Status Paper On

Factors Attributing to Increased Urea Imports in Pakistan:

Challenges and Way Forward

r! "uhammad Shari#

Social Sciences i$ision Pakistan Agricultural %esearch Council

Islamabad& September '()*

Contents

escription 1. Introduction 2. "ethodology 3. Production and Consumption o# Urea in Pakistan 4. ,he Carry O$er Stocks and Urea Imports 5. supply and emand o# Urea in Pakistan 6. Urea Prices 7. Urea Applications 8. Challenges #or Increased Urea Imports 9. Conclusions 10. Way Forward 11. %e#erences

Page +umber ) ) ) ' * * . / 0

FAC,O%S A,,%I1U,I+2 ,O I+C%3AS3 U%3A I"PO%,S I+ PA4IS,A+: C5A663+23S A+ WA7 FO%WA% )! Introduction

Fertilizer is the most important and expensive input for produ in! an" rops in the ountr". #he ontri$ution of $alan e fertilizer for in reasin! "ield is ran!ed from 30%50 per ent in different rop produ tion s"stem of the ountr" &'o() 2013*. +F,- &2012* has ar!ued that one .! of fertilizer nutrient produ es 8 .! of ereals) 2.5 .! of otton and 114 .! of stripped su!ar ane in (a.istan. 'o( &2013* has stated that almost 100 per ent soils of the ountr" are defi ient in nitro!en) 80%90 per ent defi ient in phosphorus and 30 per ent in potassium. (a.istan has experien ed poli " shifts and han!es in the mana!ement of its domesti produ tion) import) and distri$ution s"stem of fertilizer in !eneral and urea in parti ular &/alam) 2012*. #he reforms for fertilizer se tor eliminated the su$sidies on sale pri e of fertilizer and dis$anded provin ial distri$ution or!anizations and the Fertilizer 0mports ,ire torate &F0,* in the federal 1inistr" of Food and 2!ri ulture &10+F2*) privatized the pu$li %se tor produ tion units and the !overnment3s involvement in the fertilizer se tor 4as onfined to poli " plannin! and anal"sis &+F,-) 2006*. #o safe!uard pu$li interest) ensurin! timel" availa$ilit" of fertilizers and afforda$le pri e to farmer ne essitate monitorin! of fertilizer suppl"5demand situation 4hi h is one of the ore a tivit" of +ational Fertilizer ,evelopment -entre &+F,-) 2012*. #he suppl" and demand situation of urea remained omforta$le durin! fis al "ear 2010%11 and some shorta!e of urea 4ere reported 4hi h 4ere ountered throu!h importin! urea in the ountr". 6eepin! in vie4 the a$ove $a .!round) the present exer ise is onfined to understandin! the fa tors ontri$utin! to in reasin! urea imports in (a.istan. 2. "ethodology

0n order to understand the fa tors affe tin! the in reased urea imports in (a.istan) the produ tion and onsumption of urea) arr" over sto .s and import of urea) suppl" of and demand for urea) pri es of urea) urea appli ation and impa t of lo4 use of urea has $een revie4ed and anal"zed. -hallen!es and on lusions for in reased urea imports are derived from these anal"sis. 7a" for4ards are su!!ested to redu e urea imports in (a.istan. *! Production and Consumption o# Urea in Pakistan

#he performan e of the lo al urea industr" 4as $adl" affe ted due to !as urtailment poli " sin e 1a" 2010 todate. #he urea produ tion had de lined $" 87 and 11 per ent in 2012%13 over 2005%06 and 2012%13 over 2011%12 respe tivel" &#a$le%1*. #he ma8or fa tors ontri$uted to the de linin! of urea produ tion lo all" are &i* ontinuation of !as suppl" urtailment &209 at /ui net4or. plants) and 129 on 1ari net4or.* to fertilizer &urea* industr" sin e 1a") 2010 &ii* the 4inter load sheddin! had alread" $een in reased from normal 45 da"s to 60 da"s on all net4or.s &iii* the rational load sheddin! of 15 3

