Alarming controversy over urea prices

Attention: open in a new window. PDFPrintE-mail

Though the federal government has succeeded in getting the price printed on the urea bags this March, the first month of printing has brought its own confusion in the market. No one knows whether the price of Rs1,786 per bag, which the federal government made the industry print on bags, is ex-mill, dealers’ transfer or farmers’ price. The last two components have their own margins, which are added to ex-mill price to reach final sale price for farmers. The urea is disappearing from the market because the sale has stopped making commercial sense for the field sellers.

The confusion was created when after two meetings with the federal minister for industries and finance minister on the issue, the industry publicly insisted that the printed figure only represented ex-mill price and the dealers’ margin, usually around Rs40 per bag, has to be added to it (taking price to Rs1,824 per bag).

On local transportation head, districts officers usually add another expense of Rs5 to Rs10 per bag to reach the sale price. The final figure thus reached between Rs1,830 or Rs1,835 per bag. The sale price in most parts of the province during March was around that figure.

On its part, the federal government also went public saying that agreed price was Rs1,786 per bag and anything above that figure is illegal fleecing. The farmer naturally reacted sharply and created hue and cry on the issue. Once the farmers protest grew louder, Punjab, on its part, checked with the federal government.

After receiving a letter from the federation in this regard, the Punjab Government insisted that final (for farmers) price is Rs1,786, inclusive all other margins and it must be sold at that price.

In order to ensure the price, it constituted a high-level committee – comprising chief secretary, inspector general police and home secretary – to monitor the market. It has also activated the provincial machinery to ensure price; so far, it has lodged more than 50 first information reports (FIRs) against defaulting dealers and slapped over Rs2 million fines. The process was vigorously going on till the writing of these lines.

The net result of this tug of war, where both parties are claiming to be right, has been obvious: urea has started disappearing from the market. Neither the industry nor the government is ready to create dealers’ margins and transportation charges. And the dealers have stopped purchasing and selling fertiliser.

Even the official sale points have gone dry. Out of total opening Kharif inventory of 370,000 tonnes, National Fertiliser Marketing Limited (NFML) is holding around 330,000 tonnes at its four or five main centres in different parts of the province. With official price announcement, it is also selling fertiliser at Rs1,786 per bag. Anyone purchasing the fertiliser from the centres has to add his own profit and transportation cost in 50 kilometers radius that these centres serve. The sales, even at NFML are drying; at least, their officials concede the drop.

In order to solve this problem, the government needs first determine how conflicting signals came out of the two meetings held between the federal ministries and the industry. How the industry concluded that it was determining only ex-mill price whereas the government concluded that it was fixing the farmers price.

None other than the Federal Finance Minister Ishaq Dar later wrote to the Punjab Government that it was farmers price, including all other profit and expenses margins that should be ensured through administrative steps, and ruthlessly if the need be. That is why the Punjab constituted such a high-level committee to ensure price and also activated district managements as well.

Fortunately, the industry is reviving on the basis of gas restoration to it after months of total or partial closure. According to the National Fertiliser Development Centre, the industry was able to increase its production by 18pc during February – it produced 362,000 tonnes of urea against 306,000 tonnes same month last year.

The industry is expecting to produce some 2.6 million tonnes of urea this Kharif if it continues getting gas. With total demand hovering around 2.9 million tonnes and import of 125,000 tonnes already allowed and due in next three months, the country may not face much of shortage.

Forex open Market rates & comments Archive

Login Form