Zuhair Ali Khan
The fertilizer industry of Pakistan has enormous potential and is well on its way to becoming one of the biggest fertilizer exporters in the region in the coming years. Factors that are directly contributing to these forecasts are the recent issuance of LNG regasification licences and the establishment of new fertilizer plants by prominent organizations within the country.
Being primarily an agrarian state, Pakistan’s growth is heavily dependent on the fertilizer industry. According to reports, Pakistan’s fertilizer demand has always remained higher than its supply. However, with the advancement of technology and increased number of players in the industry, production capacity has increased to over 6 million tons per year, which has consistently been surpassing the national demand over the last few years. Furthermore, the consumption of fertilizer has increased manifold due to heightened awareness among farmers that its usage in good quantity is fruitful for higher yields and a significant increase in their income as the commodity is provided them on subsidized rates.
In the first half of 2018 alone, cumulative sales of urea increased 45% to 1.63 million tons and DAP sales edged up 6% to 434,000 tons. Moreover, with the onset of Kharif sowing season, a further pick-up in demand for urea can be foreseen. Also, comfortable inventory levels of urea and DAP have improved pricing power for local fertilizer manufacturers and as a result, average urea price has increased by 4.70% month-on-month. At present, international urea and DAP prices were hovering around $240 and $385 per ton, respectively, and are expected to remain steady which, along with removal of price cap (Rs 1,400 per bag) from urea, would provide an added advantage to local manufacturers.
Besides passing on the benefits of tax incentives and gas subsidy to farmers, we must appreciate that the fertilizer industry has always looked beyond profitability. Major key players in the fertilizer industry have very actively been serving, educating and empowering the farming community through valuable developmental initiatives in partnership with various welfare and financial institutions. These enterprises pursue an elaborate philosophy to share their success with the community around them, by fulfilling their Corporate Social Responsibility (CSR) and contributing towards the prosperous growth of the nation.
These key players in Pakistan’s fertilizer industry spend generously on improving the healthcare and educational facilities in many deprived regions. They install renewable power projects to reduce the energy crisis and provide relief during major calamities or disasters in the country. While following traditions of good-governance and transparency as well as paying all their taxes prudently as they absorb the substantial part of taxes or GIDC levied on the industry, they are contributing significantly in helping to revive the poor farming community. Most importantly, they have played a major role in reducing imports to save precious foreign exchange and improve food security in the country.
Currently, in Pakistan, there are six major producers of fertilizers which include Fauji Fertilizer, Engro Fertilizer Company, Dawood Hercules, and Fatima Fertilizers. Media reports suggest that the Chinese government is keenly looking for avenues to enter Pakistan’s agriculture and fertilizer sector. The Chinese state and banks are expected to provide capital and loans to Chinese companies interested in setting up ventures in Pakistan. There are rumours that China is going to set up a fertilizer plant that will produce 800,000 tons per year.
In order to keep the graph of the fertilizer industry stable, the government should and must avoid knee-jerk decisions pertaining to GIDC and GST, as it has displayed in the past. Over the years, this essential industry has been suffering due to these unfavourable policies and decisions. Thus, the government should strategically extend more support for the fertilizer sector, enabling it to play a more authoritative role in national food-security. The government should expedite remedy of cash-flow challenges caused by large amounts mired in overdue refunds and sluggish reimbursement of subsidy to the fertilizer companies.
