The recent fertiliser statistics for February 2011 released by the National Fertilizer Development Centre (NFDC) posted a rather stable picture of the fertiliser application during the ongoing Rabi season - with both urea and DAP off-take slightly edging higher over the previous year.
But this is for those who see the glass half full; those who see it half empty can look at the calendar year to date statistics, which show that urea and DAP demand shrank by 18 and 21 percent respectively. And this trend, some analysts believe, is likely to continue for the upcoming Kharif season for multiple reasons.
"Urea demand will definitely take a hit as urea priced at Rs1250/bag was unimaginable three months back. We may witness a 10-12 percent drop in urea off-take after the GST imposition," said a prominent agriculturist speaking to BR Research earlier this month.
The expected dip in the off-take does not seem to have been realised by the NFDC - which foresees a modest growth in the Kharif season for reasons best known to them.
The fear of a steep decline in urea off-take by the farmers bodies might be a bit exaggerated though, as they will have no option but to apply the nitrogenous fertiliser. It should be kept in mind that urea prices, even after the imposition of GST, will remain at a steep discount to international prices. That, coupled with farmers improved economy, is enough reason to believe that the fall in urea off-take may not be as drastic as feared by some.
But the same cannot be said of DAP demand in the days to come. Latest news reports suggest that the price of the all important phosphate fertiliser has been raised to nearly Rs4000/bag. This is a sudden 24 percent increase from the last recorded prices in February, as the conflux of GST imposition and the uptick in international DAP and Phosacid prices has resulted in all-time high DAP prices in Pakistan.
Agreed, the farmers economy has tremendously improved - but there is documented evidence of farmers not applying DAP when the prices soar to such high levels, as was witnessed in 2008. Not only will it worsen the already abysmal NP ratio, but it will also adversely affect the performance of the sole DAP producer, FFBL.
To add to the agony, the prices of tractors and other farming inputs are also bound to increase, which will put added pressure on farmers - and the axe, as always will fall on the DAP application. The government will be keeping a close eye on the demand trends in the Kharif season, and if the off-take doesn kick off, subsidising DAP may well be the response.
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