With a domestic production estimate of around 5.8 million tons (MT) urea against the annual production capacity of 6.9 MT in the country Pakistan would have to import over 1.15 MT of urea during the year 2011 to meet the domestic requirement of current Kharif and Rabi seasons.
According to experts, due to high international prices of urea, government would have to spend huge foreign exchange on urea imports. During the last six months, Government of Pakistan (GOP) has imported around 240,000 tones urea and another 127,000 tones is expected to arrive in the country in August 2011.
Industry sources estimate that an amount of approximately Rs 11 billion is being paid out in shape of subsidy for this tonnage, whereas if the urea shortage situation continues, this amount is likely to increase to around Rs 40 billion for the required quantity of 1,150MT for the year 2011. They said that even International prices and availability is quite volatile so this delayed and less than required imports will create short supply, chaos and will support irrational profit making by the middleman.
Imported urea has its own cost but there seems to be no other option but to go for this expensive exercise to save our agriculture. If required urea quantity is not available for the farmers, the combined effect of urea shortage during 2011 on production of major crops in monetary terms will be Rs 72.49 billion, sources said.
Agriculture analysts estimate that the decrease in yield/production of crops due to 10 percent decline in urea off take will be around 5 percent. The total expected production of cotton for the year 2011-12 is 15.2 million bales. The worth of this production based on current market prices is Rs 360 billion. Decrease in production due to less urea usage will be 0.76 million bales. This will result in a loss of Rs 18 billion.
Projected total production of rice for the year 2011-12 is 6.61 million tonnes. The worth of this production is Rs 495.96 billion. In this case the decline in production will be 0.33 million tonnes. The worth of this cutback is Rs 24.80 billion. The total monetary loss from these two major kharif crops is assessed at Rs 42.80 billion.
The gas curtailment will further aggravate the situation during the coming Rabi (wheat season) due to multiplied effect of decline in yield of kharif crops, lower availability and higher prices of fertilisers. Ignoring other attributes the impact of fertiliser alone on coming wheat crop is assessed at Rs 29.70 billion. As the production target of wheat for the year 2011-12 is 25.0 million tonnes therefore, five percent decrease in production will be 1.25 million tonnes.
Government has recently imposed 16 percent GST on all fertilisers which have resulted in further increase of prices and this situation will result in imbalanced and insufficient use of fertilisers. During January-June, 2011 limited availability and higher prices of urea restricted its usage and urea off-take declined by 12 percent. April-June, 2011 witnessed 10 percent decline in urea off take. This decrease in use of fertiliser will definitely affect the yield of major crops like wheat, cotton, rice and sugarcane the agriculture analysts feared.
Industry sources further said that gas curtailment and irregular gas supply has increased the cost of production of fertiliser manufacturing companies which compelled them to increase urea prices in order to continue their business operations. Although all nutrients are important for yield enhancement of crops the importance of nitrogenous fertiliser is uppermost.
Urea is the major fertiliser consumed in Pakistan with 72 percent share in the total fertiliser off-take. Its consumption in the country during 2010 was 6,114 MT, whereas domestic urea production was 5,150MT. The gap between supply and demand was filled by the imports of around 886 MT by the Government of Pakistan (GOP). Keeping in view the historical trends of growth, the total urea requirement of the country is estimated to be 6,300 MT during the year 2011.
Agriculture is the mainstay of the economy of Pakistan as it provides employment to more than 45 percent of the population and raw material to agri based industries. Agriculture has lost significant growth momentum as it has dropped down to 2.7 percent during 2000-2010 as against 4.4 percent during 1990s and 5.4 percent during 1980s.
Agriculture analysts say that during 2009-10 and 2010-11 the growth trend in major crops have declined by 2.4 percent and 4.0 percent respectively. Pakistan is amongst the countries which have highest population growth rate, current population growth rate being 2.07 per cent per annum. The population in the year 2008 was 166.41 million and it is estimated to be more than double in the year 2045, if it continues to grow at the current growth rate.
However, the cropped area is going to increase from 23.67 million hectare to 26.15 million hectare by 2030 at a growth rate of only 0.5 percent. As a result, per capita cropped area availability will decrease from 0.1364 hectare to 0.1 hectare by 2030. For national food security of the increasing population, Pakistan has to bring more land under cultivation and has to produce more food from the available land to match the current food requirement of 140 kg per capita.
There is a wide gap between current yield and yield potential of major crops in Pakistan due to so many bottle necks. Insufficient and imbalanced use of fertiliser is one of the factors of low crop yield, amongst others. Under these circumstances to fulfil the requirement of local industry and the dietary requirements of people, GOP will have to import wheat and cotton. A huge amount of foreign exchange will be required to serve the purpose. Similarly if the declining trend in cotton prices prevails the situation will further worsen.
Furthermore, major earnings of Pakistan's foreign exchange comes from export of rice and under prevailing situation the exports of rice will reduce leading to a major cut in foreign exchange earnings. The increase in the inputs cost means less income of the farmers and increase in the prices of commodities for general public. In addition, reduction in production of crops due to lower usage of fertilisers will also compress the purchasing power of the farmer so a vicious circle of poverty will begin, affecting the economic conditions of the farming community for the years to come.
The prices of basic food items have been significantly increased in the last few years which have badly affected food consumption of low income groups. The decline in crop production and subsequent increase in their prices would further aggravate the situation and may drastically increase the food price inflation. In view of the importance of the agriculture and fertiliser sector, the government should ensure timely and adequate availability of fertilisers at reasonable price to the farmers of the country. So that farmers who produce food for the whole nation and raw material for our industries can prosper.
Industry sources said that the food security could be ensured by adequate and smooth/ regular supply of fertilisers at affordable prices. Resultantly, the continual gas curtailment to the fertiliser sector would hurt the economy in general and agriculture sector in particular. They, therefore, urged that government must halt gas curtailment to fertiliser sector in the best of national interest.
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