Subsidies to the agriculture sector are in vogue all over the world for food security. Fertiliser subsidy, in Pakistan, has probably been one of the most hotly debated issues in the past. However, the subject was never well understood for an informed debate. Such a dangerous situation may lead to any knee-jerk decision by the present government.
Therefore, it must be understood in true perspective. The Fertiliser Policy 2001 aimed to keep the prices of fertiliser to a reasonable level and below the international price to ensure food security. Agriculture sector contributes 21.4 percent to GDP and local fertiliser industry has the capacity to meet the national needs and may be able to export, if the plants are run to their full capacity.
Unfortunately that is not the case as they face curtailment of gas which is used as raw material for urea. The gap between demand and supply is met through imports at much higher price (Rs 2455 per bag) and selling it at subsidised rates closer to local price (varying between Rs 1440 to 1600). Besides foreign exchange and support purchase prices, subsidies on imported fertiliser account for a significant share of the total support to agriculture. In India fertiliser subsidies have increased by about 560 percent in five years.
As far as local fertiliser industry is concerned, it gets gas at relatively lower price; the so-called subsidy. In simple terms, the government in 2012 paid Rs 1015 per bag on the imported urea. It contributed Rs 250 per bag through gas price differential, while the fertiliser industry passed on Rs 765 per bag to the farmers. So we must understand that it is the farmer who is benefiting from the current system of fertiliser subsidies besides the importers and distributors of imported urea. Secondly, the impact of removal of fertiliser subsidies on fertiliser will lead to exposing the farmers to higher inputs resulting in lower yield and higher prices, hence a big shock to food security. The fertiliser subsidy seeks to promote fertiliser consumption, increase agricultural productivity and maintain national food security.
The recent discussions at Prime Minister's office indicate that the feed-sock gas prices are likely to be raised by 300 percent. Higher gas prices will force closure of some plants which are already under financial stress. In that scenario, Pakistan's fertiliser requirements would go up which, in turn, will impact the international demand and prices. This will have serious consequences for Pakistan in terms of higher requirements of forex and subsidy.
It is also in air that it has been recommended by some quarters that fertiliser subsidy to be provided to farmers - a major shift from the existing system. This has serious implications, which must be studied before deciding. Firstly, there is no database to decide the share of subsidy for individual farmers. Secondly, most farmers are not having access to bank accounts as more than 50 percent villages do not have branches of banks. Thirdly, majority of the farmers lacks purchasing power as well as access to institutional credit, especially small and marginal farmers and tenant cultivators. If subsidies are to be released after the purchase at full cost, there would be problem of getting money for buying fertilisers and it might adversely affect fertiliser use.
Fourthly, more areas are under informal/oral tenancy and bulk of tenants are landless labourers and small and marginal farmers. Fifthly, the role of market forces and imports in fertiliser pricing and distribution and removal of the fertiliser subsidy may eventually lead to increased exposure to volatile global markets and compromise on social goals of poverty reduction, self-sufficiency and equity.
Hence, there is a need to have a long-term consistent fertiliser policy without compromising food security and livelihood of millions of smallholders in the country. It may be politically right to divert gas from fertiliser sector to power sector, but that is going to have very severe adverse effect on agriculture sector. Not only will it lead to serious food crisis it will also impact negatively on national economy. Moreover, we are likely to destroy indigenous fertiliser sector, which is top taxpayer, employer and above all we will lose highly skilled manpower essential for national development. It is hoped that Prime Minister with his industrial background will forestall such short sighted suggestions.
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