S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
May 2 - 15, 2011
Agricultural share in Pakistan's economy has been declining persistently. Agriculture is the second largest sector, accounting for over 21 per cent of GDP. During the year 2009-10, the overall performance of agriculture sector had been weaker than target. Despite its declining share, agriculture still remains the single largest sector of the economy and an overwhelming majority of population depends directly or indirectly on the income streams generated by agriculture sector. The country's labor force is highly concentrated around the sector with a share of 45 per cent.
The agriculture sector is segmented into four sub-sectors of crops, livestock, fishing, and forester. The crop sector is further sub-divided into major and minor crops.
Historically, the crop sector has led the agriculture sectors, but with changing patterns of income and expenditures, the share of crop sector has dwindled of late. The share of crop sector, which were high as 65 per cent in FY91, dropped to just 45 per cent in FY09. During 2009-10, the major crops, accounting for 32.8 per cent of agricultural value added, registered a negative growth of 0.2 per cent as against robust growth of 7.3 per cent last year. Minor crops contributing 11.1 per cent to overall agriculture posted negative growth of 1.2 per cent. Production of minor crops has declined for the three years since 2004-05, a worrying trend, which is partially contributing to food price inflation.
On the other hand, the share of livestock shows incredible growth and constitutes 52 per cent of the sector compared to 30 per cent back in FY91. Experts believe that global integration, rising incomes, and rapidly changing dietary patterns across the regions causes this paradigm structural shift in the sector.
In this modern agriculture era, fertilizers are the basic ingredient to boost farm yields. Balanced fertilization contribution towards increased yield ranges between 30-60 per cent in different crop production regions of the country. All of Pakistan's soil is deficient on Nitrogen, 80-90 per cent is deficient in Potassium while 30 per cent in Potassium. Moreover, widespread deficient of micronutrients is also found in different areas across the country.
The domestic production of fertilizer during July-March, 2009-10 of the last fiscal year was up by 4.5 per cent. The import of fertilizer increased by 133 per cent; hence, the total availability of fertilizer also increased by 25.3 per cent. Total off-take of fertilizer surged by 23.8 per cent due to a subsidy of Rs500 per bag of Sulphate of Potash (SOP) / Muriate of Potash (MOP) has been announced. Nitrogen offtake increased by 15.4 per cent while that of phosphate by 66.2 per cent.
Soil fertility is continuously depleting due to mining of the essential plants nutrients from the soil under intensive cultivation. Mineral fertilizers have played a key role in overcoming the problem of nutrient deficiency. However, the major constraint in exploiting the full potential of the soils has been the imbalanced use of fertilizers especially in terms of large amount of Nitrogen application in relation to Phosphate.
The Nitrogen-to-Phosphate ratio, commonly known as N:P ratio has been alarmingly high in Pakistan despite serious effort from the government to bring it down. Ideally, the N:P ratio should be 2:1, which has been in excess of 4:1 on an average in the past many years.
From the manufacturing ring point of view, Pakistan remains a net importer of all fertilizer categories from urea to DAP and other related products. Pakistan imports more than one million tons of fertilizer every year - majority of which is shared by urea and DAP depending on market factors. Urea is a highly used product in Pakistan and the demand exceeds the production by around 600-800 thousand tons per year, which is met through imports.
Urea prices in Pakistan have been historically lower than those in international prices as government subsidizes the sector through subsidy on imports as well as that on the major raw material feedstock gas. The subsidy on feedstock gas has enabled the urea manufacturers in Pakistan to reap healthy profit margins and the yawning price gap between domestic and international prices allows them to pass on any increase in raw material prices.
Presently, fertilizer sector is expected to purchase gas share of independent Power Plants (IPPs) till upcoming June to run its system smoothly under a new mechanism being introduced very soon by the government. Four IPPs located in Punjab province will surrender their share of gas till 30th of June, 2011 to fertilizer sector and would convert to HSD and adding that fertilizer sector would pay for its additional requirement. These IPPs of 842 mw would give up 150 mmcfd to five fertilizer plants also located in Punjab province.
Unlike urea, 2009 proved to be a much better year for DAP application as the offtake doubled to 1.5 million tons, however, it was more because of the low base effect of the previous year as DAP offtake in 2008 almost halted due to incredibly high prices. The fertilizer sector also had its fair share of controversy when the Completion Commission of Pakistan summoned notices to leading manufacturers accusing them of abuse of dominance by tying in sales of urea with DAP - meaning the buyer, in many cases a poor farmer, must buy a bag of DAP if he wants to purchase a bag of urea.
More recently, it is estimated that the South Asia (essentially Bangladesh, India, and Pakistan) will become the world's leading importing region, with expanding import demand through 2014 for urea and phosphate products (DAP).
Proper water supply should be restored because acute water shortage would make it impossible to achieve the agricultural target. Unless the issue of water shortage is resolved, agricultural target is bound to suffer.