Reasons behind growth of black market in urea highlighted

ISLAMABAD: As the local fertilizer industry has continued to ensure adequate and affordable supply of urea, unprecedented discount over import parity has led to black marketing and market manipulation by middlemen.

Figures of Pakistan Bureau of Statistics (PBS) for the week ended on October 28 reveal that urea retail price witnessed a week-on-week increase from Rs1822/bag to Rs1860/bag. Similarly, DAP was also being sold in the market for Rs7036/bag compared to Rs 6762 bag from the earlier week.

According to Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), the local industry is providing urea at a significant discount of over Rs7,500 compared to the Middle East urea prices (FOB) that have climbed to $814/ton. As a result of the significantly lower prices, the local fertilizer industry will save farmers from an additional burden of over Rs360 billion in 2021.

Urea and DAP have continued to display robust demand owing to improving farm economics and better support prices announced by the government.

During the first nine months of the year, urea sales grew by 11% to be recorded at 4,636 KT tons. Despite the massive surge in global rates, DAP sales have also remained strong and declined only due to challenges in the implementation of a nationwide subsidy scheme. There is no shortage of the commodities as the local industry has ensured consistent fertilizers supply.

Further, the Government has also issued an import tender of 100,000 tons to beef up safety stock of urea.

Industry sources claim that such significantly discounted urea selling prices have led to market distortion that is expected whenever there is such a disparity between domestic and international prices.

This may be witnessed by the fact that urea is being traded at a premium of around Rs150 per bag over the dealer transfer pricing by fertilizers manufacturers. Such lower prices and resultant market manipulation are neither helping the farmers nor government.

“Farmers are paying the higher prices that they may afford, while dealers are benefiting from this opportunity without leading to any incremental tax revenues for the government,” said the sources.

Copyright Business Recorder, 2021