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A sharp rise in fertiliser prices
By Mohiuddin Aazim
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
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