Fertiliser producers have increased urea prices for growers by Rs15, taking its rates from Rs510 to Rs525 per bag. The increase has been made in two phases. The first upward revision of Rs10 per urea bag was made on June 30, as producers were ready to pass on 15 percent increase in gas rates to the farm sector from July 1.
They pre-empted to adjust prices with immediate effect. But factual increase in gas rates was 20 percent, 5 percent more than expected. They again reviewed its impact on urea and increased the price by Rs5 per bag from July 5.
Industry sources said the net impact of gas increase and other factors, which contributed to take urea prices to new height, was Rs20, but the industry absorbed Rs5 and passed on only Rs15 to growers. They said the industry was following a policy of passing on minimum burden to growers and adjust some of it to keep the ball rolling. They were of the view the industry understands that the agriculture was passing through a difficult phase and it needs some protection.
The recent upward revision in gas prices is the major reason of the increase. However, three other factors, which contributed in the increase of urea rates, were surge in withholding tax for haulage contractors, rising inflation and freight charges to transport urea from factory to retailers. Producers see big increase in inflation due to upward revision in gas rates and they adjusted it in the prices of urea.
Like many other areas, the government had increased withholding tax for haulage contractors from 2 to 6 percent from July 1. This added Rs2 in a urea bag price as contractors, who provide services to fertiliser producers at very marginal rates, could not adjust such a big increase in withholding tax.
Sources said the industry took into account the impact of recent gas increase and revised urea rates for growers. They said the increase was imminent after big increase in gas rates.
The government had revised gas rates for fertiliser industry by 20 percent from July 1. This included 10 percent increase each in feedstock and fuel gas rates.
Reasons may solid enough for the increase, but surging urea prices will doubtlessly add to the agriculture sector's woes. Policy-makers are perhaps not taking all factors into account before going for big increase in agricultural inputs.
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