Developing fertilizer industry for sustainable growth
By Farooq Paracha

The demand for urea in Pakistan far exceeds the local production capacity and therefore the rest has to be imported and distributed by the industry. The main market for urea is wheat growers, followed by cotton growers and then rice and sugarcane cultivators. Wheat has the highest acreage under cultivation and therefore has the highest demand while sugarcane requires the highest application of fertilizer.

According to an estimate, around 5.0 million tonnes of urea is consumed in the country in which more than 50 percent is utilised in the rabi season only. The rabi season has sowing in September to December and harvesting in February to May for sugarcane and wheat, which form the main market for urea.

The prices of fertilizer have been deregulated partially since 1986 and completely since 1993. In such a scenario, the industry has the option of setting prices. The current subsidy, as we know, provided by the government is Rs 153 per bag. The international demand for urea is very high, thus if surplus urea can be produced then this surplus can be exported at a much higher rate in the international market and earn the much needed foreign exchange for the country. Given the prevailing rise in international prices, the fertilizer industry can make a higher profit if it starts exporting its surplus production. The current spot price of imported urea is Rs 1,327 per bag while the government subsidy for feed gas, as mentioned earlier, is Rs 153 per bag. This means that in terms of international pricing, the subsidy-adjusted price would be Rs 1174 per bag. This implies that the urea manufacturing industry is selling their output at a lower price than the international market, this is fertilizer industry's way of passing on the subsidy to the local farmers.

Moreover, the urea manufacturing industry as a whole has passed on Rs 78 billion as price subsidy to the farmers over the last four-year period. This is net of the Rs 42 billion subsidy provided by the government during the same four years period through low feed gas price. The total price subsidy amount passed on by the urea manufacturing industry in 2007 is likely to be higher than the previous year.

There are several factors which contribute to the increase in input cost of urea production - general inflationary trend in the economy, cost of logistics (movement and storage of products), warehousing, spare parts, human resource including external resource hiring cost, investment in production efficiency, BMR (balancing, modernization and replacement) of machinery and plants, environment responsibility cost and the demand and supply mechanism. The fertilizer sector in Pakistan has made huge investments in environmentally sound technologies such as end-of-pipe technologies as well as in-plant improvements or cleaner production measures. It is pure business logic for all the players to improve profit margins and lower input costs in order to assure long-term business sustainability.

The role of research and development (R&D) in the fertilizer industry cannot be emphasized enough. R&D focuses on the improvement of efficiency, profitability for farmers and the minimization of environmental impacts. The objective is to support sustainability in agricultural growth and the promotion of economic growth. The fertilizer industry is also a powerhouse for providing well-trained manpower for overseas markets, such as Africa, the Middle East, EU, USA, and Australia.

Being a major stakeholder of agriculture sector, and directly involved in imports, manufacturing and distribution of fertilizers, the fertilizer industry shares the responsibility of promoting balanced use of plant nutrients in the country. The fertilizer industry has taken a number of steps to fulfil this obligation in the past, and it continues to act in a responsible manner to serve the farming community of the country. The recent decision to increase urea price has been taken in the light of an overall aim of maintaining effective and adequate use of fertilizer to increase agricultural production efficiency and promote long-term sustainability.