Professionalism and excellent manufacturing practices coupled with the government’s initiatives including availability of raw materials for fertilizer manufacturing are the main factors which led to increase in fertilizer production in Pakistan in 2016. 

This additional fertilizer has not only succeeded in overcoming the domestic shortfall but has created a window of opportunity to export and earn foreign exchange for Pakistan.

Gas as a natural resource offer the best value addition when it is used in manufacture of fertilizer, whereas, mostly this precious commodity is consumed as fuel. The fertilizer sector uses natural gas as the basic feed ingredient in manufacture of fertilizer and has no alternate input to replace gas.

The decision of government to correctly use the natural gas for the best possible outcome for the country is a step in a right direction. The surplus urea can currently fetch a fairly good price in the international market. Hence, the government has allowed the export of 0.3 Million Tonnes of surplus fertilizer without disturbing the local market or destabilizing domestic prices. Experts believe that this is a good strategic decision because exporting excess urea is an opportunity dictated by the market dynamics and this policy must continue whenever market conditions allow.

The international trading price of urea has gone up by 42% since July 2016, reaching about $240/$250 per ton, while Pakistan’s cumulative urea inventory is expected to grow to 1.8Million Tonnes by the end of 2017. As the country’s production has risen to 6 Million tonnes against a demand of only 5.6 Million, Pakistan has recently changed from a urea-deficit country, into a urea-surplus country. So, the domestic prices of urea are expected to remain stable and affordable, while the prices of imported fertilizers are on the rise.

Historically fertilizer industry has always provided special relief to domestic farmers against the international market prices. It is only the recent history of 2015-16 which shows that international fertilizer prices came down as compared to domestic prices. This phenomena was result of patronage of international fertilizer producers by their respective governments in form of gas prices differential and special relief in taxes etc. In Pakistan the urea producers are getting gas at price almost touching $5 per MMBtu and the international producers are getting the gas at approx. at $2.5 per MMBtu. Moreover multiple taxation system in Pakistan took away initiative from the domestic fertilizerproducersof providing affordable fertilizer in comparison to imported fertilizer.

The turnover was only possible through joint government-domestic fertilizer producers’ partnership for the benefit of farmers and agro-economy of Pakistan. The government seems to have realized the situation and as a first step has granted a much needed subsidy on fertilizers, while also reducing the General Sales Tax (GST) on fertilizers from 17% down to only 5%. Experts feel that the Sindh High Court’s ruling against the imposition of ‘Gas Infrastructure Development Cess’ (GIDC) – a special tax on the fertilizer industry will have a positive effect on the industry.

The experts also view a positivity in agro-economy of Pakistan through multi-pronged initiatives by the government and the input providers. The market forces will provide stability to the domestic fertilizer prices, and earnings from export will once again enable the fertilizer producers to reach a position where they can position themselves to live up-to their history of providing affordable fertilizer in Pakistan as compared to increasing international prices.