Subsidy on DAP and Urea have cost the government Rs 20 billion in 2006-07, sources told Business Recorder. However, the subsidy given on these two key fertilisers have not worked to the expectations of the government as it did not substantially increase per acre yield.
Historically, the government used to subsidise urea to increase crops'' output. However, it changed the mode by subsidising DAP by cutting down its prices by Rs 470 per bag last year. The policy makers gave the logic for bringing DAP into subsidy regime that subsidy on urea was attracting growers for its unnecessary use which adversely affects the fertility of the land. They advocated that a switch over was needed to subsidise DAP to make it affordable for the growers.
The matter was presented before ECC which approved the proposal and allowed subsidy on DAP and urea. Actual cost of one bag of urea ranges between Rs 1150 and Rs 1200 but its subsidised by the government more than half of its price to make affordable for the growers. The subsidised price of urea costs the growers Rs 530 per bag. In the case of DAP, subsidy is over Rs 470 and it costs the growers Rs 1100 a bag.
The subsidy on urea is not needed now since the local manufacturers are meeting the entire demand of the growers. But DAP will remain in subsidised regime as the local producers contribute only 30 percent of the demand. The remaining 70 percent DAP is provided to the growers from import.
The share of local production in DAP is likely to increase to 50 percent by the end of the current calendar year as Fauji Fertiliser Company is expanding its only DAP producing plant to increase its production from 500 tons to 750 tons. Pakistan''s DAP annual consumption is 1.2 million tons.
According to the sources, the government born subsidy of Rs 20 billion in the last fiscal for DAP and urea in order to increase 15 to 20 percent yield per acre, but it observed that average out put per acre remained the same in the last six months.
The failure in getting any positive result is worrying the policy makers. They may find some other way out to increase per acre yield to increase agricultural production. The matter may be again taken back to ECC with some alternative proposal for cutting down DAP and urea prices.