July numbers released by the National Fertiliser Development Centre show healthy signs of higher fertiliser application and lower prices; however the fertiliser application mix still remains a cause for concern. Urea off-take, with the top dressing on cotton and sugarcane picking up, increased by a massive 26 percent during the month which took the seven month figures to an all time high of 3.21 million tons.
On the other side, DAP fertiliser sales continued to impress, as the ever reducing international prices helped July sales to be on a record high of 0.226 million tons. The overall seven month figures were not disappointing either, registering a healthy growth of 300 percent - many thanks to reduced prices.
Urea prices remained almost unchanged mainly because of a 3 percent increase during the prior month, anticipating feedstock cost increase. The historic trend dictates that urea prices mostly pick up during the period between August and October, coupled with a possible 10 percent price increase during this period.
DAP prices in the international market continue to fall for the sixth straight month as they slipped 5 percent to USD 295/ton during July 2009. However, local market prices do not fall by the same magnitude for two reasons: a) rupee devaluation make imports expensive b) importers keep higher margins in low price scenario as local production is limited. As a matter of fact, DAP price in international market has slipped by 59 percent in 7 months as against 39 percent reduction in local market along with 6 percent currency devaluation.
Urea imports are on an alarmingly high level, signalling farmers increased interest in urea due to improved economies. The numbers lead to the assumption that 2009 will register highest ever urea sales in Pakistan. This sounds heartening but it has its darker side as well; the fear of Urea:DAP application ratio touching last year levels of 7.33:1. Bear in mind that the ideal application ratio is 2:1 which has never been achieved in Pakistan.
Farmers, so far, are happy buying DAP because it is available at a reasonable price, but, if or when prices rise another 30 percent, they will not waste a moment to halt DAP application,. And this fear is not for a period looming sometime in the distant future - it could, rather, be trouble brewing in the present that the government has not yet realized and could boil over at any moment.
Sulphur and Phosphoric rock prices have started creeping up in the international market following the general commodity price trend. This will lead to higher Phosacid price, couple it with currency devaluation and it could be a disaster recipe for Pakistan - just like last year.
It is possible that DAP prices may not go as high as feared, but the government should realise the importance of the matter and should work on a subsidy mechanism for DAP. Complacency and long delays caused the agricultural sector a great deal of damage last year - and our already ailing economy certainly cant take another blow. It is time to be proactive.