da"s for fertilizer plants at /ui +orthern 'as (ipeline :td &/+'(:* in 2011%12 &iv* the fertilizer plants on /+'(: s"stem are totall" losed on a ount of !as shorta!e sin e ;une) 2012 &v* the onl" fertilizer plant lo ated at /ui /outhern 'as (ipeline :td &//'(:* is operational at 20 per ent urtailment and plant lo ated at 1ari 'as /"stem are manufa turin! urea at 12 per ent !as urtailment &+,F-) 2011*. #his poli " of !as suppl" is deterioratin! the fertilizer industr" 4hi h is resultin! lo4 urea produ tion in the ountr" &+,F-) 2012*. #he onsumption5off ta.e of urea had in reased $" 103 and 7 per ent in 2012%13 over 2005%06 and 2011%12 respe tivel". #here is a !ap $et4een produ tion and onsumption of urea in the ountr" 4hi h has in reased $" 226 per ent in 2012%13 over 2005%06. <o4ever) this !ap $et4een produ tion and onsumption has de lined $" 4 per ent in 2012%13 over 2011%12 &#a$le%1*. #his !ap is met throu!h arr" over sto .s and importin! urea. #a$le%1= (rodu tion and -onsumption of >rea Fertilizer in (a.istan 7ears Production Consumption 2005%06 4.804 5.406 2006%07 4.732 4.678 2007%08 4.925 5.579 2008%09 4.927 5.757 2009%10 5.155 6.555 2010%11 4.994 5.765 2011%12 4.686 5.992 2012%13 4.182 5.545
9 han!e in 2012%13 over 2005%06 9 han!e in 2012%13 over 2011%12 87.05 10.76 102.57 7.46

&million tonnes* 2ap

-0.602 0.054 -0.654 -0.83 -1.4 -0.771 -1.306 -1.363 226.41 -4.36

/our e= +F,- &2006)2007)2008)2009)2010)2011?2012* and 'o( &2013* 4. ,he Carry O$er Stocks and Urea Imports

#he information on the arr" over sto . and imports of urea from 2005%06 to 2011%12 is presented in ta$le%2. #he arr" over sto .s and imports of urea have in reased overtime. #he import of urea has in reased $" 100 per ent and 159 per ent in 2011%12 over 2005% 06 and 2010%11 respe tivel". #he urea 4as imported $" tradin! orporation of (a.istan $e ause of the ost onsideration &+F,-) 2012*. #he poli " of !as suppl" to urea plants has deteriorated the industr" and resulted in lo4 urea produ tion and in rease in urea imports &#a$le%2*. ,urin! fis al "ear 2011%12) (a.istan has $orne a su$sid" of @s.50.5 $illion on import of urea to $rin! the pri e of imported urea at par 4ith lo al produ ed urea and @s.47 $illion on natural !as used for feed sto . purpose in 2011%12 &+F,-) 2012*.

#a$le%2= -arr" Aver /to .s and >rea 0mports in (a.istan Bears Apenin! Calan e 0mports 2005%06 0.048 0.825 2006%07 0.242 0.281 2007%08 0.544 0.181 2008%09 0.053 0.905 2009%10 0.103 1.525 2010%11 0.226 0.635 2011%12 0.072 1.647
9 han!e in 2011%12 over 2005%06 9 han!e in 2011%12 over 2010%11 50 68 100 159

&million tonnes* #otal

0.873 0.523 0.725 0.958 1.628 0.861 1.719

/our e= +F,- &2006)2007)2008)2009)2010)2011?2012* and 'o( &2013* 5. Supply and emand o# Urea in Pakistan

#he information on the total availa$ilit"5suppl" and total off ta.e5 onsumption5 demand for urea fertilizer is presented in #a$le%3. #he suppl" of urea is sum of urea produ tion) arr" over sto . and urea imports. #he over time urea suppl" has de lined $" 14 per ent i.e. from 2005%06 to 2012%13. #he suppl" of urea has de lined $" 1 per ent onl" in 2012% 13 over 2011%12. #he demand for 5 ta.e off5 onsumption of urea has also de lined $" a$out 3 per ent from 2005%06 to 2012%13. #he demand for urea has in reased $" 7 per ent in 2012%13 over 2011%12. #he onstant in rease in urea pri es has pushed the for lo4 use of urea in the ountr" #a$le%3= /uppl" and ,emand of >rea in (a.istan
7ears Supply emand

&million tonnes*
Closing Stocks a#ter ad8ustments 9:;
0.272 0.578 0.072 0.122 0.227 0.089 0.413 0.921 -239 -123

