In order to offset the cost of increased tariffs and taxes, the fertilizer industry in Karachi has increased the price of urea and diammonium phosphate (DAP) for consumers.
Taxes and tariffs imposed on the fertiliser industry by the Finance Bill 2023 have been passed on to buyers.
The impact of the 5% federal excise duty (FED) on the cost of a bag of urea is roughly Rs125-150, and the cost of a bag of DAP is almost Rs470. The elimination of tax exemption on DAP without permitting differential claims, however, was a major shift.
According to JS Global fertiliser sector expert Waqas Ghani Kukaswadia, corporations in the fertiliser sector have made steps to pass on additional costs to consumers in response to the increased levies.
Urea rates were increased by Rs350 per bag at Fauji Fertiliser Company (FFC) and Rs162 per bag at Fauji Fertiliser Bin Qasim Limited (FFBL).
DAP price increases of Rs480 per bag were also announced by both FFC and FFBL as of July 1, 2023.
To counteract the effects of FED, Engro Fertilisers (EFERT) increased the price of urea by Rs174 per bag and the price of DAP by roughly Rs332.
As Senior Vice President of the Sindh Abadgar Board (SAB) Mahmood Nawaz Shah put it, “agriculture is already under stress and is still trying to recover from flood losses.”
Despite earlier assurances that agriculture would be a priority in the budget, the government has instead imposed more taxes on the industry, he claimed.
According to Nawaz, Pakistan relies on urea and diammonium phosphate (DAP) more than any other fertilisers. While urea is made with subsidized raw materials in Pakistan, the producer still has to pay a 15-25% premium for it. The production cost will rise as a result of this.
The price of commodities is not rising as quickly as the cost of production. He complained that this would not assist increase agricultural productivity.
According to JS Global Research, the price of a bag of urea is currently Rs3,212. The pricing of DAP at FFC is Rs9,995 per bag and at FFBL it is Rs10,045.
Urea is currently priced at Rs3,169 a bag, while DAP costs Rs10,114. Both Agritech and Fatima Fertiliser have increased their pricing, with the former now charging Rs3,277 per bag and the latter Rs2,910 per bag.
Kukaswadia said that the budget included pro-agriculture initiatives to curb food price increases and increase exports in addition to the tax reforms.
Budgets were set aside to support agricultural R&D, guaranteeing access to high-quality seeds, solarizing water systems, and purchasing farming equipment.
The administration has promised to act quickly this year to ensure that agriculture is not harmed by excessive precipitation as it was in 2017.
Kukaswadia, on the other hand, thinks the fertiliser industry has shown resilience by swiftly transferring the burden of customs and taxes, despite expecting a further escalation in input costs. That puts the industry in a good position to recover from any future increases in input costs by raising prices.
As uncertainty persists about the gas price increase planned in February 2023, it is critical that the fertiliser industry get ready for future adjustments.
Moreover, “we believe the sector has the ability to effectively manage any future cost hikes and ensure its sustained stability,” he said.
“we anticipate a significant growth in June 2023, with sales expected to reach 611,000 tons, reflecting a 33% sequential improvement,” the analyst said of urea sales.
