KARACHI
The farmers are purchasing a urea bag at Rs2,300-Rs2,400 against the government’s fixed price of Rs1,800, a research report issued by the AKD Securities revealed.
According to the report, “The farmers have been forced to pay a premium of 30-35 percent over the official prices.” It said that as the Rabi sowing season is in full swing, the news of fertilizer unavailability in Sindh and Punjab has caught media attention, despite 11.6 percent increase in urea offtakes in the calendar year to date (CYTD).
The disparities in the local and international urea prices, where the international prices of urea have touched Rs9,500 per bag (premium of 427 percent) as opposed to administered domestic price of urea of Rs1,800/bag, may be the reason behind the shortfall in the local market, said the report.
According to the report, huge disparity in prices of urea in local and international markets has opened a window for unwanted trading activities by the middleman which is resulting in availability of urea in the local market and may dent the yield per acre of wheat during the Rabi season.
However, strong administrative measures and robust farm income is expected to allow farmers to sail through this period. Though the yields of wheat crop are expected to come-off slightly, the government has enough inventory on hand to manage the price fluctuations in the short-term.
The report said that wheat, the chief Rabi crop of the country, is currently in the sowing stages. The crop requires 3 bags of urea per acre, translating into annual demand of urea of around 3.4 million MT from wheat. However, the unavailability of fertilizers during the season may dent the overall production of the commodity where the average yield over the past 5 years has remained stagnant around 1.15MT/acre.
The annual production of wheat during the last many years has averaged around 2.5 million MT while the same clocked in at 2.7 million MT last year and the government imported another 3.6 million MT last year to manage the supply gaps. Consequently, there is ample supply of the commodity in hand but the shortfall of this year’s production may result in prices going north next season. To this end, every 5 percent increase in prices of wheat results in an inflationary impact of 23bps on a month-on-month basis.
The report said that commodity bull run and bumper crop production last season have improved farmers’ income significantly, therefore, the farmer is less sensitive to the increase in price of inputs. Also, the support prices of wheat have been revised up to Rs2,200/bag in Sindh and Rs1,950/bag by Centre, which has increased the price tolerance even further.
“Also, we have seen strong administrative measures taken by the federal and provincial governments over the last few weeks, discouraging the hoarders, which has also served to improve the availability of fertilizers in both Punjab and Sindh,” said the report.