2005%06 2006%07 2007%08 2008%09 2009%10 2010%11 2011%12 2012%13

9 han!e in 2012%13 over 2005%06 9 han!e in 2012%13 over 2011%12

5.677 5.255 5.651 5.879 6.782 5.854 6.405 6.465

-14 -1

5.405 4.677 5.579 5.757 6.555 5.765 5.992 5.544

-2.57 7

/our e= +F,- &2006)2007)2008)2009)2010)2011?2012* and 'o( &2013* /! Urea Prices

#he information on avera!e retail pri e of urea $" seasons is presented in &#a$le%4*. #he avera!e retail pri e of urea has in reased onstantl" from 2005%06 to 2012%13. #he avera!e retail pri e of urea in 6harif season has in reased $" 242 per ent in 2012%13 over 5

2005%06 4here it has in reased in @a$i season $" 232 per ent in 2012%13 over 2005%06. #he onstant in rease in urea pri es has for ed the farmers to redu e urea appli ation 4hi h has dire tl" affe ted the produ tion of rops in the ountr". 2 4ide irrational !ap $et4een ompan" and mar.et pri e on ea h produ t of fertilizer exists in the ountr". #a$le%4= 2vera!e @etail (ri es of >rea &/ona* in (a.istan
7ears 4hari# A$erage Prices 9April to Sep;
%abi A$erage Prices 9Oct to "arch;

&@s. per 50 .!*

Fiscal year a$erage price

2005%06 2006%07 2007%08 2008%09 2009%10 2010%11 2011%12 2012%13

9 han!e in 2012% 13 over 2005%06 9 han!e in 2012% 13 over 2011%12

497 523 539 691 777 861 1463 1700

242

512 535 581 747 793 997 1787 1701

232 4.81

505 529 560 719 785 929 1625 1701 237 4.64

17

/our e= +F,- &2006)2007)2008)2009)2010)2011?2012* and 'o( &2013* 0! Urea Applications

#he onstant in rease in the pri es of urea fertilizer has pushed farmers for its lo4 use 4hi h has resulted lo4 4heat produ tion $" 5 per ent durin! 2011%12 over 2010%11 &#a$le%5*. #he value of estimated 4heat loss due to lo4 fertilizer use to 4heat is a$out @s. 7 $illion in 2011%12. #a$le%5= Fertilizer >se and 7heat Bield in (a.istan 7ears Fertili<er use Percent Wheat yield 94gs=ha; Change 94g=ha; 2005%06 225 %% 2519 2006%07 214 %4.89 2716 2007%08 209 %2.34 2451 2008%09 205 %1.91 2657 2009%10 239 16.59 2553 2010%11 223 %7.53 2833 2011%12 221 %0.90 2691 /our e= +F,- &2011%12* and 'o( &2013* >! Challenges #or Increased Urea Imports Percent Change -7.82 -9.76 8.40 -3.91 10.96 -5.01

#he poli " of !as urtailment suppl" is deterioratin! the urea industr" 4hi h is resultin! lo4 urea produ tion) undue urea pri e hi.e) in rease in urea imports and su$sid" for imports and !as suppl") depletion of forei!n ex han!e reserve and erodin! of investment 6

in (a.istan. #he ma8or fa tors ontri$uted to the de linin! of urea produ tion lo all" are ontinuation of !as suppl" urtailment poli " to fertilizer &urea* industr" sin e 1a") 2010) in reased the 4inter load sheddin! from normal 45 da"s to 60 da"s on all net4or.s and permanent lose of fertilizer plants on /+'(: s"stem on a ount of !as shorta!e sin e ;une) 2012 &+F,-) 2012*. #his poli " has deteriorated the urea fertilizer industr" 4hi h has resulted lo4 urea produ tion in the ountr" &+,F-) 2012*. :o4 produ tion of urea has resulted undue urea pri e hi.e. Ane of the ma8or fa tor of undue pri e hi.e is the existen e of a 4ide irrational !ap $et4een ompan" and mar.et pri e on urea produ t in the ountr". #he use of urea fertilizer has de reased portra"in! lo4er off%ta.e5demand for urea due to lo4 urea produ tion domesti all" and onstant in rease in urea pri es. #he main ontri$utin! fa tors in urea pri e es alation are imposition of the 'eneral /ales #ax &'/#*) 'as 0nfrastru ture ,evelopment -ess &'0,-* and unpre edented !as urtailment that $adl" hit several urea plants 4ith an a!!re!ated produ tion apa it" of nearl" 2.3 million tonnes in (a.istan &+F,-) 2011*. Fertilizer. #hese fa tors has pushed the in reased imports of urea. ,urin! fis al "ear 2011%12) (a.istan has $orne a su$sid" of @s.50.5 $illion on import of urea to $rin! the pri e of imported urea at par 4ith lo al produ ed urea and @s.47 $illion on natural !as used for feed sto . purpose in 2011%12 &+F,-) 2012*. 9. Conclusions

