Fertilizer spending high; application stagnant

BR Research December 27, 2018

Urea off-take remained dull in November – sliding 17 percent year-on-year to 0.49 million tons. This takes the 11MCY18 urea off-take to 5.1 million tons – almost ensuring another year of urea off-take under 6 million tons. The CY18 off-take is now expected to remain unchanged from last year. Similar is the story for DAP fertilizer – which has struggled to take off and is likely to be stagnant at around 2.2 million tons for the year.

Little wonder why Pakistan’s agriculture produce and the yield have virtually stayed stagnant for a number of years. The price increase in the two key fertilizers – urea and DAP meant, farmers will end up spending 17 percent more on the input than last year. This will be the first substantial increase in fertilizer spending since CY13, but that was primarily driven by higher volumes.

The urea and DAP spending is all set to cross Rs300 billion for the year – for the first time since CY15. The farm economy was better off in the last three years as the fertilizer application cost had dipped from a high of Rs310 billion in CY14 to Rs260 billion in CY16 and CY17. The near 15 percent year-on-year increase in urea prices in CY18 is the highest yearly increase in last ten years – following two consecutive years of over 15 percent yearly decline in urea prices.

The rise in DAP prices has been more pronounced – that of 23 percent year-on-year, and counting. Barring CY15, which saw a meager rise of 2.5 percent year-on-year, DAP prices have been constantly declining. The NP ratio in CY18 so far stands at a dismal 5.21:1. Pakistan was never close to achieving the ideal application ratio of 2:1, but the last four years have seen the ratio worsened, averaging 5:1, from a much respectable 3.3:1 during CY11-CY14.

The DAP to urea spending ratio is at its highest in recallable memory, with 39 percent. But a record increase in DAP prices meant the NP ratio stayed abysmally low. It is increasingly clear farmers will exhaust all resources to procure and apply urea before any other fertilizer. The efforts should be directed at incentivizing more usage of phosphate, and other fertilizers – for balanced fertilization and better yields. Or else, the current state of affairs will continue, which does not tell a rosy tale.

Copyright Business Recorder, 2018

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