Pakistan’s Fertilizer Sector: Structure, Institution, Performance and its Impact

Dr. Mubarik AliCEO, Punjab Agricultural Research Board (PARB)

September 20, 2013

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

Urea Production Share by Firm

Source: National Fertilizer Development Corporation, Engro Pakistan

37%

8%

33%

7%1%

7% 6%Urea Production share

Fauji Fertilizers (Goth Machi)Fauji Fertilizers (Bin Qasim)EngroFatimaPak Arab (Multan)Agri Tech (Mianwali)Dawood Hercules (Skp)

Only FF produces DAP

Urea and Phosphate Market Share by Firm

45%

9%

27%

6%

9%5%

Urea Market share

Fauji Fertilizers

National Fertilizer Marketing Ltd.

Engro Fertilizers

Dawood Hercules

Reliance Group

AgriTechSource: 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.

Yield Response of Fertilizers

Source: Soil Fertility Research Institute

0 40 80 120 160 200 2401500

2000

2500

3000

3500

4000

4500

5000

Fertilizer (Nitrogen) Require-ments of Wheat in Irrigated

Areas

N levels (kg/ha)

Yeild (

kg/h

a)

230

0 40 80 120 160 200 2402000

2500

3000

3500

4000

4500

5000

5500

Fertilizer (Phosphorus) Re-quirements of Wheat in Ir-

rigated Areas

P2O5 Levels (Kg/ha)Yeild (

kg/h

a)

190

0 40 80 120 160 200 2401000

2000

3000

4000

5000

Fertilizer (Nitrogen) Requirements of Wheat

in Barani Areas

N level (kg/ha)

Yeild (

kg/h

a)

14090Optimum

0 40 80 120 160 200 2401000

2000

3000

4000

5000

Fertilizer (Phosphorus) Re-quirements of Wheat in Barani

Areas

P2O5 Levels (Kg/ha)

Yeild (

kg/h

a)

16060

Optimum

140Optimum

Optimum

MaximumMaximum

Maximum Maximum

100

International vs. Domestic Prices

Source: National Fertilizer Development Corporation

1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 20

0.2

0.4

0.6

0.8

1Nitrogen

$/k

g

1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 20

0.20.40.60.8

11.21.41.6

Phosphorus

$/k

g

International Competitiveness

Source: National Fertilizer Development Corporation, OGRA, Planning Commission of Pakistan

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

2009

-10

2011

-12

0

100

200

300

400

500

600

700

Urea Prices

International pricesDomestic PricesDomestic prices+chargesDomestic prices+subsidyDomestic prices+charges+subsidies

$/t

on

Subsidy on Feed Gas dur-ing 2011-12 = Rs. 59 b

Possibility of Regional Trade

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

0

50

100

150

200

250

300

350

400

450

500Subsidized Retail Price

$/t

on

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

0

100

200

300

400

500

600Unsubsidized retail price

$/t

on

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

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 (+)

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 Declining fertilizer use efficiency, profits, TFP growth

Soil Depletion

Source: Soil Fertility Research Institute

Declining Fertilizer Use Efficiency

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

2006

-07

2008

-09

2010

-11

0

5

10

15

20

25

30

35

40

Ratio of Yield/ fertilizer use

WheatRiceCotton

Kg

pro

du

cti

on

pe

r kg

of

fert

iliz

er

use

Source: NFDC

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

Thank you!