Shortsighted national approach of management of fertilizer sector of Pakistan
February 15, 2011 38 Comments
Pakistan Fertilizer Industry
The major fertilizer production units in Pakistan are (Hazara Phosphate Fertilizer (Pvt) Limited, Lyallpur Chemical & Fertilizer Limited, Pak Arab Fertilizer Limited, and Pak American Fertilizers Limited) while 6 are in the private sector (EngroFertilizer Chemicals Pakistan Limited, Dawood Hercules Chemicals Limited, Fauji Fertilizer Company Limited and Fauji Fertilizer Bin Qasim Company Limited, Pak China Fertilizer and Pak Saudi
Fertilizer requirements in the country are met from both domestic production and imports.. The annual production capacities are as follows: urea 4.3 million tonnes, DAP 450 thousand tonnes, CAN 450 thousand tonnes, NP compounds 305 thousand tonnes, SSP 180 thousand tonnes and for NPK compounds 100 thousand tonnes(total 5.78 million tonnes). The overall capacity utilization varies, but it is always more than 100 percent in the case of urea.
The government has privatized and deregulated fertilizer imports and prices. In 1986, all subsidies on nitrogenous fertilizers were abolished followed by phosphates in 1993 and potash in 1997. Provincial quotas were abolished, provincial supply organizations in the public sector abandoned and import controls were lifted. All imports are effected by the private sector. In 2001, the government imposed a 15 percent general sales tax on all fertilizer products. Farmers have to pay international prices for imported products, apart from urea.
The share of the private sector in fertilizer marketing is 89 percent, compared to 11 percent for the public sector. The private sector handles about 90 percent of the urea and 100 percent of the DAP, the two major fertilizer products consumed in the country. A dealer network of about 8 000 retailers exists in the country.
Fertilizer companies select and train the dealers. There is no government intervention. However, under ‘Fertilizer Acts’ promulgated by provinces, fertilizer quality is monitored by the provincial governments.
Fertilizer consumption by-product (percentages)
Importance of fertilizer in Pakistan
The total cropped area in Pakistan is about 22.2 million ha. The share of food grain crops is 54 percent, followed by cotton and sugar cane 20 percent; pulses 6 percent; oilseed crops 3 percent; fruit/vegetables 4 percent and other crops about 13 percent.wheat is the main food crop. It occupies about 36.3 percent of the total cropped area, followed by cotton with 14 percent, paddy with 9.5 percent, sugar cane with 4.5 percent, maize with 4.5 percent and other crops with 20.8 percent.
According to the fertilizer use survey five major crops: wheat, cotton, sugar cane, rice and maize account for about 87 percent of fertilizer consumption. Wheat accounts for about 45 percent followed by cotton with a share of 23 percent. Sugar cane is the third crop; nutrient use per ha is highest on this crop. The share of fruit and vegetables is 5.6 percent
The yields of the major crops are below their agronomic and genetic potential. There is a consensus among researchers and policy planners that, given the necessary resources and inputs, yields could be increased by 30 to 40 percent by fertilizer and pesticides inputs.
Less than two percent of the farmers apply potash whereas 92 percent apply nitrogen and 83 percent apply phosphate.. Almost five percent apply micro nutrients. The use of green manures, crop residues and bio-fertilizers is negligible
Almost all farmers having access to canal or tube well irrigation water use fertilizers. In rained areas scarcely 50 percent of the farmers use fertilizers. About 92 percent of small-scale farmers use fertilizers. Application rates decrease with an increase in farm size (rain fed and irrigated). In rain fed areas the difference between application rates for small and large farms is very wide.
During the introductory stage in the 1950s, the focus was on introducing and encouraging the use of fertilizers through simple fertilizer trials and demonstrations on farmers’ fields and by subsidizing fertilizer prices. Retail prices were fixed by the Government and were kept uniform throughout the country. With the increase in the level of fertilizer use, the emphasis changed to a more balanced use of fertilizer nutrients. However, as the subsidy burden increased, the Government started to phase out the subsidy under the Structural Adjustment Programme and economic reforms. In 1986, all subsidies on nitrogenous fertilizers were removed followed by phosphate fertilizers in 1995 and potassium fertilizers in 1997. Import controls were lifted, the government stopped importing and the private sector took over. The Government imposed a 15 percent general sales tax on all fertilizers since 2001, thus increasing the prices depending on off and on supply of Gas .
Pakistan is self-sufficient in urea; hence no urea is imported. Today the farm gate price of domestically produced urea is about Rs.1000 per bag of 50 kg whereas the farm gate price of imported urea is Rs.1300Rsr bag of 50 kg. The price of DAP, the second largest fertilizer product used after urea, is very volatile(almost 4000 to 5000 Rs/bag) and depends on international trends.These prices of fertilizer have been doubled in last 4 years directly raising the crop prices in the same pace and badly effecting the food consumption of low income groups which are almost 80% of population. Price disparities lead to high use of urea, and thus to imbalanced fertilizer use at farm level.The unprecedented rise in the prices more than 200% in the past year is creating a fertilizer crisis for poor farmer. They desperately need fertilizer to replenish the nutrient depleted soils.
