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Fertiliser industry passes on Rs 374bn benefit to farmers

AFP

KARACHI: Fertilizer Manufacturers Pakistan Advisory Council (FMPAC) has said despite the unprecedented gas curtailment in last five years, domestic urea manufacturing plants have passed on Rs 374 billion benefit to the farmers by keeping local urea prices significantly below international levels.
Executive Director FMPAC Shahab Khawaja said there was misconception fertilizer manufacturers enjoy raw material subsidy from the government in the form of reduced feed gas prices. This subsidy is not for the manufacturers, but is in fact passed on to the farmer via reduced prices. Therefore, he said not only was the fertilizer industry passing on feed gas subsidy to the farmer, it was also passing on a much larger benefit voluntarily in addition to paying taxes to government.
In 2013 average delta between domestic and import price was Rs 846 per bag out of which government provided subsidy through concessionary feed gas of Rs 66 per bag (net of taxes) and remaining Rs 780/bag is passed to farmers by the fertilizer sector resulting in billions of rupees of benefits to farmers due to local urea production. He said this happened despite the fact there was no and legal or moral obligation to maintain such differential between locally produced urea and imported urea.
Local urea price has increased by Rs 1,126/bag in the last 5 years with 89 percent of the increase due to government taxes and normal inflation. Only 11 percent of the price increase is due to gas curtailment as government did not honor its gas supply contracts with the fertilizer manufacturers despite the fact industry has recently invested $2.3 billion in the country based on the government approved policy designed to encourage investment in the sector.
He informed fertilizer sector produced 5 million tonnes of urea in 2008 against a capacity of 5.1 million tonnes, in 2009 5 million tonnes against 5.1 million tonnes of capacity, in 2010 5.2 million tonnes against 5.6 million tonnes of capacity, in 2011 4.9 million tonnes against production capacity of 6.9 million tonnes, in 2012 4.2 million tonnes against production capacity of 6.9 million tonnes and finally in 2013 the production remained at 4.8 million tonnes which was 2.1 million less than the total production capacity of 6.9 million tonnes.
Declining urea production in last four years from 2010 to 2013 has resulted in billions of dollars of loss to national exchequer in terms of urea import and subsequent subsidy to keep the prices at par with locally produced urea.
He said 2010, 2011, 2012 and 2013 have been the worst years for fertilizer sector as instead of providing gas to local fertilizer plants to produce economical urea domestically, the government preferred to import urea by spending a hefty amount of approximately $2 billion from precious foreign exchange.
He informed in 2013 alone government had to face a loss of $335 million on importing 968,000 tonnes of urea and it also provided subsidy worth Rs 17 billion on imported urea.
He said government should realise agriculture contributes around 21 percent to the GDP of Pakistan and it also provides raw materials to all the major industries of Pakistan including, textiles and sugar.
Fertilizer sector paid Rs 73 billion in taxes in last five years despite lower production and if government wants it can even earn foreign exchange by exporting the surplus urea production b ensuring gas to fertilizer plants.
He said if local urea industry was closed down, it would cost approximately $2.3 billion to import required quantities of urea and an additional subsidy of Rs 96 billion to maintain current domestic local prices.
If urea prices move to international parity, farmer’s community will possibly bear the burden of approximately Rs 100 billion on collective annual income and if this cost increase is passed on to end consumer it will result in rampant food inflation and food insecurity in country.
If urea prices increase by Rs 150 to 200 per bag it is expected that urea application will decline by 8 to 10 percent resulting in approximately 8 percent drop in acreage which will translate into a loss of Rs 70 billion to country’s GDP.

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