Pakistan may well have a new fertilizer policy at last. It has been 17 years since the last one. But hopes are high this time, as the country even managed to have a population census after 19 years. Is a new policy really needed? Yes. Will it also be aimed at attracting fresh investment in the sector? Less likely, and rightly so too.
There is not much word out on the policy, reportedly submitted to the cabinet for approval. Whatever little has come out, does not make pretty reading, as it talks of controlling prices. Not that the government does not dictate prices today, but complete deregulation of prices has long been demanded by industry and experts alike.
The likely route to be taken is via tax reduction to reduce cost of production, and reduce subsidy. Recall that international urea prices have fallen considerably in the last 18 months, and have taken away the pricing power from local manufacturers. The government has kept the urea prices stable at Rs1400 per bag, contributing subsidies in cash, and the eve present discounted feedstock gas price.
It came all so easy, as the international prices were low enough for the government to keep the pressure on the local players. The government has always had one lever or another to pull, if and when, it aims to dictate terms. The reduced and stable urea prices have yielded better results too, as evident by a moderate increase in urea off-take during CY17 and a record year for DAP off-take.
Subsidies will continue in one form or another, as agriculture very much remains crucial to Pakistan's growth. Policies usually are not price setting dossiers, but it would be apt if the government decides to do away with GST on fertilizers, and reduce the cash subsidy. There have been numerous complains of delays in subsidy payment on account of government, which leaves the manufacturers under pressure.
Another vital avenue to look out for is how the government opts to deal with natural gas allocation and prices for fertilizer plants. The year gone by witnessed a drop in production, as plants running on imported LNG had trouble keeping the cost down, especially when the international prices have receded.
Furthermore, urea imports need to be deregulated to bring a better balance and fair play in the market. The policy must also have enough practical measures to incentivize efficient use of fertilizers. Seventeen years and counting, the dream has not been realized; as the off-take refuses to breach the 6 million tons mark, over a long period of time. Here is hoping the upcoming fertilizer policy uses innovation and awareness is used as tools to improve the ever stagnant farm yields.