Shortsighted national approach of management of fertilizer sector of Pakistan

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.

Fertilizer policy

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 .

Fertilizer prices

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.

Future Outlook

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.

About Nazia
I am in search of facts and truth.

38 Responses to Shortsighted national approach of management of fertilizer sector of Pakistan

  1. بلوچ says:

    Nazia a nice analysis .
    Fertilizer sector is mainly dominated by the Army and Political elite , both are in power and policy makers . So the end user ( Hari , Mazaria ,Shareek or Rahak what ever you name this class ) is never taken on board when designing / implementing any policy at any level. Because this class is not organised and most less privileged class of the society.
    Fertilizer policy is backbone of agrarian social and economic structure of Pakistan , but as every sector of the society is ruined deliberately for the sake of certain benefits of a certain class same is the case with agriculture.

    • Nazia says:

      At this moment fertilizer sector is leading the private groups who are taking full advantages of deregulatry policy of this industry.You are right senior army establishment is controlling some area of fertilizer industry but here Pakistani civilians are very dominant in decisions making policies,They are managed by proper board of governors comprising from major business groups of Pakistan,So here your emotional dialogs cant work.They have come to programs of CSR(corporate social Reforms) which is meant to give social services to community but I feel that they can contribute more by reducing your profit to some marginal level.

  2. Ahmed says:

    Overall analysis is reasonable but there are few incorrect information which may be corrected like following:
    1) Fatima fertilizer was started recently and not shown in your list. Pak Saudi was acquired by FFC and is called FFC-3 now.
    2) Pak annual production capacity of urea is around 6 Million Tons / Year after commissioning of Engro’s new plant.DAP capacity may be rechecked again. It is probably higher than shown.
    3) Pak is still importing Urea due to less local production on account of gas shortage.

    • Nazia says:

      Fatima production is just arrived in market and has different composition than ordinary rocks .It is at this time is on tax free state so one can not expect some unusual response from them as first they would recover their project cost and then come in this queue of high profits.
      My target is biggest company like FFC and Engro whose profit has been doubled each year by increasing the producut cost passing to consumers and all official are enjoying luxurious even in period of crisis.
      Their major raw material is natural gas and in the same years when millions have come jobless due to unavailability of gas and power to their comparatively small industries,they earned profit in each quarter.So along with joblessness these millions of Pakistanis are facing the attack of food inflation for their deprived families which chains are linked with fertilizers prices too.

  3. بلوچ says:

    Nazia both FFC and Engro are the owned by same military mafia .

    • Nazia says:

      No it is partially true as you said.Engro is complete private venture and you would hardly found any army men working in its liberal and prosperous culutre

  4. بلوچ says:

    Well as for my knowledge is concern I know Engro is property of AWT , may be I am wrong , may I ask about owners of this private venture ? just for the sake of knowledge.

    • Ahmed says:

      US giant Esso started fertilizer business in Pak probably in 1960s.It was divested and new name given was Engro in 1990s.Engro has nothing to do with AWT as far as i know.Further details may be seen on Engro’s website. This company has diversified business and currently involved in sectors like power generation, fertilizer, food, polymers,rice processing, jetty at Port Qasim etc etc.

  5. Nazia says:

    Oh it means you are still on bottle field .Here in our setup such kind of new comer who has such a mature thought is called as baby having natural beard in his tummy.
    Any how Ahmed is Fertilizer specialist and you can ask any kind of your query to him about ,Engro AWT or fauji link to fertilizer industry.

  6. بلوچ says:

    Well its very nice to have Ahmed here to join us in discussion.
    I have been very close to the farmers of Sindh and Balochistan I know how they are exploited by all the stake holders including state, seed and fertilizer companies and the Land owners .
    It will be interesting if Ahmed brings a detailed analyses of fertilizer forgery concerned to imports and market blackmailing .

    • Nazia says:

      I don’t think he can throw light on it as your described areas are either under control of provincial govt or federal agencies and he is not part of govt chain.Market ting groups of all major companies do participle in such kinds of national crimes but on complain they are easily backfired but this kind of mishandling is done by retailers , local feudal groups and typical goons of the area.

  7. بلوچ says:

    Well let him do if he can

    • Ahmed says:

      A detailed analyses of fertilizer forgery concerned to imports and market blackmailing requires plenty of trust worthy information and i don’t have that unfortunately.It would be unwise to write something having no solid background. Please wait till I grab required information.

  8. Faraz says:

    fertilizer industry is one of big consumer of precious natural gas resources which ic important fuel for population and power generation.Gulf countries have surplus gas , most of its is vent to air so fertilizer industry is only feasible in such gulf or Russian state which are oil producing too.Pakistan is wasting its precious resources under imperialistic mentality.

    • Ahmed says:

      Pakistan ga companies almost earned 14 to 15 bn PKR from these fertilizer plants which are further used in projects of gas exploration.Feed gas is priced at PKR 94.7/mmbtu a 72% discount to fuel gas price of PKR 339.4/mmbtu
      Many times technical department of these fertilizer industries have given proposal to import liq ammonia from gas rich nations as you mentioned like Gulf.Algeria and Russian that can be used in making fertilizer and can be considered as cheaper and economical option.

      • Nazia says:

        Pakistan gas companies are under control of federal govt so the minster, secretary level, GM, directors all take their share from such earning from national treasures.No doubt technical departments of different private groups are working on different projects for boosting Pakistan dying industry but they have to come to petroleum ministry and here these crook and corrupt alligators are sitting int heir offices to get their share in the form of high commissions from these groups.

  9. Aasma says:

    I am doing a project on fertilizer industry of Pakistan and my on line research led me here. I would be grateful if you have any more insights regarding this topic. I would love it if you can share those with me!

