Urea import

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The government plans to import some 200,000 tonnes of urea ahead of the kharif season to mitigate any possible fertiliser shortages caused by the war in Ukraine, which has already taken a significant toll on global supply chains. The Ministry of industries and production will move a summary for the import at the next Economic Coordination Committee meeting. The ministry hopes to ensure reserves of about 200,000 tonnes of urea by the time the kharif crop sowing season begins in May. This, however, may be an uphill task. According to fertiliser manufacturers, Pakistan’s total output is around 600,000 tonnes a month, but reserve stocks at plants are negligible due to high demand.

Holding back one-third of a month’s total output appears out of the question unless the manufacturers’ major gripe is addressed. That gripe is urea smuggling, or more precisely, the lack of effective measures taken to curb the smuggling of urea. So far, the government’s approach has been to ensure that urea is cheaper in Pakistan than in international markets, thus protecting the local industry by making fertiliser smuggled from abroad unprofitable, or at least less profitable. However, this is not a solution at all, because urea smuggling in Pakistan is export-oriented, with smugglers exporting fertiliser from the local market. Afghanistan and a few other Central Asian countries are popular destinations because the local prices are significantly higher than in Pakistan. The prices of urea in Pakistan are about 25% less than in international markets, which is already a healthy profit margin for unscrupulous elements.

In fact, this is also a major reason why Pakistan needs to import urea in the first place. Local production averages about 6.5 million tonnes a year, against demand for 6.1 million tonnes during the kharif and rabi crop seasons. Under normal circumstances, this margin would have easily allowed the government wiggle room to arrange higher reserve stocks, but because of smuggling abroad, we still face local shortages, forcing us to spend precious foreign exchange on imports and burdening the national exchequer with the weight of further subsidies. Unfortunately, the federal government has for decades appeared hopeless when it comes to stopping such smuggling, choosing instead to throw money — which we don’t have — at the problem.

Published in The Express Tribune, March 12th, 2022.

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