

One basic reason for a very low agricultural growth of 2.5 per cent in the last fiscal year was a 3.6 per cent fall in the production of major crops. For this fiscal year, government has targeted overall agricultural growth of 4.5 per cent, with a strong 4.3 per cent growth in major crops.

Growers say, chances for meeting this target are dim due to a host of reasons including rising prices and less-than-required growth in agricultural credit.

In eight months of this fiscal year, i.e. between July-February 2006-07, banks offered Rs92.3 billion agricultural credit which covered less than 58 per cent of the full fiscal year target of Rs160 billion. The State Bank Governor, Dr Shamshad Akhtar has shown her dissatisfaction over the slow growth in farm credit and advised banks to speed it up but growers complain that banks continue to neglect small farmers while disbursing credit.

The increase in fertiliser prices has come amidst increase in gas prices and slower growth in agricultural credit. “That makes the farmers quite uneasy, not knowing how to keep them afloat,” remarks Dr Bashir Ahmed Nizamani.

Pakistan has an installed capacity of about six million tons for production of fertilisers and currently the industry is utilising over 90 per cent of this capacity.

However, most of the local production is urea fertiliser and the country imports 90 per cent of its non-urea or phosphate and potash fertiliser requirements. Between July-February 2006-07, Pakistan imported $249 million worth of fertilisers.

Courtesy: The DAWN

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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