Fertiliser sector shifts impact of duties, taxes

Increases consumer prices of urea and DAP, causing concern among farmers

KARACHI:

The fertiliser sector has shifted the weight of duties and taxes onto consumers by raising prices of urea and di-ammonium phosphate (DAP).

In the Finance Bill 2023, the fertiliser sector has faced the imposition of taxes and duties, which have now been passed on to consumers.

Federal excise duty (FED) was set at 5%, resulting in an impact of around Rs125-150 per bag of urea and approximately Rs470 per bag of DAP. However, a significant change was the removal of tax exemption on DAP without allowing differential claims.

Responding to the increased taxes, companies within the fertiliser sector have made efforts to pass on additional costs to consumers, said JS Global fertiliser sector analyst Waqas Ghani Kukaswadia.

Fauji Fertiliser Company (FFC) raised urea prices by Rs350 per bag, while Fauji Fertiliser Bin Qasim Limited (FFBL) made an increase of Rs162 per bag.

Both FFC and FFBL also announced DAP price hike of Rs480 per bag, effective from July 1, 2023.

Engro Fertilisers (EFERT) offset the impact of FED by raising urea prices by Rs174 per bag and DAP prices by around Rs332 per bag.

Highlighting the woes of farmers, Mahmood Nawaz Shah, Senior Vice President Sindh Abadgar Board (SAB), said “agriculture is already under stress and is still trying to recover from flood losses.”

Earlier, the government said that it would focus on agriculture in the budget, instead it burdened the sector with additional taxes, he added.

Urea and DAP are the highest and second highest fertilisers used in Pakistan, Nawaz explained. “The problem with urea is that while it is being produced in Pakistan with subsidised raw material, the grower is buying at a 15-25% premium. This will add to the cost of production.”

Commodities’ prices are not increasing at the same pace as the prices of inputs. This will not help in improving crop yields or support agriculture, he lamented.

Urea prices are at Rs3,212 per bag, according to the JS Global Research. Similarly, FFC and FFBL’s DAP prices are at Rs9,995 per bag and Rs10,045 per bag, respectively.

EFERT’s urea and DAP prices currently stand at Rs3,169 per bag and Rs10,114 per bag, respectively. Agritech and Fatima Fertiliser also jacked up prices to Rs3,277 per bag and Rs2,910 per bag, respectively

In addition to the tax-related developments, the budget also introduced pro-agriculture measures to manage food inflation and maximise export potential, stated Kukaswadia.

Allocations were made for research and development in agriculture, ensuring the availability of quality seeds, solarisation of tube wells, and financing for agricultural machinery.

The government has pledged to take prompt measures this year to prevent the agriculture sector from being adversely affected, as it was last year due to heavy rainfalls.

Kukaswadia, however, believes that anticipating a further escalation in input costs, the fertiliser sector has demonstrated resilience in promptly transferring the impact of duties and taxes. “This positions the industry well to pass on any future increases in input costs.”

With the previous gas price hike announced in February 2023 still lacking clarity, it becomes crucial for the fertiliser sector to prepare for potential adjustments.

“We believe the sector has the ability to effectively manage any future cost hikes and ensure its sustained stability,” he added.

Regarding urea sales, “we anticipate a significant growth in June 2023, with sales expected to reach 611,000 tons, reflecting a 33% sequential improvement,” the analyst mentioned.

Published in The Express Tribune, July 8^th, 2023.

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