Fertilizer sales ring an alarm bell

The revelation in Mays fertilizer numbers is quite astonishing. Either the farmers have grown the sugarcane and rice crops on a larger area or the middlemen have started building inventories in anticipation of higher urea prices in the months to come.
The numbers released by the National Fertilizer Development Centre reveal an all time high in urea sales for May at 591 thousand tons, which are 27 percent higher on a year-on-year basis. The massive increase has brought the calendar year-to-date urea off-take to 1.04 million tons, up 13 percent year-on-year.
DAP off-take, on the other hand, shows a sorry picture as the figures reflect a 5-year low for May - standing at mere 49 thousand tons, going down a massive 48 percent year-on-year. This is exactly why higher overall fertilizer off-take will not necessarily result in improved crop yields.
The overall nutrient intake has remained horribly imbalanced during the first five months of CY10 - which is most likely to result in low crop yield. The NP ratio which measures the application of nitrogenous fertilizer in proportion with that of phosphate worsened to 9:1 for May and 7:1 for the five-months to date.
Mind you, the ideal NP ratio across the world is believed to be 2:1 for balanced fertilizer application and healthier yields. The strong correlation of NP ratio with crop yield is well established and a ratio as bad as this is quite an indicator of another year of lower yields.
Not that Pakistan has ever before achieved the ideal ratio, but it did come close during CY06 and CY07. The difference between then and now is that of the subsidy on DAP fertilizer, which was abolished a year ago. DAP prices in the international market have softened a bit in the last couple of months, but fears of a revival remains strong as phosacid future contracts have started shooting up of late.
As for urea, farmers or dealers booked the fertilizer in high quantities despite a 9.5 percent month-on-month increase in prices, probably citing a bigger increase as July approaches. The local manufacturers are expected to hike the urea price as a consequence of feedstock cost increase in July.
Another reason for bulk buying might be the abolishment of subsidy on imported urea in the FY11 budget, which would most likely result in substantial increase in urea prices. By the look of things, it seems that the government will find itself in a 2008-like-situation where it had to allocate a massive subsidy for DAP as abnormally high DAP prices led to negligible DAP off-take.
Whether or not the government has the budgetary capacity to do it is another question, but the fact that DAP subsidy is inevitable, if the agricultural growth target has to be met, should be very clear to one and all.