Urea import to create supply glut in overstocked market

  • 21-Jun-2019
  • Urea import to create supply glut in overstocked market

The government's decision to import 100,000 tons urea is bound to further glut the fertiliser market, doubling the levels of monthly average closing inventory more than normal, The News has learnt.

Import process initiated by federal government will bring average monthly closing inventory of July-December 2019 period to the growing level of 442,000 tons. To check the price of fertiliser and maintain its supplies at a stable level across the country, at least 200,000 tons of urea should be in excess of demand in the market.

However, the saturation in the fertiliser market is feared to further intensify in Late Kharif (July-September) and Early Rabi (October-December), partly due to the decision of the government for unnecessary imports of urea.

Given the fact that average monthly closing inventory is projected to be 322,000 tons in Late Kharif this year and by 528,000 tons in Early Rabi, there is no rationale whatsoever of importing urea by the government, confirmed a urea industry’s representative while requesting anonymity.

Despite having 250,000 tons surplus urea already available in the market by end of May, 2019, 100,000 ton urea is being imported in next few weeks. Imports also seem unwanted as fertiliser production capacity of over a million tons is already idle in the country.

Presently, there’s no shortage of fertiliser in the country and future demand is also projected to be met from local manufacturing without any government intervention in the market. Hence, keeping in view pure economics, the decision to import urea is not a wise move as imported fertiliser will only glut the local market because of unnecessary inventory pile up with no benefit to farmers.

Meanwhile, market insiders are of the view that import of urea will require significant amount of money including foreign exchange of $30 million. The total expenditure of Rs6.2 billion on import of 100,000 tons urea including its cost and subsidy of Rs877/bag could have easily been avoided since the local fertiliser industry is equipped with urea manufacturing capacity of 7 million tons against the average demand of 5.8 million tons. Farmers are also not comfortable with the federal government's decision.

Khalid Khokhar, chairman, Pakistan Kissan Ittehad, said there must be no imports of products being produced or manufactured in the country, adding that the government should encourage local industry to meet demand of fertiliser instead of going for costly imports.

According to market insiders, Pakistan Tehreek-e-Insaf’s (PTI) economic decision-making is a classic case of misplaced priorities while the government faces tough conditions on foreign exchange and external payments front, its economic team is hell bent on importing urea unnecessarily.

Despite growing fiscal pressures, this decision would not only put unnecessary burden on reserves but would also require subsidy for the expensive imported urea to be sold in local market, the market officials insisted.

Apart from the financial burden on the national economy, the distribution of imported urea will also lead to creating distortions in the market, keeping in view past experience of this exercise. As per government's plan, distribution of urea will be made by National Fertiliser Marketing Ltd (NFML), a state owned enterprise, which had allegedly been involved in allocation of fertiliser quota to blue-eyed persons.

Farmers and other stakeholders had expressed serious reservations over uneven distribution of imported fertiliser by NFML in the past that led to profiteering and black marketing. The NFML is also known to struggle with operational issues pertaining to placement of product which ultimately results in its price hike due to inefficient distribution of products.

However, the government’s recent decision to import urea arguably favors the existence of the NFML and its alleged favourtism in distribution of commodity. The government move is in fact sending negative signals to the stakeholders, especially local fertiliser manufacturers.

An analyst said the prevalent financial crunch required concentrated government efforts aimed at driving the local industry to enable import substitution and enhance exports, taking cues from other progressive economies banking on a robust local industry. A fertiliser industry official said local urea manufacturers had been playing a vital role in the development of the agricultural sector and had continued to invest in building local manufacturing capacity.

It is therefore imperative that government refrain from wasting the valuable foreign exchange and also widening the fiscal gap by subsidising imported urea when the local industry is fully equipped to fulfill the domestic urea demand at a much lower cost.

Source :- Thenews.com.pk

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