    • Nazia says:

      It would be my priority to provide you all kind of information which is under my range.So kindly specify which area you need my help for compiling your research on Pakistan fertilizer industry.

  10. Ehsan says:

    Understanding fertilizer and its use in the future requires we understand our past and the laws of nature. Sadly the full costs of this massive food production area and manpower linked to it aren’t paid by the companies. . These days massive chemical companies organize to make huge profits because they only pay a fraction of the costs associated with environmentally damaging products.
    Understanding fertilizer in the 21st century is made out of fossil fuels is important. Either directly or indirectly it comes from natural gas Fertilizer companies don’t even pay the full cost of the gas exploration and its precious reserves which are give to them by neglecting power sector..

  11. Nazia says:

    I have raised many times this issue that depending too much on fertilizer for improving productivity of food would cost our next generation more than our thought when we will have no gas reserves and in case of absence of such gas producing fertilize would reduce yield as soil would be dependent on this nitrogen supplied feed. But here in fertilizer industry profit margin is so great that industrialists and govt are ignoring this long term after effects. We should work on green revolution without depending on such organic and inorganic synthetics The waste of fertilizer are strictly monitored by ammonia spill to near streams and dumping highly carcinogenic nickle catalysts are still a threat for next generation..

    • Tila Muhammad says:

      I have concern over increased price of fertilizer etc i.e. 15-17 % though promulgation of Ordinance. Recently the companies have incresed their prices @ Rs. 190 per bag so the current price of urear become about Rs.1190/=. This will not affect the growth of agricultural sectors but also damage credibility of policy makers. Rs.190 increased in urea price was due to shortage of gas supply in winter. Now the companies have been provided gas w.e.f. 15th MArch, so this increase of Rs.190 should be brought up to the minimum.
      Tila Muhammad Swabi

      • Researcher says:

        Prices of urea and dap are furthur expected to increase by Rs 70-100 after 25th May 2011.

  12. Pingback: Economics of Pakistan’s beleaguered fertilizer industry may benefit certain players « Frontier Markets

  13. Khalil Ahmad says:

    Information of Mr. Ahmad about fertilizers sector is really commendable.

  14. Ahmed says:

    Fertilizer and oil industries in Pakistan are few that didn’t sense any kind of inflation shock in last 10 years of global recession .You can say that big wigs are controlling these giant business and few made billions in this time of financial crunch.
    In last weeks these fertilizer industries announced record profit .How ?in the same manner as you are predicting as no regulatory check is made on its prices so they increase profit margin by burdening on farmers’ pockets who in response increase the price of crops which ultimately be borne by conusmers , our poor people.
    You would be surprised to hear that in last 6 months either fertilizer plants didnt work or work under capacity due to shortages of gas but how these industries are showing maximum profit.Simple by rising prices .
    Engro is the leader in this race , it increases the prices and rest followed it bringing their figures in high profit return without giving production.

    • Nazia says:

      That is what I am trying to project that fertilizer companies one of profitable institutes of Pakistan and biggest consumer of natural gas reserve are becoming reason of food inflation as all get their huge share and people who are real food consumers have to suffer these sharp rise without check from govt.I think all in this game got their share and ignore this national crisis coming ahead in coming days where we wouldn’t have gas and food prices will become out of range of lower class.

  15. imtiaz says:

    @researcher are you sure prises are being changed on 25th?….
    And what about taxes which were imposed till 30th of june by presidential order …
    Would it be continued in next finiancial year?

    @nazia prices of fertilizers are doubled in one year….
    But on the other hand prices of wheat are same rs 950 as like last year….


  16. Nazia says:

    All fertilizer companies due to their pricing power,pass down the incremental cost impact to end consumers
    fertilizer prices have been four times increase since 2007 and same here when the market activities were disturbed in 2007, prices of wheat in the open market started moving upward and were priced at Rs 2,600 per 100kg bag, an increase of Rs 100 per 100kg bag.
    this price is now Rs 300 to Rs 310 per 10kg bag, which is financially disastrous for majority of the underprivileged population whose main consumption of eating is this wheat product.
    You didnt see the size of tandoor chappti and Nan and it have been shrink to half of this size few years..
    Farmers are managing this price by reducing use of fertilizer and now going to option of using cow dungs instead of expensive bags.

  17. imtiaz says:

    but i just talking about one year…
    And u are discussing final product…
    There isn’t in wheat govt rate
    last year it was 950 per 40 kg
    and same this year…….

    Last year urea and dap was of 800 and 2600 respectively
    this year it was 13 and 4100 respectivly….
    Investment of farmer is doubled up…

    Anyhow one other thing

  18. Nazia says:

    The farmers who are using expensive fertilizers either exporting or smuggling wheat to border areas and earning in dollars.Pakistan wheat price for local groups is bringing low quality wheat which once was used for animals.
    Farmers are only investing where they get profit for cheap wheat as per govt demand they bring that wheat that has either fed by low quality fertilizer or nothing like that as extra input in wheat fields.
    Recently solar panel of tube wells( each costs 52 lakhs )were installed in some farms and purpose is to export agriculture products and local cant afford high running costs of agriculture,
    That is why you can see low quality food products in local market.

  19. Sarah says:

    Agriculture sector occupies the dominant position but failed to give due attention to Economic Development. 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.

  20. Sarah says:

    Latest situation in gas indistires mostly depending on SNGL are facing persistent gas shortages and unilateral decision of gas utility companies to curtail feedstock gas supplies to urea plants, for a fortnight per month, have brought fertiliser industry on the verge of collapse.That would ultimately encourage Government to increse fertliser imports and decrease prodctove growth of Pakistan’s insudtrial products .

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