Fertilizer: another middling year

Another year went by and the yearly urea off-take remained under 6 million tons. The last time it went beyond the mark was way back in 2010. Ever since it has averaged 5.6 million tons. No wonder Pakistan’s agriculture growth, area under cultivation, and yields have not been anything to write home about.

The urea application in CY18 went down by 1 percent year-on-year at 5.81 million tons – while that of DAP went down by 6 percent year-on-year to 2.23 million tons. The much increased awareness of the usage of phosphate fertilizer has resulted in improved balanced fertilizer ratio at 2.6:1, having remained north of 4:1 during CY10-CY15. Continuation of subsidy on DAP has played its vital role in keeping the DAP usage up.

That said, the total speeding on urea and DAP combined in CY18 was 17 percent higher at Rs305 billion. All of it is attributed to higher average product prices. Urea was dearer by an average 16 percent year-on-year, with December price almost touching Rs1800/bag – a 27 percent increase from the start of the year. DAP price averaged even higher at Rs3276/bag with a 25 percent year-on-year increase – having increased 27 percent throughout the year.

The urea and DAP spending has crossed Rs300 billion for the first time since CY15 – having amounted to Rs260 billion in previous two years. Hardly any movement in the whole equation is volume driven – apart from DAP, which goes on to show the farm income for CY18 would be poorer in terms of margin – as clearly, the product prices could not have gone up in the same proportion.

The DAP to urea spending ratio at 39 percent for CY18 is the highest ever. A rupee is being spent on DAP for every Rs1.53 spent on urea, which is an improvement from a rupee on every two rupees on urea till CY16. The government has announced removing GIDC on fertilizer feedstock consumption, which could lead to a reduction of Rs200/bag or 11 percent in urea prices.

This could prove vital to keep the demand going at current pace – if not further improve. The farm economy should do better this time around, as tube well electricity prices have also been halved. Whether or not this results in higher application in terms of volume or better yields remains to be seen – but it will surely offer better profit margins to the farmers.