The federal budget 2017-18 went a long way to address ambiguities amongst the farmers' community, especially in terms of fertilizer pricing. Channel checks suggest that urea off-take has picked up considerably in the last two months, as Dar had announced maintaining urea prices at the current market rate of Rs1400 per bag.

While the uncertainty may well have ended, urea off-take in the first five months of the calendar year and particularly in the first two months of the Kharif season has been on the lower side. May 2017 numbers have been released by the National Fertilizer Development Corporation (NFDC), and the off-take for May alone stood at a little over half a million tons.

The May urea off-take more than doubled both on month-on-month and year-on-year basis. But the average 5-month off-take is way lower than 5-year average, mainly at the back of sluggish off-take in the first quarter. From what it appears, the full year urea off-take will still struggle to surpass last year's tally, despite subsidy and low prices.

Farm economy numbers are hard to get hold of, but delay in Kharif sowing may hamper the season's off-take. The DAP off-take too has not picked up by as much as it was anticipated, but the trend is nonetheless encouraging, as the NP application ratio is continuously on the mend. The numbers right now may look unimpressive, but there is nothing to overly worry about, as the impact of subsidy continuation is yet to be reflected in off-take details.

Expect urea off-take to increase at a faster rate in the dying months of the year. Partly, because the government has announced continuation of the subsidy. Moreover, the clearance of excess stockpile sitting with the NFML has to be cleared at high concessional rates, which should spur demand, and may also compel other players to lower prices.

All said, this may be tough on the local fertilizer manufacturers, as the current subsidy mechanism does not make it a complete pass-on event. The brunt of keeping the prices at current levels, is likely to be absorbed by local players and the margins may suffer in the process.

Copyright Business Recorder, 2017