Farmers’ decisions on quantity of fertilizer for a specific crop, are linked with commodity prices. Higher fertilizer prices combined with lower crop prices can cause farmers to use low rates of fertilizers. The economics of fertilizer use have always been the over-riding consideration in the demand for fertilizers by farmers, especially the relationship between the commodity price and the input price. Support prices of the major crops have been revised during the past three years and after seeing the difference between local and foreign markets , farmers or retailers are preferring to export or smuggle the major crops causing shortages of basic food chains to common people.
A sharp increase in the cost of fertilizers and pesticides is being noted, but production of fertilizer has not risen to the required level. This has resulted in large-scale shortages of wheat, sugar and edible oil. The fertilizer industry is capital-intensive( need huge investment) therefore, in the initial years, due to high financial costs, new projects become unviable. Initially to develop the fertilizer industry the government gave liberal incentives including reduced gas tariff and a subsidy on production. A mechanism was evolved through which an infant fertilizer unit was financial supported in its initial stages by providing a subsidy to of load its financial liabilities.
Being an agriculture country all state actors should focus its concentration to enhance productivity in agriculture sector as prior future plans.It can be simply achieved by improved and efficient crop husbandry. Applying fertilizers in required quantity and quality at appropriate times with the using of other inputs can improve yield per ha of agriculture crops.
Profitability of fertilizer use
Agriculture sector occupies the dominant position in Pakistan’s economy but failed to give due attention to improve our Economic Development via agriculture products. The yield per hectare is low in our country due to various reasons. Using Fertilizer in required quantity and quality at appropriate time is best hope to improve per hectare yield if irrigation water and certified seeds are provided according to requirement and weather conditions are favorable, because fertilizer provides essential nutrients which are required for the smooth growth of a plant.
Farmers have become so dependent on fertilizers for their crop production that they have been left with no option but to increase fertilizer use. Despite this, fertilizer use is still profitable. Recently the market prices of cotton and sugar cane have been higher than the support price.
As more fertilizer is applied, the additional quantity of crop yield produced with each successive unit of fertilizer becomes smaller, until a maximum yield is obtained. This is a result of the law of diminishing returns. A farmer is interested in profitable returns rather than maximum returns. This implies that the maximum yield per hectare does not always mean the highest profit because of greater cost of fertilizers.
Our farmers are not trained for adopting optimism in sowing and reaping process thus fail to maintain proportion a consumption of fertilizers.The government spends a high amount every year on importing fertilizers, every year, usually do not arrive in time due to poorly maintained network and farmers are unable to get the required quantity and quality of fertilizers for using on their crops.
There are frequent complaints about the black marketing, less weighed of bags, artificial shortage during peak fertilizer demand period particularly during winter season when farmers require huge fertilizer for using on their wheat crop,farmers can not get required quantity and quality of fertilizers even at a black market prices and there is no any check and balance and punishment in this regard.
The fertilizer sector remains a crucial support to the Pakistani economy, both in terms of its direct contribution as a facilitator to agriculture (22% of GDP) and its indirect assistance to other strategic sectors of the economy but due to recent crises of flood 2010 has turned down the GDP growth of 4% to -2% to -5% of GDP.Furthermore, the loss of over 10 million heads of livestock’s along with the loss of other crops will bring down the total agricultural production by more than 15%.Its recurrence is possible through crash and long-term planning both by govt and private sectors linked with agro industries.
As contingency plans to provide adequate support to our Agro groups, government can keep input costs low relating to agricultural supply for some period because local manufacturers are all time determined to pass on all such increases to consumers. This will preserve the farmer’s trust and they would move towards self-sufficiency and they would concentrate more to restore damaged agriculture network.In view of this crisis situation fertilizer industry should revise their policy of achieving high profitability rate, over marketing costs or high prices of cosmetic projections as these all factors can deduce the farmers productions on our fields which ultimately create food shortages for common people .
They should emphasize on development of our deprived rural sides which are real users of fertilizers and can facilitate the concept of green revolution through their modern ways of organizational techniques hardly found in other public sectors of Pakistan.The lack of fertilizers in our agriculture can accentuate hunger and poverty to large population resulting unhealthy features in the environment . To stimulate adequate fertilizer use, the purchasing power of the poorest of the poor must be enhanced through market-friendly safety nets/forums of these fertilizers companies.
This concept of development from stable industries can save the shaky future of Pakistan which have been stuck in whirl pool of flood and war and terrorism like situation around its real working class.