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Rising cost of cropping

Fertilizer industry needs government’s support in providing food security to over 180 million people of Pakistan

Rising cost of cropping

Pakistan ranks among top 10 agrarian countries of the world. Some 67 per cent of the country’s population, residing in rural areas, is directly or indirectly dependent upon agriculture for their livelihood. Accounting for about 25 per cent of GDP and employing about 43 per cent of the country’s labour force, agriculture is very rightly called the backbone of the country’s economy. Quite naturally, the issue of food security remains a subject of immense importance for a country like Pakistan.

According to FAO (Food and Agriculture Organization of the UN), Pakistan is one of the ten major producers of wheat in the world. Pakistan is the world’s 4th largest producer of cotton crop as well as fruits like mango and dates. In the production of citrus fruit, Pakistan occupies 13th position amongst some 100 citrus producing countries in the world. Pakistan grows enough high quality rice to meet both domestic demand and allow for exports of around one million tons per annum.

Pakistan uses some 22 million hectares of its total land area of 80 million hectares for crop production. About 18 million hectares or 80 per cent of its cultivated land is irrigated, while the remainder is under arid farming.

The importance of agriculture in an agrarian country like Pakistan cannot be underscored since after feeding its population, Pakistan exports the surplus quantity (quantity over and above its domestic requirement) of wheat, rice, pulses, fruits and vegetables to friendly countries.

High quality of seeds, superior fertilizers, abundant water supply, sunshine and timely use of pesticides ensure good crops. Of these variables, for maximizing per acre yield of agricultural crops, fertilizer is one of the most essential inputs, along with modern techniques in seed and technology development, which need continuous updating. According to agriculture experts, intensive cropping leads to the depletion of soil nutrients, hence there is a need to replenish the soil through proper use of fertilizers to increase crop production and meet the food demand of the growing population.

This brings to the fore the need for sustained supply of quality fertilizer to the farming community at affordable cost so that Pakistan could increase per acre yield to levels already achieved by many other countries. This challenge can be met only when fertilizer industry is allowed a level playing field vis-à-vis other sectors and gas distribution is done to all on a judicious and justified basis with focus on the country’s future.

Unfortunately, over the years, Pakistan’s fertilizer sector has been suffering due to the shortage of gas which is essential raw material for the production of urea fertilizer. Short supply of gas has resulted in idle-capacity, restricting local urea production. Against an annual local demand for six million tons, Pakistan’s fertilizer industry has a cumulative installed capacity of producing 6.9 million tons, but due to short supply of gas only four million tons is being produced for the last couple of years.

The country has been meeting the deficit by importing urea fertilizer at high cost. Finalising the first of its three import tenders for urea fertilizer, the state-run Trading Corporation of Pakistan (TCP), on August 17, 2015, awarded a contract for the import of 50,000 tons of urea fertilizer to a Chinese company at $294.7 per ton. The TCP will reportedly close two further tenders for 50,000 tons each before the close of the third week of August, this year. Earlier, tenders for the import of a further 150,000 tons of urea fertilizer were issued in July (last month). To bridge fertilizer shortfall, the TCP imported a total of 747,398.95 tons of urea fertilizer in the last seven months — December to June, 2015. Farmers estimate that they required at least 2.8 million tons of fertilizer in the winter season.

Import of urea fertilizer acted as a heavy drain on the meagre foreign exchange resources of the country. For instance, from 2010-2012 Pakistan spent $1.5 billion on importing 3.4 million tons of urea besides paying a subsidy of around Rs80 billion to the local farming community. If the fertilizer sector is supplied requisite quantity of gas, the precious foreign exchange, at present being spent on the import of urea fertilizer, could be saved or utilised for launching industrial development projects of vital nature, like those required for meeting the growing energy needs of the country.

While a majority of the industries, except fertilizer sector, burn gas solely as fuel without any value addition, gas remains the basic raw material for producing urea fertilizer, thus adding value to gas. A higher domestic production of urea could save precious foreign exchange, which would otherwise be spent on importing costly fertilizers. On the other hand, any shortfall in the domestic production of urea brings a sharp decline in the agricultural output, directly hurting the poor farmers and the national economy.

Understandably, most of the agrarian countries around the world give subsidy on inputs to their agricultural sector. However, Pakistan unfortunately is one of the few countries where taxes, like GST and GIDC, are imposed on agricultural inputs.

Pakistan’s fertilizer sector contributes to the national economy in multiple ways. For example, it not only provides urea to the agricultural community at affordable prices, it also saves precious foreign exchange on the import of the commodity and substantially contributes to community-beneficial CSR activities. Pakistan’s two leading fertilizer companies FFC (Fauji Fertilizer Company Limited) and Engro alone contribute heavily towards meeting the health and education needs of the deprived segments of the community in addition to coming to the rescue of the people affected by natural calamities, like floods, earthquakes or droughts etc. Besides, FFC provides free of cost agri-services to help farmers improve their production. These services have played an important role in increasing per acre yields and improving the lot of farmers.

It goes without saying that a transparent, forward looking and mutually beneficial taxation system is essential in business environment. Therefore, any percentage of GIDC proposed to be imposed on a sector should have clear relevance with the amount of gas percentage being promised to that sector for which it is paying this gas infrastructure development tax in future distribution of gas.

It must be remembered that any business would only flourish through transparency and confidence in the government policies. Therefore, the government policies need to protect the interests of all stakeholders. Transparent and equal distribution of taxes ensured by the government provides a level playing field which is like blood for sustenance and growth of business. The related ministries need to update their policies and even jack-up existing policies to see that farm sector keeps playing its role in providing food security to over 180 million people of Pakistan.

Alauddin Masood

alauddin masood
The writer is a freelance columnist based at Islamabad. He can be reached at [email protected]

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