Preview

The federal budget soothed quit a few jittery nerves in the farmers' community. There was ambiguity creeping in, which had resulted in way below average 1Q urea off-take. Uncertainty may well have ended, as Ishaq Dar in his budget speech talked of maintaining urea prices at current market rate of Rs1,400 per bag.

The National Fertilizer Development Centre recently released fertilizer statistics for April which coincides with the beginning of the new Kharif season. The numbers look unimpressive, without being too worrisome. Urea off-take for April stood at 0.25 million tons, slightly more than last year, and a bit under the five-year month average. The lackluster buying pattern appears understandable as the numbers reflect pre-budget buying.

Expect urea off-take to gather pace from June onwards. Partly, because the government has announced continuation of the subsidy. And partly because inventory to the tune of 0.25 million tons of stockpile sitting with the National Fertilizer Marketing Limited (NFML), will be sold at a concessional rate of Rs1,000 per bag.

On the other hand, urea subsidy mechanism needs more clarity. Government has decided to discontinue portion of cash subsidy and rightly so, but the same has not been compensated in the form of GST reduction on raw material. GST on urea has been maintained at 5 percent, whereas that on feedstock natural gas has been slashed. But that will still leave a room of Rs50-70 per bag that needs some taker. And from what it appears, the brunt will have to be faced by the manufacturers themselves.

All this while, DAP off-take has shown good progress on the back of subsidy announced last year, which has been continued this year. Balanced fertilization has long been a dream in Pakistan, and it was the first time in recallable memory that the NP application ratio to the soil in Pakistan was below 3 percent, at 2.5 percent in 2016. These are healthy signs, and should the price support continue, could result in better yields, better methods, and resultantly better farm economy

Copyright Business Recorder, 2017