#he urea produ tion has de lined $" 87 per ent in 2012%13 over 2005%06 in the ountr". #he lo4 urea produ tion is mainl" attri$uted to ontinuation of !as suppl" urtailment to urea industr" sin e 1a") 2010 and resulted the in rease in urea pri es and urea imports in the ountr". #he demand for urea had in reased $" 103 per ent in 2012%13 over 2005%06 and this !ap is met throu!h arr" over sto .s and urea imports. #he import of urea has in reased $" 100 per ent in 2011%12 over 2005%06. #he urea import has in reased $" 159 per ent 2011%12 over 2010%11. ,urin! fis al "ear 2011%12) (a.istan has $orne a su$sid" of @s.50.5 $illion on import of urea to $rin! the pri e of imported urea at par 4ith lo al produ ed urea and @s.47 $illions on natural !as used for feed sto . purpose in 2011%12 &+F,-) 2012*. #he avera!e retail pri e of urea in 6harif season has in reased $" 242 per ent in 2012%13 over 2005%06 4here it has in reased in @a$i season $" 232 per ent in 2012%13 over 2005% 06. #he onstant in rease in urea pri es has for ed the farmers to redu e urea appli ation 4hi h has dire tl" affe ted the 4heat produ tion loss of 4orth @s.7 $illion due to lo4er use of urea in the "ear 2012%13 in the ountr". 2 4ide irrational !ap $et4een ompan" and mar.et pri e on ea h produ t of fertilizer exists in the ountr" 4hi h is also one of the main fa tor for urea pri e hi.e. #he main ontri$utin! fa tors in urea pri e es alation are imposition of the '/#) '0,- and unpre edented !as urtailment poli " and irrational !ap $et4een fa tor" pri e and mar.et pri e of urea.

Way Forward #he follo4in! 4a" for4ards are proposed for improvin! urea produ tion and redu in! urea import in the ountr"= #he poli " of !as urtailment to urea industr" in (a.istan needs to $e readdressed $" ensurin! at least minimum reDuired !as suppl" for feed sto .s in !eneral and for plants lo ated at /+'(: in parti ular 4here these plants permanentl" losed due to shorta!e of !as. >r!ent efforts are reDuired to devise and a stud" and alternate me hanism alon!4ith reDuired time and tariff stru ture for provision of !as to urea industr" in the ountr" 4here '0,- funds an $e utilized for this purpose. #ar!eted su$sidies on urea import are proposed for small farmers onl") rather than all farmers throu!h fertilizer dealers5$an.s $" su$sid" ard s"stem. (rintin! of retail pri es on urea produ t is proposed for the ontrol of hoardin! and for the he . of $la . mar.etin!. 2doption of fool proof monitorin! me hanism is proposed for minimizin! the existin! 4ide irrational !ap $et4een ompan" and mar.et pri e of urea. 2$olishin! of '/#) '0,- and su$sid" on !as for feed sto . is proposed to minimize undue urea pri e hi.e in the ountr".

%e#erence
'A( &2013*. (a.istan E onomi /urve") 2012%13) 'overnment of (a.istan) Finan e ,ivision) E onomi 2dviser3s 7in!) 0slama$ad +F,-) &2006*. Fertilizer @evie4 2005%06) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2007*. Fertilizer @evie4 2006%07) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2008*. Fertilizer @evie4 2007%08) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2009*. Fertilizer @evie4 2008%09) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2010*. Fertilizer @evie4 2009%10) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2011*. Fertilizer @evie4 2010%11) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad +F,-) &2012*. Fertilizer @evie4 2011%12) +ational Fertilizer ,evelopment -entre) 'overnment of (a.istan) (lannin! and ,evelopment ,ivision) 0slama$ad /alam 2. &2012*. @evie4 of input and output poli " for ereals produ tion in (a.istan) environment and produ tion te hnolo!" division) 0nternational Food (oli " @esear h 0nstitute) 0F(@0 dis ussion paper 01223) +ovem$er) 2012.