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The Fertilizer sector in Pakistan- Mubarak Ali

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The Fertilizer sector in Pakistan- Mubarak Ali

  1. 1. Pakistan’s Fertilizer Sector: Structure, Institu tion, Performan ce and its Impact Dr. Mubarik Ali CEO, Punjab Agricultural Research Board (PARB) September 20, 2013
  2. 2. Overview of the sector  Value of fertilizer: USD 3.8 b  # Processing firms: 8  Production Capacity:10 mt  N = 3.80 m t (66.7%)  P = 0.786 m t (55.4%)  K= 0.017 m t (58.8%)  Off take in m t (Imports)  N – 3.206 (27%)  P – 0.633 (46%)  K – 0.021 (71%) DAP, NP, SSP Urea CANSource: National Fertilizer Development Centre  Per ha Availability (kg):  N = 123  P = 27  K = 1  NPK Ratio  Actual: 1:0.15:008  Desired: 1:0.5:0.25
  3. 3. Urea Production Share by Firm Source: National Fertilizer Development Corporation, Engro Pakistan 38% 8% 33% 7% 1% 7% 6% Urea Production share Fauji Fertilizers (Goth Machi) Fauji Fertilizers (Bin Qasim) Engro Fatima Pak Arab (Multan) Agri Tech (Mianwali) Dawood Hercules (Skp) Only FF produces DAP
  4. 4. Urea and Phosphate Market Share by Firm 44% 9% 27% 6% 9% 5% Urea Market share Fauji Fertilizers National Fertilizer Marketing Ltd. Engro Fertilizers Dawood Hercules Reliance Group Source: National Fertilizer Development Corporation, Engro Pakistan The above diagram indicates the share of imported P which was 46% during 2011-12. Remaining 54% is marketed by FFC.
  5. 5. Yield Response of Fertilizers Source: Soil Fertili Research Institute 1500 2000 2500 3000 3500 4000 4500 5000 0 40 80 120 160 200 240 Yeild(kg/ha) N levels (kg/ha) Fertilizer (Nitrogen) Requirements of Wheat in Irrigated Areas 230 2000 2500 3000 3500 4000 4500 5000 5500 0 40 80 120 160 200 240 Yeild(kg/ha) P2O5 Levels (Kg/ha) Fertilizer (Phosphorus) Requirements of Wheat in Irrigated Areas 190 1000 2000 3000 4000 5000 0 40 80 120 160 200 240 Yeild(kg/ha) N level (kg/ha) Fertilizer (Nitrogen) Requirements of Wheat in Barani Areas 14090 Optimum 1000 2000 3000 4000 5000 0 40 80 120 160 200 240 Yeild(kg/ha) P2O5 Levels (Kg/ha) Fertilizer (Phosphorus) Requirements of Wheat in Barani Areas 160 60 Optimum 140 Optimum Optimum Maximum Maximum Maximum Maximum 100
  6. 6. International vs. Domestic Prices Source: National Fertilizer Development Corporation 0 0.2 0.4 0.6 0.8 1 1995-96 2000-01 2005-06 2010-11 $/kg Nitrogen 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1995-96 2000-01 2005-06 2010-11 $/kg Phosphorus
  7. 7. International Competitiveness Source: National Fertilizer Development Corporation, OGRA, Planning Commission of Pakistan 0 100 200 300 400 500 600 700 $/ton Urea Prices International prices Domestic Prices Domestic prices+charges Domestic prices+subsidy Domestic prices+charges+subsidies Subsidy on Feed Gas during 2011-12 = Rs. 59 b
  8. 8. Possibility of Regional Trade 0 50 100 150 200 250 300 350 400 450 500 $/ton Subsidized Retail Price 0 100 200 300 400 500 600 $/ton Unsubsidized retail price
  9. 9. Regulatory Environment  Regulated under the Essential Commodity Act (ECA), amended in 1973  Granted complete power to controllers to implement the Act  Resulted in barriers to entry:  Concentration of industry in few hands  Big investment is required to compete  Support Services:  NFDC collects data, bring stakeholders together, formulate policies  SFRI conducts long term fertilizer experiment by crops and eco-regions, tests new materials and develop their standards, helps farmers to adjust fertilizer doses, and help regulators through test and reference labs  Availability of credit
  10. 10. Empirical Findings of Demand Estimation  Dependent variable: Fertilizer use for N and P (kg/ha)  Major factor  Price Elasticity:  N: -0.17  P: -0.004  Other significant demand determinants:  Presence of irrigation water (+)  Farm size (-)  Education (+)  Access to off-farm income (-)  Fertile soils (+)
  11. 11. Issues in Fertilizer Sector  Too much regulation  Restrictive rules have created cartel in processing and marketing  Abnormal profits, especially during shortage period  Public sector control on urea imports (mismanagement creates shortages)  Gas shortage creates 35% underutilization of capacity  Uncertain supply increased operational cost  No mechanism of transferring gas subsidy to farmers  Fertilizer subsidy affecting whole Free Trade Regime  Suboptimal NPK ratio promoted through subsidy on N  Emphasis on more rather than efficient use of fertilizer  N use is fast reaching to the optimal level  No innovation in developing new efficient products  Efficient methods of application has not been explored  Resource degradation induced by intensification
  12. 12. Soil Depletion Source: Soil Fertility Research
  13. 13. Declining Fertilizer Use Efficiency 0 5 10 15 20 25 30 35 40 1980-81 1990-91 2000-01 2010-11 Kgproductionperkgoffertilizeruse Ratio of Yield/ fertilizer use Wheat Rice Cotton Source: NFDC
  14. 14. Recommendations  Processing  Gas distribution proportionate to capacity and modernization  Gas subsidy only in high int’l price situation, with clear mechanism of how to reflect it in prices  Clear gas schedules  Marketing  Relaxation of rules to allow small companies in marketing  Deregulation of imports and Govt. out from marketing even if it is only for imports.  Clear standards and their implementation for new products, such as manures, micronutrients, etc.  Use in Production  Develop efficient fertilizer use and application  Test and promote efficient and environment friendly fertilizer products  More responsive crop varieties  Computer-based models to determine fertilizer use according to land resources  Stocks  Specified stock of fertilizer preserved to be released for crisis period
  15. 15. Thank you!

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