Higher prices of various crops
will improve the cashflow of the farmers
By SHABBIR H. KAZMI
May 08 -21, 2000
One of the factor responsible for poor production and yield in
agriculture sector is the nutrient deficiency of the area under cultivation. An
appropriate use of chemical fertilizers, a combination of NPK, can help in overcoming this
problem. Due to attractive government policies and the efforts of fertilizer manufacturing
companies not only the country has achieved self-sufficiency in urea but consumption of
all types of fertilizers has increased.
During the year 1999 urea sales touched new record level of over 4.1
million tonnes whereas potassium and phosphatic fertilizer exceeded 1.5 million tonnes.
This indicates 6 per cent increase in the demand of urea. This growth in demand was due
to: favourable climatic conditions, bumper cotton crop and higher availability of loans to
the agricultural sector. The demand for urea is expected to grow by 4 per cent, at least,
in the year 2000. The consumption for phosphatic type fertilizer was above 0.7 million
tonnes. This was mainly due to reduction in its prices and increase in support price of
wheat. Despite commencement of DAP type fertilizer in the country, there will be a need to
import 0.75 million tonnes DAP as its demand in the year 2000 is expected to grow by over
10 per cent.
The consumption of fertilizer in the country has increased due to its
attractive prices which was possible mainly due to supply of gas (feedstock) at
subsidized rate and no other tax applicable on the product. However, it is expected that
the government may impose GST on fertilizer. If 15 per cent GST is imposed on urea,
farmers will have to pay over Rs 50 per bag. If this happens the consumption of urea may
go down. The farmers already suffer from an acute shortage of water. Therefore, the
manufacturers will not be able to pass on the additional burden to the farmers.
Another factor which will continue to erode the profitability of
fertilizer manufacturers is gradual withdrawal of subsidy in feedstock. However, at this
stage and looking at the increases in the past, it is not possible to quantify the
possible increase. Therefore, the manufacturers will be forced to re-define their
marketing strategy or take a further hit on the already declining margins.
The two key players, namely Engro Chemical Pakistan and Fauji
Fertilizer, continue to suffer from their own problems. Engro's LPG terminal has not been
operating at full capacity due to a dispute on tariff with the government. The cashflow of
Fauji has been disturbed due to interruptions in the production of DAP fertilizer by
While it is expected that FFC-Jordan would be able to overcome
technical problems, related to DAP plant in due course, it is also necessary that the
country must increase production of composite (NPK) fertilizer. As such Pakistan has
achieved self-sufficiency in urea production and further increase in production will be
there once Engro is able to increase its production to over one million tonnes. This
increase will be possible through de-bottlenecking of the plant and enhanced availability
of feedstock quota by the government.
An interesting feature to watch will be the privatization of fertilizer
units still working in the public sector. It is expected that all the three key players
will actively participate in the process of bidding. They need to acquire these units to
increase market share and diversify their product range. It is expected that with the
transfer of management control of state enterprises to the private sector both production
and productivity of these units will be improved.
Due to enhanced attention of the government, to improve the performance
of the agriculture sector, consumption of all types of fertilizers in the country is
expected to increase. As such consumption of fertilizer is very low in the country.
Increase in the support prices of various cash and food crops and higher yields is
expected to improve the cashflow of the farmers and result in improved use of the crop
Gas availability, to fertilizer units, and its price are the two key
issues the government must address on priority basis. Enhanced availability of gas to
Engro and Dawood Hercules can ensure higher production of urea in the country. For the
last many years Dawood has been operating around 80 per cent capacity utilization and
Engro's output can be increased by nearly 150,000 tonnes per annum.