Urea prices do not have any impact on food inflation

Karachi: The fertilizer industry is playing a critical role in ensuring food security and managing food inflation in Pakistan through adequate and affordable supply of urea at one fifth the international prices.

In a media briefing, Imran Ahmed, CFO of Engro Fertilizers, highlighted that food inflation is one of the biggest challenges being confronted by the Government. However, food inflation is not unique to Pakistan as global food prices have jumped by 34 percent between July 2020 and June 2021, owing to a surge in oil prices, supply chain disruptions and unfavorable weather conditions. Reports suggest that globally the food prices have soared to its highest point in a decade and that has translated locally, where the prices have even been adversely impacted by rupee devaluation on top of global price increases.

He stressed that urea prices do not have any impact on food inflation as only 2.6% of farmers wallet is spent on urea. According to calculations, every Rs 50/bag increase in urea price has an impact of only 1 paisa on the price of a ‘roti’. The impact of a Rs 50/bag increase in urea price on other agri commodities like rice, sugar, maize, potato, tomato and banana is all within 10 paisas per KG.

The local fertilizer industry has shielded farmers from a steep rise in international urea prices as domestically produced urea is currently priced at 2012 level. Urea is available in Pakistan at a significant discount of 81 percent, equivalent to Rs 7500/bag, compared to the international rates. As a result, farmers are getting an annualized benefit in excess of Rs 350 billion and the country is expected to save $ 3 billion in import substitution during 2021.

He commended the PTI Government for its vision to transform the agriculture sector of Pakistan and supportive policies that enabled the fertilizer sector to reduce urea prices by Rs 400/bag last year. Imran declared that in the absence of a strong local fertilizer industry, Pakistan would have faced at best massive urea shortages like India where landed urea imports are costing as much as $1000 / ton, or even more dire an all-out food emergency as currently being experienced in Sri Lanka.

Imran pointed out that the real issue being faced by the local farmers is the global hike in DAP prices by over 100% that has reflected locally as well as majority of DAP demand is met through imports. To promote balanced mix of fertilizers for higher crop productivity, the Government must urgently provide the farmers relief by implementing the much-promised DAP subsidy. Currently, the subsidy on DAP is being extended only by the Government of Punjab. The Federal Government should convince and mobilize other provincial governments to immediately allocate funding for phosphatic fertilizer subsid for Rabi 2021-22.

It has been widely recommended by the farming community that the Government should increase the subsidy amount to Rs 2,000/bag in view of the current prices of DAP. Further, the subsidy should not be restricted to number of bags, but instead be based on land holding and recommended dose for the farmers. For the now commenced Rabi season, the Government has very prudently agreed to proceed with disbursement of the subsidy through the usual method of stickers/vouchers. The Government is to be recognized for its adaptability realizing that given the longer than expected duration for the complete roll out of the Kissan Card system, the proven voucher process should be continued for providing timely relief to farmers. The multi-featured Kissan Card is expected to be fully implemented and scaled up by the next season.

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