Fertiliser industry folks are warning of another price shock that could make food prices rise even higher. An industry group says the high price of imported urea and increases in gas prices could cause the average price of urea in local markets to shoot up by about 45% to around Rs5,500. News reports clearly place the blame at the government’s door, noting how the recent decision to import 225,000 tons of urea at Rs6,500 per bag backfired. After accounting for packaging and logistics expenses, the imported urea cost about Rs6,700 per bag, or almost 75% more than the prevailing average price at the time. Unsurprisingly, the government found no buyers, and is now leaning on the industry to help cover the difference.
Meanwhile, the recent retroactive approval of a gas price hike is not only going to make domestic output more expensive, but will also cause producers to potentially lose money on any stock that has been produced and sold since the retroactive start date of February 1. It also makes it almost certain that prices will not decrease unless the government intervenes directly. But there is little the government can do to intervene. While industry sources are quick to use India as an example of what could be done — urea for domestic use is heavily subsidised by New Delhi, with one bag costing only about Rs900 across the border — Islamabad is not in a position to issue any such subsidies. Neither can we afford it, nor will the IMF allow such a massively expensive intervention.
Imports are not a strong option either, because even though international prices have been swinging quite significantly in recent months, and we are less than two years removed from record-high prices of over $1,000 per tonne — prices today are around $400 per tonne. That means the only realistic option is to encourage more domestic output and help existing producers improve efficiency. Unfortunately, while these solutions will work, they will also take time, which is a luxury most farmers do not enjoy. In fact, under prevailing food prices, they would actually run losses on output, which could devastate small farmers and possibly cause social unrest.
Published in The Express Tribune, February 22nd, 2024.
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