LAHORE: Manufacturers have increased urea price by Rs80 per bag — with each bag to now cost farmers more than Rs1,900, adding to the ever-increasing cost of production of crops and woes of growers.

The Fauji Fertiliser Company, one of the major urea players, increased the rates on Sunday, fixing the price of a 50kg bag at Rs1,863. For granular urea, the price would now be Rs1,883 per 50kg bag, taking its price for farmers much beyond Rs1,900 per bag.

The other major players — Engro and Fatima Fertiliser — are also expected to follow suit. Though they had not formally announced any increase till the filing of this report, employees of both manufacturers were sure the next bookings would be made on fresh and increased, rates.

“Other manufacturers have no choice but to follow the increase,” says a decision-maker at Fatima Fertiliser. Of course, there can be no disparity in prices in the country as it would create harmful market distortions. So, others would follow the new rates very soon. Rather, this raise will take effect from the very next orders booked now, he believes.

“There may not be any immediate ripple in the market, as the demand for urea is at its lowest ebb right now,” explains one of the manufacturers. The next peak would arrive in June and July when cotton, cane and coarse rice would need its application. The government’s instructions to the industry are to maintain 200,000 tonnes of stock to absorb any panic attack on the market in such (rice raise) a situation. The industry is now in the process of building stocks. So, the next market test would come in the next four months, he says.

Explaining the drivers for the increase, a JS Global report maintains that “inflationary pressures, demand-supply situation and global fertiliser prices have long created expectations of urea price hike and recent developments i.e. commodity price boom along with local urea inventories dipping to 7,000 tonnes as of end February have further reinforced the same. Urea manufacturers have been patient over the years when it comes to price increments. As a result, a price increase was naturally long overdue as prices were last increased by the sector in August 2021”.

Waqas Ghani of JS Global further explains that previous increases in urea prices have mostly been caused by fluctuation in gas prices, not due to an increase in other factors such as packaging, wages, cost of wear and tear of the plant and general operation and maintenance charges. This time, the urea manufacturers seem to have covered these heads, he concludes.

“But, beyond the justification — justified or not — created and advanced by the manufacturers, the government needs to look at their wider implications for the agriculture sector,” said Khalid Khokhar of Pakistan Kissan Ittehad.

“We have been warning against a urea crisis for long, but every warning fell on deaf ears. Now, the crisis is here, and threatening to worsen as the Russia-Ukraine war will put further pressure on the world market, drive the prices up, lead to smuggling from Pakistan and make the local market and farming more vulnerable,” he warned.

Published in Dawn, March 15th, 2022