The federal government has imposed a federal excise duty of up to 5 percent in Budget 2023-24 on the fertilizer sector in a bid to secure an IMF tranche.
“Federal Excise Duty will be passed to the end consumer, and it can lead to an impact of Rs. 150 and Rs. 475 per bag for Urea and DAP”, commented Tahir Abbas, Head of Research at Arif Habib Limited talking exclusively to ProPakistani. He added It will further put pressure on the DAP offtake as the prices are already at historic high levels.
The government has also removed the tax exemptions on the DAP and the differential claim will not be allowed, according to JS Global.
Urea is already selling at Rs. 3,000 to Rs. 3,250, way higher than its notified rate. DAP is notified at Rs. 9,000 to Rs. 9,500 per bag but selling at Rs. 7,800 to Rs. 8,000 in the market due to lower demand and older stocks in the inventories.
It should be noted that while Pakistan is evidently self-sufficient in Urea production, in times of gas shortage as in Winters, the resulting Urea deficit is met by either imports which are subsidized, or supplying imported RLNG to Fatima and Agritech plants. DAP is majorly imported anyway with only a single local production plant and low-quality local phosphate reserves.
DAP consumption has nearly halved in the past two years from 2.2 million tones to 1.2 million tons due to prevailing unaffordability and this further price hike will further put it out of the reach of farmers ultimately threatening their livelihood and the national food security as these nutrients play a critical role in increasing yield 30-50 percent.
The government is looking to collect Rs. 95 billion through the imposition of sales tax on fertilizers and other agri inputs. The government on Saturday announced Rs. 215 billion in new taxes in a last-ditch effort to woo IMF into a staff-level agreement just a few days before the end of the fiscal year, although the government is still waiting for a response as Pakistan remains absent from the IMF agenda.
The All Pakistan Kissan Itthehad (APKI) raised objections to the expected price hike as fertilizer use is critical for productivity in cotton, wheat, rice, sugarcane, and maize crops. The farmers’ body projects an Rs. 260 billion loss to GDP as price hike force farmers to stop using fertilizers and reduce productivity by five percent.
“Urea has never been sold on notified rates regardless if it was Rs. 1700 per bag or Rs. 2,560 per bag. Farmers did not get Urea and DAP in 2021-21 and last year, farmers paid up to Rs. 700 higher than notified rate,” stated Zafar Tahir Secretary General APKI talking exclusively to ProPakistani.
He alleged that district administrations were involved in urea price manipulation, and if DAP is selling less than invoiced and urea is not available at the notified rate, this suggests that urea is being black-marketed right under the government’s nose. He further said since narcotics smuggling can be traced and checked, what is keeping the government from cracking down on urea smuggling?
He hinted at possible protests and said the All Pakistan Kissan Ittehad will hold its central meeting after Eid and decide accordingly.
The only thing the government needs to put in place is the track and trace system for fertilizer supply as done in the sugar sector,” highlighted Aamer Hayat Bhandara, co-founder of Agriculture Republic Think Tank.
He added that if done efficiently farmers will still get Urea at lower than the current prices even after paying the FED (imposed by the government to secure the IMF 9th review program), and it can potentially eliminate every hoarder and manipulator in the market
He remarked that the government will need to access the details of how much fertilizer was supplied to which dealers and cross-check that with the farmers and should strengthen and task district administration to raid dealers the same way it’s regulating the Wheat market.
